Loading judgment…
No AI summary yet for this case.
Before: SHRI SAKTIJIT DEY & SMT. RENU JAUHRI
Assessee by : Shri M. Subramaniam Revenue by : Shri Ram Krishn Kedia Date of Hearing 01.01.2025 Date of Pronouncement 20.01.2025 आदेश / O R D E R PER RENU JAUHRI [A.M.]:- This appeal is filed by the revenue against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated 26.03.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year [A.Y.] 2011-12.
The revenue has raised following grounds of appeal:
1. On the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.27,08,160/- u/s.36(1)(iii) without A.Y. 2011-12 Aplab Limited appreciating the fact that the assessee has not established the availability of interest-free funds on the date of diversion of funds to its sister concerns." 2. "On the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.27,08,160/-u/s.36(1) (iii) without appreciating the fact that no acceptable justification for diversion of interest bearing funds to interest-free has been provided by the assessee"
3. On the facts & in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 20,67,440/- u/s.35(2AB) without appreciating the following facts: a. The conditions precedent for allowance of deduction u/s 35(2AB) are that a certificate has to be obtained from the 'prescribed authority' and the 'prescribed authority for giving approval is the 'Secretary, DSIR, Govt. of India. The assessee company submitted a certificate of renewal of recognition of in-house R&D units dated 05.03.2009 which was issued by the Scientist-G. Thus, the certificate was not issued by the prescribed authority ie by the Secretary DSIR, Govt. of India. b. At St. No. 9 of Terms & Conditions attached to the said recognition certificate issued by the Scientist dated 05.03.2009 it is clearly mentioned that the recognition is not meant to tax exemptions, quantum of tax concession etc. c. The assessee company has failed to furnish prescribed Form No. 3см signed by the prescribed authority for claiming the said deduction. The decision of the Coordinate Bench of the Tribunal in the case of the assessee for A.Y. 2012-13 was not acceptable the Revenue and an appeal 10 Hon'ble Bombay High Court is filed vide Lodging NOITXAL/31691/2021 which is pending for adjudication.
4. On the facts & in the circumstances of the case, a. the Ld. CIT(A) erred in deleting the additions of Rs.88,92,770/- Rs.3,90,400/- and Rs.1,45.01,580/- made u/s.69C by reconciling the purchases from the copies of ledger accounts of the concerned parties in the books of the assessee, invoices, purchase bills and reconciliation provided by the assessee company since it is not clear whether the assessee has submitted confirmations from third parties. b. The decision of the ITAT in the case of DCIT, Central Circle-2(3), Mumbai Vs. M/s Asian Star Co. Ltd. in the Department has not accepted the decision and has filed further appeal with Bombay High Court vide Lodging No. ITXAL/8842/2024, which is pending for adjudication.
The order of the CIT(A) may be vacated & set aside to the table of the Assessing Officer for fresh consideration.”
Brief facts of the case are that the assessee had filed return on 28.09.2011 declaring income from manufacturing, assembling, servicing, trading in power equipment etc. as well as other sources. The case was selected for scrutiny and assessment was completed at an income of Rs. 2,85,73,250/- after making additions u/s 69C and u/s 68 as well as disallowances u/s 35(2AB) and u/s 36(1)(iii) of the Act.
Aggrieved with the order of Ld. AO, the assessee preferred an appeal before Ld. CIT(A). Vide order dated 26.03.2014, the Ld. CIT(A) allowed assessee’s appeal on all grounds. Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us.
5. Ground No. 1 & 2 pertain to disallowance of Rs. 27,08,160/- u/s 36(1)(iii) of the Act. Brief facts in this regard are that the assessee has shown advances given to its sister concerns as under: i.M/s. Intel Instrument & System Ltd. Rs. 2,19,72,000/- ii.Sprylogic Technologies Ltd. Rs. 5,46,000/- Total Rs. 2,25, 18,000/- On the other hand, the assessee had paid interest on borrowed funds amounting to Rs. 6,17,35,000/-. The assessee has claimed that interest free A.Y. 2011-12 Aplab Limited loans and advances are given to sister concerns out of own funds, and therefore, no disallowance u/s 36(1)(iii) is called for. However, Ld. AO disallowed the interest presuming that the assessee has also taken loans on which it was paying interest, and therefore, provisions of section 36(1)(iii) were applicable. Ld. AO, therefore, disallowed the claim of interest of loans and advances to the extent of interest free funds provided to its sister concerns. Ld. CIT(A), however, deleted the addition vide order dated 26.03.2014.
At the outset, Ld. AR pointed out that this issue is covered by the orders of the co-ordinate benches in assessee’s own case for AY 2007-08 in for AY 2006-07 in & for AY 2008- 09 in ITA No. 8545/Mum/2011. It was, further, submitted that Ld. CIT(A) relying on the orders of co-ordinate benches for earlier years in assessee’s own case had correctly deleted the addition. Ld. DR, on the other hand, has relied on the order of Ld. AO.
We have considered the rival submissions and perused the material available before us. It is seen that this recurring issue has been consistently decided in favour of the assessee by the co-ordinate benches in earlier years. Relevant portion of the order in for AY 2006-07 is reproduced below: “10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that as on 31-3-2007 the shareholders funds are Rs. A.Y. 2011-12 Aplab Limited 29,25,76,000/- (share capital Rs. 5,00,00,000/- (+) reserves and surplus Rs. 24,25,76,000/-) as against the investment in subsidiary company and advances made by the assessee Rs. 2,25,02,637/- (supra). We further find that the Tribunal in assessee's own case (supra) has deleted the similar disallowance vide finding recorded in para 14 of the order as under:- "14. From the above judgment, it is manifest that there can be no presumption that the shareholders' fund of a company is utilized for the purchase of fixed assets. If the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest fee funds at the disposal of the assessee. The facts of the instant case abundantly show that the shareholders fund is much more than the amount advanced by the assessee without any interest to its sister concerns. Respectfully following the precedent, we hold that the Id. CIT(A) was not justified in sustaining addition under the present circumstances. We, therefore, order for the deletion of addition. Ground no.5 is allowed."
11. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the decision of the Tribunal in assessee's own case and the decision of the Hon'ble jurisdictional High Court (supra) delete the disallowance of interest of Rs. 22,50,264/- made by the A.O. and sustained by the ld. CIT(A). The ground taken by the assessee is, therefore, allowed”
As there is no change in facts and circumstances during this year, respectfully following the decision of the co-ordinate bench, we hereby uphold the order of Ld. CIT(A) to delete the disallowance of Rs. 27,08,160/- u/s 36(1)(iii) of the Act.
Ground No. 3 : Disallowance u/s 35(2AB): The assessee has claimed weighted deduction u/s 35(2AB) of the Act of Rs. 20,67,440/- on account of research and development expenses. A certificate dated 31.05.2007 issued by Scientist G of the Council of Scientific and Industrial Research (CSIR) was also submitted regarding renewal of recognition of in- house R&D units by the assessee. However, Ld. AO did not accept the certificate A.Y. 2011-12 Aplab Limited on the ground that the same had been issued by Scientist ‘G’ and not Secretary DSIR, who is the prescribed authority specified in the section.
Ld. CIT(A) relying on the decision of the co-ordinate bench in the case of Advance Enzyme Technologies Pvt. Ltd. V/s ACIT, Circle-1, Thane (2020) 183 ITD 50 (ITAT Mumbai) held that the assessee is entitled to deduction u/s 35(2AB) of the Act.
Aggrieved with the order of the Ld. CIT(A), the revenue is in appeal before us. During the course of reasoning, the assessee has filed a copy of a certificate dated 19.05.2010 (which is valid upto 2013). It has been contended by the Ld. AR that all the conditions of section 35(2AB) are satisfied, and therefore, the assessee is entitled to weighted deduction u/s 35(2AB) of the Act. Reliance has been placed by the Ld. AR on a decision of the co-ordinate bench in the case of ACIT Circle-1, Thane v/s Fermant Biotech Ltd. (2014) 45 taxmann.com 329 (Mumbai) wherein it has been held that whether the order of approval had been signed by Secretary, DSIR or by any other nodal officer on his behalf would not make any difference and in such case claim for deduction u/s 35(2AB) could not be denied to the assessee.
On the other hand, Ld. DR relied on the order of Ld. AO and argued that the certificate was not signed by the prescribed authority, and therefore, weighted deduction u/s 35(2AB) could not be allowed to the assessee.
A.Y. 2011-12 Aplab Limited 13. We have considered the rival submissions and perused the material available on record. In view of the decision of the co-ordinate bench in case of ACIT Circle-1, Thane v/s Fermant Biotech Ltd. (supra), we are of the view that the certificate submitted by the assessee cannot be rejected merely for the reason that it has been signed by Scientist G and not the Secretary, DSIR. The assessee is, therefore, eligible for claiming deduction u/s 35(2AB) on fulfilment of the remaining conditions prescribed in section 35(2AB). The assessee is required to submit form 3CF-III with the prescribed authority as well as the jurisdictional Commissioner which it has already done. The prescribed authority is required to submit its report in Form 3CL to the department. In this regard, Ld. AR vide written submission has stated as under: “This disallowance has been made mainly on the ground that the renewal of recognition of In-house R & D units was issued by Scientist-G and not by Secretary, DSIR. In this regard, it was submitted that certificate signed by Scientist-G is only certificate of recognition to the effect that the appellant is allowed to do research work which is eligible u/s 35(2AB) of the act and upon the approval by the prescribed authority, the company is required to submit Form 3CF-III with jurisdictional CIT and with the prescribed authority along with acknowledgement of receipt as evidence of having furnished the application with the jurisdictional Commissioner. Upon receipt of Form 3CF- III the prescribed authority shall furnish its report in Form 3CL to the Income Tax authority directly and the assesse has no role to play. In this regard, the Hon'ble Tribunal's attention is invited to the Hon'ble Gujarat High Court's decision rendered in the case of Sun Pharmaceutical Industries Ltd. 85 taxmann.com 80 (Gujarat) wherein it has been held that merely because the prescribed authority failed to send intimation inform 3CL to department, it would not be reason enough to deprive the assesse's claim of deduction. In the instant case, the main objection raised is that the certificate of recognition is signed by Scientist not by the Secretary of DSIR. In this connection, the Hon'ble Tribunal's attention is invited to the Tribunal's decision rendered in the case of ACIT Vs. Ferment Biotech Ltd. 45 taxmann.com 329 wherein it has been clearly held that whether order of approval had been signed by Secretary, DSIR or by any of the Nodal Officer on his behalf would not make A.Y. 2011-12 Aplab Limited any difference and in such a case claim for deduction u/s 35(2AB) could not be disallowed. In addition, for denying the benefits of section 35(2AB), the learned A.O. has also observed that" It is further seen from the terms and conditions of recognition of the certificate issued by Scientist-G dt. 05.03.2009 wherein the at Sr. no. 9 it is clearly mentioned that the recognition is not meant to tax exemptions, quantum of tax concession etc." In this regard, it has to be submitted that condition at Sr. No. 9 talks of Customs/excise duty and not of Income tax. In fact the relevant condition is one at Sr.no.8 which reads as under: "The recognition by DSIR does not amount to approval under any section of the Income Tax Act, Tax concessions, rebates, import concessions etc., if any, will be governed by the tax laws in operation from time to time. All such matters should be taken by the company directly with the concerned authorities. " In the instant case all requisite conditions have been satisfied and the question of disallowing the claim made u/s 35(2AB) do not arise at all.”
We have considered the rival submissions and perused the material placed before us. We hold that in view of the recognition accorded by the DSIR, the assessee is entitled to get deduction u/s 35(2AB) of the Act. However, in the order of Ld. AO, there is no mention about the submission of Form 3CL by the prescribed authority neither the quantification of deduction has been examined at any stage. We, therefore, deem it appropriate to restore the issue for limited purpose of verification of amount eligible for deduction u/s 35(2AB) of the Act to the file of Ld. AO. This ground of appeal
is, therefore, partly allowed. Ground No. 4: Additions u/s 69C
15. Brief facts are that the additions u/s 69C amounting to Rs. 88,92,770/-, Rs. 3,90,400/- & Rs. 1,45,01,580/- were made by the AO on account of differences found during reconciliation of purchases. During the course of assessment proceedings, the Ld. AO issued notices u/s 136 to various parties from whom purchases has been shown by the assessee. In some cases, notices A.Y. 2011-12 Aplab Limited were not complied with. In few cases differences in balances were noticed in the confirmations submitted by the parties. Ld. AO, accordingly, made addition of Rs. 88,92,770/- in respect of parties from whom no reply was received. Another Rs. 3,90,400/- was added where there was positive difference in the amount confirmed i.e. the assessee company had shown higher purchases than the amount confirmed by the party concerned. In some cases, there were negative differences, and therefore, addition of Rs. 1,15,01,580/- was made on account of this difference as transaction was not considered genuine. Ld. CIT(A) examined these discrepancies in detail and allowed full relief to the assessee.
16. Before us, Ld. DR argued that the Ld. CIT(A) accepted the reconciliation provided by the assessee during appellate proceedings without giving opportunity to the Ld. AO to examine the same, and therefore, he vehemently argued for upholding the addition made u/s 69C of the Act. On the other hand, Ld. AR relied on the order of Ld. CIT(A).
We have heard the rival submissions. A copy of reconciliation statement along with ledger accounts of the parties concerned have also been placed before us. Ld. AR has stated that the assessee had submitted all these documents before Ld. AO as well as Ld. CIT(A). We find that Ld. CIT(A) has examined the ledger accounts and confirmations of the suppliers in detail and has passed a speaking order giving relief to the assessee.
A.Y. 2011-12 Aplab Limited 18. With regard to the addition of Rs. 88,92,770/-, Ld. CIT(A) has given his findings as under : “9.1. The AO has made addition of Rs. 88,92,770/- u/s 69C of the Act holding the same to be bogus purchase as the notices issued u/s 133(6) of the Act were not replied to by the concerned creditors. As seen from the assessment order, the amount of Rs. 88,92,770/- is arising out of following creditor parties. SI Name of the creditor party Amount 1. Abhishek Electricals 8,76,958/- 2. Excel Electronics 26,65,375/- 3. India Flex Industries Pvt. Ltd. 8,13,531/- 4. Krishna Packers 11,63,820/- 5. Linear Technologies 6,15,532/- 6. R M Enterprises 1,89,945/- 7. Rahul Brothers 13,72,023/- 8. Supreme Timber Trading Co. 11,95,586/- Total 88,92,770/- 9.1.1 The appellant states in the instant appellate proceedings that out of above 8(Eight) parties, 2(Two) parties viz. Abhishek Electricals and Krishna packers have since closed down their business operations and due to this reason, the creditor parties did not reply to the notice issued u/s 133(6) and for the same reason, confirmations could not be arranged by the appellant from those parties. The appellant has submitted copies of invoices, Delivery Challans & Goods receipt notes in respect of the purchases from the said 2(Two) parties and no defect is found upon examination of the same. Hence, I am of the opinion that addition of Rs.8,76,958/-- Abhishek Electricals and addition of Rs. 11,63,820/-- Krishna Packers cannot be sustained. 9.1.2. The appellant contends that there is either no difference or minor difference in closing balance with 1. M/S Excel Electronics- Rs.26,65,375/-, 2. M/S RM Enterprise- Rs. 1,89,345/-, 3. M/S Rahul Brothers-Rs.13,72,023/- & 4. M/S Supreme Timber Trading Co.-Rs. 11,95,586/-, The contention of the appellant is verified with reference to the supporting documents produced and the contention of the appellant is found tenable and hence, I am of the opinion that additions made by the AO in respect of said 4(Four) parties is liable to be deleted. 9.1.3. In respect of M/S India Flex Industries Pvt. Ltd., the AO has made an addition of Rs. 8,13,531/-. The appellant contends that balance as per creditor party is Rs. 10,58,599/- and thus there is a difference of Rs. 2,45,068/-(party showing more). The appellant contends that there was a difference in opening balance of Rs. 1,80,212/- and payment of Rs. 64850/- was debited by the appellant to the said party but not accounted for by the said creditor party. The contention of the appellant seems to be valid and I am of the opinion that addition of Rs. 8,13,531/- in respect of M/S India Flex, Industries Pvt. Ltd. cannot be sustained.
9.1.4 In respect of M/S Linear Technologies, the AO has made addition of Rs. 6,15,332/- The appellant contends that balance as per creditor party is Rs. 7,49,097/- and thus there is a difference of Rs. 1,33,565/-(party showing more). The appellant contends that there was a difference in opening balance of Rs. -1435/- and payment of Rs. 1,35,000/- was debited by the appellant to the said party but not accounted for by the said creditor party. OME TAY DEPARTME The contention of the appellant seems to be valid and I am of the opinion that addition of Rs. 6,15,332/- in respect of M/S Linear Technologies cannot be sustained. In view of the facts and circumstances of the case, I hereby delete the addition of Rs. 88,92,770/- made by the AO u/s 69C of the Act.”
As for addition of Rs. 3,90,400/- on account of positive difference in the balances, Ld. CIT(A) has observed as under: “As regards addition of Rs. 3,90,400/- on account of positive difference (party showing less), it is seen that, where the balance as per party is less than the balance as per appellant, there can not be any unexplained purchase. Unless the appellant has made some payment to those parties which are not recorded in the books of accounts of the appellant or some credit note issued by the creditor is not recorded in the books of the appellant, there cannot rise any positive difference (Party showing less). AO has not brought on record any findings to the contrary. In view of the facts and circumstances as stated above, I hereby delete the addition of Rs. 3,90,400/- on account of positive difference (party showing less) as made by the AO.”
Finally, in respect of addition of Rs. 1,45,01,580/- on account of negative difference in balances, Ld. CIT(A), after detailed examination of each account, has decided as under: “In the instant case, the AO has not disbelieved the sales of the appellant. The books of accounts of the appellant were not rejected by the AO and where the sales are not doubted by the AO, the corresponding purchases cannot be doubted. 9.5 In the instant appeal proceedings, the appellant has contended that the difference in accounts are for various reasons and are coming from years together and are not of the year under assessment in some cases. The differences are due to reasons like rate difference, quality difference, goods damaged in transport, insurance charges, Octroi charges etc. etc. and these balances are being carried forward for years. . . . . .
A.Y. 2011-12 Aplab Limited In view of the facts and circumstances of the case, the addition of Rs. 1,45,01,580/- made u/s 69C of the Act is hereby deleted.”
Under these circumstances, we find no infirmity in order of the Ld. CIT(A) which has been passed after taking into account the relevant material and judicial pronouncements on this issue. Accordingly, there is no reason to interfere with the order of Ld. CIT(A). This ground of the revenue is, therefore, rejected.
In the result, the appeal of the revenue is partly allowed. Order pronounced in the open court on 20.01.2025.