HARSH INDUSTRIES, MUMBAI V. ITO 15(20(2), MUMBAI

ITA 2338/MUM/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49435 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 15-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Business income; Depreciation; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.2338/MUM/2011(A.Y. 2007-08) HARSH INDUSTRIES, 3 RD FLOOR, SAKET BUILDING, JVPD SCHEME, GULMOHAR ROAD, ANDHERI (W), MUMBAI 400 049. PAN:AADFH 1981Q (APPELLANT) VS. THE INCOME TAX OFFICER 15(2)(2) MITTAL COURT, B WING, NARIMAN POINT, MUMBAI 400 021 (RESPONDENT) APPELLANT BY : SHRI RAJIV KHANDELWAL RESPONDENT BY : SHRI V.V.SHASTRI ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 24/2/2011 OF CIT(A) XXVIII, MUMBAI RELATING TO THE ASSESSMENT YEAR 2007-08. GROUNDS OF APPEAL NO.1 &2 RAISED BY THE ASSESSEE RE AD AS FOLLOWS: 1. THE COMMISSIONER OF INCOME-TAX (APPEALS)-28, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT(A) ERRED IN UP HOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE FOLLOWING EXPENSES: DEPRECIATION RS. 13,58,294 DONATION RS. 1,18,500 LEGAL EXPENSES RS. 13,000 POWER & FUEL RS. 5,35,242 TDS NOT DEDUCTED RS. 64,61,371 POWER AND FUEL RS. 26,26,211 PRATHMESH AGENCIES RS. 13,35,787 TRANSPORTATION RS. 1,93,827 THE APPELLANTS CONTENDS THAT ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE ALLOW ED THE AFORESAID EXPENSES MORE SO IN VIEW OF THE REMAND REPORT CALLE D FOR BY THE CIT(A). 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF AS SESSING OFFICER IN NOT CORRECTLY ALLOWING THE DEDUCTION UNDER SECTION 80 I B OF THE ACT. ITA NO.2338/MUM/2011(A.Y. 2007-08) 2 THE APPELLANT CONTENDS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE ALLOW ED DEDUCTION UNDER SECTION 80 IB OF THE ACT AS PER THE PROVISIONS OF THE ACT. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF PROCESSING OF PETROCHEMICALS. THE ASSESSEE HAD MA NUFACTURING UNIT AT SILVASA, WHICH IS INDUSTRIALLY BACKWARD AREAS AS SP ECIFIED IN THE 8 TH SCHEDULE OF THE INCOME TAX ACT, 1961(THE ACT). THE ASSESSEE FILED RETURN OF INCOME FOR A.Y 2007-08 DECLARING TOTAL INCOME OF RS.5802/-. T HIS TOTAL INCOME WAS ARRIVED AT BY THE ASSESSEE AFTER CLAIMING DEDEUCTIO N UNDER SECTION 80 IB OF THE ACT IN RESPECT OF THE PROFITS OF THE MANUFACTUR ING UNIT AT SILVASA OF RS. 2,53,96,134/-. THIS FIGURE WAS ARRIVED AT BY THE A SSESSEE AS PER COMPUTATION OF TOTAL INCOME AS FOLLOWS: 1. BUSINESS INCOME RS. TDS RS. NET PROFIT PER PROFIT AND LOSS ACCOUNT 17,941,267 LESS: INCOME CONSIDERED SEPARATELY INTEREST ON FIXED DEPOSITS 5,802 651 17,935,465 ADD: ADDITIONS/DISALLOWANCE UNDER THE ACT (I) DEPRECIATION , PER BOOKS 1,358,292 (II) REMUNERATION TO PARTNER 17 ,941,267 (III) DISALLOWED U/S.40(A)(IA) 6,600,103 (IV) DISALLOWED U/S.40A(3) 742,066 (V) DONATION 118,500 26,760,230 44,695,695 LESS (I) DEPRECIATION ( PER CLAUSE 14 OF FORM NO 3CD ATTACHED TO THE TAX AUDIT REPORT) 1,358,294 (II) REMUNERATION TO PARTNER 17, 941,267 19,299,561 25,396,134 ITA NO.2338/MUM/2011(A.Y. 2007-08) 3 3. AS PER THE CERTIFICATE OF THE AUDITOR IN FORM NO .10 CCB (WHICH CERTIFICATE IS NECESSARY TO CLAIM DEDUCTION U/S.80- IB OF THE ACT) IN COLUMN NO.29 &30, IT HAS BEEN MENTIONED AS FOLLOWS: 29. PROFITS AND GAINS DERIVED BY THE UNDERTAKING/ENTERPRISE FROM THE ELIGIBLE BUSINESS. RS. 1,79,35,465 30. DEDUCTION U/S. 80 IB RS. 2,46,57,068 4. AS CAN BE SEEN FROM THE COMPUTATION OF TOTAL INC OME GIVEN ABOVE THE ASSESSEE HAD ITS OWN MADE DISALLOWANCE OF EXPENSES. ACCORDING TO THE ASSESSING OFFICER THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSEE , WHICH GOES TO INCREASE THE PROFIT DERIVED FROM THE INDUST RIAL UNDERTAKING WOULD NOT BE ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80 IB OF THE ACT BECAUSE THEY CANNOT BE CONSIDERED PROFIT AND GAINS DERIVED BY TH E INDUSTRIAL UNDERTAKING FROM THE ELIGIBLE BUSINESS. THE ASSESSING OFFICER ACCORDINGLY RESTRICTED THE DEDUCTION UNDER SECTION 80 IB OF THE ACT TO A SUM O F RS.1,79,41,267/- WHICH IS THE PROFIT AS PER P&L ACCOUNT AND ALSO THE PROFI T AND GAINS DERIVED BY THE UNDERTAKING FROM THE ELIGIBLE BUSINESS AS GIVEN IN COLUMN 29 OF FORM 10CCB REPORT OF THE AUDITOR. 5. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE DI SALLOWANCE OF EXPENSES MADE BY THE ASSESSEE IN COMPUTATION OF INC OME WERE ERRONEOUS AND GAVE REASONS AS TO WHY THEY WERE ERRONEOUS. TH E CIT(A) CALLED UPON A REMAND REPORT FROM THE ASSESSING OFFICER ON THE AB OVE SUBMISSION OF THE ASSESSEE AND THE ASSESSING OFFICER ACCEPTED THAT DI SALLOWANCE OF RS. 59,06,034/- (OUT OF THE TOTAL DISALLOWANCE OF RS. 8 8,18,963 MADE BY THE ASSESSEE ON ITS OWN) WERE NOT WARRANTED . THE CIT( A) HOWEVER DID NOT ALLOW DEDUCTION UNDER SECTION 80 IB EVEN IN RESPECT OF TH IS SUM WHICH WAS ADMITTED BY THE ASSESSING OFFICER TO BE AN ERRONEOU S DISALLOWANCE. IN COMING TO THE ABOVE CONCLUSION THE CIT(A) WAS OF TH E VIEW THAT THE REPORT OF ITA NO.2338/MUM/2011(A.Y. 2007-08) 4 THE AUDITOR IN FORM NO.10CCB WAS NOT REVISED AND, T HEREFORE, EVEN ON THIS DISALLOWANCE WARRANT DEDUCTION UNDER SECTION 80 IB CANNOT BE ALLOWED. IN OTHER RESPECTS THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSING OFFICER. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE POSITI ON WITH REGARD TO THE PROFITS OF THE INDUSTRIAL UNDERTAKING AFTER CONSIDE RING THE REMAND REPORT OF THE ASSESSING OFFICER FIELD BEFORE THE CIT(A) WOULD BE AS FOLLOWS: STATEMENT SHOWING THE COMPUTATION OF TOTAL INCOME PER RETURN REMAND RS. RS. RS. REPORT. RS. 1. BUSINESS INCOME: NET PROFIT PER PROFIT & LOSS ACCOUNT 17,941,267 LESS: INCOMES CONSIDERED SEPARATELY INTEREST ON FIXED DEPOSITS 5,802 17,935,465 ADD: ADDITIONS/DISALLOWABLE UNDER THE ACT. (I) DEPRECIATION, PER BOOKS 1,358,294 1,358,294 (II) REMUNERATION TO PARTNER 150,000 150,000 (III) DISALLOWED U/S.40(A)(IA) FRINGE BENEFIT TAX PAID/PROVIDED 62,000 62,000 FRINGE BENEFIT TAX PAID/PROVIDED 76,732 76, 732 MERARA BULK CARRIER 560,000 560,000 EKTA BULK CARRIER 178,000 178,000 RAJ GOODS CARRIERS 1,360,035 1,360,035 S.V.BULK CARRIERS 163,021 163,021 NAV BHARAT PRESS 35,000 35,000 POWER& FUELS 2,626,211 - LEGAL & PROFESSIONAL FEES 65,000 65,000 PRATHMESH AGENCIES 1,335,787 - MISCELLANEOUS 138,263 138,263 (IV) DISALLOWED U/S.40A(3) POWER & FULES 193,824 535,242 TRANSPORTATION 535,242 - LEGAL EXPENSES 13,000 - (V) DONATION 185,500 185,500 4,800,087 22 ,735,552 LESS: (I) DEPRECIATION (PER CLAUSE 14 OF FORM 3CD ATTACHED TO THE TAX AUDIT REPORT) 1,3 58,294 1,358,294 (II) REMUNERATION TO PARTNER 150,000 150,000 1,508,294 21,227,258 ITA NO.2338/MUM/2011(A.Y. 2007-08) 5 AS CAN BE SEEN FROM THE ABOVE COMPUTATION THE PROFI TS DERIVED BY THE INDUSTRIAL UNDERTAKING AFTER THE DISALLOWANCE (ACCE PTED BY THE AO AS WELL AS THE ASSESSEE) WOULD BE RS. 2,12,27,258/-. THE COMP UTATION OF PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS HAS TO BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 30 TO SECTION 43D OF THE ACT. THE DISALLOWANCE SOUGHT TO BE MADE BY THE ASSESSEE ACCEPTING THE DISALLOWAN CE SUSTAINED BY THE CIT(A) ARE DISALLOWANCES WHICH ARE MADE UNDER THE P ROVISIONS FALLING WITHIN THE PROVISIONS OF SECTION 30 TO 43D OF THE ACT( VI Z., DISALLOWANCE UNDER SECTION 40(A)(IA), UNDER SECTION 40A(3), DEPRECIATI ON AND REMUNERATION TO PARTNERS). SUCH DISALLOWANCE, WILL NATURALLY GO TO INCREASE THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS. IT IS ON SUCH INCREASED PROFITS THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80 IB OF THE ACT. WE FAIL TO SEE AS TO HOW BECAUSE OF THE DISALLOWANCES MADE THE AMOUNT CEASED TO BE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS. A SIMI LAR ISSUE WAS CONSIDERED BY THE ITAT MUMBAI IN THE CASE OF S.B.BUILDERS AND DEV ELOPERS VS. ITO, 136 TTJ (MUM) 420. THE ASSESSEE IN THAT CASE CLAIMED D EDUCTION UNDER S. 80-IB OF THE ACT ON THE PROFITS AND GAINS FROM HOUSING PR OJECT. THE AO MADE ADDITION ON ACCOUNT OF DISALLOWANCE UNDER S. 40(A)( IA) AND DISALLOWED CERTAIN PAYMENTS RELATING TO THE COST OF CONSTRUCTION, RCC CONSULTANCY, ARCHITECTS FEES, COMMISSION AND PROFESSIONAL CHARGES AGGREGATI NG TO RS.4,50,12,485/- AS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE AS S TIPULATED IN S.40(A)(IA) OF THE ACT. AS A RESULT, THE GROSS TOTAL INCOME STOOD ENHANCED AT RS.8,26,90,888. THE AO HOWEVER RESTRICTED DEDUCTIO N UNDER S. 80-IB(10) BASED ON ORIGINAL PROFIT OF RS. 3,76,78,403 DECLARE D. THE TRIBUNAL HELD THAT THE ACTION OF THE AO WAS NOT JUSTIFIED. THE TRIBUN AL HELD THAT UNDER S. 80AB THE INCOME THAT IS DERIVED FROM THE ELIGIBLE BUSINE SS MUST BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SS.30 TO 43D, AS PROVIDED IN S. 29. SEC.29 PROVIDES THAT THE INCOME CHARGEABLE TO TAX UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED ITA NO.2338/MUM/2011(A.Y. 2007-08) 6 IN SS.30 TO 43D. THE TRIBUNAL HELD THAT UNQUESTIO NABLY, S. 40(A)(IA) IS A SECTION FALLING BETWEEN SS. 30 TO 43D AND THEREFORE EFFECT MUST BE GIVEN TO THE SAME IN COMPUTING THE PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS, WHICH IN THAT CASE WAS A HOUSING PROJECT. THE TRIBUNAL FURTHER HELD THAT WHILE GIVING EFFECT TO THE COMPUTATION P ROVISIONS CONTAINED IN SS. 30 43D ONE SHOULD NOT BE BOGGED DOWN BY THE THEORY THAT THE DISALLOWED EXPENDITURE CANNOT BE CONSIDERED AS PROFITS DERIVE D FROM THE HOUSING PROJECT OR AS OPERATIONAL PROFITS. THE ABOVE RULI NG OF THE TRIBUNAL, IN OUR VIEW, WOULD SQUARELY APPLY TO THE PRESENT CASE ALSO . 8. THE OTHER SURVIVING OBJECTION OF THE CIT(A) IS W ITH REGARD TO THE ABSENCE OF CERTIFICATE IN FORM 10 CCB ISSUED BY THE CHARTERED ACCOUNTANT. IN THIS REGARD WE HAVE TO CLARIFY THAT IN COLUMN NO .29 THE AUDITOR HAS CERTIFIED THE PROFITS AND GAINS DERIVED BY THE UND ERTAKING FROM ELIGIBLE BUSINESS AT RS.1,79,35,465/-. THIS IS THE NET PROF IT AS PER P&L ACCOUNT. HOWEVER, IN THE NEXT COLUMN I.E. COLUMN NO.30 DEDUC TION UNDER SECTION 80 IB IS CLAIMED AT RS. 2,46,57,068/-. THUS IT IS CLE AR THAT THE DEDUCTION CLAIMED IN FORM NO.10 CCB IS MUCH HIGHER THAN WHAT THE ASSESSEE SEEKS TO CLAIM AFTER THE DISALLOWANCE OF EXPENSES SUSTAINED BY THE ASSESSING OFFICER IN THE REMAND REPORT BEFORE THE CIT(A). WE ARE OF THE VIEW THAT THERE WAS FORM NO.10 CCB MAKING A CLAIM FOR DEDUCTION OF SUM WHICH IS MUCH GREATER THAN WHAT THE ASSESSEE HAS CLAIMED BEFORE T HE CIT(A). IN OUR VIEW THE REQUIREMENTS OF THE REPORT OF AUDITOR IN FORM 1 0CCB HAVE BEEN DULY COMPLIED WITH BY THE ASSESSEE. IN OUR VIEW THE CIT (A) HAS INSISTED ON A REVISED FORM 10 CCB WHICH IS NOT THE REQUIREMENT OF THE LAW. THE REQUIREMENT OF FILING REVISED RETURN FOR MAKING THE CLAIM CONTRARY TO THE RETURN OF INCOME FILED BY AN ASSESSEE IS APPLICABLE ONLY TO THE POWERS OF THE ASSESSING OFFICER AND NOT TO THE POWERS OF THE APPE LLATE AUTHORITIES. WE, THEREFORE, HOLD THAT THE ASSESSEE SHOULD BE ENTITLE D TO THE DEDUCTION UNDER SECTION 80 IB OF THE ACT AT A SUM OF RS. 2,12,27,25 8/-. THUS GROUND NO.1 & ITA NO.2338/MUM/2011(A.Y. 2007-08) 7 2 RAISED BY THE ASSESSEE ARE ALLOWED. THE OTHER GR OUNDS RAISED BY THE ASSESSEE ARE PURELY CONSEQUENTIAL. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH DAY OF JULY , 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 15 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.2338/MUM/2011(A.Y. 2007-08) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 29/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 30/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER