2019 (2) TMI 1397 - AT - Income Tax

Unexplained investment in purchases of raw materials - inflation of purchases of raw materials u/s.69 - difference between the actual consumption of raw material vis- vis standard consumption prescribed under the Exim Input-Output Norms - HELD THAT - As decided in assessee s own case 2016 (8) TMI 1043 - GUJARAT HIGH COURT assessee was manufacturing pharmaceutical, medicines, which are being exported. The assessee was maintaining the norms which are prescribed by the Government of India for a particular pharmaceutical medicine which is to be exported. Since there was a variation in the ratio, the Assessing Officer made addition based on the statement of the General Manager, in-charge production. In our view, the AO has based his addition on the basis of the documents which are not available on the record and based on the statement of the General Manager, in-charge production. Whether the assessee has followed the prescribed norms is not within the purview of the Income-tax Authority, In our view, the Tribunal has rightly held that the CIT(A) was wrong in relying on the input out consumption ratio. In our view, the Assessing Officer and the Commissioner of Income-tax (Appeals) have gone on different directions. - Decided against revenue. Claim of deduction u/s 10B - HELD THAT - There is no ambiguity about the eligibility of deduction claimed by the assessee u/s 10B . Thus, if any disallowance is made in respect of the unit eligible for deduction u/s 10B of the Act, then the assessee will be entitled todeduction on the amount of profit enhanced by such disallowance - Circular No.37 of 2016 issued by CBDT dated 02.11.2016 stated disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance - Decided against revenue. Addition u/s 36(1)(va) r.w.s 2(24)(x) on account of alleged late payment of employees contribution towards provident fund, ESI, etc. - HELD THAT - AR before us has submitted that the due date for depositing the employee s contribution towards PF/ESI should be seen from the date of the payment and not from the due date. In this regard, we note that the Jurisdictional Tribunal in the identical facts and circumstance in the case of Suzlon Energy Ltd. 2018 (8) TMI 447 - ITAT AHMEDABAD has restored this issue to the file of the AO for fresh adjudication. Therefore, respectfully following the same, we are inclined to restore the issue on the hand to the file of AO for fresh adjudication

Summary

Issues Involved:
1. Deletion of addition on account of unexplained investment and inflation of purchases.
2. Enhancement of deduction under Section 10B of the Income Tax Act.
3. Disallowance under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act for late payment of employees' contribution towards PF/ESI.
4. Treatment of forex loss as capital in nature.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Investment and Inflation of Purchases:
The Revenue contended that the Commissioner of Income-Tax (Appeals) [CIT(A)] erred in deleting the additions of ?1,70,77,868 and ?69,55,191 made by the Assessing Officer (AO) for unexplained investment in the purchase of raw materials and inflation of purchases, respectively. The AO observed discrepancies between the actual consumption of raw materials and the standard consumption as per the Exim Input-Output Norms. The assessee provided a detailed explanation, including changes in the formula, hazardous materials no longer used, and acceptance of consumption as per books by various authorities. However, the AO disagreed and made additions totaling ?2,40,33,059. The CIT(A) deleted these additions, and the decision was supported by previous tribunal orders and the Gujarat High Court's ruling, which held that the AO's reliance on input-output norms was misplaced. The tribunal upheld the CIT(A)'s decision, finding no error in the deletion of the additions.

2. Enhancement of Deduction Under Section 10B of the Income Tax Act:
The Revenue challenged the CIT(A)'s enhancement of the assessee's deduction under Section 10B by ?28,50,411 due to foreign exchange fluctuation loss. The AO had disallowed this loss, treating it as capital in nature. The CIT(A) admitted an additional ground from the assessee, allowing the loss to be considered for the Section 10B deduction, enhancing the deduction by ?27,80,464. The tribunal upheld the CIT(A)'s decision, referencing CBDT Circular No.37 of 2016, which allows Chapter VI-A deductions on profits enhanced by specific disallowances. The tribunal found no reason to disturb the CIT(A)'s finding and dismissed the Revenue's appeal on this ground.

3. Disallowance Under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act for Late Payment of Employees' Contribution towards PF/ESI:
The AO disallowed ?43,689 for late payment of employees' contribution to PF/ESI, relying on the Gujarat High Court's decision in CIT vs. GSRTC. The assessee argued that the due date should be considered from the month of salary payment, not when it became due. The tribunal referred to a jurisdictional tribunal decision in Suzlon Energy Ltd., which restored similar issues to the AO for fresh adjudication. The tribunal followed this precedent, restoring the issue to the AO for fresh adjudication, allowing the assessee's ground for statistical purposes.

4. Treatment of Forex Loss as Capital in Nature:
The assessee's appeal contended that the forex loss of ?28,50,411 should not be treated as capital in nature. The tribunal had already addressed the issue in the Revenue's appeal, upholding the CIT(A)'s decision to allow the loss for Section 10B deduction. Consequently, the tribunal dismissed the assessee's ground as infructuous.

Conclusion:
The tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection for statistical purposes, restoring the issue of disallowance under Section 36(1)(va) to the AO for fresh adjudication. The order was pronounced in open court on 01/01/2019.