DCIT(LTU), NEW DELHI vs. M/S. AVTEC LTD., NEW DELHI

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ITA 296/DEL/2014Status: DisposedITAT Delhi20 October 2016AY 2007-087 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the retrospective amendment to Section 10AA(7) was applicable to the assessment year in question, allowing the enhanced deduction. It also upheld the CIT(A)'s decision to allow depreciation on legal and professional charges as they formed part of the acquisition cost.

What were the facts?

The assessee revised its claim for deduction under Section 10AA of the Income Tax Act in a revised return, citing a Finance Minister's speech and a subsequent retrospective amendment. The assessee also claimed depreciation on legal and professional charges incurred for business acquisition.

What were the issues?

Applicability of a retrospective amendment to Section 10AA for deduction claims and eligibility of legal and professional charges for depreciation.

Which sections of the Income-tax Act were involved?

Section 10AA

AI-generated summary — verify with the full judgment below

Before: SHRI G. D. AGRAWAL & SMT SUCHITRA KAMBLE

For Respondent: Adv & Sh, Ms. Ananya Kapoor, Adv
Hearing: 17.08.2016

ORDER PER SUCHITRA KAMBLE, JM

This appeal is filed by the Revenue against the order dated 6/9/2013 passed by CIT(A)-V, New Delhi. 2. The grounds of appeal are as follows:-

“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in admitting and allowing the additional grounds of appeal in respect of disallowance of deduction of rs.5,75,82,474/-, u/s 10AA of the IT Act, as against claim of Rs.14,83,714/- made by the assessee and allowed by A.O.

2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the claim of depreciation of Rs.8,60,411/- on capitalization of legal & professional charges.”

3.

The assessee is having a manufacturing unit at Madras SEZ in respect of which the claim of deduction u/s 10AA of the Income Tax Act, 1961 was made by the assessee. The original return was filed on 29/10/2007 declaring income of Rs.34,47,74,641/- and the claim of deduction u/s 10AA of the Income Tax Act, 1961 was made at Rs.14,83,714/-. A revised return was filed on 31/3/2009 and the claim of deduction u/s 10AA of the Income Tax Act, 1961 was revised at Rs.5,90,65,188/-. This claim in the revised return was made on the basis of the speech of Hon’ble Finance Minister on 24/2/2009 while having discussion on the budget in Lok Sabha and replying to a query. On the basis the speech and since the company did not want to loose its claim of deduction u/s 10AA of the Income Tax Act, 1961 on entire profits of MSEZ, the revised return was field on 31/3/2009. The claim of deduction u/s 10AA of the Income Tax Act, 1961 was enhanced to Rs. 5.90 crores by way of filing of revised return from the claim of Rs.14,83,714/- of Section 10AA as claimed in the original return.

4.

The amendment in Section was brought w.e.f. 1/4/2010 in Section 10AA (7) by Finance (No.2) Act, 2009. As such, during the course of assessment proceedings the assessee had enhanced its claim of deduction u/s 10AA of the Income Tax Act, 1961 but since the amendment came w.e.f 1/4/2010 the revised return and revised claim of the assessee u/s 10AA of the Income Tax Act, 1961 was not allowed by the A.O. Before the amendment brought in by the Finance Act, 2009, the position of law was that the profit derived by the unit for which 10AA of the Income Tax Act, 1961 was being claimed was to be allowed in the same proportion that the export turnover had to the total turnover of the assessee. For e.g. if the profit earned by the export of articles or things is Rs.100, turnover of the export unit is Rs.500, total turnover of the assessee is Rs.2000, then the profits eligible for deduction u/s 10AA of the Act is Rs.100x 500/2000=Rs 25.

5.

By the virtue of the retrospective amendment, instead of Rs.2000 (total turnover) being taken for the computation of deductible export profits, Rs.500 (total turnover of the undertaking) is to be taken. This means that the eligible profits for deduction will be Rs.100 and not Rs.25. Now by the retrospective amendment to Section 10AA (7) by the Finance Act 2010 the benefit conferred on to the assessee from 1/4/2010 has been made applicable from 1/4/2006 and shall apply to Assessment Year 2007-08 also.

6.

The assessee had made payment of Rs.84,38,357/- as professional and legal charges in relation to taking over the business from Hindustan Motors Ltd incurred during Assessment Year 2006-07. As the expenditure was incurred for the purpose of acquiring a capital asset it was not claimed as revenue expenditure by the assessee. The said professional charges were disallowed by the Assessing Officer.

7.

The assessee filed appeal before the CIT(A). The CIT(A) in its finding held that if there is a retrospective amendment then authority with whom the matter is pending becomes legally duty bound to follow the amendment in letter and spirit. Thus, the CIT(A) allowed the additional ground and directed the Assessing Officer to grant the relief u/s 10AA of the Act.

8.

As relates to legal and professional charges, the CIT(A) held that incurring of legal and professional charges by the assessee were not in dispute. These charges were essential for effecting the takeover of business units of Hindustan Motors. Thus, it actually forms the part of actual cost of the acquisition of the assessee. Therefore, claim of depreciation was allowed by CIT(A).

9.

The Ld. DR submitted that the additional ground admitted by the CIT(A) is not right and he relied on the order of the Assessing Officer. He was not able to point out whether the retrospective amendment will not be applicable in assessee’s case. As relates to Ground No. 2, he said that the legal and professional charges cannot be claimed for depreciation. Therefore, he submitted that the CIT(A) order should be set aside.

10.

The Ld. AR relied on the order of the CIT(A) and submitted that the retrospective amendment is applicable in assessee’s case as the assessment year is on 2007-08 and the amendment is effective from 1.4.2006 which came into picture by Finance Act, 2010. As relates to the second ground, the Ld. AR relied upon the order of the CTIA(A)

11.

We have perused all the records and heard both the parties, As relates to Ground No. 1 retrospective amendment is very much applicable to the assessee. By the retrospective amendment to Section 10AA (7) through the Finance Act 2010, the benefit conferred on to the assessee from 1/4/2010 has been made applicable from 1/4/2006 and shall apply to Assessment Year 2007-08 also. As regards Ground No. 2, the Ld. AR relied on the ITAT order in assessee’s own case for Assessment Year 2006-07 for depreciation claim being order dated 31.05.2013. In light of this, the professional charges have to be allowed because the expenses incurred by the assessee was as per the agreement and it was not Hindustan Motors which was incurring the expenses. It actually forms the part of actual cost of the acquisition. Therefore, CIT(A) was right in allowing the appeal of the assessee.

12.

In result, appeal of the Revenue is dismissed.

The order is pronounced in the open court 20th of October, 2016.

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