Mr. Saurabh Dadu, Noida V. ITO, New Delhi

ITA 5572/DEL/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6918 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 3
• Next Hearing Date: 01-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K KAPOOR
• Keywords: Question of law
• Section: 43B; 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : SMC-3 : NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO.5572/DEL/2015 ASSESSMENT YEAR : 2011-12 SHRI SAURABH DADU, A-72, SECTOR-2, NOIDA 201 301 (PAN: AELPD9421K) VS. ITO, WARD-3(3), NEW DELHI (APPELLANT) ( RESPONDENT) ASSESSEE BY : SHRI R.K. KAPOOR, CA DEPARTMENT BY : SHRI ANIL KUMAR SHARMA, SR. DR ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A)-2, NEW DELHI ON 18.6.2015 IN RELATION TO TH E ASSESSMENT YEAR 2011-12 ON THE FOLLOWING GROUNDS:- 1. THAT THE ASSESSMENT ORDER PASSED BY THE AO AND UPHE LD BY THE CIT(A) IN MAKING AN ADDITION OF RS. 13,77,761/- U/S . 40(A)(IA) OF THE I.T. ACT, 1961 ON A STAND ALONE BASIS IS BAD IN LAW, ON UNTENABLE GROUNDS AND BY MAKING ERRONEOUS INTERPRET ATION OF THE PROVISIONS OF SECTION 10A OF THE INCOME TAX ACT , 1961. 2 2. THAT THE AO AS WELL AS CIT(A) HAS GROSSLY ERRED IN LAW IN RESTRICTING THE DEDUCTION AVAILABLE U/S. 10A OF THE INCOME TAX ACT TO THE EXTENT OF AN AMOUNT CERTIFIED IN FORM 56 F. 3. THAT THE AO AS WELL AS CIT(A) OUGHT TO HAVE APPRECI ATED THAT DEDUCTION U/S. 10A NEEDS TO BE COMPUTED BASED ON T OTAL INCOME AS COMPUTED UNDER THE PROVISIONS OF INCOME TAX ACT INCLUDING ANY DISALLOWANCE THAT MAY BE MADE DURING THE ASSESSMENT PROCEEDINGS. 4. THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT PR EJUDICE TO THE OTHER GROUNDS RAISED HEREIN. PRAYER THE APPELLANT ASSESSEE PRAYS THAT THE RELIEF AS PER GROUNDS OF APPEAL ABOVE MAY KINDLY BE ALLOWED TO IT AND THE AP PELLANT MAY ALSO BE ALLOWED TO ADD, DELETE, AMEND OR SUBSTITUTE ANY GROUND(S) OF APPEAL EITHER AT OR BEFORE THE DATE O F HEARING. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED THE RETURN OF INCOME ON 30.9.2011 DECLARING AN INCOME OF RS. 9,50 ,326/-. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. ACCORDINGLY, NOTICE UND ER SECTION 143(2) OF THE INCOME TAX ACT, 1961 DATED 1.8.2012 WAS ISSUED. BES IDES, NOTICE UNDER SECTION 3 142(1) OF THE I.T. ACT DATED 15.10.2013 WAS ALSO IS SUED TO THE ASSESSEE. IN RESPONSE TO THE ABOVE STATUTORY NOTICES, THE AR OF THE ASS ESSEE ATTENDED THE ASSESSMENT PROCEEDINGS AND FILED THE DETAILS AS CALLED FROM TI ME TO TIME. THE SAME WAS EXAMINED. DURING THE YEAR, THE ASSESSEE HAS CLAIME D DEDUCTION U/S. 10A OF THE I.T. ACT, 1961 OF RS. 23,81,354/- AS PER FORM 56F FURNIS HED WITH THE RETURN. THE DEDUCTION U/S. 10A OF THE I.T. ACT, 19061 HAS BEEN WORKED OUT TO RS. 23,81,354/-. BUT THE AO OBSERVED THAT THE CLAIM OF DEDUCTION U/S . 10A OF THE I.T. ACT, 1961 ON ACCOUNT OF DISALLOWANCE MADE U/S. 40(A)(IA) OF THE I.T. ACT, 1961 IS INCORRECT AND AGAINST THE PROVISIONS OF LAW. THEREFORE, HE ASSES SED THE INCOME OF THE ASSESSEE AT RS. 23,28,090/- VIDE HIS ORDER DATED 26.12.2013 PAS SED U/S. 143(3) OF THE I.T. ACT, 1961 AND MADE THE ADDITIONS. 3. AGGRIEVED WITH THE ASSESSMENT ORDER, ASSESSEE AP PEALED BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGNED ORDER DATED 18.6.20 15 HAS UPHELD THE ADDITION MADE BY THE AO AND DISMISS THE APPEAL OF THE ASSESS EE MAINLY ON THE GROUND THAT SINCE ASSESSEE HAS FURNISHED FORM 56F ONLY FOR THE AMOUNT OF RS. 23,82,354/-, THE AO WAS JUSTIFIED IN DENYING THE DEDUCTION FOR THE A DDITIONS MADE U/S. 40(A)(IA) OF THE I.T. ACT, 1961. 4. AGAINST THE ORDER OF THE LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4 5. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASS ESSEE HAS STATED THAT ALTHOUGH ASSESSEE HAS RAISED THREE GROUNDS, BUT ONLY ONE ISS UE IN THIS APPEAL IS THAT WHETHER WHEN A DISALLOWANCE U/S. 40(A)(IA) OF I.T. ACT, 19 61 IS MADE AND INCOME IS ENHANCED BY SUCH DISALLOWANCE, THE ASSESSEE WOULD B E ELIGIBLE FOR THE ENHANCED DEDUCTION U/S. 10A OF THE INCOME TAX ACT OR NOT. H E FURTHER STATED THAT THIS ISSUE OF ALLOWING THE ENHANCED DEDUCTION U/S. 10A, WHEN A N AMOUNT HAS BEEN DISALLOWED, HAS COME UP BEFORE THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. REPORTED IN 330 I TR 175 (BOMBAY) WHEREIN THE HONBLE HIGH COURT HAS ALLOWED THE DEDUCTION U/S . 10A ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE AND, THEREFORE, THE ISSU E INVOLVED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE AFORESAID DECISION. THEREF ORE, HE REQUESTED THAT BY FOLLOWING THE SAME REASONING THE PRESENT ASSESSEES APPEAL MAY BE ALLOWED. 6. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND STATED THAT THE SAME MAY BE AFFIRMED. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. I FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS J EWELLERY INDIA LTD. REPORTED IN 330 ITR 175 (BOMBAY), WHEREIN ON THE IDENTICAL F ACTS, THE HONBLE HIGH COURT HAS HELD THAT WHEN INCOME OF UNDERTAKING, WHICH IS ELIGIBLE FOR DEDUCTION U/S. 10A IS ENHANCED BECAUSE OF CERTAIN STATUTORY DISALLOWAN CE, IT IS AN ENHANCED AMOUNT OF INCOME WHICH WOULD BE ELIGIBLE FOR COMPUTING THE D EDUCTION U/S. 10A. I FIND THAT 5 THE HONBLE HIGH COURT VIDE QUESTION NO. (B) HAS F RAMED THE FOLLOWING QUESTION OF LAW: (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE AO TO GRANT THE EXEMPTION U/S. 10A OF THE ACT ON THE ASSESSED INCOME, WHICH WAS EN HANCED DUE TO DISALLOWANCE OF EMPLOYERS AS WELL AS EMPLOYEES CO NTRIBUTION TOWARDS PF/ESIC. 7.1 THE HONBLE HIGH COURT OF BOMBAY WHILE ADJUDICA TING THE AFORESAID QUESTION OF LAW HAS HELD VIDE PARA NO. 11 & 12 AS U NDER:- 11. FOR THE PURPOSES OF THE APPEAL IT IS NECESSARY TO REFER TO THE ADMITTED POSITION WHICH IS THAT THE ASSESSEE HAD DE POSITED BOTH THE EMPLOYER'S AND THE EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE ASSESSING OFFICER ADDED THESE PAYMENTS TO THE T OTAL INCOME OF THE ASSESSEE AND MADE AN ADDITION IN THE AMOUNT OF RS. 71.59 LAKHS. HOWEVER, FOR THE DEDUCTION UNDER SECTION 1OA, THE A DDITION MADE ON ACCOUNT OF THE EMPLOYEES' CONTRIBUTION WAS IGNORED IN CALCULATING THE PROFITS ELIGIBLE FOR DEDUCTION ON THE GROUND THAT T HESE RECEIPTS WERE 6 NOT GENERATED OUT OF THE MANUFACTURING ACTIVITY OF THE ASSESSEE- COMPANY. 12. BY REASON OF THE JUDGMENT OF THE SUPREME COURT IN CIT V. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 THE EMPLOYER'S C ONTRIBUTION WAS LIABLE TO BE ALLOWED, SINCE IT WAS DEPOSITED BY THE DUE DATE FOR THE FILING OF THE RETURN. THE PECULIAR POSITION, HOWEVE R, AS IT OBTAINS IN THE PRESENT CASE ARISES OUT OF THE FACT THAT THE DISALL OWANCE WHICH WAS EFFECTED BY THE ASSESSING OFFICER HAS NOT, THE COUR T IS INFORMED, BEEN CHALLENGED BY THE ASSESSEE. AS A MATTER OF FACT THE QUESTION OF LAW WHICH IS FORMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSED INCOME WAS ENHANCED DUE TO THE DISALLOWANC E OF THE EMPLOYER'S AS WELL AS THE EMPLOYEES' CONTRIBUTION T OWARDS PROVIDENT FUND/ESIC AND THE ONLY QUESTION WHICH IS CANVASSED ON BEHALF OF THE REVENUE IS WHETHER ON THAT BASIS THE TRIBUNAL WAS J USTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEMPT ION UNDER SECTION 1OA. ON THIS POSITION, IN THE PRESENT CASE IT CANNO T BE DISPUTED THAT THE NET CONSEQUENCE OF THE DISALLOWANCE OF THE EMPL OYER'S AND THE EMPLOYEE'S CONTRIBUTION IS THAT THE BUSINESS PROFIT S HAVE TO THAT EXTENT BEEN ENHANCED. THERE WAS, AS WE HAVE ALREADY NOTED, AN ADD BACK BY THE ASSESSING OFFICER TO THE INCOME. ALL PROFITS OF THE UNIT OF THE 7 ASSESSEE HAVE BEEN DERIVED FROM MANUFACTURING ACTIV ITY. THE SALARIES PAID BY THE ASSESSEE, IT HAS NOT BEEN DISPUTED, REL ATED TO THE MANUFACTURING ACTIVITY. THE DISALLOWANCE OF THE PRO VIDENT FUND/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE STATUTORY PRO VISIONS - SECTION 43B IN THE CASE OF THE EMPLOYER'S CONTRIBUTION AND SECTION 36(V) READ WITH SECTION 2(24)(X) IN THE CASE OF THE EMPLOYEE'S CONTRIBUTION WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. T HE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE ADD BACK TH AT HAS BEEN MADE BY THE ASSESSING OFFICER IS AN INCREASE IN' THE BUS INESS PROFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COM PUTING THE DEDUCTION UNDER SECTION LOA THE ADDITION MADE ON AC COUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OU GHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. THE SECOND QU ESTION SHALL ACCORDINGLY, STAND ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 8. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE HONBLE HIGH COURT BOMBAY IN THE CASE OF CIT VS. GEM PLUS JEWELLERY IN DIA LTD. 330 ITR 175 (BOMBAYT), THE ADDITION IN DISPUTE IS DELETED AND APPEAL OF THE ASSESSEE IS ALLOWED. 8 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20/01/201 7. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATED, 20/01/2017. SRBHATNAGAR COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.