MR. SAURABH DADU,NOIDA vs. ITO, NEW DELHI

Briefly stated, the facts of the case are that the assessee filed the return of income on 30.9.2011 declaring an income of Rs. 9,50,326/-. The case was selected for scrutiny through CASS. Accordingly, notice under section 143(2) of the Income Tax Act, 1961 dated 1.8.2012 was issued. Besides, notice under section 142(1) of the I.T. Act dated 15.10.2013 was also issued to the assessee. In response to the above statutory notices, the AR of the assessee attended the assessment proceedings and filed the details as called from time to time. The same was examined. During the year, the assessee has claimed deduction u/s. 10A of the I.T.

Aggrieved with the assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 18.6.2015 has upheld the addition made by the AO and dismiss the appeal of the assessee mainly on the ground that since assessee has furnished Form 56F only for the amount of Rs. 23,82,354/-, the AO was justified in denying the deduction for the additions made u/s. 40(a)(ia) of the I.T. Act, 1961.

Against the order of the Ld. CIT(A), assessee is in appeal before the Tribunal.

At the time of hearing, Ld. Counsel of the assessee has stated that although assessee has raised three grounds, but only one issue in this appeal is that whether when a disallowance u/s. 40(a)(ia) of I.T. Act, 1961 is made and income is enhanced by such disallowance, the assessee would be eligible for the enhanced deduction u/s. 10A of the Income Tax Act or not. He further stated that this issue of allowing the enhanced deduction u/s. 10A, when an amount has been disallowed, has come up before the Hon’ble Bombay High court in the case of CIT vs. Gem Plus Jewellery India Ltd. reported in 330 ITR 175 (Bombay) wherein the Hon’ble High Court has allowed the deduction u/s. 10A on the similar facts and circumstances of the case and, therefore, the issue involved in the present appeal is squarely covered by the aforesaid decision. Therefore, he requested that by following the same reasoning the present assessee’s appeal may be allowed.

On the other hand, Ld. DR relied upon the orders of the authorities below and stated that the same may be affirmed.

I have heard both the parties and perused the records. I find that the Hon’ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. reported in 330 ITR 175 (Bombay), wherein on the identical facts, the Hon’ble High Court has held that when income of undertaking, which is eligible for deduction u/s. 10A is enhanced because of certain statutory disallowance, it is an enhanced amount of income which would be eligible for computing the deduction u/s. 10A. I find that 4 the Hon’ble High Court vide Question No. (b) has framed the following question of law:

By reason of the judgment of the Supreme Court in CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 the employer's contribution was liable to be allowed, since it was deposited by the due date for the filing of the return. The peculiar position, however, as it obtains in the present case arises out of the fact that the disallowance which was effected by the Assessing Officer has not, the Court is informed, been challenged by the assessee. As a matter of fact the question of law which is formulated by the revenue proceeds on the basis that the assessed income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards Provident Fund/ESIC and the only question which is canvassed on behalf of the revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under section 1OA. On this position, in the present case it cannot be disputed that the net consequence of the disallowance of the employer's and the employee's contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed, related to the manufacturing activity. The disallowance of the provident fund/ESIC payments has been made because of the statutory provisions - section 43B in the case of the employer's contribution and section 36(v) read with section 2(24)(x) in the case of the employee's contribution which has been deemed to be the income of the assessee. The plain consequence of the disallowance and the add back that has been made by the Assessing Officer is an increase in' the business profits of the assessee. The contention of the revenue that in computing the deduction under section lOA the addition made on account of the disallowance of the provident fund/ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. The second question shall accordingly, stand answered against the revenue and in favour of the assessee.”

Respectfully following the above decision of the Hon’ble High Court Bombay in the case of CIT vs. Gem Plus Jewellery India Ltd. 330 ITR 175 (Bombayt), the addition in dispute is deleted and appeal of the assessee is allowed.

In the result, the appeal of the assessee stands allowed.