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2020 (7) TMI 20 - HC - Income TaxAddition u/s 40A - tribunal held that the travel expenses incurred by employees of the assessee computed based on average basis should be upheld and not on trip vise basis - Whether the tribunal was correct in holding that the payments made by the assessee in cash exceeding ₹ 10,000/- cannot be disallowed by applying Section 40(A)(3) of the Act, as the same were paid in exceptional circumstances? - HELD THAT - As findings on the issues covered by the aforesaid substantial questions of law are based on proper appreciation of evidence on record. The aforesaid findings of fact can neither be termed as either perverse or arbitrary - no substantial questions of law are involved as framed by this court in the aforesaid questions of law and the same are questions of fact. Therefore, it is not necessary to answer the same as issues covered under the aforesaid questions of law are pure finding of fact. Deduction u/s 80HHC - Whether the tribunal was correct in holding that the interest received on bank deposits, interest from employees and customers, commission income, rental income, commission income on technical services cannot be reduced by 90% when computing profits of business as per Explanation (baa) to Section 80HH - HELD THAT - From close scrutiny of the order passed by the tribunal, it is axiomatic that 4th substantial question of law does not arise for consideration as it is held against the assessee by the tribunal. Deduction under Section 80HHC - Whether the tribunal was correct in holding that net interest income should be reduced by 90% when computing profits of business for the purpose of allowing deduction under Section 80HHC of the Act and not gross interest income ? - Whether the tribunal was correct in holding that order under Section 201(1) is mandatory for levying of compensatory interest under Section 201(1A) of the Act, for delay in remittance of TDS deducted? - HELD THAT - substantial questions of law have been answered against the revenue by the Supreme Court in ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT 2012 (2) TMI 101 - SUPREME COURT and COMMISSIONER OF INCOME TAX, NEW DELHI VS.ELI LILLY CO. (INDIA) (P.) LTD. 2012 (2) TMI 101 - SUPREME COURT respectively. Accordingly, the same are answered against the revenue and in favour of the assessee. Accrual of income - whether cash compensatory assistance and duty drawback is liable to tax on receipt basis and not on the accrual basis contrary to the view expressed by it in the case of the assessee for the Assessment year 1994- 95 and recorded a perverse finding? - HELD THAT - From order passed by the Income Tax Appellate Tribunal, it is evident that the tribunal has permitted deduction on accrual basis and has held that an amount would be receivable only when the income accrues to the assessee and income would accrue to the assessee only when the assessee gets such a right to receive the income. It has further been held that assessee would get a right to receive the amount only when it is sanctioned to the assessee by the custom authorities and not when the assessee makes a claim of the same. It was also held that since, the amount of cash compensatory assistance and duty drawback during the relevant year was not sanctioned to the assessee therefore, the income has not accrued to the assessee. Thus, in fact the tribunal has allowed the deduction on accrual basis only. Therefore, the 2nd substantial question of law is answered against the revenue and in favour of the assessee. Deduction u/s 80HHC - Whether income from technical services cannot be reduced by 90% when computing profits of business as per Explanation (baa) to Section 80HHC despite this income having not been earned in the course of export and when the details of the same had not been furnished by the assessee? - HELD THAT - This court in COMMISSIONER OF INCOME TAX VS. MOTOR INDUSTRIES CO. LTD., 2010 (8) TMI 333 - KARNATAKA HIGH COURT as well as in COMMISSIONER OF INCOME TAX VS. M/S ROBERT BOSCH (INDIA) LTD. 2013 (12) TMI 8 - KARNATAKA HIGH COURT held that if any income is derived from the export by way of foreign exchange, such income is not deductible and the benefit of that income has to be given to the assessee. The expression any receipt of a similar nature has to be understood in the context of the words preceding such expression viz., brokerage, commission, interest, rent or charges. It has further been held that such receipts have no nexus with the income earned by way of foreign exchange and every receipt is not an income and every income would not necessarily include element of export turnover. Similar view was taken by this bench in decision dated 11.03.2020 rendered in the case of INGERSOLL-RAND (INDIA) LIMITED 2020 (4) TMI 550 - KARNATAKA HIGH COURT . This substantial question of law is also answered against the revenue and in favour of the assessee. Deduction under Section 43B - customs duty paid disallowability as the same was not verified by the assessing officer as it was not claimed in the return of income or in the revised return - HELD THAT - This ground was taken with regard to deduction under Section 43B of the Act before Commissioner of Income Tax (Appeals) and the same was also taken before the Income Tax Appellate Tribunal. Therefore, it cannot be said that the assessee raised the aforesaid issue for the first time before the Income Tax Appellate Tribunal. The Supreme Court in BERGER PAINTS (INDIA) LTD 2004 (2) TMI 4 - SUPREME COURT has quoted with approval the observation made by the special bench of Income Tax Appellate Tribunal in INDIAN COMMUNICATION P. LTD. 1994 (1) TMI 245 - ITAT DELHI to the effect that whether full deduction was allowed in one year or partly in one year and partly in the next, since, the assessee is a company and the rate of tax is uniform the gain to one and loss to other is illusory, since, what is referred is one year would have to be discharged in the next. It was further held that in that sense, nobody has won and nobody has lost. In other words, no loss has been caused to revenue. - Decided in favour of assessee
Issues Involved:
1. Travel expenses computation method. 2. Taxability of cash compensatory assistance and duty drawback. 3. Disallowance of cash payments exceeding ?10,000. 4. Reduction of various incomes by 90% while computing business profits under Section 80HHC. 5. Net versus gross interest income reduction under Section 80HHC. 6. Income from technical services reduction by 90% under Section 80HHC. 7. Allowability of customs duty included in closing stock under Section 43B. 8. Mandatory nature of order under Section 201(1) for levying compensatory interest under Section 201(1A). Detailed Analysis: 1. Travel Expenses Computation Method: The tribunal held that travel expenses should be computed on an average basis rather than on a trip-wise basis as per Rule 6D of the Income Tax Rules. This decision was based on a precedent set by a bench of the same court. The High Court found no substantial question of law in this issue and deemed the tribunal's findings as neither perverse nor arbitrary. 2. Taxability of Cash Compensatory Assistance and Duty Drawback: The tribunal allowed the deduction on an accrual basis, holding that income accrues to the assessee only when it is sanctioned by the customs authorities. The High Court upheld this view, stating that the tribunal's decision was consistent with the accrual basis of accounting and answered this question of law against the revenue. 3. Disallowance of Cash Payments Exceeding ?10,000: The tribunal found that the payments exceeding ?10,000 were made under exceptional circumstances and thus admissible. The High Court supported this finding, indicating that it was based on a proper appreciation of evidence and did not involve any substantial question of law. 4. Reduction of Various Incomes by 90% under Section 80HHC: The tribunal ruled that no part of the income from technical services should be excluded for computing deductions under Section 80HHC. The High Court noted that this issue had already been decided against the assessee by the tribunal, and thus, it did not arise for consideration. 5. Net Versus Gross Interest Income Reduction under Section 80HHC: The Supreme Court's decision in 'ACG Associated Capsules (P) Ltd. vs. CIT' was cited, which supported the tribunal's view that net interest income should be reduced by 90% when computing business profits. The High Court answered this question of law against the revenue. 6. Income from Technical Services Reduction by 90% under Section 80HHC: The High Court referred to its own decisions in 'Commissioner of Income Tax vs. Motor Industries Co. Ltd.' and 'Commissioner of Income Tax vs. M/s Robert Bosch (India) Ltd.', which clarified that income derived from export by way of foreign exchange is not deductible under Section 80HHC. The court held that such receipts have no nexus with the income earned by way of foreign exchange and thus answered this question of law against the revenue. 7. Allowability of Customs Duty Included in Closing Stock under Section 43B: The High Court found that the issue of deduction under Section 43B was raised before both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. Citing the Supreme Court's decision in 'Berger Paints (India) Ltd. vs. CIT', the High Court concluded that no loss was caused to the revenue and answered this question of law against the revenue. 8. Mandatory Nature of Order under Section 201(1) for Levying Compensatory Interest under Section 201(1A): The Supreme Court's decision in 'Commissioner of Income Tax, New Delhi vs. Eli Lilly & Co. (India) (P.) Ltd.' supported the tribunal's view that an order under Section 201(1) is mandatory for levying compensatory interest. The High Court answered this question of law against the revenue. Conclusion: The High Court dismissed the appeal, finding no merit in the revenue's arguments and upheld the tribunal's decisions on all substantial questions of law.
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