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2012 (10) TMI 1001 - AT - Income TaxDisallowance qua assessee s claim of deduction under section 80-IB - Held that - In view of analysis of the facts of the case, we hold that the assessee s produce manufactured is an item covered by Item Nos.27& 28 of Eleventh Schedule of the Act being a rubber fitting. Accordingly, we hold that the CIT(A) has rightly upheld the rejection of assessee s claim of deduction/s 80IB of the Act. Decided in favour of the Revenue. Royalty fee - contention of the assessee is that its claim of royalty expenditure @ 2% of the total sales paid to M/s. LRC Products Ltd. as technical know-how fee is liable to accepted in toto instead 75% as upheld by CIT(A) - Held that - CIT(A) has not rightly deleted the disallowance of expenditure as made by the Assessing Officer to the tune of 25%. Therefore, we hold that the payment made by the assessee in the shape of technical knowhow fee by way of royalty @ 2% of the gross sales is Revenue expenditure. So, the issue is decided in favour of the assessee. Logo charges - revenue or capital expenditure - Held that - title of the logo in question has not passed over to the assessee. Further, there is no acquisition of assets or part of any capital asset. Usage of logo by the assessee is only for displaying it on the product manufactured i.e. rubber contraceptives. That too, for a limited period as provided in the agreement in lieu of payment @ 2% of the gross sales. When we apply the tenor of the case law above cited to the facts of the instant case, we hold the instant logo charges are also revenue expenditure within the meaning of Sec.37 of the Act in the nature of wholly and exclusively for the purpose of assessee s business. Consequently, we see no reason to interfere in the findings of the CIT(A).- Decided in favour of the assessee. Reopening of assessment - Held that - A perusal of the reasons recorded, makes it clear that there is no allegation against the assessee that there was any failure on its part in not disclosing full and true particulars regarding its claim of deduction under section 80HHC as necessary for the assessment. Therefore, the re-opening, in our opinion, does not withstand the test of first proviso of Sec.147. We also notice that neither the Assessing Officer nor the CIT(A) have specifically considered the thin line providing reopening of an assessment in two different scenarios(supra). The reasons contained in the notice further make it un-ambiguous that the Assessing Officer had earlier accepted the assessee s claim of deduction during the assessment already finalized. Later on, i.e. formed another opinion on merits. This, in our considered view, is nothing but mere change of opinion by Assessing Officer which is not permissible in the eyes of law. We reiterate the trite proposition of law that an assessment already finalized can only be reopened under the specific instances stated under section 147 of the Act; and not beyond the circumstances stated therein.Therefore, we hold that the reopening in question is not valid in the eyes of law - Decided in favour of assessee. Disallowance under section 14A - Held that - Rule 8D of the Income Tax Rules, 1962 is only applicable with effect from Assessment Year 2008-09 i.e. not qua impugned Assessment Year 2005-06. It is in the light of said decision that the CIT(A) has interfered in the findings of the Assessing Officer correctly directed to disallow 2 percent as expenditure in earning the exempt income. See GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT - Decided in favour of assessee. Deduction under section 80-IB on income from sale of DEPB - AO declined the assessee s claim and held that though the DEPB could be related to inputs consumed, but since the source of the DEPB sold is Government s scheme, therefore, the same cannot be held to have been derived from an industrial undertaking - Held that - It is noticed that the Hon ble Supreme Court in in case of Topman Exports Vs. CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA has held that it is not the sale price of DEPB or DFRC (Duty Free Replenishment Certificate) which has to be taken into consideration for the purpose of taxability. Rather their Lordships of the Hon ble Apex Court have been pleased to hold that it is the net profit instead of sale price of DEPB, which has to be taken into consideration for the purpose of assessment. Coming to the facts of the instant case, we see that the A.O. as well as the CIT(A) have not adverted to these vital aspects of the issue involved. Faced with this situation, we deem it appropriate that the Assessing Officer shall re-examine the issue in accordance with law - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Deduction under Section 80-IB of the Income Tax Act. 2. Royalty payment (technical know-how fees) treatment. 3. Logo charges treatment. 4. Deduction under Section 80HHC of the Income Tax Act. 5. Validity of reopening the assessment under Section 147/148. 6. Disallowance under Section 14A. Issue-wise Detailed Analysis: Issue 1: Deduction under Section 80-IB of the Income Tax Act The assessee claimed a deduction under Section 80-IB for its unit at Pallavaram, arguing that rubber contraceptives (condoms) are not covered by items 27 & 28 of the Eleventh Schedule. The Assessing Officer (A.O.) and the CIT(A) disagreed, holding that condoms are "other fittings of rubber" and thus fall under the Eleventh Schedule, making the deduction inapplicable. The Tribunal upheld this view, stating that condoms are indeed rubber fittings as per items 27 & 28 of the Eleventh Schedule, and thus, the assessee is not entitled to the deduction under Section 80-IB. Issue 2: Royalty Payment (Technical Know-how Fees) Treatment The assessee paid a royalty fee to M/s. LRC Products Ltd. for technical know-how. The A.O. treated this as capital expenditure, while the CIT(A) allowed 75% as revenue expenditure. The Tribunal agreed with the CIT(A), noting that the agreement did not confer ownership or an enduring benefit to the assessee. The payment was for the right to use the technical know-how, making it a revenue expenditure. Issue 3: Logo Charges Treatment The assessee paid logo charges to TTK & Co. for using the "ttk" monogram. The A.O. treated this as capital expenditure, but the CIT(A) and the Tribunal held it as revenue expenditure. The Tribunal noted that the agreement did not transfer ownership of the logo to the assessee and was for a limited period, making the payment a revenue expenditure. Issue 4: Deduction under Section 80HHC of the Income Tax Act The A.O. recomputed the deduction under Section 80HHC by excluding 90% of the interest income and other receipts from business profits, following the Supreme Court's decision in Pandian Chemicals Ltd. v. CIT. The CIT(A) upheld this recomputation. The Tribunal did not frame a specific issue on this as the assessee did not press the plea seriously. Issue 5: Validity of Reopening the Assessment under Section 147/148 For A.Y. 2003-04, the assessee challenged the reopening of the assessment after four years. The Tribunal held that reopening was invalid as there was no failure on the assessee's part to disclose fully and truly all material facts necessary for assessment. The reasons recorded for reopening did not allege any such failure, making the reopening invalid. Issue 6: Disallowance under Section 14A For A.Y. 2005-06, the A.O. made a disallowance under Section 14A by applying Rule 8D. The CIT(A) restricted the disallowance to 2% of the exempt income, noting that Rule 8D is applicable from A.Y. 2008-09 as per the Bombay High Court's decision in Godrej and Boyce Mfg. Co. Ltd. v. DCIT. The Tribunal upheld the CIT(A)'s decision, agreeing that Rule 8D does not apply to A.Y. 2005-06. Summary of Tribunal's Decision: - For A.Y. 2002-03, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. - For A.Y. 2003-04, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. - For A.Y. 2004-05, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. - For A.Y. 2005-06, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. - For A.Y. 2006-07, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. - For A.Y. 2007-08, the assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.
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