2022 (5) TMI 622 - AT - Income Tax

Disallowance u/s 10A - re-allocation of salary wages (Admn.), power consumption, stationary which are clearly incurred for both SEZ Unit and non-SEZ Unit - HELD THAT - It is pertinent to note that the CIT(A) has given categorical finding that the assessee in the revised Form No.56A has taken the profit from SEZ Unit at Rs.1,33,37,787/- which was reduced by the expenditure related to Electricity, Sundry Balance and depreciation of patent. The assessee already admitted and the Assessing Officer in remand report also verified that as per the corrected Form No.56F the eligible profit of SEZ unit was of Rs.1,33,37,787/- excluding the amount of Rs.1,71,73,667/- where no bank realisation certificate is there on record on this profit the eligible claim under Section 10A of the Act at the rate of 50% as claimed was of Rs.66,68,894/-. But now the claim after re-working of eligible profit at Rs.73,43,346/- @ 50% comes to Rs.36,71,673/- for which the assessee is entitled for claim of deduction under Section 10A of the Act. There is no need to interfere with the findings of the CIT(A). Hence, ground no.1 of Revenue s appeal is dismissed. Disallowance of interest under Section 36(1)(iii) - when the assessee failed to discharge its onus that the advances to its subsidiaries were made for the purpose of business - HELD THAT - The said issue is covered in favour of the assessee by the Tribunal which is confirmed by the Hon ble High Court of Gujarat for A.Y. 2007-08 2018 (2) TMI 442 - GUJARAT HIGH COURT - Decided against revenue. Addition on account of miscellaneous expenses - HELD THAT - From the perusal of the assessment order, it can be seen that the basis of making this addition was not demonstrated by the Assessing Officer in the assessment order. In fact, books were also now rejected by the Assessing Officer. Thus, merely on conjectures and surmises the Assessing Officer cannot make adhoc disallowance. There is no need to interfere with the findings of the CIT(A). Hence, ground no.3 of Revenue s appeal is dismissed. Addition on account of licence fees - D.R. submitted that the payments were made on monthly basis and the same is in the nature of revenue and, therefore, addition on account of licence fees is totally uncalled for by the Assessing Officer - HELD THAT - AO has totally ignored the factual aspect of payment of Licence Fees which was for the purpose of business and, therefore, revenue in nature. The payments were made on monthly basis and these facts were not controverted by the revenue. The CIT(A) has rightly deleted this addition and there is no need to interfere with the observations of the CIT(A). Hence, ground no.4 of the Revenue s appeal is dismissed. Addition on account of vehicle expenses and travelling expenses - HELD THAT - It is pertinent to note that the vehicle expenses and travelling expenses were made during the business exigencies. The Assessing Officer has ignored this fact. The CIT(A) has rightly made 10% addition which was totally on adhoc basis and deleted the same by giving detailed findings to that extent. Hence, gourd no.5 of Revenue s appeal is dismissed. Addition on account of bonus and leave encashment as well as provisions of Excise Duty - HELD THAT - It is pertinent to note that it is admitted fact related to bonus/leave encashment which are of A.Y. 2008-09 and the same were not debited in current year. The CIT(A) has rightly deleted this addition and there is no need to interfere with the findings of the CIT(A). D.R. s contention that Excise Duty was paid after filing of return of income was not correct. Hence, ground no.6 of Revenue s appeal is dismissed. Disallowance on account of pre-paid insurance expenses - HELD THAT - From the perusal of records, it can be seen that the assessee is claiming insurance on payment basis consistently and in previous years the Assessing Officer has not disallowed this claim. The CIT(A) has given detailed finding and there is no need to interfere with the same. Ground no.7 of the Revenue s appeal is dismissed. Disallowance u/s 40A(2)(b) - D.R. submitted that the assessee has not given any evidence before the Assessing Officer and, therefore, the onus was not discharged by the assessee during the assessment proceedings - HELD THAT - It is an admitted fact that this disallowance is purely on mechanical basis by the Assessing Officer and the assessee has given all the evidences before the CIT(A). The Assessing Officer has not pointed out any discrepancy; hence ground no.8 of the Revenue s appeal is dismissed. Disallowance made under Section 14A - HELD THAT - It is admitted fact that no exempt income was earned by the assessee during the year. All the investments in shares as notified in the Profit Loss Account as well as in the books of the assessee Company. In fact, interest-free funds were in excess of investments in shares and, therefore, the CIT(A) has rightly deleted this disallowance. Hence, ground no.9 is dismissed. Disallowance on account of rent expenses - HELD THAT - A.R. demonstrated before us as well as before the CIT(A) that the TDS was deducted from the rent and the income was shown in return of income of receiver i.e. Lavjibhai P. Patel. Thus, the CIT(A) has rightly deleted this disallowance. Ground no.10 is thus dismissed. Disallowance on account of Sundry Balance written off - CIT-A deleted the addition - D.R. submitted that the deletion is not just and proper on behalf of the CIT(A) as such amount did not satisfy the precondition laid down under Section 36(2) - HELD THAT - It is pertinent to note that the advance to employees and credit note received for inferior quality of goods sold were neither received in current A.Y. nor in subsequent A.Y. and it was rightly written off by the assessee. The said Sundry Balance was allowable as business expenses and Excise Duty added in opening stock of next year was also on record before the CIT(A). The CIT(A) has rightly deleted this disallowance. Hence, ground no.11 of Revenue s appeal is dismissed. Penalty u/s 271(1)(c) - deduction under Section 10A of the Act at 100% whereas the assessment year in question i.e. A.Y. 2009-10 which is the 6th year - HELD THAT - It is pertinent to note that the assessee has pointed out that the claim of deduction under Section 10A of the Act was wrongly claimed 100% and subsequently the assessee has filed revised Form no.56F and, therefore, it cannot be stated as concealment of particulars of income or furnishing of inaccurate particulars. The mistake cannot be treated as deliberate mistake on the part of the assessee as held by Hon ble Supreme Court in the case of Price water house coopers 2012 (9) TMI 775 - SUPREME COURT Hence, penalty under Section 271(1)(c) imposed by the Assessing Officer is hereby deleted.

Summary

Issues Involved:
1. Disallowance of claim under Section 10A of the Income Tax Act.
2. Disallowance of interest under Section 36(1)(iii).
3. Addition on account of miscellaneous expenses.
4. Addition on account of license fees.
5. Addition on account of vehicle and traveling expenses.
6. Addition on account of bonus, leave encashment, and provisions of Excise Duty.
7. Disallowance on account of prepaid insurance expenses.
8. Disallowance under Section 40A(2)(b).
9. Disallowance under Section 14A.
10. Disallowance on account of rent expenses.
11. Disallowance on account of sundry balance written off.
12. Levy of penalty under Section 271(1)(c).

Detailed Analysis:

1. Disallowance of Claim Under Section 10A:
The Revenue challenged the deletion of disallowance of Rs.36,71,673/- out of Rs.1,33,37,787/- under Section 10A. The Tribunal noted that the CIT(A) found the assessee had revised Form No.56F and provided necessary documents, including bank realization certificates. The Tribunal upheld the CIT(A)'s decision, stating the assessee correctly claimed the deduction after re-working eligible profit at Rs.36,71,673/-. Hence, this ground was dismissed.

2. Disallowance of Interest Under Section 36(1)(iii):
The Revenue contested the deletion of disallowance of Rs.3,19,556/- for interest. The Tribunal observed that the issue had been previously decided in favor of the assessee by the Hon’ble Gujarat High Court. Following this precedent, the Tribunal dismissed this ground.

3. Addition on Account of Miscellaneous Expenses:
The Revenue disputed the deletion of Rs.1,00,000/- for miscellaneous expenses. The Tribunal found that the Assessing Officer made the disallowance on an adhoc basis without rejecting the books of accounts or providing justification. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing this ground.

4. Addition on Account of License Fees:
The Revenue argued against the deletion of Rs.1,23,890/- for license fees. The Tribunal noted that the payments were made monthly and were revenue in nature, essential for business purposes. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

5. Addition on Account of Vehicle and Traveling Expenses:
The Revenue challenged the deletion of Rs.1,77,861/- and Rs.2,32,065/- for vehicle and traveling expenses. The Tribunal found that these expenses were business-related and the Assessing Officer’s adhoc disallowance lacked justification. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing this ground.

6. Addition on Account of Bonus, Leave Encashment, and Provisions of Excise Duty:
The Revenue contested the deletion of Rs.1,61,202/-, Rs.4,53,356/-, and Rs.2,96,220/-. The Tribunal noted that the bonus and leave encashment related to the previous year and were not debited in the current year. Additionally, the excise duty was paid before filing the return. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

7. Disallowance on Account of Prepaid Insurance Expenses:
The Revenue disputed the deletion of Rs.2,39,630/- for prepaid insurance. The Tribunal observed that the assessee consistently claimed insurance on a payment basis, which was accepted in previous years. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

8. Disallowance Under Section 40A(2)(b):
The Revenue challenged the deletion of Rs.20,26,491/-. The Tribunal found that the disallowance was made mechanically without evidence. The CIT(A) had reviewed all relevant documents, and the Assessing Officer did not point out discrepancies. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

9. Disallowance Under Section 14A:
The Revenue contested the deletion of Rs.3,89,204/-. The Tribunal noted that no exempt income was earned during the year, and the interest-free funds exceeded the investments. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

10. Disallowance on Account of Rent Expenses:
The Revenue disputed the deletion of Rs.2,25,000/- for rent expenses. The Tribunal observed that TDS was deducted and the income was shown in the receiver's return. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

11. Disallowance on Account of Sundry Balance Written Off:
The Revenue challenged the deletion of Rs.26,29,122/-. The Tribunal found that the advances and credit notes were rightly written off as business expenses. The Tribunal upheld the CIT(A)'s decision, dismissing this ground.

12. Levy of Penalty Under Section 271(1)(c):
The assessee appealed against the penalty of Rs.29,86,828/- for claiming 100% deduction under Section 10A instead of 50%. The Tribunal noted that the assessee rectified the mistake by filing a revised Form No.56F and it was not a deliberate concealment. Citing the Supreme Court's decision in Price Waterhouse Coopers vs. CIT, the Tribunal deleted the penalty, allowing the assessee's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, providing detailed justifications for each issue based on the evidence and precedents.