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2015 (12) TMI 400 - ITAT DELHI

2015 (12) TMI 400 - ITAT DELHI - [2016] 45 ITR (Trib) 259 - Deduction u/s 10B - AO was of the view that even a switch over to Section 10B from Section 80IC of the Act was not admissible subsequently, therefore, held that the claim of the assessee for deduction u/s 10B of the Act was not tenable in law - CIT(A) allowed claim - Held that:- In the present case, the claim of the assessee was under the statutory provisions, only when it became eligible for such claim u/s 10B of the Act. In the presen .....

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n 10A or 10B of the Act, particularly when the AO had nowhere stated that the assessee had not fulfilled the conditions necessary for claiming the deduction u/s 10B of the Act, he only disallowed the claim of the assessee by relying upon the provisions of Section 80IC(5) of the Act which are not applicable for this year as the assessee did not claim deduction u/s 80IC of the Act. We, therefore, do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. - De .....

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t of interest at 8% instead of the actual rate of interest at 15%.Accordingly, we do not see any merit in this ground of the departmental appeal. - Decided against revenue

Disallowance u/s 40A(2)(b) on interest on loan - CIT(A) allowed claim - Held that:- The interest has been paid by the assessee on the advances or loans utilized for the business purposes and it is not the case of the AO that the loans or advances on which the interest was paid by the assessee were not used for the b .....

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a net balance of ₹ 1,80,66,403/- is left in the partners capital account. The said contention of the assessee had not been rebutted. We, therefore, by considering the totality of the peculiar facts of the present case, do not see any valid ground to interfere with the findings of the ld. CIT(A). - Decided against revenue- Decided against revenue - ITA No. 5506/Del/2012 - Dated:- 6-11-2015 - N. K. Saini, AM And Beena Pillai, JM For the Appellant : Shri Ashwani Kumar, CA For the Respondent : .....

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ive assessment years beginning with the assessment year relevant to the previous years in which the undertaking begins to manufacture or produce articles or things etc. Ld. CIT(A) has completely overlooked the fact that the basic requirement of section 10B is not fulfilled in as much as assessee had been claiming deduction u/s 80HHC from assessment year 1992-93 to 2003-04 and u/s 80IC from assessment year 2004-05 to 2008- 09 and from this assessment year i.e. 2009-10 the assessee started claimin .....

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the enactment rather than that which will give none and in this case there is no ambiguity at all in the language of Section 10B, which Section was enacted to give special benefit only to exclusively those undertakings which are newly established and 100% export oriented undertaking, while the assessee firm is not a newly established undertaking. 3. The Ld. CIT(A) has erred in law in not following the golden rule of Litera Scripta for interpretation of statutes and has erred in law in making his .....

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d on facts in not adjudicating the issue as to how the assessee can be termed as a New Undertaking for claiming benefit of deduction u/s 10B while it had claimed and had been allowed deduction u/s 80HHC and 80IC in earlier assessment years. 6. The Ld. CIT(A) has erred in law in placing reliance in the case of Maral Overseas Ltd. Vs Addl. CIT(Ind)/SB reported in All India Tribunals Judgments (15th May 2012 Vol. 146 pages 129 to 175) which do not talk about the provisions of Section 10B of IT Act .....

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of total disallowance of ₹ 21,79,448/- made by the AO on account of debit of interest and advancing of interest from loan to Shri Pradeep Windlass and has failed to appreciate that during this period, assessee firm did not have any interest free fund which could have been advanced to Mr. Pradeep Windlass. 10. The Ld. CIT(A) has failed to appreciate that as on 31.03.2008 amount advanced to Shri Pradeep Windlass, partner was ₹ 1,05,57,380/- and thereafter further amounts were advanced .....

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107/- was rightly added to the income of the assessee by the AO. 11. That the order of the Ld. CIT(A) being erroneous in law and on facts be set aside and that of AO be restored." 3. The main grievance of the department in this appeal vide Ground Nos. 1 to 7 relates to the deduction u/s 10B of the Income Tax Act, 1961 (hereinafter referred to as the Act) directed to be allowed by the ld. CIT(A). 4. Facts of the case related to this issue in brief are that the assessee filed the return of in .....

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ing the deduction u/s 10B of the Act. The AO also mentioned that the assessee stated in the Notes to the statement of income that the exemption u/s 10B of the Act was claimed, hence, the deduction u/s 80IC of the Act was not being claimed. According to the AO the deduction u/s 10B of the Act was to be allowed from the profit and gains which were derived directly from export of article or thing etc. and that in the assessee's case the other income of ₹ 3,05,248/- and export incentive of .....

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p of deduction allowed/claimed under Chapter-VI in the preceding years. In response the assessee furnished the chart which has been reproduced at page no. 4 of the assessment order dated 28.12.2011 for the cost of repetition, the same is not reproduced herein. The AO observed that the assessee had been claiming deduction u/s 80IC of the Act, since the assessment year 2004-05 and before that it had been claiming deduction u/s 80HHC of the Act. He further observed that Section 10B of the Act was n .....

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the assessee, no deduction shall be allowed under any other section contained in Chapter-VIA or Section 10A or Section 10B of the Act in relation to the profits and gains of the undertaking or enterprise which clarifies that in the same assessment year once deduction is claimed u/s 80IC, deduction is forbidden u/s 10B of the Act. The AO was of the view that even a switch over to Section 10B from Section 80IC of the Act was not admissible subsequently. He, therefore, held that the claim of the as .....

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It manufactures or produces any article or things or computer software. (3) It should not be formed by splitting up or reconstruction of an existing business. (4) It should not be formed by transfer of machinery or plant, previously used for any purpose, to a new business. (5) The sale proceeds of articles or things or computer software exported out of India should be received in, or brought into, India by the assessee in convertible foreign Exchange, within a period of six months from the end o .....

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ded to claim the deduction from the current assessment year i.e. 2009-2010 (31.03.2009) which happens to be the first full year. Assessee becomes entitled to deduction u/s 10B only once he receives the green card from the competent authority. This he received on 17.09.2007. Assessee firm is a law abiding firm and has no intentions to evade its tax liability. At the same time assessee firm has been claiming the various exemptions provided in the Act as apparent from record for which he was legiti .....

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claimed deduction u/s 80IC and 10B simultaneously during the year under consideration. Section 80IC(5) read with section 80IA(9) bars double deduction during the year. In citation Maral Overseas Ltd. Vs Addl. CIT (Ind.) (SB) reported in All India Tribunals Judgments (15th May 2012 Vol. 146 pages 129 to 175) states as under: 10.9 So far as the objections of the learned CIT(A) regarding conduct of the assessee firm in not claiming the exemption in earlier year is concerned, the approach of the lea .....

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early states that no deduction u/s 80HH, 80HHA, or section 80I or section 80-IA or section 80- IB will be allowed. Section does not spell out any condition for Section 80IC of the Act. 1.5 Assessee is claiming exemption u/s 10B of the Income Tax Act under Chapter-III as the assessee firm is a 100% Export Oriented Undertaking which no where talks about the earnings in Indian rupee only criteria is that it should be 100% export oriented unit and must be earning foreign exchange. Further it will no .....

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eneficial enactment. It is too well known a principle of construction of statues that the Legislature engrafted every part of the statute for a purpose. The legislative intention is that every part of the stature should be given effect. The Legislature is deemed not to waste its words or to say anything in vain and a construction which …….redundancy to the Legislature will not be accepted, except for compelling reasons. Export Incentives/Entitlements and Duty Drawback Kindly refer .....

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(15th May 2012 Vol. 146 pages 129 to 175) states as under: 79. Thus, Sub-section (4) of Section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover to the total turnover. Thus, notwithstanding the fact that Sub-section (1) of Section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in Subsecti .....

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of the business of the eligible undertaking, there is not further mandate in the provisions of Section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction under section 10B is similar to the provisions of Section 80HHC in as much as both the sections mandate determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Expln. (baa) for exclusion of certain inco .....

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purpose of computing deduction under section 10B of the Act. As per the computation made by the AO himself, there is no dispute that both these incomes have been treated by the AO as business income. The CBDT Circular No. 564, dt. 5th July, 1990 reported in (1990) 85 CTR (St) 53: (1990) 184 ITR (St) 37 explained the scope and ambit of s. 80HHC and the mode of determination of profits derived by an assessee from the export of goods. Tribunal, Special Bench in the case of International Research Pa .....

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rs, after considering the decision in the case of Liberty India (supra) held that provisions of s. 10B are different from the provisions of s. 80IA wherein no formula has been laid down for computing the eligible business profit. 80. In view of the above discussion, question No. 2 answered in affirmative and in favour of the assessee. Accordingly, the assessee is eligible for claim of deduction on export incentive received by it in terms of provisions of s. 10B(1) r.w.s. 10B(4). Hence looking in .....

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h by an assessee. The ld. CIT(A) observed that since the assessee had not simultaneously claimed any relief u/s 80IC of the Act, this Sub-section cannot be used to debar the assessee from claiming relief under any of the other sections of Chapter-VIA or Section 10A or 10B of the Act (a reference was made to the decision of the ITAT Bangalore Bench in the case of Mittal Clothing Co. Vs DCIT report at 4 SOT 626). The ld. CIT(A) further observed that Section 80IC(5) of the Act merely prohibits an a .....

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ief u/s 10B of the Act not from the year when he had begun to manufacture or produce any article or thing but when it suited him the most, the ld. CIT(A) observed that the assessee became eligible for relief u/s 10B only with the receipt of necessary approval from the Ministry of Commerce and Industry through their letter dated 17.09.2007 and that the necessary substantive and procedural formalities for claiming relief u/s 10B were fulfilled for the year under consideration, therefore, the asses .....

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ect of such profits and gains as are derived by it from the export of articles or things for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be and that there are also certain procedural conditions attached to the deduction. It was further stated that the assessee firm was constituted in 1950s and claimed to be involved in .....

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as denied to it in assessment year under consideration. The ld. DR further submitted that the assessee claimed to have set-up a new undertaking in assessment year 2004-05, so it was eligible to claim deduction u/s 10B of the Act w.e.f assessment year 2004-05 itself. However, no such deduction was claimed for the assessment years 2004- 05 to 2008-09. It was stated that the deduction u/s 80IC of the Act is available for a total period of 10 assessment years and the assessee had availed the same fo .....

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year 1950 and merely achieved substantial expansion during the previous year relevant to assessment year 2004-05. Therefore, the assessee cannot be called a new industrial undertaking in the assessment year 2004-05 nor it can be said to have begun to produce the articles or things during the previous year relevant to the assessment year 2004-05. It was also stated that the share of the old plant & machinery was beyond the permissible tolerance of 20%, hence, it was not eligible for deduction .....

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ce of the Development Commissioner, Noida, Special Economic Zone, Greater Noida and the permission was granted vide letter dated 21.06.2007 by the concerned authority (a reference was made to page nos. 16 & 17 of the assessee's paper book). It was emphasized that the status of the assessee as an EOU is still continuing, therefore, the assessee was eligible for deduction u/s 10B of the Act and the AO was not justified in rejecting the claim of the assessee which the ld. CIT(A) has allowed .....

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mitted fact that the deduction u/s 10B of the Act is available to an industrial undertaking which is an approved 100% export oriented undertaking by the Board appointed by Central Government of India and it manufactures or produce any article or thing or computer software and has not been formed by splitting up or reconstruction of existing business, it should also not be formed by transfer of machinery or plant previously used for any purpose, to a new business and that the sale proceeds of art .....

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Ministry of Commerce & Industry, Noida (copy of which is placed at page nos. 16 & 17 of the assessee's paper book). However, the assessee was not claiming deduction u/s 10B for the assessment year 2008-09 because the registration was granted in the mid year, therefore, the assessee claimed the deduction u/s 10B of the Act first time for the assessment year under consideration i.e. assessment year 2009-10. The assessee became entitled to claim the deduction u/s 10B of the Act only whe .....

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on 21.06.2007. In the present case, the claim of the assessee was under the statutory provisions, only when it became eligible for such claim u/s 10B of the Act. In the present case, the AO disallowed the claim of the assessee only for the reason that it was earlier claiming the deduction u/s 80IC(5) of the Act. However, the assessee had forgone its earlier claim of deduction u/s 80IC of the Act. In the instant case, the assessee had not simultaneously claimed the relief u/s 80IC of the Act, th .....

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the assessee did not claim deduction u/s 80IC of the Act. We, therefore, do not see any valid ground to interfere with the findings given by the ld. CIT(A) on this issue. 10. The next issue vide Ground No. 8 relates to the deletion of addition of ₹ 2,14,669/- made by the AO by disallowing the interest on unsecured loan advanced to others by observing that it was on higher rate of interest. 11. Facts related to this issue in brief are that the AO restricted the rate of interest allowed on .....

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ce rate of interest allowed on unsecured loan is not justified and is restricted at 8% only. This results in disallowance of interest at ₹ 2,14,669/- which is added to income." 12. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that a similar payment of interest had been allowed in the earlier years, so it should be allowed in this year also. The ld. CIT(A) after considering the submissions of the assessee deleted the disallowance by observing that the .....

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record, it is noticed that the AO had not brought any material on record to substantiate that the interest paid by the assessee to the creditors was not for the business exigencies or that the unsecured loans were utilized by the assessee elsewhere and not for the business purposes. Therefore, there was no justification in restricting the payment of interest at 8% instead of the actual rate of interest at 15%.Accordingly, we do not see any merit in this ground of the departmental appeal. 15. Th .....

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other of the partner. The AO asked the details of the interest paid and copy of account of Shri Pradeep Kumar with the evidence as to what use of such amount had been made by Shri Pradeep Kumar, in reply the assessee submitted as under: "……..copy of account of Mr. Pradeep Kumar Windlass in the books of account of M/s Windlass Steel Crafts for the year ending 31.03.2009 is enclosed. Mr. Pradeep Kumar Windlass had a deposit in the firm from 2001 the balances were as under: Finan .....

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of House at 53 R Rajpur Road, Dehradun. Hence no adverse inference can be drawn from the debit balance of Mr. Pradeep Windlass in the books of accounts of the firm……….." 17. The AO did not find merit in the submissions of the assessee and made the addition of ₹ 21,79,448/- by observing in para 11 of the assessment order dated 08.12.2011 as under: "11. It was thus asserted that no interest was charged from Shri Pradeep because earlier also no interest had bee .....

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.03.2009. During this period, the assessee firm did not have any interest free fund which could have been advanced to Mr. Pradeep Windlass. This is also evident from the fact that total debit of interest in the books of the firm is at ₹ 1,41,87,428/-. Apart from this debit of Interest there is another debit of ₹ 4,00,006/- on account of interest credited in the account of four persons who had given total advance of ₹ 30,66,704/-. Thus, it is seen that on the one hand the assess .....

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/- which interest should have been charged from Shri Pradeep Windlass. But this was not done and as such out of total debit of interest as discussed above an amount of ₹ 21,79,448/- is being disallowed and added to income." 18. Being aggrieved the assessee carried the matter to the ld. CIT(A) who restricted the disallowance to ₹ 17,79,442/- by observing as under: "On a careful consideration of the facts, it is seen that for several years in the past there was a credit balan .....

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f deposits standing in their names. In the interest of parity and fairness this amount of ₹ 21,79,448/- since this outgoing would not be justifiable on deposits made by relatives when no interest is charged on advances made to family members. The Appellant thus gets relief of ₹ 17,79,442/- (Rs. 21,79,448 - ₹ 4,00,006/- = ₹ 17,79,442/-) on this count." 19. Now the department is in appeal. The ld. DR reiterated the observation made by the AO and strongly supported the .....

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