Income Tax Appellate Tribunal - Delhi
M/S. Indian Armour Systems P. Ltd., New ... vs Acit, Faridabad on 26 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' : NEW DELHI)
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
and
SHRI N.K. CHOUDHRY, JUDICIAL MEMBER
ITA No.1219/Del./2015
(ASSESSMENT YEAR : 2010-11)
ITA No.1220/Del./2015
(ASSESSMENT YEAR : 2011-12)
M/s. Indian Armour Systems P. Ltd., vs. ACIT, Circle II,
22, Feet Road, Village Dudhola, Faridabad.
P.O. Bhagola, Palwal.
(PAN : AABCI5575Q)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Rakesh Gupta, Senior Advocate
Shri Somil Aggarwal, Advocate
REVENUE BY : Shri Arun Kumar Yadav, Senior DR
Date of Hearing : 25.07.2018
Date of Order : 26.07.2018
ORDER
PER N K CHOUDHRY, JUDICIAL MEMBER :
The instant appeals have been preferred by the assessee on feeling aggrieved against the separate orders dated 28.01.2015 passed by the ld. CIT (Appeals), Faridabad under section 250 (6) of the Income-tax Act, 1961 (hereinafter called as 'the Act').
2. As one of the issues with regard to the disallowing of deduction claimed u/s 10B of the Act is involved in both the appeals, therefore, for the sake of convenience and brevity, both the appeals have been taken together for disposing off by this consolidated order.
2 ITA No.1219 & 1220/Del./20153. The grounds raised by the assessee in both the appeals are as follows :-
"ITA No.1219/Del/20151. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in disallowing deduction so claimed by assessee u/s 10B of Rs.4,77,34,675/- without considering the material placed on record and by recording incorrect facts and incorrect finding arid thus stating that the assessee allegedly does not fulfill the conditions, outlined in section 10B, necessary for claiming exemption.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs.4,77,34,675/- is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. that the Proprietorship concern was taken over by the assessee in earlier years.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. that the ratio of newly installed to rented plant and machinery was not 81.72 : 18.28 allegedly for the reason that computer software, generator, electric installation and Pallet Racking System do not qualify as Plant & Machinery.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. that the assessee company has been formed by transfer of machinery previously used, which is against the spirit of the provisions of section 10B.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. that the assessee company is formed by splitting up of the proprietorship business already in existence.3 ITA No.1219 & 1220/Del./2015
7. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard.
8. That in any case and in any view of the matter action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned additions are bad in law and against the facts and circumstances of the case.""ITA No.1220/Del/2015
1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in denying the exemption of profits claimed by the assessee u/s 10B amounting to Rs.
64,01,284/- on the ground allegedly that the assessee did not fulfill the conditions necessary for claiming exemption.
2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs.64,01,284/- is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.O. in disallowing a sum of Rs.1,65,200/- u/s 14A of the Income tax Act, r.w. Rule 8D of the Income Tax Rules ,allegedly on the ground that the same are expenses incurred in relation to exempt Income.
4. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard.
5. That in any case and in any view of the matter action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned additions are bad in law and against the facts and circumstances of the case.
4. As the facts of both the appeals are common, therefore, the facts of ITA No.1220/Del/2015 have been taken into consideration for adjudication of appeals. In brief, the facts are as under.
4 ITA No.1219 & 1220/Del./2015The assessee had filed return of income on 11.10.2010 declaring net income of Rs.21,75,778/- after claiming exemption u/s 10B of the Act. The assessment was framed u/s 143 (3) of the Act at a total income of Rs.4,99,22,970/- vide order dated 30.03.2013 while disallowing the amount of Rs.4,77,34,675/- claimed by the assessee u/s 10B of the Act and the same was added in the income of the Assessee. The said addition was challenged before the ld. CIT (A) who also upheld the same. On feeling aggrieved, the assessee is in appeal before us.
5. We have heard the parties and perused the material on record. The similar and identical issue was considered by the co- ordinate Bench at Delhi in Assessee's own cases in ITA Nos.808/Del/2014 & 5647/Del/2014 for AYs 2008-09 & 2009-10 respectively. The coordinate Bench vide its order dated 29.01.2018 in aforesaid appeals, while setting aside the orders of the authorities below, directed the AO to grant deduction u/s 10B of the Act to the assessee. The crux of the order is reproduced herein below for the sake of clarity and ready reference:-
"11. After considering rival submissions and material on record as are referred to Ld. Counsel for the assessee during the course of arguments and have not been disputed by the Ld. DR, we are of the view that the assessee has been able to satisfy the conditions of section 10B of the Act. Ld.CIT(A) accepted that the assessee has obtained approval of 100% EOU from the Board appointed in this behalf by the Central Government. The assessee filed site plan to show that it is an independent unit different from USI. The nature of business of the assessee and USI are totaling different. The assessee is manufacturing helmets and making 100% export sales whereas USI is in trading of electronics items and dealt with local market only. The assessee proved that it has made fresh 5 ITA No.1219 & 1220/Del./2015 investment in the company and also invested the loans. The assessee taken plant & machinery on lease from USI from manufacturing of helmets which is proved from the material of record to show USI purchased new machinery which was leased out to the assessee. No evidence has been brought on record as to how USI has used the new machinery which has been leased out to the assessee for its own purpose. All machines given on lease to the assessee are new except Juki Sewing Machine of the value of Rs.89,800/- which was approximate 5.56% of the total value of the machinery as per details submitted by the assessee at page 314 of the Paper Book (supported by invoices) which is very negligible. The assessee produced sufficient evidence on record to support its claim that the assessee undertaking was not formed as a result of reconstruction of an existing undertaking. The assessee also proved that the assessee undertaking was not formed as a result of transfer of previously used plant and machinery. The allegations that the assessee has given interest free security deposits for plant and machinery is incorrect because it is given for land and building. The assessee also explained that a very negligible amount was spent for repair on plant & machinery and that USI has claimed depreciation being owner of plant & machinery given on lease to the assessee. Authorities below failed to point out as to how lease of plant and machinery was transfer of capital assets. Merely because leased plant and machinery kept by USI sometime would not prove it is used by USI. Claim of assessee has been denied merely on presumptions. All the issues raised by the Ld.CIT(A) for denying deduction u/s 10B of the I.T. Act have been met by the assessee during the course of arguments supported by the material filed in the Paper Book. Ld. DR has not been able to rebut the submissions of the Ld. Counsel of the assessee. Therefore, the assessee has been able to satisfy the conditions of section 6 ITA No.1219 & 1220/Del./2015 10B of the Act. In view of the above discussion and material on record, we are of the view that the assessee undertaking was not formed as a result of reconstruction of an existing undertaking and that it was at formed as a result of transfer of previously used plant & machinery, therefore, disallowance u/s 10B of the Act in the case of the assessee is unjustified. We accordingly set aside the orders of the authorities below and direct the AO to grant deduction u/s 10B of the Income Tax Act to the assessee."
6. It is well settled by the Apex Court in case of S.I. Rooplal And Anr vs Lt. Governor Through Chief Secretary (2000 1 SCC 644) that the orders of the co-ordinate Benches are supposed to be followed in its true spirit by later Benches. For the sake of clarity and ready reference, the relevant observation of the apex court is reproduced herein below;-
This is a fundamental principle which every Presiding Officer of a Judicial Forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. This Court has laid down time and again precedent law must be followed by all concerned; deviation from the same should be only on a procedure known to law. A subordinate court is bounded by the enunciation of law made by the superior courts. A coordinate Bench of a Court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to a larger Bench if it disagrees with the earlier pronouncement. This Court in the case of Tribhuvandas Purshottamdas Thakar v. Ratilal Motilal Patel, [1968] 1 SCR 455 while dealing with a case in which a Judge of the High Court had failed to follow the earlier judgment of a larger Bench of the same court observed thus:
"The judgment of the Full Bench of the Gujarat High Court was binding upon Raju, J. If the learned Judge was of the view that the decision of Bhagwati, J., in Pinjare Karimbhai's case and of 7 ITA No.1219 & 1220/Del./2015 Macleod, C.J., in Haridas `s case did not lay down the correct Law or rule of practice, it was open to him to recommend to the Chief Justice that the question be considered by a larger Bench. Judicial decorum, propriety and discipline required that he should not ignore it Our system of administration of justice aims at certainty in the law and that can be achieved only if Judges do not ignore decisions by Courts of coordinate authority or of superior authority. Gajendragadkar, C.J. observed in Lala Shri Bhagwan and Anr, v. Shri Ram Chand and Anr.
"It is hardly necessary to emphasis that considerations of judicial propriety and decorum require that if a learned single Judge hearing a matter is inclined to take the view that the earlier decisions of the High Court, whether of a Division Bench or of a single Judge, need to be re- considered, lie should not embark upon that enquiry sitting as a single Judge, but should refer the matter to a Division Bench, or, in a proper case, place the relevant papers before the Chief Justice to enable him to constitute a larger Bench to examine the question. That is the proper and traditional way to deal with such matters and it is founded on healthy principles of judicial decorum and propriety."
While coming to the instant case as the issue under consideration is settled by the co-ordinate bench vide order dated 29-01-2018 in Assessee's own cases in ITA Nos.808/Del/2014 & 5647/Del/2014 for AYs 2008-09 & 2009-10 respectively and even the ld. D.R. except replying upon the orders passed by the authorities below, did not bring any contrary material either to our notice or on record to controvert the findings given in the aforesaid order dated 29-01-2018 by co-ordinate Bench at Delhi , therefore in view of the ratio laid down by the Apex Court in the case of S.I. Rooplal And Anr vs Lt. Governor Through Chief Secretary(supra), as the facts and circumstances of the instant cases qua issue under consideration are similar and identical to the appeals relevant to the A.Ys. 2008-09 and 2009-10, which have been 8 ITA No.1219 & 1220/Del./2015 decided by co-ordinate Bench in the assessee's own case, we feel it appropriate to allow the claim of the assessee u/s 10B of the Act and consequently, the orders impugned herein are set aside and deduction of Rs.4,77,34,675/- & Rs.64,01,284/- for AYs 2010-11 & 2011-12 respectively as claimed u/s 10B of the Act, by the assessee stands allowed .
In the result, the issue pertains to section 10B of the Act, under consideration in both the appeals stands allowed in favour of the assessee.
8. Now, coming to the second issue which relates to the disallowance of Rs.1,65,200/- in ITA No.1220/Del/2015 in connection with section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962, the addition was made by the AO on the ground that mere fact that the assessee has not earned exempt income from the capital investment will not push the case out of the purview of section 14A as it is immaterial that the exempt income is actually earned during the year or not. The said disallowance was affirmed by the ld. CIT (A) and therefore is in consideration before us.
9. We have heard the parties and examined the orders of authorities below. Issue under consideration relates to disallowance under section 14 A of the Act. The Hon'ble Delhi High Court in the case of CHEMINVEST LTD. V. CIT, 378 ITR 33 (Del) considered the similar issue under consideration and has categorically held that section 14A envisages that there should be actual receipt of income which was not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure in relation to the said income. Wherever there is no exempt income includible in the total income of the assessee, the provisions of section 14A cannot be 9 ITA No.1219 & 1220/Del./2015 invoked. Relevant conclusion drawn by jurisdiction High Court is reproduced herein below for the sake of convenience and brevity and ready reference:
23.In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the "expression does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
While respectfully following the ratio laid down by the jurisdictional High Court in the aforesaid judgment, as it is well settled position of law that whenever assessee did not earn any exempt income, no disallowance could be made u/s. 14A of the Act. In the instant case the assessee has not earned any exempt income, as the assessee has not claimed any interest on investment made in associate companies and has not received any dividend income from the companies where amounts have been invested, which is exempt, hence applicability of section 14A read with Rule 8D cannot be justified. Therefore in our considered opinion as the assessee did not earn any income during the relevant year, thus no disallowance can be made under section 14A of the Act and hence addition made on the basis of disallowance u/s 14A by the Assessing officer as affirmed by the Ld CIT(A) stands deleted .
10. In the result, both the appeals filed by the assessee stands allowed.
Order pronounced in open court on this 26TH day of July, 2018.
SD/- SD/-
(R.S. SYAL) (N.K. CHOUDHRY)
VICE PRESIDENT JUDICIAL MEMBER
Dated the 26TH day of July, 2018
10 ITA No.1219 & 1220/Del./2015
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT (A), Faridabad.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.