2013 (11) TMI 2 - AT - Income Tax

Disallowance of Tender deposits written off - Held that - Admittedly such write off is related to various small amount deposits as EMD. The submission of tenders floated by the prospective buyers of assessee products and such deposit is the pre condition to get the business hence such deposits cannot be treated in isolation of business. The genuineness of such deposits is not in dispute, nor its write off - loss was incidental to business and was allowable under section 28 r.w.s. 37(1) of the Act - Decided in favour of Assesse. Disallowance of closing stock - Items not consumed same year - Held that - Since there was a change of method of accounting in assessment year 1986-87, which was held to be a genuine change of method of accounting, the consumable items like coal and oil were allowed to be written off in the year of purchase itself - Decided in favour of assessee. Deduction u/s 80HHC - Inclusion of sale of scrap in total turnover - Held that - AO included the income received on sale of product scrap to the total turnover. It is fairly admitted that this issue is held against assessee in the earlier years consistently from assessment year 1988-89 onwards. Taxability of advance licence benefit - Whether the advance licence and the DEPB receivable by the assessee are liable to be assessed to tax in the year in which the licence is granted to the licensee or liable to be taxed in the year in which the benefits actually accrue after the imports are effected - Held that - said amounts are liable to be taxed in the year in which the benefits actually accrue to the assessee and not in the year in which the licence is granted - AO is directed to do the needful in accordance with the orders on the issue in the earlier year and make necessary adjustment, if any required in the computation of income under the head business and also u/s 80HHC - Following decision of Jamshri Rajitsinghji Spinning And Weaving Mills Limited. Versus Inspecting Assistant Commissioner 1991 (12) TMI 83 - ITAT BOMBAY-A - Decided in favour of assessee. Deduction of interest on DPEA liability - contingent liability or accrued expense - Held that - DPEA liability will be allowable, in the year in which such liability accrues - this liability is not a tax, duty, cess or fee under any law leviable - Additional claim for DPEA would be admissible on the same footing on accrual basis - Regarding determination of profits for the purpose of section 80- I, as and when any order of higher judicial forum comes, the Assessing Officer shall give effect to such order - Interest liability accrues from year to year and, therefore, such liability may be allowed on this basis during each assessment year - Matter restored back to AO - Decided in favour of Assessee. Disallowance of amount paid under the Kar Vivad Samadhan Scheme - AO disallowed it as penalty - Held that - After perusing the certificate issued in this regard under the Kar Vivad Samadhan Scheme, we could not ascertain whether the penalty was paid for any violation of Excise Act or for technical violation which may not be strictly come under the infraction of law. Since the original nature of the penalty, it was settled under the Kar Vivad Samadhan Scheme is not ascertainable, to that extent the issue is to be examined by AO. In case the penalty settled does not involve any infraction of law, the amount of Rs.66,573 is to be allowed as revenue deduction. With reference to the amount of interest of Rs.4,908, this being an interest the sum is allowable as deduction. AO is directed to examine the facts and allow the same - Decided in favour of assessee. Working out indirect cost in the case of export of trading goods - Held that - The legislature has amended the provisions of Section 80HHC with retrospective effect. According to such amendment, the loss in trading goods requires to be adjusted against profits from export of manufactured goods. Computation of indirect cost is necessary ingredient for computing the export profit from trading goods as well as manufactured goods. The assessing officer has not made any observation on this aspect of the issue. However, such exercise may not be required to be made if the loss in traded goods as per the computation of assessee itself is more than the profits from export of manufactured goods in as much as in such situation, the assessee would not be entitled to deduction u/s 80HHC as per the amended provisions. On the other hand, if the profits from export of manufactured goods, as per the calculation of assessee, is more than the loss in traded goods export, then the assessing officer would be required to determine the indirect cost. Accordingly, we set aside the order of the learned CIT(A) on this aspect of the issue and remit the matter to the file of assessing officer for fresh deduction for both the years. The assessee would be at liberty to furnish all the details regarding this aspect of the issue. Disallowance u/s 14A - O invoked section 14A to disallow 5% of the expenditure - Held that -assessee has own surplus funds from the sale of Family Products Undertakings as a going concern on 1.10.1994 and these securities were purchased out of the funds and there is not interest cost. Moreover since only three interest warrants were received, no expenditure can be attributed to the same. Decided partly in favor of assessee and partly in favor of revenue.

Summary

Issues Involved:
1. Depreciation on Share Dilution Expenses.
2. Tender Deposits Write-Off.
3. Depreciation on Transferred Assets.
4. Closing Stock of Diesel and Coal.
5. Interest Income Classification.
6. Deduction under Section 80HHC.
7. Interest on DPEA Liability.
8. Kar Vivad Samadhan Scheme Payments.
9. Betnelan Interest Demand.
10. Allocation of Expenses for Deduction under Sections 80-I and 80-IA.
11. Miscellaneous Income under Section 80HHC.
12. Unpaid Interest Liability under Section 43B.

Detailed Analysis:

1. Depreciation on Share Dilution Expenses:
The assessee's claim for depreciation on share dilution expenses was upheld. The issue was covered by earlier decisions in the assessee's favor, including the jurisdictional High Court's rulings for AY 1986-87, 1988-89, and 1991-92. The AO was directed to allow the depreciation claim.

2. Tender Deposits Write-Off:
The assessee's claim for writing off tender deposits amounting to Rs.5,80,000 was allowed. The genuineness of the deposits was not disputed, and the write-off was considered incidental to business, following the precedent set in the case of M/s Burroughs Wellcome (I) Ltd.

3. Depreciation on Transferred Assets:
For the Family Products Undertaking transferred in AY 1995-96, the AO was directed to determine the consequential Written Down Value (WDV) and allow depreciation. Depreciation claims for leased properties to M/s Hongkong & Shanghai Banking Corporation Ltd. and M/s Concorde Motors Pvt. Ltd. were disallowed as the properties were not used for business purposes.

4. Closing Stock of Diesel and Coal:
The addition of Rs.47,10,024 on account of closing stock of diesel and coal was set aside. The Tribunal held that consumable items like coal and oil were to be written off in the year of purchase, consistent with earlier decisions.

5. Interest Income Classification:
The treatment of interest income was restored to the AO for fresh adjudication. The nature of the interest income needed to be examined to determine if it should be classified as business income or income from other sources.

6. Deduction under Section 80HHC:
The inclusion of scrap sales in total turnover was upheld. However, the exclusion of 90% of miscellaneous income items and the treatment of advance license benefits were restored to the AO for re-examination. The AO was directed to follow the principles laid down by the jurisdictional High Court and the Supreme Court.

7. Interest on DPEA Liability:
The issue of interest liability on DPEA was restored to the AO for de novo adjudication. The Tribunal directed the AO to follow the earlier year's orders and allow the interest liability on an accrual basis.

8. Kar Vivad Samadhan Scheme Payments:
The disallowance of Rs.71,481 paid under the Kar Vivad Samadhan Scheme was partly upheld. The AO was directed to examine the nature of the penalty to determine if it involved any infraction of law. The interest amount of Rs.4,908 was allowed as a deduction.

9. Betnelan Interest Demand:
The issue of Betnelan interest demand was restored to the AO for fresh adjudication. The AO was directed to consider the allowance of the amount in accordance with the law and facts, following the directions given in the assessment year 1995-96 order.

10. Allocation of Expenses for Deduction under Sections 80-I and 80-IA:
The allocation of expenses for deduction under sections 80-I and 80-IA was upheld. The Tribunal directed the AO to allow the deduction as claimed by the assessee, following the directions in earlier years.

11. Miscellaneous Income under Section 80HHC:
The issue of excluding 90% of various items forming part of miscellaneous income was restored to the AO for fresh examination. The AO was directed to determine the nature of the receipts and exclude them if they were part of business receipts not coming under Explanation (baa).

12. Unpaid Interest Liability under Section 43B:
The issue of unpaid interest liability under section 43B was restored to the AO for fresh adjudication. The AO was directed to consider the issue consistent with earlier year's orders.

Conclusion:
The appeals were partly allowed, with several issues restored to the AO for fresh adjudication. The Tribunal directed the AO to follow the principles laid down in earlier decisions and provide the assessee with an opportunity to explain the nature of the receipts and claims.