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TMI Blog2019 (11) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the consistent position taken by the Co-ordinate Benches. Assessing Officer is therefore directed to recompute the deduction u/s 10AA taking into consideration the addition of ₹ 2,80,500/. In the result, the Ground of the assessee s appeal is allowed. Disallowance of employees contribution to PF by invoking provisions of section 2(24)(x) r.w.s 36(1)(va) - HELD THAT:- It is not disputed that the assessee has deposited the employee s contributions towards PF before the due date of filing of the return of income. Hence, the matter is squarely covered by the decision of Hon ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner and Jaipur [ 2014 (12) TMI 65 - RAJASTHAN HIGH COURT] and the ground of appeal no. 1 is thus allowed Disallowance of deduction u/s 10AA - considering the receipt on account of freight, clearing insurance charges as income from other sources as against business income - HELD THAT:- In the instant case, the assessee has incurred freight, clearing and insurance expenses in respect of export of goods and has recovered an amount from its customers, thus there is an excess recovery towards such expenses and such recovery has been refle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The Ld. CIT(A) has erred on facts and in law in not accepting the contention of assessee to recomputed the deduction u/s 10AA after considering the trading addition of ₹ 2,80,500/- ignoring the CBDT Circular No. 37/2016 dated 02.11.2016. 3. Briefly stated, the facts of the case are that the assessee firm is engaged in the business of manufacturing and export of gold, silver and base material jewellery plain studded with precious semi precious stones. It has set up its manufacturing and export unit/factory in Special Economic Zone at Sitapura Industrial Area, Jaipur and has started commercial production from 21.04.2008 and has claimed deduction u/s 10AA of the Act. The assessee originally filed its return of income on 23.09.2009 at Nil income after claiming deduction u/s 10AA at ₹ 2,42,21,021/-. The assessment was completed u/s 143(3) on 07.12.2011 wherein the returned income was accepted by the Assessing Officer. Subsequently, basis the information obtained from Investigation wing, Mumbai that the assessee has obtained bogus entries in the form of bogus purchases amounting to ₹ 11,22,000/- from M/s Karishma Diamonds Pvt. Ltd., notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s but they are not directly linked to the case and are distinguishable on facts of the case. Considering this, it is held that the AO was justified in making addition u/s 69C of the Act. (ii) The appellant contended that the disallowance made by the AO should be considered as profit of SEZ unit and be exempted u/s 10AA of the Act. As discussed in the Preceding paragraph, the addition made by the AO have been upheld u/s 69C of the Act. The section 69C is a deeming provision where income is taxed as deemed income without specifying any head of income. The proviso to section 69C read as under: Provided that, notwithstanding' anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income. (iii) Thus, any disallowance u/s 69C of the Act cannot be considered for benefit under any other section. Further, section 10AA of the Act considers the benefit for SEZ units to the extent of prof i ts and gains derived from expor t. As deemed income u/s 69C is not the income derived from exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow deduction u/s 10A or 10AA or Chapter VI-A with reference to the addition made to the total income, it has been specifically so provided for and reference can be made to section 92C(4) where it is specifically provided that the arms length adjustment made by the AO which enhances the total income shall not be entitled to deduction under these sections. Therefore, in the absence of any bar in section 10AA, the income increased due to the addition made by the AO is eligible for deduction u/s 10AA. In view of above, even if purchases made from M/s Karishma Diamonds Pvt. Ltd. is held to be bogus, the AO be directed to recompute the deduction u/s 10AA after considering the trading addition of ₹ 2,80,500/-. 8. The ld. DR is heard who has relied on the findings of the ld. CIT(A). It was further submitted that the circular referred by the ld. AR is in the context of deduction on enhanced profit under Chapter VI-A of the Act whereas in the present case, the assessee has claimed deduction u/s 10AA which falls under Chapter II of the Act. 9. We have heard the rival contentions and perused the materials available on record. The limited issue unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following case: Principal CIT, Kanpur v. Surya Merchants Ltd. IT Appeal no. 248 of 2015, May 03, 2016, Allahabad High Court The above views have been attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a) (ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI- A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/Tribunals may be withdrawn/not pressed upon. The above may be brought to the notice of all concerned. 10. Though the aforesaid circular has been issued by the CBDT in the context of Chapter VI-A of the Act, the deduction u/s 10AA is equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bruce Sugaarman 21,70,629/- 4 John Blyzinkyl 1,35,556/- TOTAL 1,49,73,455/- The above expenses were incurred by the assessee towards 'sales and marketing expenses' from which the assessee has not deducted tax at source. Additions were proposed by the A.O. of ₹ 1,49,73,455/- in his draft assessment order which was restricted by the ld. DRP vide order dated 29th November, 2014 to an amount of ₹ 1,35,556/-. With respect to the payments of ₹ 1,48,37,899/-, the DRP directed to delete the same as the assessee has submitted the notarized copies of passports, which as per DRP proved that three individuals at s. no 1 to 3 in above chart did not visit India during the relevant year. Hence, the DRP directed that said payments will not be subject to withholding tax u/s. 195 of the Act and accordingly these payment cannot be disallowed u/s. 40(a)(i) of the Act.. The DRP held that these payments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80-IB of the Act. This view was taken by the court in the following case: disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer - Ward 5(1) v. Keval Construction [2013] 33 taxmann.com 277 (Guj.) Commissioner of Income-tax-IV, Nagpur v. Sunil Vishwambharnath Tiwari [2016] 63 taxmann.com 241 (Bom.) Principal CIT, Kanpur v. Surya Merchants Ltd. [2016] 72 taxmann.com 16 (All.). The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng tax as is contemplated by Section 40(a)(ia) of the Act. Hence the CBDT circular will be applicable to deductions u/s. 10B of the Act as well to disallowance u/s. 40(a)(ia) of the Act as well. Hence the appeal of the Revenue is not sustainable/maintainable in view of afore-stated CBDT circular dated 02-11-2016 and we dismiss the appeal filed by the Revenue, while the C.O. filed by the assessee is allowed as the additions of ₹ 1,35,556/- made by the AO are w.r.t. disallowance u/s. 40(1)(ia) of the Act. In any case this issue is also covered by decision of Hon'ble jurisdictional Bombay High Court in favour of the assessee in Gem Plus Jewellery India Ltd.'s case (supra) as disallowance u/s. 40(a)(i) of the Act is a statutory disallowance and the hence enhanced profits due to disallowance shall be considered for deduction u/s. 10B of the Act. We order accordingly. 12. In the instant case, it is not in dispute that the assessee is eligible for claim of deduction u/s 10AA of the Act. It is also not in dispute that the assessee has only one business undertaking which is engaged in the business of manufacturing and export of gold, silve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of filing of the return of income. Hence, the matter is squarely covered by the decision of Hon ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner and Jaipur and the ground of appeal no. 1 is thus allowed. Ground No. 3 thus becomes infructious and is dismissed. 17. In Ground No. 2, the assessee has challenged the disallowance of deduction u/s 10AA of the Act by considering the receipt on account of freight, clearing insurance charges as income from other sources as against business income. 18. In this regard, the ld AR submitted that in the P L A/c, the assessee has declared export sales of ₹ 30,20,77,213/-. It includes excess recovery of freight, clearing insurance expenses of ₹ 5,75,388/-. This amount is net of the freight recovered from the customers on export of goods ₹ 24,98,290/- and the freight expenditure incurred at ₹ 19,22,902/-.The assessee has claimed deduction u/s 10AA at ₹ 4,08,51,049/ (in the return ₹ 4,08,51,804/-) calculated as under:- Export Sales ₹ 30,20,77,213/- Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xman 154 dismissed the SLP filed by the department against High Court order where High Court upheld the Tribunal s order that surplus amount in freight export account and in insurance export account was derived from export activities eligible for deduction u/s 10AA. Hence, the assessee has correctly claimed the deduction u/s 10AA. 21. The ld DR is heard who has relied on the findings of the lower authorities. 22. We have heard the rival contentions and pursued the material available on record. In the instant case, the assessee has incurred freight, clearing and insurance expenses of ₹ 19,22,902 in respect of export of goods and has recovered an amount of ₹ 24,98,290 from its customers, thus there is an excess recovery of ₹ 5,75,388 towards such expenses and such recovery has been reflected in the profit/loss account. In its computation of income for claiming deduction under section 10AA, the assessee has excluded such recovery of expenses from the export turnover as well as total turnover. Therefore, the limited issue is regarding whether such excess recovery of freight and other expense in respect of export of go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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