2015 (1) TMI 517 - AT - Income Tax

Trading addition - CIT(A) deleted the addition - Held that - The assessee has submitted every lot of seeds purchased containing different quantity of oil and after making laboratory test report, the payments are made to the supplier which is evident from the assessee s reply dated 16.12.2009, which has been reproduced by the CIT (A). Also for the year under consideration, the gross profit rate of 8.18% was better than the gross profit rate of 7.68% in the immediate preceding year. For the year under consideration, the turnover has also increased - Decided against revenue. Addition invoking the provisions of section 2(22)(e) of the Act - CIT(A) deleted the addition - Held that - The transactions are of business nature. Therefore, they do not fall within the ambit of section 2(22)(e) of the Act - Decided against revenue. Addition made u/s 80IB - CIT(A) deleted the addition - whether the assessee is a small scale industry or not? Held that - This issue has already been decided in favour of the assessee by the ITAT in assessee s own case for assessment years 2000-01 to 2003-04 wherein it has been held that assessee was enjoying the SSI status, therefore, it is entitled for deduction u/s 80IB in those years also. The facts remain same, hence, the assessee is entitled for deduction in this year also. As far as, the allowability of deduction u/s 80IB on the trading profit is concerned, the CIT (A) has not given any finding. Therefore, in the interest of justice and equity, we find it appropriate to remand the issue to the file of the CIT (A) - Decided in favour of revenue for statistical purposes. Addition u/s 80IA - CIT(A) deleted the addition - when the provision of section 80IA will become applicable upon the appellant? - Held that - It is not at all required that losses or other deduction which have already been set off against the income of the previous year should be reopened again for the purpose of computing admissible deduction u/s 80IA of the Income Tax Act, 1961. The year from which option has been exercised is to be treated as the initial assessment year but after that the 10 years have in continuity. Thus no fault in the order of the CIT (A) - Decided against Revenue. Dis allowance section 14A of the Act read with Rule 8D - Held that - Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT held that Rule 8D is applicable from assessment year 2008-09 only. But, at the same time, Hon ble High Court has also observed that the AO is duty bound to compute the disallowance by applying a reasonable method having regard to the facts and circumstances of the case. Considering all these facts and case laws, we find it appropriate to set aside this issue to the file of the AO to be decided as per law, of course after providing an opportunity of being heard to the assessee - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of trading addition of Rs. 20 lacs.
2. Deletion of addition of Rs. 1,43,24,420/- under section 2(22)(e).
3. Deletion of disallowance of Rs. 72,07,040/- under section 80IB.
4. Deletion of disallowance of Rs. 24,62,950/- under section 80IA.
5. Application of section 14A and Rule 8D.
6. Deletion of addition of Rs. 32,68,447/- under section 2(22)(e) for AY 2008-09.
7. Deduction of Rs. 25,42,980/- under section 80IA for AY 2008-09.
8. Deduction under section 80IB on trading profit of Rs. 30,58,815/- for AY 2008-09.

Detailed Analysis:

1. Deletion of Trading Addition of Rs. 20 lacs:
The AO invoked section 145(3) due to the absence of laboratory test reports for each lot of seeds purchased. However, the CIT (A) and ITAT, based on previous years' decisions, found no defects in the books of account and deleted the addition. The ITAT upheld the CIT (A)'s decision, noting the consistent GP rate and increased turnover, dismissing the revenue's appeal.

2. Deletion of Addition of Rs. 1,43,24,420/- under Section 2(22)(e):
The AO considered regular business transactions between the assessee and M/s. Saurabh Agrotech (P.) Ltd. as loans/advances, invoking section 2(22)(e). The CIT (A) and ITAT found these transactions to be business-related, not loans/advances, and hence not covered under section 2(22)(e). The ITAT confirmed the CIT (A)'s deletion of the addition, following precedents and relevant case laws.

3. Deletion of Disallowance of Rs. 72,07,040/- under Section 80IB:
The AO disallowed the deduction, questioning the assessee's SSI status and trading profit inclusion. The CIT (A) and ITAT upheld the assessee's SSI status based on previous ITAT decisions. However, the issue of deduction on trading profit was remanded to the CIT (A) for a fresh decision, partly allowing the revenue's appeal for statistical purposes.

4. Deletion of Disallowance of Rs. 24,62,950/- under Section 80IA:
The AO denied the deduction, considering prior years' losses. The CIT (A) and ITAT found that the initial assessment year for section 80IA was 2007-08, not earlier years, following the Madras High Court's decision in Velayudhaswamy Spinning Mills (P) Ltd. The ITAT upheld the CIT (A)'s deletion of the addition, dismissing the revenue's appeal.

5. Application of Section 14A and Rule 8D:
The AO applied Rule 8D, disallowing Rs. 27,20,886/-. The ITAT noted Rule 8D's applicability from AY 2008-09 and remanded the issue to the AO for a fresh decision, considering the assessee's claim of no expenditure incurred for exempt income. The assessee's appeal was allowed for statistical purposes.

6. Deletion of Addition of Rs. 32,68,447/- under Section 2(22)(e) for AY 2008-09:
Following the earlier decision on similar facts, the ITAT dismissed the revenue's appeal, confirming the CIT (A)'s deletion of the addition under section 2(22)(e).

7. Deduction of Rs. 25,42,980/- under Section 80IA for AY 2008-09:
The ITAT upheld the CIT (A)'s decision, allowing the deduction under section 80IA, following the consistent interpretation of the initial assessment year and relevant case laws. The revenue's appeal was dismissed.

8. Deduction under Section 80IB on Trading Profit of Rs. 30,58,815/- for AY 2008-09:
The ITAT remanded the issue to the CIT (A) for a fresh decision on the allowability of deduction under section 80IB on trading profit, partly allowing the assessee's appeal for statistical purposes.

Conclusion:
- The revenue's appeal in ITA No.934/JP/2011 is partly allowed for statistical purposes.
- The assessee's appeal in ITA No.988/JP/2011 is allowed for statistical purposes.
- The revenue's appeal in ITA No.15/JP/2012 is dismissed.
- The assessee's appeal in ITA No.65/JP/2012 is partly allowed for statistical purposes.