Amrapali Exports Vs DCIT (ITAT Jaipur)
ld. DR submitted that the addition have been made u/s 69C which is a deeming provision and the same cannot be considered for benefit u/s 10AA which is restricted to the profit and gains derived from export. It was further submitted that the Circular No. 37/2016 dated 21.01.2016 referred by the AR is in the context of deduction on enhanced profits under chapter VIA whereas in the present case, the assessee has claimed deduction u/s 10AA which falls under chapter II of the Act.
After hearing both the parties and going through the material available on record, we find that the matter has been examined at length by the Coordinate Bench in assessee’s own case for A.Y 2009-10 and 2014-15 wherein similar contentions were advanced by the ld DR and considering the same, the AO was directed to recompute the deduction u/s 10AA taking into consideration the additions so made by him. Considering the fact that there are no changes in the facts and circumstances of the present case, following the decision taken by the Coordinate Bench in assessee’s own case for A.Ys 2009-10 & 2014-15, the Assessing Officer is hereby directed to recompute the deduction u/s 10AA taking into consideration the addition of Rs. 2,03,739/- made by him. In the result, the ground No. 5 of the assessee’s appeal is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jaipur dated 23.01.2019 wherein the assessee has taken the following grounds of appeal:-
“1. The Ld. CIT(A) has erred on facts and in law in upholding the validity of the order passed u/s 147 of IT. Act, 1961.
2. The Ld. CIT(A) has erred on facts and in law in upholding the rejection of books of accounts u/s 145(3) of IT Act, 1961.
3. The Ld. CIT(A) has erred on facts and in law in upholding the action of AO in treating the purchases of Rs. 7,54,587/- made from M/s Arihant Exports as bogus by not considering the various evidences filed by the assessee. He has further erred in confirming the addition of Rs. 1,88,647/- by disallowing 25% of alleged unverifiable purchases of Rs. 1,88,647/- u/s 69C of IT Act, 1961.
4. The Ld. CIT(A) has erred on facts and in law in confirming the addition of Rs. 15,092/-, being 2% of Rs. 7,54,587/- on account o f alleged commission paid for obtaining the accommodation entry.
5. The Ld. CIT(A) has erred on facts and in law in not accepting the contention of assessee to recomputed the deduction u/s 10AA after considering the trading addition of Rs. 2,03,739/- ignoring the CBDT Circular No. 37/2016 dt. 02/11/2016. ”
2. Briefly stated, the facts of the case are that the assessee firm is engaged in the business of manufacturing and export of gold, silver and base material jewellery plain & studded with precious & semi precious stones. It has set up its manufacturing and export unit/factory in Special Economic Zone at Sitapura Industrial Area, Jaipur and has started commercial production from 21.04.2008 and has claimed deduction u/s 10AA of the Act. The assessee originally filed its return of income on 20.09.2013 at 90,220/- after claiming deduction u/s 10AA at Rs. 7,21,35,825/-. The assessment was completed u/s 143(3) on 27.01.2016 wherein the returned income was accepted by the Assessing Officer. Subsequently, basis the information obtained from Investigation wing, Mumbai that the assessee has obtained bogus entries in the form of bogus purchases amounting to Rs. 7,54,587/- from M/s Arihant Exports, Surat, notice u/s 148 was issued on 28.02.2017. In response to such notice, the assessee filed its return of income on 10.03.2017 declaring the income at Rs 90,220/- after claiming deduction u/s 10AA at Rs. 7,21,35,825/-. The reassessment order u/s 143(3) read with 147 was passed by the Assessing Officer on 13.12.2017 wherein the assessee was found eligible for deduction u/s 10AA to the extent of Rs. 7,21,35,825/- as originally assessed u/s 143(3) of the Act. However, books of accounts were rejected u/s 145(3) and a sum of Rs. 1,88,647/- was added back to the total income of the assessee, being unexplained expenditure for the reason that the assessee was found indulging in obtaining accommodation entry of purchase of goods from bogus concern which was operated by Shri Rajendra Jain without any physical deliveries and such purchases amounting to Rs 7,54,587/- were treated as non genuine and 25% of such purchases were brought to tax as unexplained expenditure besides addition of Rs. 15,092/-, being 2% of Rs. 7,54,587/- on account of alleged commission paid for obtaining the accommodation entry. On appeal, the said findings have been sustained by the ld. CIT(A) and against the said finding, the assessee is now in appeal before us.
3. During the course of hearing, the ld. AR submitted that the matter is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case in ITA No. 190 & 191/JP/2019 for A.Ys 2009-10 & 2014-15 dated 04.11.2019 and our reference was drawn to the relevant findings of the Tribunal which are contained at paras 9 to 12 of its order which read as under.
“9. We have heard the rival contentions and perused the materials available on record. The limited issue under consideration is whether the Assessing Officer is required to recompute the deduction u/s 10AA after considering the addition of Rs. 2,80,500/- so made by him and in that sense, the addition so made is revenue neutral. In this regard, we refer to the CBDT No. 37/2016 dated 2.11.2016 which reads as under:-
“Chapter VI-A of the Income-tax Act, 1961 (“the Act)”, provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such a disallowances pertaining to Sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect o f such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter- VI-A.
2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:
(i) If an expenditure incurred by assessee for the purpose o f developing a housing project was not allowable on account of non deduction of TDS under law, such disallowance would ultimately increase assessee’s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80- IB of the Act. This view was taken by the Courts in the following cases:
