2019 (11) TMI 650 - AT - Income Tax

Tribunal Rules on Reassessment Order: Deduction Upheld, Books Rejected, Additions Made

M/s Amrapali Exports Versus DCIT, Central Circle-02, Jaipur

The tribunal upheld the reassessment order under Section 147, confirming eligibility for deduction under Section 10AA but rejecting books of accounts and ... Deduction u/s 10AA - business activity of manufacture and export - HELD THAT:- In the instant case, it is not in dispute that the assessee is eligible for claim of deduction u/s 10AA of the Act. It is also not in dispute that the assessee has only one business undertaking which is engaged in the business of manufacturing and export of gold, silver and base material jewellery plain & studded with precious & semi precious stones situated at Sitapura Industrial Area, Jaipur and the total turnover of the business is equivalent to the total turnover of the undertaking as well as the export turnover. The expenditure to the extent of 25% of purchases where are held as non-genuine and disallowed by the Assessing officer relates to the same business activity of manufacture and export in respect of which assessee is held eligible for deduction under section 10AA of the Act. The deduction under section 10AA therefore needs to be allowed on the enhanced profits after taking into consideration the disallowance of ₹ 2,80,500 in light of accepted legal position by the CBDT and following the consistent position taken by the Co-ordinate Benches. Assessing Officer is therefore directed to recompute the deduction u/s 10AA taking into consideration the addition of ₹ 2,80,500/. In the result, the Ground of the assessee’s appeal is allowed. Disallowance of employees contribution to PF by invoking provisions of section 2(24)(x) r.w.s 36(1)(va) - HELD THAT:- It is not disputed that the assessee has deposited the employee’s contributions towards PF before the due date of filing of the return of income. Hence, the matter is squarely covered by the decision of Hon’ble Rajasthan High Court in case of CIT vs. State Bank of Bikaner and Jaipur [2014 (12) TMI 65 - RAJASTHAN HIGH COURT] and the ground of appeal no. 1 is thus allowed Disallowance of deduction u/s 10AA - considering the receipt on account of freight, clearing & insurance charges as income from other sources as against business income - HELD THAT:- In the instant case, the assessee has incurred freight, clearing and insurance expenses in respect of export of goods and has recovered an amount from its customers, thus there is an excess recovery towards such expenses and such recovery has been reflected in the profit/loss account. In its computation of income for claiming deduction under section 10AA, the assessee has excluded such recovery of expenses from the export turnover as well as total turnover. Whether such excess recovery of freight and other expense in respect of export of goods is derived from business and the eligible for deduction under section 10AA is squarely covered by the decision of the Hon’ble Rajasthan High Court in case of Pr. CIT, Jaipur vs. Vedansh Jewels (P.) Ltd. [2018 (8) TMI 117 - SC ORDER] held that surplus amount in the freight export account and in the insurance export is derived from export activities and on those accounts deduction under section 10AA is allowable. Issues Involved:1. Validity of the order passed under Section 147 of the Income Tax Act, 1961.2. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.3. Treatment of purchases from M/s Karishma Diamonds Pvt. Ltd. as bogus and related additions under Section 69C of the Income Tax Act, 1961.4. Addition on account of alleged commission paid for obtaining accommodation entries.5. Re-computation of deduction under Section 10AA after considering trading additions.Detailed Analysis:1. Validity of the Order Passed Under Section 147 of the Income Tax Act, 1961:The assessee challenged the validity of the reassessment order passed under Section 147. The original return was filed on 23.09.2009, and the assessment was completed under Section 143(3) on 07.12.2011. Subsequently, based on information from the Investigation Wing, Mumbai, regarding bogus purchases, a notice under Section 148 was issued on 30.03.2016. The reassessment was completed under Section 143(3) read with 147 on 08.11.2016, confirming the eligibility for deduction under Section 10AA but rejecting the books of accounts and making additions under Section 69C.2. Rejection of Books of Accounts Under Section 145(3) of the Income Tax Act, 1961:The Assessing Officer (AO) rejected the books of accounts under Section 145(3) due to the assessee's involvement in obtaining accommodation entries for purchases from a bogus concern, M/s Karishma Diamonds Pvt. Ltd. The AO found that these purchases were non-genuine and treated them as unexplained expenditure under Section 69C. The CIT(A) upheld this rejection.3. Treatment of Purchases from M/s Karishma Diamonds Pvt. Ltd. as Bogus and Related Additions Under Section 69C of the Income Tax Act, 1961:The AO treated the purchases of Rs. 11,22,000 from M/s Karishma Diamonds Pvt. Ltd. as bogus and added 25% of these purchases (Rs. 2,80,500) as unexplained expenditure under Section 69C. The CIT(A) upheld this addition, stating that the section is a deeming provision where income is taxed as deemed income without specifying any head of income. The proviso to Section 69C states that such unexplained expenditure shall not be allowed as a deduction under any head of income.4. Addition on Account of Alleged Commission Paid for Obtaining Accommodation Entries:The AO also added Rs. 22,440, being 2% of Rs. 11,22,000, as commission paid for obtaining accommodation entries. This addition was upheld by the CIT(A).5. Re-computation of Deduction Under Section 10AA After Considering Trading Additions:The assessee argued that any disallowance made would increase the profit eligible for deduction under Section 10AA, referencing CBDT Circular No. 37/2016. The CIT(A) disagreed, stating that Section 69C's deemed income is not derived from export activities and thus not eligible for deduction under Section 10AA. However, the tribunal referred to the CBDT Circular and various judicial precedents, concluding that disallowances related to business activities should enhance the eligible profits for deduction under Section 10AA. Consequently, the AO was directed to recompute the deduction considering the addition of Rs. 2,80,500.Additional Issues in ITA No. 191/JP/2019 for A.Y 2014-15:1. Disallowance of Employees' Contribution to PF:The assessee deposited the employees' contribution to PF before the due date of filing the return. The tribunal allowed this ground, citing the decision of the Hon'ble Rajasthan High Court in CIT vs. State Bank of Bikaner and Jaipur.2. Disallowance of Deduction Under Section 10AA for Freight, Clearing & Insurance Charges:The AO considered the receipt of Rs. 5,75,388 on account of freight, clearing, and insurance as income from other sources and disallowed the deduction under Section 10AA. The tribunal, referencing the Hon'ble Rajasthan High Court's decision in Pr. CIT, Jaipur vs. Vedansh Jewels (P.) Ltd., held that such receipts are part of business income and eligible for deduction under Section 10AA.3. Re-computation of Deduction Under Section 10AA on Increased Business Income:With the allowance of the PF contribution, this ground became infructuous and was dismissed.Conclusion:The tribunal directed the AO to recompute the deduction under Section 10AA considering the addition of Rs. 2,80,500 and allowed the appeal regarding the disallowance of employees' PF contribution and the treatment of freight, clearing, and insurance charges. Other grounds were dismissed as infructuous.