Income Tax Officer Ward-4(2), Guwahati V. M/s. Kishlay Food (p) Ltd, Guwahati

ITA 232/GTY/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1428 (ITAT-GUWAHATI)
• Duration Of Justice: 1 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 17-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN JCIT SRDR
• Keywords: Business income; TDS
• Section: 43B; 40A(3); 143(3); 40(a)(ia); 80IC; 192; 80IC; 13; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH E COURT AT KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L.SAINI, ACCOUNTANT MEMBER ITA NO. 2 32 / GAU / 2018 ASSESSMENT YEAR :2011-12 INCOME TAX OFFICER WARD-4(2), GUWAHATI, 5THFLOOR, AAYAKAR BHAWAN, G.S. ROAD, GUWAHATI-781005 V/S . M/S KISHLAY FOODS PVT. LTD, DEWAN PATTY, FANCY BAZAR, GUWAHATI-781001 [ PAN NO.AABCK 8337 J ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI M.C OMI NINGSHEN, JCIT SR-DR /BY RESPONDENT NONE /DATE OF HEARING 09-12-2019 /DATE OF PRONOUNCEMENT 13-12-2019 / O R D E R PER BEMCH:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-2 GUWAHATIS O RDER DATED 29.06.2018 PASSED IN CASE NO.GUWA-708/2015-16/34 INVOLVING PR OCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. CASE CALLED TWICE. NONE APPEARS AT THE ASSESSEES B EHEST. HEARD LEARNED DEPARTMENTAL REPRESENTATIVE. 2. THE REVENUES SOLE SUBSTANTIVE GRIEVANCE RAISES IN THE INSTANT APPEAL CHALLENGING CORRECTNESS OF CIT(A)S ACTION DELETING U/S 80IC DISALLOWANCE REGARDING ASSESSEES VAT REMISSION OF 2,88,75,684/- MADE IN THE COURSE OF ASSESSMENT. THE CIT(A)S DETAILED DISCUSSION TO THI S EFFECT READS AS UNDER:- ITA NO.232/GAU/2018 ASSESSM ENT YEAR: 2010-11 ITO WD-4(2), GUWA VS. M/S KISHLAY FOODS PVT. L TD. PAGE 2 8. POINTS FOR DETERMINATION, THE REASONS FOR DETERM INATION AND THE DECISION ON THE POINTS FOR DETERMINATION UNDER SECTION 250(6) O F THE INCOME TAX ACT, 1961: I) GROUND NO. 1 THIS GROUND OF APPEAL BEING GENERAL IN NATURE, REQU IRE NO ADJUDICATION. X X X III) GROUND NOS.3 AND 4 THE ABOVE GROUNDS OF APPEAL ARE DIRECTED AGAINST DE NYING THE ALLOWABILITY OF EXCISE REFUND, VAT REMISSION, SUBSIDIES AND DISALLO WANCE U/S.14A AS DEDUCTION U/S.80-1B/1C. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APP ELLANT HAD SUBMITTED AS UNDER: - 'THE THIRD GROUND OF APPEAL IS TOWARDS ADDITION OF RS.2,92,20,684/- RECEIVED TOWARDS VAT REMISSION AND INTEREST SUBSIDY AS NOT ELIGIBLE FOR DEDUCTION U/S.80-IC AS THESE ARE NOT DERIVED FROM T HE BUSINESS OF THE ASSESSEE. THE AO TREATED THESE ITEMS OF DISALLOWANC ES AS INCOME FROM OTHER SOURCES. IN THIS REGARD, IT IS SUBMITTED THAT THE ISSUE RELATING TO SUBSIDY HAS REACHED IT FINALITY AS HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. HAS DECIDED THAT S UBSIDIES ARE PART OF BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S 80-IB/IC . FURTHER REGARDING VAT REMISSION, GAUHATI BENCH OF ITAT HAS DECIDED TH E ISSUE AGAINST THE DEPARTMENTAL IN THE CASE OF MEGHALAYA MINERAL PRODUCTS VS ACIT [167 TTJ 143] ACIT- C-3, GUWAHATI VS PLAST INDIA EN TERPRISES (P) LTD [ ITA NO.50/GAU/2009, A Y 2006-07 ] AND SUBSEQUENTLY NUMEROUS CASES BASED ON THE RATIO OF THESE DECIDED CASES. TH E DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HIGH COURT AGAINST THESE ITAT ORDERS. AS SUCH THE ORDER IS BINDING ON THE DEPARTMENT. MOR EOVER, ON IDENTICAL ISSUE RELIEF HAS BEEN GRANTED TO YOUR APPELLANT IN EARLIER YEARS BY YOUR GOODSELF. THE ENTIRE ADDITION HAS BEEN MADE ON WRON G ASSUMPTIONS AND SHOULD BE CONSIDERED AS PART OF OUR BUSINESS IN COME ELIGIBLE FOR DEDUCTION U/S.80-IC AND ADDITION MADE TO TAX THIS I TEM SHOULD BE DELETED . DECISION I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT AS ALSO THE RELEVANT OBSERVATIONS OF THE LD AO. IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MEGHALAYA STEELS LTD. [192 (2016) 6 SCC 747], THE AGGREGATE ADDITION OF RS.2,92,20,684/- ON ACCOU NT OF VAT REMISSION AND INTEREST SUBSIDY, MADE BY THE AO ON THIS ACCOUNT, A RE HEREBY DELETED. SINCE, THE ABOVE AMOUNTS HAVE BEEN FOUND TO BE EXIGIBLE FO R DEDUCTION UNDER SECTION 80IC OF THE ACT, CONSEQUENTIAL GROUND QUA P ERMITTING THE DEDUCTION UNDER SECTION 80IC IN RESPECT OF DISALLOWANCE OF TH ESE INCOMES, THOUGH BEING DULY COVERED BY CBDT VIDE CIRCULAR NO. 37/2016 DATE D 02-11-2016 REQUIRES NO FURTHER ADJUDICATION. THE ABOVE GROUNDS OF APPEA L ARE ACCORDINGLY ALLOWED . IV) GROUND NO.5 ITA NO.232/GAU/2018 ASSESSM ENT YEAR: 2010-11 ITO WD-4(2), GUWA VS. M/S KISHLAY FOODS PVT. L TD. PAGE 3 THE ABOVE GROUND IS DIRECTED TOWARDS NOT ALLOWING D EDUCTION UNDER SECTION 80IC OF THE ACT, WRT DISALLOWANCE MADE UNDER SECTIO N 43B OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APP ELLANT HAD CONTENDED THAT THE DISALLOWANCES MADE UNDER THE HEAD PROFITS AND G AINS FROM BUSINESS AND PROFESSION DULY QUALIFY FOR DEDUCTION UNDER SECTION 80LC OF THE ACT AND THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCE. THE APPELLANT ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE UNDER S ECTION 43B IS EXIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. DECISION I HAVE GONE THROUGH THE SUBMISSION OF THE APPELLANT AS ALSO THE RELEVANT OBSERVATIONS OF THE LD AO. THE LD AO HAS MADE A DIS ALLOWANCE UNDER SECTION 43B OF RS. 15,34,644/-. THE MATTER HAS BEEN CONSIDERED. SECTION 80LC OF THE INCOME TAX ACT, 1961 PROVIDES FOR A DED UCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY ELIGIBLE BUSINESS. SECTION 29 OF THE INCOME TAX ACT, 1961 STIPULATES THAT INCOME FROM PROFITS AND GAINS OF BUSINESS REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. A PLAIN READING OF THE SECTION SHOWS THAT THE DISALLOWANCES MADE UNDER SECTION 43B IN THE COMPUTA TION OF INCOME FROM BUSINESS, THEREFORE FORM PART OF THE PROFITS AND GA INS OF BUSINESS. THIS HAS BEEN AFFIRMED BY THE AFOREMENTIONED DECISION OF THE HON'BLE ITAT, BENCH A, HYDERABAD IN THE CASE OF M/S PROMANTRA SYNERGY SOLUTIONS LTD. [ IN ITA NO. 140/HYD/2013 ]. SIMILARLY, INCOME EMANATING OUT OF LATE DEPOSIT OF EMPLOYEES' CONTRIBUTION TO PROVIDENT FUND FORMS A P ART OF THE PROFITS AND GAINS OF BUSINESS. IN VIEW OF THE ABOVE, ANY ADDITIONS MA DE ON ACCOUNT OF THE ABOVE WILL RESULT IN ENHANCED PROFITS OF THE APPELL ANT AND AS SUCH THESE WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80LC OF THE AC T. THIS ISSUE WAS EXAMINED AND CBDT VIDE CIRCULAR NO. 37/2016 DATED 02-11- 2016 HAS CLARIFIED THAT WHERE DISALLOWANCE HAS BEEN MAD E U/S. 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT AND OTHER SPECIFIC DIS ALLOWANCE RELATING TO BUSINESS ACTIVITY DEDUCTION UNDER CHAPTER VI-A IS A DMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. THE RELEVANT EXTRACT OF THE CIRCULAR IS AS UNDER: 'CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT '), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUT ING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCE PERTAINING TO S ECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES D ISALLOWANCE 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 WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM 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 HAV E GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO TH E BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN C LAIMED, THE ITA NO.232/GAU/2018 ASSESSM ENT YEAR: 2010-11 ITO WD-4(2), GUWA VS. M/S KISHLAY FOODS PVT. L TD. PAGE 4 DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFI TS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLO WS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF N ON-DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY I NCREASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELOPING HOUS ING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALL OWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUCTION UN DER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE F OLLOWING CASES: INCOME-TAX OFFICER - WARD 5(1) VS. KEVAL CONSTRUC TION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH CO URT. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL V ISHWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SEPTEMBER ITA NO. 463/PUN/2014, A. Y. 2010-11 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 U NDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE 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 A CCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A )(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, R ELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION H AS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBL E BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE P ROFITS SO ENHANCED BY THE DISALLOWANCE.' 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILE D ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILE D IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. IT IS IMPERATIVE TO MENTION HERE THAT THE RATIO OF THE ABOVE CBDT CIRCULAR HAD BEEN EXAMINED BY HON'BLE ITAT PUNE BEN CH IN THE CASE OF DCIT VS RAM INFRASTRUCTURE LTD. [ ITA NO. 463/PUN/2014, DATED 11/01/2017 ] ALSO. IN VIEW OF THE ABOVE DISCUSSION, THIS GROUN D OF APPEAL IS ALLOWED . 9. IN THE RESULT, THE APPEAL IS ALLOWED. IN THE RES ULT THE APPEAL IS DECIDED AS ABOVE. ITA NO.232/GAU/2018 ASSESSM ENT YEAR: 2010-11 ITO WD-4(2), GUWA VS. M/S KISHLAY FOODS PVT. L TD. PAGE 5 3. THE REVENUES ONLY CASE DURING THE COURSE OF HEA RING IS THAT SINCE THE IMPUGNED VAT REMISSION CANNOT BE HELD TO HAVE BEEN DERIVED FROM THE ELIGIBLE UNDERTAKING, THE ASSESSING OFFICER HAD RIG HTLY DISALLOWED THE SAME FOR THE PURPOSE COMPUTING ASSESSEES DEDUCTION CLAIM U/ S 80IC OF THE ACT. WE FIND NO MERIT IN REVENUES FOREGOING ARGUMENTS. HON 'BLE APEX COURTS DECISION IN CIT VS. MEGHALAYA STEELS LTD. (2016) 192 6 SCC 747 (SC) HAS MADE IT CLEAR THAT ANY HEAD OF EXPENDITURE IN THE REVENUE A CCOUNT WHICH FORMS PART OF RUNNING DESERVES TO BE TREATED AS ELIGIBLE FOR THE IMPUGNED DEDUCTION THE IMPUGNED VAT ADMITTEDLY PERTAINS TO ASSESSEES CORE BUSINESS ONLY. WE FURTHER FIND THAT THE CIT(A) HAS NOT ONLY CONSIDERE D THE SAME PRECEDENT BUT ALSO HE HAS GONE BY THE CBDT CIRCULAR NO.37 OF 2016 DATED 02.11.2016 BINDING ON THE REVENUE AUTHORITIES. WE THEREFORE SE E NO REASON TO INTERFERE WITH THE CIT(A)S DETAILED DISCUSSION HOLDING THE A SSESSEES VAT REMISSION AMOUNT ELIGIBLE FOR THE PURPOSE U/S 80IC DEDUCTION. THE REVENUE FAILS IN ITS SOLE SUBSTANTIVE GRIEVANCE. 4. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 13 /12/2019 SD/- SD/- (A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) JUDICIAL MEMBER) KOLKATA, *DKP - 13 / 12 /201 9 / / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO WARD-4(2), 5 TH FL, AAYAKAR BHAWAN, G.S. ROAD, GUWAHATI-05 2. /RESPONDENT-M/S KISHLAY FOODS PVT.LTD.,DEWAN PATTY , FANCY BAZAR,GUWAHATI-001 3. * - / CONCERNED CIT GUAHATI 4. -- / CIT (A) GUAHATI 5. 0 33*, *, / DR, ITAT, GUAHATI 6. 7 / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO *,