2014 (3) TMI 427 - AT - Income Tax

Condonation of delay delay of 148 days C.O. filed in different office - bona fide mistake Relying upon Collector Land Acquisition V MST Katiji 1987 (2) TMI 61 - SUPREME Court - every day s delay must be explained does not mean that a pedantic approach should be taken The contention of the assessee that the delay in filing the C.O. for the said 148 days was not deliberate as the petitioner certainly would not wantonly jeopardize its own case was accepted - there shall be no loss to revenue as legitimate taxes payable in accordance with law alone will be collected Decided in favour of assessee. Deduction under section 10B - merger of the firm Held that - Unit of the assessee firm is a 100% EOU unit entitled for deduction under section 10B of the Act - it is not true that the law recognises merger of only companies and not the merger of firms -the limitations specified in subsections 9 and 9A of section 10B of the Act do not exist from 1.4.2004 - conclusion of the AO that deduction u/s 10B cannot be granted on the merger of firms is not correct - Decided against revenue. It is a settled principle that deduction under section 10B of the Act is granted to an undertaking and not an assessee assessee relied on the CBDT Circular No.1/2013 in F.No.178/84/2012 dt.17.1.2013 - as long as the undertakings remain eligible for deduction under section 10B the deduction cannot be denied merely on the ground that there has been a merger of the firms which own the undertakings - AO has not rendered any finding that either of the units one belonging to the assessee and the other belonging to the firm that got merged is not eligible for deduction u/s 10B - both the units / undertakings of the assessee firm and M/s. KMMI Exports are otherwise eligible for deduction u/s 10B and the deduction is towards the undertaking - As long as the undertakings are eligible for deduction under section 10B of the Act - the merger of the firm M/s. KMMI Exports with the assessee does not alter the status of the undertakings - Decided against Revenue. Disallowance of Prior Period Expenses - Held that - CIT(A) ought to have first examined the issue of the allowability of the claim and rendered a finding to the effect - Only then should he have examined the assessee s alternate plea for deduction u/s 35D of the Act and for which also he should have rendered proper and cogent reasons for allowing the deduction of 1/5th of the aforesaid expenditure Matter remitted back to CIT(A) for fresh adjudication Decided in favour of Revenue. Disallowance u/s 40A(3) of the Act Held that - Section 40A(3) of the Act clearly stipulate that the payment is liable for disallowance if it is not made by way of account payee cheque / demand draft - Since the impugned payment was otherwise than by way of an A/C payee cheque / demand draft the impugned payment is liable for disallowance u/s 40A(3) of the Act - The assessee has also not made out any case under the exceptions provided under Rule 6DD of the I.T. Rules 1962 - the AO was correct in holding that the aforesaid payment is to be disallowed under section 40A(3) of the Act - Decided in favour of Revenue. Disallowance of excess profits - Transactions with sister concerns Held that - As it has already been decided that the assessee is entitled for deduction under section 10B of the Act - since a specific objection has been raised on the matter - CIT(A) considered this issue as withdrawn the matter is remanded back to CIT(A) for fresh consideration.

Summary

Issues Involved:
1. Condonation of delay in filing the Cross Objections (C.O.).
2. Disallowance of deduction under section 10B of the Income Tax Act.
3. Disallowance of prior period expenses.
4. Disallowance under section 40A(3) of the Income Tax Act.
5. Disallowance of excess profits due to transactions with sister concerns.

Detailed Analysis:

1. Condonation of Delay in Filing the Cross Objections (C.O.):
The petitioner filed the C.O. with a delay of 148 days due to a bona fide mistake of filing it in the wrong office. The petitioner argued that the delay was unintentional and requested condonation to avoid hardship and irreparable injury, citing several judicial precedents. The Departmental Representative opposed this plea. The Tribunal, referencing the principles laid down by the Hon'ble Apex Court in the case of Collector, Land Acquisition V MST Katiji & Others, concluded that substantial justice should prevail over technical considerations. The Tribunal found the delay to be unintentional and condoned it, admitting the appeal for hearing and disposal.

2. Disallowance of Deduction under Section 10B of the Income Tax Act:
The assessee firm, engaged in the production and export of iron ore, claimed a deduction under section 10B, which was disallowed by the Assessing Officer (AO) on the grounds that the unit was formed by the transfer of used plant and machinery from M/s. KMMI Exports and that the merger of firms is not recognized under section 10B. The CIT (Appeals) reversed this decision, allowing the deduction. The Tribunal upheld the CIT (Appeals)'s decision, noting that the deduction is granted to the undertaking and not the assessee, and that the merger of firms does not alter the eligibility for deduction under section 10B. The Tribunal dismissed the Revenue's grounds on this issue.

3. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses of Rs. 6,13,949, arguing that the assessee did not carry out commercial activities in the earlier year and did not claim the deduction under section 35D in the Audit Report. The CIT (Appeals) allowed 1/5th of this expenditure under section 35D without providing reasons. The Tribunal found that the CIT (Appeals) failed to adjudicate on the allowability of the prior period expenses and remitted the issue back to the CIT (Appeals) for fresh consideration with proper reasoning.

4. Disallowance under Section 40A(3) of the Income Tax Act:
The AO disallowed Rs. 1,54,000 under section 40A(3) as the payment was made by a demand draft payable on demand or order, not by an account payee cheque or bank draft. The CIT (Appeals) deleted this disallowance, but the Tribunal reversed this decision, holding that the payment was liable for disallowance under section 40A(3) as it was not made by an account payee cheque or demand draft, and restored the AO's disallowance.

5. Disallowance of Excess Profits Due to Transactions with Sister Concerns:
The AO disallowed excess profits of Rs. 4,76,52,385, alleging that the purchase transactions with sister concerns were not at market prices, resulting in overstatement of profits. The CIT (Appeals) noted that the assessee had withdrawn this ground, but the assessee contended that it was not withdrawn. The Tribunal remanded this issue back to the CIT (Appeals) for fresh consideration and a finding after providing the assessee an opportunity to be heard.

Conclusion:
The Tribunal partly allowed the Revenue's appeal and partly allowed the assessee's Cross Objections for statistical purposes, issuing detailed directions for fresh consideration on specific issues.