Srinivasa Fashions Pvt Ltd., CHENNAI v. DCIT, CHENNAI

ITA 1966/CHNY/2016 | 2008-2009
Pronouncement Date: 30-11-2017 | Result: Allowed

Appeal Details

RSA Number 196621714 RSA 2016
Assessee PAN AAICS9511R
Bench Chennai
Appeal Number ITA 1966/CHNY/2016
Duration Of Justice 1 year(s) 5 month(s)
Appellant Srinivasa Fashions Pvt Ltd., CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted A
Tribunal Order Date 30-11-2017
Last Hearing Date 23-11-2017
First Hearing Date 23-11-2017
Assessment Year 2008-2009
Appeal Filed On 29-06-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI ... # BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI S. JAYARAMAN ACCOUNTANT MEMBER /. I.T.A. NOS. 1965 1966 1967 1968 /MDS/2016 & 2096/MDS/2017 / ASSESSMENT YEARS : 2008-09 2008-09 2010-11 2011-12& 2009-10 M/S. SRINIVASA FASHIONS PVT. LTD. 1A REGENCY APARTMENTS NO. 5 1 ST LANE NUNGAMBAKKAM HIGH ROAD CHENNAI - 600 034. [PAN: AAICS 9511R] VS. DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE -6(2) AAYAKAR BHAVAN NEW BLOCK 7 TH FLOOR 121 M.G. ROAD CHENNAI - 600 034. ( / APPELLANT) ( / RESPONDENT) /. I.T.A. NOS. 1297 & 1130/MDS/2016 & C.O. NO: 85 & 84/MDS/2016 / ASSESSMENT YEARS : 2009-10& 2011-12 DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE -6(2) AAYAKARBHAVAN NEW BLOCK 7 TH FLOOR 121 M.G. ROAD CHENNAI - 600 034. (/ APPELLANT) VS. M/S. SRINIVASA FASHIONS PVT. LTD. 1A REGENCY APARTMENTS NO. 5 1 ST LANE NUNGAMBAKKAM HIGH ROAD CHENNAI - 600 034. [PAN: AAICS 9511R] ( / RESPONDENT/ CROSS OBJECTOR) %& / ASSESSEE BY : SHRI T. BANUSEKAR CA )*%& / REVENUE BY : SHRI S. BHARATH CIT & /DATE OF HEARING : 23.11.2017 & /DATE OF PRONOUNCEMENT : 30.11.2017 :-2-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 / O R D E R PER S. JAYARAMAN ACCOUNTANT MEMBER: THE ASSESSEES APPEALS ARE AGAINST THE ORDERS OF TH E CIT (A) -15 CHENNAI IN ITA NO 269 / CIT(A)-15/13-14 AGAINST THE ORIGINAL ASSESSMENT MADE FOR AY 2008-09 ON 30.12.2010 IN ITA NO 77/ CIT(A)-15/14-15 AGAINST THE RE-ASSESSMENT MADE FOR AY 2008-09 ON 30.3.2014 RESPECTIVELY DT 15.02.2016 IN ITA NOS 356 445&78 / CIT(A)-15/13-1 4 AGAINST THE ASSESSMENTS MADE FOR AYS 2009-10 2010-11& 2011-12 RESPECTIVELY ON 28.11.2011 30.3.2013 & 11.01.2016. THE REVENUE F ILED APPEALS FOR AYS 2009-10 & 2011-12 IN ITA NO. 1297/2016 & 1130/2016 AGAINST THE CIT(A) ORDERS MENTIONED SUPRA. THE ASSESSEE ALSO FILED C O 85/2016 AND 84/2016 FOR AYS 2009-10 & 2011-12 AGAINST THE CIT(A) ORDERS MENTIONED ABOVE. 2. THE ASSESSEES APPEALS FOR AY 2008-09 IN ITA NOS 1965 & 1966/CHNY/2016 THE APPEAL FOR AY 2010-11 IN ITA NO . 1967/CHNY/2016 THE APPEAL FOR AY 2011-12 IN ITA NO. 1968/CHNY/2016 EA CH OF THEM ARE FILED BELATEDLY BY 30 DAYS AND THE REVENUES APPEAL FOR A Y 2011-12 IN ITA NO. 1130/CHNY/2016 IS FILED BELATEDLY BY 12 DAYS. BOTH THE ASSESSEE AND THE REVENUE FILED CONDONATION PETITIONS. WE HEARD THE AR AND THE DR. WE FIND THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THES E APPEALS/CROSS OBJECTIONS :-3-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 BEFORE THE STIPULATED TIME. THEREFORE WE CONDONE THE DELAY AND ADMIT THESE APPEALS/CO. 3. M/S. SRINIVASA FASHIONS PVT. LTD THE ASSESSEE AN EXPORT GARMENT MANUFACTURING COMPANY IS IN SPECIAL ECONOMIC ZONE ( SEZ) AND IS ELIGIBLE FOR TAX EXEMPTION U/S 10A. IT TOOK OVER ALL THE ASSETS AND LIABILITIES OF M/S SRINIVAS EXPORTS INTERNATIONAL A PARTNERSHIP FIRM AND A GAR MENT MANUFACTURING UNIT IN A DOMESTIC TARIFF AREA (DTA) AS ON 01.03.2008. T HUS AS ON THE YEAR END IE AS ON 31.3.2008 THE ASSESSE HAD TWO UNITS VIZ SEZ UNIT & DTA UNIT. THE A O FOUND THAT THE EXPENDITURE INCURRED IN DTA UNIT FOR ONE MONTH WAS HIGH AS COMPARED TO THE EXPENDITURE INCURRED IN THE SEZ FO R 12 MONTHS. THE AO HAS LINKED THE INSTALLED AND ACTUAL CAPACITY OF MACHINE RY IN SEZ UNIT AND DTA UNIT AND FOUND THAT THE PRODUCTION IN DTA UNIT DEPENDS O N THE WORK ORDERS RECEIVED FROM THE SEZ AND HENCE THE PRODUCTION IN T HE DTA UNIT HAS BEEN TRANSFERRED TO THE SEZ UNIT WHICH SOLD AND CLAIME D THE DEDUCTION IN SEZ UNIT. SINCE THE SALES ARE MADE TO RELATED PARTIES INVOK ING THE PROVISIONS OF SECTION 10AA(9) THE AO TOOK 25% OF SALES OF SEZ UNIT AS THAT OF DTA UNIT AND RECALCULATED ELIGIBLE PROFIT TO BE ALLOWED IN SEZ U NIT AT RS. 20 37 21 093/- AFTER DETERMINING THE TOTAL TURNOVER IN DTA UNIT AT RS.1 61 50 501/- AND THUS COMPLETED THE ASSESSMENT U/S 143(3). LATER ON T HE AO HAS REOPENED THE ABOVE ASSESSMENT U/S 148 ON THE GROUND THAT THE U NABSORBED DEPRECIATION OF RS.97 53 913/- CLAIMED BY THE ERSTWHILE FIRM M/ S SRINIVASA EXPORTS :-4-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 INTERNATIONAL HAS BEEN WRONGLY BEEN ALLOWED WHEN TH E ASSESSEE DID NOT CLAIM DEPRECIATION ON THE ASSETS TRANSFERRED FROM M/S SRI NIVASA EXPORTS INTERNATIONAL BUT CLAIMED AS UNABSORBED DEPRECIATIO N . HOWEVER AS PER PROVISO TO SEC.32(1)(II) THE DEPRECIATION BETWEEN THE PREDECESSOR AND SUCCESSOR FAILING UNDER THE SECTION 47(XIII) (TAKEN OVER OF BUSINESS OF THE FIRM BY COMPANY) HAS TO BE APPORTIONED FOR THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED BY THEM. SINCE THE ASSESSEE COMPAN Y TOOK OVER THE FIRM ONLY FROM 01.03.2008 ONWARDS IT CAN SET OFF DEPREC IATION ONLY TO THE EXTENT OF RS.31/366 X 97 53 913 I.E. RS.8 26 151/- ONLY AS AG AINST RS.97 53 913/- ALLOWED. FURTHER U/S 78(2) THERE IS NO PROVISION T O SET OFF THE LOSSES OF THE FIRM AGAINST THE INCOME OF THE COMPANY TAKING OVER IT AND THE ASSESSMENT OF THE FIRM UP TO 29.02.2008 HAS TO BE SEPARATELY MADE AS THE CASE OF DISSOLUTION . AFTER GIVING OPPORTUNITY TO THE ASSES SEE AND AFTER CONSIDERING ITS SUBMISSIONS THE AO HELD THAT SINCE THE ASSESSEE CO MPANY TOOK OVER THE FIRM ONLY FROM 01.03.2008 ONWARDS IT CAN SET OFF DEPREC IATION ONLY TO THE EXTENT OF RS.31/366 X 97 53 913 I.E. RS.8 26 151/- ONLY AS AG AINST RS.97 53 913/- ALLOWED IN THE ORIGINAL ASSESSMENT AND HENCE ADDED RS. 89 27 762/-. 4. AGGRIEVED THE ASSESSE FILED APPEALS AGAINST BO TH THE ABOVE ORDERS AND THE CIT(A) DISMISSED THE APPEAL AGAINST THE ORIGIN AL ASSESSMENT HOLDING THAT THE PROCESSING CHARGES BY DTA UNIT ARE NOT AT MARKE T PRICE. HOWEVER ON THE ADDITION OF RS.89 27 762/- MADE IN THE REASSESSMENT BEING UNABSORBED :-5-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 DEPRECIATION OF THE PREDECESSOR FIRM THE CIT (A) A CCEPTED THE APPELLANTS SUBMISSION AND HELD THAT PROVISION OF SECTION 78(2) ARE NOT APPLICABLE BUT PROVISION OF SECTION 72A(6) R.W.S 47(XII) IS APPLIC ABLE AND DIRECTED THE AO TO ALLOW CLAIM OF SET OFF OF UNABSORBED DEPRECIATION A FTER VERIFICATION OF CONDITIONS AS LAID DOWN IN SECTION 47(XII) FROM THE RELEVANT RECORDS. THUS THE CIT(A) ALLOWED THE ASSESSEES GROUNDS OF APPEAL . 5. AGGRIEVED AGAINST THE ABOVE ORDERS OF THE CIT (A) I.E. ON THE ORIGINAL ASSESSMENT ORDER AS WELL AS AGAINST THE REASSESSMEN T ORDER THE ASSESSEE FILED APPEALS IN ITA NOS. 1966 & 1965/ CHNY/ 2016 RESPECTIVELY WITH FOLLOWING GROUNDS OF APPEAL : 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER IS WITHOUT JURIS DICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN INVOKING THE PROVISI ONS OF SECTION 10AA(9). 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE DTA (DOMESTIC TARIFF AREA) OF THE APPELLANT MER ELY CARRIED OUT THE JOB CONTRACT FOR THE ELIGIBLE UNIT U/S.10AA OF THE APPE LLANT. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN CONCLUDING THAT THE TRANSACTIONS BETWEEN THE DTA UNIT AND ELIGIBLE UNIT U/S.10AA WERE NOT AT MARKET RATE. 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN ADOPTING 25% OF SALES OF THE ELIGIBLE U/S.10AA AS THE SALES OF THE DTA UNIT AND CONSEQUENTLY RECAL CULATING THE PROFITS OF BOTH THE UNITS AND THE ALLOWABLE DEDUCTION U/S.10AA. 7. FOR THAT WITHOUT PREJUDICE TO THE ABOVE THE COM MISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT A FTER SETTING OFF OF THE AVAILABLE LOSSES THE TOTAL INCOME OF APPELLANT WAS NIL. :-6-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 THE GROUNDS ON THE REASSESSMENT ARE : 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER IS WITHOUT JURIS DICTION. 3. FOR THAT THE REASSESSMENT IS BAD IN LAW. 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN DISALLOWING DEPRECIA TION TO THE TUNE OF RS.89 27 762/-. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN INVOKING PROVISO TO SECTION 32(1 )(II) AND HOLDING THAT THE DEPRECIATION PERTAINING TO THE PREDECESSOR FIRM M/S.SRINIVASA EXPORTS INTERNATIONAL OF RS.97 53 913/- SHOULD BE ALLOWED I N THE RATIO OF NUMBER OF DAYS OF USE. 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) CONSEQUENTLY ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN AL LOWING DEPRECIATION ONLY TO THE EXTENT OF RS.8 26 151/- BEING PROPORTIONATE DEP RECIATION FOR 31 DAYS. 6. THE ISSUE THAT THE PROCESSING CHARGES INCURRED B Y THE DTA UNIT ARE NOT AT MARKET PRICE IS COMMON FROM AYS 2008-09 TO 2010 -11 AND HENCE IT WOULD BE DEALT APPROPRIATELY INFRA. WITH REGARD TO THE ADDITION OF RS. 89 27 762/- UNABSORBED DEPRECIATION OF THE PREDECESSOR FIRM TH E CIT(A) DEALT AS UNDER: 5.2.1 I HAVE CONSIDERED THE FINDINGS GIVEN BY THE AO AND SUBMISSIONS MADE BY THE AR OF THE APPELLANT. THE AO HAS REOPENE D THE ASSESSMENT U/S 148 ON THE GROUND THAT UNABSORBED DEPRECIATION OF RS.97 53 913/- AS CLAIMED BY M/S SRINIVASA EXPORTS INTERNATIONAL WHICH IT TOOK O VER ON 01.03.2008 HAS WRONGLY BEEN ALLOWED. THE AO HAS STATED THAT THE UN ABSORBED DEPRECIATION OF RS.97 53 913/- AS CLAIMED BY THE FIRM WAS ALLOWED. HOWEVER AS PER PROVISO TO SEC.32(1)(II) THE DEPRECIATION BETWEEN THE PREDECE SSOR AND SUCCESSOR FAILING UNDER THE SECTION 47(XLII) (TAKEN OVER OF BUSINESS OF THE FIRM BY COMPANY) HAS TO BE APPORTIONED FOR THE NUMBER OF DAYS FOR WHICH THE ASSETS WERE USED BY THEM. SINCE THE ASSESSEE COMPANY TOOK OVER THE FIRM ONLY FROM 01.03.2008 :-7-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 ONWARDS IT CAN SET OFF DEPRECIATION ONLY TO THE EX TENT OF RS.31/366 X 97 53 913 I.E. RS.8 26 151/- ONLY AS AGAINST RS.97 53 913/- ALLOWED. FURTHER U/S 78(2) THERE IS NO PROVISION TO SET OFF THE LOSSES OF THE FIRM AGAINST THE INCOME OF THE COMPANY TAKING OVER IT. THE APPELLANT HAS SU BMITTED THAT PROVISION OF SECTION 72A(6) ARE APPLICABLE AND NOT SECTION 78(2) AS THE FIRM NO LONGER EXISTS AND HAS BEEN TAKEN OVER BY THE APPELLANT COMPANY. T HE CONTENTION OF THE APPELLANT IS ACCEPTABLE SINCE PROVISION OF SECTION 78(2) ARE NOT APPLICABLE BUT PROVISION OF SECTION 72A(6) R.W.S 47(XII) IS APPLIC ABLE. THE AO IS DIRECTED TO ALLOW CLAIM OF SET OFF OF UNABSORBED DEPRECIATION A FTER VERIFICATION OF CONDITIONS AS LAID DOWN IN SECTION 47(XII) FROM THE RELEVANT R ECORDS. THESE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. THE AR SUBMITTED THAT THE ORDER OF THE CIT(A) IS NO T CLEAR AS TO WHETHER THE UNABSORBED DEPRECIATION SHOULD BE SET OFF FULLY OR FOR 31 DAYS. PER CONTRA THE DR SUPPORTED THE ORDER OF THE CIT(A). 7. WE HEARD THE RIVAL CONTENTIONS. THIS ISSUE IS REMITTED BACK TO THE CIT(A) FOR PROPER ADJUDICATION AND ALSO FOR PASSIN G A SPEAKING ORDER. HENCE THE CORRESPONDING GROUNDS OF THE ASSEESEE IN ITA NO S. 1965 OF 2016 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 1297 OF 2016 2096 OF 2016 & CO 85 OF 201 6 OF AY 2009-10 : 8. IN THE ASSESSMENT MADE FOR AY 2009-10 THE AO FOUND THAT THERE IS A LOSS CLAIMED IN THE DTA UNIT WHEREAS PROFIT IS SHOW N IN THE SEZ UNIT ESPECIALLY WHEN THE ENTIRE PROCESSING INCOME FOR THE DTA UNIT IS FROM THE SERVICES :-8-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 RENDERED TO SEZ UNIT. THE AO OBSERVED THAT THE DTA PAYS JOBWORK CHARGES TO OUTSIDERS AT A HIGHER RATE. HOWEVER IT CHARGES AT LESSER RATE TO THE SEZ UNIT (AS ADMITTED BY THE AR OF THE APPELLANT DURING ASSE SSMENT PROCEEDINGS) THUS INCURRING HUGE LOSSES. BY THIS MECHANISM OF UNDER I NVOICING AT A LOWER RATE THE DTA UNIT IS INCURRING HUGE LOSSES WHEREAS IN TH E CASE OF THE SEZ UNIT TO WHICH DEDUCTION U/S 10AA ARE AVAILABLE HUGE PROF IT ARE BEING SHOWN. THE ASSESSEE WAS ASKED TO GIVE DOCUMENTARY EVIDENCE AS PROOF IN RESPECT OF THE SERVICES RENDERED AND TO PROVE THAT SERVICES REND ERED BY THE DTA UNIT TO THE SEZ UNIT ARE AT MARKET RATE. THE AR ADMITTED DURIN G THE ASSESSMENT PROCEEDINGS THAT THOUGH THE WORKERS ARE EMPLOYED TH ROUGHOUT THE YEAR BY THE DTA ITS COST IS NOT CHARGED TO THE SEZ UNIT. T HE AO OBSERVED THAT PROFIT IN THE SEZ UNIT IS SHOWN AT RS. 69 088 163/- WHER EAS LOSS SHOWN IN THE DTA UNIT AT RS. 4 68 22 748/-. COMBINED PROFIT OF TWO U NITS IS RS.2 22 65 415/- ITSELF PROVES THAT THE ASSESSEE'S CONTENTION IS WRO NG. THE AO OBSERVED THAT CONSEQUENTLY IN DTA UNIT WHOSE INCOME IS CHARGEABL E TO INCOME TAX BUT IT DOES NOT HAVE ANY DEDUCTION/EXEMPTION BENEFIT U/S 1 0AA CONSEQUENTLY HUGE ARTIFICIAL LOSSES ARE CREATED BY DELIBERATELY KEEPING THE PROCESSING CHARGES CHARGED TO THE SEZ UNIT AT A VERY LOW PRICE EXTRAORDINARILY LESSER THAN THE OPERATING COSTS AND PROCESSING CHARGES INC URRED BY THE DTA UNIT THEREBY CREATING HUGE LOSSES TO BE SET OFF AGAINST 'INCOME FROM OTHER SOURCES' AS WELL AS ENSURING THAT HUGE LOSSES ARE CARRIED FO RWARD TO BE SET OFF AGAINST ANY FURTHER INCOME OF DTA IN THE SUBSEQUENT AYS. TH IS MODUS OPERANDI IS :-9-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 FOLLOWED BY THE ASSESSEE BECAUSE THE INCOME FROM TH E DTA UNIT IS TAXABLE. SINCE THE ASSESSEE COULD NOT GIVE THE COMPARABLE M ARKET PRICE WITH REGARD TO THE SERVICES RENDERED BY DTA TO SEZ UNIT THE PROVI SIONS OF SECTION 10AA(9) ARE CLEARLY APPLICABLE . THEREFORE THE AO REWORKED THE INCOME OF DTA UNIT AND THE SEZ UNITS AS PER PROVISIONS OF SECTION 10AA (9) AS IF THE PROCESSING CHARGES/JOB WORK CHARGES CHARGED BY THE DTA UNIT AR E CHARGED SO THAT THERE IS NO LOSS TO THE DTA UNIT. THE JOB WORK CHARGES RA ISED BY THE DTA UNIT ON THE SEZ UNIT ARE TAKEN AT AS IF THE PROCESSING CHARGES ARE CHARGED AT COST OF EXPENDITURE INCURRED BY THE DTA UNIT AND THERE COUL D BE NO LOSS INCURRED BYTHE DTA UNIT. THE A O COMPUTED THE INCOME FROM T HE SEZ UNIT AT RS.1 90 08 126/- AND FROM THE DTA UNIT AT RS.32 05 499/-. FURTHER WHILE COMPUTING THE INCOME THE A O SET OFF THE UNABS ORBED DEPRECIATION AGAINST INCOME OF THE SEZ UNIT BEFORE ALLOWING DEDUCTION U/S 10AA. 9. AGGRIEVED THE ASSESSE FILED APPEAL BEFORE THE CIT(A) . SINCE THE ASSESSEE HAS FAILED TO GIVE COMPARABLE MARKET PRICE WITH REGARD TO THE SERVICES RENDERED BY THE DTA TO THE SEZ UNIT THE CIT (A) UPHELD THE ACTION OF AO . WITH REGARD TO SET OFF THE UNABSORBED DEPRE CIATION AGAINST INCOME OF THE SEZUNIT BEFORE ALLOWING DEDUCTION U/S 10AA FOLLOWING THE DECISION OF THE HON'BLE ITAT MUMBAI IN THE CASE OF LONDON INFOT ECH P. LTD. VS. DIT IN ITA NO.6582/MUM/2012 DATED 01.01.2014 WHICH RELIE D ON THE DECISION IN THE SCIENTIFIC ATLANTA INDIA TECHNOLOGY (P) LTD. VS . ACIT(2010) 38 SOT :-10-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 252(CHENNAI)(SB) DIRECTED THE AO NOT TO SET OFF UNABSORBED DEPRECIATION AGAINST TOTAL INCOME WHILE COMPUTING DEDUCTION U/ S 10AA AND THUS PARTLY ALLOWED THE ASSESSEES APPEAL. AGGRIEVED AGAINST THE ORDER OF THE CIT(A) THE REVENUE FILED AN APPEAL IN ITA NO 1297 OF 2016 AND THE ASSESSE FILED THE CROSS APPEAL IN ITA NO. 2096 OF 2017 AND CO85 OF 20 16. THE REVENUES GROUNDS OF APPEAL ARE AS UNDER : 2. THE LD CIT(A) DIRECTED THE AO NOT TO SET OFF U NABSORBED DEPRECIATION AGAINST TOTAL INCOME WHILE COMPUTING DEDUCTION U/S. 10AA. 2.1 THE LD CIT(A) FAILED TO APPRECIATE EVEN THOUGH THE PROFIT OF THE ELIGIBLE UNDERTAKING HAS TO BE FIRST COMPUTED. THEN DEPRECI ATION IS TO BE TREATED AS CURRENT YEAR DEPRECIATION AND IS TO BE SET OFF AGAI NST THE BUSINESS INCOME OF THE ELIGIBLE UNIT IT BEFORE ALLOWING DEDUCTION U/S. 10A A. 2.2 THE LD CIT(A) FAILED TO APPRECIATE EVEN THOUGH THE CARRY FORWARD LOSSES OF EARLIER ASSESSMENT YEARS HAVE TO SET OFF AGAINST TOTAL INCOME OF RELEVANT ASSESSMENT YEAR AND IT IS OUT OF BALANCE INCOME ON LY THAT DEDUCTION UNDER SECTION 10B CAN BE GRANTED. 2.3 THE LD CIT(A) FAILED TO APPRECIATE EVEN THOUGH THE UNABSORBED DEPRECIATION OF SEZ UNIT IS ADJUSTED AGAINST THE PR OFIT OF ELIGIBLE UNIT (SEZ UNIT) BEFORE ALLOWING DEDUCTION U/S. 10AA. HENCE THE UN ABSORBED DEPRECIATION OF RS. 1 03 02 299/- IS SET OFF AGAINST INCOME FROM BU SINESS AND PROFESSION ARRIVED AT RS. 1 90 08 126/- 2.4 THE LD CIT(A) FAILED TO APPRECIATE EVEN THOUGH THE SIMILAR ISSUE DECIDED IS IN FAVOUR OF REVENUE IN CIT VS YOKOGAWA INDIA LTD 17 TAXMANN.COM (KTK). THE SAME IS BEING ENTRUSTED BEFORE THE APEX COURT. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING. IT IS PRAYED THAT THE ORDER OF THE LEARNE D CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. :-11-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 CO.NO: 85/2016 OF AY 2009-10: THE GROUNDS OF CROSS OBJECTION ARE EXTRACTED AS UNDER: 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE LAW FACTS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT PREJUDICIAL TO THE INTEREST OF THE ASSESSEE AND IS OPPOSED TO THE PRIN CIPLES OF EQUITY NATURAL JUSTICE AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER ERRED IN INVOKING THE PROVISI ONS OF SECTION 10AA(9). 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE DTA (DOMESTIC TARIFF AREA) OF THE RESPONDENT ME RELY CARRIED OUT THE JOB CONTRACT FOR THE ELIGIBLE UNIT U/S.10AA OF THE RESP ONDENT. 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONCLUDING THAT THE TRANSACTIONS BETWEEN THE DTA UNIT AND ELIGIBLE UNIT U/S. 10AA WERE NOT AT MARKET RATE. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) CONSEQUENTLY ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TR EATING RS.5 00 80 038/- AS THE ADDITIONAL PROCESSING CHARGES OF THE ELIGIBLE U NIT. 10. THE ISSUE THAT THE PROCESSING CHARGES INCURRED BY THE DTA UNIT ARE NOT AT MARKET PRICE HUGE ARTIFICIAL LOSS IS CLAIMED IN THE DTA UNIT WHILE PROFIT IS SHOWN IN THE SEZ UNIT ETC. IS COMMON FROM AYS 2008 -09 TO 2010-11 AND HENCE IT WOULD BE DEALT APPROPRIATELY INFRA. 11. THE ASSESSEE HAD BROUGHT FORWARD BUSINESS LOSS FROM THE SEZ UNIT FOR AYS 2006-07 & 2007-08. THE ASSESSEE ALSO HAD BROUG HT FORWARD DEPRECIATION LOSS IN THE SEZ UNIT FOR AYS 2006-07 & 2007-08. WHI LE MAKING THE COMPUTATION THE AO ARRIVED THE SEZ UNIT INCOME AFT ER ALLOWING THE CURRENT DEPRECIATION FROM WHICH HE ALLOWED THE UNABSORBED DEPRECIATION OF AYS :-12-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 2006-07 & 2007-08 AND THEN ARRIVED THE INCOME FROM THE SEZ UNIT. TO WHICH HE ADDED THE INCOME FROM THE DTA UNIT AND ARRIVED T HE TOTAL INCOME AT RS. 1 19 11 331/-. FROM WHICH THE AO ALLOWED THE SEZ UNITS BROUGHT FORWARD BUSINESS LOSS OF AY 2006-07 & 2007-08 TO THE EXTENT OF RS. 1 19 11 331/- AND THEN ALLOWED TO CARRY FORWARD THE BALANCE BUSINESS LOSS OF SEZ UNIT RELATED TO AY 2007-08 AT RS. 94 78 204/-. THE CIT(A) DIRECTED THE AO NOT TO SET OFF UNABSORBED DEPRECIATION AGAINST TOTAL INCOME WHILE COMPUTING THE DEDUCTION U/S. 10AA. AGGRIEVED THE REVENUE IS ON APPEAL. 12. WE HEARD THE RIVAL CONTENTIONS GONE THROUGH TH E ORDERS OF THE AYS 2008-09 & 2009-10. WE FIND FROM THE ASSESSMENT ORD ER OF ASSESSMENT YEAR 2008-09 THAT THE AO HAS ALLOWED ELIGIBLE PROFIT TO BE ALLOWED IN THE SEZ UNIT AT RS. 20 37 27 093/- AND SEND A NILL DEMAND NOTICE TO THE ASSESSEE. HOWEVER IN THE ASSESSMENT ORDER OF THE ASSESSMENT YEAR 2009-10 THE AO SET OFF THE SEZ UNITS BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSSES OF ASSESSMENT YEARS 2006-07 & 2007-08. IT IS KNOWN AS TO HOW THE SO CALLED BROUGHT FORWARD SEZ UNITS BUSINESS & DEPRECIATION L OSSES OF AYS 2006-07 & 2007-08 IN ASSESSMENT YEAR 2008-09. SINCE THE REL EVANT FACTS ARE NOT CLEAR FROM THE ORDERS THIS ISSUE IS REMITTED BACK TO THE AO FOR A FRESH EXAMINATION AND DETERMINATION IN ACCORDANCE WITH LAW. BEFORE D ECIDING THIS ISSUE THE AO SHALL AFFORD ADEQUATE OPPORTUNITY TO THE ASSESSEE. THE REVENUES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. :-13-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 13. ITA NO. 2096 OF 2017 FOR AY 2009-10: SINCE THE ASSESSEE HAS NOT PRESSED THIS APPEAL I T IS DISMISSED. ITA NO 1967 OF 2016 FOR AY 2010-11 : 14. IN THE ASSESSMENT MADE FOR AY 2010-11 SINCE THE ASSESSEE COULD NOT GIVE THE COMPARABLE MARKET PRICE WITH REGARD TO THE SERVICES RENDERED BY THE DTA TO THE SEZ UNIT THE AO REWORKED THE INCOME OF THE DTA UNIT AND THE SEZ UNIT AS WAS DONE IN AY 2009-10. FURTHER THE AO HAS DISALLOWED DEPRECIATION ON LAND OF RS.64 926/- DEPRECIATION O N PREOPERATIVE EXPENSES RS.1 05 166/- AND DISALLOWED RS 15 890/- U/S 14 A . AGGRIEVED THE ASSESSE FILED APPEAL BEFORE THE CIT(A) . THE CIT(A) DISMI SSED THE APPEAL . THE ASSESSEE FILED AN APPEAL IN ITA NO 1967 OF 2016 WI TH FOLLOWING PRAYERS : (A) DIRECT THE ASSESSING OFFICER TO DELETE THE DIS ALLOWANCE OF DEPRECIATION OF RS.64 926/- ON LEASEHOLD LAND. (B) DIRECT THE ASSESSING OFFICER TO DELETE THE DISA LLOWANCE OF AMORTIZATION OF PREOPERATIVE EXPENSES AMOUNTING TO RS.1 05 166/- (C) DIRECT THE ASSESSING OFFICER TO DELETE THE DISA LLOWANCE OF RS.15 890/- MADE U/S.14A R.W.R. 8D. (D) DIRECT THE ASSESSING OFFICER TO ALLOW THE ENTIR E CLAIM OF THE APPELLANT U/S.10AA. (E) PASS SUCH OTHER ORDER AS THIS HON'BLE TRIBUNAL MAY DEEM FIT. :-14-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 15. M/S. SRINIVASA FASHIONS PVT. LTD THE ASSESSEE AN EXPORT GARMENT MANUFACTURING COMPANY IS IN SPECIAL ECONOMIC ZONE ( SEZ) AND IS ELIGIBLE FOR TAX EXEMPTION U/S 10A. IT TOOK OVER ALL THE ASSETS AND LIABILITIES OF M/S SRINIVAS EXPORTS INTERNATIONAL A PARTNERSHIP FIRM AND A GAR MENT MANUFACTURING UNIT IN A DOMESTIC TARIFF AREA (DTA) AS ON 01.03.2008. T HUS AS ON THE YEAR END IE AS ON 31.3.2008 THE ASSESSE HAD TWO UNITS VIZ SE Z UNIT & DTA UNIT. THE A O FOUND THAT THE EXPENDITURE INCURRED IN DTA UNIT FOR ONE MONTH WAS HIGH AS COMPARED TO THE EXPENDITURE INCURRED IN THE SEZ FO R 12 MONTHS. THE A O HAS LINKED THE INSTALLED AND ACTUAL CAPACITY OF MACHINE RY IN SEZ UNIT AND DTA UNIT AND FOUND THAT THE PRODUCTION IN DTA UNIT DEPENDS O N THE WORK ORDERS RECEIVED FROM THE SEZ AND HENCE THE PRODUCTION IN T HE DTA UNIT HAS BEEN TRANSFERRED TO THE SEZ UNIT WHICH SOLD AND CL AIMED THE DEDUCTION IN SEZ UNIT. SINCE THE SALES ARE MADE TO RELATED PARTIES INVOKING THE PROVISIONS OF SECTION 10AA(9) THE AO TOOK 25% OF SALES OF SEZ UNIT AS THAT OF DTA UNIT AND RECALCULATED ELIGIBLE PROFIT TO BE ALLOWED IN S EZ UNIT AT RS. 20 37 21 093/- AFTER DETERMINING THE TOTAL TURNOVER IN DTA UNIT AT RS. 1 61 50 501/- AND THUS COMPLETED THE ASSESSMENT U/S 143(3). IN THE ASSES SMENT MADE FOR AY 2009- 10 THE AO FOUND THAT THERE IS A LOSS CLAIMED IN T HE DTA UNIT WHEREAS PROFIT IS SHOWN IN THE SEZ UNIT ESPECIALLY WHEN THE ENTIRE PR OCESSING INCOME FOR THE DTA UNIT IS FROM THE SERVICES RENDERED TO SEZ UNIT. THE A O OBSERVED THAT THE DTA PAYS JOBWORK CHARGES TO OUTSIDERS AT A HI GHER RATE. HOWEVER IT CHARGES AT LESSER RATE TO THE SEZ UNIT (AS ADMITTED BY THE AR OF THE APPELLANT :-15-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 DURING ASSESSMENT PROCEEDINGS) THUS INCURRING HUGE LOSSES. BY THIS MECHANISM OF UNDER INVOICING AT A LOWER RATE THE D TA UNIT IS INCURRING HUGE LOSSES WHEREAS IN THE CASE OF THE SEZ UNIT TO WHI CH DEDUCTION U/S 10AA ARE AVAILABLE HUGE PROFIT ARE BEING SHOWN. THE ASSESS EE WAS ASKED TO GIVE DOCUMENTARY EVIDENCE AS PROOF IN RESPECT OF THE S ERVICES RENDERED AND TO PROVE THAT SERVICES RENDERED BY THE DTA UNIT TO THE SEZ UNIT ARE AT MARKET RATE. THE AR ADMITTED DURING THE ASSESSMENT PROCEE DINGS THAT THOUGH THE WORKERS ARE EMPLOYED THROUGHOUT THE YEAR BY THE DTA ITS COST IS NOT CHARGED TO THE SEZ UNIT. THE AO OBSERVED THAT PROFIT IN THE SEZ UNIT IS SHOWN AT RS. 69 088 163/- WHEREAS LOSS SHOWN IN THE DTA UNIT A T RS. 4 68 22 748/-. COMBINED PROFIT OF TWO UNITS IS RS. 2 22 65 415/- ITSELF PROVES THAT THE ASSESSEE'S CONTENTION IS WRONG. THE AO OBSERVED TH AT CONSEQUENTLY IN DTA UNIT WHOSE INCOME IS CHARGEABLE TO INCOME TAX BUT IT DOES NOT HAVE ANY DEDUCTION/EXEMPTION BENEFIT U/S 10AA CONSEQUENTLY HUGE ARTIFICIAL LOSSES ARE CREATED BY DELIBERATELY KEEPING THE PROCESSING CHARGES CHARGED TO THE SEZ UNIT AT A VERY LOW PRICE EXTRAORDINARILY LESSE R THAN THE OPERATING COSTS AND PROCESSING CHARGES INCURRED BY THE DTA UNIT TH EREBY CREATING HUGE LOSSES TO BE SET OFF AGAINST 'INCOME FROM OTHER SOU RCES' AS WELL AS ENSURING THAT HUGE LOSSES ARE CARRIED FORWARD TO BE SET OFF AGAINST ANY FURTHER INCOME OF DTA IN THE SUBSEQUENT AYS. THIS MODUS OPERANDI I S FOLLOWED BY THE ASSESSEE BECAUSE THE INCOME FROM THE DTA UNIT IS TA XABLE. SINCE THE ASSESSEE COULD NOT GIVE THE COMPARABLE MARKET PRICE WITH RE GARD TO THE SERVICES :-16-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 RENDERED BY DTA TO SEZ UNIT THE PROVISIONS OF SECT ION 10AA(9) ARE CLEARLY APPLICABLE . THEREFORE THE AO REWORKED THE INCOME OF DTA UNIT AND THE SEZ UNITS AS PER PROVISIONS OF SECTION 10AA(9) AS IF THE PROCESSING CHARGES/JOB WORK CHARGES CHARGED BY THE DTA UNIT ARE CHARGED S O THAT THERE IS NO LOSS TO THE DTA UNIT. THE JOB WORK CHARGES RAISED BY THE DT A UNIT ON THE SEZ UNIT ARE TAKEN AT AS IF THE PROCESSING CHARGES ARE CHARG ED AT COST OF EXPENDITURE INCURRED BY THE DTA UNIT AND THERE COULD BE NO LOSS INCURRED BY THE DTA UNIT. THE A O COMPUTED THE INCOME FROM THE SEZ UNIT AT RS.1 90 08 126/- AND FROM THE DTA UNIT AT RS.32 05 499/-. SIMILARLY HE RE-WORKED THE INCOME OF THE DTA UNIT AND THE SEZ UNIT FOR THE AY 2010-11 AL SO. ON APPEAL AGAINST THIS ISSUE THE CIT(A) UPHELD SUCH RE-WORKING MADE BY TH E AO IN ALL THESE AYS. 16. THE AR PLEADED THAT THE AO WAS NOT CONSISTENT I N HIS APPROACH AND HE MADE DIFFERENT WORKINGS IN EACH OF THE AYS. THE LD . CIT(A) HAS NOT APPRECIATED SUCH DIFFERENCES AND SIMPLY CONFIRMED T HE POSITION TAKEN BY THE AO. PER CONTRA THE DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. SINCE THE AO HAS OBSERVED THAT THE DTA UNIT WHOSE INCOME IS CHARGEABLE TO INCOME TAX BUT IT DOES NOT HAVE ANY DEDUCTION/EXEMP TION BENEFIT U/S 10AA CONSEQUENTLY HUGE ARTIFICIAL LOSSES ARE CREATED BY DELIBERATELY KEEPING THE PROCESSING CHARGES CHARGED TO THE SEZ UNIT AT A VER Y LOW PRICE EXTRAORDINARILY LESSER THAN THE OPERATING COSTS AND PROCESSING CHAR GES INCURRED BY THE DTA :-17-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 UNIT THEREBY CREATING HUGE LOSSES TO BE SET OFF AG AINST 'INCOME FROM OTHER SOURCES' AS WELL AS ENSURING THAT HUGE LOSSES ARE C ARRIED FORWARD TO BE SET OFF AGAINST ANY FURTHER INCOME OF DTA IN THE SUBSEQUENT AYS ETC THE ONUS IS ON THE ASSESSEE TO LAY ALL MATERIAL IN SUPPORT OF ITS CONTENTIONS . IT WOULD BE OPEN TO THE A O TO TAKE INTO CONSIDERATION VARIOUS FACT ORS WHICH WOULD GO TO SHOW WHETHER THE AMOUNT WAS PAID AS REQUIRED UNDER SECTI ON10AA (9) . IF AFTER TAKING THE RELEVANT FACTORS INTO CONSIDERATION TH E AO COMES TO THE CONCLUSION THAT THE PAYMENT DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DATE OF TRANSFER IT WOULD BE OP EN TO HIM TO DETERMINE THE MARKET VALUE OF SUCH GOODS OR SERVICES AS ON THE DA TE FOR THE PURPOSE OF DEDUCTION UNDER THIS SECTION. ON THE FACTS AND CIR CUMSTANCES WE DEEM IT FIT TO SET ASIDE THE ORDERS OF THE CIT (A) ON THIS ISSU E FOR AYS 2008-09 TO 2010-11 AND REMIT THIS ISSUE TO THE AO FOR RE-EXAMINATION. THE AO AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE DECIDE THIS ISSUE IN ACCORDANCE WITH LAW. THE ASSESSEES APPEALS COS ON THIS ISSUE FOR AYS 2008-09 TO 2010-11 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA 1130-2016 ITA NO 1968 OF 2016 & CO 84/2016 FOR AY 2011-12: 17. IN THE ASSESSMENT MADE FOR AY 2011-12 THE AO HAS DISALLOWED RS.68 14 858/- U/S 36(1)(VA) ON THE BASIS THAT EMP LOYEES CONTRIBUTION TO ESI AND PF WERE MADE BEYOND THE DUE DATE PRESCRIBED IN THE RELEVANT ACTS. :-18-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 AGGRIEVED THE ASSESSE FILED APPEAL BEFORE THE CI T(A) . THE CIT(A) RELYING ON THE DECISION OF THE HON'BLE ITAT MUMBAI IN THE CASE OF ITA VS. LKP SECURITIES LTD VIDE ITA NO. 638/MUM/2012 AND ITA NO .1093/MUM/2012 DATED 17.05.2013 DIRECTED THE AO TO ALLOW THE DEDUCTION U /S 36(1) (VA) WHERE ANY PAYMENT IS MADE WITHIN THE GRACE PERIOD AND THUS PA RTLY ALLOWED THE APPEAL. AGGRIEVED THE REVENUE FILED THE APPEAL IN ITA NO 1 130 OF 2016 AND THE ASSESSEE FILED THE CROSS APPEAL IN ITA NO 1968 OF 2 016 . THE ASSESSEE FILED A CO 84/CHNY/2016. THE REVENUES GROUNDS OF APPEAL A RE AS UNDER : 1. THE ORDER OF THE LDCIT(A) IS CONTRARY TO LAW AN D FACTS OF THE CASE. 2. THE LDCIT(A) DIRECT THE AO TO ALLOW DEDUCTION U/ S 36(1)(VA) FOR RS. 69 83 315/- WHERE ANY PAYMENT IS MADE WITHIN THE GR ACE PERIOD. 2.1 THE LD CIT(A) FAILED TO APPRECIATE EVENTHOUGH THE AO IN ASSESSMENT ORDER MENTIONED AS PER ANNEXURE TO FORM 3CD THAT THE ASSE SSEE COMPANY HAD NOT PAID THE EMPLOYEE'S CONTRIBUTION TO ESI WITHIN THE DUE DATES AS PER THE RELEVANT ACTS. 2.2 THE LDCIT(A) FAILED TO APPRECIATE EVENTHOUGH T HE AO RELIED UPON IN HONOURABLE ITAT KOLKATTA IN THE CASE OF DCLTVS BENG AL CHEMICALS & PHARMACEUTICALS LTD (2011) 10 TAXMANN .COM 26 (KOL) HAS CATEGORICALLY HELD THAT EMPLOYEE'S CONTRIBUTION TO PF ETC. RECEIVED BY THE EMPLOYER IS INCOME IN HIS HANDS AS PER SEC 2(24)(X) AND DEDUCTIBLE ONLY I F PAID WITHIN THE DUE DATE AS PER THE RESPECTIVE ACT AS SPECIFIED IN SEC 36(1)(VA ). 2.3 THE LD CIT(A) FAILED TO APPRECIATE EVENTHOUGH THE PROVISIONS OF SEC 43B WHICH IS APPLICABLE IN RESPECT OF EMPLOYER'S CONTRI BUTION IS QUITE DIFFERENT THAN THE PROVISIONS OF SEC 36(1)(VA) WHICH IS APPLICABLE IN RESPECT OF EMPLOYEE'S CONTRIBUTION. 2.4 THE LDCIT(A) FAILED TO APPRECIATE EVEN THOUGH THE AO RELIED UPON IN RAJASTHAN HIGH COURT IN THE CASE OF CIT VS UDAIPUR DISTILLERY CO . THE HONOURABLE HIGH COURT HELD THAT IN ORDER TO AVAIL BENEFITS OF DEDUCTION IN RESPECT OF CONTRIBUTIONS TO PROVIDENT FUND SUPERAN NUATION FUND AND GRATUITY :-19-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 FUND OR ANY OTHER FUNDS FOR WELFARE OF EMPLOYEES S UMS ARE NOT ONLY REQUIRED TO BE ACTUALLY PAID BEFORE END OF THE PREVIOUS YEAR BUT ARE REQUIRED TO BE PAID WITHIN TIME STIPULATED UNDER RELEVANT STATUTE OR NO TIFICATION ETC. AND IF PAYMENTS HAVE NOT BEEN MADE WITHIN STIPULATED TIME DEDUCTION CANNOT BE CLAIMED AT ANY TIME THEREAFTER.' 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING. IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 18. WE HEARD THE RIVAL SUBMISSIONS. THE AR SUBMITT ED THAT THE ASSESSEE COMPANY HAS COMPLIED WITH THE CONDITIONS OF PAYMENT OF PF/ESI UNDER THE RESPECTIVE STATUES BUT THERE WAS A DELAY IN PAYMENT S AND ASSESSEE IS LIABLE FOR PAYMENT OF INTEREST ALSO. BUT UNDER THE PROVISI ONS OF INCOME TAX ACT THE ASSESSEE COMPANY HAS DEPOSITED EMPLOYEES CONTRIBUTI ON OF ESI AND EPF BEFORE TIME LIMIT SPECIFIED U/S.139(1) OF THE ACT A ND COVERED BY THE PROVISIONS OF SEC. 43B OF THE ACT. WE FOUND SIMILAR ISSUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/ S. INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD TCA NO. 585 & 586/2015 AND HAS HELD AS UNDER:- 5. WE FIND THAT THE TRIBUNAL HAS RIGHTLY RELIED O N THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. REPORTED IN 319 ITR 306 WHEREBY THE SUPREME COURT HELD THAT OMISSION OF SECOND PROVISO TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINAN CE ACT 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY I.E. WITH EFFECT FROM 1.4.1988 I.E. THE DATE OF INSERTION OF FIRST PROVISO. THE DELHI H IGH COURT IN THE CASE OF CIT V. AMIL LTD. REPORTED IN 321 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT BUT BEFORE THE D UE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISIONS OF SECTION 43B AS AMENDED BY FINANCE ACT 2003. :-20-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 WE RESPECTFULLY FOLLOW THE JURISDICTIONAL HIGH COUR T DECISION AND DIRECT THE AO TO DELETE THE ADDITION AND ACCORDINGLY DISMISS THE GROUNDS OF THE REVENUE AND ALLOW THE ASSESSEES CROSS APPEAL. 19. ON THE CO THE AR SUBMITTED THAT THE ASSESSEE HA S ENTERED A 99 YEAR LEASE AGREEMENT WITH M/S MAHINDRA INDUSTRIAL PARK O F RS.64 00 000/- WHICH IS NON REFUNDABLE AND LEASE PREMIUMS IS AMORTIZED AT 1 % OVER THE PERIOD OF LEASE. THE AO HAS DISALLOWED DEPRECIATION ON LAND O F RS.64 926/-. FURTHER IT SUBMITTED THAT IT CLAIMED PRE-OPERATIVE EXPENSES OF RS.1 05 166/- . THE AO IN THE ASSESSMENT ORDER HELD THAT THE INCOME TAX AC T ALLOWS ONLY PRELIMINARY EXPENSES TO BE AMORTIZED U/S 35D AND DISALLOWED THE DEPRECIATION CLAIM ON PRE-OPERATIVE EXPENSES CLAIMED AT 15% AT RS 1 05 16 6/- IS DISALLOWED. THE ASSESSEE SUBMITTED THAT IT HAS BEEN CLAIMED AS PER AUDIT REPORT AND PLEADED THAT THE AO WITHOUT RE-EXAMINATION HAS DISALLOWED T HEM. 20. WE HEARD THE RIVAL CONTENTIONS. SINCE THE ASS ESSEE HAS NOT PRESSED THE DISALLOWANCE MADE U/S. 14A R.W.R. 8D THE CORRE SPONDING GROUND IS DISMISSED. WE DEEM IT FIT TO SET ASIDE THE ABOVE I SSUES TO THE AO FOR A FRESH EXAMINATION. THE AO AFTER GIVING ADEQUATE OPPORTUN ITY TO THE ASSESSEE :-21-: I.T.A. N0S. 1130 1297 1965 1966 1967 & 1968/MDS/2016 & 2096/MDS/2017 & CO. NOS. 84 & 85/MDS/2016 DECIDE THEM A FRESH IN ACCORDANCE WITH LAW. TH E ASSESSEES CO IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT THE ASSESSEES APPEALS IN ITA NO S 1965 1966 & 1967 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES & ITA N O. 2096/2017 IS DISMISSED AND THE REVENUE APPEALS IN ITA NOS. 1297/2016 IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES & 1130/2016 IS DISMISSED. THE ASSESSEES CROSS APPEAL IN ITA NO. 1968/2016 IS ALLOWED AND THE CO NOS. 84 & 8 5/2016 ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY THE 30TH DAY OF NOVEM BER 2017 AT CHENNAI. SD/- ( . .. . . .. . . . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI /DATED: 30 TH NOVEMBER 2017 JPV /COPY TO: 1. / APPELLANT 2. /RESPONDENT 3. /CIT(A) 4. /CIT 5. /DR 6. /GF