M/S. N.R. SPONGE PVT. LTD. vs. ACIT, NEW DELHI

O R D E R PER PRASHANT MAHARISHI, A. M.

Page 2 of 5 2. The brief facts of the case are that assessee is a company who filed its return of income on 30 at September 2010 showing total income of Rs. 9 733200/–. Assessee is deriving income under the head business of profession. A search and seizure operation under section 132 of the income tax act was conducted on 26th of March 2010 at the business premises of the company. Consequently, this and assessment under section 143 (3) of the income tax act was framed on 30/12/2011 at Rs. 10410944/–. The Ld. assessing officer made for disallowances on various counts. Assessee contested the above appeal before the Ld. CIT appeal who confirmed all the disallowances and therefore assessee is in appeal before us. The 1st ground of appeal is against the disallowance of Rs. 7600 on account of 3. penalty paid on account of CST, sales tax, entry tax etc of Rs. 5600/– and fees paid to ROC for increasing authorised capital of Rs. 65,000/–. The Ld. assessing officer disallowed the above sum as per para No. 4 of its order holding that since the penalties are not liable under the income tax act as business expenditure. He disallowed a sum of Rs. 5600 on this count. Further fees paid for increasing authorised capital of Rs. 65,000 was also disallowed, as it is capital expenditure debited in profit and loss account. CIT (A) also confirmed the disallowance on the same count.

4. The Ld. authorized representative contested that the penalties are of a small amount and he agreed that that fees paid to ROC for increasing authorized capital is not allowable.

5. The Ld. departmental representative vehemently contested that the penalties cannot be allowed as it is paid for infraction of law, whatever may be the amount and further fees paid for increasing authorized capital of Rs. 65,000 is also not allowable as it is a capital expenditure.

6. We have carefully considered the rival contentions and also hold that penalties paid for infraction of law cannot be allowed as deduction under section 37 (1) of the income tax act irrespective of the amount paid. Before lower authorities, it cannot be shown that such sums are not penalties. Therefore, merely because the sum is of a small amount it cannot be said to be not penal in nature. In view of this, we confirm the disallowance of Rs. 5600/– on account of penalties paid by the assessee. Coming to the allowability of Rs. 65,000 paid as a fees for increasing authorized capital of the company, the above issue is squarely concluded against the assessee by the decision of the Hon’ble Supreme Court in case of Punjab industrial development Corporation versus CIT in 225 ITR 792 (SC). Therefore, this ground of Page 3 of 5 appeal of the assessee is dismissed. In the result ground No. 1 of the appeal of the assessee is dismissed. 2nd ground of appeal of the assessee is regarding confirmation of disallowance of 7. Rs. 1 827973/– regarding payments made to Hind Energy & Coal Beneficiation (I) private limited as washing charges and disallowed by the Ld. assessing officer, by invoking the provisions of section 40 (a) (ia) of the act. Admittedly, the above payment was mentioned in the tax audit report is non-deduction of tax thereon. However, in the computation of total income assessee did not disallowed the above sum. Therefore, the Ld. assessing officer disallowed. Before the Ld. CIT appeal, it was contested that the tax is been deducted on the above sum on 01/05/2010 and deposited in government account on 05/06/2010 i.e. In the financial year 2010 – 11 relevant to the assessment year 2011 –

12. However, the CIT appeal confirmed the disallowance.

8. Before us, the Ld. authorized representative submitted that the above sum as been paid before the due date of filing of the return of income and therefore same should be allowed as deduction. It was further submitted that as the tax has already been deducted in assessment year 2011 – 12, if it is not found to be liable in assessment year 2010 – 11, same may be allowed under section 2011-12.

9. The Ld. departmental representative vehemently contested that the above sum was not deducted during the course of the assessment year and therefore even if taxes paid in the subsequent year and it cannot be allowed as deduction in this year.

10. We have carefully considered the rival contentions. Admittedly, the tax was not deducted by the assessee during this year but deducted in subsequent year. Therefore, the provisions of section 40(a) (ia) are rightly applied by the lower authorities for making the disallowance. However, according to the 1st proviso to section 40 (a) (ia) if the assessee deducted the tax in subsequent year and has paid that tax due before the due date of filing of the returned that such sums LB allowed as deduction in computing the income of the assessee for previous year in which such tax has been paid. As it has been claimed by the assessee that such sum as been deducted on first may 2010 and deposited to the account of government of India on 05/06/2010. In view of this we set aside this ground to the file of the Ld. assessing officer to verify deduction as well as deposit of such tax and decide the issue in accordance with the law about allowability of the same. In the result ground No. 2 of the appeal of the assessee is allowed with above direction.

11. Ground No. 3 of the appeal of the assessee is regarding disallowance of Rs. 4 24200/– representing disallowance under section 43B of the act. The assessee as