2019 (4) TMI 1438 - HC - Income Tax

Deduction u/s 80IC on the entire eligible income - deduction u/s 80IC denied by the AO on increased profit on allegation of inflated purchases - HELD THAT - Deduction u/s 80IC is, admittedly, available to the undertaking of the assessee. The deduction therein is 100% of the profits. As has been held both by the CIT (Appeals), and the Tribunal, even if a part of the purchases made by the assessee is held ineligible for deduction it would only result in an increase in the profits of the undertaking; and, since the entire profits of an undertaking is eligible for deduction u/s 80IC it mattered little whether or not a portion of the purchases, effected by the assessee, was disallowed. While we are satisfied that the deduction allowed by the CIT (Appeals), as confirmed by the Tribunal, does not necessitate interfere in an appeal u/s 260A as noted by the Tribunal, in the order under appeal, the assessee, in the present case, had claimed deduction towards purchases made by him. These deductions were disallowed by the Assessing Authority. Since the assessee had made such a claim for deduction, the Tribunal has rightly held that Section 80A(5) of the Act is not applicable. Scope of Section 260A - substantial question of law - HELD THAT - Interference, u/s 260A of the Act, is justified only if the appeal gives rise to a substantial question of law. It is only if the findings recorded by the Tribunal, on facts, is based on no evidence, or the findings are perverse, would it give rise to a substantial question of law warranting interference in proceedings u/s 260A. We find no such infirmity in the order under appeal.

Summary

Issues:
1. Disallowance of purchases claimed by the respondent-assessee for deduction under the Income Tax Act.
2. Eligibility of the respondent-assessee for deduction under Section 80IC of the Income Tax Act.
3. Applicability of Section 80A(5) of the Income Tax Act regarding deduction claims.
4. Verification of the genuineness of purchases made by the assessee by the Assessing Officer.

Analysis:

Issue 1: Disallowance of purchases claimed for deduction
The respondent-assessee claimed to have purchased goods worth a specific amount for business activities. However, the purchases were disallowed, resulting in an increase in profit and subsequent tax liability under the Income Tax Act. The Commissioner of Income Tax (Appeals) later deleted the additions made by the Assessing Officer, allowing the benefit under Section 80IC of the Act on the entire eligible income. The Tribunal observed that disallowance of purchases would not impact the income tax liability of the assessee, as the entire profit was eligible for exemption under Section 80IC.

Issue 2: Eligibility for deduction under Section 80IC
The Tribunal confirmed that the assessee was eligible for deduction under Section 80IC of the Income Tax Act, where the deduction is 100% of the profits. Even if a part of the purchases made by the assessee was held ineligible for deduction, it would only increase the profits, which would still be eligible for deduction under Section 80IC. The deduction allowed by the Commissioner of Income Tax (Appeals) and the Tribunal did not warrant interference under Section 260A of the Act.

Issue 3: Applicability of Section 80A(5) regarding deduction claims
The Revenue contended that since the assessee did not claim certain expenditure, the benefit under Section 80IC should not have been extended. However, Section 80A(5) stipulates that deductions not claimed by the assessee shall not be allowed. The Tribunal noted that the assessee had indeed claimed deduction for purchases, making Section 80A(5) inapplicable in this case.

Issue 4: Verification of the genuineness of purchases
During the appeal process, the Assessing Officer was directed to verify the genuineness of the purchases made by the assessee. It was found that the purchases were indeed made by the assessee, indicating that the initial disallowance was unfounded. The Court concluded that no interference was warranted under Section 260A of the Income Tax Act, as the genuineness of purchases was verified, and the appeal was dismissed.

Overall, the judgment upheld the eligibility of the assessee for deduction under Section 80IC, clarified the applicability of Section 80A(5) regarding deduction claims, and emphasized the importance of verifying the genuineness of transactions before disallowing deductions.