2012 (8) TMI 281 - AT - Income Tax

Disallowance u/s 14A - assessee claimed dividend income as exempt u/s 10(33) - Held that - On considering the magnitude of profit with the company and the investments made in these shares of Kothari group it can be easily noticed that the profit for the relevant year itself was much more than the amount of investment & coming to the investments in the shares of Dena Bank in financial year 1996-1997 it is observed that the share capital of the company far exceeds the amount of investment in shares as at the end of such financial year - that if there be interest free funds available to the assessee sufficient to meet its investments and at the same time loan has been raised it can be presumed that the investments were made from interest free funds - no disallowance u/s 14A in respect of the investments made by the assessee in the shares of three domestic companies - in favour of assessee. Disallowance u/s 43B - the assessee defaulted in depositing employees contribution to provident fund and ESI within the permissible time - Held that - Any amount referred to in section 43B being the sum payable by the employer shall be allowed as deduction if it is paid before the due date of filing of the return - as the assessee has paid the sum though belated but before the date of filing of return the grievance of the assessee is accepted and objection of the Revenue is overruled - in favour of assessee. Disallowance foreign travel expenses - CIT(A) deleted the disallowance - Held that - As immediately preceding assessment year in the Tribunal has held that no disallowance on account of foreign travel expenses can be sustained - in favour of assessee. Deduction u/s 80-IA(9) - whether relief u/s 80-IA/80-IB should be adjusted before allowing deduction u/s 80HHC - Held that - As decided in Associated Capsules P. Ltd. Versus DCIT 2011 (1) TMI 787 - BOMBAY HIGH COURT that restriction u/s 80-IA(9) is not applicable at the stage of computing deduction u/s 80HHC but only at the stage of allowing deduction u/s 80HHC - in favour of assessee. Netting of interest receipts for the purpose of deduction u/s 80HHC - Held that - As decided in Associated Capsules Pvt. Ltd. v. CIT 2012 (2) TMI 101 - SUPREME COURT OF INDIA netting of interest is permissible - in favour of assessee. Exclusion of amount of excise duty from total turnover for computing deduction u/s 80HHC - Held that - As decided in Commissioner of Income-Tax Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT the excise duty is not includible in the total turnover in the formula contained in section 80HHC - in favour of assessee. Treatment of profit on sale of DEPB license - deduction u/s 80HHC - Held that - As decided in M/s Topman Exports Versus Commissioner of Income Tax Mumbai 2012 (2) TMI 100 - SUPREME COURT OF INDIA that when DEPB is sold by a person his profit on transfer of DEPB will be sales value of DEPB less its face value. It has further been held that DEPB is chargeable as income u/s 28(iiib) in the year in which such person applies for DEPB against the exports and profit on sale of DEPB is chargeable u/s 28(iiid) in the year in which he transfers DEPB - in favour of assessee. Reduction of 10% export incentives from the gross indirect cost - Held that - As decided in HERO EXPORTS Versus C. I. T 2007 (11) TMI 13 - SUPREME COURT OF INDIA the principle of attribution is applicable to cases falling u/s 80HHC(3)(b) and therefore part of indirect cost has to be apportioned to expenses incurred for earning export incentives. 10% of total income has been held as fair estimate in this case - in favour of assessee. Computation of book profit liable for MAT u/s 115JB - reduction of book profit by deduction allowable u/s 80HHC (Export Benefit) - difference between eligibility and deductibility of deduction - Held that - CIT(A) directed to reduce export profits based on book profit in the ratio of export turnover to total turnover and not the quantum of deduction as worked out u/s 80HHC relying on Ajanta Pharma Ltd. Versus Commissioner of Income Tax-9 Mumbai 2010 (9) TMI 8 - SUPREME COURT in which it has been held that clause (iv) of the Explanation to section 115JB covers full export profits of 100% as eligible profits and the same cannot be reduced to 80% by relying on section 80HHC(1B) - in favour of assessee. Treatment to sale of scrap - computation of deduction u/s 80HHC - Held that - As decided in CIT v. Bicycle Wheels (India) 2010 (10) TMI 496 - PUNJAB AND HARYANA HIGH COURT the sale of scrap cannot be excluded from total turnover which shall increase the denominator of formula for determining the extent of benefit admissible to an assessee u/s 80HHC - CIT(A) was correct to direct the assessee in treating sale of scrap as part of total turnover - against assessee. Levy of interest u/s 234D - Held that - As there is no merit in the contention found raised by the assessee as the regular assessment in this case was completed on 16.02.2004 which is well after the cut off date of 1st June 2003 in our considered opinion the Assessing Officer was justified in charging interest u/s 234D - against assessee. Entitlement for credit in respect of minimum alternate tax paid by the amalgamating company - Held that - As no factual details in this regard are available it will be just and fair if the Assessing Officer is directed to look into these aspects as per law and then decide the matter afresh - in favour of assessee by way of remand.

Summary

Issues Involved:
1. Disallowance under section 14A.
2. Disallowance under section 43B.
3. Disallowance of foreign travel expenses.
4. Adjustment of relief under sections 80-IA/80-IB before allowing deduction under section 80HHC.
5. Netting of interest receipts for the purpose of deduction under section 80HHC.
6. Exclusion of excise duty from 'total turnover' for computing deduction under section 80HHC.
7. Treatment of profit on sale of DEPB license as export incentives.
8. Reduction of 10% export incentives from gross indirect cost.
9. Reduction of export profits based on book profit for MAT under section 115JB.
10. Inclusion of sale of scrap in 'total turnover' for deduction under section 80HHC.
11. Non-charging of interest under section 234D.
12. Credit for minimum alternate tax paid by the amalgamating company.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A:
The assessee claimed exempt dividend income. The Assessing Officer (A.O.) disallowed interest expenditure based on investments in shares, calculating disallowance at Rs. 6,38,37,708. The Commissioner of Income-tax (Appeals) [CIT(A)] limited disallowance to Rs. 17,66,427 for investments in domestic companies. The Tribunal upheld that section 14A does not apply to foreign companies, and no interest-bearing funds were used for investments in domestic companies. Hence, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal.

2. Disallowance under section 43B:
The A.O. disallowed Rs. 39,46,088 for late deposit of employees' contributions and Rs. 37,83,095 for employer's share of provident fund and ESIC. CIT(A) allowed contributions deposited within the grace period but sustained the rest. The Tribunal, following the Supreme Court's decision in Alom Extrusions Ltd., held that deposits before the due date of filing returns are allowable. The Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal.

3. Disallowance of foreign travel expenses:
The A.O. disallowed 10% of foreign travel expenses. CIT(A) deleted the disallowance. The Tribunal upheld CIT(A)'s decision, referencing the Tribunal's decision for the previous year where no disallowance was sustained.

4. Adjustment of relief under sections 80-IA/80-IB before allowing deduction under section 80HHC:
The A.O. deducted the amount of deduction under section 80-IB while computing profits for section 80HHC. CIT(A) limited this to 30% of eligible unit profits. The Tribunal, citing the jurisdictional High Court's decision in Associated Capsules Pvt. Ltd., held that restriction under section 80-IA(9) applies only at the stage of allowing deduction under section 80HHC, not computing it. The Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal.

5. Netting of interest receipts for the purpose of deduction under section 80HHC:
The A.O. considered gross interest for deduction under section 80HHC. CIT(A) allowed netting of interest. The Tribunal upheld CIT(A)'s decision, referencing the Supreme Court's decision in Associated Capsules Pvt. Ltd.

6. Exclusion of excise duty from 'total turnover' for computing deduction under section 80HHC:
The A.O. included excise duty in 'total turnover'. CIT(A) excluded it. The Tribunal upheld CIT(A)'s decision, following the Supreme Court's decision in Laxmi Machine Works.

7. Treatment of profit on sale of DEPB license as export incentives:
CIT(A) treated profit on sale of DEPB license as export incentives. The Tribunal, following the Supreme Court's decision in Topman Exports, directed the A.O. to allow the claim accordingly.

8. Reduction of 10% export incentives from gross indirect cost:
CIT(A) reduced 10% export incentives from gross indirect cost. The Tribunal upheld CIT(A)'s decision, following the Supreme Court's decision in Hero Exports.

9. Reduction of export profits based on book profit for MAT under section 115JB:
CIT(A) directed reduction of export profits based on book profit. The Tribunal upheld CIT(A)'s decision, following the Supreme Court's decision in Ajanta Pharma Ltd.

10. Inclusion of sale of scrap in 'total turnover' for deduction under section 80HHC:
CIT(A) included sale of scrap in 'total turnover'. The Tribunal upheld CIT(A)'s decision, following the Punjab & Haryana High Court's decision in Bicycle Wheels (India).

11. Non-charging of interest under section 234D:
The Tribunal held that section 234D applies to assessments completed after 01.06.2003, following the Finance Act, 2012's retrospective amendment. The Tribunal dismissed the assessee's additional ground.

12. Credit for minimum alternate tax paid by the amalgamating company:
The Tribunal directed the A.O. to examine the claim for MAT credit related to the amalgamating company, Bombay Drugs & Pharma Ltd., and decide as per law. The Tribunal allowed this additional ground.

Conclusion:
The Revenue's appeal was dismissed, and the assessee's cross objection was partly allowed, with specific directions provided for various issues based on relevant judicial precedents and statutory provisions.