2017 (9) TMI 1947 - AT - Income Tax

Revenue expenditure allowance - Interest payable in EDC charges terming the same as penal in nature - allowable expenditure u/s 37 or penal in nature as interest has been charged by concerned authority for delay - HELD THAT - We are of the considered view that the facts and circumstances of the case of the assessee s case is exactly the similar and identical to the decision of the Hon ble High Court in the case of CIT vs. Enchante Jewellery Ltd. 2012 (12) TMI 169 - DELHI HIGH COURT - Therefore, addition confirmed by the Ld. CIT(A) out of interest payable in EDC charges terming the same as penal in nature is hereby deleted and the ground of appeal raised by the assessee is allowed.

Summary

Issues:
1. Addition of interest payable in EDC charges termed as penal in nature.
2. Appeal against the order of the Ld. CIT(A) for assessment year 2012-13.

Issue 1: Addition of interest payable in EDC charges termed as penal in nature

The assessee filed an appeal against the order of the Ld. CIT(A) confirming an addition of ?4,26,000 out of interest payable in EDC charges, considering it penal in nature. The AO disallowed the amount paid by the assessee as interest to HUDA for delayed payment of External Development Charges (EDC), treating it as penal and capital in nature. The Ld. CIT(A) partly allowed the appeal, allowing ?1,70,22,000 as business expenditure and disallowing ?4,26,000 as penalty. The assessee contended that the issue was similar to a decision of the Hon'ble Delhi High Court in a previous case. The Tribunal, after considering the case law cited by the assessee, deleted the addition of ?4,26,000, following the precedent set by the Hon'ble High Court. The Tribunal found the circumstances of the case to be identical to the previous decision, hence allowing the ground of appeal raised by the assessee and deleting the disputed addition.

Issue 2: Appeal against the order of the Ld. CIT(A) for assessment year 2012-13

The assessee appealed before the Tribunal against the impugned order of the Ld. CIT(A) for the assessment year 2012-13, specifically challenging the disallowance of ?4,26,000 as penalty in nature. The Ld. Counsel of the assessee argued that the issue was covered by a previous decision of the Hon'ble Delhi High Court and requested the deletion of the disputed addition based on that decision. The Ld. DR relied on the orders of the authorities below. After hearing both parties and examining the case law cited, the Tribunal decided in favor of the assessee, following the precedent set by the Hon'ble High Court and deleting the addition of ?4,26,000. Consequently, the assessee's appeal was allowed by the Tribunal.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's decision on each issue, ensuring a thorough understanding of the legal aspects and the reasoning behind the judgment.