ITO WD 4(1), THANE vs. ASPIRE ORAL CARE P. LTD, MUMBAI

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’).

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: -

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: -

As the issue is squarely covered in favour of assessee by the decision of Hon’ble Bombay High Court in the case of Sunil