2019 (1) TMI 532 - AT - Income Tax

Tribunal upholds CIT(A) decisions in favor of assessee on various tax issues, directs re-adjudication.

Asst. Commissioner of Income Tax -17 (2), Mumbai Versus Presstress Wire Industries

The Tribunal upheld the CIT(A)'s decisions in favor of the assessee, dismissing the revenue's appeals on issues including deletion of unreported profit ... Eligibility to claim deduction u/s 80IB against Unit-III at Silvassa & Falandi Unit - Held that:- The first appellate authority has noted that Unit- III was eligible to claim the deduction u/s 80IB from AY 2003-04 onwards which was already been upheld by the Tribunal and the revenue’s appeal against the Tribunal order was also dismissed by Hon’ble Bombay High Court. The Ld. CIT(A) observed that both the aspects viz. whether the unit was engaged in carrying out manufacturing activity as well as whether the unit was formed by splitting up or reconstruction of a business were already considered in the aforesaid decisions. Regarding Falandi Unit, it was noted that the unit was located at different location and independently engaged in carrying out manufacturing activities and therefore it was eligible to claim the said deduction as already upheld by the Tribunal up-to AY 2008-09. Addition of deemed dividend u/s 2(22)(e) - assessee took loan of ₹ 11.46 Crores from a sister concern in which one of the partners of assessee’s firm namely Sangeeta Gilada had substantial shareholding of 18% - Held that:- We find that it is undisputed fact that the assessee is not holding any beneficial shareholding in aforesaid lender and the recipient of loan is the assessee and not the beneficial shareholder. The identical issue for AY 2009-10 was contested by revenue before this Tribunal [2014 (1) TMI 1782 - ITAT MUMBAI] wherein the stand of first appellate authority was confirmed by placing reliance on the decision in Universal Medicare [2010 (3) TMI 323 - BOMBAY HIGH COURT]. During impugned AY, the CIT(A) has also followed the same judicial precedent. This being the position, we find no infirmity in the impugned order on this issue. By confirming the same, we dismiss this ground of appeal. Issues Involved:1. Deletion of addition on account of unreported profit on sale of out-of-books production.2. Disallowance of deduction under Section 80IB for Unit-III and Falandi Unit.3. Deletion of addition as deemed dividend under Section 2(22)(e).4. Treatment of sales tax embedded in sales as a capital receipt.5. Netting off interest received from associate concerns against interest expense.Detailed Analysis:1. Deletion of Addition on Account of Unreported Profit:The revenue contested the deletion of Rs. 2,20,74,697/- added by the Assessing Officer (AO) for unreported profit on out-of-books production, based on power consumption analysis. The Income Tax Appellate Tribunal (ITAT) found that the AO's addition was based on conjecture and lacked concrete evidence. The Tribunal upheld the CIT(A)’s decision, referencing the Tribunal's consistent stance in favor of the assessee for previous assessment years (AYs 2009-10 and 2010-11), noting that discrepancies in power consumption alone do not substantiate unreported production.2. Disallowance of Deduction under Section 80IB:The revenue appealed against the CIT(A)’s decision to allow deductions under Section 80IB for Unit-III and Falandi Unit, arguing these units were not newly established but a restructuring of existing units. The Tribunal noted that the eligibility of these units for deduction had been upheld by the Tribunal and the Hon’ble Bombay High Court in earlier years. The Tribunal confirmed the CIT(A)’s decision, finding no new evidence to overturn the established precedent.3. Deletion of Addition as Deemed Dividend under Section 2(22)(e):The AO added Rs. 1,61,87,146/- as deemed dividend under Section 2(22)(e) due to a loan from a sister concern. The CIT(A) deleted this addition, relying on judicial precedents from the Hon’ble Bombay High Court in Bhaumik Color and Universal Medicare. The Tribunal upheld the CIT(A)’s decision, noting that the assessee did not hold beneficial shareholding in the lender company and that similar additions had been deleted in previous AYs.4. Treatment of Sales Tax Embedded in Sales as Capital Receipt:The assessee argued that Rs. 2,14,83,178/- of sales tax embedded in sales should be treated as a capital receipt, not taxable under the Income Tax Act. The CIT(A) dismissed this claim, but the Tribunal restored the matter to the AO for re-adjudication, referencing the Tribunal’s decision for AY 2009-10, to ensure a uniform approach.5. Netting off Interest Received from Associate Concerns Against Interest Expense:The assessee sought to net off interest income from associates against interest expenses. The AO treated the interest income of Rs. 77.84 Lacs as income from other sources, reducing the business profits eligible for deduction under Section 80IB. The Tribunal restored the issue to the AO for fresh adjudication, directing that the corresponding interest expenditure should be allowed against the interest income if it is assessed as income from other sources, following the Tribunal's consistent stance in previous AYs.Conclusion:The Tribunal dismissed the revenue’s appeal and allowed the assessee’s cross-objections for statistical purposes, directing re-adjudication on certain issues to ensure consistency with prior decisions and judicial precedents. The order was pronounced in the open court on January 8, 2019.