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

आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee arises out of the order passed by the CIT(A)-7, Pune on 30-09-2016 in relation to the assessment year 2010-11. 2. The first ground is against the taxability of Rs.2,47,818/- as ‘Income from house property’. 3. Briefly stated, the facts of the case are that the assessee credited rental income in its Profit and loss account to the extent of Rs.11,67,940/-. It claimed to have earned rental income from

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two parties, namely, Rs.5,63,347/- from Voss Exotech

Automotive Pvt. Ltd.(VEAPL) and Rs.6,88,335/- from Exotech

Zaini Industries Pvt. Ltd. The AO observed that the assessee

actually received a sum of Rs.8,10,958/- from Exotech Zaini

Industries Pvt. Ltd. (EZIPL) and Rs.6,04,800/- from Voss

Exotech Automotive Pvt. Ltd. totaling to Rs.14,15,758/-. He

held that the differential amount of Rs.2,47,818/- (Rs.14,15,758

minus Rs. 11,67,940) was on account of TDS on rent which was

not shown as income. He thus held that the rental income was

underreported to that extent inasmuch as the rental income ought

to have been shown at gross value rather than net of TDS. The

assessee furnished necessary details before the ld. CIT(A)

contending that the rental income was shown at gross basis and

also reconciled the difference in the figures on two counts. First,

that the rent of Rs.1,51,200/- for the last 3 months was wrongly

included in the rental income but the reversal entry was passed

on 31-03-2010, which the AO ignored. Second, the AO

considered the figure of rent as inclusive of service tax. Not

convinced, the ld. CIT(A) upheld the action of the AO on this

score.

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material on record, it is seen from page 12 of the impugned order

that the assessee received one month’s rent at Rs.55,591/- from

VEAPL at gross level, whose breakup has been given there itself

with rent of Rs.50,400/- and service tax at 10% on Rs.5,191/-.

The assessee properly considered rental income of Rs.50,400/-

for each month in its ledger account, copy of which has been

placed at page 26 onwards of the paper book. It is clear that the

amount of service tax cannot be considered as part of the

assessee’s rental income which has to be deposited with the

exchequer.

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

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same year which got ignored at the hands of the authorities

below. Since proper reconciliation between the figures of rent as

per the Profit and loss account and the amount at the gross value

has been made, which is apparent from the ledger account of rent

in the books of the assessee, we hold that the addition of

Rs.2,47,818/- is not justified, which is directed to be deleted.

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

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made the addition of Rs.3,50,990/-, which came to be affirmed

in the first appeal.

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.

challenged the confirmation of addition of Rs.15,52,274/-

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through ground No.3 and enhancement of Rs.12,87,391/- in

ground No.4, both relating to the `Prior period expenses’.

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.

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

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itself in the computation of income in the revised return, making

of the addition would lead to double disallowance, which is

obviously not permissible. We, therefore, direct to delete the

addition of Rs.15,52,274/-.

The assessee claimed deduction of Rs.12,87,391/- in its

computation of total income which was claimed as `Prior period

expenses’ for the succeeding year. The ld. CIT(A) held that this

amount could not be allowed as deduction. We have examined

the computation of total income for the succeeding year, whose

copy is available in the paper book. As can be seen, the assessee

made suo motu disallowance of `Prior period expenses’ in the

computation of total income for the succeeding year, at Rs.10.35

lakh. As against that, the assessee has claimed deduction in this

year on account of `Prior period expenses’ in the succeeding

year at Rs.12.87 lakh. `Prior period expenses’ accounted for in

the succeeding year cannot be allowed as deduction in such later

year as they pertain to the earlier year. As such, there can be no

embargo in claiming deduction for such an amount in the earlier

year, to which they actually pertain. In the facts of the case, the

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differential amount of Rs.2.35 lakh (Rs.12.87 lakh claimed as

deduction during the year minus Rs.10.35 lakh offered as

disallowance in the next year) is excessive deduction in the total

income for the year under consideration relating to the `Prior

period expenses’ accounted for in the succeeding year. We,

therefore, restrict the disallowance to Rs.2.52 lakh. Thus,

ground No.3 is allowed and ground No.4 is partly allowed.

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).

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

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was required to be reversed. Not convinced, the ld. CIT(A)

affirmed the addition.

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.

Similar view has been taken by the Hon'ble Delhi High Court in

CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. More

recently the Hon’ble jurisdictional High Court in Pr. CIT VS.

Kohinoor Projects Pvt. Ltd. (2020) 425 ITR 700 (Bom) has held

that in the absence of any exempt income, there cannot be any

disallowance of expenses u/s 14A of the Act.

sheet of the assessee, which indicates that the Shareholders’ fund

was many times higher than the amount of Investments.

Notwithstanding the fact that the assessee mistakenly admitted

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disallowance to the tune of Rs.1,20,025/-, the addition made by

the AO and the disallowance offered by the assessee cannot be

sustained because the assessee did not earn any exempt income

during the year and further its Shareholders’ fund was much

more than the amount of Investments. We, therefore, allow

ground No.5 as well as the additional ground.

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.

relevant material on record, it is observed that the assessee

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admittedly acquired the above referred four machines from

Exotech Zaini Industries Pvt. Ltd., which was tenant of the

assessee on 31-03-2010. The depreciation at the reduced rate

would have been allowable if the new items of plant had been

put to use during the year itself. No evidence worth the name

has been placed on record to demonstrate that such huge items of

machine acquired by the assessee on 31-03-2010, were initially

uninstalled from the premises of Exotech Zaini Industries Pvt.

Ltd.; installed at the assessee’s premises; and then put to use also

on the same date itself. We, therefore, approve the action of the

ld. CIT(A) in sustaining the disallowance of depreciation. This

ground is not allowed.

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

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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.

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

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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.

Here, it is pertinent to mention that though the AO referred to the

receipt of Rs.13.00 lakh from Mahindra & Mahindra, but the

material placed on record including the TDS certificate, indicate

the name of the party as Mahindra Renault Pvt. Ltd. and not

Mahindra & Mahindra. The AO is also required to examine this

fact. Needless to say, the assessee will be allowed reasonable

opportunity of hearing in deciding this issue.

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

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head prior period expenses, held that the assessee did not submit

any evidence that the amount pertains to which assessment year.

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.

However, to claim such a benefit, two things need to be proved.

First, that such tax/duty must have been claimed as deduction

and disallowed in the preceding year and second that it is paid

during the year under consideration. The ld. AR submitted that

the assessee paid Rs.14,400/- during the year under

consideration but no deduction was claimed for this sum in the

preceding year and hence, there was no question of making

disallowance on this score in the preceding year. In such

circumstances, we set aside the impugned order to this extent

and direct the AO to examine the assessee’s claim. If the

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assessee did not claim deduction of Rs.14,400/- in earlier years,

but claimed such deduction on paying the tax/duty during the

year, then deduction should be allowed in the year of payment,

namely, the year under consideration.

u/s.115JA, was not pressed by the ld. AR. The same is,

therefore, dismissed as not pressed.

Order pronounced in the Open Court on 26th May, 2022.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 26th May, 2022 Satish

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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to:

आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 25-05-2022 Sr.PS 2. Draft placed before author 25-05-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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