2021 (8) TMI 912 - AT - Income Tax

Tribunal allows deduction under Section 10AA, upholds commission as salary, remands salary apportionment issue.

The Tribunal ruled in favor of the assessee, allowing the deduction under Section 10AA of the Income Tax Act on a standalone basis without setting off ... Claim of deduction u/s 10AA in respect of an eligible undertaking to be allowed on standalone basis - HELD THAT:- We find that the deduction u/s 10AA of the Act is to be allowed on stand alone basis in respect of its profits derived from the eligible undertaking and that the losses of non-eligible units need not be set off with the profits of the eligible unit. This issue is no longer res integra in view of the decision of the Hon’ble Supreme Court in the case of CIT vs Yokogawa India Ltd [2016 (12) TMI 881 - SUPREME COURT] as held we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. TDS u/s 194H OR 192 OR 194J - Disallowance of commission paid to director u/s 40(a)(ia) - AO observed that the assessee had paid commission to the directors of the assessee company on which no tax was deducted at source - HELD THAT:- We find that this issue is squarely covered by the decision of this Tribunal in assessee’s own case for the Asst Year 2009-10 Section 192, unlike other TDS provision, require deduction of tax at source under the head Salaries only “at the time of payment only‟ and not otherwise. The quantum or accrual of expenses is nowhere disputed by revenue. The DR has fairly conceded the above position and therefore, we find no infirmity in the order of CIT(A) and hence, this ground of the revenue is also dismissed - where commission is paid to directors as per their terms of employment for work done in their capacity as whole time directors, such commission should be treated as an incentive in addition to salary and same would not come within the purview of commission and brokerage as defined in Section 194H nor a fees for Technical services as defined in Section 194J. - Decided against revenue. Apportioning the salary or operational expenses of CEO, MD or Finance Department etc which are common to both eligible and non-eligible undertakings of the assessee company - HELD THAT:- As decided in own case [2019 (2) TMI 1955 - ITAT MUMBAI] ITAT remanded the impugned issue back to the file of ld CITA for denovo adjudication. We find that the issue in dispute for the year under consideration should also be restored to the file of ld CITA for denovo adjudication in accordance with law. The assessee is at liberty to file fresh evidences, if any, together with all legal case laws, in support of its contentions and the ld CITA is directed to dispose of the set aside appeal after due consideration of all the factual and legal submissions of the assessee company, in accordance with law. Accordingly, the Ground No. 3 raised by the revenue is allowed for statistical purposes. Issues Involved:1. Claim of deduction under Section 10AA of the Income Tax Act.2. Disallowance of commission paid to directors under Section 40(a)(ia) of the Act.3. Apportionment of salary or operational expenses between eligible and non-eligible undertakings.Issue-wise Detailed Analysis:1. Claim of Deduction under Section 10AA of the Income Tax Act:The assessee challenged the restriction of deduction under Section 10AA to the extent of Gross Total Income. The assessee argued that the deduction should be allowed in full on a standalone basis without setting off losses from non-eligible units. The Tribunal admitted this additional ground, citing the Supreme Court decision in CIT vs Yokogawa India Ltd (391 ITR 274), which clarified that the deduction under Section 10AA is to be allowed on a standalone basis for the eligible undertaking without reference to other units. The Tribunal ruled in favor of the assessee, allowing the deduction of Rs. 72,08,44,373 on a standalone basis.2. Disallowance of Commission Paid to Directors under Section 40(a)(ia) of the Act:The Revenue appealed against the deletion of disallowance of commission paid to directors where no tax was deducted at source. The Tribunal noted that similar disallowances in previous assessment years were deleted by the Tribunal and CIT(A). The commission paid was treated as salary in the subsequent year, and tax was deducted under Section 192. The Tribunal upheld the CIT(A)'s decision, stating that the commission was part of the salary and not subject to disallowance under Section 40(a)(ia), following the precedent set in the assessee's own case for earlier years.3. Apportionment of Salary or Operational Expenses:The Revenue questioned the deletion of the addition made by the AO by apportioning expenses of the CEO, MD, and Finance Department between eligible and non-eligible units. The assessee argued that the SEZ unit had its own setup and maintained separate books of accounts. The Tribunal referred to previous decisions where head office expenses were not allocated to eligible units for deduction purposes. The Tribunal remanded the issue back to the CIT(A) for denovo adjudication, allowing the assessee to present fresh evidence and legal arguments.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was partly allowed for statistical purposes. The Tribunal's decisions were based on legal precedents and the specifics of the case, ensuring a thorough examination of each issue. The order was pronounced on 18/08/2021.