2017 (4) TMI 1067 - HC - Income Tax

Entitlement to exemption u/s 80-HH and 80-I - Held that - There is a finding recorded by Tribunal that Assessee conceded and it could not quantify actual amount of expenditure attributable to due unit it is entitled for deduction under Section 80HH and 80-I of Act 1961. That be so, the amount of deduction claimed by Assessee also has rightly been held unacceptable inasmuch as income of new unit cannot be said to have been correctly computed by Assessee. A.O., therefore after making appropriate computation has allowed deduction of modified amount. In view of admission on the part of Assessee s representative that it could not quantify actual amount of expenditure attributable to the new unit, wrong computation of profit of new unit was also evident hence Assessee could not have claimed deduction for the amount it had not correctly computed. The aforesaid question therefore, answered against Assessee. Commission payable to M/s OECC Ltd. - Held that - In normal course what has been claimed by Assessee justify an answer in its favour but in particular facts and circumstances of the case and that too when it is admitted that even subsequently the amount has neither been claimed by M/s OECC nor paid by Assessee. Hence the factum that it was really shown as accrued itself, become suspicious and doubtful unless Assessee show that the said accrual is genuine and followed. We find no reason to take a view in favour of Assessee. In the present case, at the time of assessment order, it is admitted position that amount of claim towards deduction, though such deduction was neither claimed by OECC nor paid by Assessee. Therefore, Assessing Authority found this amount as ingenuine or fictitious entry or inflated entry.In these facts and circumstances, we are of the considered view that even this question would justify an answer against Assessee

Summary

Issues Involved:
1. Entitlement to exemption under Section 80-HH and 80-I of the Income Tax Act, 1961.
2. Rejection of books of accounts in the absence of infirmity.
3. Deduction of commission payable to M/s Oriental Engineering and Commercial Company Limited.
4. Correctness or completeness of the accounts questioned by the Tribunal when the assessing officer had not rejected the same under Section 145(2) of the Act and had not passed an order under Section 144 of the Act.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 80-HH and 80-I:
The Assessee claimed deductions under Section 80-HH and 80-I for the assessment years 1994-95 and 1995-96 based on the net profits of its Gehring Division, which is located in an industrially backward area. However, the Assessing Officer (A.O.) found that the expenses of the Ema Division were unduly inflated and those of the Gehring Division were unduly deflated. This led to the disallowance of the claimed deductions. The Tribunal upheld this decision, noting that the Assessee could not quantify the actual amount of expenditure attributable to the new unit, making the claimed deductions unacceptable. The High Court confirmed the Tribunal's finding and answered this issue against the Assessee.

2. Rejection of Books of Accounts:
The A.O. rejected the books of accounts under Section 145(2) of the Income Tax Act, 1961, due to the irrational allocation of common expenses between the Ema and Gehring Divisions. The Tribunal found that the A.O. was justified in rejecting the books of accounts and adopting a reasonable method to compute the true profits of the Assessee. The High Court confirmed this finding, stating that the A.O. has the discretion to adopt the most reasonable method of computation of income if the accounts are not correct and complete. This issue was also answered against the Assessee.

3. Deduction of Commission Payable to M/s Oriental Engineering and Commercial Company Limited:
The Assessee claimed a deduction for the commission payable to M/s Oriental Engineering and Commercial Company Limited (OECC) for the assessment year 1994-95. However, the A.O. disallowed this deduction, noting that the commission was not actually paid and OECC did not confirm the payment. The Tribunal recorded an admission by the Assessee's representative that the commission was not paid. The High Court upheld the Tribunal's decision, stating that in the mercantile system of accounting, the amount due must be genuine and not fictitious. Since the commission was neither claimed by OECC nor paid by the Assessee, the claim was found to be ingenuine. This issue was answered against the Assessee.

4. Correctness or Completeness of Accounts Questioned by the Tribunal:
The Assessee argued that the Tribunal should not have questioned the correctness or completeness of the accounts since the A.O. had not rejected them under Section 145(2) of the Act. The Tribunal found that the A.O. had effectively rejected the accounts by adopting a reasonable method to compute the true profits, given the irrational allocation of common expenses. The High Court agreed with the Tribunal, stating that the substance of the A.O.'s order indicated a rejection of the accounts. This issue was also answered against the Assessee.

Conclusion:
All the appeals were dismissed, and all issues were decided against the Assessee. The High Court upheld the Tribunal's findings regarding the rejection of books of accounts, disallowance of deductions under Sections 80-HH and 80-I, and the disallowance of the commission payable to OECC.