2015 (9) TMI 1183 - AT - Income Tax

Disallowance of claim of deduction u/s 80IB - Held that - Central Sales-tax assessment order is a quasi judicial order which cannot be ignored and in case we believe the story of Revenue authorities it will amount to disbelieve the Central Sales-tax Act which is not permissible because the order of is of a quasi judicial body. It should not be contradicted by other quasi judicial body under the Income-tax Act. In the facts and circumstances the Assessing Officer summoned the purchaser of good and the purchaser confirmed the purchase of goods. In response to the compliance placed at page 96 of the Paper Book the Assessing Officer was not justified in keeping silent on the issue. It is not justified for Revenue authorities to keep silence on third party evidence on which the assessee has no control like confirmation of purchases in reply to summons, machinery purchase bills, wage sheet. Even evidences like direct orders/certificates issued by government authorities in their statutory capacities after due verification in the form of SSI Registration Certificate, Exemption Certificate from VAT department, Test report from electricity department, Order of assessment under Central Sales-tax Act. The Assessing Officer was not justified to disbelieve the same on the basis of surmises and conjectures. In view of the above factual and legal discussion the assessee is held to be eligible for deduction under section 80IB. Assessing Officer is directed accordingly. - Decided in favour of assessee. Addition on differences in balances of sundry creditors - Held that - It is undisputed that the document was filed by the assessee as claimed and as evident from the details. This certificate was placed before the authorities below and in such situation it is not proper on the part of both the authorities below to negate the claim of assessee. In the interest of justice, we think it just and proper to restore the matter to the file of Assessing Officer with direction to adjudicate the issue afresh, after providing reasonable opportunity to the assessee of being heard. Since we restore this issue on technical ground, we refrain from commenting on merit on the issue. - Decided in favour of assessee for statistical purposes. Disallowance of rent expenses and freight expenses - non-deduction of TDS u/s 40(a)(ia) and consequent claim of 80IB of same was also disallowed - Held that - In the interest of justice the Assessing Officer is directed to allow the deduction under section 80IB to the extent of disallowances of rent and freight charges under the provisions of sec.40(a)(ia) discussed above

Summary

Issues Involved:
1. Disallowance of deduction claim under section 80IB of the Income Tax Act.
2. Addition due to differences in balances of Sundry Creditors.
3. Disallowance of rent expenses due to non-deduction of TDS under section 40(a)(ia).
4. Disallowance of freight expenses due to non-deduction of TDS under section 40(a)(ia).

Detailed Analysis:

1. Disallowance of Deduction Claim under Section 80IB:
The primary issue revolves around the disallowance of the deduction claim under section 80IB amounting to Rs. 1,03,91,856/-. The Assessing Officer (AO) found discrepancies regarding the commencement of commercial production, particularly due to the absence of an electric connection by 31.03.2004. The AO noted that the power connection was only released on 31.03.2004, making it implausible for the manufacturing activities to have started before this date. The AO also emphasized that the manufacturing processes required power, which was not available, thus invalidating the claim of manufacturing commencement.

The assessee argued that they had provisional SSI registration and sales-tax registration as a manufacturing unit before the critical date. They also presented a VAT exemption certificate and an electric installation test report dated 29.03.2004. The Tribunal found that the AO did not dispute the authenticity of these documents. The Tribunal also noted contradictions in the AO's reliance on electricity bills, which showed some energy consumption, thus supporting the assessee's claim of operational status by March 2004. Consequently, the Tribunal held that the assessee met all conditions for the deduction under section 80IB and directed the AO to allow the claimed deduction.

2. Addition Due to Differences in Balances of Sundry Creditors:
The AO added Rs. 14,91,264/- to the assessee's income due to differences in the balances of sundry creditors, which the assessee failed to reconcile. The CIT(A) upheld this addition, noting the lack of confirmatory letters and reconciliation statements from the creditors. The Tribunal, however, found that the assessee had submitted necessary documents and felt that the authorities did not properly consider these. Therefore, the Tribunal remanded the matter back to the AO for fresh adjudication, providing the assessee another opportunity to present their case.

3. Disallowance of Rent Expenses Due to Non-Deduction of TDS under Section 40(a)(ia):
The AO disallowed rent expenses amounting to Rs. 1,26,000/- due to the non-deduction of TDS, which was upheld by the CIT(A). The assessee argued that the disallowance should not affect the deduction under section 80IB. The Tribunal, referencing the Gujarat High Court decision in CIT vs. Sahjanand Associates, agreed that disallowed expenses under section 40(a)(ia) should still qualify for deduction under section 80IB. Thus, the Tribunal directed the AO to allow the deduction to the extent of the disallowed rent expenses.

4. Disallowance of Freight Expenses Due to Non-Deduction of TDS under Section 40(a)(ia):
Similar to the rent expenses, the AO disallowed freight expenses amounting to Rs. 2,64,627/- due to non-deduction of TDS. The CIT(A) upheld this disallowance. The Tribunal, again referencing the Gujarat High Court decision, held that the disallowed freight expenses should still qualify for deduction under section 80IB. The Tribunal directed the AO to allow the deduction to the extent of the disallowed freight expenses.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to grant the deduction under section 80IB for the disallowed rent and freight expenses and remanding the issue of sundry creditors' balance differences for fresh adjudication. The Tribunal found that the assessee met all conditions for the deduction under section 80IB and directed the AO to allow the claimed deduction of Rs. 1,03,91,856/-.