Sukam Power Systems Ltd., Gurgaon V. ACIT, New Delhi

ITA 3564/DEL/2010

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5601 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 27-04-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAUSHLENDRA TIWARI
• Keywords: Business income
• Section: 43B; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH G NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCO UNTANT MEMBER ITA NO. 3564/DEL./2010 ASSTT. YEAR : 2006-07 SUKAM POWER SYSTEMS LTD. PLOT NO. 54, PHASE-VI, UDYOG VIHAR, SECTOR-37, GURGAON VS. ACIT RANGE-9, PROM NO. 185-B, C.R.BUILDING, NEW DELHI (PAN: AAFCS0019P) (APPELLANT) (RESPONDENT) ASSESSEE BY SH. RAKESH GUPTA, ADV., SH. SHANTANU JAIN, ADV. REVENUE BY SH. KAUSHLENDRA TIWARI , SR. DR ORDER PER L.P. SAHU, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(A)-XII, NEW DELHI FOR THE ASSESSMENT YEAR 2006-07 DATED 15 .03.2010 ON THE FOLLOWING GROUNDS OF APPEAL :- 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THAT THE AMOUNT OF RS. 35,77,659 WHICH THE ASSESSEE HAS NOT DEPOSITED AND THEREFORE NOT ALLOWD AS A DEDUCTION UNDER SECTI ON 43B, CAN NOT BE REDUCED FROM GROSS TOTAL INCOME WHILE COMPUTING DED UCTION U/S DATE OF HEARING 2 1 .0 3 .2018 DATE OF PRONOUNCEMENT 16 .0 4 .2018 ITA NO. 3564/DEL./2010 2 80IC ON THE GROUND THAT THE ASSESSEE CAN NOT BENEFI T OUT OF THE DEFAULTS MADE U/S 43B. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME ON 29.11.2006 DECLARING AN INCOME OF RS. 1,77,45,900/- . THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE A SSESSEE. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLIN G OF A RANGE OF PRODUCTS IN THE POWER BACK-UP INDUSTRY SUCH AS INVERTERS, UPS & BAT TERIES, AS IN LAST YEAR. 3. DURING THE COURSE OF SCRUTINY PROCEEDINGS IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS WORKED OUT GROSS TOTA L INCOME OF RS. 22,96.48,192/- AND DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE IN R ESPECT OF THREE UNITS SITUATED AT BADDI (H.P.) AT RS. 20,81,78,950/-. THE ASSESSEE H AD ALLOCATED 93.73% OF ALL OVER EXPENDITURE AT GURGAON UNIT AND HEAD OFFICE OVER TH E THREE UNITS AT BADDI. THE LD. ASSESSING OFFICER OBSERVED THAT SOME STATUTORY DUE S HAS NOT BEEN DISCHARGED BY THE ASSESSEE WITHIN THE DUE DATE AS PRESCRIBED U/S 43B. 4. THE LD. AR DREW OUR ATTENTION ON THE ASSESSMENT ORDER THAT THE ASSESSEE HAS WRONGLY MENTIONED THE DISALLOWANCE U/S 40A WHICH IS ACTUALLY DEDUCTION DISALLOWED U/S 43B FOR THE PROVISION OF BONUS GRATU ITY ETC. THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM BY HOLDING THAT THESE EXPENDITURES ARE IN NATURE OF STATUTORY LIABILITIES AND THE ASSESSEE CANNOT BENEF IT BY MAKING DEFAULT OF STATUTORY LIABILITY IF THE ASSESSEES CONTENTION IS ACCEPTED. THE ASSESSEE WOULD BE BENEFITING BY MAKING DEFAULTS IN PAYMENT OF STATUTORY DUES AND LIABILITIES AND THE AMOUNT HAS WRONGLY BEEN ALLOCATED TO THE BADDI UNITS. IN ADDIT ION TO THIS, THE LD. ASSESSING OFFICER MADE DISALLOWANCE ON OTHER ISSUES ALSO. FEE LING AGGRIEVED FROM THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE APPEALED BEFORE THE LD. CIT(A) AND THE LD. CIT(A) ALSO PARTLY ALLOWED THE APPEAL OF THE ASSES SEE AND SUSTAINED THE ADDITION MADE BY A.O. ON ACCOUNT OF DEDUCTION CLAIMED U/S 80 IC ON THE AMOUNT OF RS. 35,77,659/-. ITA NO. 3564/DEL./2010 3 5. FEELING AGGRIEVED FROM THE ORDER OF THE LD. CIT (A), THE ASSESSEE APPEALED BEFORE INCOME TAX APPELLATE TRIBUNAL ON THE ONE GRO UND AS NOTED ABOVE . 6. THE LD. AR SUBMITTED THAT THE ASSESSEE IS LEGALL Y ENTITLED TO THE CLAIM OF DEDUCTION U/S 80IC ON THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER THE PROFIT AND GAINS OF BUSINESS OR PROFESSION. THE DIS ALLOWANCE HAS BEEN MADE BY ASSESSING OFFICER AS PER SECTION 43B WHICH IS A DIS ALLOWANCE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. THE DEDUCTIO N U/S 80IC IS AVAILABLE ONLY ON THE BUSINESS INCOME COMPUTED AS PER THE PROVISIONS OF THE INCOME TAX ACT. 1961. HE ALSO REFERRED TO SECTION 80 IC AND HE RELIED ON THE FOLLOWING CASE LAWS :- ITO VS. KALBHOR GAWADE BUILDERS (2013) 89 DTR (PUNE TRIB) 185 DATED 30.10.2012. DCIT VS. MAGARPATTA TOWNSHIP DEVELOPMENT & CONSTRUC TION CO. (2012) 79 DTR (PUNE TRIB) 150 DATED 18.09.2012. S B BUILDERS & DEVELOPMERS VS. ITO (2011) 50 DTR 29 9 (MUM ITAT) DATED 14.05.2010. ITO VS. COMPUTER FORCE (2011) 49 DTR 298 (AHMEDABAD ITAT) DATED 30.07.2015. ITO VS. KEVAL CONSTRUCTION (2013) 354 ITR 13 (GUJ. HC) DATED 10.12.2012 CIT VS. BAWA SKIN COMPANY (2007) 294 ITR 537 (P & H HC) DATED 26.07.2007 RAJKUMAR EXPORTS PVT. LTD. VS. ACIT (2009) 4 TMI 47 1 (MADRAS ITAT) 7. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES . HE SUBMITTED THAT THE SECTION 43B RESTRICTS FOR THE NO N-PAYMENT OF STATUTORY DUES WHICH ARE REQUIRED TO BE PAID AS PER THE APPLICABLE LAW OR WITHIN THE DUE TIME OF THE FILING OF RETURN OF INCOME. IF SUCH PRACTICE I S ALLOWED FOR DEDUCTION AS PER CHAPTER VI A, THE ASSESSEE WOULD BE BENEFITTED B Y MAKING DEFAULTS IN PAYMENTS TO THE STATUTORY DUES. THEREFORE, THE LOWER AUTHORI TIES HAVE RIGHTLY DISALLOWED THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE U/S 80IC. 8. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW , WE FIN D THAT THE LD. AO HAS DISALLOWED ITA NO. 3564/DEL./2010 4 DEDUCTION U/S 43B AND DENIED TO MAKE DEDUCTION U/S 80IC ON THE ABOVE AMOUNT OF RS. 35,77,659/- AS BUSINESS PROFIT U/S 80IC. THE ABOVE ADDITION HAS BEEN MADE UNDER THE BUSINESS INCOME HEAD AND THE ADDITION MAD E BY AO IS FOR THOSE UNITS WHICH ARE ELIGIBLE TO CLAIM DEDUCTION U/S 80IC UNDE R CHAPTER VI - A OF THE INCOME TAX ACT, 1961. WE NOTICED THAT THE CBDT HAS ISSUE D A CIRCULAR NO. 37/2016 DATED 2 ND NOVEMBER, 2016 REGARDING DEDUCTION UNDER CHAPTER V I A ON THE ADDITIONS MADE BY THE AUTHORITIES BELOW UNDER THE H EAD PROFIT AND GAINS OF A BUSINESS ACTIVITY WHICH IS AS UNDER :- 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 COMPUT ING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(I A), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDIT URE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREA SE 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 THE E NHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GE NERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS A CTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, THE DEDUCT ION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOL DING THIS VIEW 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 INCRE ASEASSESSEE SPROFITS FROMBUSINESS OF DEVELOPING HOUSING PROJECT. THEULTI MATEPROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(I A) OF THE 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 CONSTRUCT ION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL VI SHWAMBHARNATH TIWARI, IT APPEAL NO. 2 OF 2011, SEPTEMBER 11, 2015 , BOMBAY HIGH COURT. (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NO T ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERT AKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECT ION 80-IB OF THE ITA NO. 3564/DEL./2010 5 ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOW ING 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(A)(IA), 40 A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BU SINESS ACTIVITY AGAINST WHICH THE CHAPTER VL-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTIO N UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALL OWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED 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 BR OUGHT TO THE NOTICE OF ALL CONCERNED. 9. IT IS CLEAR FROM THE ABOVE CIRCULAR ISSUED BY TH E CBDT THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VI -A ON ENHAN CED PROFIT MADE BY THE ASSESSING OFFICER U/S 43B AS CLAIMED BY THE ASSESSE E U/S 80IC OF THE IT ACT, 1961. THE ABOVE CIRCULAR EXPLAINS THE SITUATION WELL. IN OUR CONSIDERED OPINION THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE NO TED CIRCULAR . IN VIEW OF THE ABOVE THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U /S 80IC ON THE ENHANCED PROFIT UNDER THE HEAD BUSINESS INCOME FOR THE ELIGIBLE UNI T . THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 16.04.201 8. SD/- SD/- (BHAVNESH SAINI) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 .04.2018 *BINITA* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT ITA NO. 3564/DEL./2010 6 (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT. REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI DATE INITIAL 1. DRAFT DICTATED ON 12.04.2018 PS 2. DRAFT PLACED BEFORE AUTHOR 13 .04.2018 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 PS/PS 6. KEPT FOR PRONOUNCEMENT ON 16.04.2018 PS 7. FILE SENT TO THE BENCH CLERK 16.04.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.