2014 (3) TMI 427 - AT - Income Tax

Tribunal grants relief on deductions, remits certain issues back for fresh consideration.

Dy. Commissioner of Income Tax Versus M/s. Trident Minerals (100% EOU)

Dy. Commissioner of Income Tax Versus M/s. Trident Minerals (100% EOU) - TMI Issues Involved:1. Condonation of delay in filing the Cross Objections (C.O.).2. Disallowance of deduction under section 10B of the Income Tax Act.3. Disallowance of prior period expenses.4. Disallowance under section 40A(3) of the Income Tax Act.5. Disallowance of excess profits due to transactions with sister concerns.Detailed Analysis:1. Condonation of Delay in Filing the Cross Objections (C.O.):The petitioner filed the C.O. with a delay of 148 days due to a bona fide mistake of filing it in the wrong office. The petitioner argued that the delay was unintentional and requested condonation to avoid hardship and irreparable injury, citing several judicial precedents. The Departmental Representative opposed this plea. The Tribunal, referencing the principles laid down by the Hon'ble Apex Court in the case of Collector, Land Acquisition V MST Katiji & Others, concluded that substantial justice should prevail over technical considerations. The Tribunal found the delay to be unintentional and condoned it, admitting the appeal for hearing and disposal.2. Disallowance of Deduction under Section 10B of the Income Tax Act:The assessee firm, engaged in the production and export of iron ore, claimed a deduction under section 10B, which was disallowed by the Assessing Officer (AO) on the grounds that the unit was formed by the transfer of used plant and machinery from M/s. KMMI Exports and that the merger of firms is not recognized under section 10B. The CIT (Appeals) reversed this decision, allowing the deduction. The Tribunal upheld the CIT (Appeals)'s decision, noting that the deduction is granted to the undertaking and not the assessee, and that the merger of firms does not alter the eligibility for deduction under section 10B. The Tribunal dismissed the Revenue's grounds on this issue.3. Disallowance of Prior Period Expenses:The AO disallowed prior period expenses of Rs. 6,13,949, arguing that the assessee did not carry out commercial activities in the earlier year and did not claim the deduction under section 35D in the Audit Report. The CIT (Appeals) allowed 1/5th of this expenditure under section 35D without providing reasons. The Tribunal found that the CIT (Appeals) failed to adjudicate on the allowability of the prior period expenses and remitted the issue back to the CIT (Appeals) for fresh consideration with proper reasoning.4. Disallowance under Section 40A(3) of the Income Tax Act:The AO disallowed Rs. 1,54,000 under section 40A(3) as the payment was made by a demand draft payable on demand or order, not by an account payee cheque or bank draft. The CIT (Appeals) deleted this disallowance, but the Tribunal reversed this decision, holding that the payment was liable for disallowance under section 40A(3) as it was not made by an account payee cheque or demand draft, and restored the AO's disallowance.5. Disallowance of Excess Profits Due to Transactions with Sister Concerns:The AO disallowed excess profits of Rs. 4,76,52,385, alleging that the purchase transactions with sister concerns were not at market prices, resulting in overstatement of profits. The CIT (Appeals) noted that the assessee had withdrawn this ground, but the assessee contended that it was not withdrawn. The Tribunal remanded this issue back to the CIT (Appeals) for fresh consideration and a finding after providing the assessee an opportunity to be heard.Conclusion:The Tribunal partly allowed the Revenue's appeal and partly allowed the assessee's Cross Objections for statistical purposes, issuing detailed directions for fresh consideration on specific issues.