M/S. Bora Agro Foods,, Pune vs Assessee

M/s Bora Agro Foods, First Floor, Samrat House, 39D 2/6, Shankarsheth Road, Pune - 411 037. PAN : AABFB4517E .... Appellant

Vs.

Addl. Commissioner of Income Tax, Range- 2, Pune. .... Respondent

Assessee by : Mr. Nikhil Pathak Department by : Mr. A. K. Modi Date of hearing : 09-02-2015 Date of pronouncement : 10-04-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the assessee is directed against the order of

the Commissioner of Income Tax (Appeals)-II, Pune dated 04.07.2013 which,

in turn, has arisen from an order dated 08.03.2013 passed by the Assessing

Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to

the assessment year 2010-11.

2. In this appeal, the only grievance of the assessee is against the action

of the income-tax authorities in denying deduction for a sum of Rs.70,35,997/-.

3. In brief, the relevant facts are as follows. The appellant is a company

incorporated under the provisions of the Companies Act, 1956 and is, inter-

alia, engaged in the business of manufacture and export of Hulled sesame

seeds and dealing in spices. The Assessing Officer noticed that in the return

of income, assessee had claimed deduction of a sum of Rs.70,35,997/- 2 ITA No.1882/PN/2013

representing freight charges incurred in the preceding assessment year

2009-10. The assessee explained that the tax deduction at source (TDS)

corresponding to the impugned sum was deducted in the previous year

relevant to the earlier assessment year 2009-10 but it was paid to the credit of

the Government in the previous year relevant to the assessment year under

consideration i.e. 2010-11. Under these circumstances by application of

section 40(a)(ia) of the Act, such expenditure was not allowable while

computing income chargeable under the profits and gains of business for

assessment year 2009-10. However, in terms of the proviso to section

40(a)(ia) of the Act which prescribed that where such tax has been deposited

to the credit of the Central Government in the subsequent year, such sum

shall be allowed as a deduction in computing the income of the subsequent

year in which such tax has been paid; assessee contended that in the

previous year relevant to the assessment year under consideration such tax

has been paid and therefore it claimed deduction for the corresponding

expenditure of Rs.70,35,997/- while computing the income for the year under

consideration. Pertinently, in the preceding assessment year of 2009-10, such

sum was not allowed as a deduction while computing income chargeable

under the head 'Profits and gains of business' by application of section

40(a)(ia) of the Act. The Assessing Officer has not disputed the aforesaid

factual matrix but he has denied assessee's claim for deduction of

Rs.70,35,997/- in the year under consideration. The reasons advanced by the

Assessing Officer was that though the assessee added back Rs.70,35,997/- to

its income in the preceding assessment year 2009-10 but the entire income of

the assessee (inclusive of such add back) was allowed a deduction in terms of

section 10B of the Act. In so far as the current assessment year is concerned,

there is no claim for deduction u/s 10B of the Act. According to the Assessing

Officer, the deduction of such amount cannot be allowed in this year on the

basis of the proviso to section 40(a)(ia) of the Act because in the preceding 3 ITA No.1882/PN/2013

assessment year the tax burden on the assessee qua the said amount was

reduced to NIL on account of the deduction u/s 10B of the Act. The CIT(A)

has also affirmed the stand of the Assessing Officer against which assessee is

in appeal before us.

4. Before us, the sum and substance of the plea raised by the assessee is

that having regard to the provisions of section 40(a)(ia) of the Act, if the

assessee does not pay the TDS deducted on an expenditure, then such

expenditure is not allowable as a deduction while computing the income.

Following the aforesaid, the disallowance of impugned expenditure was made

in assessment year 2009-10. Furthermore, in the current assessment year

following the provisions of section 40(a)(ia) of the Act, such expenditure was

liable to be allowed since the requisite TDS has been paid to the Government

in the current year. The Ld. Representative for the assessee vehemently

pointed out that there is no double benefit inasmuch as the claim of the

assessee is within the purview of section 40(a)(ia) of the Act. The Ld.

Representative also pointed out that if there was the legislative intent to

prohibit such a claim, the same would have been provided for in the relevant

provisions i.e. section 40(a)(ia) of the Act. In the absence of any specific

provision in this context, it is contended that the said claim of the assessee be

allowed.

5. On the other hand, the Ld. Departmental Representative appearing for

the Revenue has contended that since no additional taxes on the disallowance

in question were paid by the assessee in the preceding assessment year, the

assessee cannot be allowed to reduce its tax burden by claiming deduction of

the said amount against taxable income of the current year by utilizing the

proviso to section 40(a)(ia) of the Act. The Ld. Departmental Representative

also referred to the following discussion in the order of the CIT(A) wherein the 4 ITA No.1882/PN/2013

claim has been denied on the basis of the provisions of section 80A(4) of the

Act :-

"However, the contention of the appellant that the said amount on which deduction u/s 10B has already been allowed should be considered for allowance during A.Y. 2010-11 is not tenable under law in view of the insertion of a new sub-section (4) in section 80A with retrospective effect from the A Y. 2003-04 by the Finance (No.2) Act, 2009, The newly inserted sub-section (4) in section 80A provides that notwithstanding anything to the contrary contained in Sec 10A or sec 10AA or sec 10B or Sec 10BA or in any provisions of Chapter VI-A under the heading.

"C-Deductions in respect of certain incomes", where, In the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.

The newly inserted provision in sub section (4) of sec 80A can be explained as under:

1. If the assessee claims deduction towards any amount of profits and gains of an unit or eligible business.

2. Such deduction is allowed under any of the specified section including sec 10B for any of the assessment year-

then the following consequences will follow that deduction in respect of and to the extent of such profits and gains shall not be allowed under any other provisions of the Act for such assessment year. The above amendment has been brought about to curb the claim of multiple deduction by the assessee, though sec 80IA(a) also controls double deduction. These sections are overlapping in nature however, sec 80A(4) has far greater reach. 4.3 In the present case the appellant has already been allowed deduction u/s 1GB on Rs.59,43,736/- in respect of the business profits derived from EOU unit, the same cannot be considered again for the claim of deduction in respect of expenditure disallowed for earlier years on which the claim of deduction u/s 10B has already been allowed, in any case the claim of double deduction is not in the scheme of the Act itself and, therefore, the claim made by the appellant is liable to be rejected."

6. We have carefully considered the rival submissions. Section 40(a)(ia)

of the Act prescribes that in respect of certain expenditure specified therein on

which tax is deductible at source under Chapter XVII-B and such tax has not

been deducted or, after deduction, has not been paid within the period

prescribed therein then such expenditure shall not be allowed as a deduction 5 ITA No.1882/PN/2013

while computing the income chargeable under the head profits and gains of

business or profession. The proviso to section 40(a)(ia) of the Act also

specifies that where in respect of such sum, tax has been deducted in any

subsequent year or has been deducted during the previous year but paid after

the due date specified in section 139(1) of the Act, such sum shall be allowed

as a deduction in computing the income of the year in which such tax has

been actually paid. In the present case, it is quite clear that in so far as the

preceding assessment year 2009-10 is concerned, assessee had defaulted in

terms of section 40(a)(ia) of the Act and in computing the income chargeable

under the profits and gains of business it added back the sum of

Rs.70,35,997/- which represented freight charges. On the strength of the

proviso to section 40(a)(ia) of the Act in the current assessment year i.e.

assessment year 2010-11, the case setup by the assessee is that such sum

be allowed as a deduction in computing the income because the same has

been paid during the year under consideration. Having regard to the explicit

provisions of section 40(a)(ia) of the Act, no fault can be found with the claim

of the assessee. In-fact, in so far as the wording of section 40(a)(ia) of the Act

is concerned, even the Revenue does not dispute that the claim of the

assessee is in order. So however, according to the Revenue, the

disallowance/add back in computing the income for assessment year 2009-10

is concerned, no taxes were suffered by the assessee on this sum because it

was allowed deduction u/s 10B of the Act. Because of the allowance of

deduction u/s 10B of the Act in assessment year 2009-10, the case of the

Revenue is that the impugned sum cannot be allowed as a deduction in the

current assessment year on an application of the proviso to section 40(a)(ia) of

the Act. According to the Revenue, it would result in a double benefit to the

assessee. Apart therefrom, reliance has been placed on section 80A(4) to

support the denial of assessee's claim. The provisions of section 80A(4) of

the Act, read as under :-

6 ITA No.1882/PN/2013

"80A(4) Notwithstanding anything to the contrary contained in Sec 10A or sec 10AA or sec 10B or Sec 10BA or in any provisions of Chapter under the heading "C-Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be."

7. Section 80A(4) of the Act prescribes that where in the case of an

assessee any amount of profits and gains of undertaking or unit or enterprise

or eligible business is claimed and allowed as a deduction u/s 10A or section

10AA or section 10B or section 10BA or in any provisions of Chapter VI-A

under the heading "C-Deductions in respect of certain incomes" for any

assessment year, then deduction in respect of and to the extent of such profits

and gains shall not be allowed under any other provisions of this Act for such

assessment year and shall in no case exceed the profits and gains of such

undertaking or unit or eligible business, as the case may be. Ostensibly,

section 80A(4) of the Act has been inserted by the Finance (No.2) Act, 2009

w.r.e.f. 01.04.2003. A perusal of the aforesaid provision would reveal that the

purpose of its introduction is to prevent an assessee from claiming multiple

deductions for the same profits. Notably, the deductions referred to therein

are those contained in section 10A or section 10AA or section 10B or section

10BA or under any provisions of Chapter VI-A under the heading "C-

Deductions in respect of certain incomes". It is also pertinent to note that the

said section seeks to deny multiple deductions for the same profits in the

same assessment year. The aforesaid becomes amply clear from the

phraseology of section 80A(4) of the Act itself. In-fact, a perusal of the notes

on clauses explaining the various provisions in the Finance (No.2) Act, 2009

relating to section 80A(4) of the Act also bears out the aforesaid inference. In

this context, the following statements in the notes of clauses to the Finance 7 ITA No.1882/PN/2013 (No.2) Act, 2009 which inserted section 80A(4) of the Act is relevant, which is

reported at 314 ITR 57 (statutes) especially at page 199, and reads as under :-

"Amendment in Chapter VIA to prevent abuse of tax incentives The profit linked deductions in Chapter VIA are prone to considerable misuse. Further, since the scope of the deductions under various provisions of Chapter VIA overlap, the taxpayers, at times, claim multiple deductions for the same profits.

With a view to preventing such misuse, it is proposed to amend the provisions of section 80A of the Income-tax Act to provide the following, namely :--

(i) deduction in respect of profits and gains shall not be allowed under any provisions of section 10A or section 10AA or section 10B or section 10BA or under any provisions of Chapter VIA under the heading "C.--Deductions in inspect of certain incomes" in any assessment year, if a deduction in respect of same amount under any of the aforesaid has been allowed in the same assessment year ;

(ii) the aggregate of the deductions under the various provisions referred to in (i) above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be;"

[underlined for emphasis by us]

8. Ostensibly, the present claim of the assessee in the current

assessment year is for deduction of Rs.70,35,997/- in terms of the proviso to

section 40(a)(ia) of the Act. There is no claim under any of the provisions

covered in section 80A(4) of the Act. Therefore, invoking section 80A(4) of the

Act in the present case to deny assessee's claim is anyway not justified. So

however, even if for a moment, we accept the invoking section 80A(4) of the

Act by the Revenue yet it would cover a situation if multiple deductions are

claimed for same profits in the same assessment year. Ostensibly, that is not

the case in the present situation because there is no multiple deductions

claimed by the assessee qua the impugned amount in the assessment year

under consideration i.e. 2010-11. Therefore, we find that there is no relevance

of section 80A(4) of the Act in order to test the efficacy of the claim for

deduction of Rs.70,35,997/- made by the assessee on the strength of the

proviso to section 40(a)(ia) of the Act. Thus, this stand of the Revenue is

liable to be rejected.

8 ITA No.1882/PN/2013

9. Now, we may take-up the other plea of the Revenue to the effect that

the assessee would derive double benefit if the claim was allowed because in

the earlier year such income has not suffered tax on account of the deduction

u/s 10B of the Act. In this context, we are unable to find any statutory support

to the plea of the Revenue. It is a well-settled rule of law that where language

is clear and not capable of any other construction then the same has to be

applied. In this context, the assessee had placed reliance on the parity of

reasoning laid down by the Hon'ble Bombay High Court in the case of

Elphinstone Spinning And Weaving Mills Co. Ltd. vs. CIT, 28 ITR 811 (Bom.).

The issue before the Hon'ble High Court was relating to the liability for

additional income tax on payment of 'excess dividends'. Actually, assessee

was found to have paid excess dividend, so however, it resisted the liability to

additional income tax on the ground that it had no taxable income otherwise.

The Hon'ble High Court held that the claim of the Revenue was unsustainable,

and in coming to such conclusion, the Hon'ble High Court made the following

observations, as appearing in the Head notes :-

"It is a condition precedent to the levy of additional income-tax under clause (ii) of the proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951, in respect of "excess dividend" distributed by a company, that there must be a declaration of dividend by the company not payable out of any profits, but out of the specific profits referred to in the first part of the proviso, viz., "profits liable to tax under the Income-tax Act for the year ending on the 31st day of March, 1952" Consequently, if a company has no taxable income at all for the assessment year 1951-52 and in that year it pays dividends out of the profits earned in the preceding year or years, additional income-tax cannot be levied on the company by reason of the fact that it has paid an "excess dividend" within the meaning of that expression in the proviso to paragraph B of Part I of the Finance Act of 1951.

Where the language is clear and not capable of any other construction, then however illogical the position, however absurd the result, however much the construction put may defeat the object of the Legislature, the statute must be construed according to the plain language used by the Legislature, and the more so, if that plain language supports the subject against the taxing department."

9 ITA No.1882/PN/2013 10. In our considered opinion, the aforesaid parity of reasoning laid down

by the Hon'ble Bombay High Court, answers the objection of the Revenue

raised before us

11. Therefore, in conclusion, we uphold the plea of the assessee for

deduction u/s 40(a)(ia) of the Act of a sum of Rs.70,35,997/-. Thus, we set-

aside the order of the CIT(A) and direct the Assessing Officer to delete the

impugned addition.

12. In the result, the appeal of the assessee is allowed, as above.

Order pronounced on 10 th April, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 10 th April, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-II, Pune; 4) The CIT-II, Pune; 5) The DR "B" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy// Assistant Registrar I.T.A.T., Pune