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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI VIMAL KUMAR
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeal filed by the assessee is against order dated 22.11.2024 of Learned Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (NFAC), Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising out of Order dated 15.10.2019 of the Learned Assessing Officer/Learned Deputy Commissioner of Income Tax , Circle 3(1), Gurugram (hereinafter referred as “the Ld. AO”) under Sections 143(3)/147 Act for assessment year 2012-13.
Brief facts of the case are that the assessee company filed return of income on 31.01.2013 showing income of Rs. 64,14,526/-. The case was selected for scrutiny assessment under CASS and finalized under Section 143(3) of the Act on 10.03.2015 at Rs.65,96,090/-. On perusal of record, the “reasons to believe” were recorded and approval of Ld. PCIT for assessment year under Section 147 of the Act was obtained. The reasons for issue notice under Section 148 of the Act were recorded. Notice under Section 148 of the Act was issued on 30.03.2019. The assessee company filed its return of income on 01/05/2019 showing total income of Rs.64,14,525/-. Notice under Section 142(1) of the Act was issued on 17.09.2019. The assessee was provided reasons for reopening on 26.08.2019. The assessee filed objections in its reply dated 27.09.2019 which were disposed of vide order dated 03.10.2019. The assessee company filed its reply with regard to show-cause-notice on 09.10.2019. On completion of proceedings, Ld. AO made addition of Rs.33,56,683/- vide order dated 15.10.2019.
3. Against order dated 15.10.2019 of Ld. AO, appellant/assessee filed appeal before Ld. CIT(A) which was dismissed vide order dated 22.11.2024.
4. Being aggrieved, the appellant/assessee preferred present appeal with following grounds:
“1. Because the Ld. Commissioner of Income Tax (Appeals) has wrongly, against the Law confirmed the Reopening of Assessment u/s 148 ignoring the fact that the case was completed u/s 143(3) and there was no material information suppressed or omitted on part of the Appellant.
2. Because the Ld. Commissioner of Income Tax Appeals has wrongly, arbitrarily confirmed the disallowance of Rs. 33,56,683/- claimed as late Delivery charges by holding it as Penalty though it was not a Penalty for any legal infringement, the amount was under a contractual obligation, being compensation being paid for delayed delivery of Goods.
Because the Ld. Commissioner of Income Tax Appeals confirmed the additions without affording proper opportunity.
Because the Order is bad in the eyes of law being against the facts & law.”
Learned Authorized Representative for appellant/assessee submitted that Ld. CIT(A) wrongly confirmed/reopening of assessment under Section 148 of the Act by ignoring the fact that the case was completed under Section 143(3) of the Act and there was no sufficient material information found to show suppression or omission on part of appellant. Ld. CIT(A) wrongly confirmed disallowance of Rs.33,56,683/- claimed as late delivery charges by holding it as penalty, though, it was not a penalty for any legal infringement, but the amount was under a contractual obligation, being compensation paid for delayed delivery of goods. The audit balance sheet, at page 14 of paper books, mentioned late delivery charges. Mere change of opinion was no ground for reopening the assessment.
5.1 Reliance was placed on judgment of Hon'ble High Court of Punjab & Haryana in the case of “Jamna Auto Industries vs. The Commissioner of Income Tax dated 30.01.2008 (2008) 214 CTR (P&H) 649, (2008) 299 ITR 92 ( P& H ), (2008) 149 PKR 719. . 5.2 The Income Tax Appellate Tribunal, Delhi Benches-B, New Delhi A.Υ.: 2006-07 ACIT, Range I vs. M/s Choudhary Hammer Works Ltd. New Delhi PAN/GIR No: AAACC 6049C while dismissing the Appeal of the Department held "We have heard the rival submissions and perused the material available on record. On a careful consideration of the same considering the judgements relied upon by the assesse and taken into consideration by CIT(A), and referred to before us, we are of the view that the claim of assesse has rightly been allowed by the CIT(A). There is a distinction between the penalty imposed for breach of law and the liquidated damages/compensation paid on account of late delivery. The clause pertaining to cost reduction in the eventuality of late delivery is an accepted fact and such conditions are inherent risks and incidental to the running of business. The factum of the occurrence of the event for which cost reduction has occurred has not been doubted by the A.O. The challenge posed by the department is only on the legal principle that a breach of contract of this nature is not an allowable expense. On consideration of facts and judicial principles, we are of the view that the department's ground deserves to be dismissed"
6. Learned Authorized Representative for the Department submitted that the Ld. CIT(A) rightly upheld the disallowance of payment of penalty levied by National Informatics Centre.
From examination of record in light of aforesaid rival contentions, it is crystal clear that the assessee filed original return of income as Rs.64,14,526/- on 31.01.2013. After selection of case for scrutiny under CASS, the case was finalized under Section 143(3) of the Act on 10.03.2015 at Rs.65,96,090/-. No fresh material showing suppression or omission by the assessee was found. Ld. AO disallowed business expenses under Section 37 of the Act to the tune of Rs.33,56,683/-. The audited balance sheet on page no.14 of paper books mentions L.D. Charges as Rs.33,56,683/-. Late delivery charges were contractual charges paid for late delivery of case. 7.1 As per ratio of Jamuna Auto Industries’s (case supra), it is well settled that where such Payments/Compensation/Liquidated damages /Late Delivery Charges have been allowed which had been claimed as Business Expenses subject they are not due to any Infringement of Law.
7.2 In view of above material facts and well settled principles of law, the disallowance of Rs.33,56,683/- claimed as late delivery charges by holding penalty for legal infringement which was, in fact, payment under contractual obligation being paid for late delivery of goods was wrongly disallowed.