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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI N.K. SAINI & SHRI A.T. VARKEY
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’: NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.4571/Del./2009 (ASSESSMENT YEAR : 2006-07) M/s. SGS Tekniks Pvt. Ltd., vs. ACIT, Circle 8 (1), F – 225A, Sainik Farms, New Delhi. New Delhi – 110 062.
(PAN : AAACS2999D)
ITA No.97/Del./2010 (ASSESSMENT YEAR : 2006-07) ACIT, Circle 8 (1), vs. M/s. SGS Tekniks Pvt. Ltd., New Delhi. F – 225A, Sainik Farms, New Delhi – 110 062.
(PAN : AAACS2999D) (APPELLANT) (RESPONDENT) ASSESSEE BY : Prof. S. Sampath REVENUE BY : Shri Sujit Kumar, Senior DR
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
These cross appeals filed by the revenue and the assessee are directed against the order of the Commissioner of Income-tax (Appeals)-XI, New Delhi dated 19.10.2009 for the assessment year 2006-07.
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The grounds of appeal taken by the assessee read as under :-
“1. The ITO and the CIT (Appeals) have erred in not allowing deduction u/s 80IC as claimed by the appellant.
It is contended that calculation of deduction u/s 80IC is wrong and require revision.
It is contended that the CIT(Appeal) had erred in not accepting the additional evidence provided by the Appellant and the CIT(Appeals) had confused himself between the additional evidence and the additional grounds of appeal.
It is contended that the Appellant had never raised any additional ground before the CIT(Appeal). It had only filed the documents in accordance with Rule 46A for accepting the additional evidence.
It is contended that the CIT(Appeal) had accepted the additional evidence and then only forwarded the same to the assessing officer or his comments. Accordingly the CIT(Appeal) had erred in holding that such additional ground is not to be entertained and erred in rejecting such additional evidence.
It is contended that for technical breach of not filing Form No.10CCB before the AO, could not lead to disallowance of the claim of deduction u/s. 80IC. Further contended that the AO had never called for the Form No.10CCB from the Appellant.
It is contended that the Appellant had fulfilled the conditions of 80IC which also has not been disputed by the lower authorities but for non-filing of Form NO.10CCB such deduction claimed by the Appellant was disallowed.
The assessing officer had erred in disallowing interest of Rs.16,57,972/ - as claimed by the Appellant.
It is contended that the assessing officer and the CIT(Appeal) have wrong established the alleged nexus between the loan taken and the interest free advance given. It is contended
3 ITA No.4571/Del/2009 ITA No.97/Del/2010
that there is no nexus between the two and accordingly disallowance of interest / restricting the disallowance is wrong and bad in law.
It is contended that the entire interest of Rs.16,57,972/ - is fully an allowable deduction and incurred wholly and exclusively for business purpose, which has been allowed in the past and no Second Appeal was preferred by the Department against such relief on this issue granted by the CIT(Appeals) in earlier years.
The disallowance of depreciation of Rs.2,47,703/- on the additions to the factory building of Rs.24,77,037/- is wrong and bad in law.
It is contended that the disallowance of Rs.2,48,334/ - on account of subscription and membership fee is wrong and bad in law.
Deduction u/s. 80G of Rs.25,500/- is wrong and bad in law.
The computation of income is wrong and bad in law.
The provisions of Section 234B has no application. Accordingly charge of interest under this provision is wrong and bad in law.
It is contended that provisions of Section 234B is not to be charged in case of computation of final income u/s. 115JB.
Without prejudice it is contended that the working u/s. 234B would require revision.
The above grounds are independent and without prejudice to one another.
The appellant prays that he may be permitted to add, to alter or to forego any grounds at the time of the hearing.”
The Revenue has taken the following grounds of appeal :-
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“1. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.23,22,307/- made by the AO by disallowing deduction claimed by the assessee u/s 80I of the IT Act.
Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in allowing deduction claimed by the assessee u/s 80I of the IT Act without considering the fact that the deduction u/s 80I is not allowable on the duty draw back and job work amounting to Rs.75,78,346/- as mentioned at page 4 of the assessment order.
Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in allowing deduction claimed by the assessee u/s 80I of the IT Act without considering the fact that the assessee has made excessive claim because of transfer of profits as mentioned at page 2 of the assessment order.
Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs.5,00,000/- made by the AO out of travelling expenses.
The appellant craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal."
The assessee company is engaged in the business of manufacturing and
sale of electronic component mainly in switches, relays and other assemblies.
The assessee company had two units one at Baddi (Himachal Pradesh) and other
at Gurgaon (Haryana). The Baddi Unit was situated in special economic zone
and the profit of which were claimed as deduction u/s 80IC of the Income Tax
Act, 1961 (hereinafter ‘the Act’) @ 100% while the profits derived from
Gurgaon unit were claimed to be qualifying of deduction u/s 80I. The return of
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income was filed on 23.11.2006 electronically declaring an income of
Rs.53,93,220/-. The case was processed u/s 143(1) of the Act on 19.01.2008.
The assessee’s case was selected for scrutiny and notices u/s 143(2) and 142(1)
were issued. In response to these notices, the assessee filed the requisite details/
information. The assessment was completed u/s 143(3) of the Act at a total
taxable income at Rs.4,49,35,360/- by making certain additions/disallowances.
Aggrieved, the assessee preferred an appeal to the first appellate authority
and the ld. CIT (A) partly allowed the appeal of the assessee.
The assessee as well as the revenue, being aggrieved, are in appeal before
us against the order of the ld. CIT (A).
Grounds No.1 to 7 of the assessee’s appeal are against not allowing the
deduction u/s 80IC claimed by the assessee. Whereas Ground No.1 of the
Revenue’s appeal is against the deletion of addition of Rs.23,22,307/- made by
the AO by disallowing deduction claimed by the assessee u/s 80I of the Act.
Brief facts with regard to deduction u/s 80IC are that the AO, on perusal
of the separate financial results furnished by the assessee in respect of its Baddi
and Gurgaon units, made the following observations :-
Description Baddi Units Gurgaon Units Total income 6,27,11,396/- 25,67,84,790/- Profit 1,36,70,560/- 3,42,43,249/- % of profit 21.80% 13.33%
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The AO noticed from the above table that the NP rate in respect of Baddi units
was 21.80% as compared to 13.33% in respect of Gurgaon units. The AO asked
the assessee to explain the reasons behind this difference in NP percentage. The
AO observed that the assessee had not given any satisfactory answer. He
observed that the only reason behind this difference in NP rate appeared that the
profits of the Baddi units were entitled for deduction u/s 80IC @ 100% while
the profits from its Gurgaon units qualified for deduction u/s 80I @ 30%. He,
therefore, observed that the assessee had shifted certain expenses of Baddi units
to Gurgaon units to get higher NP rate for Baddi units on which the assessee had
to incur zero tax liability. The AO was of the opinion that profits of Gurgaon
units were shifted to Baddi units to that extent. The AO, therefore, observed
that the profits and resultant deduction u/s 80I and 80IC were, therefore,
required to be recalculated considering the overall financial results of both the
units of the company :-
Total turnover 31,94,95,885/- Total Profit (as per Computation of income) 2,06,15,948/- % of profits 6.45% (approx.) Profits of Baddi units 40,46,546/- Profits of Gurgaon units 1,65,69,402/-
Deduction allowable u/s 80I In respect of Gurgaon Units i.e. 30% of Rs.1,65,69,402/- 49,70,820/-
7 ITA No.4571/Del/2009 ITA No.97/Del/2010
Deduction allowable u/s 80IC In respect of Baddi Units i.e. 100% of Rs.40,46,546/- 40,46,546/- 90,17,366/-
Deduction claim by the assessee u/s 80I 23,22,307/- u/s 80IC 1,28,74,923/- 1,51,97,230/- Difference 61,79,864/-
The AO, therefore, was of the opinion that the assessee had claimed deduction
in excess by an amount of Rs.61,79,864/- which was only because of transfer of
profits from Gurgaon units to Baddi units.
7.1 Further, according to AO, as per provisions of section 80IA (7) of the
Act, which also apply to section 80IC, the assessee was required to file a report
of audit in Form no.10CCB. But the assessee had not filed the said report.
Accordingly, the AO held that the assessee had failed to comply with the
provision of sub-section 7 of section 80I and consequently the provision of
section 80IC and made the deduction u/s 80IC of the Act. The ld. CIT (A)
sustained the addition by observing as under :-
“3.3 I have carefully gone through the submission of the appellant. It is a fact that at the assessment stage no such document was ever filed before the AO. The document was asked for and inspite of that the same was not filed. The provision of the Act, makes it mandatory for filing of such document at the assessment stage as and when asked for and the appellant has failed to discharge its onus. It has already been stated that there is no reason to adduce the additional evidence and hence non filing of such details which is a mandatory requirement as per the provision of the law would make the claim liable to be rejected. Even after
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judging the issue on merit - I find that the appellant has failed to discharge its onus. I agree with the observations made by the AO and disallowance of claim of Rs.1,28,74,923/- u/s 80IC is hereby sustained.”
7.2 As regards 80I deduction, the AO observed that the assessee had not filed
Form No.10CCB at the time of assessment proceedings. After going through
the provisions of Section 80I (7), the AO was of the view that the assessee had
to file Form No.10CCB but the same was not filed before him and furthermore,
he observed that there was no evidence of commencement of production and
accordingly, deduction u/s 80I was not allowed. However, in appeal, the ld.
CIT (A) allowed the deduction u/s 80I after going through the submissions of
the assessee. For the sake of clarity, the relevant para of the ld. CIT (A)’s order
is reproduced as under :-
“Prof. S. Sampat, FCA & AR of the appellant appeared and has made submission from time to time. He stated that the appellant has two units one each at Gurgaon (Haryana) and in Baddi (HP). The Gurgaon unit was getting deduction under 80I for the last 9 years and the present AY being the last AY for such claim. In all the previous 9 years, the claim of the appellant was allowed by the Revenue. Section 80I(7) clearly states that the mandatory provision is applicable for a person other than a company or cooperative society and assessee being a company, according to the Ld AR, is not covered by the provisions of this section. In none of the years such certificate was filed, as it was never called for [although the assessments were completed u/s 143(3)]. The amount of disallowance u/s 80I was Rs.23,22,307/ -. However in other provisions of the law under Chapter VIA i.e. 80IA, 80IB or 80IC, there is a requirement of furnishing of certificate in Form 10CCB and it is quite possible that the AO might have carried away by such provisions of the law although for 80I, this is no such requirement for a Company. Section 80I allows deduction @ 30% of profits and gains
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computed under the Act whereas in section 80IC etc. the admissible amount is 100% thereof. Furthermore section 80I was introduced by Finance Act, 1980 w.e.f. 01.04.1981 whereas 80IC was brought into the statute by Finance Act, 2003 w.e.f. 01.04.2004 i.e. it is a much later development. In this case the matter was remanded to the Ld AO, he has given his comments vide his report No.1296 dated 01.10.2009 wherein he has discussed the matter only on technical issue and not on merit. I am now constrained to examine the matter on merit and I am of the opinion that there is no such requirement in law for form No.10CCB in respect of section 80I in case of the appellant company. Hence the action of the AO is not sustained and the appellant is entitled for the claim of 80I to the extent of Rs.23,22,307/-.”
Ld. AR reiterated the submissions made before the ld. CIT (A) and
submitted that the AO had not allowed the deduction u/s 80IC mainly due to
non filing of Form No.10CCB before him. He agreed that Form No.10CCB
was not filed before the AO but the same was filed before the ld. CIT (A) who
has not accepted the same being the additional evidence. He submitted that the
ld. CIT (A) was not right in rejecting the additional evidences. He further
submitted that this was the first year of claim of 80IC deduction for the Baddi
Unit. The ld. AR submitted the reasons for non-production of Form 10CCB
was because that the assessee was of the impression that Form 10CCB was not
required to be filed since audited accounts of the company were produced
before the AO, so the counsel for the assessee thought it in good faith that was
not necessary. He submitted that from the ld. CIT (A)’s order, it is clear that the
aforesaid Form was in fact filed under Rule 46A as additional evidence. He
submitted that the appeal is a continuation of assessment and for that
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proposition, relied on the decision of 274 ITR 552 (Mad.). As regards 80I
deduction, the ld. AR relied on the order of the ld. CIT (A) and submissions
made before him. He pleaded that the issue regarding 80IC deduction may be
sent back to the AO for de novo adjudication after admitting the Form
No.10CCB and the order of the ld. CIT (A) be upheld as regards 80I deduction.
On the other hand, ld. DR relied on the orders of the authorities below
and submitted that the assessee has two units i.e. Gurgaon Unit which claimed
deduction u/s 80I in the tenth year and the Baddi Unit which claimed the
deduction u/s 80IC for the first year. He submitted that the profit of Gurgaon
Unit are very less when compared to Baddi Unit. He further submitted that the
AO asked the assessee to produce Form No.10CCB but the assessee refused to
submit the same. He submitted that there was no reason given by the assessee
which prevented the assessee to file the same, and this shows the malafile
intention of the assessee. He submitted that before the CIT (A), certificate for
both the units were filed and the CIT (A) accepted the certificate of Gurgaon unit because it was the 10th year and previous 9 years, it was allowed by the
department, but in respect of Baddi unit the claim of 80IC was not accepted
being the first year of claim. He submitted that accountancy is a pure jugglery
and wondered as to how can a new unit make such a huge profit in the first year
and compared the low profit of 10 year unit at Gurgaon. He submitted that
11 ITA No.4571/Del/2009 ITA No.97/Del/2010
there is clear case of transfer of profit from one unit to another. The ld. DR
does not want us to interfere in the order of the authorities below as regards
80IC deduction and pleaded to remit the matter back to the file of the ld. CIT
(A) on the issue of deduction claimed under section 80I.
We have heard both the sides and perused the material on record. Before
discussing the aforesaid issues, we need to first see whether to admit the
additional evidence filed in the Form of 10CCB. We find that the assessee has
two units i.e. Gurgaon and Baddi. Admittedly, the Gurgaon unit claimed deduction u/s 80I for the 10th year in this assessment year and previously the
Department has accepted the claim of the assessee and has been granting 80I deduction for the said unit. However, for the 10th year, the AO did not grant the
80I deduction because of non-production of Form 10CCB and on the ground
that Gurgaon unit is showing low turnover compared to that of Baddi which is
claiming 100% deduction u/s 80IC. The ld. CIT (A) was of the opinion that
Form 10CCB is not required for 80I unit and so, he allowed the claim of the
assessee. Whereas the claim u/s 80IC for the Baddi unit was not fully granted
by the AO because as per him there is a shifting of profit and non production of
Form 10CCB which, according to the AO, is mandatory requirement under law
to claim the deduction. Ld. CIT (A) also was of the same opinion though the
assessee tried to produce the Form 10CCB along with application for additional
12 ITA No.4571/Del/2009 ITA No.97/Del/2010
evidence under Rule 46A of the Income Tax Rules. We find that the ld. CIT
(A) has not admitted the additional evidence and has without deliberating on the
merits of the matter has simply stated a line “that for non production of 10CCB
and on merits also, he is disallowing the claim of the Baddi unit u/s 80IC.” It
is a trite law that the onus is on the person claiming expenditure/exemption /
deduction under the Act. Since it is the first year of claim of 80IC deduction of
the Baddi unit, the burden is on the assessee to qualify the eligibility criteria to
claim 80IC deduction. Once the assessee has discharged its burden then the
onus shifts to the AO to prove why the claim shall not be granted fully or partly
to the assessee. We find that the counsel for the assessee was of the bonafide
belief that along with the claim of 80IC and 80I deduction, the Form 10CCB
was not required since the accounts of the assessee are audited as per the statute.
The assessee cannot be penalized for the bonafide mistake of the counsel, so in
the interest of justice, we admit Form 10CCB and we set aside the order of the
authorities below and remand the matter back to the file of the AO to adjudicate
the claim of the assessee for 80IC for Baddi unit and 80I for Gurgaon unit and
direct him to admit Form 10CCB and de novo adjudicate both the claims. We
order accordingly.
Grounds No.8 to 10 of the assessee’s appeal are against the disallowance
of interest of Rs.16,57,972/- as claimed by the assessee.
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The AO observed that in the Gurgaon Unit, the assessee had shown an
increase in the capital work in progress from Rs.60,616/- in the last year to
Rs.1,86,86,902/- during the year. The AO observed that any amount of interest
relatable to this capital work had to be disallowed and capitalized. Further, the
AO observed that the assessee had made loans and advances amounting to
Rs.2.42 crores and there was no evidence on record to show that any interest
had been charged on the loans and advances given. The AO also observed that
as against these elements of capital work in progress and interest free
loans/advances given, the assessee had claimed interest payment of
Rs.16,57,972/- to the banks against secured loans taken. Therefore, the AO held
that interest paid @ 15% disallowed on the amount of secured loans of Rs.2.42
crores is not allowable and, therefore, restricted the disallowance to
Rs.16,57,972/- being the amount of interest actually claimed. The ld. CIT (A)
sustained the addition by observing as under :-
“5.4. After carefully examining the rival issues, I could find that the appellant has failed to justify for advancing fund towards interest free loan to others. The claim of the Ld AR is that the appellant is the best judge for utilization of it owns fund and such judgement of the appellant neither cannot be dictated nor substituted neither suggested by the revenue. It is not denied that the appellant is the best judge as to where to invest its own fund and that to be for what point of time. It is also admitted that the appellant is to decide as to whether such investment would be made Scheme A or Scheme B. In a similar manner, it is the best judge to decide whether it will be dealing with the manufacture/trading of product X or product Y. Upto this point, there is no dispute however if the appellant is the best judge for its mode of
14 ITA No.4571/Del/2009 ITA No.97/Del/2010
investment, the revenue is the best judge to scrutinize whether there is any intentional avoidance on part of the appellant towards evasion of tax by resorting to any of the above technique. When the appellant has to pay interest on the amount of loan taken by it, there is no commercial prudence in advancing interest free loan to others and if the appellant takes the protection under commercial expediency in choosing the scheme of investment then the revenue is also entitled to examine and draw its conclusion regarding intentional diversion of fund. The appellant has failed to establish that interest free loan was given/advanced for commercial expediency. On the other hand the Ld AO was able to establish that there was one to one correspondence between the amount of loan taken (secured loan) and the amount of loan advanced at free of interest. That being the case, the issue of the appellant is not covered under commercial expediency as claimed by the Ld AR, instead it will be treated as a deliberate attempt to defraud the revenue to the extent of interest receivable (also to the interest actually paid). The order of Ld CIT(A) on this issue cannot be the guiding factor for the successor CIT(A) and such submission of the appellant is also rejected. I hereby confirm the addition made by the AO and action of the AO is sustained.”
Ld. AR submitted that in assessee’s own case in the AY 2005-06, this
issue was decided in favour of the assessee by the then ld. CIT (A). He
submitted that these were not interest free advances to employees. He took our
attention to page 94, 95 & 96 of the paper book and he further submitted that it
was suppliers advance against the purchases and no disallowance was made in
the past also. He drew our attention to pages 94 & 95 of the paper book to
bolster his claim.
On the other hand, ld. DR relied on the orders of the authorities below.
He submitted that it was not notional interest being added back and the assessee
has taken the loans. He submitted that the loans were taken for capital purposes
15 ITA No.4571/Del/2009 ITA No.97/Del/2010
and accordingly, the interest is to be capitalized. He submitted that these were
interest bearing loans and not interest free loan. He submitted that when interest
bearing loan are diverted for the purposes other than business, disallowance is
valid.
We have heard both the sides and perused the material on record. From
the balance sheet placed before us, we take note that assessee had share capital
of Rs 1,50,82,500/= and reserves and surplus of Rs.9,26,94,892/= at the end of
the year, which are far in excess to the amount invested in capital works in
progress of Rs.1.86 crores and interest free advance of Rs.2.42 crores. Thus,
applying the principles laid down by Hon’ble Bombay High Court in CIT vs.
Reliance Utilities and Power Limited reported in 313 ITR 340 (Bom.) and
Hon’ble Delhi High Court in the case of CIT vs. Bharti Televenture Ltd. - 331
ITR 502 (Delhi), it is held that there was no diversion of borrowed funds for
capital work-in-progress / interest free loan. It is also not a case where either
the AO or CIT (A) has identified that any specific borrowing had been utilized
for making such investment / advances. On the contrary, the assessee has stated
that advances include advance for purchase which are in the course of the
business and, therefore, even following the test of commercial expediency, no
disallowance is warranted. The AO has held that interest paid @ 15%
disallowed on the amount of secured loans of Rs.2.42 crores is not allowable
16 ITA No.4571/Del/2009 ITA No.97/Del/2010
and, therefore, restricted the disallowance to Rs.16,57,972/- being the amount of
interest actually claimed and the ld. CIT (A) sustained the addition. On this
issue, our attention was taken to page 94 of the paper book where a chart
showing the details of bank charges and interest was made and the same is
reproduced below:-
SGS TEKNIKS PVT. LTD. (GGN UNIT) AY 2006-07 Details of Bank Charges & Interest BANK Charges 994294.18
Interest on Working Capital Interest on Packing credit 131226.24 Interest on Bill Purchase 856989.36 Interest on OCC 2610.19 990825.79 1985119.97 BG Commission 5269.41 1990389.38 Less trf Baddi 704604.83 1285784.55 Interest on Term Loan 372187.50 1657972.05
From the above, it is seen that interest on working capital and term loan, which
is only Rs.9,90,825/- and Rs.3,71,187/- respectively. Further, interest of
Rs.9,90,825/- is for availing facilities of packing credit, bills purchases, OCC
and not for any diversion of funds for non-business purposes. Further, it is
neither been established such interest on term loan was for capital work-in-
17 ITA No.4571/Del/2009 ITA No.97/Del/2010
progress. Moreover, identical interest has been allowed in the preceding year
(AY 2005-06). Having regard to the above, disallowance made is deleted.
Ground No.11 is against the disallowance of depreciation of
Rs.2,47,703/- on the additions to the factory building of Rs.24,77,037/-.
The AO noted from the depreciation chart for the Gurgaon Unit that the
assessee had incurred a cost of Rs.24,77,037/- as addition to the factory building
and claimed depreciation of this added amount for the entire year. The AO held
that as there was nothing on record to show that the building was actually put to
use during the year, depreciation of Rs.2,47,703/- @ 10% on the amount of
addition to the building was disallowed. Ld. CIT (A) sustained the action of the
AO on the ground that details were not filed.
Ld. AR submitted that all details were placed on record and drew our
attention to page 54 of paper book, giving the details of depreciation claimed.
On the other hand, ld. DR relied on the orders of the authorities below
and submitted that it is not clear whether the assets were put to use or not. He
further submitted that it is not clear what prevented the assessee to furnish the
details. He submitted that for allowing the depreciation, it has to be proved that
these assets were put to use before the AO and filing of only the audit accounts
will not help.
18 ITA No.4571/Del/2009 ITA No.97/Del/2010
We have heard both the sides and perused the material on record. We
find that the CIT (A) has not considered the depreciation chart furnished by the
assessee. We further notice that even the AO has held that whether the asset
was put to use or not could not be ascertained. Having regard to the above, it is
apparent that the disallowance has been made, without proper investigation and
consideration of the facts. We, therefore, restore the matter back to the file of
AO, for de novo consideration this issue.
Ground No.12 is against the disallowance of Rs.2,48,334/- on account of
subscription and membership fee.
The AO observed that the assessee had claimed Rs.2,48,334/- on account
of subscription and membership fees and most of the amount was paid to Club
Mahendra or Mahendra Resort. The AO held that these expenses being
personal in nature were in no way connected with assessee’s business, hence,
the same were disallowed. The ld. CIT (A) also concurred with the action of the
AO with the observation that the assessee had failed to establish that such
expenses had been incurred wholly and exclusively for the purpose of business.
Ld. AR submitted that the membership was taken for the business
purposes. He submitted that customers and foreign employees used to stay in
these resorts in the name of directors and company.
19 ITA No.4571/Del/2009 ITA No.97/Del/2010
On the other hand, ld. DR relied on the orders of the authorities below
and submitted that the director was enjoying these benefits. He submitted that
it is a perquisite in nature of personal expenses purely for directors and it was
not to socialize or for business relationship.
We have heard both the sides and perused the material on record. We
find that no evidence was led by the AR to dislodge the finding that expenditure
was incurred wholly and exclusively for the purposes of business of the assessee
company. The claim that though the accommodation was in the name of
director but was used by the customers/employees is entirely unsubstantiated.
We, therefore, do not find any merit in the claim, so the same is dismissed.
Grounds No.13 is against the deduction u/s 80G of Rs.25,500/-. The AO
made the deduction u/s 80G and the ld. CIT (A) sustained the action of the AO
as no document was produced either before AO or before him.
We have heard both the sides on the issue and perused the material. We
find that the ld. AR submitted that the claim may be verified by the AO and
given, whereas the ld. DR submitted that the original documents have to be
produced before the AO while a claim is made.
Having considered rival submissions, we consider it appropriate and just
to set aside the issue to the file of AO, for verification of the claim of deduction
20 ITA No.4571/Del/2009 ITA No.97/Del/2010
u/s 80G. The assessee is entitled to lead the necessary evidence to support its
claim. Ground is allowed for statistical purposes.
Grounds No.14 to 17 are consequential in nature.
Grounds No.18 & 19 are general in nature and do not require any
adjudication.
Ground No.2 of the revenue’s appeal is against allowing the deduction
claimed by the assessee u/s 80I on the duty drawback and job work charges
amounting to Rs.75,78,346/-.
The AO, on perusal of financial statement filed during the course of
assessment proceedings, noticed that the assessee company had received a sum
of Rs. 55,88,493/- on account of duty draw back Rs. 19,89,853/- (19,19,623/- +
70,230/-) on account of job work charges aggregating to Rs.75,78,346/- on
which deduction u/s 80I was claimed. He observed that this income not being
an income from industrial undertaking did not qualify for allowance of
deduction u/s 80I or 80IC and disallowed the claim.
Having already held that the claim of 80IC needs to be de novo
adjudicated and since this issue is interlinked with that issue, in the fitness of
things, we are inclined to remit this issue also to the file of the AO. We order
accordingly
21 ITA No.4571/Del/2009 ITA No.97/Del/2010
Ground No.3 of revenue’s appeal was not pressed by the revenue and the
same is accordingly dismissed as not pressed.
Ground No.4 taken by the revenue is against the deletion of addition of
Rs.5 lakhs made out of travelling expenses.
The AO observed that the assessee had claimed to have incurred expenses
on travelling and conveyance amounting to Rs.51,97,936/-. The AO held that
since there was no evidence to prove that the expenses were incurred wholly
and exclusively for the purposes of business, a sum of Rs.5 lakhs was
disallowed out of such expenses. In appeal, the ld. CIT (A) observed that the
AO disallowed the amount as there was no evidence and the AO had not
identified which expenses were not allowable. Therefore, the ld. CIT (A) held
that the disallowance was made on estimate basis and accordingly deleted the
addition.
Ld. DR relied on the order of the AO. On the other hand, the ld. AR
relied on the order of the ld. CIT (A).
We have heard both the sides and perused the material. There is no
dispute that there is no basis for making the ad hoc disallowance of Rs.5 lakhs.
That being the case, we uphold the conclusion of the ld. CIT (A) and dismiss
this ground of the revenue.
22 ITA No.4571/Del/2009 ITA No.97/Del/2010
Ground No.5 of revenue’s appeal is general in nature and does not require
any adjudication.
40 In the result, both the appeal of the assessee and the appeal of the revenue
are partly allowed for statistical purposes.
Order pronounced in the Open Court on this 21st day of December, 2015.
Sd/- sd/- (N.K. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: the 21st day of December, 2015 TS