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2012 (3) TMI 475 - AT - Income TaxDisallowance of interest relatable to earning Dividend Income u/s. 14A - Held that - Direct the AO to restrict the disallowance attributable towards earning of the dividend u/s 14A at 2% of the earning of dividend received. The ground taken by the assessee is, therefore, partly allowed. Deduction u/s 80HHC - disallowance of the contribution made to PF and ESIC - disallowance of depreciation - disallowing the payment made for non-competition - weighted deduction under section 35(2AB) - treat the profit on sale of DEPB license as export incentive and allow the deduction under section 80HHC under proviso to section 80HH(3) - computation of deduction under section 80HHC - deduction u/s 115JB on account of profits eligible for deduction u/s.80HHC - block assessment u/s. 158BC - brought forward losses and unabsorbed depreciation of Alchemie Organics Limited u/s 72A while computing the profits of the business for the purpose of S. 80HHC - Allowable business exp - SAP accounting package was scraped by the assessee due to commercial expediency.
Issues Involved:
1. Disallowance of interest related to earning dividend income under Section 14A. 2. Invocation of Section 80IB(13) while calculating deduction under Section 80HHC. 3. Disallowance of contribution to PF and ESIC. 4. Denial of claim for ignoring loss from trading export while computing export profits. 5. Disallowance of depreciation on assets purchased from a specific entity. 6. Disallowance of payment made for non-competition. 7. Deduction of interest and processing charges on term loan under Section 36(1)(iii). 8. Weighted deduction under Section 35(2AB). 9. Allocation of administrative, selling, and distribution expenses. 10. Treatment of unrealized export turnover. 11. Consideration of gross interest and rent for computing profits under Section 80HHC. 12. Set-off of brought forward losses and unabsorbed depreciation under Section 72A. 13. Restriction of deduction under Section 80HHC by invoking Section 80IB(13). 14. Depreciation on Effluent Treatment Plant. 15. Treatment of software expenses as capital or revenue expenditure. 16. Exclusion of sales tax and excise duty from total turnover for computing deduction under Section 80HHC. Issue-wise Detailed Analysis: 1. Disallowance of Interest Related to Earning Dividend Income: The Tribunal found merit in the assessee's plea that the issue was covered by its own case in earlier years. The Tribunal directed the AO to restrict the disallowance attributable towards earning of the dividend under Section 14A at 2% of the dividend received. 2. Invocation of Section 80IB(13) While Calculating Deduction Under Section 80HHC: The Tribunal found that the issue was covered in favor of the assessee by the decision of the Hon'ble Bombay High Court in Associated Capsules (P) Ltd. It directed the AO to allow the deduction under Section 80HHC without reducing the amount of profits allowed as deduction under Section 80-IA. 3. Disallowance of Contribution to PF and ESIC: The Tribunal noted that the assessee had paid the amount before filing the return of income. Following the decision of the Hon'ble Supreme Court in Alom Extrusions Ltd., the Tribunal deleted the disallowance of Rs. 11,647/- made by the AO. 4. Denial of Claim for Ignoring Loss from Trading Export: The Tribunal noted the retrospective amendment in the relevant provisions and decided the issue against the assessee, rejecting the ground taken by the assessee. 5. Disallowance of Depreciation on Assets Purchased from a Specific Entity: The Tribunal restored the issue to the file of the AO to re-examine and decide afresh after giving adequate opportunity to the assessee, following its own decision in earlier years. 6. Disallowance of Payment Made for Non-Competition: The assessee did not press the ground, and it was rejected. 7. Deduction of Interest and Processing Charges on Term Loan Under Section 36(1)(iii): The Tribunal found that the issue was covered in favor of the assessee by the decision of the Hon'ble Supreme Court in Core Health Care Ltd. and directed the AO to allow the deduction. 8. Weighted Deduction Under Section 35(2AB): The Tribunal upheld the CIT(A)'s direction to allow the weighted deduction, noting that the assessee had complied with the conditions and was granted recognition by the Department of Scientific and Industrial Research. 9. Allocation of Administrative, Selling, and Distribution Expenses: The Tribunal upheld the CIT(A)'s decision that the assessee was following a scientific method for allocation of expenses and directed the AO to recompute the deduction accordingly. 10. Treatment of Unrealized Export Turnover: The Tribunal held that the AO and CIT(A) were not justified in reducing the unrealized export turnover from the export turnover for the purpose of deduction under Section 80HHC, as the assessee had applied for extension of time to the Reserve Bank of India. 11. Consideration of Gross Interest and Rent for Computing Profits Under Section 80HHC: The Tribunal restored the issue to the file of the AO to decide afresh in light of its observations and recent decisions, including the Hon'ble Jurisdictional High Court's decision in Asian Star Co. Ltd. 12. Set-off of Brought Forward Losses and Unabsorbed Depreciation Under Section 72A: The Tribunal upheld the AO and CIT(A)'s decision, noting that the assessee had not reduced the set-off of brought forward losses and depreciation of the amalgamated company for computing the deduction under Section 80HHC. 13. Restriction of Deduction Under Section 80HHC by Invoking Section 80IB(13): The Tribunal directed the AO to allow the deduction under Section 80HHC without restricting it by invoking Section 80IB(13), following its own decision in earlier years. 14. Depreciation on Effluent Treatment Plant: The Tribunal upheld the CIT(A)'s decision to allow 100% depreciation on the Effluent Treatment Plant, noting that it was used for water pollution control. 15. Treatment of Software Expenses as Capital or Revenue Expenditure: The Tribunal upheld the CIT(A)'s decision to treat the software expenses as revenue expenditure, noting that the SAP accounting package was scrapped due to commercial expediency. 16. Exclusion of Sales Tax and Excise Duty from Total Turnover for Computing Deduction Under Section 80HHC: The Tribunal upheld the CIT(A)'s decision to exclude sales tax and excise duty from the total turnover for the purpose of computing deduction under Section 80HHC, following the decision of the Hon'ble Supreme Court in Lakshmi Machine Works.
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