TMI Blog2017 (3) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... REME COURT ) involving DEPB sales figures. We accept assessee's contentions on merits and reject those raised at Revenue's behest supporting the impugned disallowance. Thus assessee is eligible to claim deduction u/s 80IB on the income from discount (kasar) - Decided against revenue Non treating, interest of received from PGVCL, interest subsidy received from Government of Gujarat through district industrial center and interest from FDR eligible for deduction u/s 80IB(llA) - Held that:- As regards interest received from Government of Gujarat issue is squarely covered in favour of assessee in the case of Commissioner of Income Tax vs. Meghalaya Steels [2016 (3) TMI 375 - SUPREME COURT ] as held the subsidies were only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. Examining the facts of the case in the light of above judgment we are of the considered view that assessee has also received interest subsidy from Govt. of Gujarat for the project undertaken by the assessee eligible for deduction u/s 80IB(11A) of the Act and, therefore, since subsidy received is also a part of profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided in the statute then such expenses cannot be claimed as deduction against the gross revenue. Respectfully following the judgment of Hon. Jurisdictional High Court in the above case, we find no reason to interfere with the order of ld. Commissioner of Income Tax(A) confirming the disallowance with respect to late payment of employees PF. - Decided against assessee. - ITA No. 750/Ahd/2014, ITA No. 796/Ahd/2014 - - - Dated:- 22-2-2017 - Shri Rajpal Yadav, JM Shri Manish Borad, AM. Appellant by Shri Tushar P. Hemani, AR Respondent by Shri James Kurien, Sr.DR ORDER PER Manish Borad, Accountant Member. Asst. Year 2010-11 These two appeals of separate assessees for Asst. Year 2010- 11 are directed against the orders of ld. CIT(A)-XX, Ahmedabad, dated 17.01.2014 24.01.2014 vide appeal No.CIT(A)-XX/187/12-13 and appeal No.CIT(A) -XX/186/12-13 arising out of order u/s 143(3) of the Income Tax Act, 1961 (in short the Act) framed on 22.02.2013 and dated 25.02.2013 by ITO, Wd-2(4), Bhavnagar, respectively. As the issues involved in these appeals are similar, these were heard together and are being disposed of by this common order for the sake of convenienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. 9. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in initiating penalty proceedings u/s 271(l)(c) of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 2. For the purpose of adjudication we will first take up first ITA No.750/Ahd/2014. 3. Briefly stated facts as culled out from the records are that assessee is a partnership firm engaged in the business of manufacturing of dehydrated onion. E-return of income was filed on 25.09.2010 declaring Nil income after claiming deduction u/s 80IB of the Act of ₹ 15,90,488/-. Case was selected manually for compulsory scrutiny and statutory notice u/s 143(2) followed by notice u/s 142(1) of the Act along with detailed questionnaire was issued and duly served upon the assessee. Necessary details as called for were submitted. Gross turnover of the assessee aggregated to ₹ 2,43,39,737/-. Deduction u/s 80IB of the Act was claimed at 15,90,488/-. During the course of assessment proceedings while examining the claim of assessee u/s 80IB of the Act ld. Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less;- Amount of remuneration and interest to partners not debited for the purpose of Enhancement of deduction u/s 80IB as worked out in above para. ₹ 13.44,287/-but restricted ₹ 12.44.184/- Profit from industrial undertaking eligible u/s 80IB... Rs. Nil/- Total income of the business.. Rs. NIL/- Add;- Disallowances/Additions as discussed above i) Interest from GEB ₹ 27,940/- II). Kasar Discount Rs.1,13,499/- III).Interest subsidy Rs.1,96,246/- Asst. Year 2010-11 Interest from FDR . Rs. 10,619/~ iv) Late payment of PF Rs. 31421/- Interest on IDS. Rs. 1452/- Rs.3.81.177/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready entitled for section 80IB deduction. We find that the relevant amount involved is wrongly stated as ₹ 3,00,295/- instead of the correct one coming to ₹ 2,99,153/-. The assessee received discounts from its suppliers on purchases of raw materials and consumables. The Assessing Officer in assessment order dated 21-10-2011 held that these discounts did not qualify section 80IB deduction since not derived from the eligible industrial undertaking. He treated the corresponding discount figure as income from other sources. 5. The CIT(A) confirms Assessing Officer's action as follows:- 7.2 SUBMISSION BY THE APPELLANT:- The appellant submitted before me that the Other Income consists of Discount received of ₹ 2,99,753/- and Exchange Rate Difference of ₹ 1,142/-. The appellant is engaged in manufacturing of specialty chemicals and has received discounts from its suppliers while purchasing raw materials and consumables. Therefore, the said Other Income reduces the purchase cost of raw materials and consumables resulting in increase of manufacturing profits and qualifies for deduction U/s. 80/6 as they are directly derived from the Industrial Underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s manufacturing activities have seen increased since raw material costs have come down due to the impugned discount forming integral part of the manufacturing process. We conclude in these peculiar facts that the authorities below have wrongly equated these facts with those involved in hon'ble apex court decision in Liberty India vs. CIT (2009) 317 ITR 218 (SC) involving DEPB sales figures. We accept assessee's contentions on merits and reject those raised at Revenue's behest supporting the impugned disallowance. Respectfully following the decision of Co-ordinate Bench as observed above we find that the issue is squarely covered by this decision and, Asst. Year 2010-11 we therefore, are of the view that assessee is eligible to claim deduction u/s 80IB of the Act on the income from discount (kasar) of ₹ 1,13,499/-. In the result, this ground of assessee is allowed. 8. Ground no.2 reads as under :- 2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating, interest of ₹ 27,940/- received from PGVCL, interest subsidy of ₹ 1,96,246/- received from Government of Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 the Act. The impugned interest income on which deduction u/s 80IB of the Act has been denied relates to following :- Interest subsidy received from Govt. of Gujarat: Rs. 1,96,246/- Interest received form PGVCL : Rs. 27,940/- Interest on FOR : ₹ 10,619/- As regards interest received from Government of Gujarat at ₹ 1,96,246/-, we find that the issue is squarely covered in favour of assessee in the case of Commissioner of Income Tax vs. Meghalaya Steels 383 ITR 247 (SC) wherein Hon. Court held as under :- that as all the four subsidies were revenue receipts which were reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there could certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. The subsidies were only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. Hon'ble Court decided the above iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is allowed. 13. Ground no.3 4 read as under :- 3. The learned CIT(A) has grossly erred in law and on the facts of the case in confirming the action of Id. AO in notionally reducing an amount of ₹ 13,44, 287 /- on account of remuneration and interest payable to the partners as per the partnership deed from the eligible profit to claim deduction u/s 80IB(11A) of the Act. 4. Both the lower authorities have failed to appreciate that the impugned amount of remuneration and interest was neither debited to Profit loss account nor paid to the partners, and therefore, the same could not have been reduced notionally from the eligible profit to claim deduction u/s 80IB(11A) of the Act. 14. Ld. AR briefing the facts relating to these grounds submitted that during the course of assessment proceedings Assessing Officer found that assessee has not debited remuneration and interest to partners to Profit Loss a/c even though there is a provision for the same in the partnership deed. Ld. Assessing Officer took a view that assessee ought to have paid remuneration and interest to partners and by not doing so, assessee has inflated the profit and resultantly claimed higher ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest so as to ultimately reduce assessee's claim of deduction u/s 80IB(11A). Reliance is placed on: Tulsa Ram Kanhiyalal Sons - (2008) 25 SOT 402 (Jodhpur) (SMC) - Pgs.41-43 of P/B; CIT vs. Mundra Packaging Industries - Tax Appeal No.615-617 of 2006 (Gujarat); ITO vs. M/s. Twina Polyplast - ITA No.2776 3130/Ahd/2010 In light of the above, action of AO and CIT(A) in artificially reducing assessee1 s profit by the amount of interest and remuneration to partners so as to, in turn, reduce the deduction u/s 80IB(11A) is not tenable in the eye of law. 15. On the other hand, ld. Departmental Representative supported the orders of lower authorities and also submitted that assessee firm had to abide by the clauses of the partnership deed and more so there was no supplementary deed entered into by the partners for not providing interest and remuneration for the year under appeal. 16. We have heard rival contentions and perused the record placed before us. In these two ground nos. 3 4 grievance of the assessee against ld. Commissioner of Income Tax(A)'s order for confirming the action of ld. Assessing Officer in notionally reducing the deduction u/s Asst. Yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the terms relating to remuneration of interest to partners. But in clauses 8 9 option has been provided to the partners to modify the amount of remuneration and interest in capital. We further find substance in the submissions of ld. Authorised Representative that particular expenditure relating to interest and remuneration is not compulsorily to be incurred as section 40 of the Act deals with the amount not deductible more specifically section 40(b) deals with disallowance of remuneration beyond specified limit. Providing of remuneration or interest is an expenditure which in the case of assessee has not been booked in the books of account and, therefore, ld. Assessing Officer cannot foist upon to provide a notional amount of interest and remuneration. This view finds support from the decision of Co- ordinate Bench in the case of Tulsa Ram Kanhiyalal Sons (2008) SOT 402 (Jodhpur) wherein similar issue came up before the Bench which reads as follows : whether since partnership deed revealed that the parties on mutual consent could add, amend, vary or alter any of the terms of partnership, Assessing Officer could not have compelled the assessee to charge interest or remun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest on capital and remuneration to working partners of the firm while computing the assessable income for the year under consideration. I, therefore, by allowing the ground in appeal, direct the assessing authority to modify the computation of income accordingly. 16.3 We further observe that similar issue also came up before Hon. Jurisdictional High Court in the case of Commissioner of Income Tax vs. Mundra Packaging Industries in Tax Appeal No.615-617 of 2006 wherein following questions of law were proposed :- [A] Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in law in allowing the appeal of assessee on the ground that when it is not open to the assessee to disclaim any allowance/expense and profit and gain of an industrial undertaking covered under chapter VI-A of the IT.Act, 1961 has to be computed as per the provisions of section 29 to 43 of the I.T.Act, 1961 which includes section 40 for interest/remuneration to partners as per Partnership Deed ? [B] Whether on the facts and circumstances of case and in law, the Appellate Tribunal is justified in granting relief despite the fact that it amounts to tax evasion in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansport Corporation 366 ITR 170 (Guj) and the same was confirmed by ld. Departmental Representative. 19. We have heard the rival contentions and perused the record. During the course of assessment proceedings ld. Assessing Officer disallowed a sum of ₹ 31,421/- being employees contribution to PF Asst. Year 2010-11 deposited after the due date as statutorily provided under the Act. Ld. Commissioner of Income Tax(A) confirmed the disallowance. We observe that Hon. Jurisdictional High Court in the case of Commissioner of Income Tax vs. Gujarat State Road Transport Corporation (supra) held that if the employees contribution to PF is deposited beyond the due date as provided in the statute then such expenses cannot be claimed as deduction against the gross revenue. Respectfully following the judgment of Hon. Jurisdictional High Court in the above case, we find no reason to interfere with the order of ld. Commissioner of Income Tax(A) confirming the disallowance with respect to late payment of employees PF. Accordingly, this ground of assessee is dismissed. 20. Ground no.6 has not been pressed by the ld. Authorised Representative because of smallness of the amount. We accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 reads as under :- 1. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating other income amounting to ₹ 1,26,722/- (comprising of ₹ 14,998/- kasar(discount), ₹ 15,595 Misc. income, ₹ 32,451/- earned from selling raw onions and ₹ 63,678/- earned on finished goods) eligible for deduction u/s 80IB(llA) of the Income Tax Act, 1961 ('the Act') after holding that the same are not derived from the eligible industrial undertaking. 26. Ld. Authorised Representative submitted that ld. Assessing Officer denied deduction u/s 80IB(11A) of the Act on other income aggregating to ₹ 1,26,722/- as follows and such action was confirmed by CIT(A). The bifurcation of other income of ₹ 126722/- is as follows :- Kasar (Discount) : Rs.14,998/- Misc. income : Rs.15,595/- Profit earned from selling raw onions : Rs.32,45I/- Profit on finished goods : Rs.63.678/- Total Rs.1,26,722/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bench in the case of Nrox Specialistics vs. ITO (supra) and have held that discount income is eligible for deduction u/s 80IB(11A) of the Act. Following the same decision we hereby hold that assessee is entitled to deduction u/s 80IB(11A) on the other income under the head 'kasar'(discount) at ₹ 14,998/-. 31. As regards remaining misc. income of ₹ 15,595/- we find that the same is on account of sale of waste gunny bags. We are of the view that waste gunny bags normally gets accumulated during the manufacturing process and are part and parcel of regular manufacturing activity and miscellaneous income from sale of waste gunny bags is therefore, eligible for deduction u/s 80IB(11A) of the Act. 31.1 We are, therefore, of the view that out of the total other income of ₹ 1,26,722/- assessee is only entitled to claim deduction u/s 80IB(11A) of the Act of ₹ 30,593/- (Rs.14,998 + ₹ 15,595/-). In the result this ground of the assessee is partly allowed. 32. Ground no.2 reads as under :- 2. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of the learned Assessing Officer in not treating, interest of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e eligible profit to claim deduction u/s 80IB(11A) of the Act. 4. Both the lower authorities have failed to appreciate that the impugned amount of remuneration and interest was neither debited to Profit loss account nor paid to the partners, and therefore, the same could not have been reduced notionally from the eligible profit to claim deduction u/s 8018(11 A) of the Act. 37. We observe that similar grounds have been dealt with by us in ITA No.750/Ahd/2014 in its ground nos.3 4 wherein ld. Assessing Officer calculated notional amount of interest and remuneration and reduced the deduction u/s 80IB(11A) of the Act by such amount. Similarly in this appeal in ITA No.796/Ahd/2014 in the case of Shreeji Dehydrate Exports we find that ld. Assessing Officer has calculated notional amount of ₹ 13,08,616/- on account of remuneration and interest payable to partners as per partnership deed. On perusal of Asst. Year 2010-11 the partnership deed we observe that discretion lies with the partners of booking such expenditure. As the issues are verbatim similar we accordingly follow our decision in ITA No.750/Ahd/2014 and hold that ld. Assessing Officer was not correct in notionall ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
