2022 (4) TMI 1262 - AT - Income Tax

Allowability of deduction u/s 80-IA(4)(iii) - AO has rejected deduction u/s 80-IA(4)(iii) due to one single reason only i.e. the Notification was not issued by the CBDT at the time of finalization of assessment - As per assessee he has already submitted all details of the Devraj Industrial Park not only to the CBDT but also to the Ld. AO by filing the aforesaid letter dated 25.02.2013 and 25.03.2013 which are very much embodied in the assessment-order itself - HELD THAT - We also observe from the submissions made by the Ld. AR that the assessee has submitted full details of the park to the CBDT, Ld. AO and Ld. CIT(A). We also observe that the assessee has submitted audited P L A/c, audited Balance-Sheet and Form 3CD alongwith the return. We also observe that the Hon ble Gujrat High Court 2017 (11) TMI 582 - GUJARAT HIGH COURT para No. 31, reproduced above has mandated The petitioner s claim for deduction at whichever stage pending before the assessing or appellate authority shall be governed by this declaration . In such circumstances we are inclined to hold that the Ld. CIT(A) has rightly allowed the deduction u/s 80-IA(4)(iii), as claimed by the assessee. - Decided in favour of assessee. Whether the other income earned by the assessee was eligible for deduction u/s 80-IA(4)(iii)? - After due consideration we find sufficient force in the submission of the Ld. AR, without repeating the same, that the Kasar Vatav and Dividend income earned by the assessee, are derived from the business of industrial park and therefore eligible for deduction u/s 80-IA(4)(iii). Accordingly, we allow deduction. Whether the bogus purchases and bogus expenditure are eligible for deduction u/s 80-IA(4)(iii)? - We have considered the submissions of both sides as also the aforesaid CBDT Circular No. 37 / 2016 dated 02.11.2016. We observe that the CBDT has clearly accepted that if the profit of business is enhanced by disallowances of expenses, such enhanced profit is eligible for deduction. Needless to mention that the Circulars issued by the CBDT are binding upon the lower authorities and so is the Circular No. 37 / 2016. Section 80AB is directly applicable, which mandates that the income computed in accordance with the provisions of this Act shall be deemed to be the income derived from the business of industrial park. In the present case, the Ld. AO has computed the income of the business of industrial park after making the disallowances of bogus purchases and bogus expenditure and therefore the amount arrived at after making these disallowance i.e. the enhanced profit of the industrial park, is the income computed in accordance with the provisions of this Act. Hence such enhanced profit is deemed to be the income derived from the business of industrial park and eligible for deduction. In view of this, we find no infirmity in the action of Ld. CIT(A). Hence we hold that the profit of business enhanced by the disallowance of bogus purchases and bogus expenses is eligible for deduction u/s 80-IA(4)(iii). Revenue appeal dismissed.

Summary

Issues Involved:
1. Allowability of deduction under Section 80-IA(4)(iii) of the Income Tax Act.
2. Eligibility of other income for deduction under Section 80-IA(4)(iii).
3. Eligibility of bogus purchases and expenditures for deduction under Section 80-IA(4)(iii).

Detailed Analysis:

1. Allowability of Deduction under Section 80-IA(4)(iii):
The assessee, engaged in the development of industrial parks, claimed deductions under Section 80-IA(4)(iii) for the assessment years 2010-11, 2011-12, and 2012-13. The primary issue was the absence of a CBDT notification at the time of assessment. The Gujarat High Court directed the CBDT to issue the notification, which was eventually issued with a condition that allowed deductions from the assessment year 2011-12 onwards. The High Court later deemed the assessee eligible for deductions from the assessment year 2010-11. The CIT(A) allowed the deduction based on the High Court's ruling, which the Tribunal upheld, noting that the AO disallowed the deduction solely due to the absence of the notification at the time of assessment.

2. Eligibility of Other Income for Deduction under Section 80-IA(4)(iii):
For the assessment year 2011-12, the AO disallowed the deduction for other income (?4,70,567/-), considering it not derived from the business of the industrial park. The CIT(A) found that this income consisted of Kasar Vatav and dividends from shares acquired for securing a business loan, deeming them derived from the business. The Tribunal agreed, noting that Kasar Vatav is essentially a reduction in purchase expenditure and the dividends were a result of a business requirement, thus eligible for deduction.

3. Eligibility of Bogus Purchases and Expenditures for Deduction under Section 80-IA(4)(iii):
For the assessment year 2012-13, the AO disallowed deductions on enhanced profits resulting from disallowed bogus purchases (?91,18,800/-) and expenditures (?26,67,267/-). The CIT(A) allowed the deduction based on CBDT Circular No. 37/2016, which states that disallowances related to business activities against which Chapter VI-A deductions are claimed result in enhanced profits eligible for deduction. The Tribunal upheld this view, emphasizing the binding nature of the CBDT circular and the applicability of Section 80AB, which mandates that income computed in accordance with the Act's provisions is deemed derived from the business.

Conclusion:
The Tribunal dismissed all three appeals of the revenue, upholding the CIT(A)'s decisions to allow the deductions claimed by the assessee under Section 80-IA(4)(iii) for the respective assessment years. The judgments emphasized the binding nature of High Court directives and CBDT circulars, as well as the correct interpretation of the Income Tax Act's provisions.