TaxTMI 
TaxTMI 
2021 (3) TMI 318
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....rporated on 28.7.2006. It is a closely held public limited company having 100% equity share held by Dishman Pharmaceuticals and Chemicals Ltd. (DPCL), which is a flagship company. This company was incorporated with a sole idea to develop Special Economic Zone. It has filed a return of income electronically on 30.9.2011 declaring NIL income. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued on 28.9.2012 which was duly served upon the assessee. On perusal of the return, it was revealed to the AO that the assessee-company has been approved for development of Special Economic Zone (SEZ) at Bavla, Nr. Ahmedabad, Gujarat. It has shown gross profit of Rs. 41.77 crores and after set off of carry forward business loss, it has claimed deduction under section 80IAB at Rs. 41,62,61,487/-. The ld.AO has made analysis on the issue in the impugned assessment order, which is running into 54 pages. However, the discussion over this issue is available from page no.1 to 29 of the assessment order. The ld.AO has examined this aspect under four different heads, and he summarized as to why this deduction is not admissible in para-3.1 of t....
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.... out on 10th&11th October,20 l 3; during the course of survey proceedings the claim of deduction was found to be bogus and prima-facie wrong; appellant had not carried out any significant development of SEZ; it infringed SEZ Act and Rules 2005; Shri Janmejay R.Vyas, M.D. admitted the wrong claim of deduction; the claim of capital work in progress [CWIP] in SEZ was found to be bogus and fake; appellant company had applied for approval for developing & setting up of SEZ on 15- 05-2006; 'in principal' approval was issued by the Ministry of Commerce & Industry On 30-05-2007; formal approval was granted by the Ministry on 17-04-2008; gazette notification was published on i3-l l-2009;appellant failed to fulfill the conditions as stipulated in the approval letter issued under SEZ Act; the Development Commissioner, Kandla SEZ had issued showcause letter to the appellant on 15-02-2013; as seen from the statement recorded from Shri Doshi, supervisor at the site office and Shri Nayan Parikh, Managing Director of M/s Multi Media Consultancy Pvt. Ltd.. appellant had not carried out any development work in the notified SEZ and thereby violated the provisions of SEZ Act; it violated the R....
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....Z Rules by claiming lease rentals from sister-concern DPCL, it was contended that the DPCL had made application to the Development Commissioner for approval to set up unit in the SEZ on 29-03- 2011; approval was granted on 26-06-201; the office of the Development Commissioner had accepted that they had received the application from DPCL on 29-03-201l, though the application was allotted inward no.16 dated 05-04-201l and letter of approval granted would relate back to the date of application. ln support thereof he relied on the Gujarat High Court decision cited [236 ITR 251]. Alternatively it was contended that if it is presumed that the approval given to DPCL was relatable to the succeeding year, then the lease rentals received from DPCL would be only an advance towards land premium and therefore the said amount received from DPCL could not be treated as income at all in the hands of the appellant in the year under consideration. It was contended further that invocation of the provisions of Sec. 801A(10) by the A.O was improper, as there is nothing on record to suggest that the transaction with DPCL was so arranged as to give the appellant tax advantage. 3.5 As regards A.O....
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....and decision of the Ahmedabad Bench of the Tribunal in the case of Gujarat Information Technology Fund 64 DTR 169(Ahd.) .In our considered view, it was not open to the Commissioner of Income Tax to take the view contrary to the approval already granted by the approval committee appointed under SEZ Act 2005 and SEZ Rules, 2006. 33. Thus, we do not find any material to arrive at the finding that the assessee has violated any provision of SEZ Act, 2005 or SEZ Rules,2006 or that the assessee was not an entrepreneur referred to in clause (j) of section 2 of SEZ Act, 2005 ....xxx" The observations of the Hon'ble Supreme Court in the case of Gestetner Duplications P. Ltd. vs. CIT (117 ITR 1) relied on by the Tribunal are as under: "12. The facts in the present case that need be stressed in this behalf are that it was as far back as 1937 that the Commissioner of Incometax had granted recognition to the provident fund maintained by the assessee under the relevant rules under 1922 Act, that such recognition had been granted after the true nature of the commission payable by the assessee to its salesmen under their contracts of employment had been brought to the....
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....r the certificate granted by the CIT. The Assessing Officer in the present case has, while making addition of Rs. 137 lakhs in the fresh assessment made pursuant to order of set aside, taken upon himself to give gobye to the certificate issued by the CIT as if the said certificate had been issued by the CIT without verification or application of mind. The Court is not prepared to proceed on such an assumption, though it was so contended by the learned counsel for the Revenue. The fact that the CIT is superior authority insofar as the Assessing Officer is concerned, is not in dispute and could not be disputed by the learned counsel for the Revenue. Once that is the posttion, the following observations made by the Apex Court in case of Gestetner Duplicators (P.) Ltd. v. CIT [1979] 117 ITR 11, would apply. In a case where a private company employed salesmen with a fixed monthly salary and also commission at fixed percentage of the turnover achieved by the salesmen, the assessee-company paid employer's contribution to a provident fund maintained by the company after computing the same by considering both as salary. The fund was recognised by the CIT. According to the Assessing Offi....
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....is apparent that the same is a document evidencing satisfaction about: (1) genuineness of the activities of the Trust or institution, (2) about the objects of the Trust or Institution. Section 12A of the Act stipulates that provisions of sections 11 & 12 shall not apply in relation to income of a Trust or an Institution unless conditions stipulated therein are fulfilled. Thus granting of registration under section12AA of the Act denotes, as per legislative scheme, that conditions laid down in section 12A of the Act stand fulfilled." Applying the principles laid down by the Apex Court in the case of Gestetner Duplicators (P.) ltd. v. CIT[1979] 117 ITR 1 (SC)/1 Taxman 1 (SC) the Court held that while framing assessment order, it was not open to the Assessing Officer to ignore the certificate of registration granted under section 12AA of the Act by the Director of Income Tax [Exemption]. 11. A perusal of the reasons recorded shows that the assessment is sought to be reopened on the ground that even if the petitioner has obtained registration under section 12AA of the Act as an institution carrying on charitable activities, the petitioner is not entitled to the status....
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....e deductions. From the reasons recorded, it is evident that the Assessing Officer has not recorded any independent opinion regarding income having escaped assessment for the reasons stated therein. The sole ground for reopening the assessment appears to be the observations of the Revenue Audit Party that the assessee is not eligible for exemption to the tune of Rs. 77,40,212/- for the yearunder reference since, the Assessing Officer has not disallowed the exemption while finalizing the assessment under section 143(3) of the Act. Thus, it appears that the belief that income chargeable to tax escaped assessment is that of the Revenue Audit Party and not of the Assessing Officer. In the circumstances. the condition precedent for exercise of powers under section 147 of the Act, namely, that the Assessíng Officer should have reason to believe that income chargeable to tax has escaped assessment, does not appear to be fulfilled in the present case. 13. Besides, in the light of the above referred decisions of this Court, it is not permissible for the Assessing Officer to go behind the registration obtained by the assessee under section 12AA of the Act. In the case....
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....les and even then did not withdraw the registration. Under s. 10B the undertaking is permitted to make sales in domestic market, as per 2nd proviso to s.10B(I) of the Act. Besides, the undertaking had shifted its capital goods from bonded warehouse temporarily due the shortage of space. The Notification No. 140 of 1991, dt. 22nd Oct., 1991., under Customs Act, grants exemption from whole of duty and additional duty to the capital goods imported by 100 per cent EOU, subject to condition that importer agrees not to move the goods from the units without approval of Asstt. Commr.of Customs. The Customs Department levied a penalty of Rs. 2,00,000 for the procedural lapse as mentioned above. In this respect the order of the Asstt. Commr.of Customs., levying penalty reads as under : "I find from the records that the said unit has already exported goods valued at Rs. 12,96, 73,255 till December, 2000, as against total export obligation of Rs. 1,00,17.,106 fixed as per terms and conditions of STPI., Gandhinagar, against the of duty free capital goods. Thus the unit has fulfilled the main condition regarding fulfilment of export obligations. Only breach on the part of the said unit ....
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....d to satisfy himself with such certificates granted and not beyond. Sub-clause (i) and sub-clause (ii) of clause (b) under Explanation l only requires to ensure that assessee trust has certificates as mentioned therein. Even if certificates are granted under misrepresentation of facts then it is for the concerned authorities to look into the matter and take action under the provisions of the concerned statute under which certificates are granted. In this regard the observations of the Hon. Supreme Court in the case of Gestetner Duplicators (P.) Ltd. (supra) are very relevant. In that case the Commissioner had granted recognition to the P.F. as far back as 1937. The assessee a private limited company paid to salesmen a fixed monthly salary and commission at fixed percentage of turnover and also paid employer's contribution to the P. F. on the basis of monthly salary as well as commission and credited them into individual account of these sales-men in P.F. maintained and recognized by the Commissioner. A part of such commission and consequently provident fund on such commission was sought to be disallowed. The matter went up to the Hon. Supreme Court. It observed as under:- ....
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....Standing Counsel appearing for the revenue and we have also perused the orders passed by the authorities below. 6. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in-house "R & D" facility approved by the prescribed authorities has to be allowed by deduction of expenditure so incurred. Meaning of these words is plain and clear that the facility is to be established first and on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction. Form No. 3CM, which is order of approval as provided by the rules in this behalf also does not have any mention of date of approval rather it speaks of only approval. The lower authorities are reading more t....
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....nd we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. 9. We are, therefore, of the view that no substantial question of law arises out of the order of the Tribunal. This appeal is, therefore, dismissed. Even if it is presumed that the approval was applicable to the succeeding year only, the money received from OPCL by the appellant is to be held to be an advance and cannot be taxed as income in the year under consideration. A.O.'s passing observation at para-10.2.4 [page 20] of the assessment order[that Sec. BOIA( 1 O) is attracted to the transaction] is without any basis. 3.8 As regards the statement given by the M.D of the appellant company, it is seen that the statement was clarified/retracted by the affidavit filed after 2months. The time lag was explained by the appellant to be on account of the ill-health of the M.D., the non-furnishing of copy of the st....
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....ing deduction under section 80IAB of the Act. Thus, in order to inquire essential conditions, we have to take a brief look into the scheme of SEZ and how it provides a tax holiday to an assessee. For better development of infrastructure in the country, Government of India among various other measures and legislations, enacted SEZ Act offering various benefits to developers of various SEZs in India. This Act was enacted in 2005, and hereinafter referred to "SEZ Act". The section 51(1) of the SEZ Act, provides overriding effect over all other legislations or instrument. Under the scheme of SEZ Act, the Board of Approval (BOA) is constituted, to whom vide powers have been entrusted i.e. from the implementation of the Act, Rules and other aspects. It is also observed that in the decision of the said BOA, a Joint secretary to the Government of India representing the Central Board of Direct Taxes is also being made a Member. Section 9 of the SEZ Act provides duties, power and functions of the BOA. Section 80IAB was not introduced by the Income Tax Act, but by the SEZ Act, 2005. It also amended various other laws. Relevant Income Tax related amendments are provided in section 27 of the SE....
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....ransferee Developer for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to the transferee Developer." 8. A perusal of the above would indicate that on fulfillment of the conditions contemplated in this section, deduction at 100% of the profit and gains derived from such business shall be available to the assessee. The conditions which are required to be satisfied by an assessee are; (A) gross total income of an assessee developer should include any profits and gains derived by an undertaking or an enterprise from any business of developing a SEZ, (B) such SEZ should be notified on or after the 1st day of April, 2005 under the SEZ Act, 2005. Sub-section (2) of section 80IAB further provides that at the option of the assessee, claim of deduction can be made for any ten consecutive assessment years out of fifteen years beginning from the year in which a SEZ has been notified by the Central Government. 9. Case of the assessee is that it has been granted formal approval by the Government of India, Ministry of Commerce and Industry, Department of Commerce (SEZ Section) vide letter dated 17.4.....
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....of deduction in respect to the income having a close and direct nexus with the profit and gains of the business of the development of SEZ. Therefore, all sorts of income which is inextricably related to the carrying on the business of development of SEZ is to be considered for computing deductions under section 80IAB of the Act. 10. After going through the above concepts/scheme of the Act, let us take reasons assigned by the AO while rejecting claim of the assessee. The first objection raised by the AO is, no development or insignificant development of SEZ by the company till financial year 2011-12, and in subsequent years (elaborately discussed in paragraphs 4 to 8 in the assessment orders). During the course of hearing on this proposition, the ld.counsel for the assessee has submitted that the area of inquiry undertaken by the AO was beyond the scope because he could looked into documentation, whether SEZ scheme was approved by the BOA. It has been notified or not; because legislature has constituted a special body for that purpose. The AO cannot sit over their judgment as an appellate authority. It was not his area, and for this proposition on this point, the ld.counsel for t....
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....e by the earlier decisions of the Tribunal as well as of the Hon'ble High Court. The ld.CIT(A) has rightly put reliance upon those decisions. In the case of B.A. Research India Ltd. (supra), the assessee company was engaged in scientific research and development. It used to store clinical sample in specific storage conditions on request of its customers. The assessee charged an amount for this purpose and claimed it to be income from research activity. The AO was of the view that sample storage income was not derived from research and development activity; consequently he disallowed deduction in respect of such income under section 80IB(8A) of the Act. The ld.CIT(A) concurred with the AO. However, the Tribunal did not approve this view of the Revenue authority and allowed deduction. The Revenue went in appeal before the Hon'ble Gujarat High Court, and the Hon'ble Court has observed that once the approval to such activity is granted by the prescribed authority, and such approval is valid, it will no longer be open for the AO to verify the satisfaction of the conditions prescribed under Rule 18DA in order to refuse deduction under section 80IB(8A) of the Act. Hon'ble Court has made r....
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....d that this statement was given under misconception of the facts demonstrated before the MD by the survey team. It is pertinent to note that statement made during the course of survey under section 131(1A)(3) of the Act was without administrating oath, because the authorized officer conducting survey is not empower to administer oath, and such statement does not carry much evidentiary value. It is a just an information for corroboration purpose. A recent decision of Hon'ble Supreme Court in the case of S. Kader Khan & Sons, 352 ITR 480 (SC) as well as the decision of Hon'ble Kerala High Court reported in the case of Paul Mathews & Sons Vs. CIT, 263 ITR 101 are worth to refer for the proposition that if the officer is not authorized to record the statement on oath, the statement taken during the course of survey, has no evidentiary value as contemplated under law. Therefore, on the strength of this statement, the ld.AO cannot deny the deduction to the assessee. This aspect has also been gone through by the ld.CIT(A). After going through the well reasoned finding of the ld.CIT(A) we do not wish to interfere in it on this issue. 14. In the next fold of reasoning, the ld.AO has obse....
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....he expenses incurred by the assessee is penal in nature for the violation of provisions and rules, and therefore, hit by the Explanation-1 to section 37(1). He accordingly made addition to the total income of the assessee. However, in appeal, the ld.first appellate authority reversed the action of the AO and held that the expenses incurred by the assessee was not for any purpose, which was an offence prohibited by the law within the meaning of section 37(1). Aggrieved Revenue is before the Tribunal. 17. Before us both the parties supported orders of the respective authorities. 18. After going through the orders of the Revenue authorities, we find that the ld.CIT(A) has justified in accepting the contention of the assessee that the expenses incurred for late submissions of the documents to IDBI Bank wholly and exclusively for purpose of assessee's business, and not incurred for any offence prohibited by the law or for violation of any provisions. Explanation 1 to section 37(1) of the Act provides that the payment of any amount which was prohibited by law was not a business expenditure and it could not be allowed as an expenditure. It is needless to mention here that this type ....
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....lowance of interest of Rs. 4,74,71,691/- for the year under consideration on the ground that since the expenditure in question is not claimed in P & L Account, the question of deciding its allowability does not arise. Under the facts and circumstances of the case, Id. CIT(A) ought to have decided the issue rather than delaying the decision to the year of actual of claim of the said expenditure." 20. The ld.counsel for the assessee at the very outset submitted that these expenditures have not been claimed by the assessee in the income-tax returns as well as profit & loss account. These were not routed through profit & loss account and straight away taken to capital work-in-progress. The AO has held that these expenditures were not genuine, and therefore were not allowable. The ld.CIT(A) has observed that since the assessee has not debited these amounts in the profit & loss account, and has not claimed as deduction, therefore, the issue in the present year is an academic one. Grievance of the assessee is that, on one hand, the ld.CIT(A) has not adjudicated the issue with regard to genuineness of the expenditure, and on the other hand, has upheld the finding of the AO. The ld.couns....
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.... nos. 17 to 27 of the assessment order, A.O. observed that during the course of survey most of the expenses claimed under the head capital work-in-progress were found to be bogus; on verification of the ledger account of land leveling expenses, it was found that on 01-07-2010 payment of Rs. 17.5 crores was made to M/s Subhash Project & Marketing Ltd.[SPML], Kolkata; Rs. 7.15 crores was paid in July,2010 after deducting tax of Rs. 35 lakhs statement were recorded from the M.D of Multimedia Consultancy Pvt. Ltd. [MCPL] and Shri G.M. Parikh, main person of the firm M/s.Balaji Associates; as seen from the statements, no land development was carried out by the appellant company for the reasons recorded at para-26, it was established beyond doubt that the payments to M/s SPML were not made for the purpose mentioned; but it was just paper transaction to inflate the expenditure, appellant's claim [that since the expenditure was capital in nature no disallowance was called for] is not relevant and therefore Rs. 17.5 crores was being added. 4.3 The contentions of the learned A.R. are that A.O. himself have noted that impugned expenditure was debited to capital work-inprogress ac....
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....he interest income earned by it forms part of the business income, because surplus and spare fund of the business was parked with the banks for temporary period. According to him, this aspect has been considered by the Hon'ble High Court in the assessee's own case in tax appeal no.192 of 2019 whereby the Hon'ble Court has held that interest income earned by the assessee has direct nexus with the income of the business of the undertaking, therefore, the same is to be treated as business income. On the other hand, the ld.CIT-DR justified orders of both the Revenue authorities on this issue. 26. We have considered rival submissions and gone through the record carefully. We find that Hon'ble jurisdiction High Court in the assessee's own case for the earlier period has held that interest income earned by the assessee is derived from business of the undertaking and therefore allowable as business expenditure. We are of the view that the incidental activity of parking of surplus funds with the banks is a part of business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be detached from its profits and gains derived by the undertakin....