Sahajanand Laser Technology Ltd., Gandhinagar V. The ITO, Ward-4(1)(1), Ahmedabad

ITA 1431/AHD/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2621 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 11-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Additional evidence; TDS
• Section: 271(1)(c); 14A; 40(a)(ia); 250; 43

Judgement Text

ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 1 of 12 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI BHAGIRATH MAL BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) ITA No.496/Ahd/2014 Assessment Year: 2009-10 Dy. Commissioner of Income Tax, vs. Sahajanand Laser Technology Circle-8, Ahmedabad. Limited, E-30, GIDC Electronic Estate, Sector-28, Gandhinagar – 382 028 [PAN – AAGCS 1983 B] ITA No.1431/Ahd/2017 Assessment Year: 2009-10 Sahajanand Laser Technology Ltd., vs. The Income Tax Officer, E-30, GIDC Electronic Estate, Ward – 4(1)(1), Ahmedabad. Sector-28, Gandhinagar – 382 028 [PAN – AAGCS 1983 B] (Appellants) (Respondents) Revenue by : Shri Purushottam Kumar, Sr. D.R. Assessee by : Ms. Arti Shah, A.R. Date of hearing : 15.03.2022 Date of pronouncement : 11.05.2022 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER : These are appeals filed by the Revenue and assessee against two different orders dated 15.11.2013 passed by the CIT(A)-XIV, Ahmedabad & 10.02.2017 passed by the CIT(A)-8, Ahmedabad for the Assessment Years 2009-10 respectively. 2. The Revenue in its appeal ITA No.496/Ahd/2014 for A.Y. 2009-10 has raised the following grounds of appeal : “1) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of claim of Rs,36,71,673/- out of total disallowance of claim of Rs.1,33,37,787/- made u/s.10A of the Act on account of re-allocation of salary & wages (Admn.) ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 2 of 12 amounting to Rs.72,63,731/-, power consumption amounting to Rs.19,82,701/-, stationary amounting to Rs.11,50,361/- which are clearly incurred for both SEZ Unit & non-SEZ Unit. 2) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of interest of Rs.3,19,556/- made u/s.36(1)(iii) of the Act when Assessee failed to discharge its onus that the advances to its subsidiaries were made for the purpose of its own business. 3) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs.1,00,000/- made on account of misc. expenses. 4) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad Ms erred in law and on facts in deleting the addition of Rs.1,23,890/- made on account of license fees 5) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the additions of Rs.1,77,861/- & Rs.2,32,065/- made on account of vehicle expenses & travelling expenses, respectively. 6) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the additions of Rs.1,61,602/- & Rs.4,53,356/- & Rs.2,96,2207- made on account of bonus & leave encashment & provisions of Excise Duty, respectively. 7) The Ld. Commissioner of income-tax(Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.2,39,630/- made on account of prepaid insurance expenses. 8) The Ld. Commissioner of income-tax ((Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.20,26,491/- made u/s. 40A(2)(b) of the Act. 9) The Ld. Commissioner of income-tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.3,89,204/- made u/s.14A of the Act. 10) The Ld. Commissioner of income-tax((Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs.2,25,000/- made on account of rent expenses. 11) The Ld. Commissioner of income-tax((Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance of Rs,26,29,122/- made on account of sundry balance written off, since such amounts didn't satisfy the pre-condition laid down u/s.36(2) of the Act.. 12) On the facts and in the circumstances of the case, the Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 3 of 12 13) It is therefore, prayed that the order of the Ld. Commissioner of Income- Tax (Appeals)-XIV, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored. 3. The assessee in its appeal ITA No.1431/Ahd/2017 for A.Y. 2009-10 has raised the following grounds of appeal : “The Ld. Commissioner of Income Tax (Appeal), Ahmedabad has erred in law and on facts in upholding the order passed by the Assessing Officer levying the penalty of Rs.29,86,828/- u/s.271(1)(c) of the Income Tax Act, 1961.” 4. The assessee is a manufacturer of Laser System for Material Processing and others. The return of income was filed by the assessee on 30.09.2009 declaring total income of Rs.1,27,99,512/-. The assessee claimed exemption of Rs.1,33,37,787/- under Section 10A of the Income Tax Act, 1961 as the profit was derived from the Unit located at special economic zone. The Assessing Officer asked the assessee to furnish detailed note regarding allowability under Section 10A of the Act. The Assessing Officer observed that the assessee has not furnished exclusive and clear working of deduction under Section 10A of the Act. The Assessing Officer further observed that the assessee did not furnish any complete Form 56FF as specifically mentioned in Rule 16DD of the Income Tax Rules. The Assessing Officer also pointed out various defects of not fulfilling the conditions prescribed under Section 10A of the Act and, therefore, held that the assessee is not eligible for any deduction under Section 10A of the Act. The Assessing Officer further made following disallowances: - Total income as per return of income 1,27,99,512/- Add: Additions/Disallowables as discussed above 1 Disallowance u/s.10A 1,33,37,787 2 Interest Disallowance u/s.36(1)(iii) 3,19,556 3 Miscellaneous Expenses 1,00,000 4 License Fee 1,23,890 5 Disallowance out of vehicle expenses 1,77,861 6 Disallowance out of Travelling expenses 2,32,065 7 Provision of warranty 8,50,876 ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 4 of 12 8 Disallowance of Donation 2,417 9 Disallowance of interest on TDS 34,146 10 Disallowance of Bonus and Leave Encashment u/s.43B 6,14,958 11 Disallowance of Provision for Excise Duty u/s.43B 2,96,220 12 Disallowance of interest towards China Project 10,37,451 13 Disallowance of prepaid Insurance 2,39,630/- 14 Disallowance u/s.40A(2)(b) of the Act. 20,26,491/- 15 Disallowance u/s.14A of the Act 3,89,204/- 16 Disallowance of wrong claim of rent expenses 13,47,000 17 Disallowance of interest u/s. 40(a)(ia) of the Act. 7,43,709 18 Disallowance bonus paid, bonus and gratuity paid 21,67,862/- 19 Disallowance of sundry balance written off 26,29,122 20 Disallowance of Patent expense 8,93,241 Total Assessed Income 4,03,62,998 i.e. Total Assessed Income 4,03,63,000 5. Thus, the Assessing Officer assessed the total income of the assessee at Rs.4,03,63,000/-. 6. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 7. As regards ground no.1 related to disallowance claimed of Rs.36,71,673/- out of total disallowance of claim of Rs.1,33,37,787/- made under Section 10A of the Act on account of re-allocation of salary & wages (Admn.) amounting to Rs.72,63,731/-, power consumption amounting to Rs.19,82,701/-, stationary amounting to Rs.11,50,361/- which are clearly incurred for both SEZ Unit and non-SEZ Unit. ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 5 of 12 8. The Ld. D.R. submitted that the assessee did not furnish Form No.56AA as per records. The Ld. D.R. further submitted that the documents relevant were not filed by the assessee. The ld. D.R. further observed that the CIT(A) has not provided any reason as regards the non-fulfilment of the conditions given under Section 10A of the Act. The Ld. D.R. further summated that admission of additional evidences has clearly set out that the assessee has not filed Form No.56A for computation of deduction of allowable profit under Section 10A of the Act. The Ld. D.R. further submitted that the Assessing Officer’s bifurcation is properly done and, therefore, submitted that the disallowance made be sustained. 9. The Ld. Authorised Representative relied upon the order of the CIT(A) and further submitted that the CIT(A) has categorically mentioned in the order that the assessee furnished revised Form No.56F to justify the claim of deduction under Section 10A of the Act. The assessee has also produced copies of Bank realisation certificates in respect of the amounts received in convertible foreign exchange and Bank realization Certificates submitted by the assessee were verified on test check basis by the Assessing Officer at the remand stage. It is clearly stated in the letter dated 05.09.2013 by the assessee that the assessee received the amount of Rs.1,71,73,667/- and hence no deduction under Section 10A of the Act was claimed in the revised Form No.56F. Thus, the details were properly submitted before the Assessing Officer as well as before the CIT(A). The Ld. A.R. further submitted that this is the 6 th year of assessment and 50% of deduction under Section 10A of the Act is applicable to the assessee. 10. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the CIT(A) has given categorical finding in paragraph no.5.2 of the order that the assessee in the revised Form No.56A has taken the profit from SEZ Unit at Rs.1,33,37,787/- which was reduced by the expenditure related to Electricity, Sundry Balance and depreciation of patent. The assessee already admitted and the Assessing Officer in remand report also verified that as per the corrected Form No.56F the eligible profit of SEZ unit was of Rs.1,33,37,787/- excluding the amount of Rs.1,71,73,667/- where no bank realisation certificate is there on record on this profit the eligible claim under Section 10A of the Act at the rate of 50% as claimed was of Rs.66,68,894/-. But now the claim after re-working of eligible profit at Rs.73,43,346/- @ 50% comes to Rs.36,71,673/- for which the assessee is entitled for ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 6 of 12 claim of deduction under Section 10A of the Act. There is no need to interfere with the findings of the CIT(A). Hence, ground no.1 of Revenue’s appeal is dismissed. 11. As regards ground no.2 relating to disallowance of interest of Rs.3,19,556/- made under Section 36(1)(iii) of the Act, when the assessee failed to discharge its onus that the advances to its subsidiaries were made for the purpose of business, Ld. D.R. submitted that the CIT(A) was not correct in deleting the same. But the Ld. D.R. submitted that in assessee’s own case the said issue was decided in favour of the assessee which was confirmed by the Hon’ble High Court of Gujarat. 12. The Ld. A.R. submitted that the said issue is covered in favour of the assessee by the Tribunal which is confirmed by the Hon’ble High Court of Gujarat being Tax Appeal No.1025/2017 for A.Y. 2007-08. 13. We have heard both the parties and perused all the relevant materials available on record. The issue is covered in assessee’s favour and, therefore, we are following the decision of the Hon’ble High Court of Gujarat in assessee’s own case. Ground no.2 of Revenue’s appeal is dismissed. 14. As regards ground no.3 related to addition of Rs.1,00,000/- made on account of miscellaneous expenses, the Ld. D.R. submitted that the CIT(A) has wrongly deleted this addition and in fact there is no inconsistency in the finding of the CIT(A). The Ld. D.R. relied upon the assessment order. 15. The Ld. A.R. submitted that books were at no point of time rejected by the Assessing Officer and these miscellaneous expenses were disallowed on adhoc basis without giving any justification to that extent. The Ld. A.R. relied upon the decision of Pr. CIT vs. R.G. Buildwell Engineers Limited, 99 Taxmann.com 284 (SC). 16. We have heard both the parties and perused all the relevant materials available on record. From the perusal of the assessment order, it can be seen that the basis of making this addition was not demonstrated by the Assessing Officer in the assessment order. In fact, books were also now rejected by the Assessing Officer. Thus, merely on conjectures and surmises the Assessing Officer cannot make adhoc disallowance. ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 7 of 12 There is no need to interfere with the findings of the CIT(A). Hence, ground no.3 of Revenue’s appeal is dismissed. 17. As regards ground no.4 relating to addition of Rs.1,23,890/- made on account of licence fees, the Ld. D.R. submitted that the CIT(A) never asked any comments in the remand report from the Assessing Officer on this issue. Ld. D.R. relied upon the assessment order. 18. The Ld. D.R. submitted that the payments were made on monthly basis and the same is in the nature of revenue and, therefore, addition on account of licence fees is totally uncalled for by the Assessing Officer. 19. The Ld. A.R. relied upon the order of CIT(A) 20. We have heard both the parties and perused all the relevant materials available on record. The Assessing Officer has totally ignored the factual aspect of payment of Licence Fees which was for the purpose of business and, therefore, revenue in nature. The payments were made on monthly basis and these facts were not controverted by the revenue. The CIT(A) has rightly deleted this addition and there is no need to interfere with the observations of the CIT(A). Hence, ground no.4 of the Revenue’s appeal is dismissed. 21. As regards ground no.5 related to addition of Rs.1,77,861/- and Rs.2,32,065/- made on account of vehicle expenses and travelling expenses, the Ld. D.R. submitted that the Assessing Officer has pointed out that no substantial evidence was put forth by the assessee during the assessment proceedings. 22. The Ld. D.R. relied upon the assessment order. 23. The Ld. A.R, relied upon the order of the CIT(A) and submitted that 10% of adhoc disallowance was not justified. Ld. A.R. relied upon the decision of PCIT vs. Zydus Wellness Limited, 81 taxmann.com 159 (Gujarat High Court) and Sayaji Iron & Engg. Co., 121 Taxman 43 (Gujarat High Court). ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 8 of 12 24. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the vehicle expenses and travelling expenses were made during the business exigencies. The Assessing Officer has ignored this fact. The CIT(A) has rightly made 10% addition which was totally on adhoc basis and deleted the same by giving detailed findings to that extent. Hence, gourd no.5 of Revenue’s appeal is dismissed. 25. With regard to ground no.6 relating to addition of Rs.1,61,202/- and Rs.4,53,356/- as well as Rs.2,96,220/- made on account of bonus and leave encashment as well as provisions of Excise Duty, the Ld. D.R. relied upon the assessment order. Ld. D.R. further submitted that Excise Duty was filed after due date of filing return of income. Ld. A.R. relied upon the order of CIT(A) and submitted that the Excise Duty was filed prior to filing of return of income. The Ld. A.R. further submitted that the bonus/leave encashment relates to A.Y. 2008-09 and the same was not debited in the current year and so no disallowance should be made in the current year. 26. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that it is admitted fact related to bonus/leave encashment which are of A.Y. 2008-09 and the same were not debited in current year. The CIT(A) has rightly deleted this addition and there is no need to interfere with the findings of the CIT(A). The Ld. D.R.’s contention that Excise Duty was paid after filing of return of income was not correct. Hence, ground no.6 of Revenue’s appeal is dismissed. 27. As regards to ground no.7 relating to disallowance of Rs.2,39,630/- made on account of pre-paid insurance expenses, the Ld. D.R. relied upon the assessment order. 28. The Ld. A.R relied upon the order of CIT(A) and submitted that the assessee was consistently claiming insurance on payment basis and, therefore, the CIT(A) has rightly deleted the said disallowance. 29. We have heard both the parties and perused all the relevant materials available on record. From the perusal of records, it can be seen that the assessee is claiming ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 9 of 12 insurance on payment basis consistently and in previous years the Assessing Officer has not disallowed this claim. The CIT(A) has given detailed finding and there is no need to interfere with the same. Ground no.7 of the Revenue’s appeal is dismissed. 30 As regards to Ground no.8 relating to disallowance of Rs.20,26,491/- made under Section 40A(2)(b) of the Act, the Ld. D.R. submitted that the assessee has not given any evidence before the Assessing Officer and, therefore, the onus was not discharged by the assessee during the assessment proceedings. 31. The Ld. A.R. submitted that the said disallowance is on presumption basis and no comparison was found by the Assessing Officer. In fact, all the evidences before the CIT(A) and in remand report the Assessing Officer has not pointed out any discrepancy to that extent. 32. We have heard both the parties and perused all the relevant materials available on record. It is an admitted fact that this disallowance is purely on mechanical basis by the Assessing Officer and the assessee has given all the evidences before the CIT(A). The Assessing Officer has not pointed out any discrepancy; hence ground no.8 of the Revenue’s appeal is dismissed. 33. As regards ground no.9 relating to disallowance of Rs.3,89,204/- made under Section 14A of the Act, the Ld. D.R. relied upon the assessment order. 34. The Ld. A.R. submitted that there was no exempt income in the current A.Y. and there are investments in shares of Foreign Subsidiary Company and to Indian Subsidiary Company. The interest-free funds were in excess of investments in shares and, therefore, the CIT(A) has rightly deleted this disallowance. 35. The Ld. A.R. relied upon the decision of Hon’ble Supreme Court in case of CIT vs. Chettinadu Logistics (P) Ltd., 95 Taxmann.com 250 as well as decisions of Hon’ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd., 45 taxmann.com 116 and Pr. CIT vs. Sintex Industries Limited, 82 taxmann.com 428. 36. We have heard both the parties and perused all the relevant materials available on record. It is admitted fact that no exempt income was earned by the assessee ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 10 of 12 during the year. All the investments in shares as notified in the Profit & Loss Account as well as in the books of the assessee Company. In fact, interest-free funds were in excess of investments in shares and, therefore, the CIT(A) has rightly deleted this disallowance. Hence, ground no.9 is dismissed. 37. As regards ground no.10 in respect of disallowance of Rs.2,25,000/- made on account of rent expenses, the Ld. D.R. relied upon the assessment order. 38. The Ld. A.R. relied upon the order of CIT(A). 39. We have heard both the parties and perused all the relevant materials available on record. The Ld. A.R. demonstrated before us as well as before the CIT(A) that the TDS was deducted from the rent and the income was shown in return of income of receiver i.e. Lavjibhai P. Patel. Thus, the CIT(A) has rightly deleted this disallowance. Ground no.10 is thus dismissed. 40. As regards ground no.11 in respect of disallowance of Rs.26,29,122/- made on account of Sundry Balance written off, the Ld. D.R. submitted that the deletion is not just and proper on behalf of the CIT(A) as such amount did not satisfy the precondition laid down under Section 36(2) of the Act. The Ld. D.R. relied upon the assessment order. 41. The Ld. A.R. relied upon the order of the CIT(A). 42. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the advance to employees and credit note received for inferior quality of goods sold were neither received in current A.Y. nor in subsequent A.Y. and it was rightly written off by the assessee. The said Sundry Balance was allowable as business expenses and Excise Duty added in opening stock of next year was also on record before the CIT(A). The CIT(A) has rightly deleted this disallowance. Hence, ground no.11 of Revenue’s appeal is dismissed. 43. In the result, appeal filed by the Revenue being ITA No.496/Ahd/2014 is dismissed. ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 11 of 12 44. As regards ITA No.1431/Ahd/2017, the same is filed by the assessee in respect of levy of penalty of Rs.29,86,828/- under Section 271(1)(c) of the Act related to the claim in respect of deduction under Section 10A of the Act at 100% whereas the assessment year in question i.e. A.Y. 2009-10 which is the 6 th year. The Ld. A.R. submitted that the assessee has filed revised Form No.56F and inadvertently claim was made which was rectified later. 45. The Ld. A.R. relied upon the decision of Hon’ble Supreme Court in the case of Pricewaterhousecoopers vs. CIT 25 Taxmann.com 40 as well as Pr. CIT vs. Smt. Renu Agarwal, SLP No.22354/2018 dated 13.07.2018. The Ld. A.R. further relied upon the judgement of Hon’ble High Court of Gujarat in the case of Pr. CIT vs. Smt. Renu Agarwal (ITA No.168/2017 (08.08.2017) and Nayan C. Shah vs. ITO (2016) 69 taxman 250. 46. The Ld. D.R. relied upon the penalty order of the CIT(A). 47. We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the assessee has pointed out that the claim of deduction under Section 10A of the Act was wrongly claimed 100% and subsequently the assessee has filed revised Form no.56F and, therefore, it cannot be stated as concealment of particulars of income or furnishing of inaccurate particulars. The mistake cannot be treated as deliberate mistake on the part of the assessee as held by Hon’ble Supreme Court in the case of Pricewaterhousecoopers (supra). Hence, penalty under Section 271(1)(c) imposed by the Assessing Officer is hereby deleted. Appeal of the assessee being ITA No.1431Ahd/2017 is allowed. 48. In the result, appeal of the Revenue is dismissed and appeal of the assessee is allowed. Order pronounced in the open Court on this 11 th day of May, 2022. Sd/- Sd/- (BHAGIRATH MAL BIYANI) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 11 th day of May, 2022 ITA N os. 496/ Ahd/ 2014 & 1431/A hd/ 2017 Assess ment Year: 2009-10 Page 12 of 12 PBN/* Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad