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Income Tax Appellate Tribunal, ‘C‘ BENCH
Before: SHRI VIKAS AWASTHY & SHRI M.BALAGANESH
आदेश / O R D E R PER M. BALAGANESH (A.M):
These cross appeals in 483/Mum/2020 for A.Y.2012-13 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-17, Mumbai in appeal No.CIT(A)-17/IT-30/15-16 dated 23/10/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 25/03/2015 by the ld. Dy. Commissioner of Income Tax 10(1)(1), Mumbai (hereinafter referred to as ld. AO).
As these are cross appeals , they are taken up together and disposed of by this common order for the sake of convenience. – Assessee Appeal 2. The Ground No. 1 raised by the assessee was stated to be not pressed by the ld AR at the time of hearing. The same is reckoned as a statement made from the Bar and accordingly Ground No. 1 of assessee’s appeal is dismissed as not pressed.
The Ground No.2 raised by the assessee is with regard to claim of deduction u/s 10AA of the Act in respect of an eligible undertaking to be allowed on standalone basis.
3.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee company is engaged in the business of manufacture of chemicals . The return of income for the Asst Year 2012-13 was filed by the assessee company on 27.9.2012 declaring total income of Rs NIL under normal provisions of the Act and book profit
483/Mum/2020 M/s. Indofil Industries Ltd., of Rs 52,66,09,039/- u/s 115JB of the Act. We find that the assessee’s factory premises is located at Thane and Dahej, Gujarat. The factory located at Dahej, Gujarat, is a Special Economic Zone (SEZ). The assessee had claimed deduction u/s 10AA of the Act amounting to Rs 72,08,44,373/- against its profits from SEZ unit as is evident from page 12 of the factual paper book (FPB) containing return of income. We find from page 19 of the FPB under the heading ‘Details of Losses to be carried forward to future years’, the assessee had disclosed the business loss of the current year i.eAsst Year 2012-13 at Rs 42,79,99,742/- which was the loss of non-eligible unit. The ld AO completed the assessment by allowing the deduction u/s 10AA of the Act restricting the same to the extent of Gross Total Income. The assessee did not object to the same before the ld CITA. But before this tribunal, for the first time, the assessee is challenging the action of the lower authorities by stating that the deduction u/s 10AA of the Act should be allowed in toto in the sum of Rs 72,08,44,373/- on stand alone basis and the same cannot be restricted to the Gross Total Income of the assessee company. We find that this issue being a legal issue and raised for the first time before us, effectively becomes an additional ground before us as they are not emanating from the order of the ld CITA. We find that all the facts pertaining to this legal issue are already on records of the lower authorities and in the return of income filed by the assessee which is also enclosed in the Factual Paper Book (FPB) filed before us. Hence we are inclined to admit this additional ground as it goes to the root of the matter in the light of decision of the Hon’ble Apex Court in the case of NTPC Ltd reported in 229 ITR 383 (SC).
3.2. We find that the deduction u/s 10AA of the Act is to be allowed on stand alone basis in respect of its profits derived from the eligible undertaking and that the losses of non-eligible units need not be set off
483/Mum/2020 M/s. Indofil Industries Ltd., with the profits of the eligible unit. This issue is no longer res integra in view of the decision of the Hon’ble Supreme Court in the case of CIT vs Yokogawa India Ltd reported in 391 ITR 274 (SC) wherein it was held as under:- 16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, "The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision."
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression "total income of the assessee" in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in Section 10A as 'total income of the undertaking'.
For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly. 3.3. Respectfully following the aforesaid decision, we decide this ground no. 2 in favour of the assessee.
483/Mum/2020 M/s. Indofil Industries Ltd.,
In the result , the appeal of the assessee is partly allowed. Revenue Appeal
The first issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of commission paid to director u/s 40(a)(ia) of the Act in the facts and circumstances of the case.
5.1. We have heard the rival submissions and perused the materials available on record. We find that the ld AO observed that the assessee had paid commission to the directors of the assessee company on which no tax was deducted at source. The ld AO observed that similar disallowance was made in assessee’s own for the Asst Years 2009-10, 2010-11 and 2011-12. The ld AO accordingly proceeded to disallow the said commission u/s 40(a)(ia) of the Act for violation of provisions of Chapter XVII B of the Act. We find that the assessee had submitted before the ld CITA that the similar disallowance made in Asst Years 2009- 10 and 2010-11 were deleted by this tribunal in assessee’s own case and placed copy of those orders. Moreover, the ld CITA for the Asst Year 2011-12 had deleted the similar disallowance. It was also pointed out on merits, that the commission paid to Chairman & Managing Director and the Executive Director of the assessee company totalling to Rs 1,37,88,079/- would be in the nature of salary which has been paid in the subsequent year and tax has been duly deducted in the year of payment in terms of section 192 of the Act treating the same as their salary. Hence in any case, no disallowance u/s 40(a)(ia) of the Act could be made for violation of provisions of section 192 of the Act, if any. With regard to the commission to other directors of the assessee company amounting to Rs 54,34,446/-, it was pointed out that the said commission is payable to other directors for rendering professional services and not 483/Mum/2020 M/s. Indofil Industries Ltd., for any services in the course of buying and selling of goods or any assets or valuable thing and therefore the said payments would not fall within the ambit of Commission/ Brokerage as defined u/s 194H of the Act. With regard to applicability of professional fees payable to directors in the form of commission and so as to make applicable the provisions of section 194J of the Act, the same would be applicable only with effect from 1.7.2012 pursuant to amendment in section 194J and hence not applicable for the year under consideration. It was pointed out that in any case, no disallowance u/s 40(a)(ia) of the Act could be made in the year under consideration.
5.2. We find that the ld CITA had duly appreciated these contentions of the assesseeand deleted the disallowance u/s 40(a)(ia) of the Act in respect of Commission paid to Chairman& Managing Director, Executive Director and other Directors of the assessee company. Aggrieved, the revenue is in appeal before us.
5.3. We find that this issue is squarely covered by the decision of this Tribunal in assessee’s own case for the Asst Year 2009-10 in and CO No. 82/Mum/2014 dated 21.10.2016, wherein it was held as under:-
“4. The second issue is qua disallowance u/s. 40(a)(ia) for an amount of Rs.1,08,00,000/-. AO noted that assessee made the provision for commission for the Chairman and Managing Director [director] of the company for Rs. 1,08,00,000/- at year end but did not deduct any TDS u/s 194H. The commission was paid to the director in the subsequent year i.e. during Assessment Year 2010-11 after deducting TDS. Hence, the commission provision calls for disallowance u/s 40(a)(ia) in the impugned assessment year. Before first appellate authority, the assessee contended that director was full time employee of the company and hence, this payment was nothing but salary covered by TDS provisions u/s 192 and not 194H which deals with TDS on commission payments. As per Section 192, TDS is deductible from salary payment only at the time of payment and not at the time of making provision
483/Mum/2020 M/s. Indofil Industries Ltd., and therefore, no disallowance is called for in the given circumstances. CIT(A) accepted the contentions of the assessee and allowed this ground of appeal
. Before us, the Ld. DR has contended that the impugned payment being commission in nature are covered by section 194H and hence, TDS was deductible at the time of making provision at year end and as assessee has failed to do so, the same calls for disallowance u/s 40(a)(ia). Per contra, the Ld. AR has produced before us Form 16 of the director for AY 2010-11 and contended that commission is a part of overall compensation / salary package of the director and hence, TDS in respect thereof is covered by Section 192. After hearing rival contentions and perusal of material on record, we find that the impugned commission has been shown as part of salary in Form 16 of the director for AY 2010-2011. The Total salary paid for financial year 2009-2010 is Rs. 1,72,15,959/- which includes impugned provision for commission of Rs.1,08,00,000/- made by assessee in the assessment year in question. Section 192, unlike other TDS provision, require deduction of tax at source under the head Salaries only „at the time of payment only‟ and not otherwise. The quantum or accrual of expenses is nowhere disputed by revenue. The DR has fairly conceded the above position and therefore, we find no infirmity in the order of CIT(A) and hence, this ground of the revenue is also dismissed. Further, our view is fortified by the decision of Kolkata Tribunal in Jahangir Biri Factory Pvt. Ltd. Vs. DCIT 126 TTJ 567 wherein it has been observed that where commission is paid to directors as per their terms of employment for work done in their capacity as whole time directors, such commission should be treated as an incentive in addition to salary and same would not come within the purview of commission and brokerage as defined in Section 194H nor a fees for Technical services as defined in Section 194J. Similar view has been expressed in Pune Tribunal bench decision in Nashik Metals Pvt. Ltd Vs. ITO
50. Taxmann.com 185.”
5.4. Respectfully following the aforesaid decision, we do not find any infirmity in the order of the ld CITA granting relief to the assessee. Accordingly, the Ground Nos. 1 & 2 raised by the revenue are dismissed.
The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition made by the ld AO by apportioning the salary or operational expenses of CEO , MD or Finance Department etc which are common to both eligible and non-eligible undertakings of the assessee company.
6.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee had claimed deduction u/s 483/Mum/2020 M/s. Indofil Industries Ltd., 10AA of the Act for the profits derived by its from Dahej Unit in Gujarat which is a SEZ Unit. During the assessment proceedings, the assessee furnished comparative break up of sales, direct expenses, indirect expenses and profits earned by its non-eligible units and eligible unit separately. On perusal of the details, the ld AO observed that the assessee had incurred substantial expenses on salary and perquisite of CEO office, MD office & Finance Department which are not unit specific and cannot be confined only to one unit as such. Hence he concluded that the said expenses ought to have been apportioned by the assessee company between its 10AA unit and non-10AA unit. The ld AO apportioned the said expenditure between the two units and accordingly sought to reduce the claim of deduction u/s 10AA of the Act on a proportionate basis.
6.2. The assessee submitted that the SEZ unit has its own set up with respect to the production purchases, sales, finance, administration and human resources. The units have dedicated functional heads for managing the work of the unit and required minimal intervention from corporate office for day to day operations. Further, the assessee has also maintained separate books of accounts for both the units and the expenses pertaining to each such unit had booked at the respective units. The ld AO had allocated an amount of Rs 2,15,87,189/- as expenses to the SEZ Unit thereby reducing the claim of deduction by Rs 2,15,87,189/-. It was also pointed out before the ld CITA that the said issue in dispute is covered in favour of the assessee in Asst Year 2011-12 by the order of the ld CITA (predecessor CITA). It was also pointed out that while computing the deduction u/s 10AA of the Act, salaries and perquisites incurred by the top management and head office staff was not allocated between the 10AA and non-10AA units . In this regard, the assessee
483/Mum/2020 M/s. Indofil Industries Ltd., submitted that SEZ unit manufactures Agro Chemicals which are exclusively used for exports. On the other hand, the non-SEZ unit manufactures Agro Chemicals as well as Speciality Chemical which has sales in domestic and international markets. Further the assessee is having a dedicated finance team which is headed by a qualified Chartered Accountant for SEZ as well as non-SEZ unit and the role of finance personnel at corporate office is limited to consolidation of accounts which are audited at the respective end. Similarly there are other functional heads for all the abovementioned functions in both the units separately and their personnel, operational and other expenses are accounted in the concerned units for which they are related according to their roles and responsibility. The assessee also placed reliance on the decisions of the Co-ordinate Bench of this Tribunal in the case of Aditya Birla Nuvo Ltd vs ACIT reported in 68 SOT 403 (Mumbai Trib) ; Grasim Industries Ltd in and 1865/M/2003 and in the case of Procter and Gamble Hygiene and Healthcare ltd in ITA No. 1499/M/2005 and ITA No. 1500/M/2005 wherein it was held that the claim of deduction u/s 80IB of the Act should not be reduced by allocating head office expesnes to profits derived from the eligible units. All these contentions were duly appreciated by the ld CITA which prompted him to delete the disallowance made by the ld AO by reducing the claim of deduction u/s 10AA of the Act. Aggrieved, the revenue is in appeal before us.
6.3. We find that this tribunal in (Assessee Appeal) and ITA Nos. 481 & 5315/M/2016 (Department Appeals) for the Asst Year 2011-12 dated 13.2.2019 had remanded the impugned issue back to the file of ld CITA for denovo adjudication. We find that the issue in dispute for the year under consideration should also be restored to the file of ld CITA for denovo adjudication in accordance with law. The assessee is at 483/Mum/2020 M/s. Indofil Industries Ltd., liberty to file fresh evidences , if any , together with all legal case laws, in support of its contentions and the ld CITA is directed to dispose of the set aside appeal after due consideration of all the factual and legal submissions of the assessee company , in accordance with law. Accordingly, the Ground No. 3 raised by the revenue is allowed for statistical purposes.
The Ground Nos. 4 &5 raised by the revenue are general in nature and does not require any specific adjudication.
In the result, the appeal of the assessee is partly allowed and appeal of the revenue is partly allowed for statistical purposes.
Order pronounced on 18/08/2021 by way of proper mentioning in the notice board.