IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri Vijay Pal Rao, Judicial Member and
Shri D. Karunakara Rao, Accountant Member
ITA No. 6186/Mum/2012
(Assessment year: 2009-10)
Pyramid Entek Pvt. Ltd. ACIT , Circle-3
2B/1303 Phase VI Thane.
Siddhachal Complex Vs.
Near Vasant Vihar
Thane (W)-400 610.
(Appellant) (Respondent)
ITA No.6400/Mum/2012
(Assessment year: 2009-10)
ACIT , Circle-3 Pyramid Entek Pvt. Ltd.
Thane. 2B/1303 Phase VI
Vs. Siddhachal Complex
Near Vasant Vihar
Thane (W)-400 610.
(cross Objector) (Respondent)
Permanent Account No. : AADCP 6430 H
Assessee by : Shri C.N. Vaze
Revenue by : Shri Shrikant Namder
Date of hearing : 08/07/2014
Date of Pronouncement : 10/07/2014
ORDER
Per Vijay Pal Rao, Judicial Member:
These cross appeals are directed against the order dated
25/07/2012 of CIT(A) for the assessment year 2009-10. The solitary
ground raised by the assessee in its appeal reads as under :-
2 ITA No. 6186/M/12 &ITA No.6400/M/12
AY: 2009-10
"1. The ld. CIT(A) has erred in confirming the addition of
Rs.20,33,505/- made by Assessing Officer on account of the
provisions of section 10B(7) r.w.s. 80IA(10) to the total income of
assessee."
2. The assessee is an export oriented unit seeking exemption u/s.
10B. During the course of assessment proceedings AO noted that during
the year assessee reimbursed an amount of Rs.45,30,492/- to its group
concern (not eligible under section 10B) namely Pyramid Consulting
Engineering Pvt. Ltd.(PCEPL) This amount was paid for cost of employees
of PCEPL which were hired by assessee (PEPL) for doing the work. The
assessee has shown this as professional fee given to sister concern. The
AO was of the view that provisions of section 10B(7) r.w.s. 80IA (10) are
applicable in the case of the assessee and held that the profit of the
assessee to the extent of Rs.20,33,505/- are more than ordinary profits
because of transactions with its group concern. Accordingly the AO made
an addition of Rs.20,33,505/- by disallowing the benefit of Section 10B.
On appeal, CIT(A) has upheld the action of the AO.
3. Before us the ld. AR of the assessee has submitted that an
identical issue has been considered and decided by this Tribunal in
Assessee's own case for the assessment year 2008-09 vide order dated
07/08/2013 in ITA No.567/Mum/2012. He has thus submitted that the
issue is covered in favour of the assessee by the order of this Tribunal in
the case of assessee. The ld. DR has relied upon the orders of authorities
below.
4. Having considered the submissions of the ld. AR and ld. DR as well
as the relevant material available on record we note that an identical
issue has been considered by the co-ordinate Bench of this Tribunal in
Assessee's own case in assessment year 2008-09 (supra). The Tribunal
has decided the issue in favour of the assessee in para-4 as under :-
3 ITA No. 6186/M/12 &ITA No.6400/M/12
AY: 2009-10
"4. We have perused the records and considered matter carefully.
The dispute is regarding application of provisions of section 10B(7)
read with section 80IA (10) as per which if owing to the close
connection between the assessee carrying on the eligible business
to which this section applies and any other person or for any
other reason, the course of business between them is so arranged
that the business transacted between them produces to the
assessee more than the ordinary profits the AO for the purpose of
allowing deduction u/s l0B may take the amount of profit as may
be reasonably deemed to have been earned by the assessee. In this
case the assessee which is engaged in the business of export had
hired some employees from the sister concern which had been
reimbursed at cost. The AO, therefore, has concluded that the
assessee has produced more than ordinary profit corresponding to
the revenue earned in relation to the hired employees which has
been computed on proportionate basis at Rs. 757068/- . AO had
treated the entire revenue as profit earned after deducting the cost
of employees hired. The approach adopted by the AO is prima facie
incorrect. For applying the provisions of section 10 B(7) read with
section 80IA(10), AO has first to show that cost of hiring
employees by the assessee had resulted into more than ordinary
profit. This could happen only if the assessee had paid less than
the market value to the sister concern on account of hired
employees. There is no material on record to show that sister
concern had hired the employees at less than market price
because only in that case it could be said that the assessee had
paid less than the market price. In the absence of any such
material it cannot be said that assessee had produced more than
the ordinary profit because of close connection with the sister
concern or that it had declared more profit in order to claim more
exemption. In our view the approach adopted by lower authorities
to add proportionate revenue is incorrect. We, therefore set aside
the order of CIT(A) and delete the addition made."
4.1 Since the AO has not given any finding that by hiring the
employees/professionals from the sister concern the assessee had paid
less than market price resulting in shifting of profit from its non eligible
unit to eligible unit under section 10B, therefore, following the earlier
order of this Tribunal in assessee's own case we decide this case in
favour of the Assessee and against the Revenue.
ITA No. 6400/Mum/2012 ( Revenue's Appeal) :-
5. Revenue has raised only a single ground in its appeal which reads
as under :-
4 ITA No. 6186/M/12 &ITA No.6400/M/12
AY: 2009-10
"On the facts and circumstances of the case, whether the CIT(A)-1,
Thane was justified in restricting the amount of disallowance u/s.
40(a)(ia) to the extent of the amount of expenditure payable as on
31.03.2009."
6. The AO also disallowed a sum of Rs.45,30,492/- under section
40(a)(ia) of the Income tax Act as the assessee did not deduct the TDS on
the professional charges paid to its sister concern. The assessee
contended before CIT(A) that this amount was paid to the sister concern
as re-imbursement of cost of employees and, therefore, there was no
element of profit and consequentially no tax was required to be deducted
under section 194J/192 of the Act. The assessee also relied upon the
decision of the Special Bench of the Tribunal in the case of Merlyn
Shipping & Transports vs. Addl. CIT (2012) (146 TTJ 7) and contended
that no disallowance can be made under section 40(a)(ia) when the
amounts are paid. The CIT(A) accepted the contention of the assessee in
view of the decision of the Special Bench and directed the AO to disallow
under section 40(a)(ia) only to the extent of amount payable as on
31/03/2009. CIT(A) has further held that the disallowance made under
section 40(a)(ia) is eligible for exemption u/s. 10B as it was also
recorded by the AO in the assessment order though deduction was not
allowed. Following the decision of Hon'ble Jurisdictional High Court in the
case of CIT vs. Gem Plus Jewellery India Ltd. (233 CTR 240) CIT(A)
directed to grant consequential exemption under section 10B on the
addition sustained under section 40(a)(ia).
7. We have heard the ld. DR as well as ld. AR and considered the
relevant material on record. Without going into the issue of correctness of
disallowance under section 40(a)(ia) we find that even the amount in
question is liable to be disallowed under section 40(a)(ia), the same would
be eligible for deduction under section 10B as it would increase the
eligible profits of the assessee. CIT(A) has relied upon the decision of
5 ITA No. 6186/M/12 &ITA No.6400/M/12
AY: 2009-10
Hon'ble Jurisdictional High Court in the case of Gem Plus Jewellery India
Ltd. (supra), wherein while deciding the question of granting of
exemption under section 10A on the enhanced income due to
disallowance of employers as well as employees contribution towards
PF/ESIC, the Hon'ble Jurisdictional High Court has held in para-12 as
under :-
"12. By reason of the judgment of the Supreme Court in CIT v.
Alom Extrusions Ltd. [2009] 319 ITR 306 the employer's
contribution was liable to be allowed, since it was deposited by the
due date for the filing of the return. The peculiar position,
however, as it obtains in the present case arises out of the fact
that the disallowance which was effected by the Assessing Officer
has not, the Court is informed, been challenged by the assessee.
As a matter of fact the question of law which is formulated by the
revenue proceeds on the basis that the assessed income was
enhanced due to the disallowance of the employer's as well as the
employees' contribution towards Provident Fund/ESIC and the
only question which is canvassed on behalf of the revenue is
whether on that basis the Tribunal was justified in directing the
Assessing Officer to grant the exemption under section 10A. On
this position, in the present case it cannot be disputed that the
net consequence of the disallowance of the employer's and the
employee's contribution is that the business profits have to that
extent been enhanced. There was, as we have already noted, an
add back by the Assessing Officer to the income. All profits of the
unit of the assessee have been derived from manufacturing
activity. The salaries paid by the assessee, it has not been
disputed, related to the manufacturing activity. The disallowance
of the provident fund/ESIC payments has been made because of
the statutory provisions - section 43B in the case of the employer's
contribution and section 36(v) read with section 2(24)(x) in the
case of the employee's contribution which has been deemed to be
the income of the assessee. The plain consequence of the
disallowance and the add back that has been made by the
Assessing Officer is an increase in the business profits of the
assessee. The contention of the revenue that in computing the
deduction under section 10A the addition made on account of the
disallowance of the provident fund/ESIC payments ought to be
ignored cannot be accepted. No statutory provision to that effect
having been made, the plain consequence of the disallowance
made by the Assessing Officer must follow. The second question
shall accordingly, stand answered against the revenue and in
favour of the assessee."
6 ITA No. 6186/M/12 &ITA No.6400/M/12
AY: 2009-10
7.1 Since the CIT(A) has followed the above decision of Hon'ble
Jurisdictional High Court while granting the deduction under section
10B in respect of disallowance made under section 40(a)(ia) therefore, we
do not find any error or illegality in the order of CIT(A) qua this issue.
The ground raised by the revenue has accordingly become academic in
nature.
8. In the result assessee's appeal is allowed and revenue's appeal is
dismissed.
Order pronounced in the open court on 10th July, 2014.
Sd/- Sd/-
(D. KARUNAKARA RAO) (VIJAY PAL RAO )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 10/07/2014.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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