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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI, MANISH BORAD
आदेश / O R D E R
PER MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal by the assessee against the order of the Commissioner of Income Tax(Appeals)-I, Baroda, dated 22.08.2014 for the Assessment Year (AY) 2006-07, on the following Grounds: i. The CIT(A) has erred both in Law and in fact in upholding the Reopening of Assessment made by the Assessing Officer u/s.148/147 of the Income-tax Act. It is submitted that on facts of the case and provisions of Law Reopening is bad in Law and Void.
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 2 - Without prejudice it is submitted that the CIT(A) has wrongly held that your Appellant had not taken ground of Reopening of Assessment which is objected by your Appellant. ii. Your Appellant further submits that CIT(A) has erred in upholding the Reopening of Assessment u/s.148 which cannot be made for making disallowance u/s.14A of the Act and that on facts of the case Sec.l4A does not apply and no disallowance is called for Administrative Charges on Adhoc Basis. iii. Your Appellant also submits that the CIT(A) has erred in upholding Reopening of Assessment u/s.148 which cannot be done for deducting/reducing relief u/s.10B of the Act which was already correctly allowed in Assessment u/s.143(3) of the Act. iv. Your Appellant also submits that the CIT(A) has also erred in confirming addition of the Rs.18,017/- u/s.40(IB) of the Act on account of Security Transaction Act on sale of Mutual Funds. On facts of the case it is an allowable expenditure and particularly because the said disallowance was not proposed as per Reasons Recorded for Reopening the disallowance be deleted. v. The Assessing Officer has erred both in Law and in fact in charging Interest u/s.234A/234D of the Act without passing a specific and Speaking Order. On Facts of the case and as per provisions of Law interest of Rs.1,93,449/- u/s.234B and Rs.4,816/- u/s.234D are not chargeable and therefore the same be deleted. 2. The relevant facts as culled out from the materials on record are as under:- The assessee is engaged in the business of manufacturing of precision components and precision assemblies as per customers drawing and requirements. There are two divisions of the company Engineering
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 3 - Division & EOU Division. The turnover and GP ratio for the last 3 years were as under: Engineering Division
AY Turnover Rs. Gross profit Rs. Ratio
2006-07 4,21,091 1,22,388 29.06
2005-06 11,78,746 (-)1,03,215 (-)8.76
2004-05 17,26,980 4,62,179 26.76
EOU Division AY Turnover Rs. Gross profit Rs. Ratio
2006-07 4,11,95,076 1,69,68,333 41.23
2005-06 5,14,80,910 2,09,73,149 40.74
2004-05 2,39,36,163 1,15,60,971 48.30
The assessee has shown net profit of Rs.55,57,371/- from EOU Division. After making adjustments on account of depreciation etc., the assessee has shown gross total income of Rs.64,21,226/- of the above EOU Division. The assessee has claimed deduction @100% on the above gross total income u/s.10B of the Income-tax Act as per Form No.56G furnished by the Chartered Accountant. During the course of assessment proceedings, it is observed that the assessee has included other income amounting to Rs.l3,70,298/- in the export turnover. The assessee was asked as per order sheet dated 15.09.2008, to justify the assessee's claim
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 4 - of deduction u/s.10B of the Income-tax Act @100% of income of EOU including other income as discussed above. The assessee vide letter dated 07.11.2008 has furnished its explanation the contents was reproduced as under: “You have stated that the other income should be excluded from the income of profit and gains to derive at profit of EOU. In this connection, we would like to clarify that the E.O.U. has other income of Rs.137,09,28/- out of which Dividend is Rs.5,59,169/- C.S.T. refund is Rs.21,72.02/- excess provision written back Rs.153/- and Rs.5,93,774/- is for scrap sates. Sir, in this connection it may be noted that the profit of business of E.O.U. division is derived at after deduction of Dividend of Rs.5,59,169/- from the computation of income from business. As regards C.S.T. Refund and excess provisions written back the same is relating to expense Debited in P & L A/c. and since the same is not reduced from purchase or from expense, the same is shown separately. Hence it is part of business income of EOU. Lastly as regards Scrap Sales of Rs.5,93,774/-, it is also a sale of EOU but local Sales which is made out of compulsion. Hence the profit of E.O.U. also includes profit on scrap sales which is to be proportionately separated from the E.O.U. profits. We enclose herewith revised Form 56G dated 26.10.2006, in which the revised deduction under Section 10B is Rs.6327337/- against the original deduction claimed of Rs.6421226/-. This is derived as per formula given in section 108(4)." From the assessee’s submission it is clear that the assessee has claimed deduction u/s.10B amounting to Rs.64,21,226/- instead of the allowable deduction of Rs.63,27,337/-. In view of the above, the deduction u/s.10B of the IT Act is restricted to Rs.63,27,337/- and total income was determined of Rs.2,55,861/-.
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 5 - 3. Against the said order assessee preferred first statutory appeal before the ld.CIT(A) who partly allowed the appeal of the assessee.
Now appeal is before us.
We have gone through the relevant record and impugned order. So far Ground No.1 and 2 are concerned. Ld. AR stated that rule 14A does not apply in the case of the assessee and at that point of time rule 14A was not in force. Therefore, this legal Ground is not maintainable on merit. Ld. AR drew our attention towards the Paper Book. In paper book at Page No.77, his capital, reserves and surplus, sundry creditors & Provisions (without interest) are of Rs.4,06,88,821/-, whereas, he has made investment of Rs.30,50,679/-. Meaning thereby, assessee has sufficient own surplus fund. Therefore, no deduction could be made.
While verifying the books of accounts, the assessee explained and evidences in detail the particulars of interest expenses amounting to Rs.7,34,691/- wherein all details of interest paid for various loans and working capital was explained.
On verification of complete details, the ld. AO also had come to a conclusion that the bank charges are incurred for availing various banking services for the banking works. Interest was an income for the purpose of business, the same cannot be denied. Therefore, no
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 6 - disallowance can be made. In the result, disallowance were made by the AO and confirmed by the Ld. CIT(A) to be deleted.
So far Ground No.3 regarding legality of deduction u/s.10B. The appellant had furnished with evidences including Certificate of Chartered Accountant in Form No.56G with necessary calculation of deduction u/s.10B. Ld. AR stated that appellant is 100% EOU unit and Section 10B is applicable from year to year and on the same method and basis the Appellant had made claim which were duly considered by the Assessing officer in Scrutiny Proceedings and after application of mind and record he had properly worked out and allowed the claim and further stated the deduction u/s.10B in original assessment order was granted Rs.63,27,337/-, which was after matured application of mind but under the assessment proceedings, the Assessing Officer reduced deduction u/s.10B at Rs.53,99,550/- in place of 66,27,337/- and thereby increasing income of Rs.9,27,784/-. We have gone through the relevant record and seen the calculation. In our considered opinion, assessee is entitled for deduction u/s.10B of Rs.63,27,337/-.
So far as Ground No.4 regarding confirming addition of Rs.18,017/- u/s.40(IB) of the Act on account of Security Transaction Act on sale of Mutual Funds is concerned. Ld. AR stated that disallowance made in the assessment order under appeal was not appearing any reasons recorded for reopening of assessment and therefore, submitted the addition without recording the reason of reopening is bad in law. AR further submits that security transaction Act of Rs.18,017/- has been
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 7 - incurred during the process of transaction on sale of Mutual funds and further stated that without this payment transfer of Mutual funds cannot be effected.
We have gone through the relevant record and find that this ground is allowed in favour of the assessee because without the Security Transaction Act on sale of Mutual Funds could not take place. Therefore, we delete the addition of Rs.18,017/-.
So far Ground No.5 related to charging Interest is concerned. Same are consequential and need not be adjudicated.
In the result, appeal filed by the assessee is allowed. This Order pronounced in Open Court on 22/11/2017
Sd/- Sd/- Ekuh’k cksjM Ekuh’k cksjM Ekuh’k cksjM Ekuh’k cksjM egkohj izlkn egkohj izlkn egkohj izlkn egkohj izlkn ¼ys[kk lnL;½ ¼U;kf;d lnL;½ ¼ys[kk lnL;½ ¼U;kf;d lnL;½ ¼ys[kk lnL;½ ¼U;kf;d lnL;½ ¼ys[kk lnL;½ ¼U;kf;d lnL;½ (MAHAVIR PRASAD) ( MANISH BORAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 22/11/2017 Priti Yadav, Sr.PS
ITA No.2752/Ahd/2014 Capiq Engineering Pvt Ltd. vs. ITO Asst.Year –2006-07 - 8 -
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-I, Baroda. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad True Copy 1. Date of dictation 03/11/2017 (dictation-pad 6 pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 20/11/2017. 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………