2023 (8) TMI 1422 - AT - Income Tax

Correct head of income - taxability being the surplus received on redemption of treasury bills - assessee offered the same under the head capital gains , but appended a note to the Statement of total income claiming that the above said amount should be excluded from the total income as it is a case of extinguishment of asset and hence not taxable - AO did not accept the claim of the assessee and assessed the same as income under the head Income from other sources - CIT(A) directed the AO to assess the above said amount under the head Capital gains - HELD THAT - We notice that an identical issue has been examined by the co-ordinate bench in the assessee s own case in AY 1995-96. In the above said year, the Ld CIT(A) had allowed the claim of the assessee and hence the revenue had filed appeal before the Tribunal. The co-ordinate bench, by following the decision rendered by Hon ble Supreme Court in the case of CIT vs. Grace Collis 2001 (2) TMI 9 - SUPREME COURT has reversed the decision of Ld CIT(A). We notice that the surplus arising on redemption of treasury bills his held to be taxable under the head Capital gains in the assessee s own case in AY 1996-97 also. Accordingly, we direct the AO to assess the above said amount as Capital gains in this year also. Methodology to be adopted for computing eligible profits for the purpose of computing deduction u/s 80IA - whether the depreciation is required to be deducted or not for computing eligible profits for the purposes of sec. 80IA? - HELD THAT - We notice that the co-ordinate benches are consistently holding that the depreciation is required to be deducted. Accordingly, we reject this ground of the assessee. Deduction claimed u/s 80IA - whether the duty drawback and interest income are eligible for deduction u/s 80IA? - HELD THAT - The co-ordinate bench has dealt with identical issues in the assessee s own case in AY 1997-98. 2023 (4) TMI 1288 - ITAT MUMBAI and the Tribunal has held that the assessee is eligible for deduction u/s 80IA in respect of both the income referred above as followed the decision rendered in the case of CIT vs. Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT Following the order passed by the co-ordinate bench, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80IA of the Act in respect of duty draw and interest income. Wealth tax payment as eligible for deduction while computing total income - HELD THAT - We notice that this issue has been decided in favour of the assessee in the earlier years by the Tribunal, wherein the decision rendered by Delhi bench of Tribunal in the case of Punj Sons (P) Ltd 2001 (2) TMI 281 - ITAT DELHI-B has been followed. The Delhi bench of Tribunal has taken the view that the tax chargeable with reference to the value of any particular asset of business or profession is not covered by the disallowable prescribed u/s 40(a)(iia) of the Act. In the present case, it is the submission of the assessee that the wealth tax is chargeable with reference to the value of certain business assets. The decision so rendered by Delhi bench of Tribunal has been followed in the assesee s own case in AY 1995-96 and other years. Thus we hold that the wealth tax paid by the assessee is not liable to be disallowed. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance. Deduction u/s 80-O - sum calculated @ 50% of royalty amount received by the assessee from a Columbian company - Case of tax authorities is that the payment so received by the assessee was not in respect of the drawing, design, invention, patent and trade mark outside India - HELD THAT - A careful perusal of the above said clause would show that the assessee has received technical knowhow fee for supplying a set of drawings for such parts/components and also for providing information about characteristics of material to be used in the manufacture of such parts/components. In the instant case, the assessee has given license to assemble its scooter models. When the Licensee prefers to manufacture certain parts/components on its own, the assessee permits the same and accordingly supplies the drawings relating to those parts and collects technical know how fee. The Licensee is bound to manufacture those parts/components in accordance with those designs only. Otherwise, the same will not fit into Scooter when the scooter is assembled. Hence, we are unable to find any reason to say that the said payment will not fall under the category of consideration received for the use of patent, invention, design mentioned in sec. 80-O of the Act. Accordingly, we are of the view that the technical knowhow fee received by the assessee would fall under the category of royalty , as defined in sec.80-O of the Act and it is eligible for deduction u/s 80-O. Thus allow the claim of the assessee. Nature of expenses - expenditure incurred on repairs of building - Submission of the assessee that the above said expenses have been incurred on repair and maintenance of existing structures and it did not result in any benefit of enduring nature - HELD THAT - These expenses should be treated as part of repairs carried on by the assessee. The item of expenses mentioned in (c) above relates to purchase of Stainless Steel Garbage Chute for disposal of waste food at General Canteen. Since it is placed in the General canteen, the useful period of life of this item will be less and accordingly it will not have the benefit of enduring nature. Accordingly, we are of the view that this expenditure should also be allowed as revenue expenditure. Accordingly, we modify the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance sustained by Ld CIT(A). Disallowance relating to Fines and Penalties - assessee had initially disallowed the above said amount while filing return of income, however, a note was appended claiming that these fines/penalties are compensatory in nature. Accordingly, the assessee raised a ground before Ld CIT(A) claiming it as business expenditure. It was rejected by Ld CIT(A) - HELD THAT - We notice that an identical claim made in AY 2007-08 has been rejected by the Tribunal. Following the same, we confirm the order passed by Ld CIT(A) on this issue. Disallowance relating to GDR issuing expenses - HELD THAT - In AY 1997-98, in 2023 (4) TMI 1288 - ITAT MUMBAI dated 13-04-2023, the co-ordinate bench allowed the claim of the assessee following the decision rendered in the case of Gujarat Narmada Valley Fertilisers Co. Ltd. 2011 (12) TMI 519 - ITAT AHMEDABAD i.e., it was held that the assessee is eligible for deduction u/s 35D of the Act in respect of this expenditure. U/s 35D of the Act, this expenditure is allowable in installments. Hence the assessee has claimed proportionate amount in this year. Since the co-ordinate bench has held it to be allowable u/s 35D of the Act, following the said decision of co-ordinate bench, we direct the AO to allow eligible amount relatable to this year as deduction u/s 35D of the Act in this year. Depreciation claimed on assets taken on lease - Disallowance made as it was not a genuine lease transaction, i.e., it is a finance transaction entered under the garb of lease transaction - HELD THAT - The above said view of the AO has since been rejected by Ld CIT(A) and Tribunal in AY 1996-97 and 1997-98. Hence the basis on which the disallowance of depreciation made by the AO has already been reversed. D.R has raised a new contention that the Explanation 4A should be applied to this lease transaction, which is not the case of the AO. Accordingly, we do not find it necessary to consider the new contention raised by Ld D.R. Accordingly, following the decision rendered by the co-ordinate benches in the assessee s own case, we confirm the order passed by Ld CIT(A) on this issue. Disallowance of expenses incurred on Dyes and Moulds - HELD THAT - Consistent with the view taken by the co-ordinate benches year after year, we confirm the order passed by CIT(A) in holding that the expenditure incurred on Dyes and Moulds is allowable as deduction. Nature of receipt - penalty charges received from machinery suppliers - HELD THAT - Tribunal has followed the decision rendered in AY 1995-96 wherein it was held that the penalty charges received from machinery suppliers is capital in nature. In this regard, the Tribunal has followed the decision rendered in AY 1993-94, wherein it was decided in favour of the assessee following the decision rendered by Hon ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd 1987 (2) TMI 18 - ANDHRA PRADESH HIGH COURT Expenditure incurred on jigs and fixtures is allowable as deduction as revenue expenditure. Computation of deduction u/s 80HHC - CIT(A) had directed that the income by way of technical knowhow, insurance claim, miscellaneous receipts, sundry credit balance, provision for doubtful debts written back, provision no longer required shall form part of profits of business for the purpose of computation of deduction u/s 80HHC - HELD THAT - The technical Knowhow fees received by the assessee is held to be part of profits of business by the co-ordinate bench in the assessee s own case in AY 1996-97 and the said decision has been followed by the Tribunal in AY 2007-08. The other items of receipts, viz., insurance claim, miscellaneous receipts, sundry credit balance, provision for doubtful debts written back, provision no longer required, in our considered view, need not be excluded while computing profits of business as these receipts do not fall under the category of brokerage, commission, interest, rent, charges or any other receipt of similar nature mentioned in the definition of profits of business given in clause (baa) of Explanation to sec.80HHC of the Act. Accordingly, we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue. Excise duty receipts shall not form part of total turnover for the purposes of computing deduction u/s 80HHC. Deduction u/s 80HHC in respect of 90% of export incentive by way of DEPB scheme - We notice that the Ld CIT(A) has held that the deduction u/s 80HHC is allowable on 90% of DEPB receipts, which is in accordance with the decision rendered in the case of CIT vs. Pink Star 2000 (8) TMI 72 - BOMBAY HIGH COURT Since the Ld CIT(A) has followed the binding decision of the jurisdictional High Court, we decline to interfere with the decision rendered by him on this issue. Prior period expenses - contention of the assessee before CIT(A) was that these expenses have crystallized and quantified during the year relevant to AY 1998-99 - HELD THAT - The contention of the assessee is legally correct, but it is the duty of the assessee to prove that the said expenses got crystallized during the year relevant to AY 1998-99. Hence the direction of Ld CIT(A) that the expenses debited to Profit and Loss account, if not allowed in the earlier year, should be allowed is not in accordance with the established legal principles. Accordingly, we modify the order passed by CIT(A) and direct the AO to allow expenses which have crystallized during the year under consideration. It is the responsibility of the assessee to prove that the said expenses got crystallized during the year under consideration. Disallowance of interest expenses relatable to exempt income u/s 14A - HELD THAT - We heard the parties and perused the record. We notice that the view taken by Ld CIT(A) gets support from the decision rendered by Hon ble Bombay High Court in the case of HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT The jurisdictional Bombay High Court has held in the above said case that the interest disallowance u/r 8D(2)(ii) of I T Rules is not called for when the own funds available with the assessee is in excess of the value of investments. In our view, the ratio of the said decision shall apply to the facts of the present issue. Accordingly, we confirm the order passed by Ld CIT(A) on this issue. Disallowance of expenses incurred by the assessee on foreign travel by the wife - DR submitted that the foreign travel expenses incurred for wife of Managing director is not related to the business and hence the AO has rightly disallowed the same - HELD THAT - We notice that the Board resolution did not bring out any business expediency. Further, the assessee has also not proved existence of any commercial or business expediency in incurring the foreign travel expenses of wife of M D except producing copy of Board resolution, in which also, no reason was given. There should not be any doubt that this is a factual aspect and the facts prevailing in each foreign trip has to be examined. Accordingly, the decision taken by the Tribunal in AY 1986-87 may not be relevant. We notice that the Ld CIT(A) has also not brought out the business or commercial expediency in incurring expenses on foreign trips of wife of M D, but deleted the addition on the basis of quantum of expenditure, status of the M D and approval by Board. These are not the proper reasons for allowing this type of expenditure, as held by the jurisdictional High Court. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and confirm the disallowance made by the AO. Expenditure of Repairs to buildings - AO had disallowed a sum treating it as capital in nature and had allowed depreciation @ 10% thereon - HELD THAT - A perusal of those expenditure would show that, all those expenses have been incurred on existing structures only, i.e., no new civil structure seems to have come into existence on incurring these expenses. The nature of expenses is false ceiling, road surfacing, fencing, tiles replacement, aluminum partition expenses. In our view, essentially these expenses are in the nature of repairs and maintenance expenses only. Accordingly, we are of the view that the Ld CIT(A) was justified in granting partial relief to the assessee. Disallowance relating to proportionate amount of lease premium paid for leasehold land written off - HELD THAT - This is a recurring issue. The Tribunal had deleted this disallowance in AY 1995-96 by following the decision rendered by Hon ble Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Ind. Ltd 2009 (3) TMI 587 - GUJARAT HIGH COURT and other two decisions. The above said decision was followed in AY 1996-97 and 1998-99. Accordingly, consistent with the view taken by the co-ordinate benches in the assessee s own case in the earlier years, we hold that the Ld CIT(A) was justified in deleting this disallowance. Disallowance relating to expenses incurred on issue of bonus shares - assessee disallowed the above said amount in the return of income, but appended a note to the same stating that this is allowable as deduction - HELD THAT - AO did not make any comment on it. Before Ld CIT(A), the assessee raised a claim for deduction of above expenses. The first appellate authority allowed the same by following the decision rendered by the Tribunal in the assessee s own case in AY 1995-96. We notice from the order passed in AY 1995-96 by the co-ordinate bench that the Tribunal has followed the decision rendered by Hon ble Supreme Court in the case of CIT vs. General insurance Corporation 2006 (9) TMI 116 - SUPREME COURT is allowable as deduction, since the issue of bonus shares is mere reallocation of company s funds from Reserves to Capital. Accordingly, we uphold the order passed by Ld CIT(A).

Summary

Issues Involved:
1. Taxability of surplus received on redemption of treasury bills.
2. Methodology for computing "eligible profits" for deduction under section 80IA.
3. Eligibility of duty drawback and interest income for deduction under section 80IA.
4. Deductibility of wealth tax payment.
5. Deduction under section 80-O for royalty received.
6. Classification of building repair expenses as capital or revenue expenditure.
7. Disallowance of fines and penalties.
8. Deduction of GDR issuing expenses under section 35D.
9. Depreciation on assets taken on lease.
10. Treatment of expenses on dyes and moulds.
11. Classification of penalty charges from machinery suppliers.
12. Treatment of expenses on jigs and fixtures.
13. Computation of deduction under section 80HHC.
14. Exclusion of excise duty receipts from total turnover.
15. Deduction on foreign exchange difference in export turnover.
16. Deduction under section 80HHC for DEPB scheme.
17. Deduction of prior period expenses.
18. Disallowance of interest expenses related to exempt income.
19. Foreign travel expenses of the wife of the Managing Director.
20. Disallowance of repairs to buildings.
21. Deduction of lease premium paid for leasehold land.
22. Deduction of expenses incurred on the issue of bonus shares.

Summary:

1. Taxability of Surplus on Redemption of Treasury Bills:
The assessee contested the taxability of Rs.1,03,55,590/- as capital gains, whereas the AO assessed it as income from other sources. The Tribunal directed the AO to assess the amount under "Capital gains," following the assessee's own case in AY 1995-96 and 1996-97.

2. Methodology for Computing "Eligible Profits" for Deduction under Section 80IA:
The Tribunal upheld that depreciation is required to be deducted for computing "eligible profits" under section 80IA, consistently following co-ordinate bench decisions.

3. Eligibility of Duty Drawback and Interest Income for Deduction under Section 80IA:
The Tribunal directed the AO to allow the deduction under section 80IA for duty drawback and interest income, following the Supreme Court decision in CIT vs. Meghalaya Steels Ltd and the co-ordinate bench's decision in AY 1997-98.

4. Deductibility of Wealth Tax Payment:
The Tribunal held that wealth tax paid by the assessee is not liable to be disallowed, following the Delhi bench decision in Punj Sons (P) Ltd vs. DCIT and consistent with the assessee's own case in earlier years.

5. Deduction under Section 80-O for Royalty Received:
The Tribunal allowed the deduction under section 80-O for the technical knowhow fee received by the assessee, stating it falls under "consideration received for the use of patent, invention, design," as per the agreement with the Columbian company.

6. Classification of Building Repair Expenses as Capital or Revenue Expenditure:
The Tribunal modified the order to allow Rs.28,60,480/- as revenue expenditure, stating the expenses were for repair and maintenance of existing structures, following legal precedents.

7. Disallowance of Fines and Penalties:
The Tribunal confirmed the disallowance of Rs.73,100/- for fines and penalties, consistent with the decision in AY 2007-08.

8. Deduction of GDR Issuing Expenses under Section 35D:
The Tribunal directed the AO to allow the eligible amount under section 35D for GDR issuing expenses, following the co-ordinate bench decision in AY 1997-98.

9. Depreciation on Assets Taken on Lease:
The Tribunal confirmed the allowance of depreciation on leased assets, rejecting the new contention of applying Explanation 4A to section 43(1), as the lease transaction occurred before the amendment.

10. Treatment of Expenses on Dyes and Moulds:
The Tribunal upheld the decision to allow expenses on dyes and moulds as revenue expenditure, consistent with the co-ordinate bench decisions in earlier years.

11. Classification of Penalty Charges from Machinery Suppliers:
The Tribunal confirmed that penalty charges received from machinery suppliers are capital receipts, following earlier decisions and the Andhra Pradesh High Court ruling.

12. Treatment of Expenses on Jigs and Fixtures:
The Tribunal upheld the allowance of expenses on jigs and fixtures as revenue expenditure, consistent with earlier decisions.

13. Computation of Deduction under Section 80HHC:
The Tribunal upheld the inclusion of technical knowhow fees and other receipts in "profits of business" for section 80HHC computation, following co-ordinate bench decisions.

14. Exclusion of Excise Duty Receipts from Total Turnover:
The Tribunal confirmed the exclusion of excise duty receipts from total turnover for section 80HHC deduction, following the Supreme Court decision in CIT vs. Laxmi Machine Works.

15. Deduction on Foreign Exchange Difference in Export Turnover:
The Tribunal declined to entertain the revenue's ground as it was not arising from the assessment order.

16. Deduction under Section 80HHC for DEPB Scheme:
The Tribunal upheld the deduction under section 80HHC for 90% of DEPB receipts, following the Bombay High Court decision in CIT vs. Pink Star.

17. Deduction of Prior Period Expenses:
The Tribunal directed the AO to allow prior period expenses that crystallized during the year under consideration, modifying the CIT(A)'s order.

18. Disallowance of Interest Expenses Related to Exempt Income:
The Tribunal confirmed no disallowance of interest expenses, as the assessee's own funds exceeded the value of investments, following the Bombay High Court decision in HDFC Bank Ltd.

19. Foreign Travel Expenses of the Wife of the Managing Director:
The Tribunal disallowed the foreign travel expenses of the Managing Director's wife, stating the assessee failed to prove business expediency.

20. Disallowance of Repairs to Buildings:
The Tribunal upheld the partial relief granted by CIT(A) for repair expenses, treating them as revenue expenditure.

21. Deduction of Lease Premium Paid for Leasehold Land:
The Tribunal confirmed the deletion of disallowance for lease premium paid, following earlier decisions.

22. Deduction of Expenses Incurred on the Issue of Bonus Shares:
The Tribunal upheld the deduction for expenses on the issue of bonus shares, following the Supreme Court decision in CIT vs. General Insurance Corporation.

Conclusion:
The appeals filed by the assessee and revenue were partly allowed.