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2005 (2) TMI 428 - AT - Income TaxDeduction u/s 80HHC - Profits Of The Business - excise duty refund from profit of business - liability to pay excise duty - Exclusion of sale of scrap sundry balance written back and octroi refund - industrial undertaking - interest income earned on temporary investment of share application money HELD THAT - If the assessee was having bounded warehouse facility these payments and refunds of excise duty would not have taken place. As and when such excise duty was paid by the assessee as a temporary measure the amount was debited and similarly on refund of such excise duty the same was credited to the books of account. Thus we found that alleged amount of excise duty either paid or refunded did not affect the business profits of the assessee at all and therefore there is no reason for excluding 90 per cent of the excise duty refund from the profits of the business of assessee as per the Expln. (baa) to s. 80HHC. The findings recorded by the CIT(A) to the effect that payment of excise duty has not reduced the business profit of the assessee therefore refund of excise duty paid should not be excluded from the business profit had not been controverted by the Department. We are therefore inclined to agree with the learned Authorised Representative that there is no infirmity in the order of the CIT(A) in directing the AO not to exclude 90 percent of such excise duty refund in terms of Expln. (baa) from the profit of business for computing deduction u/s 80HHC. In the result appeal of the Revenue is dismissed. Exclusion of sale of scrap sundry balance written back and octroi refund - We find that the issue is squarely covered by the decision of the jurisdictional High Court in the case of Harjivandas Juthabhai in favour of the assessee wherein it was held that the scrap generated during the course of manufacturing was eligible for deduction u/s 80-I 1999 (12) TMI 5 - GUJARAT HIGH COURT . It was categorically observed by the High Court that it requires to be noted that if the assessee was not engaged in the industrial activity there was no question of generating any scrap and if the assessee was doing trading activity obviously this section will not apply. In view of the above we uphold the action of the CIT(A) regarding the inclusion of income of sale of scrap amounting to Rs. 3, 02, 336 eligible for deduction u/s 80-I whereas we reverse the action of the CIT(A) with regard to other income of sundry debtors written back and octroi refund included for computation of deduction u/s 80-I. We direct accordingly. In the result this ground of Revenue s appeal is allowed in part. Interest income earned on temporary investment of share application money - In the instant case there is no dispute to the fact that such deposit was made in a bank as a statutory requirement for keeping such share application money in separate bank account in a scheduled bank until permission for listing of share on stock exchange is granted. Decision for putting the deposit in bank was not taken as a prudent business decision to earn interest income thereon. Thus income earned on such deposits was incidental to the public issue which in turn was for expansion of the assessee s project. In view of the peculiar facts and circumstances of the case the ratio laid down by the Supreme Court in the case of Tuticorin Alkalies Fertilisers Ltd. 1997 (7) TMI 4 - SUPREME COURT will not be attracted wherein surplus money available with the assessee was parked in the bank for earning interest income thereon. More appropriate decision for application in the factual situation of the present case are Bokaro Steels Ltd. 1998 (12) TMI 4 - SUPREME COURT and Karnal Co-operative Sugar Mills Ltd. 1999 (4) TMI 7 - SC ORDER . The decision of Tribunal Jodhpur and Mumbai Benches cited by the learned AR and discussed hereinabove are directly in favour of the assessee on the very same issue in which interest received on deposit of share application money which was statutorily required to be deposited in the bank and the interest income earned thereon Was held to be liable to be set off against the expenses on public issue/expansion project. No contrary decision to this effect was brought to our notice by the learned DR. Respectfully following these decisions of co-ordinate Bench we are persuaded to agree with the contention of the learned AR that the interest income is to be set off against the cost of public issue and cost of capital assets and. not to be treated as income from other sources. Thus respectfully following the decisions of the Tribunal Jodhpur and Mumbai Benches we are inclined to reverse the findings of the lower authorities and allow this ground in favour of the assessee. In the result Revenue s appeal for the AY 1992-93 is dismissed whereas the cross-appeals of the assessee and the Revenue for the AY 1993-94 are allowed in part as indicated above.
Issues Involved:
1. Exclusion of 90% excise duty refund from profit of business for deduction u/s 80HHC. 2. Exclusion of sale of scrap, sundry balance written back, and octroi refund for deduction u/s 80-I. 3. Computation of deduction u/s 80HH and 80-I for Sarigam unit. 4. Deduction of public issue expenditures. 5. Deduction of advertising expenses and press announcement expenditure u/s 37(3). 6. Deduction u/s 80HHC without tax auditors' report. 7. Exclusion of excise duty from turnover for deduction u/s 80HHC. 8. Exclusion of 90% processing charges from profit of business for deduction u/s 80HHC. 9. Depreciation on energy saving devices and related structures. 10. Treatment of interest income from temporary investment of share application money. 11. Deduction u/s 80-I/IA on rental income. 12. Deduction u/s 80HHA and 80-I for manufacturing activity at third party premises. 13. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC. 14. Deduction of interest paid to GIDC u/s 36(1)(iii). Summary: 1. Exclusion of 90% excise duty refund from profit of business for deduction u/s 80HHC: The CIT(A) directed the AO not to exclude 90% of the excise duty refund from the profit of the business, as it did not represent a receipt similar to brokerage, commission, interest, rent, or charges as mentioned in Explanation (baa) to s. 80HHC(4B). The Tribunal upheld this decision, noting that the excise duty refund did not affect the business profits of the assessee. 2. Exclusion of sale of scrap, sundry balance written back, and octroi refund for deduction u/s 80-I: The CIT(A) included the sale of scrap, sundry debtors written back, and octroi refund in the business income for deduction u/s 80-I, except for rent. The Tribunal upheld the inclusion of scrap sales but reversed the inclusion of sundry debtors written back and octroi refund, following the decision of the jurisdictional High Court in Harjivandas Juthabhai. 3. Computation of deduction u/s 80HH and 80-I for Sarigam unit: The Tribunal upheld the CIT(A)'s decision to allow separate deductions under ss. 80HH and 80-I independently, following the judgment of various High Courts. 4. Deduction of public issue expenditures: The CIT(A) directed the AO to exclude Rs. 24,05,135 from the assessed income as these expenditures were capitalized and not charged to the P&L account. The Tribunal upheld this decision. 5. Deduction of advertising expenses and press announcement expenditure u/s 37(3): The CIT(A) allowed the deduction of advertising expenses and press announcements u/s 37(3), stating that these expenses were not covered under s. 35D(2)(c)(iv). The Tribunal upheld this decision. 6. Deduction u/s 80HHC without tax auditors' report: The CIT(A) allowed the deduction u/s 80HHC despite the initial non-filing of the tax auditors' report, as it was filed during the assessment proceedings. The Tribunal upheld this decision, following the jurisdictional High Court's ruling in Gujarat Oil & Allied Industries. 7. Exclusion of excise duty from turnover for deduction u/s 80HHC: The Tribunal upheld the CIT(A)'s decision that excise duty refund should not be included in the total turnover for computing deduction u/s 80HHC, following its earlier decision in the assessee's own case for the asst. yr. 1992-93. 8. Exclusion of 90% processing charges from profit of business for deduction u/s 80HHC: The CIT(A) held that processing charges were related to the main manufacturing activity and should not be excluded from business profits. The Tribunal upheld this decision, applying the rule of ejusdem generis. 9. Depreciation on energy saving devices and related structures: The Tribunal directed the AO to allow 100% depreciation on energy saving devices but restrict depreciation on the related building/structure to 25%, treating it as plant. 10. Treatment of interest income from temporary investment of share application money: The Tribunal allowed the set-off of interest income earned on share application money against public issue expenses, distinguishing it from the Supreme Court's ruling in Tuticorin Alkalies and following the decisions in Bokaro Steel Ltd. and Karnal Co-operative Sugar Mills Ltd. 11. Deduction u/s 80-I/IA on rental income: The Tribunal dismissed the assessee's claim for deduction u/s 80-I/IA on rental income, following the Supreme Court's decision in Pandian Chemicals Ltd. 12. Deduction u/s 80HHA and 80-I for manufacturing activity at third party premises: The Tribunal restored the issue to the AO for fresh consideration, following its earlier decision in the assessee's own case for the asst. yr. 1992-93. 13. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC: The Tribunal allowed the exclusion of excise duty and sales tax from total turnover for computing deduction u/s 80HHC, following the Special Bench decision in IFB Agro Industries and the Calcutta High Court's decision in Chloride India Ltd. 14. Deduction of interest paid to GIDC u/s 36(1)(iii): The Tribunal directed the AO to allow the deduction of interest paid to GIDC u/s 36(1)(iii), following the jurisdictional High Court's decision in Core Healthcare Ltd. In conclusion, the appeals were partly allowed, and partly dismissed, with several issues being restored to the AO for fresh consideration.
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