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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
O R D E R PER PRASHANT MAHARISHI, A. M. This appeal is preferred by the revenue against the order dated 12th August 1. 2013 of learned Commissioner of Income-tax (Appeals)-V, New Delhi, the revenue has taken the four effective grounds of appeal
which are as under:-
1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the disallowance of Rs.56,70,336/- made u/s 40A(7) of the Act in spite of Auditor's "report in Form 3CD that gratuity payment was not allowable and also by admitting Page 2 of 10 additional evidences without allowing any opportunity to the Assessing Officer? 2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the disallowance of foreign exchange fluctuation loss of Rs.1,85,84,388/- by holding on the basis of additional evidences that the loss was on revenue account and without any opportunity to the Assessing Officer to examine the nature of loss? 3. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in allowing the deprecation of Rs.31,51,495/- on impaired asset? 4. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting on the basis of additional evidences the addition of Rs.33,73,796/- made by the A.O. on account of withdrawal of the exemption u/s 10A of the Act?”
2. The brief facts of the case is that the assessee is a private limited company engaged in the business of manufacturing and sale of automotive components like drive shafts, integrated harnesses, catalytic converters, heating, cooling and ventilating systems and suspension systems. It has also a software technology park unit set up under the STPI at Bangalore for development of embedded software systems for automotive components industries. For Assessment Year 2003-04 assessee filed its return of income on 02.12.2003 declaring income of Rs.4,28,50,760/- and setting off the brought forward loss resulting into Nil taxable income. In the return of income assessee claimed deduction u/s 10A of the Income tax Act of Rs. 33,73,796/- with respect to profits of the business of STPI Unit located at Bangalore. During the course of assessment proceeding certain disallowance were made to the total income of the assessee against which the assessee preferred an appeal and got relief in some before CIT (A) . Some of the disallowance were also confirmed by the ld CIT(A) against which Assessee has preferred cross objections. Now we first take up the appeal of the revenue. 3.
The first ground of appeal was against deletion of disallowance to Rs.56,70,336/- made u/s 40A(7) of the Act. The brief facts of the issue is that during the year the assessee has claimed deduction u/s 40A(7) of the act on account grat6uity payments . However in Form No.3CD auditors of the assessee company has admitted that payment of above amount for payment of gratuity is not allowable to the assessee. Therefore the AO disallowed this sum. On appeal before the ld CIT(A) the assessee submitted Assessee paid this sum to Delphi Automotive System Group Employees Page 3 of 10 Gratuity Fund Trust. that trust has been approved by the ld CIT(A) vide letter dated 08.01.1997 w.e.f. 21st March 1996. Therefore the ld CIT(A) allowed the claim of the assessee. The ld DR relied on the order of the lower authorities. 5.
6. The ld AR relied on the order of ld CIT(A) and submitted that such trust is approved trust and the payment has been made to that particular trust and the amount of disallowance has been rightly deleted. He further submitted that the ld CIT(A) admitted the additional evidence after affording opportunity for submitting remand report to the AO. He submitted that the details are available pertaining to this at Page 160 to 170 of Paper Book.
7. We have carefully considered the rival contentions. Assessee has paid an amount of Rs.56,70,336/- on various dates in the month of March, 2003 as construction to gratuity to approved trust, vide letter dated 08.01.1997 w.e.f 21st March 1996. There is no dispute that the payment is not made to the trust by the assessee. Merely mentioning of the amount of disallowance by the tax auditor in tax audit report cannot result into disallowance .Therefore ld CIT(A) has rightly deleted this disallowance after obtaining remand report of the assessing officer on this issue. In remand report ld AO has stated that it is not certain whether the contribution was made at the time of termination or retirement. We are of view that this observation of the AO in remand report is absolutely unwarranted as the details of the payment of gratuity is already available at Page 167 of the PB which is part of the tax audit report available before the AO. In the result we confirm the finding of the ld CIT(A) in deleting the disallowance of Rs. 56,70,336/- after affording proper opportunity to the AO. In the result the ground No.1 is dismissed.
8. Ground No.2 of the appeal is against the deletion of disallowance of foreign exchange fluctuation loss of Rs.1,85,84,388/-. The only grievance of the revenue is that this addition has been deleted on the basis of the additional evidence filed before the ld CIT(A) and without affording any opportunity to ld. AO to examine the nature of loss.
9. Before us the ld DR relied on the orders of the AO. Against this the ld AR submitted that the details of loss and the narration of such loss is already been given at Page 171 to 216 of the Paper Book. The ld CIT(A) has obtained Page 4 of 10 the remand report which placed at Page 1 and 2 of the PB. Therefore the grievance of the revenue is misplaced.
10. We have carefully considered the rival contentions and the fact of the matter is that the assessee has made a provision of loss on account of foreign exchange fluctuation amounting to Rs. 1,85,84,380/- arising on account of import and export of goods, services rendered and received, interest on ECB and other revenue transactions. These expenses are deductible u/s 37 and 28 itself. The detail of such expenditure is also at Page 171 of the PB which shows that it is revenue expenditure. For Assessment Year 2001-02 a similar amount of disallowance was made by the AO which has been deleted. For this year also the ld CIT(A) has deleted this disallowance after affording complete opportunity to the AO for verification and submitting remand report. However the AO simply relied on the assessment order of the previous years. In the previous years the ld CIT(A) has deleted the identical disallowance. In view of this fact it cannot be said that proper opportunity has not been given to the AO. Further foreign exchange loss that has arisen is on account of revenue expenditure and not on account of capital expenditure. Hence we do not find any infirmity in the order of the ld CIT(A) in deleting the disallowance of foreign exchange fluctuation loss of Rs. 1,85,84,388/-. In the result the ground No.2 of the appeal is dismissed.
11. Ground No.3 of the appeal is against deletion of disallowance of deprecation of Rs. 31,51,495/- on impaired assets.
12. The brief facts of the ground is that the assessee has claimed depreciation on the fixed assets amounting to Rs.1,26,05,979/- that were being used to manufacture component for a customer who had since discontinued its business operation. During the course of assessment proceedings AO asked the assessee to justify the claim of depreciation on these assets as they were not used during the year. The assessee submitted that depreciation is allowable according block of assets concept. Based on that the ld AO rejected the contention of the assessee and disallowed depreciation of assets of Rs.1,26,05,979/- @25% amounting to Rs.3151495/-. Against which on appeal before ld CIT(A) this disallowance was deleted holding that it is not a case of the AO that the asset had not been used by the appellant. It was also one of the reasons that according to the ld CIT(A) the assets were ready Page 5 of 10 to use and for production of relevant automotive commodities the assets have been used by the assessee for the purpose of the business.
On appeal before us the ld DR submitted that as assets are not used for the purpose of business no depreciation can be allowed.
The ld AR submitted that assets were ready to use and as the assets has been impaired it cannot be said that the depreciation is not allowable in view of the concept of block of assets. He relied on the order of CIT (A).
We have carefully considered the rival contentions. The main reason for such disallowance has arisen because note No. f of the auditor in audit report which is as under:- “i) Fixed assets include net value of assets aggregating to Rs.12,605,979 that were being used to manufacture components for a customer who have since discontinued their business operations. In our opinion, such assets are impaired as production of components for the current year as compared to- the prior year were relatively insignificant and there is no evidence of alternate use of such assets. The management of the company has projected that such assets would be used for manufacture of components for another of their customer such projections being contingent on plans of the customer to manufacture small cars in India though such plans have not materialized on the date of our report.”
On reading of the above note it is apparent that certain plants and machinery which was used by the assessee for manufacturing components for a particular customer and that business of that particular customer have been since discontinued. Therefore according to the auditor’s report such assets are required to be impaired as there is no evidence of alternate use of such assets. The auditors comment also incorporated the replies of the assessee wherein it is stated that such assets would be used for manufacturing the components for another customers. From the reading of the report it is amply clear that assets have been used by the assessee as auditors have stated that in their opinion such assets are impaired as production of components for the current year as compared to earlier year were relatively insignificant. This statement itself proves that there is production during the year of the component which was manufactured by the assessee may be on insignificant nature from these fixed assets. In view of this it is apparent that assets have been used by the assessee. Further assessee has not at all impaired the assets but they should have been impaired by assessee and that is the opinion of the auditor. Furthermore the concept of “ready to use” applied by the ld CIT(A) is also relevant in view Page 6 of 10 of the explanation of the assessee incorporated by the auditor as in the subsequent years these assets shall be used to manufacture the component of another customer. In view of this we do not find any infirmity in the order of the ld CIT(A) and claimed by the assessee of deprecation on assets which are according to opinion of the auditors is impaired. Further the assessee is neither pass an entry in the books of account of such impaired assets and nor have stated that these assets are not used. In the result ground No.3 is dismissed.
Ground NO.4 of the appeal is against the deletion of withdrawal of exemption u/s 10A of the Act amounting to Rs.3373796/- .
The brief facts of this ground is that the appellant has claimed deduction u/s 10A of the Income Tax Act of Rs.3373796/- pertaining to technology centre registered as STP Units vide approval dated 29th March 2000. This unit is engaged in the business of development of computer software system for automobile components industry. The claim of deduction was certified in accordance with provision of income tax rules by auditors in Form No.56F which was submitted. Ld. AO disallowed the claim of exemption for the reason that the assessee has not been able to produce evidence to show that STP units have been approved by the Inter Ministerial Standing Committee. On appeal before the ld CIT(A) the claim of the deduction was allowed based on CBDT Instruction No.1 dated 31st March 2006, wherein it has been provided that the approval or registration if granted by the Software Technology Park should be considered as valid approval and deduction u/s 10A shall not be disallowed to the various assessees. Therefore against this the revenue is in appeal before us.
The ld DR relied on the orders of the lower authorities. Ld AR submitted that the assessee has been granted an approval by STPI vide letter dated 29th March 2000 and further a green card is also provided to the undertaking on 14th June 2000. He further submitted that issue is squarely covered in favour of the assessee in view of the instruction No.1 dated 31.03.2006.
We have carefully considered the rival contentions. The ld CIT(A) has allowed of the claim of the assessee considering the instruction No.1 dated 31.03.2006 issued by the CBDT., Further the units has also granted a green card according to exim policy. Para No 6 of the instruction dated 31st March Page 7 of 10 2006 issued by CBDT squarely covers the issue in favour of the assesse . According to that it has been stated that even if Inter Ministerial Standing Committee approval is not received but it is received from Director of STPI deduction u/s 10A should not be disturbed. In view of the above we do not find any infirmity in the order of ld CIT(A) in allowing u/s 10A of the Act. In the result ground No.4 of the appeal of the revenue is dismissed. In the result appeal of revenue is dismissed. 21.
Now We come to the Cross Objection filed by the assessee in C.O. No.63/Del/2014 raising a solitary ground regarding confirmation of disallowance of deduction of Rs.800090/- being fees paid to the Registrar of Company for enhancement of share capital u/s 35D of the Act. The AO has disallowed this claim as in earlier year such claim has been disallowed and confirmed by ld CIT(A).
Aggrieved by this the assessee preferred an appeal before the ld CIT(A) who dismissed the claim of the assessee holding that the expenditure was made the expansion of the capital base of the company which is clearly in the nature of capital expenditure and identical disallowances has been confirmed for Assessment Year 2001-02.
The ld DR relied on the orders of lower authorities. Ld DAR reiterated the same reason which was made before lower authorities.
We have carefully considered the rival contention. Before us ld AR could not submit any cogent reason that if in past a view has been taken how it is wrong. In view of this we do not find any infirmity in the order of the ld CIT(A) in confirming the disallowance of Rs.800090/- being ROC fees for increase in share capital disallowable u/s 35D of the Act. In the result the cross objection filed by the assessee is dismissed. 26.
In the result appeal filed by the revenue and cross objection filed by the assessee for AY 2003- CO no 63/Del/2016 are dismissed. Assessment Year 2004-05 This appeal has been preferred by revenue raising six grounds of appeal:-
28.
1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the disallowance of foreign exchange fluctuation loss of Rs 29,85,825/- by holding on the basis of additional evidences that the loss was on revenue account and without any opportunity to the Assessing Officer to examine the nature of loss?
Page 8 of 10 2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in allowing the depreciation of Rs.17,48,616/- on impaired asset"? 3. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting on the basis of additional evidences the addition of Rs.1,51,77,476/-made by the A.O. on account of disallowance of advance written off? 4. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting on the basis of additional evidences the addition of Rs.3,96,27,876/- made by the A.O. on account of withdrawal of the exemption u/s 10A of the Act? 5. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the disallowance of Rs.75,60.294/- made u/s 4QA(7) of the Act in spite of Auditor's report in Form 3CD that gratuity payment was not allowable?””
The first ground of appeal
is against deletion of disallowance by ld CIT(A) on foreign exchange fluctuation loss of Rs.29,85,825/-.Both the parties agreed before us that the facts and circumstances are exactly identical to Ground No.2 of the appeal of the revenue for Assessment Year 2003-04 in the case of the assessee in . We have also perused the relevant grounds and are convinced that the facts and circumstances of this ground are same. Hence following our decision in that appeal while disposing ground No.2 where we confirmed the order of the ld CIT(A) in deleting the disallowance of foreign exchange fluctuation loss after granting proper opportunity to the Ld AO and after perusing remand report of the AO. Similarly we also confirm the finding of the ld CIT(A) in deleting the disallowance on foreign exchange fluctuation loss of Rs.29,85,825/- in this appeal. In the result ground No.1 of the appeal is dismissed.
30. Ground No.2 of the appeal is against the deletion of disallowance of depreciation of impaired assets of Rs.17,48,616/-. The parties submitted before us that this identical to ground No.3 of the appeal of the assessee for Assessment Year 2003-04. While disposing of ground No.3 of that appeal of the assessee for Assessment Year 2003-04 we have confirmed the finding of the ld CIT(A) regarding deletion of disallowance of depreciation on assets based on the report of the auditor. Similarly on similar facts and circumstances of the case we also confirm the finding of the ld CIT(A) for deletion of depreciation of disallowance of Rs.17,48,616/-. In the result ground no 2 of the appeal is dismissed.
31. Ground NO.3 is against the deletion on the basis of additional evidence addition of Rs.1,51,77,476/- on account of disallowance of advance written Page 9 of 10 off. Brief facts of the case is that during the year the assessee has claimed advance written off of Rs.2,63,92,438/- however before the AO details of only Rs.1,12,14,962/- were filed. On query for the balance information the assessee sought time before the AO but no details were furnished and therefore the ld AO made an addition of Rs.1,51,77,476/-. On appeal the ld CIT(A) deleted this addition of Rs.1,22,38,480/- stating that these amounts have been written off which are due from customers for goods and services and they are bad debts. Regarding the balance disallowance of Rs.29,38,996/- the ld CIT(A) stated that these amounts are in the nature of duty draw back etc not recoverable etc should be allowable as they are no longer recoverable. Against the order of CIT (A) revenue is in appeal before us .
32. We have carefully considered the details submitted at Page 254 of the PB of the assessee. Based on this we could find that the amount of advance given to Maruti Udyog Ltd. of Rs.5226437/- and also overdue receivable from Delfi USA of Rs.5623770/- were written off. Further the details furnished did not show that whether these are debts arising out of sales and services and conditions of section 36(2) have been fulfilled by the assessee applicable bad debts written off by the assessee. Further some advances were also written off for which complete details were not available with the assessing officer and from the order of cit (A) the addition has been deleted without complete examination of the items. Therefore in the interest of justice we set aside this issue to the file of AO to verify the claim of such write off of whether it is bad debts written of or it is advances written off. In case of bad debts written off whether the requisite conditions have been satisfied or not and in case of advance written off whether they are trade advance or advance against capital goods and how are they allowable to the assessee. Needless to say that proper opportunity of hearing may be granted to the assessee in this regard. In the result Ground No.3 of the appeal is partly allowed.
33. Ground No.4 of the appeal is against denial of deduction u/s 10A of the act of Rs.3,96,27,876/-. Both the parties agreed that this ground is identical to the ground No.4 of the appeal of the assessee for Assessment Year 2003-04. We have also perused the same and therefore following our decision in that appeal in ground No.4 we confirm the decision of ld CIT(A) in allowing the