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2014 (10) TMI 503 - AT - Income TaxComputation of deduction 80HHF - Reduction of 90% of other income from profits of business - Duty Drawback, Sundry Balances written back, Miscellaneous Income and Compensation Held that - CIT(A) has admitted that all the receipts cited by the assessee have an element of turnover and can be assessed under the business head but they do not ipso facto qualify the deduction - Following the decision in ACIT vs. Star India Pvt. Ltd. 2008 (4) TMI 535 - ITAT MUMBAI - the provisions of section 80HHF are similar to the provisions contained in section 80HHC subject to the difference that under section 80HHC, 90% of the sum referred to in clause(iiia) to (iiie) at section 28 has also to be excluded from the profits of the business while such amount is not required to be deducted in computing profits of business under section 80HHF - The relevant observations have already been reproduced above - Provisions of clause (iiia) to (iiie) of section 28 inter-alia include duty draw back - in absence of any express provision in section 80HHF duty draw back cannot be excluded with reference to sub-clause(A) of clause (f) of explanation to section 80HHF - all receipts of the assessee are regarding telecast of films and programmes and thus, all these receipts relate to business activity of the assessee of telecasting films and programmes - They cannot be termed to be receipts distinct from the activity of the assessee of telecasting the films and programmee - amount of Duty Drawback and receipts in the nature of operating income and amount being part of miscellaneous income relating to receipt of the assessee from Indian Film Export Association, refund of Central Excise Duty and credit note of Priya Shine do not fall within the ambit of sub-clause(A) of clause(f) of explanation to section 80HHF - These amounts are held not to be excludible from the computation of deduction under section 80HHF Decided partly in favour of assessee. Interest earned on bank deposits Income from other sources Held that - It has been the contention of the assessee that FDRs were kept as margin money for securing export payment - The fact that assessee had incurred interest expenditure on borrowed capital is also not disputed thus, the order of the CIT(A) is upheld that the interest earned by the assessee on FDR could not be separately assessed as income from other sources Decided against revenue. Payment made within grace period Held that - Following the decision in CIT vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT - omission of second proviso to section 43B and the amendment of first proviso by Finance Act, 2003, bringing about uniformity in payment of tax, duty, cess and fee on one hand and contribution of employees welfare fund on the other are curative in nature and thus effective retrospectively i.e. w.e.f. 1/4/1988 i.e. the date of insertion of first proviso thus, if payments are made before due date of filing the return then disallowance cannot be made - assessee has made payments within the grace period which is much prior to due date of filing the return the order of the CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Reduction of 90% of other income from 'Profit of the business' for computing deduction u/s 80HHF. 2. Double reduction of compensation received from 'Profit of the business' for computing deduction u/s 80HHF. 3. Non-setting off of sundry balances written off against sundry balances written back. 4. Treatment of interest earned on bank deposits as 'Income from other sources' versus 'Business income'. 5. Compliance with payment deadlines for employee welfare contributions under section 43B. Issue-wise Detailed Analysis: 1. Reduction of 90% of Other Income from 'Profit of the Business' for Computing Deduction u/s 80HHF: The assessee challenged the AO's action of reducing 90% of various receipts, including Duty Drawback, Sundry Balances Written Back, Miscellaneous Income, and Compensation, from the 'Profit of the business' for computing deduction u/s 80HHF. The AO argued that these receipts did not have a direct nexus with the export business and were similar to brokerage, commission, interest, rent, charges, or other receipts of similar nature as per sub-clause (A) of clause (f) of explanation to section 80HHF. The CIT(A) upheld the AO's decision, stating that only incomes directly linked to exports qualify for deduction. The Tribunal, however, found that the receipts related to the business activities of the assessee and did not fall within the scope of sub-clause (A) of clause (f). Therefore, the amounts of Duty Drawback, Compensation, and certain Miscellaneous Income were held not to be excludible from the computation of deduction under section 80HHF. 2. Double Reduction of Compensation Received from 'Profit of the Business' for Computing Deduction u/s 80HHF: The assessee contended that the amount of Rs. 33,32,065/- was considered twice by the AO while computing the total amount of Rs. 93,79,182/-. The Tribunal directed the AO to verify the contention and exclude the amount if it was indeed considered twice. This issue was restored to the AO for verification. 3. Non-setting Off of Sundry Balances Written Off Against Sundry Balances Written Back: The assessee did not press this ground during the hearing, and it was dismissed as not pressed. 4. Treatment of Interest Earned on Bank Deposits as 'Income from Other Sources' versus 'Business Income': The AO treated the interest earned on bank deposits as 'Income from other sources'. The assessee argued that the FDRs were kept as margin money for securing export payments and that the interest income should be set off against the interest expenditure incurred on borrowed capital. The CIT(A) accepted the assessee's contention and held that the interest income should be assessed as 'Business income' and set off against interest expenditure. The Tribunal upheld the CIT(A)'s decision, noting that the netting principle was approved by the Supreme Court in the case of ACG Associated Capsules vs. CIT. 5. Compliance with Payment Deadlines for Employee Welfare Contributions under Section 43B: The AO disallowed certain payments made towards employee welfare contributions, arguing they were not made within the due date. The CIT(A) found that the payments were made within the grace period and granted relief to the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in CIT vs. Alom Extrusions Ltd., which held that payments made before the due date of filing the return cannot be disallowed. Conclusion: The appeal filed by the assessee was partly allowed, with the Tribunal directing the AO to recompute the deduction under section 80HHF by excluding certain receipts from the reduction. The appeal filed by the Revenue was dismissed, affirming the CIT(A)'s decisions on the treatment of interest income and compliance with section 43B.
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