DCIT, CHENNAI V. Ajuba Solutions India P Ltd., CHENNAI

ITA 3428/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6414 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VENI S RAJ JT
• Keywords: Business income
• Section: 43B; 143(3); 37(1); 28; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B, CHENNAI , ! ' #! ' $ . %& , ' () * BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ITA NO.3428/MDS/2016 ' + !,+ / ASSESSMENT YEAR : 2011-12 DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE I(1), CHENNAI 600 034. VS. AJUBA SOLUTIONS INDIA PVT. LTD., 12-02 TIDEL PARK, 4 CANAL BANK ROAD, TARAMANI, CHENNAI 600 113. [PAN: AACCA 8448D] ( /APPELLANT ) ( / RESPONDENT ) -. 0 1 / APPELLANT BY : MRS. VENI S.RAJ, JT. CIT 23-. 0 1 / RESPONDENT BY : SHRI K.PARTHASARATHY, SR. MANAGER, FINANCE ' ! 0 4 / DATE OF HEARING : 01.08.2017 5, 0 4 / DATE OF PRONOUNCEMENT : 17.08.2017 /ORDER PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI (CIT(A) FOR SH ORT) DATED 03.10.2016, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING IT S ASSESSMENT U/S. 143(3) R/W S. 92CA OF THE INCOME TAX ACT, 1961 (THE ACT HEREINA FTER) FOR THE ASSESSMENT YEAR (AY) 2011-12 VIDE THE ORDER DATED 30.03.2015. 2. THE SHORT ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY OF THE DISALLOWANCE U/S. 10A IN RESPECT OF SUMS AGGREGATIN G TO . 82,65,111/-, DETAILED AS UNDER: 2 ITA NO.3428/MDS/2016 (AY 2011-12) DY. CIT V. AJUBA SOLUTIONS INDIA PVT. LTD. THE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT TH ESE SUMS, IMPERMISSIBLE FOR DEDUCTION IN COMPUTING BUSINESS I NCOME U/S. 28, COULD NOT THEREFORE BE REGARDED AS PART OF THE INCOME DERIVED BY THE ASSESSEES ELIGIBLE UNDERTAKING, SO AS TO QUALIFY FOR DEDUCTION U/S. 10 A, I.E., TO THE EXTENT IT IS FROM EXPORT. THE ASSESSEES OBJECTIONS THERETO FINDING F AVOUR WITH THE LD. CIT(A), THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE ARE COMPLETELY UNABLE TO APPRECIATE THE REVENUE S STAND. THE PROFITS AND GAINS OF THE UNDERTAKING BEING NOT DEFINED U/S . 10A, THE SAME CAN ONLY BE REGARDED AS THAT CHARGEABLE U/S. 28, I.E., AS COMPU TED, IN TERMS OF SEC. 29, IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 30 TO 43 D. THE ONLY CONDITION IS THAT THE SAME MUST BE DERIVED BY AN ELIGIBLE UNDERTAKING, AND ON WHICH ASPECT WE OBSERVE NO DISPUTE. THE SUMS DISALLOWED IN COMPUTIN G THE PROFIT AND GAINS CHARGEABLE TO TAX U/S. 28 DO NOT CHANGE THE CHARACT ER OF THE INCOME UNDER REFERENCE, WHICH CONTINUES TO BE THE SAME, BUT ONLY ITS QUANTUM. IN OTHER WORDS, THE DISALLOWANCE WOULD ONLY IMPACT THE QUANTUM AND NOT THE NATURE OF THE INCOME DERIVED BY THE ASSESSEES UNDERTAKING. COMIN G TO THE ADJUSTMENTS UNDER REFERENCE, CLEARLY, THE PROVISION FOR GRATUITY AND FOR LEAVE ENCASHMENT, DISALLOWED U/S. 40A(7) AND S. 43B RESPECTIVELY, ONL Y ARTIFICIALLY INFLATE THE PROFITS OF THE UNDERTAKING ITSELF. THE ADD BACK OF WEALTH-TAX U/S. 40(A)(IIA), AGAIN, SEEKS TO RESTORE THE PROFIT TO THAT OF THE A SSESSEES BUSINESS. IT IS IN FACT THIS POSITION THAT HAS BEEN ADMITTED BY THE BOARD P ER ITS CIRCULAR NO.37/2016 DATED 02.11.2016, ISSUED IN THE CONTEXT OF PROFIT L INKED DEDUCTIONS UNDER S.NO. PARTICULARS AMOUNT (RS.) 1. PROVISION FOR GRATUITY NOT ALLOWABLE U/S. 40A(7) 5189969 2. PROVISION FOR LEAVE ENCASHMENT U/S. 43B 3073512 3. WEALTH TAX U/S. 40(A)(IIA) 1630 TOTAL 8265111 3 ITA NO.3428/MDS/2016 (AY 2011-12) DY. CIT V. AJUBA SOLUTIONS INDIA PVT. LTD. CHAPTER-VIA. THE SAME SHALL APPLY IN PRINCIPLE TO D EDUCTION U/S. 10A AS WELL AND, AS SUCH, STANDS RIGHTLY RELIED UPON BEFORE US. THE DECISION IN DY. CIT V. RAMESHBAI C.PRAJAPATI [2013] 140 ITD 486 (AHD.), RELIED BY THE REVENUE, SPEAKS OF DISALLOWAN CES OF PENAL NATURE, WHICH WE FIND AS ABSENT IN THE PRESENT CASE. EVEN SO, BRE ACH OF LAW CANNOT BE REGARDED AS AN INCIDENCE OF BUSINESS, WHICH IS THE PREMISES OF THE DISALLOWANCE U/S. 37(1) OF SUMS PAID BY WAY OF PENALTY OR FINE (REFER, INTER ALIA , HAZI AZIZ & ABDUL SHAKOOR BROTHERS. V. CIT [1961] 41 ITR 350 (SC); INDIAN ALUMINUM CO. LTD., V. CIT [1971] 79 ITR 514 (SC); SWADESHI COTTON MILLS CO. LTD. V. CIT [1998] 233 ITR 199 (SC)). THE NON CONSIDERATION OF SUCH DISALL OWANCE FOR THE PURPOSE OF DEDUCTION U/S. 10A, ET.AL IS PERHAPS GUIDED BY THE OVERARCHING CONSIDERATION NOT TO EXTEND THE BENEFIT OF THE BENEVOLENT PROVISIONS TO BREACHES OF LAW, DEFEAT AS IT WOULD, THE DISALLOWANCE U/S. 37(1). AS AFORESAID, T HE PRESENT CASE IS NOT MARKED BY ANY PAYMENT OF PENAL NATURE, FOR THE SAID DECISI ON TO APPLY. THE PROVISION FOR GRATUITY AND LEAVE ENCASHMENT ARE, IN FACT, IN PURS UANCE TO SOUND ACCOUNTING POLICIES AND, RATHER, MANDATED BY THE ACCOUNTING ST ANDARDS RECOGNIZED UNDER COMPANY LAW (S. 211(3C) OF THE COMPANIES ACT, 1956) . THE PAYMENT OF WEALTH- TAX IS AGAIN ONLY TOWARD DISCHARGE OF A STATUTORY O BLIGATION. THE DISALLOWANCES U/S. 40A(3); 40A(7); S. 43B, ETC., IT MAY BE NOTED, DO NOT INVOLVE BREACH OF ANY LAW FOR THE TIME BEING IN FORCE, BUT ONLY MANDATE T HE SUBSTANTIVE RESTRICTIONS IN COMPUTING THE BUSINESS INCOME CHARGEABLE U/S. 28, A ND WHICH WE HAVE REGARDED AS THE BASIS FOR DETERMINING THE PROFIT AND GAINS O F AN UNDERTAKING EXIGIBLE TO DEDUCTION U/S. 10A. THE LD. CIT(A) HAS RIGHTLY RELI ED ON THE DECISION IN RAJ KUMAR EXPORTS V. ASST. CIT [2009-TIOL-8-8-ITAT-MAD], WHERE THE DISALLOWANCE UNDER REFERENCE WAS U/S. 40A(3). IN VIEW OF THE FOREGOING, WE FIND NO REASON FOR AN Y INTERFERENCE WITH THE IMPUGNED ORDER, WHICH IS ACCORDINGLY UPHELD. WE DEC IDE ACCORDINGLY. 4 ITA NO.3428/MDS/2016 (AY 2011-12) DY. CIT V. AJUBA SOLUTIONS INDIA PVT. LTD. 4. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON AUGUST 17 , 2017 AT CHENNAI . SD/- SD/- ( ' #! ' $ . %& ) (DUVVURU RL REDDY) ' /JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED, AUGUST 17 TH , 2017 EDN 7 0 2'489 :9,4 /COPY TO: 1. -. /APPELLANT 2. 23-. /RESPONDENT 3. ' ;4 ( )/CIT(A) 4. ' ;4 /CIT 5. 9!<= 2'4' /DR 6. =&+ > /GF