CLIMAX OVERSEAS PVT. LTD.,GURGAON vs. DCIT, CIRCLE-3(1), NEW DELHI

We have heard the rival submissions and perused the material available on record. The return of income for AY 2011-12 was filed by the assessee company on 30.09.2011, declaring Nil income which was revised on 26.03.2013, claiming loss of ₹10,52,529/-. The return was processed u/s 143(1) of the Act. The assessee is engaged in the business of manufacturing of rubber auto parts. The assessee has two units, one at Manesar and other at Udyog Vihar, Gurgaon. The unit of Manesar is claimed to be eligible for deduction u/s 10B of the Act (eligible unit) and the Udyog Vihar unit is non-eligible unit. The year under consideration is the 4th year of claim of deduction u/s 10B of the Act by the assessee as the initial year was assessment year 2008-09. In assessment years 2008-09, 2009-10 and 2010-11, the claim of deduction u/s 10B of the Act was disallowed by the ld AO on the ground that the assessee had used old plant and machinery in its 1st year of operation i.e. 2006-07 to the extent of 45% of value of plant and machinery and that the provisions of Section 10B(2) of the Act stood violated by the assessee. Further, ld AO observed that the assessee had not received the expert proceeds in convertible foreign exchange within the specified time limit in AY 2006-07. Since, this was the recurring issue, in line with the decision taken by the ld AO in earlier 3 years, the deduction u/s 10B of the Act amounting to ₹91,77,221/- was disallowed by the ld AO in the assessment for the year under consideration. This action of the ld AO was upheld by the ld CIT(A).

We find that the issue is already decided in favour of the assessee by this tribunal in the case of ITO Vs. Climax Overseas Pvt Ltd in for assessment year 2008–09 dated 22.12.2015 on the ground of low tax effect. The ld CIT(A) granted relief to the assessee in AY 2008-09. In AY 2009-10, this tribunal vide its order dated 02.03.2020 in ITA No. 109/Del/2015 had dismissed the appeal of the revenue as defective in view of the fact that the grounds of appeal were not provided by the revenue. In AY 2010- 11, this Tribunal had dismissed appeal of the revenue in ITA No. 658/Del/2015 dated 01.12.2022 on the ground of low tax effect. There is no finding on merit given by this Tribunal for any of the three earlier years. We find that the year under consideration is the 4th year of claim. There is no dispute that the fact situation that prevailed in earlier 3 years are identical with those facts prevailing in AY 2011-12. For the earlier 3 years, the matter had attained finality through the orders of the tribunal as detailed supra. It is trite law that the eligibility of claim of deduction u/s 10B of the Act is to be looked into in the first year of its claim and AY 2011-12 being the 4th year of claim, the deduction u/s 10B of the Act would be eligible to the assessee automatically provided the export proceeds are received within the stipulated time and in convertible foreign exchange by the assessee. The assessee had furnished the chart of foreign remittances in support of its claim of deduction u/s 10B of the Act along with submission dated 14.09.2015, which fact is reflected at page 12 of the order of the ld CIT(A). The ld CIT(A) had dealt with Page | 4 the issue on the basis of his predecessor’s orders as well as the remand report furnished by the ld AO. Hence, no adverse inference could be drawn on the assessee with regard to the receipt of exports proceeds in convertible foreign exchange within the stipulated time. Accordingly, the assessee would be eligible to claim deduction u/s 10B of the Act for AY 2011-12 also. Accordingly, ground No. 1 raised by the assessee is allowed.

We have heard the rival submissions and perused the material available on record. The ld AO observed that the assessee had received unsecured loan from following three parties during the year under consideration:- Harjeet Kaur Sood Rs. 16,69,449/- Abhimanyu Gupta Rs. 9,00,000/- Ravinder Gupta Rs. 2,00,000/- Total Rs. 27,69,449/- 8. It is observed that the assessee had not discharged its primary onus by filing the basic confirmation from the lenders i.e. ITR, bank statement of the lenders and hence the three ingredients of Section 68 of the Act not being proved by the assessee, the ld AO proceeded to make the addition u/s 68 of the Act. The assessee pleaded that it had discharged its primary onus by filing the confirmation, ITR, bank statement etc. before the ld AO itself and the same were not properly appreciated by the ld AO. The remand report was also called for from the ld AO in this regard. The ld CITA) granted partial relief to the tune of ₹5 lakhs in the case of loan received from Harjit Kaur Page | 5 Sood and confirmed the balance unsecured loan of ₹22,69,449/- on the ground that the assessee had not established the creditworthiness of these lenders.

At the outset, we find that Sunita Sood name is changed to Harjeet Kaur Sood. The assessee has duly placed on record the evidence of gazette notification in this regard. Hence, we hold that both Sunita Sood and Harjeet Kaur Sood are one and the same person. It is not in dispute that the assessee had duly furnished confirmation from lenders, ITR acknowledgement and bank statement of the lenders for the relevant assessment years. The loans have been received in regular banking channel which was also duly confirmed by the lenders in the case of Harjeet Kaur Sood. Hence, we hold that the creditworthiness of the lender i.e. Harjeet Kaur Sood stands duly established by the assessee. Hence, we direct the ld AO to delete the addition of ₹11,69,449/- being the remaining loan receipt from Harjeet Kaur Sood as three ingredients of Section 68 qua this lender has been established by the assessee.

With regard to other two lenders, the assessee has merely furnished the confirmation, bank statement and PAN of the lenders. The income tax returns of the lenders are not furnished even in the remand proceedings. The confirmation only states that the monies were received by the assessee through regular banking channels. Though the bank statements were stated to be filed by the ld CIT(A), the copy of the said bank statements were not placed on record by the assessee in the paper book. Hence, the creditworthiness of the lenders could not be examined by us. In these circumstances, we are forced to uphold the findings recorded by the ld CIT(A) as one of the main ingredients of section 68 of the Act , being creditworthiness of the lenders is not proved by the assessee. Accordingly, we uphold the addition to the tune of ₹11 lakhs (Rs. 9 lakhs and Rs 2 lakhs). Accordingly, the ground No. 2 raised by the assessee is partly allowed.

Ground No. 3 by the assessee is challenging the confirmation of disallowance of medical expenses of employees amounting to ₹58,038/-. This ground was 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. 3 is hereby dismissed as not pressed.

Ground No. 4 raised by the assessee is challenging the confirmation of the disallowance of travelling expenses amounting to ₹6,00,000/- 13. We have heard the rival submissions and perused the material available on record. The ld AO during the course of assessment proceedings asked the assessee to furnish the details of expenses debited to profit and loss account. No details were furnished thereon. The ld AO observed that on perusal of the financial statements of the assessee, the assessee has debited travelling expenses of ₹10,59,094/- during the year as against ₹2,19,121/- incurred in the earlier year. Since, there was no supporting documents, the ld AO made an adhoc disallowance of ₹6 lakhs as not wholly and exclusively incurred for the purpose of business. Before the ld CIT(A), the assessee filed the ledger copy of domestic travelling expenses of ₹1,40,936/- and foreign travelling expenses of ₹9,18,158/-. The ld CIT(A) observed that the assessee had not placed any invoices to this effect, details of persons who had travelled, the purpose of travelling and its business nexus thereon. Accordingly, the ld CIT(A) confirmed the disallowance. Before us, no further details were filed by the assessee to justify the allowability of deduction. This is a fit case to disallow the entire travelling expenses for want of primary details from the side of the assessee. The ld AO had magnanimously disallowed only a part of it to the tune of ₹6 lakhs, which has been confirmed by the ld CIT(A). We do not find any infirmity in the order of the ld CIT(A). Accordingly, ground No. 4 raised by the assessee is hereby dismissed.

Ground No. 5 is challenging the confirmation of disallowance of credit card expenses of ₹10 lakhs made by the ld AO out of ₹12,21,803/-.

We have heard the rival submissions and perused the material available on record. During the course of assessment proceedings, the assessee vide letter dated 11.12.2013 stated that the expenditure of ₹12,21,803/- had been incurred through AMEX Credit Card and filed the details of expenditure thereon. The ld AO observed that no proper details were filed by the assessee to prove the business nexus thereon and accordingly proceeded to disallow a sum of ₹10 lakhs as expenditure not incurred wholly and exclusively for the purpose of business of the assessee. Before the ld CIT(A), the assessee had filed copy of credit card statement showing nature of transactions. The ld CIT(A) observed that these details do not contain any nexus with the business of the assessee and no supporting evidences thereon were filed. The ld CIT(A) confirmed the disallowance of ₹10 lakhs made by the ld AO. The ld AR before us vehemently argued that making payment of expenditure through credit card is only a means of making payment. The expenditures were already disallowed by the ld AO and again disallowing the very same expenditure through credit card statement would only result in double addition. We find that the details of credit card expenditure submitted by the assessee are enclosed at page 93 of the Paper Book, which is reproduced herein:-

We find from the perusal of the assessment order, certain other expenditures were also disallowed by the ld AO. We agree with the contention of the ld AR that majority of the expenditures were already disallowed by the ld AO and again disallowing the same through the means of making payment through credit card would result in double addition. Hence, we deem fit to restore this issue to the file of the ld AO for de novo adjudication in accordance with law. Accordingly, ground No. 5 raised by the assessee is allowed for statistical purposes.

Ground No. 6 raised by the assessee is challenging the confirmation of disallowance of deduction u/s 10B of the Act on interest earned on fixed deposits receipts of Rs. 2,77,233/-. 18. We have heard the rival submissions and perused the material available on record. The assessee earned interest income of Rs. 2,77,233/- on fixed deposit receipts for which deduction u/s 10B of the Act was claimed by the assessee which was sought to be disallowed by the ld AO on the ground that the same does not constitute profit derived from industrial undertaking. This action of the ld AO was upheld by the ld CIT(A). But we find on perusal of the provisions of Section 10B(4) of the Act that deduction would be eligible for the assessee in the ratio of profits of the business of the undertaking in the same proportion of export turnover/ total turnover. In our considered opinion, the interest on fixed deposit receipts constitutes profit of the business of the undertaking. Hence, in terms of Section 10B(4) of the Act, the entire profits of the undertaking would be eligible for deduction u/s 10B of the Act. Accordingly, this ground raised

Ground No. 10 raised by the assessee is general in nature and does not require any specific adjudication.

In the result, the appeal of the assessee is partly allowed for statistical purposes.