ITO, Jaipur V. M/S EROS CRAFTS, Jaipur

MA 37/JPR/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 3902 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 19-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA
• Section: 43B; 10AA

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM M.A. NO. 37/JP/2015 (ARISING OUT OF ITA NO. 876/JP/2012 & CO 78/JP/2012 ) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S EROS CRAFTS, 750 ACHARIYON KA RASTA, KISHANPOLE BAZAR, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 1(4), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AABFE 5392 G VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI O.P. BHATEJA (ADDL.CIT). LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 20/11/2015 MN?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT: 19/01/2016 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THE ASSESSEE HAS FILED THE PRESENT MISC. APPLICATIO N ON 29/07/2015 AGAINST THE ORDER OF THE ITAT, JAIPUR BEN CH, JAIPUR DATED 20/07/2015 PASSED IN ITA NO. 876/JP/2012 & C.O. 78/ JP/2012 FOR A.Y. 2009-10. THROUGH THIS M.A., THE ASSESSEE HAS SUBMIT TED AS UNDER:- 1. THE DEPARTMENT IN GROUND NO.2 HAS CHALLENGED THE ORDER M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 2 OF THE CIT(A) DELETING THE DISALLOWANCE OF INTEREST T O THE EXTENT OF RS.3,09,370/- WHEREAS ASSESSEE IN GROUND NO.L & 1.1 HAS CHALLENGED THE ORDER OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1,31,130/- OUT OF INTEREST EXPEN SES AND FURTHER DIRECTING THE AO TO RECOMPUTE THE INCOME WIT HOUT ALLOWING THE CLAIM OF EXEMPTION U/S 10AA WITH REFEREN CE TO DISALLOWANCE OF INTEREST EXPENSES. 2. THE HONBLE TRIBUNAL HAS DECIDED THIS ISSUE AT PG 25-26, PARA 13 OF THE ORDER WHERE IT HELD THAT CIT(A) HAS WRO NGLY CONCLUDED THAT THE ADVANCES GIVEN TO THE EROS EXPOR TS (WRONGLY MENTIONED AS EROS CRAFTS) WERE FOR BUSINESS PURPOSE AND THEREBY THE DISALLOWANCE MADE BY THE AO OUT OF INTEREST EXPENSES WAS RESTORED. THEREAFTER, THE ASSESSEES ALTERNATE CLAIM THAT DEDUCTION U/S 10AA IS TO BE ALLOWED ON DISALLOWANCE OF INTEREST IS NOT ACCEPTED F OR THE REASON THAT INCOME HAS NOT BEEN DERIVED FROM SEZ UN IT. 3. THE HONBLE ITAT IN GIVING THE ABOVE FINDING HAV E MISTAKENLY OVERLOOKED THE FACT THAT C1T(A) AT PG 12 OF ITS ORDER HAS ALSO HELD THAT ASSESSEE HAS NOT ESTABLISH ED THAT ADVANCES GIVEN TO EROS EXPORTS WAS FOR THE BUSINESS PURPOSE OF THE ASSESSEE BUT STILL THE DISALLOWANCE O UT OF INTEREST EXPENSES WAS REDUCED FOR THE REASON THAT O UT OF TOTAL ADVANCE OF RS. 1,00,65,000/-, ONLY AN AMOUNT OF RS.L 1,50,000/- IS GIVEN OUT OF BORROWED FUNDS AND REMAIN ING ADVANCE IS GIVEN OUT OF INTEREST FREE FUNDS AND THE REFORE M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 3 THE DISALLOWANCE OUT OF INTEREST EXPENDITURE WAS REST RICTED TO RS.L,31,130/-. THIS FACTUAL FINDING OF CIT(A) WAS OVERLOOKED BY THE HONBLE ITAT. FURTHER, THE HONBLE ITAT HAS NOT CONSIDERED THE CONTENTION OF THE ASSESSEE T HAT PARTNERS HAVE NONINTEREST BEARING CAPITAL OF RS.L,21,67,938/- WHICH IS MORE THAN INTEREST FREE A DVANCE GIVEN TO EROS EXPORTS. THEREFORE, A MISTAKE APPARENT FROM RECORD HAS CREPT IN THE ORDER OF HONBLE ITAT IN CON FIRMING THE DISALLOWANCE OF INTEREST AT RS.4,35,500/- 4. THE HONBLE ITAT WITH REFERENCE TO THE ALLOWABILIT Y OF THE EXEMPTION U/S 10AA ON DISALLOWANCE OF INTEREST EXPENDITURE HAS NOT CONSIDERED THE FOLLOWING CASES R ELIED BY THE ASSESSEE WHERE IT WAS HELD THAT IF THE EXPENDI TURE IS DISALLOWED, THE INCOME TO THAT EXTENT WOULD INCREASE AND ASSESSEE WOULD BE ENTITLED TO ENHANCED DEDUCTION U/S 10A/80IB. ITO VS. KEVAL CONSTRUCTION 354 ITR 13 (GUJ.) CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2011) 330 ITR 175 (BOM) VISHAL PAPER INDUSTRIES VS. JCIT 21 ITR (TRIB) 220 (CHANDIGARH) DCIT VS. MAGARPATTA TOWNSHIP DEVELOPMENT & CONSTRUCTION CO. 141ITD 682 (PUNE) M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 4 HONBLE ITAT HAS ALSO MISTAKENLY PRESUMED THAT ON DISALLOWANCE OF INTEREST, THE INCREASED INCOME IS NO T DERIVED FROM THE SEZ UNIT IGNORING THAT ASSESSEE HA S NO OTHER INCOME EXCEPT THE PROFIT FROM THE SEZ UNIT AN D THEREFORE WHEN EXPENDITURE IS DISALLOWED, THE PROFIT OF THE SEZ UNDERTAKING WOULD AUTOMATICALLY INCREASE TO THA T EXTENT ON WHICH DEDUCTION U/S 10AA WOULD BE ALLOWABLE . FURTHER, IN THE ABSENCE OF ANY SPECIFIC PROVISION N OT TO ALLOW THE DEDUCTION U/S 10AA ON DISALLOWANCE OF EXPE NSES LIKE SECTION 92C(4) NOT TO ALLOW THE DEDUCTION IN RE SPECT OF THE AMOUNT WHICH HAS BEEN ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, THE CLA IM OF DEDUCTION U/S 10AA CANNOT BE DENIED ON DISALLOWANCE OF EXPENSES. THEREFORE, NON CONSIDERATION OF VARIOUS DECISIONS AND THE PROVISIONS OF LAW IS A MISTAKE APP ARENT ON RECORD. 5. IN VIEW OF ABOVE, A MISTAKE APPARENT ON RECORD HA S CREPT IN THE ORDER OF HONBLE ITAT AND THEREFORE THE ORDER PASSED BY IT BE SUITABLY MODIFIED. 2. THE M.A. WAS HEARD. THE LD AR OF THE ASSESSEE HAS ARGUED THAT AT THE TIME OF ARGUMENT BEFORE THE HONBLE BENCH FO R DISPOSAL OF APPEAL, IT WAS ARGUED THAT THE DISALLOWANCE OF INTERE ST OUT OF TOTAL INTEREST EXPENSES WAS REDUCED FOR THE REASONS THAT O UT OF TOTAL ADVANCE OF RS. 1,00,65,000/- ONLY AMOUNT OF RS. 11,50,000/- WAS GIVEN OUT OF M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 5 BORROWED FUND AND REMAINING ADVANCE IS GIVEN OUT OF INTEREST FREE FUND. THEREFORE, THIS DISALLOWANCE SHOULD BE RESTRICTED TO RS. 1,31,130/-. FURTHER HE ARGUED THAT PARTNERS HAVE NON-INTEREST B EARING CAPITAL OUT OF WHICH ADVANCES WERE MADE TO EROS EXPORT. THE DISALLOWAN CE IS ALSO QUALIFIED DEDUCTION U/S 10AA OF THE ACT. THE LD AR H AS FURTHER DRAWN OUR ATTENTION ON VARIOUS CASE LAWS CITED BEFORE THE BENCH TO CONSIDER THE INTEREST INCOME AS DERIVED FROM THE SEZ UNIT AS THE ASSESSEE HAS NO OTHER INCOME EXCEPT PROFIT FROM THE SEZ UNIT. 3. AT THE OUTSET, THE LD DR VEHEMENTLY ARGUED THAT THE HONBLE BENCH HAD ALREADY CONSIDERED ALL THE FACTS AND LEGA L ISSUE ON DISALLOWANCE OF INTEREST ON ADVANCES MADE TO EROS EX PORT. THE INTEREST INCOME IS ALSO NOT DERIVED INCOME. THE CASE LAW CITED BY THE ASSESSEE ARE NOT SQUARELY APPLICABLE ON THE ASSESSEES CASE. THEREFORE, REVIEW U/S 254(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) IS NOT PERMITTED UNDER THE LAW. THEREFORE, HE PRAYED TO DISM ISS THE ASSESSEES M.A.. 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD AND AL SO GONE THROUGH THE ORDER OF THIS BENCH DATED 20/07/2015. IT IS A FACT THAT THE ASSESSEE ADMITTED DISALLOWANCE OF INTEREST ON ACCOUNT OF INTE REST BEARING FUND M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 6 BEING INTEREST BEARING FUND ADVANCES TO ONE OF THE PARTNER WITHOUT INTEREST. THE ASSESSEE HIMSELF HAS CALCULATED DISALL OWANCE AT RS. 1,31,030/- WHEREAS THE ASSESSING OFFICER HAS CALCUL ATED THIS DISALLOWANCE AT RS. 3,09,370/-. THIS BENCH HAS CONSI DERED ALL THE FACTS OF THE CASE I.E. INTEREST FREE FUND AVAILABLE AND I NTEREST BEARING BORROWED FUND AND INTEREST FREE ADVANCE TO THE PARTN ER. THERE IS NO BUSINESS EXPEDIENCY FOR ADVANCING THIS LOAN TO PART NER AS NO TRANSACTION WAS MADE BY THE ASSESSEE COMPANY WITH THE PROPRIETORY CONCERN DURING THE YEAR. WE ALSO IS NOT FOUND CONVINCING TH AT OUT OF TOTAL ADVANCE OF RS. 1,0065,000/- ONLY AN AMOUNT OF RS. 1 1,50,000/- WAS GIVEN OUT OF BORROWED FUND. NO SUCH NEXUS HAS BEEN E STABLISHED. THE CASE LAWS RELIED BY THE AR I.E. ITO VS. KEVAL CONSTR UCTION (SUPRA) WHEREIN THE DISALLOWANCE U/S 80-IB(10) OF THE ACT WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADDITION MADE U/S 4 0(A)(IA) OF THE ACT ON PAYMENT OF CERTAIN EXPENDITURE DIRECTLY RELATED TO DEVELOPING HOUSING PROJECT. IN THE CASE OF CIT VS. GEM PLUS JEWE LLERY INDIA LTD. (SUPRA), THE DISALLOWANCE WAS MADE BY THE ASSESSING O FFICER ON EMPLOYER AND EMPLOYEE CONTRIBUTION TOWARDS PF AND E SIC, WHICH IS ALSO DIRECTLY RELATED TO EXPENSES OF EXPORT BUSINESS. IN THE CASE OF VISHAL PAPER INDUSTRIES VS. JCIT (SUPRA), THE ADDITION WAS M ADE ON ACCOUNT OF M.A. NO. 37/JP/2015 M/S EROS CRAFTS VS. ITO 7 UNACCOUNTED PRODUCTION AND IN CASE OF DCIT VS. MAGAR PATTA TOWNSHIP DEVELOPMENT AND CONSTRUCTION CO. (SUPRA), THE ISSUE WAS BEFORE THE BENCH OF DISALLOWANCE U/S 40(A)(IA), 43B AND 35(1)&( VA) OF THE ACT ON ACCOUNT OF PF/ESIC. THEREFORE, THE CASE LAWS CITED BY THE ASSESSEE ARE NOT SQUARELY APPLICABLE ON THE FACTS OF THE CASE AN D REVIEW U/S 254(2) OF THE ACT IS NOT PERMITTED UNDER THE LAW. THEREFORE, WE DISMISS THE ASSESSEES M.A. 5. IN THE RESULT, THE PRESENT MA PETITION IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/01/2016. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 19 TH JANUARY, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S EROS CRAFTS, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 1(4), 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 (M.A. 37/JP/2015) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR