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M/s SGS Tekniks Pvt. Ltd. Versus ACIT, Circle-8 (1) , New Delhi And Vica-Versa

2016 (3) TMI 530 - ITAT DELHI

Deduction u/s 80IC - Held that:- We find that the ld. CIT (A) has not admitted the additional evidence and has without deliberating on the merits of the matter has simply stated a line "that for non production of 10CCB and on merits also, he is disallowing the claim of the Baddi unit u/s 80IC." It is a trite law that the onus is on the person claiming expenditure/exemption / deduction under the Act. Since it is the first year of claim of 80IC deduction of the Baddi unit, the burden is on the ass .....

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the counsel, so in the interest of justice, we admit Form 10CCB and we set aside the order of the authorities below and remand the matter back to the file of the AO to adjudicate the claim of the assessee for 80IC for Baddi unit and 80I for Gurgaon unit and direct him to admit Form 10CCB and de novo adjudicate both the claims.

Disallowance of interest - Held that:- Interest on working capital and term loan, which is only ₹ 9,90,825/- and ₹ 3,71,187/- respectively. Further .....

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d that:- We find that the CIT (A) has not considered the depreciation chart furnished by the assessee. We further notice that even the AO has held that whether the asset was put to use or not could not be ascertained. Having regard to the above, it is apparent that the disallowance has been made, without proper investigation and consideration of the facts. We, therefore, restore the matter back to the file of AO, for de novo consideration this issue.

Disallowance on account of subscri .....

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and job work charges - Held that:- Having already held that the claim of 80IC needs to be de novo adjudicated and since this issue is interlinked with that issue, in the fitness of things, we are inclined to remit this issue also to the file of the AO.

Disallowance of of traveling expenses - Held that:- There is no dispute that there is no basis for making the ad hoc disallowance of ₹ 5 lakhs. That being the case, we uphold the conclusion of the ld. CIT (A) and dismiss this gro .....

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s under :- "1. The ITO and the CIT (Appeals) have erred in not allowing deduction u/s 80IC as claimed by the appellant. 2. It is contended that calculation of deduction u/s 80IC is wrong and require revision. 3. It is contended that the CIT(Appeal) had erred in not accepting the additional evidence provided by the Appellant and the CIT(Appeals) had confused himself between the additional evidence and the additional grounds of appeal. 4. It is contended that the Appellant had never raised an .....

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ling Form No.10CCB before the AO, could not lead to disallowance of the claim of deduction u/s. 80IC. Further contended that the AO had never called for the Form No.10CCB from the Appellant. 7. It is contended that the Appellant had fulfilled the conditions of 80IC which also has not been disputed by the lower authorities but for non-filing of Form NO.10CCB such deduction claimed by the Appellant was disallowed. 8. The assessing officer had erred in disallowing interest of ₹ 16,57,972/ - a .....

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pose, which has been allowed in the past and no Second Appeal was preferred by the Department against such relief on this issue granted by the CIT(Appeals) in earlier years. 11. The disallowance of depreciation of ₹ 2,47,703/- on the additions to the factory building of ₹ 24,77,037/- is wrong and bad in law. 12. It is contended that the disallowance of ₹ 2,48,334/ - on account of subscription and membership fee is wrong and bad in law. 13. Deduction u/s. 80G of ₹ 25,500/- .....

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. 19. The appellant prays that he may be permitted to add, to alter or to forego any grounds at the time of the hearing." The Revenue has taken the following grounds of appeal :- "1. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of ₹ 23,22,307/- made by the AO by disallowing deduction claimed by the assessee u/s 80I of the IT Act. 2. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the .....

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t the assessee has made excessive claim because of transfer of profits as mentioned at page 2 of the assessment order. 4. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of ₹ 5,00,000/- made by the AO out of travelling expenses. 5. The appellant craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal." 3. The assessee company is engaged in .....

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income was filed on 23.11.2006 electronically declaring an income of ₹ 53,93,220/-. The case was processed u/s 143(1) of the Act on 19.01.2008. The assessee's case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. In response to these notices, the assessee filed the requisite details/ information. The assessment was completed u/s 143(3) of the Act at a total taxable income at ₹ 4,49,35,360/- by making certain additions/disallowances. 4. Aggrieved, the asses .....

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eduction claimed by the assessee u/s 80I of the Act. 7. Brief facts with regard to deduction u/s 80IC are that the AO, on perusal of the separate financial results furnished by the assessee in respect of its Baddi and Gurgaon units, made the following observations :- Description Baddi Units Gurgaon Units Total income 6,27,11,396/- 25,67,84,790/- Profit 1,36,70,560/- 3,42,43,249/- % of profit 21.80% 13.33% The AO noticed from the above table that the NP rate in respect of Baddi units was 21.80% a .....

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ed certain expenses of Baddi units to Gurgaon units to get higher NP rate for Baddi units on which the assessee had to incur zero tax liability. The AO was of the opinion that profits of Gurgaon units were shifted to Baddi units to that extent. The AO, therefore, observed that the profits and resultant deduction u/s 80I and 80IC were, therefore, required to be recalculated considering the overall financial results of both the units of the company :- Total turnover 31,94,95,885/- Total Profit (as .....

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opinion that the assessee had claimed deduction in excess by an amount of ₹ 61,79,864/- which was only because of transfer of profits from Gurgaon units to Baddi units. 7.1 Further, according to AO, as per provisions of section 80IA (7) of the Act, which also apply to section 80IC, the assessee was required to file a report of audit in Form no.10CCB. But the assessee had not filed the said report. Accordingly, the AO held that the assessee had failed to comply with the provision of sub-se .....

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t stage as and when asked for and the appellant has failed to discharge its onus. It has already been stated that there is no reason to adduce the additional evidence and hence non filing of such details which is a mandatory requirement as per the provision of the law would make the claim liable to be rejected. Even after judging the issue on merit-I find that the appellant has failed to discharge its onus. I agree with the observations made by the AO and disallowance of claim of ₹ 1,28,74 .....

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CIT (A) allowed the deduction u/s 80I after going through the submissions of the assessee. For the sake of clarity, the relevant para of the ld. CIT (A)'s order is reproduced as under :- "Prof. S. Sampat, FCA & AR of the appellant appeared and has made submission from time to time. He stated that the appellant has two units one each at Gurgaon (Haryana) and in Baddi (HP). The Gurgaon unit was getting deduction under 80I for the last 9 years and the present AY being the last AY for s .....

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8377; 23,22,307/ -. However in other provisions of the law under Chapter VIA i.e. 80IA, 80IB or 80IC, there is a requirement of furnishing of certificate in Form 10CCB and it is quite possible that the AO might have carried away by such provisions of the law although for 80I, this is no such requirement for a Company. Section 80I allows deduction @ 30% of profits and gains computed under the Act whereas in section 80IC etc. the admissible amount is 100% thereof. Furthermore section 80I was intro .....

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pect of section 80I in case of the appellant company. Hence the action of the AO is not sustained and the appellant is entitled for the claim of 80I to the extent of ₹ 23,22,307/-." 8. Ld. AR reiterated the submissions made before the ld. CIT (A) and submitted that the AO had not allowed the deduction u/s 80IC mainly due to non filing of Form No.10CCB before him. He agreed that Form No.10CCB was not filed before the AO but the same was filed before the ld. CIT (A) who has not accepted .....

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good faith that was not necessary. He submitted that from the ld. CIT (A)'s order, it is clear that the aforesaid Form was in fact filed under Rule 46A as additional evidence. He submitted that the appeal is a continuation of assessment and for that proposition, relied on the decision of 274 ITR 552 (Mad.). As regards 80I deduction, the ld. AR relied on the order of the ld. CIT (A) and submissions made before him. He pleaded that the issue regarding 80IC deduction may be sent back to the AO .....

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ed that the AO asked the assessee to produce Form No.10CCB but the assessee refused to submit the same. He submitted that there was no reason given by the assessee which prevented the assessee to file the same, and this shows the malafile intention of the assessee. He submitted that before the CIT (A), certificate for both the units were filed and the CIT (A) accepted the certificate of Gurgaon unit because it was the 10th year and previous 9 years, it was allowed by the department, but in respe .....

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he file of the ld. CIT (A) on the issue of deduction claimed under section 80I. 10. We have heard both the sides and perused the material on record. Before discussing the aforesaid issues, we need to first see whether to admit the additional evidence filed in the Form of 10CCB. We find that the assessee has two units i.e. Gurgaon and Baddi. Admittedly, the Gurgaon unit claimed deduction u/s 80I for the 10th year in this assessment year and previously the Department has accepted the claim of the .....

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AO because as per him there is a shifting of profit and non production of Form 10CCB which, according to the AO, is mandatory requirement under law to claim the deduction. Ld. CIT (A) also was of the same opinion though the assessee tried to produce the Form 10CCB along with application for additional evidence under Rule 46A of the Income Tax Rules. We find that the ld. CIT (A) has not admitted the additional evidence and has without deliberating on the merits of the matter has simply stated a .....

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not be granted fully or partly to the assessee. We find that the counsel for the assessee was of the bonafide belief that along with the claim of 80IC and 80I deduction, the Form 10CCB was not required since the accounts of the assessee are audited as per the statute. The assessee cannot be penalized for the bonafide mistake of the counsel, so in the interest of justice, we admit Form 10CCB and we set aside the order of the authorities below and remand the matter back to the file of the AO to a .....

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/- during the year. The AO observed that any amount of interest relatable to this capital work had to be disallowed and capitalized. Further, the AO observed that the assessee had made loans and advances amounting to ₹ 2.42 crores and there was no evidence on record to show that any interest had been charged on the loans and advances given. The AO also observed that as against these elements of capital work in progress and interest free loans/advances given, the assessee had claimed intere .....

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ancing fund towards interest free loan to others. The claim of the Ld AR is that the appellant is the best judge for utilization of it owns fund and such judgement of the appellant neither cannot be dictated nor substituted neither suggested by the revenue. It is not denied that the appellant is the best judge as to where to invest its own fund and that to be for what point of time. It is also admitted that the appellant is to decide as to whether such investment would be made Scheme A or Scheme .....

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there is no commercial prudence in advancing interest free loan to others and if the appellant takes the protection under commercial expediency in choosing the scheme of investment then the revenue is also entitled to examine and draw its conclusion regarding intentional diversion of fund. The appellant has failed to establish that interest free loan was given/advanced for commercial expediency. On the other hand the Ld AO was able to establish that there was one to one correspondence between th .....

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. I hereby confirm the addition made by the AO and action of the AO is sustained." 13. Ld. AR submitted that in assessee's own case in the AY 2005-06, this issue was decided in favour of the assessee by the then ld. CIT (A). He submitted that these were not interest free advances to employees. He took our attention to page 94, 95 & 96 of the paper book and he further submitted that it was suppliers advance against the purchases and no disallowance was made in the past also. He drew .....

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ted for the purposes other than business, disallowance is valid. 15. We have heard both the sides and perused the material on record. From the balance sheet placed before us, we take note that assessee had share capital of ₹ 1,50,82,500/= and reserves and surplus of ₹ 9,26,94,892/= at the end of the year, which are far in excess to the amount invested in capital works in progress of ₹ 1.86 crores and interest free advance of ₹ 2.42 crores. Thus, applying the principles la .....

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the assessee has stated that advances include advance for purchase which are in the course of the business and, therefore, even following the test of commercial expediency, no disallowance is warranted. The AO has held that interest paid @ 15% disallowed on the amount of secured loans of ₹ 2.42 crores is not allowable and, therefore, restricted the disallowance to ₹ 16,57,972/- being the amount of interest actually claimed and the ld. CIT (A) sustained the addition. On this issue, o .....

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n 372187.50 1657972.05 From the above, it is seen that interest on working capital and term loan, which is only ₹ 9,90,825/- and ₹ 3,71,187/- respectively. Further, interest of ₹ 9,90,825/- is for availing facilities of packing credit, bills purchases, OCC and not for any diversion of funds for non-business purposes. Further, it is neither been established such interest on term loan was for capital work-in-progress. Moreover, identical interest has been allowed in the preceding .....

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ord to show that the building was actually put to use during the year, depreciation of ₹ 2,47,703/- @ 10% on the amount of addition to the building was disallowed. Ld. CIT (A) sustained the action of the AO on the ground that details were not filed. 18. Ld. AR submitted that all details were placed on record and drew our attention to page 54 of paper book, giving the details of depreciation claimed. 19. On the other hand, ld. DR relied on the orders of the authorities below and submitted t .....

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notice that even the AO has held that whether the asset was put to use or not could not be ascertained. Having regard to the above, it is apparent that the disallowance has been made, without proper investigation and consideration of the facts. We, therefore, restore the matter back to the file of AO, for de novo consideration this issue. 21. Ground No.12 is against the disallowance of ₹ 2,48,334/- on account of subscription and membership fee. 22. The AO observed that the assessee had cl .....

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d. AR submitted that the membership was taken for the business purposes. He submitted that customers and foreign employees used to stay in these resorts in the name of directors and company. 24. On the other hand, ld. DR relied on the orders of the authorities below and submitted that the director was enjoying these benefits. He submitted that it is a perquisite in nature of personal expenses purely for directors and it was not to socialize or for business relationship. 25. We have heard both th .....

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/-. The AO made the deduction u/s 80G and the ld. CIT (A) sustained the action of the AO as no document was produced either before AO or before him. 27. We have heard both the sides on the issue and perused the material. We find that the ld. AR submitted that the claim may be verified by the AO and given, whereas the ld. DR submitted that the original documents have to be produced before the AO while a claim is made. 28. Having considered rival submissions, we consider it appropriate and just to .....

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rges amounting to ₹ 75,78,346/-. 32. The AO, on perusal of financial statement filed during the course of assessment proceedings, noticed that the assessee company had received a sum of ₹ 55,88,493/- on account of duty draw back ₹ 19,89,853/- (19,19,623/- + 70,230/-) on account of job work charges aggregating to ₹ 75,78,346/- on which deduction u/s 80I was claimed. He observed that this income not being an income from industrial undertaking did not qualify for allowance o .....

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