2019 (11) TMI 584 - AT - Income Tax

Tribunal partially allows appeals, orders reassessment post High Court decision. Penalties deleted, turnover exclusion upheld.

The Tribunal partly allowed the appeals, directing re-adjudication by the Assessing Officer post High Court decision. Penalties under Section 271(1)(c) ... Deduction under section 10B - proviso requiring filing within time prescribed under section 139(1) - restoration for de novo re adjudication - exclusion of freight and insurance from export and total turnover for computation of deduction under section 10B - disallowance under section 14A - computation of book profit for minimum alternate tax under section 115JB - penalty under section 271(1)(c) rendered infructuous upon re adjudicationDeduction under section 10B - proviso requiring filing within time prescribed under section 139(1) - restoration for de novo re adjudication - Deduction claimed under section 10B for assessment years 2008-09 and 2009-10 restored to the file of the Assessing Officer for de novo adjudication pending the decision of the Hon'ble Jurisdictional High Court on condonation of delay in filing returns. - HELD THAT: - The Tribunal observed that the principal controversy in these appeals is the application of the proviso to section 10B which conditions the allowance of deduction on filing the return within the time prescribed under section 139(1). Although the assessee advanced reasons for belated filing, no supporting evidence was placed before the Tribunal and the question of reasonable cause for delay is sub judice before the Hon'ble Jurisdictional High Court. In view of the pendency of the writ petitions and the age of the matters, the Tribunal declined to decide the proviso issue itself and directed restoration to the Assessing Officer for fresh adjudication after receipt of the High Court's decision, granting the assessee opportunity of being heard. [Paras 13]Issue restored to the Assessing Officer for de novo re adjudication after receipt of the Hon'ble Jurisdictional High Court's decision on condonation of delay.Exclusion of freight and insurance from export and total turnover for computation of deduction under section 10B - Exclusion of freight and insurance from both export turnover and total turnover for computing deduction under section 10B upheld. - HELD THAT: - The Tribunal found that the Commissioner (Appeals) followed judicial precedent, notably the Special Bench decision in ITO v. Sak Soft Ltd., which held that expenses such as freight and insurance are to be excluded from export turnover and total turnover for purposes of computing deduction under section 10B(4). On that basis the Tribunal declined to interfere with the order of the Commissioner (Appeals) on this issue. [Paras 13]Order of the Commissioner (Appeals) on exclusion of freight and insurance from turnover upheld; Revenue's grounds 4.1 to 4.2 dismissed.Restoration for de novo re adjudication - Direction to restore to the Assessing Officer the question of whether an addition described as suppression in export turnover should be recharacterised as increase in value of closing stock and to verify inclusion in subsequent years' turnover. - HELD THAT: - Because the principal section 10B issue has been remitted for fresh adjudication, the Tribunal held it appropriate that the Assessing Officer reconsider the nature and nomenclature of the addition (suppression in export turnover versus increase in closing stock) in the light of outcomes from the re adjudication and also verify whether the alleged suppressed turnover was disclosed in subsequent assessment years. [Paras 13]Issue restored to the Assessing Officer for re adjudication and verification regarding disclosure in subsequent years.Disallowance under section 14A - Disallowance under section 14A remitted to the Assessing Officer to verify whether any exempt income was earned from investments; if none, no disallowance called for. - HELD THAT: - The Tribunal directed the Assessing Officer to examine whether the assessee earned any exempt income from investments; in the absence of exempt income, reliance was placed on judicial precedent (Joint Investment Pvt. Ltd. v. CIT) to hold that no disallowance under section 14A is warranted. The question thus requires factual verification by the Assessing Officer. [Paras 13]Matter remitted to the Assessing Officer for verification of existence of exempt income and consequent application of section 14A.Computation of book profit for minimum alternate tax under section 115JB - restoration for de novo re adjudication - Computation of book profit under section 115JB restored to the Assessing Officer for re adjudication after decision on allowance of deduction under section 10B. - HELD THAT: - The Tribunal observed that computation of book profit under section 115JB is contingent on the outcome of the section 10B issue; accordingly, it directed the Assessing Officer to recompute book profit after concluding the re adjudication on section 10B deductions. [Paras 13]Computation of book profit under section 115JB remitted to the Assessing Officer for re computation post resolution of section 10B issues.Penalty under section 271(1)(c) rendered infructuous upon re adjudication - Penalties levied under section 271(1)(c) for assessment years 2008-09 and 2009-10 deleted as infructuous in view of remand of underlying issues. - HELD THAT: - Since the Tribunal restored the substantive issues (including allowance of deduction under section 10B and related additions/disallowances) to the Assessing Officer for de novo adjudication, it held that the foundational basis for levy of penalty under section 271(1)(c) no longer survives. Consequently the penalties were deleted as they had become infructuous. [Paras 13]Penalty under section 271(1)(c) deleted as infructuous.Final Conclusion: The Tribunal, while upholding the exclusion of freight and insurance from turnover for computation of deduction under section 10B, directed de novo re adjudication by the Assessing Officer on the core section 10B filing proviso issue (assessment years 2008-09 and 2009-10) after the Hon'ble Jurisdictional High Court decides the pending writs; related matters including suppression of turnover, section 14A disallowance, computation under section 115JB were remitted for verification/recomputation and penalties under section 271(1)(c) were deleted as infructuous. Issues Involved:1. Denial of exemption under Section 10B of the Income Tax Act due to belated filing of returns.2. Alteration of nomenclature from suppression in export turnover to increase in value of closing stock.3. Exclusion of freight, insurance, etc., from export turnover and total turnover while computing deduction under Section 10B.4. Disallowance under Section 14A of the Act.5. Computation of book profit under Section 115JB of the Act.6. Levy of penalty under Section 271(1)(c) of the Act.Detailed Analysis:1. Denial of Exemption under Section 10B:The primary issue in the appeals for the assessment years 2008-09 and 2009-10 was the denial of exemption under Section 10B due to the belated filing of returns. The returns were filed late by 4 months and 50 days, respectively. The denial was based on the 4th proviso to Section 10B, which mandates filing within the time prescribed under Section 139(1). The assessee had sought condonation of delay from the CBDT, which was rejected, and the matter was pending before the High Court. The Tribunal decided to restore the issue to the Assessing Officer for re-adjudication after the High Court's decision.2. Alteration of Nomenclature:The Revenue's appeal also contested the CIT(A)'s direction to alter the nomenclature from suppression in export turnover to an increase in the value of closing stock. The Tribunal restored this issue to the Assessing Officer for re-adjudication, contingent on the High Court's decision regarding Section 10B.3. Exclusion of Freight, Insurance, etc.:The CIT(A) had directed the exclusion of freight, insurance, etc., from both export turnover and total turnover while computing the deduction under Section 10B. This was in line with the Supreme Court's decision in CIT vs. HCL Technologies Ltd. and the Special Bench of Chennai Tribunal in ITO vs. Sak Soft Ltd. The Tribunal found no reason to interfere with the CIT(A)'s order on this issue, dismissing the Revenue's grounds.4. Disallowance under Section 14A:For assessment year 2009-10, the issue of disallowance under Section 14A was raised. The Tribunal directed the Assessing Officer to verify whether the assessee had earned any exempt income. If no exempt income was earned, no disallowance under Section 14A was warranted, following the Delhi High Court's decision in Joint Investment Pvt. Ltd. vs. CIT.5. Computation of Book Profit under Section 115JB:The computation of book profit under Section 115JB was also restored to the Assessing Officer for re-adjudication after deciding on the issue of deduction under Section 10B.6. Levy of Penalty under Section 271(1)(c):The appeals also involved the levy of penalty under Section 271(1)(c) for concealment of income. The Tribunal noted that the foundation of the penalty was the denial of deduction under Section 10B and other related issues, which were restored to the Assessing Officer. Consequently, the penalties were deemed infructuous and were deleted.Conclusion:The appeals of the Revenue and the assessee were partly allowed for statistical purposes, with directions for re-adjudication by the Assessing Officer after the High Court's decision. The penalties under Section 271(1)(c) were deleted as they became infructuous. The Tribunal upheld the CIT(A)'s order regarding the exclusion of freight and insurance from turnover calculations and directed verification for disallowance under Section 14A.Order Pronounced on 07th November, 2019, at Chennai.