TMI Blog2010 (4) TMI 1106X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on 18.11.2005 u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the Act ] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 26.12.2005.During the course of assessment proceedings, the AO noticed that the assessee claimed deduction of ₹ 9,72,537/- u/s 80IB of the Act. As per D.I.C. Registration Certificate, manufacturing activity is stated to have commenced on 30-03-2004 while the factory license was issued only on 23-04-2004. The AO further noticed that in terms of provisions of section 6 of the Factories Act, factory cannot be started without factory license. To a query by the AO, seeking to disallow claim for deduction u/s 80IB of the Act, the assessee replied that they commenced activity of the industrial undertaking in the latter part of March, 2004 with the aid of power and employing more than 10 persons. Since the assessee fulfilled the conditions stipulated u/s 80IB of the Act, the assessee was entitled to the said deduction. However, the AO did not accept these submissions of the assessee on the ground that the assessee did not furnish any third party evidence in respect of commencement of manufacturing activity on 30-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of the Hon'ble Supreme Court, Bombay High Court Madras High Court discussed below;- (a) The Hon'ble Supreme Court in the case of Biharilal Jaiswal (217 ITR 746) has stated as under:- Registration confers a substantial benefit upon the partnership firm and its members. There is no reason why such a benefit should be extended to persons who have entered into a partnership agreement prohibited by law. One arm of law cannot be utilized to defeat the other arm of law. Doing so would be opposed to public policy and bring the law into ridicule. It would be wrong to think that white acting under the Income-tax Act, the Incometax Officer need not look to the law covering the partnership which is seeking registration. (b) The Hon'bie Bombay High Court in the case of A.H. Bhiwandiwala (AIR 195S BOM 1611. wherein the Hon'bie Bombay Hioh Court stated as under:- It is held that failure to apply for the registration of factory as well as failure to apply for the grant of a licence is punishable within the regard to the first default, however, it may not be possible to hold that the contempt of the defaulter constitutes a continuing offence. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof by assessees who come forward with claims for deductions, despite the patent violation of the other applicable laws with regard to the claim so made. The computation of the profits and gains of business or profession is not required to be made on the basis that the business can be carried on only by ignoring, or by violating the provisions of other applicable statutes and any and every outgoing allowed as a deduction, even when such outgoing was in whole or in part, a result of the violation of other applicable laws. The ascertainment of commercial profits permissible in certain contexts also does not require that the infraction of the law is to be wholly ignored and the profit as determined by the assessee in its balance-sheet or profit and loss account adopted without further question as the proper basis on which the income-tax assessment should be made. It would be against public policy to allow the benefit of deduction under one statute or the benefit pf deduction of expenditure incurred in violation of the provisions of another statute. 2.3.5 The Hon'ble Madras High Court in the case of Madras Machine Tools Manufacturers Ltd. Vs. CIT (98-ITR-119) obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee while carrying us through the impugned order submitted that the issue is squarely covered by the decision dated 5.6.2009 of the ITAT in the case of M/s Samrath Health Care in ITA No.1006/Ahd/2009 as also decision dated 11.12.2009 in the case of M/s Priya Printek in ITA No.2742/Ahd/2009. On the other hand, the learned DR supported the findings of the learned CIT(A). 5. We have heard both the parties and gone through the facts of the case. We notice that deduction u/s 80IB has been denied in the year under consideration for want of factory license in the preceding assessment year. Undisputedly, factory license was issued on 23.4.2004 i.e. in the year consideration. In these circumstances, especially when license had been issued on 23.4.2004 and undisputedly, the assessee fulfilled all the conditions stipulated u/s 80IB of the Act, there is no reason to disallow the claim for deduction u/s 80IB of the Act. Even otherwise, the assessee was allowed provisional registration as a Small Scale Industry on 13.2.2004 .Besides, the assessee obtained necessary NOC and power connection . We find that a co-ordinate Bench vide their order dated 05-06-2009 in the case of M/s S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under those Acts. But for that commissions/omission under other Acts the decision under the IT Act cannot be affected unless so provided under the IT Act. We however, notice that this appeal is for AY 2005-06..and as per facts stated in the order by the learned CIT(A) the assessee has obtained factory license on 6-5-2004 which is financial year 2004-05. Therefore, there should be no case for disallowing the claim of the assessee u/s 80IB on the question of not obtaining factory license. As a result, we confirm the order of the learned CIT(A) and dismiss the grounds of appeal of the revenue. 5.1 Similarly, in the case of M/s Priya Printek in ITA No.2742/Ahd/2009, following the decision dated 16.11.2009 of the ITAT in the case of Adarsh Packaging vs. ITO in ITA Nos.2253 and 2254/Ahd/2009 for AYs 2005-06 and 2006-07, the Tribunal concluded vide their order dated 11.12.2009 as under:- 9. In the light of the aforesaid orders of the Ahmedabad Benches of the Tribunal the fact that in the present case the assessee obtained the factory license only on 08-2-2007, before 31-3-2004 is irrelevant for the purpose of section 80IB. The question however remains as to whether the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 31,016/- besides Sterilization Charges - ₹ 2,74,280/-. Since the tax deducted at source from the payments of ₹ 1,02,040/- to Yash Innovative was not deposited to the credit of Government Account while TDS deducted from the payments of ₹ 1,54,613/- to Swastik Industries was deposited to the credit of Government Account on 31 08-2005, and no tax was deducted at source on Transport Charges of ₹ 37,419/- +Rs.39,483/- to Shri D J Patel and Sterilization Charges of ₹ 2,74,280/-, the AO disallowed these payments, having recourse to the provisions of section 40(a)(ia) of the Act. Inter alia the AO observed that if the assessee succeeds at the appellate stage on the issue of deduction u/s 80IB of the Act, the assessee would not be entitled to deduction on the aforesaid disallowances since this income did not form part of business profits. 7. On appeal, the assessee simply stated that deduction should be allowed because the aforesaid disallowance resulted in increase in eligible profits. However, the ld. CIT(A) did not accept these submissions of the assessee and upheld the findings of the AO in the following terms:- 4.3 I have considered the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible for deduction of 100% of the profits and gains derived from its industrial undertaking. The Learned AO found that a sum of ₹ 1,25,073/- is not allowable as business expenditure of the year under consideration because of the provisions of section 40(a)(ia) are that deduction in respect of this business expenditure will be allowed to the assessee in the subsequent year when TDS in respect of this expenditure is deposited by the assessee. However, the Learned Assessing Officer has treated this amount of disallowable expenditure as income from other sources and thereby not allowed deduction under section 80IB in respect of that amount. The Learned Commissioner of Income Tax (Appeals) also confirmed the above action of the Learned Assessing Officer on the ground that allowance of deduction under section 80IB in the year will tantamount to double deduction to the assessee. We find that the undisputed facts of the case are that business expenditure of eligible unit stands disallow in the year under consideration due to application of provisions of section 40(a)(ia). Thus, in other words, the said amount is deemed as expenditure not incurred by the assessee for computing its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder:- 11. In the instant case, we found from the record that the tax payer is an exporter and had filed a return at loss of ₹ 47,27,650/-. The tax payer being exporter is eligible to claim deduction u/s 80HHC subject to the conditions stipulated in the said section. Since the deduction under Chapter VI-A is admissible only when there is positive gross total income, the tax payer obviously could not have claimed deduction under section 80HHC while filing the return or before the A.O. during the course of assessment proceedings. It is seen that as against the loss returned at ₹ 47,27,650/- assessment has been made as positive income of ₹ 33,37,050/-. Therefore, the claim of the tax payer regarding the deduction under section 80HHC needs to be re-computed with reference to the finally assessed income. We direct accordingly. 9.2 Similar view was taken by the ITAT, Mumbai Bench in the case of M/s. Zenith Rubber Plastic Work, 35 TTJ 259. 9.3 On a similar issue in the context of claim for deduction u/s 80HHC of the Act on the additions to the income made by the AO, Hon ble Punjab and Haryana High Court in the case of CIT Vs. Bawa Skin Company, 294 ITR 537 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
