TMI Blog2021 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... uld start commercial production within three years from the date of letter of approval granted by the BOA. Unless the land is being purchased, how production could be started. This aspect has been considered by the ld.CIT(A) while taking note of these facts in paragraph 3.4 at page no.38 of the impugned order. We have taken cognizance of this paragraph in the earlier part of this order, therefore we are of the view that the ld.CIT(A) has appreciated the facts in right perspective on this reasoning also, and rightly did not agreed with the AO. AO has observed that MD of DPCL, Shri J.R. Vyas has accepted that a wrong claim of deduction under section 80IBA was made but as gone through the details recorded on this fold of reasoning. It was demonstrated that this statement was given under misconception of the facts demonstrated before the MD by the survey team. It is pertinent to note that statement made during the course of survey under section 131(1A)(3) of the Act was without administrating oath, because the authorized officer conducting survey is not empower to administer oath, and such statement does not carry much evidentiary value. It is a just an information for corroboration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and payment for such lapse were not common in the normal course of business activities, and therefore, it cannot be termed as an expenditure for infraction of law so as to attract the Explanation-1 of section 37(1) of the Act, which is a residuary section for allowance business expenditure, besides allowance of the expenditure as per sections 30 to 36. Therefore, we are of the view the case of assessee does not fall under the Explanation 1 to section 37(1), and therefore, we confirm the action of the ld.CIT(A) in allowing the expenditure incurred towards late submissions of the documents. Disallowance of expenditure as not genuine and actually incurred - disallowance u/s 40A(3) of the Act for the year under consideration on the ground that since the expenditure in question is not claimed in P L Account, the question of deciding its allowability does not arise - disallowance of interest - expenditure in question is not claimed in P L Account, the question of deciding its allowability does not arise - HELD THAT:- All these items the assessee has not claimed in profit loss account, and therefore, the question of deciding their allowable cannot be taken up in this accountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. - ITA No.2593/Ahd/2014, 2663/Ahd/2014 With Cross Objection No.42/Ahd/2020 (Asstt.Year : 2011-12) - - - Dated:- 5-2-2021 - SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINH, ACCOUNTANT MEMBER Assessee by: Shri S.N. Soparkar, Sr.Advocate And Shri Parin Shah, AR Revenue by: Shri Mohd. Usman, CIT-DR ORDER PER RAJPAL YADAV, VICE-PRESIDENT: Revenue and assessee are in cross appeal against order of the ld.CIT(A)-6, Ahmedabad dated 21.7.2014 passed for the Asstt.Year 2011-12. Copy of the grounds of appeal in the assessee s appeal was sent to the Revenue on 29.9.2014, but it filed cross-objection bearing no.42/Ahd/2020, which is time barred. All these appeals and CO are disposed of by this common order for the sake of convenience. 2. Grievance of the Revenue is that the ld.CIT(A) has erred in accepting the claim of the assessee for grant of deduction under section 80IAB of the Income Tax Act, 1961. 3. Brief facts of the case are that the assessee company was incorporated on 28.7.2006. It is a closely held public limited company having 100% equity share held by Dishman Pharmaceuticals and Chemicals Ltd. (DPCL), which is a flagship company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the following paragraphs. However, before proceedings further, in facts related to the approved SEZ are discussed as under. 4. We will be dealing with the reasons given by the AO in seriatim in later part of this order. 5. Dissatisfied with the disallowance of deduction, the assessee carried the matter in appeal before the ld.CIT(A). Thereafter, the ld.CIT(A) has also noticed arguments raised by the ld.counsel for the assessee and allowed deduction. The relevant part of the impugned order reads as under: 3.2 In the assessment order, A.O. observed that the appellant had claimed the gross total income of ₹ 41.62 crores as deduction u/s 80IAB; appellant was approved for development of Special Economic Zone[SEZ] at Bavla, near Ahmedabad; the deduction u/s 801AB was not claimed in any preceding or succeeding year; the appellant company was incorporated on 28-7-2006;it is promoted by M/s Dishman Pharmaceutical Chemicals Ltd.[DPCL], flagship company of the group; survey u/s l33A carried out on 10th 11th October,20 l 3; during the course of survey proceedings the claim of deduction was found to be bogus and prima-facie wrong; appellant had not carried out any signif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself in the assessment order the appellant was granted formal letter of approval by the Commerce Ministry vide the letter dtd. 17-04-2008;gazette notification was also issued on 13-11-2009;the A.O has no locus-standi or jurisdiction to look into whether the appellant satisfied/fulfilled the terms and conditions laid down in the letter of approval; SEZ Act is a code in itself; till date the appellant holds valid letter of approval granted by the BOA; it is for the BOA to ensure the fulfillment of conditions laid down in SEZ Act and the A.O.'s sitting in judgement over the approval granted by BOA amounts to judicial indiscipline. In support of this contention he relied on Ahmedabad Tribunal's decision dtd. 07-07-204,the Supreme Court decision cited at l 17 ITR 1, the Gujarat High Court's decisions cited at 276 ITR 411 355 ITR 384 Ahmedabad Tribunal's decision cited 124 TTJ 176 45 SOT 529. 3.4 As regards the A.O.'s finding that the appellant infringed SEZ Rules by claiming lease rentals from sister-concern DPCL, it was contended that the DPCL had made application to the Development Commissioner for approval to set up unit in the SEZ on 29-03- 2011; ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the approval given by the competent authority under SEZ Act. So long as the approval given is valid, it is not for other agency/department to sit in judgement over the issue as to whether the appellant satisfied the provisions of the SEZ Act or not. The case-laws relied on by the Ld. A.R. support this finding. Ahmedabad Tribunal in the case of M/s Zaveri Co. Pvt. Ltd. vs. CIT in ITA Nos. 1395 1396/ Ahd/2013, vide the dated 07/05/2014, held as under: '31. We find that no material has been brought on record by theRevenue to controvert the above submission of the assessee. Further, we find that the Hon'ble Supreme Court in the case of Gestatner Duplicators Private Ltd. Vs. CIT117 /TR1 (SC) held as under: 32. To the same effect is the decision of the Hon'ble Gujarat High Court in the case of Nitin P. Shah alias Modi Vs. DCIT {2005) 276 ITR411 {Guj.} and decision of the Ahmedabad Bench of the Tribunal in the case of Gujarat Information Technology Fund 64 DTR 169(Ahd.) .In our considered view, it was not open to the Commissioner of Income Tax to take the view contrary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as contravened any of the conditions of recognition, he may refer the question of withdrawal of recognition to the Commissioner but until the Commissioner acting under the powers reserved to him withdraws such recognition the taxing authority must proceed on the basis that the provident fund has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided. In the case of N tin P. Shah alias Modi vs. DCIT 276 ITR 411 (Gu].], it was held as under: 27. The CIT, having issued certificate under section 68(2) of the Scheme, judicial discipline requires that the authorities entrusted with administering law proceed on the basis that the certificate granted by the CIT would indicate satisfaction of all the requisite conditions as required by the provisions of the scheme and it is not open to subordinate authority to sit in judgment over the certificate granted by the CIT. The Assessing Officer in the present case has, while making addition of ₹ 137 lakhs in the fresh assessment made pursuant to order of set aside, taken upon himself to give gobye to the certificate issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provident fund has satisfied all the requisite conditions for its recognition for that year; any other course is bound to result in chaos and uncertainty which has to be avoided. (p. 15) Therefore, it is not open to the Assessing Officer to go behind the certificate issued by the CIT and by ignoring same, assess an income which has already borne tax under VDIC. In the case of Agriculture Produce Market Committee vs. ITO [355 ITR 384(Guj.)], it was held as under: 10. This High Court in the case of Ahmedabad Urban Development Authority (supra}, has held thus: 9. Section 12AA of the Act lays down the procedure for registration in relation to the conditions for applicability of sections 11 12 as provided in section 12A of the Act. Therefore, once the procedure is complete as provided in sub-section (1) of section 12AA of the Act and a Certificate is issued granting registration to the Trust or Institution it is apparent that the same is a document evidencing satisfaction about: (1) genuineness of the activities of the Trust or institution, (2) about the objects of the Trust or Institution. Section 12A of the Act stipulates that provisions of sections 11 12 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the Assessing Officer while framing the original assessment under section 143(3) of the Act has, taken into consideration the certificate granted by the Commissioner of Income Tax under section 12AA of the Act., and has found that the petitioner carries on charitable activities. In the return of income filed by it, the petitioner had specifically claimed deduction of ₹ 32,401212/- and ₹ 45,00,000/- totalling to ₹ 77,40,212/- as a Charitable Trust registered under section 12AA of the Act by the Commissioner of Income Tax. During the course of assessment proceedings the Assessing Officer had issued notice pursuant to which the petitioner had given its reply explaining as to why it was entitled to the said deductions. The Assessing Officer after considering the explanation given by the petitioner had passed a scrutiny assessment order under section 143(3) of the Act specifically allowing the above deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e violations, the AO disallowed the claim of the taxpayer for deduction under s. 108 of the Act. The AO further observed that the company was incorporated in 1988 and at that point of time deduction under s. 108 was available for five years from asst. yr. 1990-91. As in asst. yr. 1996-97 no new undertaking was established and it was merely a conversion while no separate accounts of the business of the EOU were kept, the taxpayer was not entitled to any deduction. 7.1 Before the learned CIT(A), the taxpayer submitted that there is no violation in respect of submission of forms in respect of export sales except that no prior intimation was given in respect of domestic tariff area sales-sales in India. The AO failed to appreciate that the Act does not provide for withdrawal of the exemption under s..10B on any violation of STPI permission etc. The STPI authorities were aware of the violations in respect of domestic sales and even then did not withdraw the registration. Under s. 10B the undertaking is permitted to make sales in domestic market, as per 2nd proviso to s.10B(I) of the Act. Besides, the undertaking had shifted its capital goods from bonded warehouse temporarily due t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the decision relied upon by the appellant, rejection of the benefit on this ground is also not justified. .. 7.5 We have heard the rival contention and gone through the facts of the case On the aspects of violation of STPI norms and establishment of new undertaking, we do not find any infirmity in the findings of learned CIT(AJ . In the case of ITO vs. Gujarat Information Technology Fund 45 SOT 529 (Ahd.), it was held as under: (5) Whether AO can look into whether venture capital fund fulfils conditions laid down in SEBI {Venture Capital Funds} Regulations, 1996. 24. In our considered view the AO is duty bound to enquire whether the assessee trust is registered under the Registration Act, 1908 and has been granted certificate of registration by SEBI under SEBI(Venture Capital Funds) Regulations, 1996. But his role is confined to satisfy himself with such certificates granted and not beyond. Sub-clause (i) and sub-clause (ii) of clause (b) under Explanation l only requires to ensure that assessee trust has certificates as mentioned therein. Even if certificates are granted under misrepresentation of facts then it is for the concerned autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail over the view of AO. Thus in our view role of the AO in examining the issue about fulfilment of conditions laid down in clause (b) is limited to the extent as described above. Therefore the A.O's finding that the appellant is not eligible for deduction u/s801AB since it violated the provisions of SEZ Act is not legally tenable. 3.7 Similarly, the A.O's observation that M/s DPCL was not an approved unit as on 31-03-2010 is against the facts on record. As admitted by the Development Commissioner's office, DPCL had filed application for approval on29-03-2011 and therefore the approval given on 26-06-2011 will date back to the date of application. In the case relied on by the A.R. and cited at 326 ITR251 (Guj), it was held as under: 5. We have considered the submissions made by the learned Standing Counsel appearing for the revenue and we have also perused the orders passed by the authorities below. 6. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of those word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gests that once facility is approved, the entire expenditure so incurred on development of R D facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R D fac lity in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility., intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 8. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. 9. We are, therefore, of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 507-533. He submitted that these decisions have been elaborately discussed by the ld.CIT(A). In brief, his line of argument is that once the approval for development of SEZ is being granted by the prescribed authority, and such approval is valid, then it would no longer be open to the AO to verify the satisfaction of the conditions prescribed in the different rules in order to deduce deduction admissible under section 80IAB of the Act. 7. We have duly considered rival submissions and gone through the record carefully. Before we embark upon an inquiry on the reasons assigned by the AO, in order to assess sustainability of the order of the first appellate authority, we deem it appropriate to appraise ourselves with regard to the basic conditions required to be fulfilled by any assessee for claiming deduction under section 80IAB of the Act. Thus, in order to inquire essential conditions, we have to take a brief look into the scheme of SEZ and how it provides a tax holiday to an assessee. For better development of infrastructure in the country, Government of India among various other measures and legislations, enacted SEZ Act offering various benefits to developers of various SEZs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains had not been included by application of the provisions of sub-section (13) of section 80-1 A, the undertaking being the Developer shall be entitled to deduction referred to in this section only for the unexpired period of ten consecutive assessment years and thereafter it shall be eligible for deduction from income as provided in sub-section (1) or subsection (2) as the case may be: Provided further that in a case where an undertaking, being a Developer who develops a Special Economic Zone on or after the 1st day of April, 2005 and transfers the operation and maintenance of such Special Economic Zone to another Developer (hereafter in this section referred to as the transferee Developer), the 'deduction under sub-section (1) shall be allowed to such transferee Developer for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee Developer. 8. A perusal of the above would indicate that on fulfillment of the conditions contemplated in this section, deduction at 100% of the profit and gains derived from such business shall be available to the assessee. The conditions which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd others identical sections in Chapter VI are different than the expression used in section 80IAB of the Act. In other words, expression derived from industrial undertaking had been used by statute to restrict the deductions of only those income which has directly been derived from the industrial undertaking, and not other income, which is incidental to the carrying on industrial undertaking. In section 80IAB expression used is profits and gains derived by an undertaking from any business of development of SEZ. It clearly shows that the intention of the legislature while inserting the additional words in section 80IAB i.e. any business of was to give benefit of deduction not only to the profits and gains derived from developing SEZ but also to give benefit of deduction in respect to the income having a close and direct nexus with the profit and gains of the business of the development of SEZ. Therefore, all sorts of income which is inextricably related to the carrying on the business of development of SEZ is to be considered for computing deductions under section 80IAB of the Act. 10. After going through the above concepts/scheme of the Act, let us take reasons assigned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny right to reappreciate or doubt that approval. If the AO has any grievance qua that he should have challenged that approval; This aspect has been considered by the Tribunal in the case of Zaveri Co. Ltd. (supra) which we have reproduced while taking cognizance of the finding of the ld.CIT(A) in upper part of this order. The AO could examine, whether the letter of approval granted for the SEZ development is genuine or not. If he was of the view that the assessee does not qualify the requisite conditions, then he should have applied to the competent authority for suspension of approval or withdrawal of the approval; only then he could consider non-granting of benefit under section 80IAB of the Act. Therefore, this aspect is fully covered in favour of the assessee by the earlier decisions of the Tribunal as well as of the Hon ble High Court. The ld.CIT(A) has rightly put reliance upon those decisions. In the case of B.A. Research India Ltd. (supra), the assessee company was engaged in scientific research and development. It used to store clinical sample in specific storage conditions on request of its customers. The assessee charged an amount for this purpose and claimed it to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin three years from the date of letter of approval granted by the BOA. Unless the land is being purchased, how production could be started. This aspect has been considered by the ld.CIT(A) while taking note of these facts in paragraph 3.4 at page no.38 of the impugned order. We have taken cognizance of this paragraph in the earlier part of this order, therefore we are of the view that the ld.CIT(A) has appreciated the facts in right perspective on this reasoning also, and rightly did not agreed with the AO. 13. Under the third fold of reasoning, the ld.AO has observed that MD of DPCL, Shri J.R. Vyas has accepted that a wrong claim of deduction under section 80IBA was made. We have gone through the details recorded on this fold of reasoning. It was demonstrated that this statement was given under misconception of the facts demonstrated before the MD by the survey team. It is pertinent to note that statement made during the course of survey under section 131(1A)(3) of the Act was without administrating oath, because the authorized officer conducting survey is not empower to administer oath, and such statement does not carry much evidentiary value. It is a just an information for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to interfere in this first fold of grievance raised by the Revenue. Ground No.1 and 2 are rejected. 15. In ground no.3, Revenue has pleaded that the ld.CIT(A) has erred in holding that expenditure for financial charges was not for any violation of infringement of any law, and therefore, these are allowable. 16. During the assessment proceedings, the ld.AO noticed that the assessee has debited a sum of ₹ 4,13,494- in the profit loss account, which was treated as penal interest . To the query, assessee explained that the same was incurred due to late submission of documents to the IDBI bank, which is wholly and exclusively for the business purposes, and the same required to be allowed. However, the ld.AO did not accept this contention of the assessee, and held that the expenses incurred by the assessee is penal in nature for the violation of provisions and rules, and therefore, hit by the Explanation-1 to section 37(1). He accordingly made addition to the total income of the assessee. However, in appeal, the ld.first appellate authority reversed the action of the AO and held that the expenses incurred by the assessee was not for any purpose, which was an offence pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case, Id. CIT(A) ought to have decided the issue rather than delaying the decision to the year of actual of claim of the said expenditure. 3. The learned CIT(A) has erred both in law and on the facts of the case in not deciding the disallowance of ₹ 37,67,094/- made on account of the same being not for the purposes of the business on the ground that since the expenditure in question is not claimed in P L Account, the question of deciding its allowability does not arise. Under the facts and circumstances of the case, Id. CIT(A) ought to have decided the issue rather than delaying the decision to the year of actual of claim of the said expenditure. 4. The learned CIT(A) has erred both in law and on the facts of the case in not deciding the disallowance of interest of ₹ 4,74,71,691/- for the year under consideration on the ground that since the expenditure in question is not claimed in P L Account, the question of deciding its allowability does not arise. Under the facts and circumstances of the case, Id. CIT(A) ought to have decided the issue rather than delaying the decision to the year of actual of claim of the said expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the Appellant. It is submitted that when the expenditure is not claimed in the Profit loss account and in turn while I computing total income of the Appellant, how the said amount can be added in the hands of the Appellant* while computing assessable income in framing the assessment. This shows the sheer intention of the Id. AO in making huge additions without any basis. On this short ground only, the addition made by the Id. AO deserves to be deleted. 5.4 However, it is pertinent to note that, that wheneverin .the succeeding assessment year the said expenditure is claimed as revenue or capital expenditure at relevant point of time, the Appellant reserves the right to agitate the contentions raised by the assessing officer, in that assessment year. 4.2 At para nos. 17 to 27 of the assessment order, A.O. observed that during the course of survey most of the expenses claimed under the head capital work-in-progress were found to be bogus; on verification of the ledger account of land leveling expenses, it was found that on 01-07-2010 payment of ₹ 17.5 crores was made to M/s Subhash Project Marketing Ltd.[SPML], Kolkata; ₹ 7.15 crores was paid in July ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are being claimed in future years by the assessee. With the above observation, the above four grounds of the appeal are partly allowed. 24. Ground no.5 reads as under: The ld.CIT(A) has erred in law and on the facts of the case in confirming the addition of ₹ 42,00,098/- out of total addition of ₹ 60,00,646/- made in respect of interest income after holding that the same is required to be treated as Income from other sources . 25. With regard to this ground of appeal, brief submissions raised by the ld.counsel for the assessee is that interest income treated by the Revenue authorities as income from other sources amounting to ₹ 42,00,098/-, which otherwise qualifies for deduction under section 80IAB of the Act. Appellant submitted before the Revenue authorities, the interest income earned by it forms part of the business income, because surplus and spare fund of the business was parked with the banks for temporary period. According to him, this aspect has been considered by the Hon ble High Court in the assessee s own case in tax appeal no.192 of 2019 whereby the Hon ble Court has held that interest income earned by the assessee has direct nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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