2016 (5) TMI 1537 - AT - Income Tax

Deduction u/s 80-IB - whether the business income declared by assessee included income from eligible business? - HELD THAT - Figures prove that the assessee had its business income from business of stone crushing only as the other income claimed in the return of income is on account of income from the house property and honorarium and interest as noted by the AO - Income of the assessee for business do not include the income from any other business than the eligible business of stone crushing, therefore, to the business income if any it made on account of disallowances of expenses will only increase income from eligible business which again will be exempt u/s 80IB. In HARBHAJAN KAUR, PROP. 2013 (12) TMI 1559 - ITAT AMRITSAR under similar facts and circumstances has held that disallowance of expenses claimed by assessee from the eligible business will increase its income which again will be exempt u/s 80-IB. Increase in income of the assessee due to additions will only increase income which again will be exempt u/s 80IB of the act. The contention of learned DR that the Amritsar Bench had passed a perverse order as the assessee cannot be allowed benefit of exemption u/s 80-IB on the disallowances do not hold any force in view of the fact that the disallowance of expenses will automatically increase the income of assessee from eligible business as the additions has been made from the expenses incurred during running of such eligible business and therefore the increased income can only be attributed to the eligible business of the assessee. In view of the above respectfully following the order of Amritsar Bench we accept the alternative contentions of learned AR that additions even if sustained will not have any impact on the taxable profits as the sustenance will only increase the profits eligible for deduction u/s 80-IB. - Appeals filed by the assessee are allowed.

Summary

Issues Involved:
1. Validity of the assessment order and CIT(A)'s order.
2. Disallowance of stone inward cost expenses.
3. Disallowance of carriage expenses.
4. Disallowance under Section 40(a)(ia) of the IT Act, 1961.
5. Disallowance of various expenses debited to the P&L account.
6. Addition on account of unexplained sundry creditors.
7. Deduction claimed under Section 80IB.

Detailed Analysis:

1. Validity of the Assessment Order and CIT(A)'s Order:
The appellant contended that both the assessment order and the CIT(A)'s order were against the facts of the case and untenable under the law. The Tribunal noted that the CIT(A) had allowed the deduction under Section 80IB, but upheld part of the additions made by the Assessing Officer (AO) on account of disallowance of various expenses.

2. Disallowance of Stone Inward Cost Expenses:
The assessee argued that the CIT(A) erred in confirming the addition of ?2,00,000 on account of disallowance of stone inward cost expenses. The Tribunal observed that the expenses were vouched and duly entered into the books of account. The Tribunal accepted the alternative contention that any increase in income due to disallowance would still be exempt under Section 80IB.

3. Disallowance of Carriage Expenses:
The assessee contested the confirmation of disallowance of ?1,50,000 out of a total disallowance of ?3,00,000 made by the AO on account of carriage expenses. The Tribunal found that the expenses were related to the business and reiterated that any increased income from disallowance would still be exempt under Section 80IB.

4. Disallowance under Section 40(a)(ia) of the IT Act, 1961:
The CIT(A) confirmed the addition of ?1,01,251 made by the AO under Section 40(a)(ia) on account of interest paid to Tata Capital Finance Services. The Tribunal noted that this was an allowable deduction and, similar to other expenses, any disallowance leading to increased income would still be exempt under Section 80IB.

5. Disallowance of Various Expenses Debited to P&L Account:
The CIT(A) restricted the disallowance to ?1,13,135 out of the total disallowance of ?3,00,000 made by the AO. The Tribunal found that all the expenses were related to the business, and any disallowance would increase the income from the eligible business, making it exempt under Section 80IB.

6. Addition on Account of Unexplained Sundry Creditors:
The CIT(A) confirmed the addition of ?1,79,404 on account of unexplained sundry creditors. The Tribunal noted that these creditors were genuine and reiterated that any addition would still be exempt under Section 80IB.

7. Deduction Claimed Under Section 80IB:
The Tribunal emphasized that the assessee was eligible for deduction under Section 80IB. The Tribunal examined the computations and found that the income from the business of stone crushing was correctly declared and exempt under Section 80IB. The Tribunal cited previous orders from the Amritsar Bench, which held that disallowance of expenses from eligible business increases income that is again exempt under Section 80IB.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, holding that any additions made by the AO, even if sustained, would not impact the taxable profits as they would increase the income from the eligible business, making it exempt under Section 80IB. The order was pronounced in the open court on 16th May, 2016.