Dissallowance of sec 80IB, chennai, tribunal, real estate
IN THE INCOME TAX APPELLATE TRIBUNAL
“C ” BENCH, CHENNAI
. , . ,
BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER
./I.T.A. No. 1143/Mds/2014
/Assessment year : 2010-2011
The Deputy Commissioner of Vs. The Metal Powder Company Ltd,
Income Tax, Maravankulam,
Circle I(1) Thirumangalam.
Madurai Madurai 625 706.
[PAN AAACT 4262E ]
( /Appellant) ( /Respondent)
/ Appellant by : Shri. A.V.Sreekanth, IRS, JCIT.
/Respondent by : Shri. A.S. Sriraman, Advocate
/Date of Hearing : 22-02-2016
/Date of Pronouncement : 31-03-2016
/ O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The appeal filed by the Department is directed against order
the Commissioner of Income-tax (Appeals)-I, Madurai in ITA
No.0088/12-13, dated 03.02.2014 for the assessment year 2010-2011
passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after
:- 2 -: ITA No.1143/Mds/2014.
referred to as ‘the Act’).
2. The Revenue has raised two substantive grounds (i) The
Commissioner of Income Tax (Appeals) erred in deleting the addition
of deduction u/s. 80IB of the Act relying on the judicial decisions. (ii)
The Commissioner of Income Tax (Appeals) erred in deleting the
disallowance of commission paid to foreign agent without deduction of
tax u/s.195 of the Act.
3. The Brief facts of the case, the assessee is in the business
of manufacture and sale of Metallic powders and filed Return of
income on 12.10.2010 with total income of 20,26,75,167/- and return
was processed u/s.143(1) and granted refund. Subsequently, the case
was selected for scrutiny under CASS and notice u/s.143(2) of the Act
was issued. In compliance to notice, the ld. Authorised Representative
of the assessee appeared from time to time and furnished information.
The ld. Assessing Officer found that assessee has claimed deduction
u/s.80IB of the Act were the assessee is having two units (i)
Aluminum Alloy Ingot Plant (ii) Aluminum Paste Unit VI and while
claiming deduction u/s.80IB of the Act the assessee has not set off
loss of Aluminum alloy Ingot plant and claimed deduction on positive
income but the ld. Assessing Officer found that as per the earlier order
of assessee’s own case for assessment year 2006-07, the aggregate of
:- 3 -: ITA No.1143/Mds/2014.
two units has to be considered for claiming deduction u/s.80IB of the
Act and relied on the Commissioner of Income Tax (Appeals) order,
and made disallowance of 1,10,37,553/-. The Assessing Officer
found that the company had paid foreign agency commission in foreign
currency to foreign agent without deduction of tax on 47,36,182/-.
The ld. Authorised Representative explained that commission was paid
for works of foreign agent and do not have any establishment in India
and hence are not liable to be taxed in India. The ld. Assessing Officer
found that the CBDT circulars are withdrawn and as contract services
rendered by the overseas agent comes under the purview of taxability.
The ld. Assessing Officer relied on the Authority for Advance Ruling in
the case of M/s. SKF Boilers and Driers Pvt. Ltd (AAR No.983-984 of
2012) and elaborated the findings in order relying on the provisions
applicable u/sec. 195 of the Act and disallowed 47,36,182/- for non
deduction of TDS u/s.40(a)(i) of the Act. The ld. Assessing Officer
with above additions and other disallowances assessed total income
25,14,99,930/-. Aggrieved by the order, the assessee filed an appeal
before the Commissioner of Income Tax (Appeals).
4. The ld. Authorised Representative raised grounds on the
two disputed issues that the adjustment of loss of one unit against
profit of another unit by ld. AO without following earlier year’s
:- 4 -: ITA No.1143/Mds/2014.
assessment order 2007-08 to 2009-2010 were profit of unit alone is
considered for 80IB deduction without any adjustment. The ld.
Commissioner of Income Tax (Appeals) considered the submissions
and findings of the Assessing Officer and deleted the addition by
following the order of the Tribunal in assessee’s own case as observed
in para 5.2 at page 5 as under:-
ITAT in its order in ITA NO.782 to 787/Mds/2012 & ITAT 869 to
874/Mds/2012 dated 21.02.2013 has allowed the issue in favour of
the assessee with the following remarks:
?In later decision in the case of CIT Vs. MEPCO Industries
294 ITR 121 it was held that the deduction u/s.80IA and
801B could be worked out independently without effecting
any inter se adjustment of loss and profit between various
If an assessee had different units resulting in positive gross
total in view of the decisions of Hon’ble Jurisdiction High
Court in the case of CIT Vs. Macmillan India Ltd. (295 ITR
67), CIT Vs. Rathore Brothers (254 ITR 656), CIT Vs.
Suresh B. Mehta (291 ITR 462) and CIT Vs. M. Gani And
Co. (301 ITR 381), each of the unit had to be separately
considered for working out deduction u/s.80IA or 8018 or
80HHC of the Act, one separate account were being
mentioned and there was no interlacing and
interdependence. In the given case before us, assessee had
positive gross total income. Therefore, each undertaking had
to be considered separately for working out deduction
u/s.80IA of the Act, since, the gross total income was
positive. We are of the opinion that the CIT(A) was justified
in giving such directions.
5.3 Thus the issue is squarely covered by the above order of Hon’ble
ITAT in Appellants own case for earlier years which is in its favour.
The addition is deleted??.
Following the above decisions, the Commissioner of Income Tax
(Appeals) has deleted the addition. Aggrieved by the Commissioner of
:- 5 -: ITA No.1143/Mds/2014.
Income Tax (Appeals) order, the Revenue assailed an appeal before
5. Before us, the ld. Departmental Representative vehemently
argued that the ld. Commissioner of Income Tax (Appeals) erred in
deleting the addition without considering the facts and the decision of
Apex Court. The gross total income shall be arrived after adjustment of
loss of other division against profit derived from industrial undertaking
and prayed for allowing the appeal .
6. The ld. Authorised Representative of the assessee submitted
in assessee’s own case, the Tribunal has allowed the deductions in ITA
Nos.782, 783 and others for the assessment years 2002-03, 2003-04
wherein referred at page 4 to 7 is as under:-
??We have perused the orders and heard the rival submissions. For
all the impugned years, what we note specifically from the orders
of ld. CIT(Appeals) is that gross total income of the assessee was
positive. Assessee had no carried forward loss of earlier years as
well. That gross total income for all the impugned assessment
years was positive, was not disputed by the learned D.R. Further,
assessee had returned positive total income for all the impugned
assessment years, and therefore, by necessary implication its
gross total income, before the deductions claimed under Chapter
VIA, whatever be that amount, would have only been positive. So,
the only question that remains is, when the gross total income is
positive, a deduction under Sections 80-IA and 80-IB can be
worked out independently without setting off losses of units on
which such deduction was not being claimed. In our opinion, this
question stands already answered by Hon’ble jurisdictional High
Court in their decision in the case of Chamundi Textiles (Silk Mills)
Ltd. v. CIT (341 ITR 488). There the question was regarding claim
of deduction under Section 80HHC and whether such deduction
:- 6 -: ITA No.1143/Mds/2014.
could be allowed without considering the results of a unit, which
was not having any profits. It was held by their Lordships that by
virtue of the decision of Hon’ble Apex Court in the case of IPCA
Laboratories Ltd. v. CIT (266 ITR 521), undisputedly only an
assessee having positive profits could claim such a deduction.
Their Lordship also held that for arriving at such profit, income
from various units had to be calculated and if one of the units was
running at a loss, gross total income had to be arrived considering
such loss also. Ultimately, if the gross total income was a loss,
claim for deduction was to be rejected. Sections 80HHC or 80-IA
or 80-IB for that matter, are all controlled by Section 80AB of the
Act. ?Gross total income? means gross total income computed as
per the provisions of the Act. This was clearly reiterated by Hon’ble
Apex Court in the case of Synco Industries Ltd. (supra). Hon’ble
Apex Court held that gross total income had to be arrived at after
making deductions as per appropriate computation provisions,
including income under Sections 60 to 64, adjustment of inter se
losses and after setting off brought forward losses and
unabsorbed depreciation. Only if resultant gross total income was
positive, an assessee was entitled for deduction under Chapter
VIA of the Act. However, where assessee is having more than one
unit, where one unit is eligible for deduction and other unit or units
are not eligible for deduction and if the gross total income is
positive, despite the loss in one of such units, decisions of Hon’ble
Apex Court in the case of IPCA Laboratories Ltd. (supra) and
Synco Industries Ltd. (supra) would have not much applicability. In
such cases, where an assessee is carrying on various activities,
even if centralized accounts are maintained, so long as interlacing,
interconnectivity or interdependence of various units was not
there, various activities have to be treated as separate and
distinct, as held by Hon’ble Apex Court in the case of Water Fall
Estates Ltd. v. CIT (219 ITR 563). Hon’ble Apex Court in the case
of L.M. Chhabda & Sons. v. CIT (65 ITR 638) has also held that
where an assessee carried on business ventures at different
places, there was no general principle that they should all be
considered as part of single business. Thus, if an assessee had
different units resulting in positive gross total income, in view of
decisions of Hon’ble jurisdictional High Court in the case of CIT v.
Macmillan India Ltd. (295 ITR 67), CIT v. Rathore Brothers (254
ITR 656), CIT vs. Suresh B. Mehta (291 ITR 462) and CIT v. M.
Gani And Co. (301 ITR 381), each of the unit had to be separately
considered for working out deduction under Section 80-IA or 80-IB
or 80HHC of the Act, once separate accounts were being
maintained and there was no interlacing and interdependence. In
the given case before us, assessee had positive gross total
income. Therefore, each undertaking had to be considered
separately for working out deduction under Section 80-IA of the
Act, since the gross total income was positive. We are of the
opinion that CIT(Appeals) was justified in giving such directions
:- 7 -: ITA No.1143/Mds/2014.
and prayed for dismissal of Revenue appeal.
7. We heard the rival submissions and perused the material on
record, judicial decisions cited. We, respectfully, following the decision
of the Tribunal in ITA No. 782 & 783/Mds/2012, dated 21.02.2013 in
assessee’s own case, uphold the order of Commissioner of Income Tax
(Appeals) and dismiss the ground of the Revenue.
8. In respect of other ground, the Commissioner of Income
Tax (Appeals) heard the submissions and considered the findings and
also made elaborate discussions of the advance ruling and CBDT
circulars and the submissions at para 6.2 of the order and statement at
para 6.3 as under:-
‘’Appellant filed the details of the evidence for the commission
paid in the form of the invoices raised by the Appellant, where
the word commission is clearly mentioned including details of
the export order to which the commission relates to. also filed
during the assessment proceedings. The address of all the
persons in the invoice is outside India, have no business
presence in India and the payments are
made in foreign exchange through banking channels and
certificates are submitted to the Banks for paying the foreign
exchange. The details of the commission are as under.
Mo nth Name Address USD Amount
June, 09 Meditrade Lebanaon P.O.Box 90 -514, 3071.00 148,421.43
Jdeidet – EI-
July, 09 Arun K. Chotopodyay 4206, Harpers 20704.50 1,007,895.06
horn pa 19047,
Aug, 09 Quimialmel, S.A. Spain CL san Roque, 1600.00 77,984.00
:- 8 -: ITA No.1143/Mds/2014.
De La Plana
Aug, 09 Bowin Success Company, Flat C 4/F, 946 570.00 27,898.50
Kawloon Canton Road,
Aug, 09 Percept General Trading P.O.Box 26475 42113.83 2,052,627.59
Co LIC Sharagh Sharagh UAE
Sep. 09 Aurn K. Chotopadyay 4206, Harpers 7721.76 380,050.59
horn pa 19047,
Dec. 09 Quimialmel, S.A. Spain CL san Roque, 1,600.00 75,008.00
De La Plana
Dec. 09 Percept General Trading P.O.Box 26475 16496.80 775,349.00
Co LIC Sharagh Sharagh UAE
Dec. 09 Louis T. Leonaowens, 177/1, But 804.00 37,691.52
Thailand Ltd building, 10
Dec. 09 Calus JD Souza Kuwait. P.O.Box 3301.50 153,255,63.00
Total 4,736,181,92 /-
The ld. Commissioner of Income Tax (Appeals) considered the
Supreme Court decision and Jurisdictional High Court decision and
relied on the Co-ordinate Bench Tribunal decision of ITO vs. Faizan
Shoes (P) Ltd (2013) 34 taxmann.com 79 and deleted the addition of
the Assessing Officer.
9. Before us, the ld. Departmental Representative vehemently
argued the grounds that the ld. Commissioner of Income Tax
:- 9 -: ITA No.1143/Mds/2014.
(Appeals) erred in deleting the addition without considering the facts
and provisions of Sec. 195 and applicability of Sec. 210(a)(i) and CBDT
circular and relied on lower authorities order and prayed for set aside
the order of Commissioner of Income Tax (Appeals).
10. The ld. Authorised Representative of assessee vehemently
argued and relied on order of the Commissioner of Income Tax
(Appeals) and prayed for dismissal of Revenue appeal.
11. We heard the rival submissions and perused the material on
record and judicial decisions. We respectfully following the decision of
Co-ordinate Bench in the case of Faizan Shoes (P) Ltd (2013) 34
taxmann.com 79 wherein held as under:-
‘’Assessee company was engaged in business of
manufacture and export of shoe uppers and leather
shoes – It paid certain commission to non-residents
for procuring export orders – Since assessee did not
deduct tax at source while making said payments,
Assessing Officer disallowed same under section
40(a)(i) – It was noted from records that non-
residents were only procuring orders for assessee and
following up payments and apart from that no other
services were being rendered – Whether since non-
residents were not providing any technical services to
assessee, payments made to them did not fall under
category of royalty or fee for technical services under
section 9(1 )(vi) – Held, yes – Whether even
otherwise, since commission paid to non-residents
was not taxable in India, assessee was not required
to deduct tax at source while making said payments –
Held, yes – Whether in view of above, impugned
disallowance was to be deleted – Held, yes’’
:- 10 -: ITA No.1143/Mds/2014.
We upheld the order of the Commissioner of Income Tax (Appeals)
and dismiss the Revenue appeal.
12. In the result, appeal of the Revenue is dismissed.
Order pronounced on Thursday, the 31st day of March, 2016 at
( . )
(A. MOHAN ALANKAMONY) (G. PAVAN KUMAR)
/ ACCOUNTANT MEMBER /JUDICIAL MEMBER
/Dated: 31 March, 2016.
1. /Appellant 2. /Respondent 3. () /CIT(A)
4. /CIT 5. /DR 6. /GF