The Commissioner Of Income Tax, Rohtak v. The Atlas Cycle Industries Limited, Sonepat

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITA No.161 of 2002 Date of decision: 20.7.2010 The Commissioner of Income Tax, Rohtak -----Appellant Vs. The Atlas Cycle Industries Limited, Sonepat ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Krishan Kumar Mehta, Advocate for the revenue.Mr. Akshay Bhan, Advocate for the assessee.Adarsh Kumar Goel,J. 1.This appeal has been preferred by the revenue under Section260A of the Income Tax Act, 1961 (for short, ‘the Act’) against order dated17.1.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’,New Delhi in ITA No.3409/Del/94 for the assessment year 1984-85,proposing to raise following substantial questions of law:- i)Whether on the facts and circumstances of thecase, the ITAT was justified in law in directing theA.O. to recompute the disallowance under section37(3A) of the IT Act, 1961? ii)Whether, on the facts and circumstances of thecase, the ITAT was justified in law in confirmingthe direction of the CIT(A) that 40% ofRs.1,86,140/- was to be allowed as expenditureunder section 37(2) of the IT Act, 1961?case, the ITAT was justified in law in confirmingthe direction of the CIT(A) that 40% ofRs.1,86,140/- was to be allowed as expenditureunder section 37(2) of the IT Act, 1961? iii)Whether, on the facts and circumstances of thecase, the ITAT was justified in law in directing theAO not to charge interest under section 216 of theIT Act, 1961?case, the ITAT was justified in law in directing theAO not to charge interest under section 216 of theIT Act, 1961? iv)Whether on the facts and circumstances of thecase, the ITAT was justified in law in confirmingthe order of CIT(A) directing deletion ofRs.26,958/- which was not held to be businessexpenditure?case, the ITAT was justified in law in confirmingthe order of CIT(A) directing deletion ofRs.26,958/- which was not held to be businessexpenditure? 2. The assessee filed its return but the same was revised byreducing taxable income after claiming deductions under sections 37(3A)and 37(2) of the Act and validity thereof was put in issue during theassessment. Further question was whether interest liability will be assessedon the basis of estimate of advance tax or tax found to be chargeable. On thesaid questions, the Assessing Officer having decided against the assessee,the matter was taken up in appeal and the CIT(A) reversed the view of theAssessing Officer in not allowing expenditure on car insurance and carrepairs falling under section 31 of the Act. It was held that the specialprovision under section 37(3A) of the Act could only override Section 37and not Section 31. As regards disallowance under section 37(2), the CIT(A) held that the same had to be limited to the expenditure attributable tothe employees of the assessee. Thus, permissible deduction was increasedfrom 25% as allowed by the Assessing Officer to 40%. With regard to interest under section 216 of the Act, the CIT(A) held that the interest willnot be chargeable under section 216. The CIT(A) also deleted the additionrelating to deduction under the head ‘Sales promotion expenditure’. Findingof the Assessing Officer that there was no material to show the saidexpenditure was business expenditure was reversed. View of the CIT(A)was upheld by the Tribunal. 3.We have heard learned counsel for the parties and perused the record. 4.Before recording our findings on the issues raised, it will beworthwhile to advert to the findings recorded by the CIT(A) on all the fourquestions proposed by the revenue:- Re: (i) interest under section 216 of the Act, the CIT(A) held that the interest willnot be chargeable under section 216. The CIT(A) also deleted the additionrelating to deduction under the head ‘Sales promotion expenditure’. Findingof the Assessing Officer that there was no material to show the saidexpenditure was business expenditure was reversed. View of the CIT(A)was upheld by the Tribunal. 3.We have heard learned counsel for the parties and perused the record. 4.Before recording our findings on the issues raised, it will beworthwhile to advert to the findings recorded by the CIT(A) on all the fourquestions proposed by the revenue:- Re: (i) “As regards disallowance of Rs.21,38,490/- at para 8, ld.CIT(A) vide his order, supra held that Ld. AO was notjustified in including the expenditure on cars insurance andcars repairs in expenditure of the type mentioned in section37(3A)(3B). Following the order of ld. Tribunal, BombayBench in the case of B.A.Bros (Bombay) Pvt. Limited v.ITO (ITA No.1027 (BCM)/1985, ld. CIT(A) held thatrepair of cars is repair to plant and machinery and the sameis allowable as deduction under section 31 of the IT Act.He further held that since Section 37(3A) overrides onlysection 37(1) and does not override section 31, carsrepair/insurance is separately allowable as deduction undersection 31 of the Act.” Re: (ii) “Similar issue was decided by the ld. CIT(A) Karnal in theassessment year 1985-86 in the case of the assessee vide hisorder dated 17.10.1990 in appeal No.113/87-88, supra, ld.CIT(A) held that 40% of the disallowance was allowableexpenditure. Respectfully, following the order of ld. CIT(A), supra, 40% of disallowance of Rs.1,86,140/- is allowed as allowable expenditure. Appellant gets relief ofRs.74,456/-. This ground is partly allowed.” Re: (iii) “At the time of hearing of the appeal, ld. Counsel submittedthat interest under section 216 was not chargeable. Heargued that in view of amendment to sections 28 and 43Bwhich have retrospective effect, advance tax installmentswould have been in accordance with the total incomeestimated at the time of payment of advance tax,installment. As such, ld. AO was wrong in charging interestunder section 216 of the Act.” Re: (iv) “Disallowance of Rs.45,972/-, Rs.29,658, Rs.10,619/-,Rs.5983/- are deleted (para Nos.4 to 7).” 5.When this appeal came up for hearing earlier alongwith ITANo.163 of 2002 on 4.2.2009, the revenue was directed to file affidavit as towhy in some cases, appeals were not filed and to consider whether therevenue should be allowed to proceed with the present appeal as perprinciples laid down by the Hon’ble Supreme Court in CIT, Central,Kanpur v. J.K.Charitable Trust, 2008 Vol.175 Taxman Tax Reports 251.No affidavit has been filed on behalf of the revenue. Inspite of absence ofany affidavit by the revenue, we have considered the merits on the questionsraised particularly in view of pronouncement of the Hon’ble Supreme Courtdated 5.10.2005 in Britannia Industries Limited v. CIT (2005) 278 ITR546, dealing with some of the issues. It is no longer in dispute thatprovisions of section 37(3A) of the Act as well as Section 37(2) of the Acthave to be given effect to irrespective of any other provision dealing withthe matters covered thereby. The said provisions override not only section 37(1) but also Section 31 which was invoked by the assessee before the CIT(A). Accordingly, question (i) has to be decided in favour of the revenue. 6. Question (ii) has to be decided against the revenue being matterof assessment of the quantum of expenditure attributable to disallowanceunder section 37(2) and the permissible expenditure.7. Adverting to Question No.(iii), in view of the Apex Courtjudgment in CIT v. Anjum M.H.Ghaswala and others, (2001) 252 ITR1, the interest under Section 216 was chargeable and the Tribunal was notjustified in directing otherwise. The question is, thus, answered in favour ofthe revenue. 37(1) but also Section 31 which was invoked by the assessee before the CIT(A). Accordingly, question (i) has to be decided in favour of the revenue. 6. Question (ii) has to be decided against the revenue being matterof assessment of the quantum of expenditure attributable to disallowanceunder section 37(2) and the permissible expenditure.7. Adverting to Question No.(iii), in view of the Apex Courtjudgment in CIT v. Anjum M.H.Ghaswala and others, (2001) 252 ITR1, the interest under Section 216 was chargeable and the Tribunal was notjustified in directing otherwise. The question is, thus, answered in favour ofthe revenue. 8.Question No.(iv) has to be decided against the revenue beingbased on finding of fact. The appeal stands decided accordingly. (Adarsh Kumar Goel) Judge July 20, 2010‘gs’ (Ajay Kumar Mittal) Judge