2017 (11) TMI 57 - AT - Income Tax

Eligibility for exemption u/s 10B denied - delay in filing of return - Held that - We find that in the instant case the return of income was filed on 1.10.2009 as against the due date 30.9.2009. The CBDT vide order dated 19.11.2014 u/s 119(2)(a)/119(2)(b) of the Act in F.No. 197/1/2013-ITA by DCIT-OSD (ITA. 1) has condoned the delay in filing of return, thus, once CBDT has held that return has been filed within the due date u/s 139(1) of the Act, the dispute as to allowability of claim u/s 10B on the ground of delay in filing of return has ceased to exist. Ex-consequenti, the grounds raised by the revenue are not maintainable and are, therefore, rejected. Disallowance u/s 40(a))(ia) - expenditure incurred and claimed under the head legal expenses - no sum was payable at the end of year - Held that - The issue is to be decided against the assessee in view of the judgment of the Hon ble Apex Court in the case of Palam Gas Service v. CIT 2017 (5) TMI 242 - SUPREME COURT Edifice of invoking of section 80IA(10) - Held that - Section 80IA(10) of the Act cannot be brought into play to allocate expenses debited in the books of non eligible unit to eligible unit and restrict the claim of deduction u/s 10B of the Act. Accordingly, the grounds raised by the assessee are thus allowed.

Summary

Issues Involved:
1. Disallowance of deduction under Section 10B of the Income Tax Act.
2. Allocation of common expenses between eligible and non-eligible units.
3. Delay in filing the Income Tax Return.
4. Disallowance under Section 40(a)(ia) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Deduction under Section 10B of the Income Tax Act:
The assessee contested the disallowance of ?46,62,180/- from the claim of deduction under Section 10B. The Commissioner of Income Tax (Appeals) [CIT(A)] had upheld this disallowance, concluding that common expenses were incorrectly allocated. The CIT(A) did not find defects in the separate books of accounts maintained for each unit but still reduced the eligible profits for the claim of deduction. The Tribunal noted that the CIT(A) had relied on Section 80IA(10) to justify the allocation of common expenses, which was challenged by the assessee.

2. Allocation of Common Expenses:
The CIT(A) had restricted the allocation of common expenses to ?46,62,180/- based on Section 80IA(10), which allows the Assessing Officer (AO) to adjust profits if the business arrangements produce more than ordinary profits. The Tribunal found that the AO's application of Section 80IA(10) was inappropriate because there were no transactions between the eligible unit and any closely connected third party that resulted in more than ordinary profits. The Tribunal referenced several judicial precedents, including decisions from the Delhi High Court and Chandigarh Bench, which supported the view that Section 80IA(10) could not be applied to allocate expenses arbitrarily.

3. Delay in Filing the Income Tax Return:
The Revenue's appeal challenged the CIT(A)'s decision to allow the deduction under Section 10B despite the return being filed after the due date. The CIT(A) had reasoned that the delay could have been due to a computer hitch around midnight on the due date, and thus, the benefit of doubt should favor the assessee. The Tribunal noted that the Central Board of Direct Taxes (CBDT) had condoned the delay, allowing the return filed on 01.10.2009 to be treated as filed within the due date. Consequently, the Tribunal rejected the Revenue's grounds, stating that the issue of delay was no longer relevant.

4. Disallowance under Section 40(a)(ia) of the Income Tax Act:
The Revenue also contested the deletion of a ?24,000/- disallowance under Section 40(a)(ia) for non-deduction of tax at source. The CIT(A) had deleted this disallowance, stating that no sum was payable at the end of the year. However, during the hearing, the assessee conceded that this issue should be decided against them in light of the Supreme Court judgment in Palam Gas Service v. CIT. Accordingly, the Tribunal upheld the disallowance.

Conclusion:
The Tribunal concluded by allowing the appeal filed by the assessee regarding the allocation of common expenses and the disallowance under Section 10B. The Tribunal partly allowed the Revenue's appeal by upholding the disallowance under Section 40(a)(ia) but rejected the Revenue's grounds on the delay in filing the return. The order was pronounced in the open court on 26.10.2017.