2014 (7) TMI 1372 - AT - Income Tax

Denial of deduction in respect of amount of credit under DEPB Scheme - AO denied the same holding that the assessee has not actually utilized the credit before closing of the relevant previous year for payment of duty on the import of goods - HELD THAT - As decided in M/s. Excel Industries Ltd 2013 (10) TMI 324 - SUPREME COURT even if it is assumed that the assessee is entitled to the benefits under the advance licences as well as under the duty entitlement pass book there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent at best a hypothetical income which may or may not materialize ad its money value is therefore not the income of the assessee - thus we are of the opinion that the assessee is entitled to relief. Accordingly ground no.1 raised by the assessee is allowed. Addition u/s 14A - expenditure incurred for earning of the exempt income - HELD THAT - Assessee mentioned that the said grounds require revisit to the file of the AO considering the fact that the assessee was not given a proper opportunity to clarify the allegations against the bogus purchases on one side and the Assessing Officer failed to record his dissatisfaction with regard to the claim of the assessee that no expenditure was incurred for earning of the exempt income and this is relevant for the issue raised in ground no.3. Denial of weighted deduction u/s 35(2AB) with regard to the expenditure incurred on scientific research - HELD THAT - As gone through the cited judgment of CADILA HEALTHCARE LTD 2013 (3) TMI 539 - GUJARAT HIGH COURT On hearing both the parties and on perusal of the said order of the High Court we are of the opinion that the issues raised in ground no.4 should be set aside to the file of the AO to examine each of the expenses in detail and apply the cited judgment of the Hon ble Gujarat High Court (supra) in connection with the claim of expenses relating to the clinical trials. Accordingly we remand this part of the ground to the file of the AO and ground no.4 is partly allowed statistical purposes. Deduction u/s 80IB admissible to the eligible units - HELD THAT - The Tribunal in assessee own case after considering the departmental argument that the AO has correctly invoked the proviso to section 80IA(a) as well as in applying the global profit percentage method while confirming the order of the CIT (A). We find that the facts for this year in question are no different. Therefore we find no reason to interfere with the order of the CIT (A) for this year. Accordingly ground raised by the Revenue is dismissed. Deduction u/s 80IB in respect of receipts in sale of scrap - HELD THAT - Representatives of both the parties mentioned this issue is required to revisit the file of the AO in view of the fact that the said scrap not only includes generated during manufacturing activity but also other general scrap such as packing material etc. It is a settled issue that the receipts received on sale of scrap during the manufacturing activity is entitled for deduction u/s 80IB and other scrap proceeds are not eligible in view of the principles laid down in the judgment of Liberty India 2009 (8) TMI 63 - SUPREME COURT AO is required to examine the above issue afresh after affording a reasonable opportunity of being heard to the assessee. Accordingly ground no.4 is allowed for statistical purposes. Disallowance of provision of loss on forward contracts - HELD THAT - The tests laid down by the Hon ble Supreme Court in the case of Wodward Governor 2009 (4) TMI 4 - SUPREME COURT are satisfied in the appellant s case on the basis that the appellant is following mercantile system of accounting the accounting policy in this behalf has been consistently followed by the appellant and the claim made by the appellant is bona fide. Therefore appellant has made correct claim for deductibility of provision for loss by marking to marking the outstanding forward cover contracts and the disallowance by the AO is not justified both on facts and in law. The disallowance is therefore directed to be deleted. The loss quantified on revaluation of the forward contract is an allowable business loss. This is not the case of the Revenue that the impugned losses are earned on account of premature cancellation of forward contracts. Appeal of the Revenue is partly allowed.

Summary

Issues Involved:
1. Deduction under DEPB scheme.
2. Disallowance of alleged bogus purchases.
3. Disallowance under section 14A.
4. Denial of weighted deduction under section 35(2AB).
5. Computation of 80IB deduction.
6. Eligibility for claiming deduction under section 80IB for Lease and License Manufacturing (LLMs).
7. Eligibility of DEPB Credit for 80IB deduction.
8. Eligibility of sale of scrap for 80IB deduction.
9. Eligibility of miscellaneous sales/processing charges for 80IB deduction.
10. Deductibility of provision for loss on forward contracts.

Detailed Analysis:

1. Deduction under DEPB Scheme:
The assessee contested the denial of deduction for the DEPB credit not utilized before the close of the relevant previous year. The Tribunal referred to the Supreme Court judgment in CIT vs. M/s. Excel Industries Ltd., which clarified that income does not accrue in the year of export but in the year imports are made. Consequently, the Tribunal allowed the assessee's claim.

2. Disallowance of Alleged Bogus Purchases:
The assessee argued against the disallowance of Rs. 38,80,657/- as bogus purchases, stating that they were not given an opportunity to clarify discrepancies. The Tribunal remanded the issue back to the AO for reconsideration, providing the assessee a chance to clarify the discrepancies.

3. Disallowance under Section 14A:
The assessee contested the disallowance of Rs. 73,75,369/- under section 14A. The Tribunal noted that the AO did not record dissatisfaction with the assessee's claim that no expenditure was incurred for earning exempt income. The issue was remanded back to the AO for fresh adjudication.

4. Denial of Weighted Deduction under Section 35(2AB):
The assessee claimed weighted deduction for Rs. 37.34 lakhs incurred on scientific research. The Tribunal referred to the Gujarat High Court judgment in CIT vs. Cadila Healthcare Ltd., which allowed clinical trial expenses incurred outside approved facilities. The Tribunal remanded the issue to the AO for detailed examination and fresh adjudication.

5. Computation of 80IB Deduction:
The Revenue contested the basis adopted by the AO for computing 80IB deduction. The Tribunal upheld the CIT(A)'s decision, which was consistent with previous Tribunal orders in the assessee's own case, confirming that the AO's basis was not justified.

6. Eligibility for Claiming Deduction under Section 80IB for LLMs:
The Revenue challenged the deduction for profits derived from manufacturing done through LLMs. The Tribunal referred to its earlier orders and upheld the CIT(A)'s decision allowing the deduction, as the facts were identical to previous years where the deduction was granted.

7. Eligibility of DEPB Credit for 80IB Deduction:
The Tribunal noted that this issue had become infructuous due to a rectification order passed by the CIT(A) under section 154, and dismissed the ground as infructuous.

8. Eligibility of Sale of Scrap for 80IB Deduction:
The Tribunal remanded the issue back to the AO to differentiate between scrap generated during manufacturing (eligible for deduction) and other general scrap (not eligible), in line with the Supreme Court judgment in Liberty India vs. CIT.

9. Eligibility of Miscellaneous Sales/Processing Charges for 80IB Deduction:
The Tribunal upheld the CIT(A)'s decision, which included miscellaneous sales and processing charges in eligible profits for 80IB deduction, consistent with earlier Tribunal orders in the assessee's own case.

10. Deductibility of Provision for Loss on Forward Contracts:
The Revenue contested the deletion of disallowance for provision of loss on forward contracts. The Tribunal upheld the CIT(A)'s decision, which allowed the provision as a deductible business loss, consistent with the Supreme Court's principles in Woodward Governor's case.

Conclusion:
The Tribunal's consolidated order addressed multiple appeals for AY 2008-2009 and 2009-2010, providing detailed adjudication on each ground raised by both the assessee and the Revenue. The Tribunal allowed some grounds, remanded others for fresh adjudication, and upheld the CIT(A)'s decisions where consistent with legal precedents.