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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ]
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri Aby. T. Varkey, JM & Shri M.Balaganesh, AM ] I.T.A Nos. 757 - 759/Kol/2016 Assessment Years : 2007-08, 2008-09 & 2009-10 M/s Technico Overseas -vs- ITO, Ward-43(3), Kolkata [PAN: AADFT 2896 A] (Appellant) (Respondent)
For the Appellant : Shri S.M. Surana, Advocate. For the Respondent : Shri Sallong Yaden, Addl. CIT Date of Hearing : 04.04.2018 Date of Pronouncement : 11.04.2018
ORDER Per M.Balaganesh, AM
These appeals for the assessment years 2007-08 and 2009-10 are directed against the separate order passed by the ld. Commissioner of Income Tax (Appeal)-13, Kolkata (in short the ‘Ld. CIT(A) ‘) in appeal no. 351 & 340/CIT(A)-13/Kol/Ward-43(3)/2014-15 dated 22.01.2016 for assessment years 2007-08 and 2009-10 respectively against the separate orders of assessment framed by the ld. Income Tax Officers, Ward-42(3), Kolkata (in short the ‘ld. AO’) u/s 147/143(3) dated 18.5.2011 for the Asst Year 2007- 08 and u/s 143(3) of the Act dated 27.10.2011 for the Asst Year 2009-10. The appeal for the assessment year 2008-09 has been preferred by the assessee against the order of the Ld. CIT(A) in appeal no. 350/CIT(A)-13/Kol/Ward-43(3)/2014-15 dated 22.01.2016 for the assessment year 2008-09 against the levying penalty u/s 271(1)(c ) of the Income Tax Act, 1961 (in short the Act).
The issue involved in assessment years 2007-08 and 2009-10 are identical in nature and hence they are taken up together and disposed off by common order.
2 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10
The first common issue involved in the assessment years 2007-08 and 2009-10 is as to whether the Ld. CIT(A) was justified in upholding the grant of deduction u/s 10B of the Act at 90% of profit of the eligible undertaking as against 100% claimed by the assessee, in the facts and circumstances of the case.
The facts of assessment year 2007-08 are taken up for adjudication herein and decision rendered thereon would apply with equal force for assessment year 2009-10 also, in view of the identical facts except with variance in figures.
The brief facts of this issue is that the assessee firm submitted its return of income claiming exemption u/s 10A of the Act at 100% of its net profits. The assessee firm is located in domestic tariff area and considered as a Software Technology Park (STP) unit. The assessee is engaged in the business of export of computer, engineering, drawings and wholesale of medicines. The partners of the assessee firm appeared before the ld. AO in the course of re-assessment proceedings and admitted the fact that the firm had wrongly claimed the exemption u/s 10A of the Act instead of claiming section 10B of the Act. The ld. AO accepted this claim of deduction u/s 10B of the Act of the assessee made during the course of assessment proceedings but however restricted the claim of deduction to 90% of the net profits of the eligible undertaking as against the claim of 100% made by the assessee. This action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us on the following grounds: 2. For that the Ld. CIT(A) erred in confirming the order of the AO assuming jurisdiction u/s 148 for claim of deduction u/s 10A instead of section 10B of the I.T. Act, when there was no escapement of income as the quantum of deduction available under both the sections were the same.
For that the Ld. CIT(A) erred in holding the deduction u/s 10B is restricted to 90% of the net profit when the same was applicable only for the assessment year 2
3 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10 2003-04 and 100% was allowable for the year under consideration which should have been allowed on the income as computed by the AO.
We have heard the rival submissions. We find that this issue is covered in favour of the assessee by this Tribunal in assessee’s own case for the assessment year 2008-09 in I.T.A. No. 1646/Kol/2016 dated 02.12.2016 wherein it was held as under: 6. We have heard rival submissions and gone through facts and circumstances of the case. We find lot of force in the arguments advanced by the Ld. AR that the arguments advanced by him on the claim of deduction u/s. 10B of the Act @ 100% export profits as against 90% thereof is applicable only for AY 2003-04 and not for subsequent years and we also find that the assessee had raised the ground in this regard based on the spirit of the language used in the grounds of appeal. We find that the issue under appeal is squarely covered by the decision of the Delhi ITAT in the case of Universal Precision Screws, supra relied on by the Ld. AR wherein it was held as under: “2.2 Reliance has also been placed on circular no. 8 of 2002, dated 27.08.2002, regarding Finance Act, 2002 and explanatory notes on provisions relating to direct taxes, (2002) 258 ITR 13 (St.). In paragraph no. 19.4 of the circular, it is mentioned that in view of the need for resource mobilization for the short term, Finance Act, 2002 seeks to restrict the 100% deduction u/s 10A and 10B, for one assessment year 2003-04 to 90% of such profits and gains as are derived by an undertaking from the export of articles or things or computer software. 2.3 In reply, the Ld. senior DR relied on the orders of the authorities below. 3. We have considered the facts of the case and submissions made before us. The case involve interpretation of the provisions contained in the second proviso to section 10B and sub-section (1) of section 10B. The general rule for deduction is that the whole of the profit of eligible undertaking is deductible under sub- section (1). The second proviso carved out an exception for grant of the deduction @ 90% of such profit for the assessment year beginning on 01.04.2003, i.e., assessment year 2003-04. This exception is carved out only for one year and it does not apply to any subsequent year. In subsequent years, the provision contained in sub-section (1) is applicable. Therefore, on the face of it, the exception is not applicable to assessment year 2007-08, which is the year before us. This view is strengthened by the memorandum and the circular mentioned above. Accordingly, we are of the view that the Id. CIT(Appeals) erred in restricting the deduction to 90% of the profits. 4. In the result, the appeal is allowed.”
Respectfully following the said decision we hold that the assessee is eligible for deduction u/s. 10B of the Act at 100% of export profits for the AY 2008-09 and hence, in view of this decision, adjudication of other grounds in respect of disallowance of remuneration paid to partners would become infructuous and needs no adjudication. 3
4 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10
Respectfully following the aforesaid decision we hold that the assessee is entitled for deduction u/s 10B of the Act for the assessment year 2007-08 and 2009-10 at 100% of its eligible profits. Accordingly, grounds raised by the assessee in this regard for both the assessment years are allowed.
The next common issue involved in assessment year 2007-08 and 2008-09 is with regard to the estimated disallowance of motor car expenses at 10%.
7.1. The brief facts of this issue is that the ld. AO observed that the assessee had paid a sum of Rs. 93,524/- in the profit and loss account towards motor car running expenses for the assessment year 2007-08. He observed that the partners of the assessee could not reproduce any log book to prove the usage of the vehicles for the business purposes. However, the bills and memos were produced by the assessee before the ld. AO. The ld. AO alleged that the car might have been used for non-business purposes also and resorted to disallow 10% of 93.524 i.e 9,353/- on an estimated basis for the assessment year 2007-08. Similar disallowance with the similar reason was made in the sum of Rs. 11,008/- for the assessment year 2009-10. The action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us on the following grounds: I.T.A. No. 757/Kol/2016 for assessment year 2007-08 4. For that the Ld. CIT(A) erred in confirming the estimated disallowances under the head motor car expenses @10% amounting to Rs. 9353/- when the reopening itself was bad in law, no income came to notice which can be said to have escaped assessment and even otherwise the said disallowance increased the export profit so that the deduction u/s 10B will go up by the said amount.
I.T.A. No. 759/Kol/2016 for assessment year 2009-10 4. For that the Ld. CIT(A) erred in confirming estimated disallowances under the head motor car expenses @10% amounting to Rs. 11008/- which was increased for business purposes and even otherwise the said disallowance should increase the export profit so that the deduction u/s 10B will go up by the said amount. 4
5 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10
7.2. We have heard the rival submissions. We find that the ld. AR argued that the assessee is having business income only from its 100% export oriented unit and that the motor car was used only for the business purposes and hence any disallowance made towards the said motor car running expenses only would only inflate the business profits of the eligible undertaking and consequential increase in claim of deduction u/s 10B of the Act. Hence, no separate disallowance need to be made in this case. We find lot of force in this argument of the ld. AR and hold that any disallowance made towards motor car running expenses in the eligible unit would only go to increase the business profits of the said eligible unit and consequently the claim of deduction u/s 10B of the Act would also get increased to that extent. Accordingly, ground no. 4 raised by the assessee for assessment years 2007-08 and 2009-10 are allowed.
The next issue to be decided in this appeal for assessment year 2009-10 is as to whether the Ld. CIT(A) was justified in confirming the action of the ld. AO in adding back the excess value of written down vat (WDV) of assets of Rs. 13,642/- which has already been added back and taken into account in the assessment year of the preceding assessment year, in the facts and circumstances of the case.
8.1. The brief facts of this issue is that the ld. AO in the assessment year observed as under:
“It was found from the Records that the depreciation of Rs. 4,23,728/- on W.D.V. of Rs. 7,06,213/- in respect of Asset-Tekla Structure Steel Detailing Software, has been claimed. But it was observed that the actual value of the asset was Rs. 17,44,219.50 instead of Rs.17,65,533/- which has been shown in the F. Y. 2007- 08.
The actual computation of W.D.V and depreciation is as under: Value of Asset Rs. 17,44,219/- Less: Depreciation @ 60% on Rs.17,44,219.50 Rs. 10,46,531/- 5
6 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10 W.D.V as on 01.04.2009 : Rs. 6,97,688/- Less: Depreciation @ 60% on Rs.6,97,687/- Rs. 4,18,612/- Rs. 2,79,076/-
It is seen that during the F. Y. 2008-09 the Firm claimed excess value of the asset of Rs. 8,526/- ( Rs. 7,06,213 - Rs. 6,97,687) and excess depreciation of Rs. 5,116/- (Rs. 4,23,728 - Rs. 4,18,612). A letter was issued to the assessee on 12.09.2011 explaining why the amount of Rs 13,642/-( Rs. 8,526/- +Rs. 5,116) should not be added back to the total income of the Firm. Mr. Surana, the A/R, stated as under:
" ..... it is submitted that the difference between actual value of the asset of Rs. 17,44,219/- and that shown in the accounts in the financial year 2007-08 of Rs. 17,65,533/- being Rs. 21,314/- has already been added back in the preceding assessment year 2008-09."
It is observed that the amount of Rs. 21,314/- was added back to the total income of the assessee for the assessment year 2008-09. But the assessee had incorrectly computed the WDV on the value of asset of Rs. 17,65,,533/- as under:
Value of Asset as per F.Y. 07-08 Rs. 17,65,533/- Less: Depreciation @ 60% on Rs.17,65,533 Rs. 10,59,320/-· W.D.V as on 01.04.2009 : Rs. 7,06,213/- Less: Depreciation @ 60% on Rs.7,06,213/- Rs. 4,23,728/- Rs. 2,82,485/-
The assessee claimed excess value of asset and depreciation of Rs 13,642/-. The amount of undisclosed income of Rs. 13,642/- is added back to the net profit of the assessee.”
The action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us on the following ground: I.T.A. No. 759/Kol/2016 for assessment year 2009-10
For that the Ld. CIT(A) erred in confirming the action of the AO in adding excess value of WDV of assets of Rs. 13,642/- which has already been added back and taken into account in the assessment of the preceding assessment year & even otherwise the disallowance should increase the export profit so that the deduction u/s 10B will go up be the said amount.
7 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10 9. We have heard the rival submissions. We find that the ld. AO has made the addition without considering the submissions of the assessee that the sum of Rs. 21,314/- has already been added back in the preceding assessment year 2008-09. In any event, we find that it is not in dispute that the assets were used by the assessee for the purpose of its eligible business undertaking. Hence, any disallowance made thereon in respect of such eligible business undertaking would only go to increase the business profits of such undertaking and consequently the claim of deduction u/s 10B would also get increased. Hence, ground no. 3 raised by the assessee for the assessment year 2009-10 is allowed.
Now let us take up in I.T. A No. 758/Kol/2016 for assessment year 2008-09 on the levy of penalty u/s 271(1)(c ) of the Act.
10.1. We have heard the rival submissions, We find that the ld. AR placed on record copy of the penalty notice issued by the ld. AO u/s 271(1)(c ) read with 274 of the Act dated 31.12.2010 wherein the ld AO had not struck off the relevant portion as to whether the assessee had concealed its income or furnished inaccurate particulars of income. In this regard he placed reliance on various decisions of this Tribunal wherein on similar ground the penalty levied has been cancelled by this Tribunal. We find that similar issue had come up before this Tribunal in the case of Tradelink Securities Ltd. in I.T.A Nos. 914&915/Kol/2015 dated 14.03.2018 wherein it was held as under:
“8. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld AR which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.
8 ITA Nos.757 to 759/Kol/2016 M/s Technico Overseas A.Yrs.2007-08,2008-09 & 2009-10
Respectfully following the aforesaid decision, we direct the ld. AO to delete the penalty herein. Accordingly, ground raised by the assessee are allowed.
In the result, the appeals of the assessee are allowed.
Order pronounced in the Court on 11.04.2018
Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 11.04.2018 SB, Sr. PS
Copy of the order forwarded to: 1. M/s Technico Overseas, C/o, S.M. Surana, Advocate, P-38, India Exchange Place, Arun Chamber, 3rd Floor, Kolkata-700001. 2. ITO, Ward-43(3), Kolkata, 3, Govt. Place, Kolkata-700001. 3. C.I.T(A)- , Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.