2023 (4) TMI 1288 - AT - Income Tax

Nature of expenses - expenditure on dies moulds - revenue or capital expenditure - HELD THAT - We observe from the record that identical issue is decided in favour of the assessee in the A.Y. 1995-96 as allowing the revenue expenditure in respect of replacement of jigs and fixtures and dies and moulds - Decided in favour of assessee. Addition of penalty charges received from machinery suppliers - HELD THAT - Identical issue is decided in favour of the assessee in the A.Y. 1995-96 wherein held CIT(A) has deleted the addition following his order for Assessment Years 1989-90 to 1991-92 as well as the decision of Hon ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd. 1987 (2) TMI 18 - ANDHRA PRADESH HIGH COURT Deduction towards expenditure relating to purchase of jigs and fixtures - HELD THAT - As in assessee s own case for the A.Y. 1996-97 CIT(A) reversed the findings of Assessing Officer and held the expenditure to be on revenue account. Deduction u/s.80HH and 80-IA without deducting notional depreciation of individual units - HELD THAT - As decided in A.Y. 1996-97 Co-ordinate Bench in the appeal by Revenue for assessment year 1995-96 had accepted identical ground raised by the Revenue following the decision rendered by the Tribunal in assessee's own case - No contrary material has been placed before us by assessee. We find no reason to take a different view. Consequently, the fining of the CIT(A) on this issue are reversed and Ground No.4 raised in the appeal by Revenue is allowed. Deduction u/s.80HH and 80-IA by including duty drawback and interest - whether the income earned by the assessee relating to interest earned from the suppliers and duty drawback from the customs are relating to the business carried on by the assessee or income from other sources? - HELD THAT - The issue under consideration is already considered by various courts particularly the Hon ble Supreme Court in the case of Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT as it is clear that the source of income earned by the assessee which has direct link to the business carried on by the assessee has to be considered to assess the same under the head income from Business and earned from the eligible unit. Therefore, it is eligible to get the benefit under section 80HH and 80IA. Accordingly, the ground raised by the revenue is dismissed. Deduction u/s.80HHC pertaining to exclusion of excise duty and exclusion of Sales-tax - HELD THAT - Identical issue is decided in favour of the assessee for the A.Y. 1996-97 While deciding the issue, the Coordinate Bench of the Tribunal in following the decision in assessee s own case for the A.Ys. 1995-96 and held that the sale of aforesaid items should be excluded from total turnover for the purpose of calculating deduction u/s 80HHC of the Act, as in Assessment Year 1995-96 these very items were excluded from total turnover while computing deduction u/s 80HHC of the Act. Allowability of Technical knowhow charges - HELD THAT - As the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee s own case and decided the issue in favour of the assessee and against the department as held that rendering of technical know-how in the peculiar line of industry in which the assessee is engaged in, is undoubtedly an activity related to the business carried on by the assessee. Therefore, the technical know-how income earned by the assessee company cannot be dissociated with its business income. For the same reason, it cannot be brought under the items qualified in sub-clause (i) of clause (baa). Therefore, the finding of the CIT that the technical know-how need to be excluded to the extent of 90 per cent is again not sustainable in law. Disallowance of entertainment expenditure confirmed. Expenditure on lease land for 99 years allowed as revenue expenditure. Addition towards wealth tax liability by holding that the same is wealth tax paid by the assessee - HELD THAT - Identical issue is decided in favour of the assessee for the A.Y. 1995-96 and held that the wealth-tax chargeable with reference to the value of any particular asset of the business or profession will not be covered by the prohibition clause of Section 40(a)(iia) of the IT Act, 1961, and as such wealthtax could be admissible for deduction. Admittedly, the wealth-tax paid in pursuance to Section 40 of the Finance Act, 1983, was with reference to the value of particular asset of the business of the assessee. Under Section 40 of the Finance Act, 1983, total wealth of the company was not chargeable to wealth-tax. It was only the assets specified under Sub-section (3) of Section 40 of the Finance Act, 1983, which was chargeable to wealth-tax. 'Therefore, the exception part of Explanation to Section 40(a)(iia) of the Act referred to above became applicable in the present case and the wealth-tax paid by the assessee in pursuance to Section 40 of the Finance Act, 1983, was admissible for deduction. Decided in favour of assessee. Allowing expenses on GDR issue as covered in section 35D - HELD THAT - We observe that the assessee has incurred expenses in connection with the issue of GDR and these expenses are allowable only when new or expansion of industrial undertaking. During the current Assessment Year, the assessee has completed the expansion of the Industrial undertaking, the expenses are allowable deduction u/s 35D of the Act, since the expenses are incurred during previous AY and expansion was completed only this AY, the relevant expenses are allowable in this Assessment Year. In the similar facts, the ITAT Ahmedabad Bench has decided the issue in favour of the assessee, in the case of Gujarat Narmada Valley Fertilizers Co. Ltd. 2011 (12) TMI 519 - ITAT AHMEDABAD - Thus we direct assessing officer to allow the claim made by the assessee relating to deduction u/s. 35D of the Act. Allowability of depreciation in respect of sale and lease back transaction - HELD THAT - We observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. However, the Ld AR has brought to our notice that the assessee has not entered in any such transaction with Tata Chemical Ltd. Therefore, this ground raised by the revenue is not maintainable considering the fact that no such transactions are carried on by the assessee with the above company. Accordingly, ground raised by the revenue is dismissed. Lease agreement with JCT Ltd - HELD THAT - As following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed and the issue involved in relation to transaction with JCT Ltd are similar to the above findings in relation to transaction with PSEB, accordingly, ground raised by the revenue is dismissed. Nature of receipts - taxability of surplus on account of redemption of preference shares, debentures, bonds, certificate of deposits - revenue receipts or Capital Gains - HELD THAT - As it is brought to our notice that the Assessing Officer himself treated the surplus of redemption of preference shares and preference shares as income chargeable to tax under the head capital gain . Therefore, even Ld. CIT(A) has decided the issue as per the findings of the Assessing Officer. Therefore, it is not the case of the Assessing Officer that the above surplus should be considered for taxation under the head under the term revenue receipt . Therefore, in our considered view the ground raised by the revenue is not maintainable as the fact suggest that the ground raised by the revenue is not connected with the findings of the Assessing Officer. The Ld.CIT(A) has sustained the findings of the Assessing Officer, therefore, there is no grievance to the revenue. Accordingly, ground raised by the revenue is dismissed. Redemption of treasury bills - above said surplus has to be treated as interest income substantiating the views of the AO and not under the head capital gain - HELD THAT - After considering submissions of both the parties, we are not inclined to accept the submissions raised by the revenue that the surplus earned by the assessee cannot be treated as interest income and it is fact on record that assessee has held the treasury bills for certain period of time as investment and the surplus has to be taxed under the head capital gain and the same was sustained by the Ld.CIT(A). Therefore, the contention of the Assessing Officer is accordingly rejected and we observe that CIT(A) has rejected claim made by the assessee that the redemption of such treasury bills is not a transfer - Grounds raised by the revenue is allowed.

Summary

Issues Involved:
1. Allowability of expenditure on dies & moulds as revenue expenditure.
2. Deletion of addition representing penalty charges received from machinery suppliers.
3. Allowability of deduction towards expenditure on jigs and fixtures.
4. Deduction u/s 80HH and 80-IA without deducting notional depreciation.
5. Deduction u/s 80HH and 80-IA by including duty drawback and interest.
6. Exclusion of Sales Tax and Excise Duty from total turnover for deduction u/s 80HHC.
7. Inclusion of technical know-how charges in profits of the business.
8. Disallowance of entertainment expenditure.
9. Allowability of expenditure on lease land for 99 years as revenue expenditure.
10. Allowability of wealth tax liability as a deduction.
11. Allowability of expenses on GDR issue u/s 35D.
12. Allowability of depreciation on sale and lease back transactions.
13. Allowability of depreciation on assets leased to JCT Ltd.
14. Taxability of surplus on redemption of treasury bills as capital gains or revenue receipts.

Summary:

1. Allowability of Expenditure on Dies & Moulds:
The Tribunal observed that the issue of allowing expenditure on dies & moulds as revenue expenditure had been decided in favor of the assessee in previous assessment years (A.Ys. 1990-91 to 1996-97). Following the principle of consistency, the Tribunal dismissed the revenue's ground.

2. Deletion of Addition Representing Penalty Charges:
The Tribunal noted that the issue of deleting the addition of penalty charges received from machinery suppliers had been adjudicated in favor of the assessee in earlier years. The Tribunal dismissed the revenue's ground, following the principle of consistency.

3. Allowability of Deduction on Jigs and Fixtures:
The Tribunal found that the issue of allowing deduction towards expenditure on jigs and fixtures had been decided in favor of the assessee in previous years. Respecting the principle of consistency, the Tribunal dismissed the revenue's ground.

4. Deduction u/s 80HH and 80-IA Without Deducting Depreciation:
The Tribunal observed that the issue of granting deduction u/s 80HH and 80-IA without deducting depreciation had been decided in favor of the revenue in previous years. The Tribunal allowed the revenue's ground, following the principle of consistency.

5. Deduction u/s 80HH and 80-IA by Including Duty Drawback and Interest:
The Tribunal referred to the Supreme Court's decision in Meghalaya Steels Ltd. and other cases, concluding that duty drawback and interest directly related to the business should be included in eligible profits for deductions u/s 80HH and 80-IA. The Tribunal dismissed the revenue's ground.

6. Exclusion of Sales Tax and Excise Duty from Total Turnover:
The Tribunal noted that the issue of excluding Sales Tax and Excise Duty from total turnover for deduction u/s 80HHC had been decided in favor of the assessee in previous years. Respecting the principle of consistency, the Tribunal dismissed the revenue's ground.

7. Inclusion of Technical Know-How Charges:
The Tribunal observed that the issue of including technical know-how charges in profits of the business had been decided in favor of the assessee in previous years. Following the principle of consistency, the Tribunal dismissed the revenue's ground.

8. Disallowance of Entertainment Expenditure:
The Tribunal found that the issue of disallowance of entertainment expenditure had been decided against the assessee in previous years. The Tribunal dismissed the revenue's ground, noting that the issue was already decided against the assessee.

9. Allowability of Expenditure on Lease Land for 99 Years:
The Tribunal noted that the issue of allowing expenditure on lease land for 99 years as revenue expenditure had been decided in favor of the assessee in previous years. Following the principle of consistency, the Tribunal dismissed the revenue's ground.

10. Allowability of Wealth Tax Liability:
The Tribunal observed that the issue of allowing wealth tax liability as a deduction had been decided in favor of the assessee in previous years. Respecting the principle of consistency, the Tribunal dismissed the revenue's ground.

11. Allowability of Expenses on GDR Issue:
The Tribunal found that the expenses on GDR issue were allowable u/s 35D as the expansion of the industrial undertaking was completed in the current assessment year. The Tribunal directed the Assessing Officer to allow the claim.

12. Allowability of Depreciation on Sale and Lease Back Transactions:
The Tribunal noted that there were no transactions with M/s. Tata Chemicals Ltd. in the current year. Therefore, the ground raised by the revenue was dismissed as not maintainable.

13. Allowability of Depreciation on Assets Leased to JCT Ltd.:
The Tribunal observed that the issue of allowing depreciation on assets leased to JCT Ltd. had been decided in favor of the assessee in previous years. Following the principle of consistency, the Tribunal dismissed the revenue's ground.

14. Taxability of Surplus on Redemption of Treasury Bills:
The Tribunal found that the surplus on redemption of treasury bills was taxable as capital gains, not revenue receipts. The Tribunal dismissed the revenue's ground, noting that the issue was already decided in favor of the revenue in previous years.

Conclusion:
The appeal filed by the revenue was partly allowed, and the cross-objection filed by the assessee was partly allowed. The Tribunal followed the principle of consistency and previous judicial decisions in adjudicating the issues.