2019 (7) TMI 535 - AT - Income Tax

Disallowance u/s. 80IC - as alleged no manufacturing activity conducted - proof of carrying out publishing activity from the eligible undertaking - assessee did not carry out any printing or binding of books in the eligible undertaking at Rudrapur as neither the paper nor the printed material reached the eligible unit for printing, cutting and binding etc. - HELD THAT - The assessee filed his confirmation during appellate proceedings on which no adverse comment was given by the AO in the remand report. The difference in the value of machinery in the bill and the Form 16 has no bearing on the deduction claimed u/s 80IC of the Act. The only thing required to be proved that the machinery was transported to Rudrapur and used there. The assessee produced evidences to prove this fact on which no adverse observation was given by the AO in the remand report. The assessee s explanation regarding the cartage being included in the other expenses in the return of income on verification was found correct. The assessee filed various documents like purchase bills of paper, lorry receipts, bills of transporter, Form 16 issued by the VAT department for entry of any goods in Uttarakhand to show that paper was transported to Rudrapur and sent back to the printer in Delhi, then printed sheets were sent from Delhi to Rudrapur where books were manufactured which were transported to Delhi. No adverse observation in respect thereof was made by the AO in the remand report. Thus, the suspicion of the AO that no manufacturing activity took place at the eligible undertaking of the assessee is not supported with any evidence and is just a surmise. The paper purchased from S. Chand Co. Pvt Ltd was of an insignificant amount and is of no consequence. The gross profit ratio of the appellant company is 34% which is much lesser than the GP ratio of the other two group companies engaged in the same business. Thus, no adverse observation in terms of the provisions of the sub- sections (8) or (10) of the section 80IA of the Act can be drawn. The claim of the assessee in respect of carrying out publishing activity from the eligible undertaking was found genuine on the basis of relevant evidences placed on record and not refuted by the AO in the remand report and thus, assessee is eligible to deduction u/s 80IC Once the deduction u/s 80IC of the Act is allowed in the initial assessment year i.e. in the AY 2010-11 after due verification of the prescribed conditions and there is no change in the facts, then the deduction cannot be disallowed in subsequent years on the ground of non-fulfillment of conditions laid down in section 80-IC of the Act. This view has been fortified by the decision of the Hon ble Delhi High Court in the case of CIT vs. Tata Communication Internet SErvicse Ltd. 2011 (8) TMI 633 - DELHI HIGH COURT - Decided in favour of assessee TDS u/s 194H - Disallowance of Trade discount u/s 40(a)(ia) - trade discount OR commission' - HELD THAT - In the case of Skol Breweries 2013 (10) TMI 416 - ITAT MUMBAI as held that when a purchase / sales is made at discounted price, it is called discount but when an incentive is given for undertaking task / job/ services provided or on sale of goods by one person on behalf of other, then it is commission. Since the benefit given by the assessee to M/s S. Chand Co. Ltd. was in the nature of trade discount and not commission , therefore, the assessee was not required to deduct income tax at source u/s. 194H of the Act, thus, no disallowance can be made u/s. 40(a)(ia) - Decided in favour of the assessee. Disallowance for delay in deposit of Employees Contribution to PF - due date of filing of return of income - HELD THAT - The employees contribution to EPF was deposited well before the due date of filing of return of income. The assessee has explained the circumstances in which such delay has been occurred. Thus, relying on the judgment of CIT vs. Vinay Cement Ltd. 2007 (3) TMI 346 - SC ORDER and CIT vs. AIMIL Ltd. 2009 (12) TMI 38 - DELHI HIGH COURT the addition was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue.

Summary

Issues Involved:

1. Deletion of addition amounting to ?7,28,63,103/- made by the AO by disallowing the claim of the assessee u/s. 80IC of the Income Tax Act, 1961.
2. Justification of CIT(A) in not upholding disallowance of ?7,28,63,013/- u/s. 80IC of the Act by ignoring the fact that the work of printing was not carried out at the premises of the assessee in the notified area.
3. Deletion of addition made by the AO amounting to ?6,04,45,025/- for not deducting the tax at source on commission payment made to M/s S. Chand & Company Pvt. Ltd. under the guise of ‘Trade Discount’.
4. Justification of CIT(A) in holding that the employees’ contribution to the Employees Provident Fund (EPF) is also governed by Section 43B of the Act.
5. Whether the order of the Ld. CIT(A) is erroneous and not tenable on facts and in law.
6. Appellant's right to add, alter, amend, or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.

Issue-wise Detailed Analysis:

1. Deletion of Addition u/s 80IC:
The assessee claimed deduction under section 80IC of the Income Tax Act, 1961, amounting to ?7,28,63,013/-. The AO disallowed this claim on the grounds that the assessee did not carry out any printing or binding of books in the eligible undertaking at Rudrapur. The AO observed that neither the paper nor the printed material reached the eligible unit for printing, cutting, and binding, thus no manufacturing activity had taken place at the premises. However, the CIT(A) deleted the addition, stating that the unit is situated in a notified area and the assessee is engaged in producing 'printed books'. The assessee sold the printed books to M/s S. Chand & Co. Pvt. Ltd., a publisher, and not a trader of paper products. The CIT(A) found that the business operation of the assessee is in the nature of manufacturing, and thus, eligible for deduction u/s 80IC. The Tribunal upheld the CIT(A)'s decision, noting that the AO's suspicion was not supported by evidence and that the assessee's claim was genuine based on relevant evidences.

2. Justification of CIT(A) in Not Upholding Disallowance u/s 80IC:
The CIT(A) was justified in not upholding the disallowance of ?7,28,63,013/- u/s 80IC as the assessee provided sufficient evidence to prove that the manufacturing activities were carried out at the eligible undertaking. The Tribunal noted that the assessee's explanation regarding the 'cartage' being included in other expenses was verified and found correct. The Tribunal also observed that the AO's suspicion was based on surmise without supporting evidence. Thus, the assessee's claim for deduction u/s 80IC was rightly allowed by the CIT(A).

3. Deletion of Addition for Non-Deduction of TDS on Commission Payment:
The AO disallowed ?6,04,45,025/- u/s 40(a)(ia) on the grounds that the assessee did not deduct TDS on payment made to M/s S. Chand & Co. Pvt. Ltd., treating the trade discount as commission. The CIT(A) deleted this addition, noting that the trade discount was not in lieu of any services for effecting sales but was a trade discount. The Tribunal upheld the CIT(A)'s decision, stating that the benefit given by the assessee to M/s S. Chand & Co. Ltd. was in the nature of 'trade discount' and not 'commission', and thus, the assessee was not required to deduct TDS u/s 194H of the Act.

4. Justification of CIT(A) on Employees’ Contribution to EPF:
The AO disallowed certain payments aggregating to ?1,11,811/- made beyond the due date as per the relevant statute. The CIT(A) deleted this addition, relying on the judgments of CIT vs. Vinay Cement Ltd. and CIT vs. AIMIL Ltd., which held that if the employees' contribution to EPF is deposited before the due date of filing the return of income, no disallowance is warranted. The Tribunal upheld the CIT(A)'s decision, noting that the employees' contribution to EPF was deposited well before the due date of filing the return of income.

5. Whether the Order of the Ld. CIT(A) is Erroneous:
The Tribunal found that the order of the CIT(A) was not erroneous and was based on a thorough examination of the facts and relevant evidences. The CIT(A) provided a well-reasoned order, which did not need any interference from the Tribunal.

6. Appellant's Right to Add, Alter, Amend Grounds:
The Tribunal noted that the appellant craves leave to add, alter, amend or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. However, this issue was not specifically addressed in the judgment as the primary grounds of appeal were comprehensively dealt with.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, providing relief to the assessee on all grounds of dispute.