M/S. MGI COUTIER EXOTECH INDUSTRIES PVT.LTD,,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,,

As regards the other item of reconciliation of rent from VEAPL for the last 3 months, it is seen that the assessee has reversed the entry of rent for the months of January, February, and March, 2010 @ Rs.50,400/- per month. This shows that the assessee recorded the rental income at gross of TDS but the difference arose on account of reconciliation towards inclusion of service tax in the amount of rental figure considered by the AO and non-exclusion of rent for the last 3 months for which necessary reversal entry was passed in the ledger account for the M/s. MGI Coutier Exotech Industries Pvt. Ltd., same year which got ignored at the hands of the authorities below. Since proper reconciliation between the figures of rent as

The second ground raised in this appeal is against the confirmation of disallowance of Rs.3,50,990/- by treating the interest paid to Excise authorities as Penalty. The facts of this ground are that the assessee debited a sum of Rs.3,50,990/- on account of interest on service tax and excise duty. On being called upon to justify the deductibility, the assessee submitted that the Central Excise Revenue Audit (CERA) was conducted by the Excise authorities for the financial year 2008-09 during the course of which it was discovered that interest was payable by the assessee company. As the interest payment was not in the nature of penalty, which was evident from the copies of the challans, the assessee pleaded that it was compensatory and not penal in character and hence deductible. Not convinced, the AO

We have considered the rival submissions and perused the relevant material on record. The assessee tried to establish the nature of payment as interest with the help of certain documents in the second paper book, which were not filed with the lower below. Admittedly, the documents in the second paper book are new documents, which were not there before the authorities below. In view of the fact that such documents have not been considered by the AO/CIT(A), we are of the considered opinion that it would be in the fitness of things if the impugned order on this issue is set aside and the matter is restored to the file of the AO for deciding this issue afresh as per law. In case the nature of payment is found to be compensatory, the deduction should be allowed. In case it turns out to be penalty, the addition should be made. Needless to say, the assessee will be allowed an opportunity to put forth its case with the help of necessary evidence/documents.

Ground Nos. 3 and 4 are inter-connected. The assessee has challenged the confirmation of addition of Rs.15,52,274/-

During the course of assessment proceedings, the AO observed that the assessee incurred Prior period expenses to the tune of Rs.15,52,274/-, which were debited to the Profit and loss account. On perusal of the Computation of total income, the observed that such an amount was not added back. On being called upon to explain, the assessee submitted that Prior expenses of Rs.15.52 lakh were not added back in the original return but were subsequently added back in the revised return filed. The AO did not concur with the assessee’s submission and made the addition. The ld. CIT(A) affirmed the addition and thereafter also made a further addition of Rs.12,87,391/- towards Prior period expenses in the accounts for the A.Y. 2011-12.

We have heard the rival submissions and gone through the relevant material on record. We have examined the computation of income filed along with the revised return, from which it is apparent that the assessee suo motu added back a sum of Rs.15,52,274/- as `Prior period expenses’. Since the amount of `Prior period expenses’ has been added back by the assessee

Now we come to the enhancement made by the ld. CIT(A).

Ground No.5 and the additional ground relate to the disallowance u/s.14A. The additional ground raised by the assessee, being, legal in nature is hereby admitted in view of judgment of Hon’ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC).

The factual matrix of the ground is that the assessee offered disallowance u/s.14A to the tune of Rs.1,20,025/-. The AO invoked Rule 8D and computed the disallowance under sub-rule (ii) and (iii) at Rs.2,48,952/- and Rs.1,14,403/- respectively. The additional disallowance to the tune of Rs.2,43,330/- was made by the AO. The assessee contended before the ld. CIT(A) that no exempt income was earned during the year and hence, even the suo motu disallowance inadvertently offered by the assessee

We have heard both the sides and perused the relevant material on record. Page 59 of the impugned order categorically records the contention of the assessee that no exempt income was earned during the year. Such a contention has not been controverted by the ld. first appellate authority. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act.

The ld. AR has invited our attention towards the balance sheet of the assessee, which indicates that the Shareholders’ fund was many times higher than the amount of Investments.

Ground No.6 is against the confirmation of disallowance of depreciation amounting to Rs.5,79,899/- on new Plant and machinery. The AO observed during the course of assessment proceedings that four items of Plant and machinery, namely, Spin Welding Machine; Leakage Testing Machine; Design and Detailing of Fuel Rail; and Injection mould for Fuel Rail Body were purchased by the assessee vide bills dated 31-03-2010 for a total sum of Rs.77.31 lakh. The claim of the assessee for depreciation at 7.5% on the above purchases was jettisoned on the ground that it failed to prove that the machines purchased on the last day were also put to use on the same day. The ld. CIT(A) affirmed the action of the AO.

Having heard the rival submissions and gone through the relevant material on record, it is observed that the assessee

Ground No.7 is against the confirmation of addition of Rs.13.00 lakh towards Design and development charges from Mahindra & Mahindra. During the course of assessment proceedings, the AO observed that TDS certificate issued by Mahindra & Mahindra indicated payment of Rs.13.00 lakh to the assessee towards technical services on which deduction of tax at source was made u/s.194J for a sum of Rs.1,30,000/-. On being called upon to explain as to where this amount was offered as M/s. MGI Coutier Exotech Industries Pvt. Ltd., income, the assessee submitted that it was included in the figure of Sales. Certain details were also placed on record to establish the fact. Not convinced, the AO held that income from professional and technical services was nowhere reflected. He, therefore, made the addition for the said sum, which came to be affirmed in the first appeal.

We have heard the rival submissions and perused the relevant material on record. The assessee has set out a case that it raised an Invoice dated 01-07-2009 on Mahindra Renault Pvt. Ltd. amounting to Rs.17,47,949 inclusive of Service tax. Out of this sum, Mahindra Renault Pvt. Ltd. paid a sum of Rs.13.00 lakh to the assessee after deducting tax at source. To bolster its submission, the assessee placed on record a copy of ledger account of Mahindra Renault Pvt. Ltd. in its books of account for the year under consideration in the additional paper book at page Ltd. was not before the authorities below as it constitutes a part of the Additional paper book. Under such circumstances, we are of the considered opinion that it would be in the fitness of the things if the impugned order on this score is set aside and the M/s. MGI Coutier Exotech Industries Pvt. Ltd., matter is restored to the file of the AO. We order accordingly and direct him to examine the assessee’s claim of inclusion of Rs.13.00 lakh in the figure of sales which is a part of that invoice raised on Mahindra Renault Pvt. Ltd. for a sum of Rs.17.47 lakh.

Ground No.8 is against not allowing deduction of Rs.14,400/-, being, expenditure incurred for the business relating to the assessment year 2010-11 and charged as Prior period expense in the accounts for the A.Y. 2011-12. There is no discussion on this issue in the assessment order. The ld. CIT(A), while dealing with ground No.16 raised before him urging that the sum of Rs.14,400/- was actually paid by the assessee during the year though relating to preceding year but booked under the M/s. MGI Coutier Exotech Industries Pvt. Ltd., head prior period expenses, held that the assessee did not submit any evidence that the amount pertains to which assessment year.

We have gone through the relevant material on record. The claim of the assessee is that the sum of Rs.14,400/- pertains to preceding year which was in the nature of tax/duty not paid but deduction was claimed on actually paying it in the year under consideration. There is no doubt that if some tax payable for the preceding year was disallowed by the assessee/AO for non- payment and the same is paid during the subsequent year, such an amount can be claimed as deduction in the year of payment.

Ground No.9, dealing with computation of book profit u/s.115JA, was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed.

In the result, the appeal is partly allowed.