Appeal details
Counselvise Citation
[2016] 123 COUNSELVISE.COM (IT) 2646 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 9 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
21-12-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
L
Next Hearing Date
20-10-2016
Assessment Year
2010-2011
Appeal Filed On
18-03-2015
Judgement Text
L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 976/ MUM/2015 ( / ASSESSMENT YEAR : 2010-11) ITO 2(1)(4), ROOM NO. 553, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S ANTHELIO BUSINESS TECHNOLOGIES PVT. LTD., 3RD FLOOR, EXCHANGE HOUSE, BUILDING -8 (105), SECTOR 2, MILLENIUM BUSINESS PARK, MAHAPE, NAVI MUMBAI, PIN 400 701. ./ PAN : AADCC2554M ( / APPELLANT ) .. ( / RESPONDENT ) CO NO. 51/MUM/2015 (ARISING FROM APPEAL NO ITA 976/MUM/15) ( / ASSESSMENT YEAR : 2010-11) M/S ANTHELIO BUSINESS TECHNOLOGIES PVT. LTD., (FORMERLY KNOWN AS CONJOIN SOLUTIONS PVT. LTD.) 3 RD FLOOR, EXCHANGE HOUSE, BUILDING -8 (105), SECTOR 2, MILLENIUM BUSINESS PARK, MAHAPE, NAVI MUMBAI, PIN 400 701. / V. ITO 2(1)(4), ROOM NO. 553, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AADCC2554M ( / APPELLANT ) .. ( / RESPONDENT ) ITA 976/MUM/2015 & CO 51/M/15 2 REVENUE BY : SHRI JASBIR CHOUHAN,CIT- DR REVENUE BY : SHRI M.P. LOHIA / DATE OF HEARING : 20-12-2016 / DATE OF PRONOUNCEMENT : 21-12-2016 / O R D E R PER BENCH THIS APPEAL FILED BY THE REVENUE BEING ITA NO. 976/ MUM/2015 IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 17.12.2 014 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO ) U/S 143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT,1961(HEREINAFTER CAL LED THE ACT) PASSED IN PURSUANCE OF DIRECTIONS U/S 144C(5) OF THE ACT PASS ED BY THE DISPUTE RESOLUTION PANEL IV, MUMBAI (HEREINAFTER CALLED THE DRP)) VIDE ORDERS DATED 29-11-2014, FOR THE ASSESSMENT YEAR 2010-11 , AND THE ASSESSEE HAS FILED THE CROSS OBJECTION BEING CO NO. 51/MUM/2015 ARISING OUT OF THE REVENUE APPEAL IN ITA NO. 976/MUM/2015. THIS REVEN UES APPEAL AND THE C.O. WERE HEARD TOGETHER AND ARE DISPOSED OF BY THI S COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY, AS THE ISSUE INVOL VED IS COMMON. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL (HEREINAFTER CALLED THE TRIBUNAL) :- ON THE FACTS AND IN THE CIRCUMSTANCES OR THE CASE AND IN LAW, THE LEARNED DRP HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP HAS ERRED IN DELETING THE DISALLOW ANCE OF RS. 1,48,37,899/- MADE U/S 40(A)(IA) IGNORING THE FACT THAT SALES & MARKETING EXPENSES ARE NOT COVERED UNDER SPECIFIED SERVICES ITA 976/MUM/2015 & CO 51/M/15 3 DEFINED IN ARTICLE 15(2) OF THE INDIA USA DTAA TREA TY AND THEREFORE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. DRP HAS ERRED IN DELETING THE DISALLOW ANCE OF RS. 1,48,37,899/- MADE U/S 40(A)(IA) IGNORING THE FACT THAT SALES & MARKETING EXPENSES PAYABLE TO AGENTS ABROAD IS DEE MED TO ACCRUE AND ARISE IN INDIA AND THEREFORE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE INCOME TAX ACT. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE DRP MAY BE SET ASID E AND THAT OF A.O. RESTORED. 3. IN THE C.O. FILED BY THE ASSESSEE, THE ASSESSEE HAS RAISED THE FOLLOWING OBJECTIONS IN THE CO FILED WITH THE TRIBUNAL :- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED INCOME TAX OFFICER, WARD 2(1 )(4), MUMBAI ( LD AO')/THE LEARNED DISPUTE RESOLUTION PANEL - IV, MUMBAI (LD D RP') HAS:- 1. ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 4 0(A)(I) OF THE ACT OF RS. 1,35,556/- ON PAYMENT MADE TO JOHN B LYZINSKYI; 2. ERRED IN DISREGARDING THE NOTARISED CONFIRMATION PROVIDED FROM THEN EXISTING CHAIRMAN AND CEO OF THE COMPANY ON THE PERIOD OF STAY OF JOHN BLYZINSKYI AND HOLDING THAT THE COMPANY HAS NOT SUBSTANTIATED THE PERIOD OF STAY OF THE IND IVIDUAL IN INDIA WHEREBY THE DISALLOWANCE OF RS 135,556 U/S 40(A)(I) OF THE ACT HAS BEEN UPHELD; 3. WITHOUT PREJUDICE TO GROUND 1 ABOVE, ERRED IN NO T GRANTING DEDUCTION UNDER SECTION 10B OF THE ACT ON DISALLOWA NCE CONFIRMED UNDER SECTION 40(A)(I) OF THE ACT OF RS 1 35,556/-; 4. ERRED IN DISREGARDING THE RELIANCE PLACED BY THE APPELLANT ON THE HON'BLE JURISDICTIONAL HIGH COURT RULING IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 (BOM) , WHEREIN IT HAS BEEN UPHELD THAT INCREASED PROFITS PURSUANT TO THE STATUTORY DISALLOWANCES ARE ELIGIBLE FOR DEDUCTION UNDER THE ACT; II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD AO; ITA 976/MUM/2015 & CO 51/M/15 4 5. ERRED IN OBJECTING THE DIRECTION OF THE LD. DRP WHO DELETED THE DISALLOWANCE OF RS 1,48,37,899 UNDER SECTION 40 (A)(I) OF THE ACT ON THE GROUND THAT THE AMOUNTS ARE LIABLE FOR D EDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT; 6. ERRED IN OBJECTING THE DIRECTION OF THE LD. DRP WHO ON THE BASIS OF THE COPY OF PASSPORT EVIDENCING THE PERIOD OF STAY OF THE INDIVIDUALS NOT EXCEEDED 90 DAYS DURING THE RELEVAN T PERIOD, HELD THAT SAID AMOUNT OF RS 1,48,37,899 ARE NOT CHARGEAB LE TO TAX IN INDIA AS PER INDIA-US DTAA AND HENCE NO DISALLOWANC E U/S 40(A)(I) OF THE ACT IS WARRANTED; 7. WITHOUT PREJUDICE TO GROUND NO. 5 & 6 ABOVE , ERRED IN OBJECTING THE DIRECTION OF DRP WHO DELETED THE DISA LLOWANCE OF RS. 1,48,37,899/- UNDER SECTION 40(A)(I) OF THE ACT, IG NORING THE FACT THAT IN CASE THE DISALLOWANCE OF RS. 1,48,37,899/- U/S 40(A)(I) OF THE ACT IS UPHELD, THE INCREASED BUSINESS PROFITS P URSUANT TO THE SAID DISALLOWANCE U/S 40(A)(I) TO BE CONSIDERED AS PROFIT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 4. THE MAIN ISSUE INVOLVED IN THE REVENUES APPEAL AND THE C.O. FILED BY THE ASSESSEE IS WITH RESPECT TO THE DISALLOWANCE MA DE U/S 40(A)(I) OF THE ACT. THE ASSESSEE IS REGISTERED AS A 100% EXPORT ORIENTE D UNIT UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA SCHEME AND THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERV ICES AND OTHER BACK OFFICE SUPPORT SERVICES. IT IS AN UNDISPUTED AND ADMITTED POSITION BETWEEN BOTH THE PARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B OF THE ACT AND THE PROFITS OF THE ASSESSEE ARE EXEMPT FROM PAYMENT OF TAXES U/S 10B OF THE ACT. THE ASSESSEE HAS SHOWN TOTAL TURNOVER OF THE ELIGIB LE UNDERTAKING AT RS. 32,76,00,596/- AND PROFIT OF THE UNDERTAKING IS AT RS. 7,60,34,821/-. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF THE ACT O F RS. 7,60,34,821/- BEING 100% OF THE PROFITS OF THE UNDERTAKING. THE A.O. HA S PROPOSED IN THE DRAFT ASSESSMENT ORDER PASSED U/S 143(3) R.W.S. 144C OF T HE ACT DATED 25 TH FEBRUARY, 2014 TO DISALLOW AN AMOUNT OF RS. 1,49,73 ,455/- ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE UN DER THE PROVISIONS OF SECTION 195 OF THE ACT. THE DETAILS OF WHICH ARE AS UNDER:- ITA 976/MUM/2015 & CO 51/M/15 5 SL NO. NAME OF THE PARTY AMOUNT (RS) 1 MARK R LUCIW 22,10,258/- 2 GARRY O NEIL 1,04,57,012/- 3 BRUCE SUGAARMAN 21,70,629/- 4 JOHN BLYZINKYL 1,35,556/- TOTAL 1,49,73,455/- THE DRP VIDE ITS DIRECTIONS DATED 29-11-2014 HAS AC CEPTED THAT THE ASSESSEE IS ABLE TO SUBSTANTIATE THE PAYMENTS TO THE TUNE OF RS. 1,48,37,899/- AS THE ASSESSEE SUBMITTED NOTORIZED COPIES OF THE PASSPORT S , WHICH PROVED THAT THREE INDIVIDUALS AT S.NO 1 TO 3 IN ABOVE CHART DID NOT VISIT INDIA DURING THE RELEVANT YEAR. HENCE, THE SAID PAYMENTS WILL NOT BE SUBJECT TO WITHHOLDING TAX U/S 195 OF THE ACT AND ACCORDINGLY THESE PAYMENT CA NNOT BE DISALLOWED U/S 40(A)(I) OF THE ACT, AS HELD BY THE DRP. HOWEVER, THE DRP HELD THAT WITH RESPECT TO THE 4 TH PERSON MR. JOHN BLYZINSKYJ, THE PAYMENT OF RS. 1,3 5,556/- WITHOUT DEDUCTION OF TAX AT SOURCE HAD REMAINED UNS UBSTANTIATED AND THE LD. DRP CONFIRMED THE ADDITION OF RS. 135,556/- BY ISSU ING DIRECTIONS U/S 144C(5) OF THE ACT. THE A.O. PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT R.W.S. 144C(13) OF THE ACT WHEREIN AN ADDITION OF AN AMOUNT OF RS. 1,35,556/- WAS CONFIRMED U/S 40(A)(I) OF THE ACT V IDE ASSESSMENT ORDER DATED 17 TH DECEMBER, 2014 PASSED U/S 143(3) R.W.S. 144C(13) O F THE ACT, WHILE THE RELIEF WAS GRANTED OF RS.1,48,37,899/- BY THE AO PU RSUANT TO DIRECTIONS OF DRP. BOTH THE REVENUE AND THE ASSESSEE ARE BEFORE THE TRIBUNAL WITH THEIR RESPECTIVE APPEAL AND CROSS OBJECTION WHEREBY THE REVENUE IS CHALLENGING THE DELETION OF THE ADDITION OF RS. 1,48,37,899/- AS PR OPOSED IN THE DRAFT ASSESSMENT ORDER WHICH HAS BEEN ORDERED TO BE DELET ED BY THE LD. DRP VIDE DIRECTIONS DATED 29 TH NOVEMBER, 2014 PASSED U/S 144C(5) OF THE ACT WHILE ON THE OTHER HAND THE ASSESSEE IN ITS C.O. IS CHALLENG ING THE DISALLOWANCE U/S 40(A)(I) OF THE ACT OF RS. 1,35,556/- AS CONFIRMED BY THE AO IN ASSESSMENT ITA 976/MUM/2015 & CO 51/M/15 6 ORDER DATED 17.12.2014 PASSED U/S 143(3) OF THE ACT R.W.S. 144C(13) OF THE ACT. 5. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE REVENUE HAS COME UP WITH A CIRCULAR NO. 37/2016 DAT ED 2 ND NOVEMBER, 2016 (F.NO. 279/MISC/140/2015/ITJ) WHEREIN IT HAS BEEN D ECIDED BY THE CBDT THAT IF THERE ARE DISALLOWANCE U/S 32, 40(A)(IA), 4 0A(3), 43B ETC. OF THE ACT WHICH HAS AN EFFECT OF INCREASING THE PROFIT, THE A SSESSEE IS ENTITLED FOR THE PROFIT LINKED DEDUCTIONS UNDER CHAPTER VI-A ON THE ENHANCED PROFITS. IT IS SUBMITTED THAT IN THE INSTANT APPEAL, THE ADDITION HAS BEEN MADE U/S 40(A)(I) OF THE ACT AND THE ASSESSEE IS ENTITLED FOR DEDUCTI ON U/S 10B OF THE ACT UNDER CHAPTER III OF THE ACT. IT IS ALSO POINTED OUT THAT WHILE REFERRING TO THE AFORE- STATED CIRCULAR THAT THE CBDT USED THE WORD ETC. WITH RESPECT TO THE DISALLOWANCE PERTAINING TO SECTION 32, 40(A)(I), 40 A(3), 43B OF THE ACT WHICH MEANS THAT SECTION 40(A)(IA) OF THE ACT IS ALSO COV ERED UNDER THE AFORESTATED CIRCULAR AND THE ASSESSEE WILL BE ENTITLED FOR DEDU CTION U/S 10B OF THE ACT ON THE ENHANCED PROFIT. IT WAS SUBMITTED THAT IN ANY C ASE THIS ISSUE IS ALSO COVERED BY DECISION OF HONBLE JURISDICTIONAL BOMBA Y HIGH COURT IN FAVOUR OF THE ASSESSEE IN CIT V. GEM PLUS JEWELLARY INDIA LIM ITED IN (2010) 194 TAXMAN 192(BOMBAY) AS DISALLOWANCE U/S 40(A)(I) OF THE ACT IS A STATUTORY DISALLOWANCE AND THE HENCE ENHANCED PROFITS AFTER S TATUTORY DISALLOWANCE SHALL BE CONSIDERED FOR DEDUCTION U/S 10B OF THE AC T WHICH DEDUCTION IS PROFIT LINKED DEDUCTION. 6. THE LD. D.R. FAIRLY CONCEDED THAT IT HAS BEEN DE CIDED BY THE REVENUE THAT SUCH PAYMENTS ARE COVERED BY THE AFORE-STATED CIRCULAR AND SUCH APPEALS SHOULD NOT BE PRESSED/WITHDRAWN BEFORE THE TRIBUNAL . IT IS SUBMITTED THAT THE CBDT HAS DIRECTED THAT APPEALS MAY NOT BE FILED ON THIS GROUND BY THE DEPARTMENT , AND ALSO THAT ISSUE IS COVERED IN FAVO UR OF THE ASSESEE IN 194 TAXMAN 192. ITA 976/MUM/2015 & CO 51/M/15 7 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE AFORE-STATED CBDT CIRCULAR. WE HAVE OBSERVED THAT THE ASSESSEE IS REGISTERED AS A 100% EXPORT ORIENTED UNIT UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA SCHEME AND TH E ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICES AND OTHER BACK OFFICE SUPPORT SERVICES. IT IS ALSO AN UNDISPUTED AND ADMITTED POSITION BETWEEN BOTH THE PARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B OF THE ACT AND THE PROFITS OF THE ASSESSEE ARE EXEMPT FROM PAYMENT OF TAXES U/S 10B OF THE ACT. WE HAVE OBSERVED THAT THE ASSESSEE HAS UNDERTAKEN TOTAL TURNOVER OF RS. 32,76,00,596/- WHICH IS ALSO EXPORT TURNOVER OF THE ASSESSEE AND THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B OF THE ACT OF RS. 7,60,34,821/-. ADDITIONS HAVE BEEN PROPOSED U/S 40 (A)(I) OF THE ACT AT RS. 1,49,73,455/- BY THE AO VIDE DRAFT ASSESSMENT ORDER , THE DETAILS OF WHICH ARE AS UNDER:- SL NO. NAME OF THE PARTY AMOUNT (RS) 1 MARK R LUCIW 22,10,258/- 2 GARRY O NEIL 1,04,57,012/- 3 BRUCE SUGAARMAN 21,70,629/- 4 JOHN BLYZINKYL 1,35,556/- TOTAL 1,49,73,455/- THE ABOVE EXPENSES WERE INCURRED BY THE ASSESSEE TO WARDS SALES AND MARKETING EXPENSES FROM WHICH THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. ADDITIONS WERE PROPOSED BY THE A.O. OF RS. 1,49,73, 455/- IN HIS DRAFT ASSESSMENT ORDER WHICH WAS RESTRICTED BY THE LD. DR P VIDE ORDER DATED 29 TH NOVEMBER, 2014 TO AN AMOUNT OF RS. 1,35,556/-. WIT H RESPECT TO THE PAYMENTS OF RS. 1,48,37,899/-, THE DRP DIRECTED TO DELETE THE SAME AS THE ASSESSEE HAS SUBMITTED THE NOTARIZED COPIES OF PASS PORTS , WHICH AS PER DRP PROVED THAT THREE INDIVIDUALS AT S.NO 1 TO 3 IN ABO VE CHART DID NOT VISIT INDIA ITA 976/MUM/2015 & CO 51/M/15 8 DURING THE RELEVANT YEAR. HENCE, THE DRP DIRECTED T HAT SAID PAYMENTS WILL NOT BE SUBJECT TO WITHHOLDING TAX U/S 195 OF THE ACT AN D ACCORDINGLY THESE PAYMENT CANNOT BE DISALLOWED U/S 40(A)(I) OF THE AC T. . THE DRP HELD THAT THESE PAYMENTS TO THE TUNE OF RS. 1,48,73,455/- ARE TO BE ALLOWED, WHILE, WITH RESPECT TO THE 4 TH PERSON MR. JOHN BLYZINSKYJ, THE PAYMENT OF RS. 1,3 5,556/- WITHOUT DEDUCTION OF TAX AT SOURCE HAD REMAINED UNS UBSTANTIATED AND THE LD. DRP CONFIRMED THE ADDITION OF RS. 135,556/- BY ISSU ING DIRECTIONS U/S 144C(5) OF THE ACT, WHICH ADDITIONS WERE CONFIRMED BY THE AO IN HIS ASSESSMENT ORDER DATED 17.12.2014 PASSED U/S 143(3) OF THE ACT R.W.S. 144C(13) OF THE ACT IN PURSUANCE OF DIRECTIONS OF D RP. . WE HAVE OBSERVED THAT THE CBDT HAS ISSUED CIRCULAR NO. NO. 37/2016 D ATED 2 ND NOVEMBER, 2016, WHICH IS REPRODUCED BELOW:- SECTION 80-IB, READ WITH SECTIONS 32, 40(A)(IA), 4 0A(3) & 43B, OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCT URE DEVELOPMENT UNDERTAKINGS - CHAPTER VIA DEDUCTIONS O N ENHANCED PROFITS CIRCULAR NO.37/2016 [F.NO.279/MISC./140/2015/ITJ], DATED 2-11-2016 CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT' ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFIT S AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, S UCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE AC T. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETH ER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT-LINKED DEDUCTIO N UNDER CHAPTER VI-A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON THE E NHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS ACTIVITY AGAI NST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLO WS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURP OSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF NON-DEDUCTION OF T DS UNDER LAW, SUCH ITA 976/MUM/2015 & CO 51/M/15 9 DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S P ROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOU LD QUALIFY FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER -WARD 5(1) V. KEVAL CONSTRUCTION [2013] 33 TAXMANN.COM 277 (GUJ.) COMMISSIONER OF INCOME-TAX-IV, NAGPUR V. SUNIL VISH WAMBHARNATH TIWARI [2016] 63 TAXMANN.COM 241 (BOM.) PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. [2016 ] 72 TAXMANN.COM 16 (ALL.). THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEP ARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SE TTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40A(3), 43B, ETC . OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGA INST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED O N THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS/TRIB UNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. THE SUM , SUBSTANCE AND SPIRIT OF THE AFORE-STATED CIRCULAR IS THAT THE REVENUE DOES NOT WANT TO CONTINUE THE LITIGATION WI TH RESPECT TO DISALLOWANCE MADE BY THE REVENUE U/S 32,40(A)(IA), 40A(3), 43B E TC. OF THE ACT , WHICH ULTIMATELY LED TO INCREASE IN PROFITS WHICH ARE OTH ERWISE ELIGIBLE FOR PROFIT LINKED DEDUCTION UNDER CHAPTER VI-A OF THE ACT. THE BOARD HAS ACCEPTED THAT THE DISALLOWANCE MADE U/S 32, 40(A)(IA), 40A(3), 43 B ETC. OF THE ACT AND OTHER (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERTAKING ON WHIC H THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE A CT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: ITA 976/MUM/2015 & CO 51/M/15 10 DISALLOWANCE OUT OF SPECIFIC EXPENDITURE RELATED TO THE BUSINESS ACTIVITY MAY BE MADE BY REVENUE WHICH LED TO ENHANCEMENT OF PROF ITS AGAINST WHICH CHAPTER VIA PROFIT LINKED DEDUCTIONS HAS BEEN CLAI MED AND IT IS ACCEPTED THAT ENHANCED PROFIT LINKED DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE SAID DISALLOWANCE MA DE BY THE REVENUE. WE FIND THAT THE REVENUES APPEAL AND THE ASSESSEES C ROSS OBJECTION ARE DULY COVERED BY THE CBDT CIRCULAR ALTHOUGH SECTION 10B O F THE ACT IS NOT PLACED UNDER CHAPTER VI-A OF THE ACT RATHER THE SAME IS PL ACED UNDER CHAPTER-III OF THE ACT BUT THE DEDUCTIONS U/S 10B OF THE ACT ARE P ROFIT LINKED DEDUCTIONS AND HENCE THERE IS NO REASON WHY THE SAME SHOULD NO T BE ALLOWED KEEPING IN VIEW THE SPIRIT OF AFORE-STATED CBDT CIRCULAR AS TH E DEDUCTION U/S 10 B OF THE ACT IS ALSO PROFIT LINKED DEDUCTION . SIMILARLY, IT IS STATED IN THE CIRCULAR ABOUT DISALLOWANCE U/S 40(A)(I) OF THE ACT WHICH IS SUCCE EDED BY THE WORD ETC WHEREIN THE CIRCULAR HAS STATED AS UNDER: IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS A CTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAI NING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC ., OF THE ACT. THE USE OF THE WORD ETC. CLEARLY DENOTES THAT IT WILL APPLY TO SIMILARLY PLACED DISALLOWANCES AND DISALLOWANCE U/S 40(A)(I) OF THE ACT IS ALSO DISALLOWANCE DUE TO NON-DEDUCTION OF WITHHOLDING TAX AS IS CONTE MPLATED BY SECTION 40(A)(IA) OF THE ACT. HENCE THE CBDT CIRCULAR WILL BE APPLICABLE TO DEDUCTIONS U/S 10B OF THE ACT AS WELL TO DISALLOWANCE U/S 40(A )(IA) OF THE ACT AS WELL. HENCE THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE/ MAINTAINABLE IN VIEW OF AFORE-STATED CBDT CIRCULAR DATED 02-11-2016 AND WE DISMISS THE APPEAL FILED BY THE REVENUE , WHILE THE C.O. FILED BY THE ASSESS EE IS ALLOWED AS THE ADDITIONS OF RS.1,35,556/- MADE BY THE AO ARE W.R.T . DISALLOWANCE U/S 40(1)(IA) OF THE ACT. IN ANY CASE THIS ISSUE IS ALS O COVERED BY DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN FAVOUR OF THE ASSESSEE IN CIT V. ITA 976/MUM/2015 & CO 51/M/15 11 GEM PLUS JEWELLARY INDIA LIMITED IN (2010) 194 TAXM AN 192(BOMBAY) AS DISALLOWANCE U/S 40(A)(I) OF THE ACT IS A STATUTORY DISALLOWANCE AND THE HENCE ENHANCED PROFITS DUE TO DISALLOWANCE SHALL BE CONSI DERED FOR DEDUCTION U/S 10B OF THE ACT. WE ORDER ACCORDINGLY. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO. 976/MUM/2015 IS DISMISSED AND C.O. NO. 51/MUM/2015 FOR ASSESSMENT Y EAR 2010-11 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2016. # $% &' 21-12-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 21-12-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI L BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI
