DCIT, New Delhi V. M/s Xansa India Ltd., Noida

ITA 3672/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6527 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 04-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GAURAV GARG
• Assessee Lawyers: T M SHIVAKUMAR
• Keywords: Depreciation; Business expenditure
• Section: 10(14); 10B

Judgement Text

1 ITA NOS. 3264 & 3672/DEL/2013 IN THE INCOME TAX AP PELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 326 4/DEL/2013 (ASSESSMENT YE AR-2007-08) STERIA INDIA LTD. (ESTWHILE XANSA INDIA LTD.) SEAVIEW SPECIAL ECONOMIC ZONE, BUILDING 4, PLOT NO. 20 & 21, SECTOR-135, GAUTAM BUDH NAGAR NOIDA AAACX0385L (APPELLANT) VS ACIT CIRCLE-18(1) NEW DELHI (RESPONDENT) ITA NO. 367 2/DEL/2013 (ASSESSMENT YE AR-2007-08) DCIT CIRCLE-18(1) NEW DELHI (APPELLANT) VS XANSA INDIA LTD. (NOW KNOWN AS STERIA INDIA LTD.,) C-2, SECTOR-1 NOIDA AAACX0385L (RESPONDENT) APPELLANT BY SH. GAURAV GARG, CA RESPONDENT BY SH. T. M. SHIVAKUMAR, CIT(DR) DATE OF HEARING 04.10.2016 DATE OF PRONOUNCEMENT 09.12.2016 2 ITA NOS. 3264 & 3672/DEL/2013 ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED AGAINST THE ORDER DATED 27/12/ 2010 PASSED U/S 143(3). FIRST WE WILL TAKE UP REVENUES APPEAL WHEREIN THE ISSUE IS RELATED TO DELETION OF RS.18,04,65,151 /- BY THE CIT(A) IN RESPECT OF DISALLOWANCE OF 25% OF SUBSTANCE ALLOWAN CE AND SECOND ISSUE IS RELATED TO ALLOWING THE CLAIM OF THE ASSES SEE U/S 10A OF THE INCOME-TAX ACT AT RS.139,09,19,895/- AS AGAINST 31, 85,34,611/- ALLOWED BY THE ASSESSING OFFICER BOTH THE ISSUES. 2. THE LD. AR SUBMITS THAT BOTH THE ISSUES ARE COVE RED AGAINST THE REVENUE. IN ASSESSEES OWN CASE FOR THE EARLIE R YEARS VIDE CONSOLIDATED ORDER DATED 26/9/2016 PASSED BY ITAT D ELHI BENCH BEING ITA NO. 2283/DEL/2011. 3. THE LD. DR SUBMITS THAT THE ASSESSING OFFICER HA S RECORDED FACTS THAT THE ASSESSEE DO NOT HAVE ANY DOCUMENTARY EVIDENCE AS TO HOW 25% OF SUBSTANCES ALLOWANCE PAID BY THE ASSESSE E COMPANY. THUS, THE LD. DR SUBMITTED THAT THE JUDGMENT IN THE EARLIER ASSESSMENT YEAR WAS ON THE BASIS OF ENTIRE AMOUNT W HICH WAS SETTLED IN THE LATER YEARS, THEREFORE, THE ITAT ORD ER WILL NOT BE APPLICABLE IN THE PRESENT ASSESSMENT YEAR. THE LD. DR ALSO RELIED ON THE SECTION 10(14) OF THE ACT IS FOR SPECIAL ALL OWANCE AND IS APPLICABLE IN ASSESSEES CASE. AS REGARDS SECTION 10A OF THE ACT, THE LD. DR SUBMITTED THE CASE LAW OF THE HONBLE DE LHI HIGH COURT 3 ITA NOS. 3264 & 3672/DEL/2013 IN CASE OF CIT VS. KEI INDUSTRIES LTD. (2015) 57 TA XMANN.COM 412 (DELHI). 4. THE LD. AR SUBMITTED THAT THE ITAT ORDER DATED 2 6/9/2016 CLEARLY COVERS THE PRESENT ISSUES IN THE PRESENT AS SESSMENT YEAR. 5. WE HAVE HEARD BOTH THE SIDES IT IS PERTINENT TO NOTE THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05, 20 05-06, 2006- 07, 2007-08 , 2008-09 & 2009-10 WHICH IS A SUBSEQUE NT YEARS, THE ITAT DELHI BENCH HELD BOTH THE ISSUES IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ITAT HELD AS UNDER: 29. ON PERUSAL OF THE ABOVE DECISION IT IS APPAREN T THAT THE 1 ST APPELLATE AUTHORITY HAS CONSIDERED THE PROVISIONS O F SECTION 195 OF THE INCOME TAX ACT AND HELD THAT THIS PAYMENT OF SUBSISTENCE ALLOWANCE IS ONLY A REIMBURSEMENT OF EXPENDITURE WH ICH IS NOT CHARGEABLE TO TAX IN INDIA AND HENCE NO WITHHOLDING TAX WAS REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT AND HENCE PROVISIONS OF SECTION 40A(I) DOES NOT APPLY. EVEN O THERWISE HE HELD THAT SUCH PAYMENT OF SUBSISTENCE ALLOWANCE IF NOT FULLY SPENT FOR THE OFFICIAL PURPOSES OF THE EMPLOYEES TH EN IT WOULD BE CHARGEABLE TO TAX IN THE HANDS OF THE EMPLOYEES ONL Y, AND AS IT IS AN EXPENDITURE OF THE EMPLOYER INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS, WHICH CANNOT BE DISALLOWED IN PARTS. WE ALSO CONCUR WITH THE REASON S GIVEN THAT SUCH SUBSISTENCE ALLOWANCE IS SUPPORTED BY THE EVID ENCE OF THE ACTUAL EXPENDITURE INCURRED FOR OFFICIAL PURPOSES T O THE EXTENT OF 75% AND FOR THE BALANCE 25%, EMPLOYEES HAVE SUBMITT ED A DECLARATION OF HAVING SPENT IN THE SAID AMOUNT IN T HE COURSE OF TRAVEL ABROAD. THEREFORE, WE DO NOT SUBSCRIBE TO TH E ARGUMENT OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT 25% OF EXP ENDITURE HAS BEEN CLAIMED BY THE ASSESSEE WITHOUT ANY EVIDEN CE AS 4 ITA NOS. 3264 & 3672/DEL/2013 EMPLOYEES HAVE CLAIMED SUCH EXPENSES FROM ASSESSEE BY FURNISHING A DECLARATION THAT THIS EXPENDITURE HAS BEEN INCURRED BY THEM. REIMBURSEMENT OF EXPENSES TO THE EMPLOYEES BY EMPLOYER ON THE BASIS OF SELF-DECLARATION FOR SMALL AMOUNTS, FOR WHICH IT IS DIFFICULT AND SOMETIMES CUMBERSOME TO O BTAIN SUPPORTING BY EMPLOYEES, IS COMMON PREVALENT PRACTI CE AND IT IS NOT AN DISALLOWABLE EXPENDITURE. THEREFORE, ALSO WE REJECT THE CONTENTION OF REVENUE THAT BALANCE 25% EXPENDITURE IS WITHOUT ANY BASIS AND EVIDENCE. HE ALSO HELD THAT THE PAYME NT IS BUSINESS EXPENDITURE AS IT IS PAID BY WAY OF SALARY OR REMUNERATION TO THE EMPLOYEES. SIMILARLY HE SET ASI DE THE DISALLOWANCE FOR THE PURPOSE OF VERIFICATION OF THE ASSESSING OFFICER IN CASE IF THE TOTAL AMOUNT OF EXPENDITURE ON SUBSISTENCE ALLOWANCES NOT RELATED TO THE PREVIOUS YEAR AND THE N TO MAKE DISALLOWANCE OF THE EXPENDITURE TO THAT EXTENT, IF IT IS RELATED TO THE EARLIER YEARS. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY QUANTIFICATION MADE BY THE LD. AO ABO UT THE AMOUNT EXPENDITURE RELATED TO PREVIOUS YEAR AND EAR LIER YEARS. THEREFORE WHEN THE ASSESSMENT ORDER DOES NOT MENTIO N ABOUT THE VOUCHERS AND DECLARATION WHICH ARE PERTAINING T O EARLIER YEARS, THEN IN THAT CASE THAT VERIFICATION NEEDS TO BE DONE BY THE A.O. ONLY, HENCE THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN DIRECTING LD. AO TO VERIFY THE CLAIM OF THE ASSESSE E FORM THAT ASPECT AND QUANTIFY THE DISALLOWANCE, IF ANY. IN VI EW OF THIS, WE CONFIRM THE ORDER OF THE FIRST APPELLATE AUTHORITY DELETING THE DISALLOWANCE OF SUBSISTENCE ALLOWANCE EXPENSES AND DISMISS GROUND NO. 3 OF THE APPEAL OF THE REVENUE. THERE ARE NO DISTINGUISHABLE FACTS IN THE PRESENT C ASE AS WELL. 6. IN RESULT, ITA NO. 3672/DEL/2013 OF THE REVENUE IS DISMISSED. 5 ITA NOS. 3264 & 3672/DEL/2013 7. AS RELATES TO ASSESSEES APPEAL, THE LD. AR SUBM ITTED THAT UNOBSERVED DEPRECIATION WHETHER CAN BE REDUCED FROM THE INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER. THE L D. AR SUBMITTED THAT UNOBSERVED DEPRECIATION CAN BE SET OUT WITH AN Y INCOME. THE LD. AR RELIED UPON THE HONBLE KARNATAKA HIGH COURT JUDGMENT IN CASE OF CIT VS. YOKOGAWA 341 ITR 385. THE LD. AR SU BMITTED THAT SECTION 10A DEDUCTION IS IN THE FORM OF DISALLOWANC E ONLY. THE LD. AR ALSO RELIED UPON THE ITAT DELHI BENCH ORDER IN C ASE OF CANAM INTERNATIONAL (P) LTD. VS. ACIT 37 ITR (T) 38. 8. THE LD. DR QUOTED SECTION 32(2) AND FURTHER STAT ED THAT DEPRECIATION MERGED WITH NEXT YEAR FOR WHICH SECTIO N 10A IS CLAIMED IS NOT PROPER AS DEPRECIATION AUTOMATICALLY IS DEDUCTED FROM THE PROFIT. IN THE PRESENT CASE PROFITS WERE SUFFICIENTLY LARGE TO ABSORB DEPRECIATION. IT PARTAKES CURRENT YEAR DEPRE CIATION. SECTION 10A & 10B ARE EXEMPTION SECTIONS AND ARE NOT AT PAR WITH CHAPTER VI OF THE ACT. THE COMPUTATION SHOULD BE IN PRECISE MANNER. THE LD. DR RELIED ON THE DELHI HIGH COURT JUDGMENT IN T HE CASE OF CIT VS. KEI INDUSTRIES. 9. THE LD. AR IN HIS REJOINDER RELIED ON THE HON'BL E SUPREME COURTS ORDER IN CASE OF CIT VS. MOTHER INDIA REFRI GERATORS 155 ITR 711 (SC). THE LD. AR FURTHER SUBMITS THAT SECTION 3 2(2) FALLS IN ALLOWANCE AND SECTION 72(2) CLEARLY SET OUT THAT TH E ALLOWANCE SHOULD BE GIVEN FIRST EFFECT. SET OFF DEPRECIATION IN ANY MANNER CAN BE UTILIZED AND THUS IT LOSES CHARACTERIZING BUSINE SS. THE LD. AR 6 ITA NOS. 3264 & 3672/DEL/2013 SUBMITTED THAT ORDER OF KEI INDUSTRIES DOES NOT APP LY IN THE PRESENT CASE. THE LD. AR ALSO RELIED UPON THE ORDERS OF IT AT DELHI BENCH IN CASE OF DCIT VS. NIIT LTD. (ITA NO. 1112/DEL/2012 D ATED 08.05.2015) AND CIT VS. TEI TECHNOLOGIES (P.) LTD. 361 ITR 36 OF HONBLE DELHI HIGH COURT. 10. WE HAVE HEARD BOTH THE SIDES, THE RELIANCE OF H ONBLE KARNATAKA HIGH COURT JUDGMENT IN CASE OF YOKOGAWA I NDIA LTD. CLEARLY MAKES POINT THAT HOW THE SET OFF OF UNABSOR BED DEPRECIATION HAS TO BE TAKEN INTO ACCOUNT. AS THE INCOME OF THE SECTION 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE LOSS OF THE NON-SECTION 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF THE SECTION 10A UNIT UNDER SE CTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS OR PROFESSION HAS TO BE SET OFF AGAINST T HE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIE D ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 10A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT AL L, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDE RTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSOR BED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DE PRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED F ROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSORBED B USINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD 7 ITA NOS. 3264 & 3672/DEL/2013 NOT ARISE. THE SAME VIEW WAS FOLLOWED BY THE HONBL E JURISDICTIONAL DELHI HIGH COURT IN CASE OF TEI TECHNOLOGIES (P.) L TD. THUS, THE SAID ISSUE IS ALLOWED IN FAVOUR OF THE ASSSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09 TH OF DECEMBER, 2016. SD/- SD/- (S.V. MEHROTRA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09/12/2016 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 8 ITA NOS. 3264 & 3672/DEL/2013 DATE 1. DRAFT DICTATED ON 04.10 2016 PS 2. DRAFT PLACED BEFORE AUTHOR 05.10.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 10.2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 9 .12.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 9 .12.2016 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.