ITAT Allows Partial Appeal: Deduction u/s 10B Permitted, Lease Rent as Revenue Expenditure, Interest Charges Upheld.

The ITAT partly allowed the assessee's appeal, directing the AO to permit the deduction under section 10B and classify the lease rent as revenue expenditure. Additions related to unaccounted transactions with a third party were deleted due to procedural lapses. The Tribunal upheld the AO's interest charges under sections 234A, 234B, and 234C, and dismissed the Revenue's appeal.

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Issues Involved:
1. Disallowance of deduction claimed under section 10B of the Act.
2. Carry forward depreciation from Assessment Year 2007-08 not allowed.
3. Denial of claim of depreciation on Windmill on leased land component.
4. Unaccounted transactions with Shri. Manoj Kumar Jain.
5. Charging of interest under section 234A, 234B, and 234C of the Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 10B of the Act:
The assessee claimed a deduction under section 10B amounting to Rs. 7,11,55,891/-, which was disallowed by the AO on the grounds that the sales made to M/s. V. S. Lad & Sons were local sales and not deemed exports. The CIT(A) upheld this disallowance. However, the Tribunal referred to the Hon’ble Karnataka High Court’s decision in Tata Elxsi Ltd., which reversed the Tribunal’s earlier decision and held that sales through another EOU can be considered as deemed exports. Consequently, the Tribunal directed the AO to allow the assessee’s claim for deduction under section 10B.

2. Carry Forward Depreciation from Assessment Year 2007-08 Not Allowed:
The AO disallowed the carry forward of unabsorbed depreciation amounting to Rs. 10,65,39,137/- from Assessment Year 2007-08. The Tribunal did not explicitly address this issue in the detailed analysis provided.

3. Denial of Claim of Depreciation on Windmill on Leased Land Component:
The assessee claimed depreciation of Rs. 75,00,000/- on Windmills, which included lease rent paid for land. The AO disallowed this claim, holding that the lease rent was a capital expenditure and not part of the cost of the Windmill. The CIT(A) upheld this disallowance. The Tribunal, following the decision in V. S. Lad & Sons, held that the lease rent paid for acquiring leasehold rights over the land should be treated as revenue expenditure under section 37(1) of the Act and allowed the assessee’s claim accordingly.

4. Unaccounted Transactions with Shri. Manoj Kumar Jain:
The AO made substantive and protective additions based on documents found during a search on Shri. Manoj Kumar Jain, amounting to Rs. 28,00,00,000/- and Rs. 13,41,36,761/- respectively. The CIT(A) deleted these additions, relying on the decision in the case of Shri. Manoj Kumar Jain. The Tribunal noted that the AO did not follow the procedure under section 153C of the Act, which requires satisfaction that the seized materials have a bearing on the income of the assessee. The Tribunal held that the AO could not take cognizance of the seized documents from Shri. Manoj Kumar Jain’s case without invoking section 153C and deleted the additions.

5. Charging of Interest Under Section 234A, 234B, and 234C of the Act:
The assessee contested the charging of interest under sections 234A, 234B, and 234C. The Tribunal upheld the AO’s action, noting that the charging of interest is consequential and mandatory as per the Hon’ble Apex Court’s decision in Anjum H. Ghaswala.

Conclusion:
The Tribunal partly allowed the assessee’s appeal, directing the AO to allow the deduction under section 10B and treat the lease rent as revenue expenditure. The Tribunal also deleted the additions related to unaccounted transactions with Shri. Manoj Kumar Jain due to procedural lapses. The Revenue’s appeal was dismissed.

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