2016 (3) TMI 530 - AT - Income Tax

Deduction u/s 80IC - Held that - We find that the ld. CIT (A) has not admitted the additional evidence and has without deliberating on the merits of the matter has simply stated a line that for non production of 10CCB and on merits also, he is disallowing the claim of the Baddi unit u/s 80IC. It is a trite law that the onus is on the person claiming expenditure/exemption / deduction under the Act. Since it is the first year of claim of 80IC deduction of the Baddi unit, the burden is on the assessee to qualify the eligibility criteria to claim 80IC deduction. Once the assessee has discharged its burden then the onus shifts to the AO to prove why the claim shall not be granted fully or partly to the assessee. We find that the counsel for the assessee was of the bonafide belief that along with the claim of 80IC and 80I deduction, the Form 10CCB was not required since the accounts of the assessee are audited as per the statute. The assessee cannot be penalized for the bonafide mistake of the counsel, so in the interest of justice, we admit Form 10CCB and we set aside the order of the authorities below and remand the matter back to the file of the AO to adjudicate the claim of the assessee for 80IC for Baddi unit and 80I for Gurgaon unit and direct him to admit Form 10CCB and de novo adjudicate both the claims. Disallowance of interest - Held that - Interest on working capital and term loan, which is only ₹ 9,90,825/- and ₹ 3,71,187/- respectively. Further, interest of ₹ 9,90,825/- is for availing facilities of packing credit, bills purchases, OCC and not for any diversion of funds for non-business purposes. Further, it is neither been established such interest on term loan was for capital work-in-progress. Moreover, identical interest has been allowed in the preceding year (AY 2005-06). Having regard to the above, disallowance made is deleted. - Decided in favour of assessee Disallowance of depreciation on factory building - Held that - We find that the CIT (A) has not considered the depreciation chart furnished by the assessee. We further notice that even the AO has held that whether the asset was put to use or not could not be ascertained. Having regard to the above, it is apparent that the disallowance has been made, without proper investigation and consideration of the facts. We, therefore, restore the matter back to the file of AO, for de novo consideration this issue. Disallowance on account of subscription and membership fee - Held that - We find that no evidence was led by the AR to dislodge the finding that expenditure was incurred wholly and exclusively for the purposes of business of the assessee company. The claim that though the accommodation was in the name of director but was used by the customers/employees is entirely unsubstantiated. We, therefore, do not find any merit in the claim, so the same is dismissed. Deduction claimed by the assessee u/s 80I on the duty drawback and job work charges - Held that - Having already held that the claim of 80IC needs to be de novo adjudicated and since this issue is interlinked with that issue, in the fitness of things, we are inclined to remit this issue also to the file of the AO. Disallowance of of traveling expenses - Held that - There is no dispute that there is no basis for making the ad hoc disallowance of ₹ 5 lakhs. That being the case, we uphold the conclusion of the ld. CIT (A) and dismiss this ground of the revenue.

Issues Involved:
1. Deduction under Section 80IC
2. Deduction under Section 80I
3. Disallowance of interest
4. Disallowance of depreciation on additions to the factory building
5. Disallowance of subscription and membership fees
6. Deduction under Section 80G
7. Deduction on duty drawback and job work charges
8. Disallowance of traveling expenses
9. Consequential and general grounds

Detailed Analysis:

1. Deduction under Section 80IC:
The assessee claimed a deduction under Section 80IC for its Baddi unit, which the AO disallowed due to the non-filing of Form 10CCB and alleged profit shifting from the Gurgaon unit to the Baddi unit. The AO observed a higher NP rate in the Baddi unit compared to the Gurgaon unit and recalculated the deductions. The CIT(A) sustained the disallowance, citing the mandatory requirement of Form 10CCB. The Tribunal, however, admitted the additional evidence (Form 10CCB) and remanded the case back to the AO for de novo adjudication, emphasizing the need for proper investigation and consideration of the facts.

2. Deduction under Section 80I:
The Gurgaon unit's deduction under Section 80I was disallowed by the AO due to the non-filing of Form 10CCB. The CIT(A) allowed the deduction, stating that Form 10CCB was not required for a company under Section 80I. The Tribunal upheld the CIT(A)'s decision, noting that the deduction had been allowed in previous years and there was no requirement for Form 10CCB for Section 80I claims by companies.

3. Disallowance of Interest:
The AO disallowed interest of Rs. 16,57,972, observing that the assessee had made interest-free advances and had capital work in progress, while claiming interest on secured loans. The CIT(A) sustained the disallowance. The Tribunal, however, found that the assessee had sufficient own funds and that the advances were for business purposes, following the principles laid down in CIT vs. Reliance Utilities and Power Limited and CIT vs. Bharti Televenture Ltd. The disallowance was deleted.

4. Disallowance of Depreciation on Additions to the Factory Building:
The AO disallowed depreciation of Rs. 2,47,703 on additions to the factory building, as there was no evidence that the building was put to use. The CIT(A) sustained the disallowance. The Tribunal remanded the matter back to the AO for de novo consideration, noting that the CIT(A) had not considered the depreciation chart and the AO had not properly investigated the matter.

5. Disallowance of Subscription and Membership Fees:
The AO disallowed Rs. 2,48,334 on account of subscription and membership fees, considering them personal expenses. The CIT(A) concurred. The Tribunal upheld the disallowance, finding no evidence that the expenses were incurred wholly and exclusively for business purposes.

6. Deduction under Section 80G:
The AO disallowed the deduction under Section 80G due to the non-production of documents. The CIT(A) sustained the disallowance. The Tribunal remanded the issue to the AO for verification, allowing the assessee to produce necessary evidence to support the claim.

7. Deduction on Duty Drawback and Job Work Charges:
The AO disallowed the deduction on duty drawback and job work charges, considering them not income from industrial undertaking. The Tribunal remanded the issue to the AO for de novo adjudication, as it was interlinked with the 80IC deduction issue.

8. Disallowance of Traveling Expenses:
The AO disallowed Rs. 5 lakhs out of traveling expenses on an ad hoc basis. The CIT(A) deleted the disallowance, noting the AO had not identified specific non-allowable expenses. The Tribunal upheld the CIT(A)'s decision, finding no basis for the ad hoc disallowance.

9. Consequential and General Grounds:
Grounds related to the computation of income and interest under Section 234B were deemed consequential. General grounds did not require adjudication.

Conclusion:
The Tribunal partly allowed the appeals of both the assessee and the revenue for statistical purposes, remanding several issues back to the AO for de novo consideration and proper verification.

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