2018 (4) TMI 1126 - AT - Income Tax

Relief @ 100% by way of deduction u/s.80IC - as per AO assessee has diverted expenses pertaining to Dehradun unit being eligible unit to other manufacturing units not eligible for deduction u/s 80IC of the Act with a view to minimizing the tax liability - CIT(A) granted the relief - Held that - As decided in assessee s own case pertaining to AY 2009-10 2018 (4) TMI 1118 - ITAT KOLKATA AO could not point out any defects in the books of account maintained separately for the Dehradun unit and during remand proceedings when the Form 10CCB was produced before the AO, he could not point out any fault. There was no material to allege that there was shifting of expenses of eligible unit to non-eligible unit so that higher deduction can be claimed for 80IC unit at Dehradun. The Dehradun unit had new machineries and there were excise exemption also and thus, the profits generated at Dehradun unit cannot be termed as unnatural without any material to suggest the other way; and taking into consideration the results of the previous year also we do not find any infirmity in the order of the ld. CIT(A) directing AO to allow deduction under section 80IC of the Act on the net profit of the Dehradun units as declared by the assessee after reducing the misc. income as taken in the P&L Account - Decided against revenue Disallowance of commission expenses - Held that - It is settled proposition of law that the expense disallowed in respect of unit eligible for deduction under Chapter VI-A then the deduction will be available on the enhanced amount of profit i.e. disallowance made by the Authorities Below. CIT(A) has given a clear-cut finding that the consolidated profit and loss account was given along with separate profit and loss account of Dehradun unit DR has not advanced any argument against the finding of Ld. CIT(A). In view of the above, we are of the view that even the amount of Commission expenses of ₹ 5 crores is disallowed then the assessee would be eligible for deduction u/s. 80IC of the Act for the enhance amount. No reason to interfere in the order of Ld. CIT(A). - Decided against revenue

Summary

Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act.
2. Rejection of books of account under Section 145(3) of the Income Tax Act.
3. Allowability of commission expenses.

Detailed Analysis:

1. Deduction under Section 80IC of the Income Tax Act:

The primary issue revolves around the deduction claimed by the assessee under Section 80IC for its Dehradun unit. The assessee, a manufacturer of rubber products, claimed a deduction of ?11,67,62,013. The Assessing Officer (AO) observed that the assessee had not filed separate profit and loss accounts for each unit, making it difficult to verify the profits eligible for deduction. The AO concluded that the assessee diverted expenses from the eligible unit to non-eligible units to minimize tax liability and disallowed 50% of the deduction claimed, amounting to ?5,83,81,006.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, noting that the AO failed to verify the separate profit and loss accounts submitted for the Dehradun unit. The CIT(A) emphasized that the AO did not find any evidence of expense shifting and highlighted that the Dehradun unit enjoyed excise duty exemption, leading to higher profitability. The CIT(A) referenced a similar issue in the assessee's case for AY 2008-09, where the full deduction was allowed.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not point out any defects in the books of account and that the higher profitability of the Dehradun unit was justified due to excise exemption and newer machinery. The Tribunal also referenced its decision in the assessee's case for AY 2009-10, where similar facts led to a favorable ruling for the assessee.

2. Rejection of Books of Account under Section 145(3) of the Income Tax Act:

The AO rejected the books of account under Section 145(3), citing the lack of separate profit and loss accounts for each unit. However, since the Tribunal decided the primary issue in favor of the assessee, it did not separately adjudicate this ground, rendering it infructuous.

3. Allowability of Commission Expenses:

The assessee claimed commission expenses of ?5,01,67,682, with ?5 crores paid to Narsingh Ispat Ltd. (NIL) for procuring orders and generating demand. The AO disallowed this expense, stating that the assessee failed to substantiate the services provided by NIL.

The CIT(A) deleted the disallowance, noting that the commission was paid for services related to the Dehradun unit, which was eligible for a 100% deduction under Section 80IC. The CIT(A) emphasized that there was no motive for tax evasion since the profits of the Dehradun unit were fully exempt. The CIT(A) referenced judicial precedents supporting the allowability of commission expenses incurred for business purposes.

The Tribunal upheld the CIT(A)'s decision, agreeing that the commission expense was related to the Dehradun unit and that disallowing it would only increase the eligible deduction under Section 80IC. The Tribunal referenced a CBDT Circular stating that disallowances related to business activities eligible for Chapter VI-A deductions result in enhanced profits, and deductions are admissible on the enhanced amount.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The assessee was entitled to the full deduction under Section 80IC for the Dehradun unit, and the commission expenses were allowable as they were incurred for business purposes related to the eligible unit.