2016 (1) TMI 445 - AT - Income Tax

Disallowance u/s 36 (1)(iii) - Held that - As the principal amount itself was in dispute which, according to the submission of the assessee was given to the above company for purchase of property and when agreement was not executed, the assessee made efforts for recovery of the amount in question and ultimately, after issuing a demand notice dated 30.03.2012 and notice dated 20.08.2011 (PB-208), the amount in question was returned to the assessee. Therefore, authorities below were not justified in making disallowance under section 36(1)(iii) of the Act. We, therefore, do not find any justification to sustain the addition. We, set aside the orders of authorities below and delete the addition - Decided in favour of assessee Disallowance of claim of set off of brought forward business loss - Held that - It was duty of the Assessing Officer to apply the relevant provisions of law and grant relief to the assessee instead of rejecting the claim of assessee by not mentioning the speculative loss in particular column of the e-return for assessment year 2010-11. Considering the above discussion, we are of the view that authorities below were not justified in not allowing the claim of set off of brought forward speculative loss. The orders of authorities below are therefore, set aside and we direct the Assessing Officer to allow set off of brought forward speculative loss for assessment year 2010-11 in assessment year under appeal of the amount in question.- Decided in favour of assessee Disallowance under section 10B - Held that - It is admitted fact that assessee claimed deduction under section 10B of the Income Tax Act in assessment year under appeal i.e. 2011-12. Same claim was made in preceding assessment years 2004-05 to 2010-11 and the claim of assessee has been allowed by Assessing Officer under section 143(3) of the Income Tax Act after scrutiny assessments. In assessment year 2010-11, it was allowed under section 143(1). In assessment year 2009-10, the Assessing Officer after passing the assessment order under appeal, re-opened under section 148, however by following the judgement of the Delhi High Court in the case of Lovlesh Jain (2011 (12) TMI 93 - DELHI HIGH COURT ), allowed the claim of assessee under section 10B of the Act wherein held that When the assessee imported standard gold into India and then converted it into jewellery or ornaments and exported the ornaments, it amounts to exporting articles or things, conversion of standard assessee amounts to manufacture/production which qualifies for deduction under section 10A/10B of the Act . It, therefore, stands established that in preceding several assessment years, the Assessing Officer allowed exemption under section 10B of the Income Tax Act in favour of the assessee on the same facts and even later on in proceedings under section 148 of the Act, allowed similar claim under section 148/143(3) of the Act. Therefore, the revenue authorities should follow rule of consistency and should not have made disallowance under section 10B of the Income Tax Act in assessment year under appeal itself. - Decided in favour of assessee

Issues:
1. Addition under section 36(1)(iii) of the Income Tax Act.
2. Claim of set off of brought forward business loss.
3. Disallowance of deduction under section 10B of the Income Tax Act.

Analysis:

Issue 1: Addition under section 36(1)(iii) of the Income Tax Act
The assessee challenged the addition of Rs. 59,013/- under section 36(1)(iii) related to advances given to M/s Vikas House Building Company Pvt. Ltd. for property purchase. The Assessing Officer (AO) disallowed the interest due to the lack of evidence of commercial expediency and the non-charging of interest on the loan, despite the assessee paying interest on borrowed funds. The CIT(A) upheld the AO's decision, noting that the transaction was interest-free and lacked proof of commercial expediency.

Upon appeal, the Tribunal found that the assessee had taken legal steps to recover the advance, indicating that it was not an interest-free loan. The Tribunal referenced the case of CIT v. Shri Suraj Dev Dada, where the principal amount at stake justified non-charging of interest. Consequently, the Tribunal deleted the addition, concluding that the authorities were not justified in making the disallowance under section 36(1)(iii).

Issue 2: Claim of set off of brought forward business loss
The assessee's claim for set off of brought forward business loss of Rs. 1,42,93,116/- was disallowed by the AO, who noted that the loss was not shown in the return for the previous year. The CIT(A) upheld this decision, stating that the return for the preceding year did not allow for the carry forward of speculative loss.

The Tribunal, however, found that the speculative loss was disclosed in the e-return and computation of income for the previous year, despite not being in the specified column. The Tribunal emphasized the duty of the AO to apply relevant provisions and grant relief, referencing CBDT Circular No. 14 and various judicial precedents supporting the assessee's claim. The Tribunal directed the AO to allow the set off of brought forward speculative loss, thus allowing the assessee's appeal on this ground.

Issue 3: Disallowance of deduction under section 10B of the Income Tax Act
The AO disallowed the deduction of Rs. 48,18,153/- claimed under section 10B, arguing that the assessee was involved in job work rather than export. The CIT(A) reversed this decision, noting that the AO had allowed similar deductions in previous years and in a reopened assessment for 2009-10, following the Delhi High Court's decision in CIT v. Lovlesh Jain. The CIT(A) agreed with the assessee that the net foreign exchange brought into India should be considered for deduction, referencing the ITAT Mumbai's decision in Core Jewellery (P.) Ltd. and the Supreme Court's decision in J.B. Boda & Co. (P.) Ltd.

The Tribunal upheld the CIT(A)'s decision, emphasizing the rule of consistency and the precedents set by previous assessments. The Tribunal found no merit in the revenue's appeal, thus dismissing it and allowing the assessee's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal on both the addition under section 36(1)(iii) and the set off of brought forward business loss, while dismissing the revenue's appeal on the disallowance of deduction under section 10B. The decisions were based on legal precedents, the duty of the AO to apply relevant provisions, and the principle of consistency in tax assessments.

← Previous Next →