2014 (2) TMI 600 - AT - Income Tax

Disallowance of deduction u/s 10B of the Act - Sale of hoops and wrappers Held that - The contention of the Assessee accepted to the extent that Hoops & Wrappers are the packing materials like other Store Bardana - The income from the sale of the said packing material has consistently been allowed to the assessee in the earlier years - The revenue could not bring any point to the effect that sales from Hoops & Wrappers is different from the sales of Store Bardana Sales thus, the income derived from the sale of Hoops & Wrappers Sales is directed to be allowed. Discount/Bonus on Store Items Held that - In the earlier years also, the issue has already been restored back to the file of the A.O., so it will be just and proper for this year also to direct the A.O. to decide the same as per the directions given by the co-ordinate bench of this Tribunal for the earlier years relating to the same issue the matter remitted back to the AO. Staff Agreement Deposit Forfeited Held that - The decision in Century Textiles & Industries Ltd. Versus Asstt. Commissioner of Income Tax 2013 (10) TMI 549 - ITAT MUMBAI followed the amount did not qualify for exemption under section 10B as these are not held to be the receipts derived from the industrial undertaking Decided against Assessee. Unclaimed Salary Forfeited Held that - The receipts on this account are in the nature of the receipts credited in staff agreement deposited forfeited as well as notice period salary received from staff assessee could not bring as to why these receipts should not be disallowed, especially when the receipts of this nature have already been disallowed in the earlier years - the disallowance under this head is upheld. Treatment of capital receipt as revenue receipt Reduction in claim of mining lease expenses - Treating business Income as Income from house property Disallowance of interest paid on income tax Disallowance of Interest paid to SSI units on delayed payments Disallowance of provision in respect of difference of electricity duty on colony consumption payable to CSEB and provison for reimbursement to consignment agent on account of entry tax - Held that - The decision in Century Textiles & Industries Ltd. Versus Asstt. Commissioner of Income Tax 2013 (10) TMI 549 - ITAT MUMBAI followed - The CIT(A) confirmed the action of the AO of treating capital receipt being security deposit forfeited, as revenue receipt as against capital receipt treated by the appellant the deduction has not been made by the appellant, there would not be any effect on the total income the decision of the CIT(A) upheld. Disallowance of amounts paid to various authorities - Disallowance of leasehold amount written off - Held that - In the earlier years aslo, the issue has already been restored back to the file of the A.O., so it will be just and proper for this year also to direct the A.O. to decide the same as per the directions given by the co-ordinate bench of this Tribunal for the earlier years relating to the same issue thus, the matter is remitted back to the AO. Disallowance of foreign travelling expenses Held that - As decided in assessee s own case, the expenditure on foreign travel expenses of Director s wife may be allowed, depending on the status of the parties, nature or character of the trade or venture, the purpose for which the expenses were incurred and the object sought to be achieved by incurring such expenses. In the present case, the ITAT after considering all facts on record has allowed the claim Decided in favour of Assessee. Disallowance of deduction u/s 80HHC of the Act Computation of book profit u/s 115JB of the Act - Held that - The decision in Century Textiles & Industries Ltd. Versus Asstt. Commissioner of Income Tax 2013 (10) TMI 549 - ITAT MUMBAI followed - The deduction u/s 80HHC in the case of MAT assessment, is to be worked out on the basis of adjusted book profit and not on the basis of profit computed under the regular provisions of law applicable to the computation of profit and gains of business or profession Decided in favour of Assessee. Addition of sales tax to the total turnover for the purpose of Section 80HHC of the Act Held that - The decision in Commissioner of Income-Tax Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME Court followed amendments to section 80HHC(3) indicate exclusion of book profits -sales tax and excise duty also do not have any element of turnover which is the position even in the case of rent, commission, interest etc. - It is important to bear in mind that excise duty and sales tax are indirect taxes - They are recovered by the assessee on behalf of the Government - if they are made relatable to exports, the formula under section 80HHC would become unworkable Decided against Revenue. Claim for DEPB incentive as per section 80HHC of the Act Held that - Relying upon Topman Exports Vs. CIT 2012 (2) TMI 100 - SUPREME COURT OF INDIA - DEPB is chargeable to income tax under the head Profits and Gains of Business or Profession even before it is transferred by the taxpayer - Under Section 28(iiid) of the Act, any profit on transfer of DEPB is chargeable to income tax under the head Profits and Gains of Business or Profession as an item separate from cash assistance under Section 28(iiib) of the Act - The face value of the DEPB will fall under Section 28(iiib) of the Act, the difference between the sale value and the face value of the DEPB will fall under Section 28(iiid) of the Act - The cost of acquiring DEPB is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it thus, the AO is directed to compute the income of the assessee. Deletion made for arrears of depreciation Computation of Book profits u/s 115JB of the Act Held that - The decision in Apollo Tyres Ltd. vs. CIT 2002 (5) TMI 5 - SUPREME Court followed the AO has limited powers of making increases and reductions as provided for in the Explanation to the said section - the AO does not have the jurisdiction to go beyond the net profits shown in the P&L a/c, except to the extent provided in the Explanation to s.115J of the IT Act Decided against Revenue. Deduction in computation of profit u/s 115JB of the Act - Tax on profit distributed as dividend u/s 115O of the Act Held that - The decision in Asstt. CIT vs Balarampur Chini Mills Ltd 2007 (3) TMI 295 - ITAT CALCUTTA-A followed - tax on profit distributed as dividend u/s. 115-O is allowable as deduction in computation of book profits for the purpose of section 115JB of the Act thus, tax on profit distributed as dividend u/s. 115-O is required to be reduced while computing the book profits u/s. 115JB of IT Act there was no infirmity in the finding of the CIT(A) on the issue.

Summary

Issues Involved:
1. Disallowance of deduction u/s 10B of the Act.
2. Treatment of capital receipt as revenue receipt.
3. Disallowance of amounts paid to various authorities.
4. Disallowance of leasehold amount written off.
5. Reduction in claim of mining lease expenses.
6. Treating business income as 'Income from house property.'
7. Disallowance of foreign travelling expenses.
8. Disallowance of interest paid on income tax.
9. Disallowance of interest paid to SSI units on delayed payments.
10. Disallowance of provision in respect of difference of electricity duty on colony consumption.
11. Disallowance of deduction under Chapter VI-A of the Act.
12. Deduction under Section 80HHC of the Act.
13. Addition of sales tax to the total turnover for the purpose of Section 80HHC.
14. Treatment of DEPB incentive.
15. Initiation of penalty proceedings u/s 271(1)(c).

Detailed Analysis:

1. Disallowance of Deduction u/s 10B of the Act:
The CIT(A) confirmed the disallowance of various receipts for the purpose of deduction u/s 10B, including the sale of hoops and wrappers, discount/bonus on store items, staff agreement deposit forfeited, recovery against damaged property, notice period salary received from staff, sundry balance written off, unclaimed salary forfeited, octroi refund, and other income. The tribunal allowed the income from the sale of hoops and wrappers, octroi refund, and restored the issue of discount/bonus on store items to the AO for fresh examination. The other disallowances were upheld based on precedents and the nature of the receipts.

2. Treatment of Capital Receipt as Revenue Receipt:
The CIT(A) treated the forfeiture of security deposit as revenue receipt. The tribunal upheld this treatment, following the consistent findings in the assessee's own case for earlier years.

3. Disallowance of Amounts Paid to Various Authorities:
The CIT(A) disallowed Rs.5,17,959/- being amounts paid to various authorities, considering them penal in nature. The tribunal restored this issue to the AO to examine the exact nature of the payments, whether compensatory or penal, as per the directions given in earlier years.

4. Disallowance of Leasehold Amount Written Off:
The CIT(A) disallowed the leasehold amount written off of Rs.1,73,945/- as capital in nature. The tribunal restored this issue to the AO for re-examination in light of the Special Bench decision in the case of Mukund Ltd.

5. Reduction in Claim of Mining Lease Expenses:
The CIT(A) allowed only 1/20th of mining lease expenses as against 1/10th claimed by the appellant. The tribunal decided this issue in favor of the assessee, following the consistent findings in earlier years.

6. Treating Business Income as 'Income from House Property':
The CIT(A) treated Rs.8,79,282/- being income from the exploitation of business assets as 'property income.' The tribunal upheld this treatment, following the consistent findings in the assessee's own case for earlier years.

7. Disallowance of Foreign Travelling Expenses:
The CIT(A) disallowed foreign travelling expenses of the director's wife. The tribunal decided this issue in favor of the assessee, following the findings of the Hon'ble Bombay High Court in the assessee's own case for earlier years.

8. Disallowance of Interest Paid on Income Tax:
The CIT(A) disallowed interest on income tax. The tribunal upheld this disallowance, following the consistent findings in the assessee's own case for earlier years.

9. Disallowance of Interest Paid to SSI Units on Delayed Payments:
The CIT(A) disallowed interest paid to SSI units on delayed payments. The tribunal upheld this disallowance, following the consistent findings in the assessee's own case for earlier years.

10. Disallowance of Provision in Respect of Difference of Electricity Duty on Colony Consumption:
The CIT(A) disallowed the provision made in respect of the difference between electricity duty on colony consumption payable to CSEB and provision for reimbursement to consignment agents. The tribunal restored this issue to the AO for adjudication as per the directions given in earlier years.

11. Disallowance of Deduction under Chapter VI-A of the Act:
This ground was consequential in nature. The tribunal directed that the assessee be at liberty to put his case before the AO if needed, and the AO will decide in accordance with the law.

12. Deduction under Section 80HHC of the Act:
The CIT(A) did not consider the claim for deduction u/s 80HHC on the ground that there was no profit as per normal computation of income. The tribunal decided this issue in favor of the assessee, following the findings in earlier years and the decision of the Hon'ble Supreme Court in Ajanta Pharma vs. CIT.

13. Addition of Sales Tax to the Total Turnover for the Purpose of Section 80HHC:
The tribunal held that sales tax should not be treated as part of total turnover while computing deduction u/s 80HHC, following the decision of the Apex Court in Lakshmi Machine Works.

14. Treatment of DEPB Incentive:
The tribunal directed the AO to compute the income of the assessee in accordance with the law laid down by the Supreme Court in Topman Exports Vs. CIT, where DEPB was considered as 'cash assistance' under Section 28(iiib) and any profit on transfer of DEPB under Section 28(iiid).

15. Initiation of Penalty Proceedings u/s 271(1)(c):
The issue of penalty proceedings was dismissed as premature since no penalty proceedings had yet been initiated against the assessee.

Revenue's Appeal:

1. Addition of Arrears of Depreciation for Computing Book Profit u/s 115JB:
The CIT(A) deleted the addition of Rs.13,70,98,459/- made by the AO in respect of arrears of depreciation for computing book profit u/s 115JB. The tribunal upheld this deletion, following the decision of the Hon'ble Bombay High Court in Kinetic Motor Co. Ltd.

2. Deduction of Tax on Profit Distributed as Dividend u/s 115-O:
The CIT(A) held that tax on profit distributed as dividend u/s 115-O is allowable as a deduction in computation of book profit u/s 115JB. The tribunal upheld this finding, following the decision of the Kolkata bench in Asstt. CIT vs Balarampur Chini Mills Ltd.

3. Deduction u/s 80HHC for Computation of Book Profit u/s 115JB:
The CIT(A) held that deduction u/s 80HHC should be calculated on adjusted book profit. The tribunal upheld this finding, following the decision of the Hon'ble Supreme Court in Ajanta Pharma vs. CIT.

Conclusion:
The appeal of the assessee was partly allowed, whereas the appeal of the revenue was dismissed.