M/s. Uttaranchal Pulp & Paper Mills (P) Ltd., New Delhi V. JCIT, Muzaffarnagar

ITA 6830/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4800 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHRILAKSHY GOYAL S
• Keywords: Business income; Non-deduction of tax; Corroborative evidences; Deemed dividend
• Section: 43B; 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : C : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO.6830/DEL/2014 ASSESSMENT YEAR : 2010-11 UTTARANCHAL PULP & PAPER MILLS (P) LTD., C/O RRA TAXINDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI. PAN: AAACU8255E VS. JCIT, RANGE-I, MUZAFFARNAGAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKESH GUPTA, SHRI SOMIL AGARWAL & SHRILAKSHY GOYAL, ADVOCATES DEPARTMENT BY : SHRI ARUN KUMAR YADAV, SR. DR DATE OF HEARING : 01.08.2018 DATE OF PRONOUNCEMENT : 01.08.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER PASSED BY THE CIT (A) ON 21.10.2014 IN RELATION TO THE ASSESSMENT YEAR 2010-11. ITA NO.6830/DEL/2014 2 2. THE ASSESSEE IS AGGRIEVED, INTER ALIA, BY NON-GRANTING OF DEDUCTION U/S 80IC OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) ON THE ENHANCEMENT OF INCOME DUE TO CERTAIN ADDITIONS/DISA LLOWANCES MADE IN THE ASSESSMENT ORDER. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED RETURN DECLARING TOTAL INCOME AT NIL. IT WAS SO DETERMIN ED BY TAKING `BUSINESS INCOME AT RS.63,87,332/- AND, THEREAFTER, CLAIMING DEDUCTION U/S 80IC OF THE ACT FOR AN EQUAL AMOUNT. THE ASSESSING OFFICER COMPUTED TOTAL INCOME BY MAKING DISALLOWANCE OF RS.29,11,964/- U/S 40(A)( IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE FROM THE PAYMENTS MADE BY THE ASSESSEE U/S 194J OF THE ACT; AND RS.20,97,044/- O N ACCOUNT OF 20% OF PURCHASE OF PADDY HUSK AT RS.1.04 CRORE FOR WANT OF FULL SUPPORTING EVIDENCE. THE ASSESSEE ITSELF OFFERED VOLUNTARY DI SALLOWANCE OF RS.3,93,236/- TOWARDS SECTION 43B AND RS.2,10,395/- ON ACCOUNT VAT PAYABLE. THE ASSESSING OFFICER, WHILE FINALIZING T HE ASSESSMENT MADE THE ABOVE ADDITIONS, BUT, ALLOWED DEDUCTION U/S 80IC OF THE ACT FOR A SUM OF RS.57,83,701/-. THE LD. CIT(A) UPHELD THE ASSESSME NT ORDER ON THIS ISSUE. ITA NO.6830/DEL/2014 3 THE ASSESSEE IS AGGRIEVED BY THE REDUCTION IN THE A MOUNT OF DEDUCTION U/S 80IC OF THE ACT. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT IS EVIDENT FROM THE NATURE OF ADDITIONS MADE BY THE ASSESSING OFFICER, WHICH LED TO THE REDUCTION IN THE AMOUNT O F DEDUCTION U/S 80IC, THAT THE SAME ARE ON ACCOUNT OF BUSINESS TRANSACTIO NS. FIRST DISALLOWANCE OF RS.29.11 LAC IS U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE ON BUSINESS EXPENS ES INCURRED. THE SECOND DISALLOWANCE IS AT 20% OF THE PURCHASES MADE BY THE ASSESSEE FOR WANT OF AVAILABILITY OF COMPLETE VOUCHERS AND THERE ARE OTH ER TWO DISALLOWANCES U/S 43B OF THE ACT. TO SUM UP, THESE ADDITIONS MADE BY THE ASSESSING OFFICER RELATE TO THE BUSINESS ACTIVITY OF THE ELIGIBLE UNI T FOR WHICH THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IC OF THE ACT. THE ASS ESSING OFFICER HAS ALSO NOT DISPUTED THE OTHERWISE AVAILABILITY OF DEDUCTIO N TO THE ASSESSEE. 5. IT IS RELEVANT TO TAKE NOTE OF THE CBDT CIRCULAR NO.37/2016 DATED 02.11.2016 ISSUED IN THE CONTEXT OF DEDUCTIONS UNDE R CHAPTER VI-A ON ENHANCED PROFITS, WHICH READS AS UNDER :- ITA NO.6830/DEL/2014 4 `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 COMPUTING THE PRO FITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DI SALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE C LAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE 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 TH E ENHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GENERAL LY 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 UP HOLDING 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 INCREASE AS SESSEE'S PROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMAT E PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40 (A)(IA) 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 CONSTRUC TION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT, NJR S-2012-LL-1210-45. COMMISSIONER OF INCOME-TAX-IV, NAGPUR VS. SUNIL V ISHWAMBHAMATH TIWARI, IT APPEAL NO.2 OF 2011, SEPTEMBER 11, 2015, BOMBAY HIGH COURT, NJRS-20 15-LL-0911-22. (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 THE UNDERT AKING 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 VS. SURYA MERCHANTS LTD., I .T. APPEAL NO. 248 OF 2015, MAY 03,2016, ALLAHABAD HIGH COURT, NJRS-2016- LL-0503-77. 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 SETTLED POSITION THAT TH E DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40 A(3), 43B, ETC. OF THE ACT ITA NO.6830/DEL/2014 5 AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BU SINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-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 FILE D ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS/ TRIBUNALS MAY BE WITHDRAWN/ NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 6. IT IS APPARENT FROM A BARE PERUSAL OF THE CIRCUL AR THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 43 B AND OTHERS RELATED TO BUSINESS ACTIVITY SHOULD BE CONSIDERED WHILE COMP UTING DEDUCTION UNDER CHAPTER VIA OF THE ACT. IN OTHER WORDS, IF THERE I S AN ENHANCEMENT OF INCOME BECAUSE OF SUCH DISALLOWANCES, THE DEDUCTION S UNDER CHAPTER VIA SHOULD BE GRANTED ON THE ENHANCED INCOME. FURTHER, IT HAS BEEN CLEARLY SPELT OUT IN PARA 4 OF THE CIRCULAR THAT NOT ONLY THE FRE SH APPEALS BE NOT FILED ON SUCH ISSUE, BUT THE APPEALS ALREADY FILED IN COURTS /TRIBUNALS SHOULD BE WITHDRAWN OR NOT PRESSED. TO PUT IT SIMPLY, THE DE PARTMENT HAS ACCEPTED THE POSITION THAT ENHANCEMENT OF INCOME DUE TO THE ABOVE ADDITIONS/DISALLOWANCES SHOULD BE COUPLED WITH THE PROPORTIONATELY INCREASED AMOUNT OF DEDUCTIONS UNDER CHAPTER VI-A O F THE ACT. SINCE ALL THE DISALLOWANCES/ADDITIONS MADE IN THE ASSESSMENT ORDER RESULTING IN THE ITA NO.6830/DEL/2014 6 ENHANCEMENT OF INCOME FALL WITHIN THE NATURE OF DIS ALLOWANCES MENTIONED IN THE CIRCULAR, WE HOLD THAT THE ASSESSEE SHOULD B E ALLOWED DEDUCTION U/S 80IC AT THE ENHANCED AMOUNT OF INCOME RESULTING FRO M SUCH DISALLOWANCES ETC. SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENC H OF THE TRIBUNAL IN SUKAM POWER SYSTEMS LTD. VS. ACIT IN ITA NO.3564/DE L/2010 VIDE ORDER DATED 16.04.2018. 7. GROUND NO.5 CONCERNING CONFIRMATION OF DISALLOWA NCE OF RS.23 LAC IN THE HANDS OF SHRI ASHOK KUMAR TYAGI, BEING, ALLEGE D DEEMED DIVIDEND WAS NOT PRESSED BY THE LD. AR. THE SAME, THEREFORE , STANDS DISMISSED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 01.08.201 8. SD/- SD/- [JOGINDER SINGH] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED,01 ST AUGUST, 2018. DK ITA NO.6830/DEL/2014 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.