2013 (5) TMI 994 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of claim u/s 10B of the Income Tax Act, 1961.
2. Deletion of addition made by invoking the provisions of section 40(a)(ia) of the Act.
3. Deletion of disallowance made on account of Trade Fair expenses.
4. Deletion of disallowance of loss relating to the trading unit.

Summary:

1. Disallowance of claim u/s 10B of the Income Tax Act, 1961:
The assessee claimed exemption u/s 10B for income from a 100% Export Oriented Unit (EOU). The Assessing Officer (AO) rejected the claim, stating that the activity did not qualify as manufacturing/production. The CIT(A) allowed the claim, referencing previous decisions and legal precedents, including the Supreme Court's ruling in ITO vs. Arihant Tiles and Marbles P. Ltd., which established that converting marble blocks into slabs and tiles constitutes manufacturing. The Tribunal upheld the CIT(A)'s decision, confirming the assessee's entitlement to the exemption.

2. Deletion of addition made by invoking the provisions of section 40(a)(ia) of the Act:
The AO disallowed Rs. 13,43,208/- for non-deduction of TDS on clearing and forwarding expenses. The CIT(A) deleted the addition, noting that payments to non-resident shipping companies and the Railways were reimbursements and not subject to TDS. The Tribunal agreed, citing that the payments were reimbursements and no TDS was required as per various judicial precedents and CBDT Circular No. 723.

3. Deletion of disallowance made on account of Trade Fair expenses:
The AO apportioned trade fair expenses between the trading division and the 100% EOU division based on turnover, disallowing Rs. 28,59,649/-. The CIT(A) deleted the disallowance, stating that the expenses were related solely to the trading division, which participated in the trade fairs. The Tribunal upheld the CIT(A)'s decision, noting that the AO had no evidence to support the apportionment and that the trading division incurred the expenses to establish its market presence.

4. Deletion of disallowance of loss relating to the trading unit:
The AO disallowed a loss of Rs. 2 lakhs claimed under administrative expenses due to theft. The CIT(A) allowed the claim, accepting the assessee's explanation and the FIR filed. The Tribunal remanded the issue back to the AO for fresh adjudication and proper verification, as the AO had not previously verified the explanation or the FIR.

Conclusion:
The Tribunal dismissed the Department's appeals for assessment years 2005-06, 2006-07, and 2007-08, and the Cross Objections filed by the assessee for assessment years 2005-06 and 2006-07. The appeal for the assessment year 2008-09 was partly allowed for statistical purposes, with the issue of the disallowed loss remanded for fresh adjudication.