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2017 (8) TMI 1608 - AT - Income TaxComputation of deduction u/s 10B - exclusion of freight and clearing charges from export turnover and total turnover - HELD THAT - What was included in the export turnover shall also be included in total turnover. The CIT(Appeals) by placing reliance on the decision of this Bench of the Tribunal in ITO v. Sak Soft Limited 2009 (3) TMI 243 - ITAT MADRAS-D has directed the Assessing Officer to recompute the deduction under Section 10B of the Act by reducing the freight and clearing charges and expenses for technical services both from export turnover and total turnover. Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance of provision for Gratuity - CIT(Appeals) by placing reliance in Section 40A(7)(b) of the Act allowed the claim of the assessee on the ground that 40A(7)(b) of the Act is a special provision for allowing the Gratuity therefore the same overrides Section 43B - HELD THAT - In Commonwealth Trust (I) Ltd. 2004 (4) TMI 51 - KERALA HIGH COURT found that both Section 40A(7) and Section 43B of the Act should be construed harmoniously. This Tribunal is of the considered opinion that when Section 40A(7)(b) of the Act provides a special allowance for provision for payment of Gratuity fund the same has to be given preference. As held by Kerala High Court a harmonious reading of Section 40A(7)(b) and Section 43B(b) of the Act never intended to take away the benefit conferred under Section 40A(7)(b) of the Act. Therefore this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Sale of API division - slump sale or not? - HELD THAT - The agreement for sale clearly says that it is a transfer of API division as going concern to Actavis. In the agreement there was no mention about the values of individual assets - details of plant and machinery were not available on record. When the details of plant and machinery are not available on record it is not known how the individual assets were valued as claimed by the assessee. Assessee also could not produce the depreciation schedule for the individual machinery of the API division. The written down value of individual assets were also not furnished. The assets and liabilities of the company as on date of transfer was 20.26 Crores. The assessee is entitled for depreciation at the rate of 15% on plant and machinery. In view of these factual aspects coupled with the fact that API division was transferred as going concern without valuing the plant and machinery individually this Tribunal is of the considered opinion that it is a case of slump sale. CIT(Appeals) is not correct in saying that it is not a slump sale. Deduction u/s 10B - adopting the profits arrived as per the provisions of Section 115JB of the Act and not to adopt the amount computed in the regular method - HELD THAT - Clause (ii) of Explanation 1 to Section 115JB(2) of the Act clearly says that the amount of income to which provisions of Section 10 of the Act other than clause (38) thereof shall be reduced if such amount is credited to the Profit Loss account. Therefore the claim of the assessee that Section 10B of the Act is equal to Section 80HHC of the Act may not be correct. No similar clause as clause (ii) of Explanation to Section 115JB of the Act was brought to the notice of the Tribunal by the assessee. Therefore this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly the orders of the authorities below are set aside and the issue of deduction under Section 10B of the Act is remitted back to the file of the AO to re-examine the matter afresh. Disallowance u/s 14A r.w.r. 8D - HELD THAT - AO on one end observed that the assessee has not earned any exempted income. However the assessee claims that disallowance may be restricted to exempted income to the extent of 15, 08, 370/-. Therefore the facts are not brought on record. Hence the matter needs to be reexamined by the Assessing Officer. Accordingly the orders of authorities below are set aside and the disallowance made under Section 14A of the Act is remitted back to the file of AO.
Issues Involved:
1. Exclusion of freight and clearing charges from export turnover and total turnover. 2. Disallowance of provision for Gratuity. 3. Classification of the sale of API division as a slump sale. 4. Computation of deduction under Section 10B of the Income-tax Act. 5. Disallowance under Section 14A of the Income-tax Act. Issue-wise Detailed Analysis: 1. Exclusion of Freight and Clearing Charges from Export Turnover and Total Turnover: The Tribunal upheld the CIT(Appeals)' decision to exclude freight and clearing charges from both export turnover and total turnover for the purpose of computing deduction under Section 10B of the Income-tax Act, 1961. It was emphasized that the numerator and denominator should be of the same figure, as established in the case of ITO v. Sak Soft Limited (2009) 313 ITR 353. The Tribunal found no reason to interfere with the CIT(Appeals)' order. 2. Disallowance of Provision for Gratuity: The Tribunal addressed the disallowance of the provision for Gratuity made by the assessee. The CIT(Appeals) allowed the claim based on Section 40A(7)(b) of the Act, which provides a special provision for allowing Gratuity payments to an approved fund, thus overriding Section 43B of the Act. The Tribunal agreed with this interpretation, citing the Kerala High Court judgment in CIT v. Commonwealth Trust (I.) Ltd. (2004) 269 ITR 290, which supports a harmonious construction of both sections. Consequently, the Tribunal upheld the CIT(Appeals)' decision. 3. Classification of the Sale of API Division as a Slump Sale: The Tribunal examined whether the sale of the API division constituted a slump sale. The Revenue argued that the sale was a slump sale under Section 2(42C) of the Act, as it was transferred as a going concern without assigning individual values to the assets. The assessee contended that the assets were individually valued. However, the Tribunal found that the agreement did not specify individual asset values and lacked details on plant and machinery. Consequently, the Tribunal concluded that the sale was indeed a slump sale and set aside the CIT(Appeals)' order, restoring the Assessing Officer's decision. 4. Computation of Deduction under Section 10B of the Income-tax Act: The Tribunal addressed the computation of deduction under Section 10B of the Act. The CIT(Appeals) had directed the Assessing Officer to recompute the deduction using profits as per Section 115JB of the Act. The Revenue argued that the deduction should be based on the amount computed under the regular method. The Tribunal noted that the matter required reconsideration, as the provisions of Section 115JB and Section 10B needed to be harmonized. The Tribunal remitted the issue back to the Assessing Officer for fresh examination and decision in accordance with the law. 5. Disallowance under Section 14A of the Income-tax Act: The Tribunal examined the disallowance made under Section 14A of the Act. The assessee argued that the investments were made from its own funds, and no expenditure was incurred, hence no disallowance should be made. The Revenue contended that the assessee had borrowed funds for investments, justifying the disallowance. The Tribunal found that the facts were not clearly established and remitted the issue back to the Assessing Officer for re-examination, directing a fresh decision based on the material provided by the assessee. Conclusion: - The Tribunal upheld the CIT(Appeals)' decision on the exclusion of freight and clearing charges. - The Tribunal confirmed the CIT(Appeals)' decision on the provision for Gratuity. - The Tribunal classified the sale of the API division as a slump sale, setting aside the CIT(Appeals)' order. - The Tribunal remitted the issue of deduction under Section 10B back to the Assessing Officer for reconsideration. - The Tribunal remitted the disallowance under Section 14A back to the Assessing Officer for re-examination. Final Orders: - Revenue's appeal in I.T.A. No.738/Mds/2010 was partly allowed for statistical purposes. - Revenue's appeal in I.T.A. No. 1170/Mds/2015 was dismissed. - Assessee's appeal in I.T.A. No.986/Mds/2015 was allowed for statistical purposes. Order Pronounced on 18th August, 2017 at Chennai.
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