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TMI Blog2014 (3) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... against revenue. It is a settled principle that deduction under section 10B of the Act is granted to an undertaking and not an assessee assessee relied on the CBDT Circular No.1/2013 in F.No.178/84/2012 dt.17.1.2013 - as long as the undertakings remain eligible for deduction under section 10B the deduction cannot be denied merely on the ground that there has been a merger of the firms which own the undertakings - AO has not rendered any finding that either of the units, one belonging to the assessee and the other belonging to the firm that got merged is not eligible for deduction u/s 10B - both the units / undertakings of the assessee firm and M/s. KMMI Exports are otherwise eligible for deduction u/s 10B and the deduction is towards the undertaking - As long as the undertakings are eligible for deduction under section 10B of the Act - the merger of the firm, M/s. KMMI Exports with the assessee does not alter the status of the undertakings - Decided against Revenue. Disallowance of Prior Period Expenses - Held that:- CIT(A) ought to have first examined the issue of the allowability of the claim and rendered a finding to the effect - Only then should he have examined the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e offices were situated in the same building. It is submitted that when this mistake was realized, the C.O. was freshly filed in this Tribunal. It is submitted by the learned Authorised Representative that this inadvertent mistake committed by the person filing the C.O. was a bona fide and unintentional mistake. It is submitted by the learned Authorised Representative that if the delay is not condoned, the petitioner would be put to great hardship and irreparable injury, as the tax demand at stake involved in revenue s appeal was ₹ 5.80 Crores approximately. On the other hand, revenue would not be put to any hardship if the delay is condoned and the C.O. is adjudicated on merits. In support of the assessee's plea for condonation of the delay of 148 days in filing the C.O., the learned Authorised Representative placed reliance on the following decisions of various Courts and Tribunals :- i) Collector, Land Acquisition V MST Katiji (167 ITR 471) (SC) ii) CIT V West Bengal Infrastructure Development Finance Corporation Ltd (334 ITR 269) (SC) iii) CIT V Sanmac Motor Finances Ltd. (322 ITR 309) (Madras) iv) CIT V ISRO Satellite Centre (ITA No.532/2008 dt.28.12.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fit case for condonation of the delay of 148 days in filing the C.O. for Assessment Year 2009-10. The appeal in ITA No.1050/Bang/2012 is accordingly admitted for hearing and disposal. It is ordered accordingly. Appellate Order 3. The facts of the case, in brief, are as under : 3.1 The assessee firm was formed by Partnership Deed dt.5.10.2007 to carry on the production and trading / export of iron ore. For Assessment Year 2009-10, the assessee e-filed its return of income on 22.9.2009 declaring income of ₹ 1,31,23,510. The return of income was processed under section 143(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') and the case was taken up for scrutiny. In the period / year under consideration, there was a merger of another partnership firm, namely M/s. KMMI Exports, a 100% EOU with the assessee firm, which was also a 100% EOU. The erstwhile firm M/s. KMMI Exports also had the same partners and was in the same line of business as the assessee firm. The case was selected for scrutiny and the assessment was completed by an order under section 143(3) of the Act dt.26.12.2011 wherein the income of the assessee was determined at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in its appeal are as under : 1. The order of the CIT (Appeals) is opposed to law and facts of the case. 2. The CIT (Appeals) erred in deleting the additions of ₹ 6,11,18,796 being disallowance of assessee's claim under section 10B of Income Tax Act. 3. The CIT (Appeals) ought to have appreciated the facts narrated by the Assessing Officer in the assessment order that the assessee has not fulfilled conditions specified in section 10B of IT Act for claiming exemption under the said section. The CIT (Appeals) ought to have appreciated the facts that the assessee has failed to fulfill the conditions as laid down in section 10A / 10B of IT Act, which ultra vires of the Income Tax Act. 4. The CIT (Appeals) erred in deleting the additions of ₹ 6,13,949 being disallowance of assessee's claim under prior period expenditure. 5. The CIT (Appeals) ought to have appreciated the facts narrated by the Assessing Officer in the assessment order that the assessee has not carried out commercial activities in the previous year relevant to A.Y. 2009-10. In the absence of commercial activities such expenditure cannot be allowed as prior period expenditure, and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er test prescribed by the Hon'ble Supreme Court. 5. The appellate Commissioner committed an error in holding that the ground regarding a sum of₹ 4,76,52,385 stands withdrawn when actual the withdrawal pertained to one other issue and not in respect of these grounds of appeal. The respondent / cross objector may be permitted to urge the validity of the conclusion drawn by the Assessing Officer that the purchases from sister concerns are not made at market prices as erroneous in the interest of justice and equity. 6. The respondent / cross objector seeks leave of this Hon'ble Tribunal to raise all other grounds in support of their contention at the time of arguments. 4.3 In brief, the issues on which Revenue has preferred the appeal are in respect of deletion of :- i) Disallowance of deduction under section 10A of the Act. ii) Disallowance of prior period expenses of ₹ 6,13,949. iii) Disallowance under section 40A(3) of the Act of ₹ 1,54,000. 4.3 The assessee in its C.O., while supporting the decision of the learned CIT (Appeals) on allowing its claim for deduction under section10B of the Act, has pleaded that the learned CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) allowing the assessee the deduction claimed under section 10B of the Act be reversed and that of the Assessing Officer be restored. 6.3 Per contra, the learned Authorised Representative of the assessee strongly supported the order of the learned CIT (Appeals) allowing deduction under section 10B of the Act. It was submitted by the learned Authorised Representative that the Assessing Officer wrongly concluded that there is no merger of the assessee firm and M/s. KMMI Exports and that there is a transfer of assets already used from KMMI Exports to the assessee's unit. It was also submitted that the Assessing Officer is wrong in concluding that section 10B of the Act does not recognise the merger of firms. The learned Authorised Representative reiterated the submissions made by the assessee before the learned CIT (Appeals); the judicial decisions and CBDT Circular No.1 of 2013 dt.17.1.2013 cited and relied on therein. The learned Authorised Representative contends that there is no error in the order of the learned CIT (Appeals) in allowing the assessee deduction under section 10B of the Act warranting interference therein and prays that the order of the learned CIT (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either of the units, one belonging to the assessee and the other belonging to the firm that got merged i.e. KMMI Exports, is not eligible for deduction under section 10B of the Act. The only reason adduced is that due to the merger of the two units, the assessee is deploying assets already put to use by the merged firm and hence the assessee cannot claim deduction under section 10B of the Act. As elaborately discussed above, both the units / undertakings of the assessee firm and M/s. KMMI Exports are otherwise eligible for deduction under section 10B of the Act and the deduction is towards the undertaking. As long as the undertakings are eligible for deduction under section 10B of the Act, which has not been disputed by the Assessing Officer, the merger of the firm, M/s. KMMI Exports with the assessee does not alter the status of the undertakings. In this view of the matter, we uphold the order of the learned CIT (Appeals) in allowing the assessee deduction under section 10B of the Act. Accordingly, Revenue s grounds at S.Nos.2 and 3 are dismissed. Since the assessee s C.O. at S.Nos.1 to 4 support the order of the learned CIT (Appeals) in allowing it deduction under section 10B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,949 is to be allowed under section 35D of the Act has not given any reasons whatsoever for coming to such a decision. We are of the view that the learned CIT (Appeals) ought to have first examined the issue of the allowability of the claim for deduction of prior period expenses and rendered a finding to the effect whether or not the claim is not allowable. Only then, if so warranted, should he have examined the assessee's alternate plea for deduction under section 35D of the Act and for which also he should have rendered proper and cogent reasons for allowing the deduction of 1/5 th of the aforesaid expenditure. In view of his failure to do so, we deem it necessary, in the interest of justice and equity to remit the issue back to the file of the learned CIT (Appeals) for deciding the issue afresh in the light of our observations (supra). In view of this, revenue s grounds raised at S.Nos.4 5 are treated as allowed for statistical purposes. 8. Disallowance under section 40A(3) of the Act : ₹ 1,54,000. 8.1 In the ground of appeal raised at S.No.6, revenue challenges the order of the learned CIT (Appeals) in deleting the disallowance of ₹ 1,54,000 under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions with sister concerns : ₹ 4,76,52,385. 9.1 In the C.O. at S.No.5, the assessee contends that the learned CIT (Appeals) had erroneously held that the ground raised by the assessee challenging the disallowance of excess profits amounting to ₹ 4,76,52,385 due to transactions with sister concerns from computation of the eligible deduction under section 10B of the Act was withdrawn by the assessee, when actually it was not so. 9.2.1 We have heard both the learned Authorised Representative and the learned Departmental Representative in the matter. As per the details on record, it is seen that the Assessing Officer examined the purchase transactions of the assessee and observed that the rates for purchase of material from the sister concerns was lower than the rate of purchases made by the assessee from third parties. According to the Assessing Officer, this resulted in the under-statement of the value of purchases and over statement of profits. In this view of the matter, the Assessing Officer invoked the provisions of section 10B(7) r.w. sub-section 10 of section 80 IA of the Act to disallow the so called excess profits arising to the assessee due to these t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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