2023 (7) TMI 555 - AT - Income Tax

Amount paid or written back during the year under consideration which has already been disallowed in the earlier years u/s 43B - HELD THAT - As decided in assessee own case 2023 (6) TMI 665 - ITAT MUMBAI for the assessment year 2003 04 dismissed similar issue while following the decision rendered in assessee s own case in preceding years. - Decided against assessee. Disallowance on account of Club Membership fees - HELD THAT - As decided in assessee own case 2023 (6) TMI 665 - ITAT MUMBAI issue is covered in favour of the assessee by the decision of Otis Elevator CO. (India) Ltd. 1991 (4) TMI 53 - BOMBAY HIGH COURT Taxability of interest received from the Income Tax Department - HELD THAT - As far as the taxability of interest is concerned 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 However if in the subsequent year refund of interest is withdrawn then the same should be reduced from the total income of the assessee.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. Reduction of interest income while calculating deduction under section 80HHC - HELD THAT -we find that the coordinate bench of the Tribunal vide order dated 2023 (6) TMI 665 - ITAT MUMBAI passed in assessee s own case for the assessment year 2003 04 in view of the decision of honourable Supreme Court in case of ACG Associated Capsules 2012 (2) TMI 101 - SUPREME COURT the 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 by following the decision of honourable Supreme Court (supra). 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 Reduction of 90% of the profit on sale of DEPB credits from the profit of the business for calculation of deduction u/s 80HHC - HELD THAT - As we find that in Topman Exports 2012 (2) TMI 100 - SUPREME COURT held that profit on transfer of DEPB is covered under clause (iiid) of section 28 and 90% of such profit on transfer of DEPB certificate will get excluded from profits of the business while calculating the deduction under section 80HHC of the Act. Since the learned CIT(A) has already directed the AO to reduce only 90% of such income for calculating the deduction under section 80HHC of the Act therefore in view of the aforesaid decision we find no infirmity in the aforesaid direction of the learned CIT(A). Allocation of Head Office expenses and reducing the same from deduction under section 80-O - HELD THAT - We find that the coordinate bench of the Tribunal 2023 (6) TMI 665 - ITAT MUMBAI passed in assessee s own case for the assessment year 2003 04 while deciding similar issue in favour of the assessee as held there is no need for allocation of any expenses when the expenses are directly connected with periods - we are of the considered opinion that there is no necessity for allocating the head office expenses to the units claiming deduction u/s. 8OHH 80I 80M and 80-0. Computation of deduction u/s 80 IA - miscellaneous receipts include interest excess/short provision prior period adjustments rent miscellaneous receipts job charges exchange rate difference export incentive profit on the sale of DEPB license notice pay and sludge sales and all these receipts are directly connected with and derived from the eligible business and therefore should be considered for computation of deduction under section 80-IA - HELD THAT - As is evident from the record the learned CIT(A) only examined the receipts from job charges and excess provisions written back and considered the same to be business profits for computing deduction under section 80-IA of the Act. While the other receipts as noted above under the broad category of miscellaneous receipts were not examined by any of the lower authorities to determine whether they are derived by the undertaking or the enterprise from the eligible business as per the provisions of section 80-IA of the Act. Therefore in view of the above we deem it appropriate to restore this issue to the file of the AO for de novo adjudication as per law after examining each and every receipt under the category of miscellaneous receipts which were excluded from the business profits by the learned CIT(A) for computing the deduction under section 80IA of the Act. Thus to this extent the impugned order on this issue is set aside. Nature of receipt - sales tax exemptions received by the assessee under all the schemes of various State Governments - Capital or revenue receipt - HELD THAT - From the perusal of the eligibility certificate issued under the New Incentive Policy-Capital Investment Incentive (General) Scheme (1995-2000) we find that the same also mentions the total investment in fixed assets by the assessee. Therefore we find that the sales tax exemption scheme of the Government of Gujarat is of the nature similar to the schemes considered by the coordinate bench in the earlier years and thus sales tax exemption received under this scheme is in the nature of capital receipt. Punjab Industrial Incentive Code under the Industrial Policy 1996, we find that the said scheme was formulated with a view to promote growth of the industry in the State and for that purpose it provides various incentives for new industrial units that come into production or undertake expansion on or after 01/04/1996. We find that in the scheme inter-alia the capital subsidy is provided to the new large and medium units set up in the notified area as mentioned in Annexure-I of the scheme. We find that under the said scheme certificate of eligibility was also issued to the assessee in respect of Vikram Bathinda Cement Grinding Unit. Thus the dominant purpose for which this incentive scheme was introduced is also for setting up the industry in the notified area to promote industrial growth in the State. Therefore we are of the considered view that the sales tax exemption received by the assessee under the scheme is also in the nature of capital receipt. Taxability of dividend received from Egyptian company - HELD THAT - We find that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee s own case in assessment year 2003-04. 2023 (6) TMI 665 - ITAT MUMBAI since the amendment vide Finance Act 2003 to section 90 was held to be effective from 01/04/2004 and thus applicable from the assessment year 2004-05 therefore the year under consideration will be governed by the aforesaid amended provisions and Notification no. 91 of 2008 dated 28/08/2008 issued under section 90(3) of the Act is also applicable. As decided in Kulandagan Chettiar s case 2004 (5) TMI 8 - SUPREME COURT mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act 1961 (43 of 1961) and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement . Decided against assessee. Disallowance made on account of expenses incurred for making advertisement films - HELD THAT - This issue is recurring in nature and has been decided in favour of the assessee in the preceding years. Disallowance u/s 14A - disallowance incurred towards earning exempt income - assessee s own funds more than the investment in tax-free securities - HELD THAT - As sufficiently evident that during the year under consideration the assessee s own funds are more than investments including the investments for earning exempt income. We including the investments find that in CIT vs HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT held that where assessee s own funds and other non-interest bearing funds were more than the investment in tax-free securities no disallowance under section 14A of the Act can be made. As in South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT held that disallowance under section 14A of the Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of assessee s own funds. Therefore no infirmity in the impugned order in deleting the disallowance made under section 14A Exclusion of sales tax and excise duty from the total turnover - HELD THAT - We find that this issue is no longer res integra and has been decided in favour of the assessee in CIT v/s Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT wherein held that excise duty and sales tax component cannot form part of the total turnover for computation of deduction under section 80HHC of the Act. Thus respectfully following the aforesaid decision ground raised in Revenue s appeal is dismissed. Reduction of 90% of DEPB income from business profit for computing deduction under section 80HHC - HELD THAT - We find that this issue is no longer res integra and has been decided in Topman Exports Ltd. 2012 (2) TMI 100 - SUPREME COURT wherein the Hon ble Supreme Court held that 90% of the DEPB income is to be reduced from the business profit for computing deduction under section 80HHC of the Act. Thus no infirmity in the impugned order passed by the learned CIT(A) on this issue. Deduction u/s 80IA in respect of profits from Rail System Raipur and Hotgi - Mandation of agreement entered with the other Statutory Body for developing or operating and maintaining or developing operating and maintaining a new infrastructure facilities - HELD THAT - As per section 80IA(4) one of the conditions for applicability of the section is that there has to be an agreement entered with the other Statutory Body for developing or operating and maintaining or developing operating and maintaining a new infrastructure facilities. No material has been brought on record to show that such an agreement does not exist in the present case and the only plea raised by the learned DR is that such an agreement is post the commencement of operation and therefore the assessee does not satisfy the conditions as provided in section 80IA(4) of the Act for availing the benefit of the said section. We find that the language of the section does not support the submissions so made by the learned DR as there is no specific requirement in the section that such an agreement should be prior to the operation. We find that the said section only requires that there has to be an agreement which condition as noted by the coordinate bench of the Tribunal in the preceding year is duly satisfied. In the absence of any allegation of change in facts and law as compared to the preceding year we find no reason to deviate from the view so taken by the coordinate bench in the preceding year. No infirmity in the impugned order in allowing deduction under section 80IA

Summary

Issues Involved:

1. Disallowance under section 43B
2. Disallowance of Club membership fees
3. Taxability of interest received from the Income Tax Department
4. Deduction under section 80HHC
5. Appropriation of Head Office expenses
6. Miscellaneous Receipts
7. Sales tax exemption
8. Costs of appeal
9. Additional grounds of appeal (Royalty deduction under section 43B)
10. Taxability of dividend received from Egyptian company
11. Deletion of disallowance towards contribution to local organization
12. Deletion of disallowance on account of rural development expenses
13. Deletion of disallowance made on account of expenses incurred for making advertisement films
14. Deletion of disallowance incurred towards earning exempt income
15. Apportionment of Head Office expenses to the units eligible for deduction under section 80IA
16. Exclusion of sales tax and excise duty from the total turnover
17. Reduction of 90% of DEPB income from business profit for computing deduction under section 80HHC
18. Claim of deduction under section 80IA in respect of profit derived from Rail System

Summary of Judgment:

1. Disallowance under section 43B:
The Tribunal dismissed the ground raised by the assessee, following the principle of consistency and previous decisions in favor of the Revenue.

2. Disallowance of Club membership fees:
The Tribunal allowed the Club Membership fees paid by the assessee, following previous decisions in favor of the assessee.

3. Taxability of interest received from the Income Tax Department:
The Tribunal allowed the ground raised by the assessee, directing the AO to tax interest income in terms of previous Tribunal orders.

4. Deduction under section 80HHC:
The Tribunal allowed the grounds raised by the assessee regarding interest income, rental income, and miscellaneous receipts, following the decision of the Hon'ble Supreme Court in ACG Associated Capsules Pvt. Ltd.

5. Appropriation of Head Office expenses:
The Tribunal allowed the grounds raised by the assessee, directing the AO to exclude the allocation of Head Office expenses to the respective units claiming deduction under section 80IA.

6. Miscellaneous Receipts:
The Tribunal restored the issue to the file of the AO for de novo adjudication, directing the AO to examine each receipt under the category of 'miscellaneous receipts' and determine its relation to the business operation.

7. Sales tax exemption:
The Tribunal held that the sales tax exemption received by the assessee under various state schemes is in the nature of capital receipts and not taxable.

8. Costs of appeal:
The ground seeking the cost of the appeal was dismissed as not pressed during the hearing.

9. Additional grounds of appeal (Royalty deduction under section 43B):
The Tribunal allowed the additional grounds raised by the assessee, following previous decisions in favor of the assessee.

10. Taxability of dividend received from Egyptian company:
The Tribunal dismissed the additional ground raised by the assessee, holding that the dividend received from the Egyptian company is taxable in India.

11. Deletion of disallowance towards contribution to local organization:
The Tribunal dismissed the ground raised by the Revenue, following previous decisions in favor of the assessee.

12. Deletion of disallowance on account of rural development expenses:
The Tribunal dismissed the ground raised by the Revenue, following previous decisions in favor of the assessee.

13. Deletion of disallowance made on account of expenses incurred for making advertisement films:
The Tribunal dismissed the ground raised by the Revenue, following previous decisions in favor of the assessee.

14. Deletion of disallowance incurred towards earning exempt income:
The Tribunal dismissed the ground raised by the Revenue, following the law laid down by the Hon'ble Supreme Court and the Hon'ble jurisdictional High Court.

15. Apportionment of Head Office expenses to the units eligible for deduction under section 80IA:
The Tribunal dismissed the ground raised by the Revenue, following previous decisions in favor of the assessee.

16. Exclusion of sales tax and excise duty from the total turnover:
The Tribunal dismissed the ground raised by the Revenue, following the decision of the Hon'ble Supreme Court in CIT v/s Lakshmi Machine Works.

17. Reduction of 90% of DEPB income from business profit for computing deduction under section 80HHC:
The Tribunal dismissed the ground raised by the Revenue, following the decision of the Hon'ble Supreme Court in Topman Exports Ltd. v/s CIT.

18. Claim of deduction under section 80IA in respect of profit derived from Rail System:
The Tribunal dismissed the ground raised by the Revenue, following previous decisions in favor of the assessee.

Conclusion:
The appeal by the assessee was partly allowed for statistical purposes, while the appeal by the Revenue was dismissed.