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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, Income-tax Officer, Ward 2, Haridwar (hereinafter referred to as ‘the Revenue’) by filing the present appeal, sought to set aside the impugned order dated 09.01.2015 passed by Ld. CIT (Appeals), Dehradun qua the assessment year 2009-10 on the grounds inter alia that :-
“1. The Ld. CIT(A) erred in law and on facts in allowing the deduction u/s 80IC on account of disallowance of inflated purchases in gross neglect of the provisions of Section80A( 5) of the Income Tax Act, as there is no claim in the return of income for the amount directed for allowance of deduction.
The Ld. CIT(A) erred in law and on facts in allowing the deduction-u/s 80IC on account of disallowance u/s 40(a)(ia) as according to the provisions of Section 80A(5) of the Income Tax Act, where assessee fails to make claim in the return of income for deduction u/s 80IC, no deduction is allowable..” 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessing Officer made disallowance of the claim of Rs.73,91,587/- made under section 80IC of the Income-tax Act, 1961 (for short ‘the Act’) for the reason that the purchases were made by the assessee in Faridabad whereas his business activities were carried out at Haridwar. AO also made disallowance of Rs.5,20,550/- on account of violation of provisions of section 40(a)(ia) of the Act and assessed the total income at Rs.2,57,71,167/-.
Assessee carried the matter by way of appeal before the ld. CIT (A) who has deleted the addition made by the AO by allowing the benefit u/s 80IC to the assessee on the entire eligible income by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, the assessee unit is eligible for deduction u/s 80IC. It is also not in dispute that the assessee is entitled for benefit of section 80IC on the entire eligible income. It is also not in dispute that the AO has granted relief to the assessee u/s 80IC qua the amount of Rs.73,91,587/- claimed in the return of income.
So far as question of allowing the deduction u/s 80IC on account of disallowance of inflated purchases by ld. CIT (A) is concerned, we are of the considered view that when the profits for the purposes of section 80IC were to be calculated as per section 28 to 44BB of the Act, the purchases were also covered under the Act and while calculating the profits of any business, the purchases are also deductible expenditure. When the disallowances in purchases ultimately reduces the purchase amount and consequently, increases the profit which would be again eligible for exemption u/s 80IC of the Act, it would not increase the income of the assessee which would remain the same even if the purchases were disallowed.
The contention of the Revenue that when the assessee has not made any claim in the return of income for the amount claimed as deduction, the deduction cannot be allowed in view of the provisions contained u/s 80A (5) of the Act is not sustainable in the face of the fact that the assessee has certainly made the claim in the return as the AO himself shown the income from business at Rs.3,36,83,304/- and in these circumstances, the deduction u/s 80IC is allowed on profit. So, the contention of the Revenue that the assessee has not made this claim in the return is wrong and incorrect. Moreover, when the entire profit of the assessee is exempt u/s 80IC then the assessee is not supposed to enhance the expenditure. So, the ld. CIT (A) has rightly deleted the deduction u/s 80IC made by the AO on account of inflated purchases.
So far as question of making deletion of addition of Rs.5,20,550/- made by AO u/s 40(a)(ia) is concerned, again when the entire profit is deductible u/s 80IC, the disallowance u/s 40(a)(ia) would not make any difference as it would ultimately make the assessee eligible for its entire profit deductible u/s 80IC.
Moreover, Revenue itself vide Circular No.37/2016 dated 02.11.2016 clarified that the ultimate profit of the assessee after adjusting disallowance u/s 40(a)(ia) would qualify for deduction under Chapter VI on the profits so enhanced by disallowance. The relevant para 3 of the aforesaid circular is extracted as under :-
3. In view of the above, the Board has accepted the settled position that the disallowance made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.
So, in these circumstances, we find no illegality or perversity in the deletion of addition made by the ld. CIT (A) made u/s 40(a)(ia) by the AO. 10. Resultantly, the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 10th day of September, 2018.