M/S AMRAPALI EXPORTS, JAIPUR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR

ITA 454/JPR/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9426 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 02-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P C BAFNA
• Keywords: Bogus purchase; Rejection of books of accounts; TDS
• Section: 69C; 43B; 40A(3); 143(3); 10AA; 40(a)(ia); 10B; 195; 72; 145(3); 147; 148

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES, JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA- @ ITA NO. 454/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2013-14 M/S AMRAPALI EXPORTS G-40, SEZ, PHASE-II, SITAPURA INDUSTRIAL AREA, JAIPUR CUKE VS. DCIT, CIRCLE-02, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAKFA0905E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. P. C. BAFNA (CA) JKTLO DH VKSJ LS @ REVENUE BY : SMT. MONISHA CHOUDHARY (ADDL.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 16/12/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 05/01/2021 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, JAIPUR DATED 23.01.2019 WHEREIN THE ASSES SEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE VALIDITY OF THE ORDER PASSED U/S 147 OF IT. ACT, 19 61. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF IT ACT , 1961. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF AO IN TREATING THE PURCHASES OF RS. 7,54, 587/- MADE FROM M/S ARIHANT EXPORTS AS BOGUS BY NOT CONSIDERING THE VARIOUS EVIDENCES FILED BY THE ASSESSEE. HE HAS FURTHER ERR ED IN CONFIRMING ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 2 THE ADDITION OF RS. 1,88,647/- BY DISALLOWING 25% O F ALLEGED UNVERIFIABLE PURCHASES OF RS. 1,88,647/- U/S 69C OF IT ACT, 1961. 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 15,092/-, BEING 2% OF RS. 7,54,587/ - ON ACCOUNT OF ALLEGED COMMISSION PAID FOR OBTAINING THE ACCOMMODA TION ENTRY. 5. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN NOT ACCEPTING THE CONTENTION OF ASSESSEE TO RECOMPUTED THE DEDUCT ION U/S 10AA AFTER CONSIDERING THE TRADING ADDITION OF RS. 2,03, 739/- IGNORING THE CBDT CIRCULAR NO. 37/2016 DT. 02/11/2016. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GOLD, SILVER AND BASE MATERIAL JEWELLERY PLAIN & STUDDED WITH PRECIO US & SEMI PRECIOUS STONES. IT HAS SET UP ITS MANUFACTURING AND EXPORT UNIT/FACTORY IN SPECIAL ECONOMIC ZONE AT SITAPURA INDUSTRIAL AREA, JAIPUR A ND HAS STARTED COMMERCIAL PRODUCTION FROM 21.04.2008 AND HAS CLAIM ED DEDUCTION U/S 10AA OF THE ACT. THE ASSESSEE ORIGINALLY FILED ITS RETURN OF INCOME ON 20.09.2013 AT 90,220/- AFTER CLAIMING DEDUCTION U/S 10AA AT RS. 7,21,35,825/-. THE ASSESSMENT WAS COMPLETED U/S 143 (3) ON 27.01.2016 WHEREIN THE RETURNED INCOME WAS ACCEPTED BY THE ASS ESSING OFFICER. SUBSEQUENTLY, BASIS THE INFORMATION OBTAINED FROM I NVESTIGATION WING, MUMBAI THAT THE ASSESSEE HAS OBTAINED BOGUS ENTRIES IN THE FORM OF BOGUS PURCHASES AMOUNTING TO RS. 7,54,587/- FROM M/S ARIH ANT EXPORTS, SURAT, NOTICE U/S 148 WAS ISSUED ON 28.02.2017. IN RESPON SE TO SUCH NOTICE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 10.03.2017 D ECLARING THE INCOME AT RS 90,220/- AFTER CLAIMING DEDUCTION U/S 10AA AT RS . 7,21,35,825/-. THE REASSESSMENT ORDER U/S 143(3) READ WITH 147 WAS PAS SED BY THE ASSESSING OFFICER ON 13.12.2017 WHEREIN THE ASSESSEE WAS FOUN D ELIGIBLE FOR DEDUCTION U/S 10AA TO THE EXTENT OF RS. 7,21,35,825 /- AS ORIGINALLY ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 3 ASSESSED U/S 143(3) OF THE ACT. HOWEVER, BOOKS OF A CCOUNTS WERE REJECTED U/S 145(3) AND A SUM OF RS. 1,88,647/- WAS ADDED BA CK TO THE TOTAL INCOME OF THE ASSESSEE, BEING UNEXPLAINED EXPENDITU RE FOR THE REASON THAT THE ASSESSEE WAS FOUND INDULGING IN OBTAINING ACCOM MODATION ENTRY OF PURCHASE OF GOODS FROM BOGUS CONCERN WHICH WAS OPER ATED BY SHRI RAJENDRA JAIN WITHOUT ANY PHYSICAL DELIVERIES AND S UCH PURCHASES AMOUNTING TO RS 7,54,587/- WERE TREATED AS NON GENU INE AND 25% OF SUCH PURCHASES WERE BROUGHT TO TAX AS UNEXPLAINED EXPEND ITURE BESIDES ADDITION OF RS. 15,092/-, BEING 2% OF RS. 7,54,587/ - ON ACCOUNT OF ALLEGED COMMISSION PAID FOR OBTAINING THE ACCOMMODATION ENT RY. ON APPEAL, THE SAID FINDINGS HAVE BEEN SUSTAINED BY THE LD. CIT(A) AND AGAINST THE SAID FINDING, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE MATTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 190 & 191/JP/2019 FOR A.YS 2009- 10 & 2014-15 DATED 04.11.2019 AND OUR REFERENCE WAS DRAWN TO THE RELEVANT FINDINGS OF THE TRIBUNAL WHICH ARE CONTAIN ED AT PARAS 9 TO 12 OF ITS ORDER WHICH READ AS UNDER. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LIMITED ISSUE UNDER CONSID ERATION IS WHETHER THE ASSESSING OFFICER IS REQUIRED TO RECOMPUTE THE DEDU CTION U/S 10AA AFTER CONSIDERING THE ADDITION OF RS. 2,80,500/- SO MADE BY HIM AND IN THAT SENSE, THE ADDITION SO MADE IS REVENUE NEUTRAL. IN THIS REGARD, WE REFER TO THE CBDT NO. 37/2016 DATED 2.11.2016 WHICH READS 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 ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 4 AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFF ICER MAY MAKE CERTAIN DISALLOWANCES, SUCH A DISALLOWANCES PERTAIN ING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIM ES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. T HE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. D OUBTS 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 CO URTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED I S RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DE DUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE E NHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON A CCOUNT OF NON DEDUCTION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S PROFITS FROM BUSINESS OF DEVELO PING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJ USTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FO R DEDUCTION UNDER SECTION 80- IB OF THE ACT. THIS VIEW WAS TAKEN BY T HE COURTS IN THE FOLLOWING CASES: INCOME-TAX OFFICER-WARD 5(1) V. KEVAL CONSTRUCTION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT COMMISSIONER OF INCOME-TAX IV, NAGPUR V. SUNIL VISHWAMBHARNATH TIWARI IT APPEAL NO. 2 OF 2011, SEP TEMBER 11, 2015, BOMBAY HIGH COURT ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 5 (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 T HE UNDERTAKING 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 V. SURYA MERCHANTS LTD. IT AP PEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHABAD HIGH COURT THE ABOVE VIEWS HAVE BEEN ATTAINED FINALITY AS THES E JUDGMENTS 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 T HE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A) (IA), 40A(3), 43B, ETC. OF THE ACT AND OT HER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGA INST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT D EDUCTION UNDER CHAPTER VI- A IS ADMISSIBLE ON THE PROFITS SO ENHAN CED BY THE DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FIL ED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS AL READY FILED IN COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED.' 10. THOUGH THE AFORESAID CIRCULAR HAS BEEN ISSUED B Y THE CBDT IN THE CONTEXT OF CHAPTER VI-A OF THE ACT, THE DEDUCTION U /S 10AA IS EQUALLY PROFIT- LINK DEDUCTION THOUGH THE FALL UNDER CHAPTE R III OF THE ACT AND THE LEGAL POSITION WHICH HAS BEEN ACCEPTED BY THE CBDT IN THE AFORESAID CIRCULAR WILL EQUALLY APPLIES TO THE DEDUCTIONS CLA IMED SECTION 10AA OF THE ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 6 ACT. IN THE SAID CIRCULAR, THE CBDT HAS ACCEPTED TH E JUDGMENT OF THE VARIOUS HIGH COURTS WHEREIN IT HAS BEEN HELD THAT I F THE EXPENDITURE DISALLOWED IS RELATED TO BUSINESS ACTIVITY AGAINST WHICH DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON ENHAN CED PROFIT WORKED OUT TAKING INTO CONSIDERATION THE DISALLOWANCES SO MADE BY THE ASSESSING OFFICER. 11. THE CO-ORDINATE BENCH IN CASE OF ITO VS. ANTHEL IO BUSINESS TECHNOLOGIES PVT. LTD. 78 TAXMANN.COM 203 (MUMBAI) IN CONTEXT OF DEDUCTION UNDER SECTION 10B RELYING ON THE AFORESAI D CBDT CIRCULAR HAS TAKEN A SIMILAR VIEW AND IT WOULD BE RELEVANT TO RE FER TO THE FINDINGS OF THE CO-ORDINATE BENCH WHICH READ AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUS ED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE AFORE-STATED CBDT CIRCULAR. WE HAVE OBSERVED THAT THE ASSESSEE IS REGISTERED AS A 100% EXPORT ORIENTED UN IT UNDER THE SOFTWARE TECHNOLOGY PARK OF INDIA SCHEME AND THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVISION OF INFORMATION TECHNOLOGY ENABLED SERVICE S AND OTHER BACK OFFICE SUPPORT SERVICES. IT IS ALSO AN UNDISPUTED AND ADMI TTED POSITION BETWEEN BOTH THE PARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10B OF THE ACT AND THE PROFITS OF THE ASSESSEE ARE EXEMPT FROM PAYMENT OF TAXES U/S. 10B OF THE ACT. WE HAVE OBSERVED THAT THE ASSESSEE HAS UNDERTAKEN TOTA L TURNOVER OF RS. 32,76,00,596/- WHICH IS ALSO EXPORT TURNOVER OF THE ASSESSEE AND THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10B OF THE ACT OF RS. 7,60,3 4,821/-. ADDITIONS HAVE BEEN PROPOSED U/S. 40(A)(I) OF THE ACT AT RS. 1,49,73,45 5/- BY THE AO VIDE DRAFT ASSESSMENT ORDER, THE DETAILS OF WHICH ARE AS UNDER :- SL. NO. NAME OF THE PARTY AMOUNT (RS) 1 MARK R LUCIW 22,10,258/ - 2 GARRY O NEIL 1,04,57,012/ - 3 BRUCE SUGAARMAN 21,70,629/ - 4 JOHN BLYZINKYL 1,35,5 56/ - TOTAL 1,49,73,455/ - THE ABOVE EXPENSES WERE INCURRED BY THE ASSESSEE TO WARDS 'SALES AND MARKETING EXPENSES' FROM WHICH THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. ADDITIONS WERE PROPOSED BY THE A.O. OF RS. 1,49,73,455/- IN HIS DR AFT ASSESSMENT ORDER WHICH WAS RESTRICTED BY THE LD. DRP VIDE ORDER DATED 29TH NOV EMBER, 2014 TO AN AMOUNT OF ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 7 RS. 1,35,556/-. WITH RESPECT TO THE PAYMENTS OF RS. 1,48,37,899/-, THE DRP DIRECTED TO DELETE THE SAME AS THE ASSESSEE HAS SUB MITTED THE NOTARIZED COPIES OF PASSPORTS, WHICH AS PER DRP PROVED THAT THREE INDIV IDUALS AT S. NO 1 TO 3 IN ABOVE CHART DID NOT VISIT INDIA DURING THE RELEVANT YEAR. HENCE, THE DRP DIRECTED THAT SAID PAYMENTS WILL NOT BE SUBJECT TO WITHHOLDING TA X U/S. 195 OF THE ACT AND ACCORDINGLY THESE PAYMENT CANNOT BE DISALLOWED U/S. 40(A)(I) OF THE ACT.. THE DRP HELD THAT THESE PAYMENTS TO THE TUNE OF RS. 1,4 8,73,455/- ARE TO BE ALLOWED, WHILE, WITH RESPECT TO THE 4TH PERSON MR. JOHN BLYZ INSKYJ, THE PAYMENT OF RS. 1,35,556/- WITHOUT DEDUCTION OF TAX AT SOURCE HAD R EMAINED UNSUBSTANTIATED AND THE LD. DRP CONFIRMED THE ADDITION OF RS. 135,556/- BY ISSUING DIRECTIONS U/S. 144C(5) OF THE ACT, WHICH ADDITIONS WERE CONFIRMED BY THE AO IN HIS ASSESSMENT ORDER DATED 17.12.2014 PASSED U/S. 143(3) OF THE AC T R.W.S. 144C(13) OF THE ACT IN PURSUANCE OF DIRECTIONS OF DRP.. WE HAVE OBSERVED T HAT THE CBDT HAS ISSUED CIRCULAR NO. NO. 37/2016 DATED 2ND NOVEMBER, 2016, WHICH IS REPRODUCED BELOW: 'SECTION 80-IB, READ WITH SECTIONS 32, 40(A)(IA), 4 0A(3) & 43B, OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS - CHAPTER V IA DEDUCTIONS ON ENHANCED PROFITS CIRCULAR NO. 37/2016 [F.NO. 279/MISC./140/2015/ITJ] , DATED 2-11- 2016 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 M AKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40 (A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC E XPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS A N INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER P ROFITS 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 GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI- A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME I LLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: ( I ) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE P URPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF NON-DEDUCTION OF TDS UN DER LAW, SUCH ( II ) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS N OT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY TH E COURT IN THE FOLLOWING CASE: ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 8 DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S P ROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMATE PROFIT S OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SE CTION 40(A)(IA) OF THE ACT WOULD QUALIFY FOR DEDUCTION UNDER SECTION 8 0- IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME - TAX OFFICER - WARD 5(1) V. KEVAL CONSTRUCTION [2013] 33 TAXMANN.COM 277 (GUJ.) COMMISSIONER OF INCOME - TAX - IV, NAGPUR V. SUNIL VISHWAMBHARNATH TIWARI [2016] 63 TAXMANN.COM 241 (BOM.) PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. [2016] 72 TAXMANN.COM 16 (ALL.) . THE ABOVE VIEWS HAV E ATTAINED FINALITY AS THESE JUDGMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEP ARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SE TTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA ), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI- A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBL E BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY TH E DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED O N THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS/TRIBUNALS MAY B E WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED.' THE SUM, SUBSTANCE AND SPIRIT OF THE AFORE-STATED C IRCULAR IS THAT THE REVENUE DOES NOT WANT TO CONTINUE THE LITIGATION WITH RESPE CT TO DISALLOWANCE MADE BY THE REVENUE U/S. 32,40(A)(IA), 40A(3), 43B ETC. OF THE ACT, WHICH ULTIMATELY LED TO INCREASE IN PROFITS WHICH ARE OTHERWISE ELIGIBLE FO R PROFIT LINKED DEDUCTION UNDER CHAPTER VI-A OF THE ACT. THE BOARD HAS ACCEPTED THA T THE DISALLOWANCE MADE U/S. 32, 40(A)(IA), 40A(3), 43B ETC. OF THE ACT AND OTHE R DISALLOWANCE OUT OF SPECIFIC EXPENDITURE RELATED TO THE BUSINESS ACTIVITY MAY BE MADE BY REVENUE WHICH LED TO ENHANCEMENT OF PROFITS AGAINST WHICH CHAPTER -VIA P ROFIT LINKED DEDUCTIONS HAS BEEN CLAIMED AND IT IS ACCEPTED THAT ENHANCED PROFI T LINKED DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANC ED BY THE SAID DISALLOWANCE MADE BY THE REVENUE. WE FIND THAT THE REVENUE'S APP EAL AND THE ASSESSEE'S CROSS OBJECTION ARE DULY COVERED BY THE CBDT CIRCULAR ALT HOUGH SECTION 10B OF THE ACT IS NOT PLACED UNDER CHAPTER VI-A OF THE ACT RATHER THE SAME IS PLACED UNDER CHAPTER-III OF THE ACT BUT THE DEDUCTIONS U/S. 10B OF THE ACT ARE PROFIT LINKED DEDUCTIONS AND HENCE THERE IS NO REASON WHY THE SAM E SHOULD NOT BE ALLOWED KEEPING IN VIEW THE SPIRIT OF AFORE-STATED CBDT CIR CULAR AS THE DEDUCTION U/S. 10 B OF THE ACT IS ALSO PROFIT LINKED DEDUCTION. SIMIL ARLY, IT IS STATED IN THE CIRCULAR ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 9 ABOUT DISALLOWANCE U/S. 40(A)(I) OF THE ACT WHICH I S SUCCEEDED BY THE WORD 'ETC' WHEREIN THE CIRCULAR HAS STATED AS UNDER: 'IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS A CTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DIS ALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE AC T.' THE USE OF THE WORD 'ETC.' CLEARLY DENOTES THAT IT WILL APPLY TO SIMILARLY PLACED DISALLOWANCES AND DISALLOWANCE U/S. 40(A)(I) OF THE ACT IS ALSO DISALLOWANCE DUE TO NON-DEDUCTION OF WITHHOLDING TAX AS IS CONTEMPLA TED BY SECTION 40(A)(IA) OF THE ACT. HENCE THE CBDT CIRCULAR WILL BE APPLICABLE TO DEDUCTIONS U/S. 10B OF THE ACT AS WELL TO DISALLOWANCE U/S. 40(A)(IA) OF THE ACT A S WELL. HENCE THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE/MAINTAINABLE IN VIEW OF AFORE-STATED CBDT CIRCULAR DATED 02-11-2016 AND WE DISMISS THE APPEAL FILED BY THE REVENUE, WHILE THE C.O. FILED BY THE ASSESSEE IS ALLOWED AS THE ADDITIONS O F RS. 1,35,556/- MADE BY THE AO ARE W.R.T. DISALLOWANCE U/S. 40(1)(IA) OF THE ACT. IN ANY CASE THIS ISSUE IS ALSO COVERED BY DECISION OF HON'BLE JURISDICTIONAL BOMBA Y HIGH COURT IN FAVOUR OF THE ASSESSEE IN GEM PLUS JEWELLERY INDIA LTD.'S CASE (S UPRA) AS DISALLOWANCE U/S. 40(A)(I) OF THE ACT IS A STATUTORY DISALLOWANCE AND THE HENCE ENHANCED PROFITS DUE TO DISALLOWANCE SHALL BE CONSIDERED FOR DEDUCTION U /S. 10B OF THE ACT. WE ORDER ACCORDINGLY. 12. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10AA OF THE ACT. IT IS A LSO NOT IN DISPUTE THAT THE ASSESSEE HAS ONLY ONE BUSINESS UNDERTAKING WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GOLD, SILVE R AND BASE MATERIAL JEWELLERY PLAIN & STUDDED WITH PRECIOUS & SEMI PREC IOUS STONES SITUATED AT SITAPURA INDUSTRIAL AREA, JAIPUR AND THE TOTAL TURN OVER OF THE BUSINESS IS EQUIVALENT TO THE TOTAL TURNOVER OF THE UNDERTAKING AS WELL AS THE EXPORT TURNOVER. THE EXPENDITURE TO THE EXTENT OF 25% OF P URCHASES WHERE ARE HELD AS NON-GENUINE AND DISALLOWED BY THE ASSESSING OFFICER RELATES TO THE SAME BUSINESS ACTIVITY OF MANUFACTURE AND EXPORT IN RESPECT OF WHICH ASSESSEE IS HELD ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10AA OF THE ACT. THE DEDUCTION UNDER SECTION 10AA THEREFORE NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS AFTER TAKING INTO CONSIDERATION TH E DISALLOWANCE OF RS 2,80,500 IN LIGHT OF ACCEPTED LEGAL POSITION BY THE CBDT AND FOLLOWING THE CONSISTENT POSITION TAKEN BY THE CO-ORDINATE BENCHE S. THE ASSESSING ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 10 OFFICER IS THEREFORE DIRECTED TO RECOMPUTE THE DEDU CTION U/S 10AA TAKING INTO CONSIDERATION THE ADDITION OF RS. 2,80,500/. I N THE RESULT, THE GROUND NO. 5 OF THE ASSESSEES APPEAL IS ALLOWED. 4. PER CONTRA, THE LD. DR SUBMITTED THAT THE ADDITI ON HAVE BEEN MADE U/S 69C WHICH IS A DEEMING PROVISION AND THE SAME C ANNOT BE CONSIDERED FOR BENEFIT U/S 10AA WHICH IS RESTRICTED TO THE PRO FIT AND GAINS DERIVED FROM EXPORT. IT WAS FURTHER SUBMITTED THAT THE CIRC ULAR NO. 37/2016 DATED 21.01.2016 REFERRED BY THE AR IS IN THE CONTEXT OF DEDUCTION ON ENHANCED PROFITS UNDER CHAPTER VIA WHEREAS IN THE PRESENT CA SE, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10AA WHICH FALLS UNDER CHAPTE R II OF THE ACT. 5. AFTER HEARING BOTH THE PARTIES AND GOING THROUGH THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE MATTER HAS BE EN EXAMINED AT LENGTH BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.Y 2009-10 AND 2014-15 WHEREIN SIMILAR CONTENTIONS WERE ADVANCED B Y THE LD DR AND CONSIDERING THE SAME, THE AO WAS DIRECTED TO RECOMP UTE THE DEDUCTION U/S 10AA TAKING INTO CONSIDERATION THE ADDITIONS SO MADE BY HIM. CONSIDERING THE FACT THAT THERE ARE NO CHANGES IN T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, FOLLOWING THE DE CISION TAKEN BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR A.YS 20 09-10 & 2014-15, THE ASSESSING OFFICER IS HEREBY DIRECTED TO RECOMPUTE T HE DEDUCTION U/S 10AA TAKING INTO CONSIDERATION THE ADDITION OF RS. 2,03, 739/- MADE BY HIM. IN THE RESULT, THE GROUND NO. 5 OF THE ASSESSEES APPE AL IS ALLOWED. 6. IN VIEW OF THE ABOVE, REST ALL GROUNDS TAKEN BY ASSESSEE HAVE BECOME ACADEMIC IN NATURE AND THE SAME ARE THUS DIS MISSED AS INFRUCTUOUS. ITA NO. 454/JP/2019 M/S AMRAPALI EXPORTS, JAIPUR VS. DCIT, JAIPUR 11 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISP OSED OFF IN LIGHT OF AFORESAID DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 05/01/2021. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 05/01/2021 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S AMRAPALI EXPORTS, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CIRCLE-02, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 454/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR