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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of Revenue is arising out of the order of the Commissioner of Income Tax (Appeals)]-3, Mumbai [in short CIT(A)], in appeal No. 73-THN/2015-16 vide dated 14.09.2016. The Assessment was 2 | P a g e Income Tax Officer, Ward -4(1) Mumbai (in short ITO/ AO) for the A.Y. 2012-13 vide order dated 12.03.2015 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO by disallowing expenses for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act. The CIT(A) deleted the addition by stating that the assessee is a eligible unit being eligible for deduction under section 80IC of the Act and on the disallowance of expenses the assessee is automatically eligible for deduction. For this Revenue has raised the following two grounds: -
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A)-3, Thane, erred in deleting the addition of ₹ 1,09,54,504/- made on account of disallowance under section 40(a)(ia) by the Assessing Officer , on the ground that the same would be automatically eligible for deduction under section 80IC of the I.T. Act, 1961, without going into the merits of disallowance under section 40(a)(ia) of the I.T. Act, 1961.
the ld. CIT(A) has erred in deleting the addition of ₹ 1,09,54,504/- by not considering the legal position that addition made on account of disallowance of expenditure is due to the deeming fiction created by penal section 40(a)(ia), and thus, the effect of the same cannot be imported into a beneficial provision vis-à-vis section 80IC."
We have heard rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that the assessee is a Private Limited Company engaged in manufacturing and sale of accounts of brushes like tooth brushes, shaving brushes, hair brush etc. in its factory premises at E-36, UPSIDC Industrial Area, Selaqui, Dehradun. The assessee claimed and AO allowed the deduction under section 80IC of the Act in respect of profit and gains derived from above stated undertaking. But the AO disallowed the expenses on account of job work claimed in respect to ledger charges amounting to ₹ 5,77,152/-, payment made to Varsa Plastic Industries of ₹ 91,37,007/- and Precession Plastic Engg of ₹ 10,99,339.48/- without deduction of TDS. The assessee claimed that these expenses are relatable to the work done in the manufacturing and sale of assessee’s unit which is eligible for deduction under section 80IC of the Act. Aggrieved, against the disallowance the assessee preferred the appeal before CIT(A). The CIT(A) held that the assessee is undoubtedly entitled for deduction under section 80IC of the Act and consequent disallowance of expenses made by AO would only lead to increase in gross total income, resulting in consequent increase in deduction claimed under section 80IC of the Act in respect of profits and gains arising out of the manufacturing activity of the assessee’s undertaking. Thereby, the CIT(A) deleted the addition made by AO in regard to disallowance of expenses for non-deduction of TDS by invoking the provisions of section 40(a)(ia) of the Act on an amount of ₹ 1,09,54,504/-. The CIT(A) deleted the addition vide Para 5 (vi) as under: -
“(vi) Respectfully following the above decisions, I find that the additions made by the AO by disallowing certain expenses only result in increase in gross total income resulting in consequent increase in the deduction under 4 | P a g e 80IC of the I.T. Act 1961. Therefore, without going into the merits of the addition, I hold that the addition of ₹ 1,09,54,504/- would automatically be eligible for deduction under section 80IC of the I.T. Act 1961 and the resultant net addition would be NIL. Accordingly, the first ground of appeal is decided in favour of the assessee is allowed."
Aggrieved, Revenue is in appeal before Tribunal.
We have gone through arguments of all the sides and facts of the case and noted that the disallowance of expenses pertain to the manufacturing unit of the assessee which is eligible for deduction under section 80IC of the Act. We also noted that on the similar issue, the Hon’ble Bombay High Court in the case of CIT vs. Sunil Vishwambharnath Tiwari (2015) 63 taxmann.com 241 (Bom) held that the disallowance of certain expenditure under section 40(a)(ia) of the Act and added back the same to the income of the assessee by the AO will increase the deduction under section 80IB of the Act claimed by assessee on the entire gross total income of the assessee. Hon’ble Bombay High Court has considered this issue in para 8 and 9 as under: -
“8. After hearing the respective counsel, we find that the fact that TDS was not effected by the respondent assessee, is not in dispute. In view of the scheme of Section 40 of the Act, as TDS is not effected, payment to contractors cannot be deducted, as those expenditure become inadmissible. The expenditures therefore are added back to the income, which is nothing but,
5 | P a g e eligible income. This income which is eligible for deduction in terms of Section 80IB(10) of the Act, therefore, only increases by said figure of disallowed expenditure.
CIT (Appeals) has in this background referred to the above referred judgment in case of Shirke Constructions and Equipments Ltd. (supra), wherein distinction between certain Sections of Chapter VI-A, which refer to deduction out of gross total income and other sections of Chapter VI-A, which do not make such reference to gross total income, has been explained. CIT (appeals) has correctly pointed out that the deduction allowable under Section 80IB(10) of the Act is with reference to the respondents gross total income. Hence, dis- allowance under Section 40[a][ia] cannot be treated separately and it gets added back to the gross total income of the assessee. Section 40 itself points out that due to error of assessee, such expenditure cannot be deducted while computing income chargeable under the head "profit and gains of business or profession". That is the only limited effect of the lapse on the part of the respondent - assessee in the present matter.”
As the issue is squarely covered in favour of assessee by the decision of Hon’ble Bombay High Court in the case of Sunil
6 | P a g e Vishwambharnath Tiwari (supra), respectfully following the same, we confirm the order of CIT(A) deleting the disallowance. 6. In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 21.08.2019.