M/S C.R.G. INDUSTRIES,BADDI vs. DCIT, CIRCLE, PARWANOO

Per Sanjay Garg, Judicial Member :

The present appeal has been preferred by the assessee

against the order of Ld. Commissioner of Income Tax

(Appeals), Shimla (hereinafter referred to as ‘Ld.CIT

(Appeals)’] dated 19.12.2017, passed u/s 250(6 of the Income Tax Act, 1961 (in short ‘the Act’) in Appeal

No.IT/119/16-17/Sml relating to assessment year 2014-15. 2. The assessee has raised following grounds of appeal:

“1. That the Id Commissioner of Income Tax (appeal) has wrongly upheld the addition of Rs.241200/- under section 36(l)(iii) of Income Tax and also erred by not allowing 100 % deduction under section 80IC of Income Tax on disallowance sustained under section 36(l)(iii) of I.T. Act.

2 AY: 2014-15

contention of the assessee in respect of each of the disallowances made by the Assessing Officer is that even

though the Assessing Officer had made the impugned

disallowances u/s 36(1)(iii) of the Act and further addition

on account of less claim of additional depreciation and thereby reducing the eligible income of the assessee u/s 80IC of the Act and further addition u/s 4A(3) of the Act for making payments in cash of more than Rs.20,000/- yet, the above disallowances will go to add/reduce the business

income of the assessee, which otherwise, is eligible for deduction u/s 80IC of the Act. The Ld. counsel for assessee

has further stated it will not have any effect on the tax

liability of the assessee.

counsel for assessee. So far as the addition made by the Assessing Officer in respect of interest expenditure u/s 36(1)(iii) of the Act and addition made on account of claim

of less depreciation on plant & machinery is concerned, we

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find force in the contention of the Ld. counsel for assessee

that the disallowance u/s 36(1)(iii) of the Act would add to the business income of the assessee, whereas the addition

made on account of claim of less depreciation will go on reducing the business income of the assessee, which otherwise, admittedly, is eligible for deduction u/s 80IC of the Act. In view of the above, the above stated disallowance

cannot be exigible to taxation separately.

provision for which the assessee’s expenditure is disallowed

for making payment of more than the prescribed limit other

than the banking channel, however, the Ld. counsel for assessee has drawn our attention to Circular No.37/2016

dated 2.11.2016 of the CBDT, wherein the CBDT has directed its officers that the disallowance inter-alia made

u/s 40A(3) of the Act, resulting into enhancement of the business income of the assessee will be eligible for deduction under Chapter VI-A, which includes the provisions of section 80IC of the Act. The relevant part of the Circular of the CBDT reproduced as under:

“(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: * Principal CIT, Kanpur vs, Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.

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that enhancement/addition into the income of the assessee

on account of the aforesaid disallowances will not make the assessee liable to pay the additional tax, rather it will

increase/decrease of the business income of the assessee,

which otherwise, is eligible for deduction u/s 80IC of the Act. The Assessing Officer is directed to follow the above

directions. Ground Nos.1 to 4 raised by the assessee are accordingly, allowed in above terms.

however, he has pleaded that the assessee may be allowed

the set off of the interest expenditure incurred for earning

of interest income.

ground No.5 to the limited extent that if the interest

expenditure incurred by the assessee has nexus with the 5 AY: 2014-15

interest income earned by the assessee, the assessee will be eligible for netting off/setting off of the same against the interest income. The matter is, therefore, restored to the file of the Assessing Officer to decide this issue afresh on this limited point.

Order pronounced in the open court on 3/7/2018. (ANNAPURNA GUPTA) JUDICIAL MEMBER Dated : 3rd July, 2018 *Rati* Copy to: