M/s Park Pharmaceuticals, Solan V. DCIT, Circle, Parwanoo

ITA 1119/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5246 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 03-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Bad and doubtful debts
• Section: 43B; 40A(3); 10B; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1123 & 1124/CHD/2017 (ASSESSMENT YEARS : 2012-13 & 2013-14) M/S PACIFIC INDIA, VS. THE ACIT, H.NO. 5102, IST FLOOR, CIRCLE 3(1), MHC, MANIMAJRA CHANDIGARH CHANDIGARH PAN NO. AAIFP4608F APPELLANT BY : SH. PARIKSHIT AGGARWAL RESPONDENT BY : SH. MANJIT SINGH ITA NO.1128/CHD/2017 (ASSESSMENT YEAR : 2013-14) M/S R.H LABORATORIES, VS. THE DCIT, OPPOSITE WEIGH BRIDGE,VILL. CIRCLE, SHIMLA GONDPUR, PAONTA SAHIB, DISTT. SIRMOUR, H.P. PAN NO. AAIFR3825L APPELLANT BY : SH. RAJEEV SACHDEVA RESPONDENT BY : SH. MANJIT SINGH ITA NO.1119/CHD/2017 (ASSESSMENT YEAR : 2013-14) M/S PARK PHARMACEUTICALS, VS. THE DCIT, VILLAGE KALLUJANDA, TEH KASAULI, CIRCLE PARWANOO, DISTT. SOLAN PARWANOO PAN NO. AAJFP3473H (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VINEET KRISHAN RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 15.01.2018 DATE OF PRONOUNCEMENT: 15.01.2018 2 ORDER PER BENCH: THE ABOVE CAPTIONED APPEALS HAVE BEEN PREFERRED BY DIFFERENT ASSESSEES AGAINST SEPARATE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS), [HEREINAFTER REFERRED TO AS CIT(APPEALS)] RELATING TO THE RESPECTIVE AS SESSMENT YEARS. 2. THE COMMON IDENTICAL ISSUE RAISED IN ALL THE APP EALS RELATES TO THE ACTION OF THE CIT(A) IN DISALLOWING THE CLAIM OF BENEFIT OF SUBSTANTIAL EXPANSION FOR DEDUCTION U /S 80IC OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. DURING THE COURSE OF HEARING BEFORE US, IT WAS B ROUGHT TO OUR NOTICE THAT THE ASSESSEE IN ALL THE ABOVE AP PEALS HAD BEEN DENIED DEDUCTION U/S 80IC @ 100% OF HIS PROFIT S ,CLAIMED BEYOND THE INITIAL ELIGIBLE PERIOD OF FIVE YEARS ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN BY IT, FOLLOWING THE ORDER OF THE ITAT CHANDIGARH BENCH I N THE CASE OF HYCRON ELECTRONICS VS ITO (2016) 69 TAXMAN N.COM 69. IT WAS POINTED OUT THAT THE SAID ORDER OF THE I TAT HAD BEEN DECIDED IN APPEAL BY THE HONBLE HIMACHAL PRAD ESH HIGH COURT VIDE THEIR ORDER DT. 28 NOVEMBER 2017 IN THE GROUP OF CASES WITH THE LEAD CASE TITLED AS M/S STO VEKRAFT INDIA VS. COMMISSIONER OF INCOME TAX, ITA NO.20 OF 2015, AND THE HONBLE HIGH COURT HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDING THAT THERE IS NO BAR IN T HE SAID SECTION DENYING THE BENEFIT OF HUNDRED PERCENT DED UCTION 3 TO NEW UNITS UNDERTAKING SUBSTANTIAL EXPANSION. OUR ATTENTION WAS DRAWN TO THE RELEVANT CONCLUSIONS OF THE HONBLE HIGH COURT IN THIS REGARD AT PARA 55 OF THE ORDER AS UNDER: 55.THUS, IN VIEW OF THE ABOVE DISCUSSION, THESE APPEALS ARE ALLOWED AND ORDERS PASSED BY THE ASSESSMENT OFFICER AS WELL AS THE APPELLATE AUTHORITY AND THE TRIBUNAL, IN THE CASE OF EACH ONE OF THE ASSESSES, ARE QUASHED AND SET ASIDE, HOLDING AS UNDER: (A) SUCH OF THOSE UNDERTAKINGS OR ENTERPRISES WHICH WERE ESTABLISHED, BECAME OPERATIONAL AND FUNCTIONAL PRIOR TO 7.1.2003 AND HAVE UNDERTAKEN SUBSTANTIAL EXPANSION BETWEEN 7.1.2003 UPTO 1.4.2012, SHOULD BE ENTITLED TO BENEFIT OF SECTION 80-IC OF THE ACT, FOR THE PERIOD FOR WHICH THEY WER E NOT ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80-IB. (B) SUCH OF THOSE UNITS WHICH HAVE COMMENCED PRODUCTION AFTER 7.1.2003 AND CARRIED OUT SUBSTANTIAL EXPANSION PRIOR TO 1.4.2012, WOULD ALSO BE ENTITLED TO BENEFIT OF DEDUCTION AT DIFFERE NT RATES OF PERCENTAGE STIPULATED UNDER SECTION 80-IC. (C) SUBSTANTIAL EXPANSION CANNOT BE CONFINED TO ONE EXPANSION. AS LONG AS REQUIREMENT OF SECTION 80-IC(8)(IX) IS MET, THERE CAN BE NUMBER OF MULTIPL E SUBSTANTIAL EXPANSIONS. (D) CORRESPONDINGLY, THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEARS. (E) WITHIN THE WINDOW PERIOD OF 7.1.2013 UPTO 1.4.2012, AN UNDERTAKING OR AN ENTERPRISE CAN BE ENTITLED TO DEDUCTION @ 100% FOR A PERIOD OF MORE THAN FIVE YEARS. (F) ALL THIS, OF COURSE, IS SUBJECT TO A CAP OF TEN YEARS. [SECTION 80-IC(6)]. (G) UNITS CLAIMING DEDUCTION UNDER SECTION 80-IC SHALL NOT BE ENTITLED TO DEDUCTION UNDER ANY OTHER SECTION, CONTAINED IN CHAPTER VI-A OR SECTION 10A OR 10B OF THE ACT [SECTION 80- IB(5)]. 4. LD. DR FAIRLY ADMITTED THAT THE ISSUE IS SQUAREL Y COVERED BY THE ABOVE DECISION OF THE HON'BLE HIMACH AL PRADESH HIGH COURT. 4 5. WE HAVE HEARD BOTH THE PARTIES AND ALSO GONE THR OUGH THE ORDER OF THE HONBLE HIMACHAL PRADESH HIGH COUR T IN THE CASE OF STOVECRAFT (SUPRA). ADMITTEDLY IN ALL T HE ABOVE APPEALS THE ASSESSEE WAS A NEW UNDERTAKING HAVING COMMENCED OPERATIONS AFTER 07-01-2003 AND HAD ALREA DY CLAIMED DEDUCTION U/S 80IC @100% OF ITS PROFITS FOR A PERIOD OF FIVE YEARS. IN THE IMPUGNED YEARS , THE A SSESSEE HAD CLAIMED DEDUCTION @100% OF ITS PROFITS SINCE IT HAD UNDERTAKEN SUBSTANTIAL EXPANSION OF ITS ELIGIBLE UN IT WHICH WAS DENIED FOLLOWING THE ORDER OF THE ITAT IN THE C ASE OF HYCRON ELECTRONICS(SUPRA). THE HONBLE HIGH COURT W E FIND HAS SET ASIDE THE ORDER OF THE ITAT IN THE CASE OF HYCRON ELECTRONICS (SUPRA) ,RULING THAT THE NEW UNDERTAKIN GS SET UP AFTER 07-01-2003 ARE ENTITLED TO DEDUCTION @100% OF THE PROFITS ON CARRYING OUT SUBSTANTIAL EXPANSION. IN VIEW OF THE ABOVE ORDER OF THE HONBLE HIMACH AL PRADESH HIGH COURT, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AO TO GRANT THE ASSESSEE DEDUCTION O F HUNDRED PERCENT OF ITS ELIGIBLE PROFITS, AS PER TH E RULING OF THE JURISDICTIONAL HIGH COURT IN THIS REGARD IN THE CASE OF M/S STOVEKRAFT INDIA VS. COMMISSIONER OF INCOME TA X (SUPRA). THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD A RE THEREFORE ALLOWED 6. IN THE ASSESSEES APPEAL IN ITA NOS. 1123 & 1124/CHD/2017 FOLLOWING ADDITIONAL GROUNDS WERE ALS O RAISED: 5 ITA NO.1123/CHD/2017 4. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSIT ION OF THE CASE, THE WORTHY CIT(A) WAS NOT JUSTIFIED IN PARTLY CONFIRMING THE ACTION OF LD. AO, WHEREBY ADDITION OF RS. 13,01,872/- AND RS.38,800 U/S 36(I){III) WAS MADE EVEN WHEN THE SAID DISALLOWANCE WAS NOT WARRANTED. 5. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF LD. AO, WHEREBY VIDE PARA 3 OF HIS ORDER, HE ERRED IN MAKING THE IMPUGNED DISALLOWANCE OF RS. 1,50,00,000/- IN RESPECT OF BAD DEBT CLAIMED AS AN EXPENSE BY THE APPELLANT. ITA NO. 1124/CHD/2017 4. THAT ON THE FACTS, CIRCUMSTANCES AND LEGAL POSITION OF THE CASE, THE WORTHY CIT(A) WAS NOT JUSTIFIED IN PARTLY CONFIRMING THE ACTION OF LD. AO , WHEREBY ADDITION OF RS. 5,60,000/- U/S 36(I){III) W AS MADE EVEN WHEN THE SAID DISALLOWANCE WAS NOT WARRANTED.' 7. THE ASSESSEE FILED AN APPLICATION REQUESTING ADM ISSION OF THE ABOVE GROUNDS, CONTENDING THAT THEY WERE LEG AL GROUNDS, REQUIRING NO FURTHER INVESTIGATION OF FACT S AND AROSE FROM THE ORDER OF THE CIT(A) BUT WERE INADVER TENTLY NOT TAKEN IN THE ORIGINAL APPEAL FILED. WE ARE IN A GREEMENT WITH THE CONTENTION OF THE LD.COUNSEL FOR THE ASSES SEE AND WE THEREFORE HEREBY ADMIT THE ADDITIONAL GROUNDS RA ISED FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF NTPC LTD. VS CIT 229 ITR 383. 8. VIS-A-VIS THE ARGUMENTS OF THE LD.COUNSEL FOR TH E ASSESSEE RELATING TO THE AFORESTATED ADDITIONAL GRO UNDS, THE SOLITARY PRAYER MADE BEFORE US WAS TO ALLOW DEDUCTI ON U/S 6 80IC ON THE ADDITIONS SO MADE. IT WAS POINTED OUT T O US THAT EVEN THE BOARD HAD ACCEPTED THE POSITION, VIDE ITS CIRCULAR NO.37/2016 DT.2 ND NOVEMBER 2016, THAT IN CASES INVOLVING DISALLOWANCES RELATING TO BUSINESS ACTIVI TY, AGAINST WHICH CHAPTER VI A DEDUCTION HAD BEEN CLAIM ED, THE ENHANCEMENT OF PROFITS WOULD BE ELIGIBLE TO DEDUCTI ON UNDER THE SAID CHAPTER. LD. COUNSEL FOR THE ASSESSEE POIN TED OUT THAT THE SAID CIRCULAR CONSEQUENTLY DIRECTED THE OF FICERS OF THE DEPARTMENT NOT TO FILE APPEALS ON THIS GROUND. COPY OF THE CIRCULAR WAS FILED BEFORE US AND IS REPRODUCED HEREUNDER:- CIRCULAR HO. 37/2016 F.HO.279/MISC./140/2015/ITJ GOVERNMENT OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES ****** NEW DELHI, DATED 2 ND NOVEMBER 2016 SUBJECT: CHAPTER VI-A DEDUCTION ON ENHANCED PROFITS- REG. CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT' ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PRO FITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DI SALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAI MED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS . DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CL AIM FOR A HIGHER PROFIT-LINKED DEDUCTION UNDER CHAPTER VI-A. 2, THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON TH E ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GENERAL LY 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 VIE W ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF NON -DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE AS SESSEE'S PROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMAT E PROFITS OF ASSESSEE AFTER 7 ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF T HE ACT WOULD 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) VS. KEVAL CONSTRUCTION, TAX APPEAL NO. 44 3 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT COMMISSIONER OF INCOME-TAX-FV, NAGPUR VS. SUNIL VIS HWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SEPTEMBER 11, 2015, BOMBAY HIGH COURT (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT I S NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF TH E ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR VS. SURYA MERCHANTS LTD., I .T. APPEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT. THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SE TTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40{AJ{IA), 40 A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINE SS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHA PTER 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/ TRIBUNALS MAY BE WITHDRAWN/ NOT PRESSED UPON. THE ABOVE MAY BE BR OUGHT TO THE NOTICE OF ALL CONCERNED. SD/- (K. VAMSI KRISHNA] ACIT (OSD(ITJ), CBDT, NEW DELHI. 9. WE FIND MERIT IN THE CONTENTION OF THE LD.COUNS EL FOR THE ASSESSEE. UNDOUBTEDLY THE DISALLOWANCES CHALLEN GED IN THE ADDITIONAL GROUNDS, PERTAINING TO INTEREST AND BAD DEBTS, RESULT IN INCREASING THE BUSINESS PROFITS OF THE ASSESSEE. MOREOVER WE HAVE HELD IN THE EARLIER PART OF OUR ORDER THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCT ION OF ITS PROFITS @ 100% IN THE IMPUGNED YEAR. CONSEQUENTLY T HE ADDITIONS SO MADE ARE ENTITLED TO DEDUCTION U/S 80I C OF THE 8 ACT, AS ACCEPTED BY THE DEPARTMENT ALSO VIDE THE CB DT CIRCULAR REPRODUCED ABOVE, RESULTING IN NO ADDITION TO THE TAXABLE INCOME OF THE ASSESSEE. IN VIEW OF THE ABOVE WE DIRECT THAT THE ADDITION M ADE ON ACCOUNT OF INTEREST AND BAD DEBTS BE DELETED. THE A DDITIONAL GROUND NO.4 &5 IN ITA NO.1123/CHD/2017 AND GROUND N O.4 IN ITA NO.1124/CHD/2017, RAISED BY THE ASSESSEE THE REFORE ARE ALLOWED. 7. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE, THEREFORE, STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) (JUDICIAL MEMBER) ACCOUNTANT MEMBER DATED 15.01.2018 *RKK* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 9