2019 (3) TMI 626 - AT - Income Tax

Deduction u/s 80IB and 80IC - taxpayer had not submitted its form 10CCB auditor s report in respect of the corresponding revised claim - HELD THAT - Honourable apex court s decision in CIT vs. G. M Knitting Industries Pvt. Ltd. and Another 2015 (11) TMI 397 - SUPREME COURT has already settled the law that an assessee is entitled for Section 80IB deduction even if it files its form 10CCB audit report not with the return but before completion of assessment. This is not the Revenue s case that the assessee s audit report has escaped the Assessing Officer consideration during assessment . There is no distinction on facts or law involvement in the two assessment years. We thus decline the Revenue s instant substantive ground Deduction u/s 80IB/ 80IC deduction - decline claim as interest income for the reason that the same has not been derived from the eligible business as per decision in CIT vs. Sterling Products 1999 (4) TMI 1 - SUPREME COURT - HELD THAT - Learned senior counsel fairly concedes that the honourable jurisdictional High Court decision in assessee s own case 2018 (4) TMI 1129 - ITAT KOLKATA has already upheld Revenue s very stand. We confirm the impugned Section 80IB/80IC deduction disallowance on this court alone. Disallowing provision of marketing services - whether it is in the nature of a contingent liability only than an ascertained one? - DR vehemently contends that the assessee has failed to prove the three basic ingredients of its impugned provisions i.e. an obligation arising as a result of past events, outflow of resources required for the very obligation followed by a reliable estimation; respectively - HELD THAT - The assessee inter alia takes us to assessment year wise details of the marketing services from assessment year 2004-05 onwards, notes pertaining to its media activity, creation of marketing provision and reversal thereof, sample estimation, TV estimate and schedule as well as other similar details for its advertisements/marketing expenses for the impugned assessment order amounting to ₹ 156.94 crores. Both the lower authorities have been very fair in not pinpointing any distinction on facts and law in the instant case in all these assessment years. We adopt the above extracted reasoning mutatis mutandis qua the impugned assessment order to delete the disallowance of marketing services provision. Disallowance u/s 14A - HELD THAT - CIT(A) has followed the findings on the very issue in earlier assessment years to estimate the impugned disallowance @ 1% of exempt income; coming to ₹ 23,660/- Mr. Khaitan states very fairly that this Tribunal has already affirmed the said estimated disallowance @1%. We thus reject the assessee s instant substantive ground. Allocating residual cost between eligible and non-eligible elements in ratio of sales u/s 80IB/80IC - treating scrap sales to be eligible for the said deduction relief - HELD THAT - no merit in Revenue s instant grievance. There is no dispute even as per assessment order about the assessee having allocated 32 out of its 115 employees / executives to manufacturing segment. The assessee has been running both eligible as well as non-eligible units. Its allocation formula was number of 32 employees divided by total number of employees multiplied by eligible units sales further divided by total sales; to allocate the impugned expenditure. The same very formula had been applied in assessment year 2005-06 as well wherein the co-ordinate bench (supra) accepted the same in its order. We make it very clear that the Assessing Officer has himself accepted the assessee to have been engaged in trading of other segments. We therefore conclude in these facts and circumstances that the CIT(A) has rightly followed his findings of assessment year 2005-06 as applicable mutatis mutandis in the impugned assessment year as well. Scrap sales, both parties are ad idem that the CIT(A) has followed preceding assessment order findings in treating the same to be entitled for section 80IB deduction Disallowance u/s 40a(ia) - TDS was deducted and deposited to the government treasury during the relevant previous year - HELD THAT - The assessee s case at best is that it had filed the impugned relevant facts in its written submission dated 16.01.2014 before the CIT(A) for the first time. The lower appellate order on the other hand makes it evident that the last hearing before the CIT(A) took place on 13.01.2014 finally culminating in the order under challenge dated 16.01.2014. The assessee s written submission of the same date where prove that they had been actually received before passing of the final order in the lower appellate proceedings. We do not see any valid reason in assessee s instant third and last substantive ground, on this ground alone.

Summary

Issues Involved:
1. Deduction Claims under Section 80IB and 80IC.
2. Disallowance of Interest Income for Section 80IB/80IC Deduction.
3. Disallowance of Provision for Marketing Services.
4. Section 14A Disallowance.
5. Allocation of Residual Costs between Eligible and Non-Eligible Units.
6. Eligibility of Scrap Sales for Section 80IB Deduction.
7. Additional Ground on Quantification of Disallowance under Section 80IB/80IC.

Detailed Analysis:

1. Deduction Claims under Section 80IB and 80IC:
The Revenue's sole grievance was that the CIT(A) erred in allowing arrears of Section 80IB and 80IC deduction claims totaling ?1,39,48,12,000/- due to the taxpayer not submitting its form 10CCB auditor’s report with the revised claim. The tribunal noted that the CIT(A) had directed the Assessing Officer to consider the deduction claim based on findings from the preceding assessment year 2005-06. The tribunal upheld the CIT(A)'s decision, referencing the Supreme Court decision in CIT vs. G. M Knitting Industries Pvt. Ltd., which allows for Section 80IB deduction even if the audit report is filed before the completion of the assessment.

2. Disallowance of Interest Income for Section 80IB/80IC Deduction:
The assessee's challenge against the disallowance of ?4,77,40,000/- in relation to interest income was rejected. The tribunal confirmed that the interest income did not have a direct nexus with the eligible business, as per the Supreme Court decision in CIT vs. Sterling Products. This decision was consistent with the jurisdictional High Court's ruling in the assessee's own case.

3. Disallowance of Provision for Marketing Services:
The assessee contested the disallowance of ?10,52,08,968/- for marketing services. The tribunal noted that both the Assessing Officer and CIT(A) had relied on findings from preceding and subsequent assessment years. The tribunal referred to a detailed discussion from previous assessment years, where it was established that the provision for marketing expenses was rightly recognized and made by the assessee. The tribunal deleted the disallowance, stating that the provision was necessary and the excess amount was subsequently offered to tax.

4. Section 14A Disallowance:
The assessee's grievance regarding the Section 14A disallowance of ?23,660/- was rejected. The CIT(A) had estimated the disallowance at 1% of the exempt income, which was affirmed by the tribunal based on previous years' findings.

5. Allocation of Residual Costs between Eligible and Non-Eligible Units:
For the assessment year 2008-09, the Revenue challenged the CIT(A)’s reversal of the Assessing Officer's allocation of residual costs amounting to ?14,64,64,507/-. The tribunal upheld the CIT(A)'s decision, noting that the allocation formula used by the assessee was consistent with prior years and had been accepted by the tribunal in earlier cases.

6. Eligibility of Scrap Sales for Section 80IB Deduction:
The Revenue's appeal against the CIT(A)'s decision to treat scrap sales of ?1,11,74,500/- as eligible for Section 80IB deduction was rejected. The tribunal noted that the CIT(A) had followed the findings from preceding assessment years, which were upheld by the jurisdictional High Court.

7. Additional Ground on Quantification of Disallowance under Section 80IB/80IC:
For the assessment year 2009-10, the assessee raised an additional ground regarding the quantification of the disallowance of ?16,02,07,000/- pertaining to interest income. The tribunal restored this issue to the Assessing Officer for factual verification, noting that the assessee claimed double addition of interest income amounting to ?2,37,48,200/-.

Conclusion:
The tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals for statistical purposes. The tribunal upheld the CIT(A)'s decisions on most issues, confirming the disallowance of interest income for Section 80IB/80IC deduction and the eligibility of scrap sales for deduction. The tribunal also deleted the disallowance of marketing services provision and upheld the allocation formula for residual costs. The additional ground on quantification of disallowance was remanded to the Assessing Officer for verification.