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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the orders of the ld. CIT(A)-19, New Delhi dated 25.04.2016.
Following grounds have been raised by the assessee:
1. The learned authorities below have erred in law as well as in facts is disallowing the deduction of Rs.55,67,846/- claimed by the assessee u/s 80IC of the Income Tax Act, 1961.
2. The learned authorities below have further erred in law as well as in facts in making additions of Rs.28,67,000/- in the declared income of assessee on account of disallowance of business promotion expenses claimed by the assessee, which were incurred in the normal course of his business activities.”
In this case return was e-filed by the assessee on 14/07/2012 declaring total income of Rs. 12,150/- in which the Assessment u/s 143(3) of the Income Tax Act, 1961 was completed at total income of Rs. 84,47,000/- after disallowing deduction u/s 80IC and commission paid by the assessee.
Before us the assessee filed appeal against confirmation of the disallowance u/s 80IC as well as business promotion expenses.
None appeared on the designated date of hearing. Hence, the adjudication is being completed by examining the facts on record and taking into consideration the orders of the authorities below.
Ground No. 1 is in respect of disallowance of deduction u/s 80IC.
The observations of the Assessing Officer are as under: a. The assessee is engaged in the business of manufacturing of pesticides which is prohibited item as per the Schedule XIII of the I.T. Act b. The Form 10CCB and 3CD initially mentioned the nature of activity as trading and subsequently changed to manufacturing. Before the ld. CIT (A), the assessee in support of his claim that he is manufacturing bio-pesticides not pesticides, submitted the following certificates:
Ajay Verma “(i) Certificate from “State Infrastructure & Industrial Development Corporation of Uttarakhand Ltd. (SIDCUL) vide dated 17th August, 2010.
(ii) Approval cum Registration Letter from Uttaranchal State Organic Certification Agency (USOCA).
(iii) Certificate from Uttarakhand Environment Protection & Pollution Control Board for manufacturing Bio-Pesticides and Bio- Fertilizers.
(iv) Certificate for SSI registration for manufacturing Bio- Pesticides and Bio-fertilizers.
(v) Copy of letter from whom assessee has purchased the technology from Professor and head Dept, of Plant Pathology Tamil Nadu Agricultural University Coimbatore.
(vi) Copy of License to manufacture Bio-Pesticides from Department of Agriculture Uttarakhand under Plant Protection Centre vide letter dated 12th May, 2010.
(vii) Audit Report from Assistant Commissioner (Audit) under Customs & Central Excise Commissionrate Meerut in which it is mentioned that assessee is engaged in the manufacturing of Bio- Pesticides.”
The ld. CIT (A) held that the entry no. 15 of the part B of Schedule XIII includes “insecticides, fungicides, herbicides and pesticides” and since the assessee was manufacturing the article which is mentioned in the prohibited list, he was not entitled for deduction u/s 80IC.
The ld. CIT (A) has gone through all the certificates produced by the assessee and examined with relevance to the deduction u/s 80IC and product manufactured. The observations of the ld. CIT (A) are as under: “I have gone through the various certificate issued to him. The first certificate issued to him by the State Infrastructure & Industrial Development Corporation of Uttarakhand Ltd. dated 17/08/2010. This certificate shows
Ajay Verma that the permission has been granted for manufacture of Bio-pesticides & Bio-fertilizers.
The second certificate is the Approval cum Registration Letter. This letter approves the manufacture of Carrier based Bio-fertilizer (Tricoderma Viridi).
The third letter is from Uttarakhand Environment Protection and Pollution Central Board, this letter describes the various products in the joint category of Bio-pesticides & Bio-fertilizers.
The assessee also furnished a letter from the Department of Plant Pathology, Centre for Plant Protection Studies, Tamil Nadu Agricultural University, furnishing the certificate of the Bio-Pesticides (Trichoderma Viride).
The next letter is the License of Manufacture of Insecticides. This letter also mentions Trichoderma Viride (Bio-pesticides).
The Audit Report from the Asstt. Commissioner (Audit), Customs & Central Excise, Commissionrate, Meerut also mentions the products manufactured as Bio-Pesticides.
The assessee has further argued that the approval cum registration letter shows that Trichoderma Viride is Bio- fertilizer and Bio- fertilizer is not covered under Schedule- XIII.”
The product manufactured by the assessee as per the license of manufacturing issued by the authorities is a Fungicide namely, “Trichoderma Viride”. This product of Fungicides is also a prohibited item covered under Item no. 15 of Schedule XIII part B of the I.T. Act. Thus, the ld. CIT (A) after examination of the certificates issued by SIIDC, UEPPCB, TNAU, AC Customs & Central Excise, the product manufactured (Trichoderma Viride) and after examining whether this product is eligible or prohibited item, gave a categorical finding that the product manufactured by the assessee is a Fungicide which is a Ajay Verma prohibited item for the claim of deduction and accordingly denied the deduction u/s 80IC.
Having gone through the entire factum and the material on record, we find no good reason to interfere with the reasoned order of the ld. CIT (A).
Ground No.2 relates to disallowance of business expenses.
The total sales of the assessee was Rs.1,25,81,869/- against which the assessee has debited business expenses of Rs.28,67,000/-. He claimed that this amounts has been paid to only two parties namely, Shri Sai Agrotech 30, Shalimar Fountain Complex, Bhopal and M/s United Beej and Agro Chemical, 23, Gurudwara Road, Sabji Mandi, Bhopal.
In order to examine the genuineness of the transactions, notices u/s 133(6) have been issued to the above parties which stands uncomplied with. The Assessing Officer held that even on merits of the case the assessee has failed to provide the purpose of the transactions, evidence of services provided by two parties. The Assessing Officer held that the assessee has failed even to provide copies of the bills raised by this two parties. In the absence of any evidence, put forth by the assessee, the Assessing Officer disallowed these expenses.
The ld. CIT (A), on going through the agreement submitted by the assessee during the appellate proceedings, observed that the agreements show that both these persons/parties are resident of Bhopal, they were engaged in generation of purchase order at district level, both the agreements are Ajay Verma identical in nature, bear simultaneous, stamp paper number and are, notarized in Delhi. One of the agreements for M/s Shri Sai Agrotech was signed by Sh. Suresh Pathak who was the proprietor, while the confirmation has been given by Smt. Jyoti Pathak. In fact the PAN furnished by the assessee also is in the name of Jyoti Pathak. Since she was not the signatory in the agreement nor proprietor, the confirmation given by her does no t prove the genuineness of the agreement. However, it is interesting to note that both the agreements do not make any mention of the consideration to be paid for rendering the service mentioned in the contract. No contract can be complete without any consideration. Apparently, these two documents therefore are a facade created by the assessee to make the department believe that the payment of commission was genuine. The expenditure is allowed as deduction only if it has been incurred for the purpose of business, payment by way of account payee cheques and deduction of TDS does not prove that the expenses had been incurred for the purposes of business.
Regarding the payment by cheque and deduction of TDS, the ld. CIT (A) relied on the judgment of the Hon’ble Supreme Court in the case of Lachminarayan Madan Lal vs. Commissioner of Income Tax 86 ITR 439 wherein it was held as under: “The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as ‘commission, assuming there was such payment, did not bind the Income-tax Officer to hold that the payment was made
Ajay Verma exclusively and wholly for the purpose of the assessee’s business. Although there might be such an agreement in existence and the payments might have been made, it was still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof was properly deductible under section 37.”
We find that the assessee has failed to substantiate the business expenditure as provided u/s 37(1) of the Act. Hence, we decline to interfere with the order of the ld. CIT (A).
In the result, the appeal of the assessee is dismissed. Order Pronounced in the Open Court on 03/03/2020.