M/S C&S ELECTRIC LTD.,NEW DELHI vs. DCIT LTU, NEW DELHI

PER P.K.BANSAL, VICE PRESIDENT

These cross appeals have been filed against the order dated 31.03.2013 of

CIT(A)-LTU, New Delhi pertaining to 2008-09 AY.

assessee relate to the same issue i.e the deduction available u/s 80IC of the

Income Tax Act, 1961 (in short “Act”).

ITA No.3143 & 3364/Del/2013

the tax authorities below. We noted that the assessee has claimed the deduction

u/s 80IC amounting to Rs.17,77,02,892/-. The AO out of the said claim reduced

the deduction by Rs.18,19,179/- when the matter went before the Ld. CIT(A), Ld.

CIT(A) sustained the action of the AO while reducing the deduction u/s 80IC to

the extent of Rs.10,28,461/- out of Rs.17,77,02,892/-. The assessee claimed the

deduction u/s 80IC in respect of BT Division, Panel Division and BD Division.

The AO reduced the claim out of the BT Division and Panel Division by

Rs.6,50,339/- and Rs.11,68,840/-. By applying the provision of section 80IA(8)

as according to him, the transfer from one unit to another unit should have been

done at market value. When the matter went before the Ld. CIT(A), Ld. CIT(A)

confirmed the reduction of the deduction u/s 80IC by Rs.2,34,511/- in respect of

BT Division and Rs.7,93,950/- for Panel Division. Ignoring the fact that the

assessee claimed deduction u/s 80IC only for a sum of Rs.28,405/- for the Panel

Division.

in ITA No.4193/Del/2012 with reference to section 40A(2), it was held that the

obligation is on the AO to determine the market value first.

Rules, 2000 in which it has been mentioned that reasonable value for inter unit

transfer has determined by the Government of India is cost plus 10%.

before the AO but we found that the assessee has taken this plea before the AO

and the Ld. CIT(A). We also noted that the component transfer to panel unit are

ITA No.3143 & 3364/Del/2013

customer specific product and of different strength and specification therefore,

they cannot be compared with the similar components company sold in the open

market. The AO had made the adjustment due to the market value of the inter

unit transfer but could not discharge the onus which in our opinion lie on him to

ascertain the market value in respect of the component which were transferred by

the assessee from one unit to the other unit. The onus lies on the AO to bring the

comparative instance if the AO was not able to bring any comparative instance, he

should adopted the market value on the basis of the value as determined by the

Government of India, Excise Department i.e cost plus 10%. Ignoring this value in

our opinion, will tantamount to that provision of section 80IA(a) of the Act has not

been correctly applied by the AO and, therefore on the basis itself ignoring the

alternate contentions of the assessee that if any deduction has to be reduced u/s

80IC in respect of Panel Division that has to be reduced only by Rs.28,405/-. We

allow Ground No.1 taken by the assessee and set aside the order of the Ld.CIT(A)

confirming the reduction of the deduction claimed u/s 80IC of the Act by

Rs.10,28,461/-. Thus, Ground No.1 and 1.2 taken by the assessee are allowed

while Ground No.1 taken by the revenue stands dismissed.

pressed. Ground No.2 taken by the Revenue relates to the deletion of the addition

of Rs.35,83,048/- made by the AO on account of the reduction in the claim of the

deduction u/s 10B while Ground No.2 taken by the assessee relate to the claim of

the deduction u/s 10B of the Act in respect of the disallowance made u/s 40A

amounting to Rs.7,92,300/-.

ITA No.3143 & 3364/Del/2013

are disposed off together.

submissions and carefully considered the same and we also gone through to the

provision of section 10B(i) of the Act. It is not denied that the disallowance of

Rs.7,92,300/- was made u/s 40A of the Act whereas the disallowance is so made,

the profit and gains of the business or profession has computed under the said

head will automatically increase. Section 10B(i) allows the deduction on the

profits and gains computed under the head income from business of the eligible

unit in accordance with the provision of section 30 to 43D of the Income Tax Act.

This view has been taken by this Tribunal in the following cases:-

(i) Gem Plus Jewellery India Ltd. 194 Taxman 192 (Bombay) PB 981-988 (981, 983, 987); (ii) Sahasra Electronics Pvt.Ltd., ITA No.1951/Del/2009-AY 2005-06; and (iii) ACIT vs Jewellery Solutions International Pvt. Ltd. [2009] 28 SOT 405 (ITAT, Mumbai Bench) 10. No contrary decision was brought to our knowledge. We, therefore, direct

the AO to allow the deduction u/s 10B in respect of the disallowance made u/s

40A amounting to Rs.7,92,300/-. Thus, this ground of the assessee is allowed.

case, the AO while computing the profit of the eligible unit for deduction u/s 10B

allocated the corporate expenses while the assessee was of the view that neither

the receipt nor the expense which has not related to the operation of the

undertaking, can find place in the computation of the profits of 100% EOU. The

AO, therefore, reduced the deduction u/s 10B by Rs.35,83,048/- but the Ld.

CIT(A) deleted the said reduction made by the AO. 4

ITA No.3143 & 3364/Del/2013

noted that in the case of the assessee, the profits of the eligible unit were not

higher in comparison with the other business. GP rate of eligible unit was 25.20%

as compared to the GP rate of other units in aggregate at 29.97%. While the net

profit ratio of the eligible unit was 5.87% as compared to the net profit of other

units at 15.09%. We noted that in the case of Catvision Products Ltd. 84 TTJ (Del)

while working out the profit for the purpose of deduction u/s 80IC. Mumbai

Bench of the ITAT also in the matter of DCW Ltd. 132 TTJ (Mum.) 442 held for the

purpose of section 80IA that indirect expenses cannot be reckoned in the

computation of determining the profits of the eligible undertaking. Ld. DR even

though vehemently referred to the order of the AO but could not brought to our

knowledge any contrary decision. We, therefore, confirmed the order of Ld. CIT(A)

in deleting the reduction made by the AO in the deduction u/s 10B of the Act

amounting to Rs.35,83,048/-. Thus, Ground No.2 of the revenue stands

dismissed.

Rs.4,23,507/- u/s 14A r.w. Rule 8D of the Act.

assessee while computing the income disallowed a sum of Rs.4,23,507/- u/s 14A

but the AO without recording any satisfaction applied Rule 8D and increase the

disallowance by Rs.17,77,193/-. This is settled law that no disallowance u/s 14A

r.w. Rule 8D can be made without recording the satisfaction by the AO u/s 14A(ii)

that the claim made by the assessee is not correct having regard to the accounts

ITA No.3143 & 3364/Del/2013

of the assessee. Even we noted that in this case, the assessee had capital and

reserve much more than the investment. The capital and reserve as on

31.03.2007 were Rs.1,17,79,62,711/- while the investments were only

Rs.37,15,000/-. Therefore, in view of the decision of the Jurisdictional High Court

in the case of TAIKISHA Engineering India Ltd. 370 ITR 338(332) [Del.], no

disallowance can be made. We, therefore, confirm the order of the Ld. CIT(A) to

restrict the disallowance of Rs.4,23,507/-.

the reducing and sustenance of the disallowance out of the foreign travel

expenses. The facts relating to this ground are that the AO disallowed 20% of

Rs.16,76,438/- claimed by the assessee as foreign travel expenses. When the

matter went before the Ld. CIT(A) but Ld. CIT(A) restricted the disallowance to

30% of the expenses against foreign currency and credit cards i.e. to

Rs.11,55,832/-. Both the assessee as well as revenue has come in appeal.

noted that the disallowance was made by the AO and sustained by the Ld. CIT(A)

partly on the basis of the expenses incurred for personal purposes. It is not

denied that the assessee has paid fringe benefit tax on these expenses. Since

fringe benefit tax has been paid, therefore, no disallowance can be made on

account of the personal expenses. Our aforesaid view is duly supported by the

decision of Delhi Bench of this Tribunal in ITA No.805/Del/2013 for AY 2009-10 in

the case of Aero Enterprises. No contrary decision has been brought to our

knowledge even though the provision of section 115W is clear in this regard. We,

therefore, delete the disallowance of Rs.11,55,832/-. Thus, Ground No.4 raised

ITA No.3143 & 3364/Del/2013

by the assessee is allowed while Ground No.4 taken by the revenue stands

dismissed.

goodwill amounting to Rs.5,35,254/-. The AO did not accept the contention of the

assessee that the goodwill is eligible for depreciation as in tangible assets. When

the matter went before the Ld. CIT(A), the Ld. CIT(A) allowed the depreciation to

the assessee.

authorities below. In our opinion, the issue involved is duly covered in favour of

the assessee by the decision of this Tribunal in the case of Controls & Switchgear

Contractors Ltd. in ITA No.511/Del/2011 for the AY 2007-08. No contrary

decision was brought to our knowledge. We, therefore, confirm the order of the

Ld. CIT(A) allowing the depreciation on goodwill of the assessee, thus this ground

is allowed.

assessee before the Ld. CIT(A). Ground No.3 relates to the disallowance of leave

encashment u/s 43B of the Income Tax Act. The facts relating to this ground are

that the assessee claimed a sum of Rs.23,60,025/- on account of the leave

encashment paid u/s 43B in the revised return, the claim was for Rs.27,13,432/-.

The AO noted that the assessee has disallowed u/s 43B a sum of Rs.1,71,613/-

and has claimed an amount exceeding by Rs.7231/-. The AO, therefore,

disallowed a sum of Rs.7,231/-. The assessee also vide letter claimed before the

AO, leave encashment not debited to the P&L account to Rs.16,54,901/-. When

the mater sent before the Ld. CIT(A), the Ld. CIT(A) confirmed the disallowance of

ITA No.3143 & 3364/Del/2013

Rs.7,231/- stating that the assessee did not press the same before him. Ld. AR

before us by referring to the letter dated 15.05.2012 contended that he amended

the ground of appeal before the Ld. CIT(A) but the Ld. CIT(A) did not give any

finding on the said ground.

authorities below. We noted that vide letter dated 15.05.2012, the assessee has

amended the ground of appeal relating to the claim of the leave encashment u/s

43B by taking the following ground:-

ground and has to be adjudicated by the Ld. CIT(A) as the assessee can take the

legal ground for the first time before the appellate authority in view of the decision

of NTPC Ltd. vs CIT 229 ITR 383(SC). Since this ground has not been adjudicated

by the Ld.CIT(A), we therefore set aside the order of the Ld. CIT(A) on this issue

and restore the said issue alongwith additional ground taken by the assessee

before the Ld. CIT(A)to the file of the Ld. CIT(A) with the direction that this ground

to be decided on merit after giving proper and sufficient opportunity of hearing to

the assessee. Thus, this ground is statistically allowed.

ITA No.3143 & 3364/Del/2013

amounting to Rs.6,68,071/-.

authorities below, we noted that the assessee in the original computation of

income reduced a sum of Rs.6,68,071/- out of the claim of depreciation in respect

of building for which the assessee was declaring income under the had income

from “house property” but we noted during the impugned assessment year, after

the merger, the assessee was not earning any rent and the building being used by

the assessee himself, therefore, the assessee filed the revised computation of

income and claimed the depreciation on the building amounting to Rs.6,68,071/-.

The assessee has also explained the reasons for the short claim of the depreciation

to the AO since the building was not more used for rental purpose. We, therefore,

set aside the order of Ld. CIT(A) on this issue and allow the depreciation to the

assessee amounting to Rs.6,68071/-. Thus, the Ground No.5 taken by the

assessee is allowed.

to the gratuity amounting to Rs.10,62,376/- before the Ld. CIT(A).

noted that vide letter dated 15.05.2012, the assessee has taken the following

additional ground before the Ld. CIT(A) relating to the claim of the gratuity

amounting to Rs.10,62,376/-:-

ITA No.3143 & 3364/Del/2013

to General Reserve being liability pertaining to earlier years and not debited to Profit & Loss Account.” 26. We noted that the said additional ground is a legal ground but the Ld.

CIT(A) has not given any finding on this ground. We accordingly set aside the

order of the Ld. CIT(A) and restore this issue to the file of the Ld. CIT(A)with the

direction that the Ld. CIT(A) shall adjudicate this ground and decide the same in

accordance with law after giving the proper and sufficient opportunity to the

assessee.

by the assessee is partly allowed for statistical purposes.

The order is pronounced in the open court on 22 September, 2017.

Sd/- Sd/- (AMIT SHUKLA) (P.K.BANSAL) JUDICIAL MEMBER VICE PRESIDENT

Date:- 22.09.2017 *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, DELHI