2015 (3) TMI 350 - AT - Income Tax

Deduction u/s 80IB - audit report in Form No. 10CCB was not filed along with the Income Tax Return - Assessment pursuance of research u/s 153A - CIT(A) allowed the deduction - Held that - When the profits of the eligible project have increased then the consequential statutory impact will be on the amount of deduction u/s 80IB. so when the profits increase, the deduction/ incentive envisaged u/s 80IB increases. On one hand when the revenue has accepted the increase in profit though surfaced due to the search, the impact of the said increase in profit has to be also on the deduction allowable under Section 80IB of the Act, more particularly when the mandate on AO u/s 153A is to compute the total income of assessee. In the light of the aforesaid distinguishable facts, the ratio of Jai Steel cited (2013 (6) TMI 161 - RAJASTHAN HIGH COURT) by the revenue is of no help to the department. In that case, the deduction claimed by the assessee was not in the original return at all and it was made for the first time u/s 153A, which is not the case in hand. It may reemphasized that the assessee s claim was not a new claim but it was only an enhanced claim which is statutorily linked to the eligible profits which get enhanced as result of search. Therefore we do not find any legal infirmity on the finding of the ld CIT(A) and so confirm the same. We also concur with the conclusion of the ld CIT(A) wherein it is observed that if the disallowance u/s 40A(3) is directly relatable to the profit of the eligible projects, then the deduction u/s 80IB be accordingly recomputed, subject to verification of the records including the seized records.In the result the grounds raised by the revenue for Assessment Year 2005-06 stands dismissed. - decided in favour of assessee. Payments in excess of ₹ 20,000/- disallowed - payment made on the dates when banks were closed due to holiday - Held that - The facts are not clear as to whether the payments were made on the holidays when the banks were closed. We therefore set aside the impugned order on this issue and remand the same back to the file of AO for fresh adjudication, in accordance with law after providing due and reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Notional interest on the temporary advance given to then director Sh. Arun Kumar Gupta disallowed - Held that - Issue should also be examined by the AO, as the facts are not clear particularly when it is the contention of the ld AR for the assessee that it was allowed in the original assessment by the AO by considering this fact that the advance was given to the Director for business purpose only.- Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act.
2. Disallowance under Section 40A(3) of the Income Tax Act.
3. Audit report requirement under Section 80IB(13) read with Section 80IA(7).
4. Enhanced deduction claims in returns filed under Section 153A.
5. Notional interest on temporary advance to a director.
6. Payments made on bank holidays covered under Rule 6DD(k).
7. Disallowance of cash payments not exceeding Rs. 20,000.

Detailed Analysis:

1. Deduction under Section 80IB of the Income Tax Act:
The revenue challenged the CIT(A)'s decision to allow the enhanced deduction under Section 80IB, arguing that the audit report in Form No. 10CCB was not filed with the original return. The CIT(A) held that the requirement to file the audit report with the original return is directory, not mandatory, and if the report is filed before the completion of the assessment, the condition is met. The Tribunal upheld this view, citing judicial precedents including the Delhi High Court's decision in Contimeters Electrical Pvt. Ltd. (317 ITR 249), which stated that filing the audit report before assessment completion suffices.

2. Disallowance under Section 40A(3) of the Income Tax Act:
The AO disallowed 20% of the cash payments exceeding Rs. 20,000 under Section 40A(3). The CIT(A) directed the AO to re-compute the deduction under Section 80IB if the disallowance is directly related to the eligible project. The Tribunal upheld this, noting that if the disallowance relates to the eligible project's profits, the deduction under Section 80IB should be adjusted accordingly.

3. Audit report requirement under Section 80IB(13) read with Section 80IA(7):
The AO denied the enhanced deduction under Section 80IB due to the absence of the audit report with the original return. The CIT(A) and Tribunal found this reasoning flawed, as the additional income (and thus the enhanced deduction) was declared for the first time in the return filed under Section 153A. The Tribunal emphasized that the audit report filed during the 153A proceedings was adequate.

4. Enhanced deduction claims in returns filed under Section 153A:
The Tribunal noted that Section 153A requires assessing the 'total income' for six years preceding the search year, allowing new claims for deductions not made in the original returns. The Tribunal rejected the revenue's argument that deductions not claimed in the original returns cannot be claimed under Section 153A, emphasizing that the enhanced deduction was linked to the increased profits from the eligible project.

5. Notional interest on temporary advance to a director:
The assessee contested the disallowance of notional interest on a temporary advance given to a director. The Tribunal remanded the issue to the AO for re-examination, noting that the facts were unclear and the advance was claimed to be for business purposes.

6. Payments made on bank holidays covered under Rule 6DD(k):
The assessee argued that payments exceeding Rs. 20,000 were made on bank holidays, thus covered under Rule 6DD(k). The Tribunal remanded the issue to the AO to verify if the payments were indeed made on holidays when banks were closed.

7. Disallowance of cash payments not exceeding Rs. 20,000:
The assessee claimed that the disallowed cash payments did not exceed Rs. 20,000 individually but were aggregated by the AO. The Tribunal remanded this issue to the AO for re-examination to ensure compliance with the Rs. 20,000 limit per transaction.

Conclusion:
The Tribunal dismissed the revenue's appeals and allowed the assessee's appeals for statistical purposes, remanding several issues to the AO for re-examination. The Tribunal upheld the CIT(A)'s decisions on the enhanced deduction under Section 80IB and the re-computation of deductions related to disallowed cash payments. The Tribunal emphasized the directory nature of the audit report filing requirement and the eligibility of enhanced deductions linked to increased profits from eligible projects.

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