2014 (10) TMI 994 - AT - Income Tax

Disallowance under section 43B - liabilities disallowed in earlier years which are paid/written back in the current year - Held that - Tribunal in earlier years i.e assessment years 1993-94 to 1998-99 and 2000-01 in assessee s own case copy of which was placed on record. We find that similar issue was considered by the Tribunal in A.Y. 2000-01 vide order dated 9-10-2013 wherein the ground taken by the assessee was dismissed as the same has become infructuous. It was found by Tribunal that it is an alternative plea which relates to A.Y. 1993-94 decided by the Tribunal in assessee s favour. The appeal filed by the Department has been dismissed by the Tribunal vide order dated 20-12-2001. As the facts and circumstances during the year under consideration are para materia wherein appeal of department in earlier year was dismissed by the Tribunal therefore ground taken by assessee for disallowance during the year has become infructuous Exchange Fluctuation loss - Held that - We find that the Tribunal has already rejected the Department s appeal for 1996-97 to 2000-01. Accordingly this ground taken by the assessee becomes academic and accordingly rejected. Notional interest accrued but not due on securities - Held that - In assessee s own case in its favour in A.Y. 1998-99 and also by the Hon ble Bombay High Court in assessee s own case for assessment years 1994-95 1995-96 wherein it was held that such interest are taxable in subsequent year when securities are sold. Respectfully following the decision of the Tribunal as well as Hon ble Bombay High Court in assessee s own case as referred we do not find any merit for taxing the interest accrued but not due on securities during the year under consideration. As far as the taxability of interest the same is assessable in the year in which the refund has been granted alongwith interest. However if in the subsequent year refund of interest is withdrawn then the same should be reduced from the total income of the assessee. Accordingly we direct the A.O. to tax interest income in terms of the order of the tribunal for A.Y. 1993-94 as reproduced above keeping in view our above observation. Allowability of technical assistance fees as revenue expenditure - Held that - The Hon ble Bombay High Court in the case of Tata Engineering & Locomotive Co. Pvt. Ltd. 1979 (2) TMI 20 - BOMBAY HIGH COURT held that expenditure incurred for acquiring technical know-how on training of personnel is revenue expenditure. No merit for disallowing the technical fees expenditure incurred by the assessee as revenue in nature. Claim of deduction u/s 80HH - whether to be allowed on the profit of the company as a whole or separately for each unit? - Held that - The issue has been decided against the assessee by the Tribunal in the A.Y. 1996-97 & 1997-98. As the facts and circumstances during the year under consideration are same we do not find any infirmity in the order of the lower authorities for allowing the claim of deduction u/s 80HHC of the Act to be computed on the profit of the company as a whole rather than unit-wise. Deduction u/s 80HHC with respect to interest income - Held that - The issue under consideration is squarely covered by the decision in the case of ACG Associated Capsules Pvt. Ltd. 2012 (2) TMI 101 - SUPREME COURT OF INDIA wherein it was held that net interest income is to be excluded from the eligible profit for computing deduction u/s 80HHC rather than gross interest. Explanation to section 80 HHC to be applied on net interest and not on gross interest. Accordingly we direct the AO to apply clause (baa) in respect of interest receipt. We accordingly direct the A.O. to exclude the excess of interest income over interest expenditure from the eligible profit of the company while computing deduction u/s 80HHC of the Act. Deduction of inter-divisional transfer from the total turnover - Held that - This issue has been settled by the Tribunal in assessee s own case for the A.Ys. 1986-87 to 1989-90 1994-95 1995-96 1996-97 & 1998-99 wherein it was held that interdivisional transfer is to be reduced from the total turnover for computing deduction u/.s 80HHC of the Act. Alter hearing both the sides we find similar issue had come up before the Tribunal in assessee s own case and the Tribunal in its consolidated order for A.Ys. 1986- 87 to 1989-90. Respectfully following the decisions of the Tribunal the claim of the assessee is directed to be accepted. Loss on export of traded goods and for not adjusting the same against profit on export of manufactured goods for computing deduction u/s 80HHC - Held that - Assessee fairly conceded that this issue is now settled by the Hon ble Supreme Court against the assessee in the case of Ipca Laboratories 2004 (3) TMI 9 - SUPREME COURT . Respectfully following the proposition laid down by the Hon ble Supreme Court in the case of Ipca Laboratories (supra) we do not find any infirmity in the order of the lower authorities adjusting the loss on export of traded goods against profit on export of manufactured goods for computing deduction u/s 80HHC. Interest u/s 244A - Held that - Tribunal in assessee s own case for 1998-99 vide order dated 10th August 2012 has restored similar matter to the file of the A.O. for considering the assessee s claim of interest after taking into account the judicial pronouncements as referred above. Respectfully following the decision of the Tribunal we restore the computation part of interest u/s 244A of the Act to the file of the A.O. for deciding as per the direction given by the Tribunal in its order dated 10th August 2012. Appropriation of HO expenses in computing deduction u/s 80-O - Held that - there is no necessity for allocating the head office expenses to the units claiming deduction u/s. 8OHH 801 80M and 80-0. The order of the CIT(A) on this issue is accordingly set aside and the grounds raised by the assessee are allowed. Sales tax exemption benefit being capital receipt not chargeable to tax - Held that - A similar issue has been restored back by the Tribunal in A.Y. 2000-01 in assessee s own case to the file of the A.O. to decide after considering the decision of Special Bench in the case of DCIT vs. Reliance Industries Ltd. 2003 (10) TMI 680 - ITAT MUMBAI . Respectfully following the said decision of the Tribunal we restore this issue back to the file of the A.O. for deciding the same in the light of the findings of the Tribunal in assessee s own case for A.Y. 1999-2000 in ITA No. 5631/Bom/2002 wherein the Tribunal has restored the issue back to the file of the A.O.to decide the issue afresh - the issue is restored back to the file of the A.O. for deciding the same afresh. Disallowance of royalty and interest on royalty u/s 43B of the Act treating it as tax to be allowed Profits of the USA & UK branch - Held that - CIT(A) deleted the addition by observing that the action of the A.O. in not excluding profit of foreign branch amounting to Rs. 2, 63, 29, 807/- from the taxable profit was not justified. From the record we found that the issue has been decided by the Tribunal in assessee s own case in its favour in assessment years 1996-97 to 2000-01. We also found that the Department is not in appeal on this ground in the Hon ble High Court against the order of the Tribunal for the assessment years 1996-97 1997-98 and 1998-99. Respectfully following the order of the Tribunal we do not find any reason to interfere with the order of the ld. CIT(A) directing the A.O. to exclude the profit of foreign branch from the taxable profit. Disallowance of interest on estimated basis to earn tax free income - Held that - We found that similar issue has been dealt with by the Tribunal in A.Y. 2000-01 wherein the disallowance was restricted to 1.5% of the exempt income. As the facts and circumstances during the year under consideration are same we direct the A.O. to restrict the disallowance to 1.5% of the exempt income. Exchange rate fluctuation loss on conversion of trading assets and liabilities - Held that - The issue has been decided by the Tribunal in assessee s own case in its favour in assessment years 1998-99 to 2000-01. Furthermore the Department is not in appeal on this ground before the Hon ble High Court against the Tribunal order. The Hon ble Supreme Court in the case of Woodward Governor India Pvt. Ltd. 2009 (4) TMI 4 - SUPREME COURT has decided this issue in favour of the assessee. Accordingly we do not find any reason to interfere with the order of the ld. CIT(A) deleting the disallowance Crystallization of liability - Held that - As found that after considering the decision of Hon ble Supreme Court in the case of CIT vs. Swadeshi Cotton Flour Mills Pvt. Ltd. 1964 (4) TMI 8 - SUPREME COURT on this issue the ld. CIT(A) reached the conclusion that liability has been crystalised under consideration the same is therefore allowable. We do not find any reason to interfere with the order of the ld. CIT(A) Deduction against bad debts - Held that - Actual write off was in A.Y. 2000-01 and the same was again allowed by the ld. CIT(A). Since the claim was pertaining to the A.Y. 1996-97 which have already been allowed by the A.O. when the matter was remanded back by the Tribunal allowing of the claim by the ld. CIT(A) during the year under consideration amounts to double deduction of the same amount. Accordingly we set aside the order of the ld. CIT(A) on this ground and allow this ground in favour of the Revenue. Expenses incurred in connection with the assessment of the loss and insurance claim reduced from insurance claim received. (Net insurance amount received is reduced from block of assets by the assessee) - addition was made by the A.O. holding that gross amount of insurance claim received on destruction of capital asset is to be reduced from block of asset - Held that - CIT(A) held that the A.O. should have reduced from the block of assets the net amount i.e. the amount received from the insurance company net of the expenses incurred of Rs. 62.30 lacs and allow depreciation thereon. We do not find any infirmity in the order of the ld. CIT(A) in directing the A.O. to recompute the depreciation on the above lines. Disallowance of expenses incurred for making advertisement films - Held that - We found that the issue has already been settled by the Tribunal in assessee s own case in A.Y. 1976-77 and no ground was taken by the Department before the Hon ble High Court. Similar issue has been decided by the Hon ble Supreme Court in the case of Empire Jute Co. Ltd. 1980 (5) TMI 1 - SUPREME COURT . Accordingly we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance by observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company. Computation of deduction u/s 80HHC of the Act before setting off of the unabsorbed depreciation and business losses of earlier years - Held that - This issue has already been decided by the Hon ble Supreme Court in the case of CIT vs. Shirke Construction 2007 (5) TMI 194 - SUPREME COURT in Revenue s favour. Respectfully following the same we do not find any merit in the order of the ld. CIT(A) for directing the A.O. to compute deduction u/s 80HHC of the Act before setting off of the unabsorbed business losses and unabsorbed depreciation of the earlier years against the current years income. Accordingly this ground of the Revenue is allowed. Direct the A.O. to reduce the net amount of interest expenditure out of allowable income of the assessee for the purpose of computing deduction u/s 80HHC of the Act. Excluding the amount of excise duty and sales tax from the total turnover for computing deduction u/s 80HHC - Held that - This issue has been settled by the Hon ble Supreme Court in the case of Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT - No infirmity in the order of the ld. CIT(A) in directing the A.O. to exclude the amount of excise duty and sales tax from the total turnover of the assessee while computing deduction u/s 80HHC of the Act. Increase profits of the business by the loss of foreign branch and the loss on export of trading goods for the purpose of computation of deduction u/s 80HHC - Held that - CIT(A) s direction to the A.O. to increase profits of the business by the loss of foreign branch and the loss on export of trading goods for the purpose of computation of deduction u/s 80HHC of the Act. We found that this issue is covered against the assessee and in favour of Revenue by the decision of Hon ble Supr4eme Court in the case of Ipca laboratories 2004 (3) TMI 9 - SUPREME COURT . Respectfully following the said decision of Hon ble Supreme Court in the case of Ipca Laboratories (supra) we do not find any merit in the order of ld. CIT(A) for allowing the assessee s claim. Deduction u/s 80-IA of the Act in respect of Vikram Power Unit to be allowed. Direction of the ld. CIT(A) to the A.O. to recompute the amount of deduction towards export profit for the limited purpose of computing book profit in accordance with the Circular No. 680 dated 21-02-1994 issued by the CBDT - No infirmity in this direction of the ld. CIT(A) to the A.O. hence allowed this ground of the assessee.

Summary

Issues Involved:
1. Disallowance under section 43B.
2. Exchange Fluctuation loss.
3. Notional interest accrued but not due on securities.
4. Interest received from Income Tax Department.
5. Technical assistance fees.
6. Deduction under section 80HHC.
7. Interest under section 244A.
8. Appropriation of Head Office (HO) expenses in computing deduction under section 80-O.
9. Sales tax exemption benefit as capital receipt.
10. Disallowance of royalty and interest on royalty under section 43B.
11. Contribution to local organizations.
12. Profits of the USA and UK branch.
13. Debenture issue expenses.
14. Expenditure incurred for earning exempted income.
15. Rural development expenses.
16. Exchange rate fluctuation loss.
17. Interest under section 36(1)(iii).
18. Disallowance of electricity charges.
19. Deduction against bad debts.
20. Expenses incurred in connection with the assessment of the loss and insurance claim.
21. Exclusion of excise duty and sales tax from the total turnover.
22. Apportionment of head office expenses while computing deduction under section 80IA.
23. Deduction under section 80IA in respect of Vikram Power Unit.
24. Computation of deduction under section 80HHC before setting off unabsorbed depreciation and business losses.
25. Reduction of net interest from profits of the business for the purpose of computation of deduction under section 80HHC.
26. Taxability of accrued interest on securities.
27. Disallowance of expenses incurred for making advertisement films.
28. Allowing deduction under section 80-IA in respect of Vikram Power Unit.
29. Recompute the amount of deduction towards export profit for the purpose of computing book profit.

Issue-wise Detailed Analysis:

1. Disallowance under section 43B:
The Tribunal noted that the issue was covered by its earlier decisions for assessment years 1993-94 to 1998-99 and 2000-01 in the assessee's favor. The Tribunal followed its previous orders and dismissed the ground taken by the assessee as it had become infructuous.

2. Exchange Fluctuation loss:
The Tribunal found that the issue had already been rejected by the Tribunal in earlier years (1996-97 to 2000-01) and hence, the ground taken by the assessee was considered academic and rejected.

3. Notional interest accrued but not due on securities:
The Tribunal followed its previous decisions and the Hon'ble Bombay High Court's rulings in the assessee's favor for assessment years 1994-95 and 1995-96, holding that such interest is taxable in the subsequent year when securities are sold.

4. Interest received from Income Tax Department:
The Tribunal directed the Assessing Officer to tax interest income in the year in which the refund was granted, but to reduce any interest subsequently withdrawn from the total income, following its decision in the assessee's case for assessment year 1993-94.

5. Technical assistance fees:
The Tribunal held that the expenditure incurred for acquiring technical know-how is revenue expenditure, following the Hon'ble Bombay High Court's decisions in similar cases.

6. Deduction under section 80HHC:
The Tribunal upheld the lower authorities' view that deduction under section 80HHC is to be computed for the company as a whole rather than unit-wise. It also directed the Assessing Officer to apply the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd., and compute the deduction on net interest income. The Tribunal directed the exclusion of interdivisional transfers from the total turnover for computing deduction under section 80HHC, following its earlier decisions.

7. Interest under section 244A:
The Tribunal restored the computation part of interest under section 244A to the Assessing Officer for reconsideration, following its decision in the assessee's case for assessment year 1998-99.

8. Appropriation of HO expenses:
The Tribunal followed its earlier decisions and allowed the appropriation of HO expenses in computing deduction under section 80-O, as no appeal was filed by the Department against the Tribunal's decisions in earlier years.

9. Sales tax exemption benefit as capital receipt:
The Tribunal restored the issue back to the Assessing Officer for fresh consideration in light of the Special Bench decision in the case of Reliance Industries Ltd.

10. Disallowance of royalty and interest on royalty under section 43B:
The Tribunal decided the issue in favor of the assessee, following its earlier decisions for assessment years 1995-96 to 2000-01.

11. Contribution to local organizations:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions and the Hon'ble High Court's rulings in the assessee's favor.

12. Profits of the USA and UK branch:
The Tribunal upheld the CIT(A)'s decision to exclude the profit of foreign branches from taxable profit, following its earlier decisions in the assessee's favor.

13. Debenture issue expenses:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions in the assessee's favor.

14. Expenditure incurred for earning exempted income:
The Tribunal directed the Assessing Officer to restrict the disallowance to 1.5% of the exempt income, following its decision in the assessee's case for assessment year 2000-01.

15. Rural development expenses:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions in the assessee's favor.

16. Exchange rate fluctuation loss:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions and the Hon'ble Supreme Court's ruling in the case of Woodward Governor India Pvt. Ltd.

17. Interest under section 36(1)(iii):
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions in the assessee's favor.

18. Disallowance of electricity charges:
The Tribunal upheld the CIT(A)'s decision to allow the deduction, holding that the liability had crystallized during the year under consideration.

19. Deduction against bad debts:
The Tribunal set aside the CIT(A)'s order, noting that allowing the claim would amount to double deduction as the claim was already allowed for assessment year 1996-97.

20. Expenses incurred in connection with the assessment of the loss and insurance claim:
The Tribunal upheld the CIT(A)'s decision to recompute the depreciation on the net amount received from the insurance company.

21. Exclusion of excise duty and sales tax from the total turnover:
The Tribunal upheld the CIT(A)'s decision to exclude the amount of excise duty and sales tax from the total turnover, following the Hon'ble Supreme Court's decision in the case of Lakshmi Machine Works.

22. Apportionment of head office expenses while computing deduction under section 80IA:
The Tribunal upheld the CIT(A)'s decision, following its earlier decisions in the assessee's favor.

23. Deduction under section 80IA in respect of Vikram Power Unit:
The Tribunal upheld the CIT(A)'s decision, following its earlier decisions in the assessee's favor.

24. Computation of deduction under section 80HHC before setting off unabsorbed depreciation and business losses:
The Tribunal allowed the Revenue's ground, following the Hon'ble Supreme Court's decision in the case of Shirke Construction.

25. Reduction of net interest from profits of the business for the purpose of computation of deduction under section 80HHC:
The Tribunal directed the Assessing Officer to reduce the net amount of interest expenditure from the allowable income of the assessee.

26. Taxability of accrued interest on securities:
The Tribunal followed its earlier decisions and the Hon'ble Bombay High Court's rulings in the assessee's favor.

27. Disallowance of expenses incurred for making advertisement films:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance, following its earlier decisions and the Hon'ble Supreme Court's ruling in the case of Empire Jute Co. Ltd.

28. Allowing deduction under section 80-IA in respect of Vikram Power Unit:
The Tribunal upheld the CIT(A)'s decision, following its earlier decisions in the assessee's favor.

29. Recompute the amount of deduction towards export profit for the purpose of computing book profit:
The Tribunal upheld the CIT(A)'s direction to the Assessing Officer to recompute the amount of deduction towards export profit.