2024 (1) TMI 996 - AT - Income Tax

Taxability surplus on redemption of securities under the head Capital Gain - transfer u/s 2(47) - assessee claimed that the amount was not liable to tax on the ground that redemption does not amounting to transfer, resulting in capital gain - HELD THAT - We find that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of assessee itself in favour of the revenue for assessment year 1995-1996 and 1996-1997. We find that coordinate bench of the ITAT in the above referred decisions have decided the issue in favour of the revenue. Therefore, following the decisions of Co-ordinate Bench assessee as referred above, we do not find any merit in this appeal. This Ground of appeal of the assessee stand dismissed. Taxability of surplus on redemption of Treasury bills under the head Profits and Gains of Business - treasury bills were sold by the Reserve Bank of India on behalf of the Central Government and difference between the amount payable on maturity and the discounted value of the treasury bills at the time of issue was treated as interest on securities - HELD THAT - We find that in the case of British Bank of Middle East v/s CIT 1998 (6) TMI 82 - BOMBAY HIGH COURT held that the difference Between the amount payable on maturity and discounted value of the treasury bills at the time of issue is interest on securities. The ITAT, Mumbai in the case of the assessee itself for the A.Y. 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI and A.Y. 1997-98 2023 (4) TMI 1288 - ITAT MUMBAI has decided the issue in favour of the assessee. The co-ordinate bench of the ITAT in the case of the assessee itself after following the decision of the Hon ble Supreme Court in the case of CIT v/s Grace Collis 2001 (2) TMI 9 - SUPREME COURT that surplus on redemption of treasury bills is to be taxed under the head Capital Gains. Therefore, we direct the AO to assessee the same as capital gains. Therefore, this ground of appeal is allowed. Nature of expenses - Rejecting the claim of deduction of expenditure incurred with respect to Masala Grinder and toaster - HELD THAT - The aforesaid amount was shown as capital expenditure in the tax audited report and same was also disallowed in the return of income. Therefore, we find that the disallowance of this expenditure is not justified, therefore, we direct the AO to delete addition made towards expenditure of Masala Grinder and Toaster after verification of the claim of the assessee. Disallowance of Fines and Penalties - HELD THAT - As we find that similar claim of expenses was decided against the assessee by the co-ordinate bench of ITAT in the case of the assessee itself 2023 (8) TMI 1422 - ITAT MUMBAI (A.Y. 1998-99), 2023 (4) TMI 1288 - ITAT MUMBAI (A.Y. 1997-98). Following the decision of the co-ordinate benches this ground of appeal of the assessee stand dismissed. Deduction in respect of Wealth Tax paid - HELD THAT - We have perused the decision of the ITAT in the case of the assessee for A.Y. 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI after following the decision of the co-ordinate benches held that wealth tax paid by the assessee is not liable to the disallowed. After following the decisions of the co-ordinate benches the AO is directed to delete the disallowance. Allowing deduction u/s 80 IA on profits after deducting depreciation u/s 32 of the Act from the profit of eligible undertaking - HELD THAT - We find that identical issue on similar fact in the cases of the assessee itself has been decided against the assessee by the co-ordinate benches of ITAT A.Y. 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI and A.Y. 1997-98 2023 (4) TMI 1288 - ITAT MUMBAI Following the decision of the co-ordinate bench as referred above, this ground of appeal of the assessee stand dismissed. Disallowing of deduction u/s 80-O in respect of royalty received - HELD THAT - We find that identical issue on similar fact in the case of the assessee itself has been adjudicated by the co-ordinate bench of ITAT in the favour of the assessee for the A.Y. 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI as noticed that in accordance with the agreement that assessee has given license to assemble its scooters models. The assessee permits the same and accordingly supplied the drawings relating to those parts and collects technical knowhow fee. The co- ordinate bench held that the technical knowhow fee received by the assessee would fall under the category of Royalty as defined in sec. 80-O of the Act and it is eligible for deduction u/s 80-O. Following the decision of ITAT as referred above, this ground of appeal of the assessee is allowed. The AO is directed to allow the claim of deduction u/s 80-O of the Act. Computation of deduction u/s 80HHC - While computing indirect cost attributable to export of trading goods for the purpose of computing deduction under section 80HHC, expenses attributable to other income and export incentive estimated at 10% thereof ought to be excluded - HELD THAT - Identical issue on similar fact has been adjudicated in favour of the assessee by co-ordinate bench of ITAT 2023 (4) TMI 1288 - ITAT MUMBAI A.Y 1997-98 wherein after examining the issue placed reliance on the decision of Hon'ble Supreme Court of India in the case of Hero Exports 2007 (11) TMI 13 - SUPREME COURT and the decision of Special Bench of the Tribunal in the case of Surendra Engineering Corporation vs. ACIT 2002 (12) TMI 199 - ITAT BOMBAY-H and decided the issue in favour of assessee. Deduction u/s 80HH and 80-IA - Common Expenditure not specifically incurred towards the tax incentive unit ought not to be considered for computing the deduction - HELD THAT - Following the decision of the co-ordinate bench 2023 (4) TMI 1288 - ITAT MUMBAI A.Y 1997-98 as held expenses attributable to other unit or head office expenses which have no relevance to the Industrial undertaking cannot be deducted in respect of the said undertaking while computing profit and gains of the said undertaking for the purpose of computing deduction u/s 80HH, 80I and 80IA of the Act. - thus we restore this issue to the file AO for deciding afresh as per the direction of the co-ordinate bench. Therefore, this ground of appeal is allowed for statistical purpose. Deduction u/s 80HH and 80-IA - inclusion of Duty Drawback and interest received - HELD THAT - As decied in own case. 2023 (4) TMI 1288 - ITAT MUMBAI A.Y 1997-98 issue was decided in favour of the assessee after following the decision in favour of the assessee after following the decision of CIT v/s Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT Following the decision of the co-ordinate bench, we direct the AO to allow deduction u/s 80 IA of the Act in respect duty draw back and interest income. Deduction u/s 35D in respect of GDR issue expenses is to be allowed. Depreciation in respect of sale and lease back transaction allowed as relying on the basis on own case in which held that the disallowance of depreciation made by the AO has already been reversed. The ld D.R has raised a new contention that the Explanation 4A should be applied to this lease transaction, which is not the case of the AO. Accordingly, we do not find it necessary to consider the new contention raised by Ld D.R. Accordingly, following the decision rendered by the co- ordinate benches in the assessee's own case, we confirm the order passed by Ld CIT(A) on this issue. Nature of expenses - Allowing deduction in respect of expenditure incurred on dies and mould - revenue or capital expenditure - HELD THAT - As decided in own case A.Y. 1998-99 . 2023 (8) TMI 1422 - ITAT MUMBAI the expenditure incurred in purchase of dies and moulds are allowable as revenue expenditure. Nature of receipt - Allowing penalty charges recovered from suppliers of capital goods as capital receipts and therefore not chargeable to tax - HELD THAT - As decided in own case 2023 (8) TMI 1422 - ITAT MUMBAI A.Y. 1998-99 held that the penalty charges received from machinery suppliers is capital in nature. In this regard, the Tribunal has followed the decision rendered in AY 1993-94, wherein it was decided in favour of the assessee following the decision rendered by Hon'ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd 1987 (2) TMI 18 - ANDHRA PRADESH HIGH COURT Deduction of expenditure incurred in respect of jigs and fixtures as revenue expenditure allowed. Allowing corresponding adjustment in the opening stock under section 145A - HELD THAT - During the course of appellate proceedings before us the ld. Counsel has also referred the decision of Hon ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works (P) Ltd. 2009 (4) TMI 182 - BOMBAY HIGH COURT After considering the judicial pronouncements referred by the ld. Counsel and the judicial pronouncements relied upon by the ld. CIT(A) in his finding we don t find any reason to interfere in the decision of ld. CIT(A) holding that while making addition of unused modvat credit corresponding adjustment in the opening stock should also be made. Therefore, this ground of appeal of the revenue is dismissed. Foreign travel expenses of wife of MD - allowable revenue expenditure or not? - HELD THAT - We find that identical issue on similar fact has been adjudicated by the ITAT Mumbai, in the case of the assessee itself against the assessee for assessment year 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI assessee has also not proved existence of any commercial or business expediency in incurring the foreign travel expenses of wife of M D except producing copy of Board resolution, in which also, no reason was given. There should not be any doubt that this is a factual aspect and the facts prevailing in each foreign trip has to be examined. We notice that the Ld CIT(A) has also not brought out the business or commercial expediency in incurring expenses on foreign trips of wife of M D, but deleted the addition on the basis of quantum of expenditure, status of the M D and approval by Board. These are not the proper reasons for allowing this type of expenditure - Decided against assessee. Disallowance of proportionate interest expense attributable to earning exempt income - CIT(A) has deleted the addition - HELD THAT - Since, the assessee was having more interest free funds then the amount of investment made on which the exempt income was earned, therefore, no addition need to be confirmed - Decided against revenue. Allowing deduction for Prior period of expenses - HELD THAT - We have perused the decision of ITAT or assessment year 1998-99 2023 (8) TMI 1422 - ITAT MUMBAI wherein the claim of such expenses pertaining to assessment year 1997-98 were allowed during the assessment year 1998-99 on the ground that same were crystallized during the assessment year 1998-99. Following the decision of ITAT and considering the fact that impugned expenses were crystallised during the year under consideration we don t find any infirmity in the decision of ld. CIT(A) on this issue, therefore, this ground of appeal of the revenue is dismissed. Reduction 90% of items from the profit of the business while computing the deduction u/s 80HHC - HELD THAT - CIT(A) has correctly excluded the aforesaid items Technical know-how, Insurance claims, Miscellaneous receipts, Sundry Credit Balance, Bill Discounting and Provision no longer required while computing the profit of the business holding that these items have direct nexus with the business activity of the assessee and are not specifically mentioned in explanation (baa), after following his order for assessment year 1998-99. Penalty u/s 271(1)(c) - difference between the returned income and the assessed income on account of issue pertaining to reduction of deduction u/s 80HHC - HELD THAT - As we find that assessee has claimed deduction u/s 80HHC of the Act on the basis of the separate audit report furnished u/s 80HHC(4) of the Act and certified by the auditor as per the tax audit report. CIT(A) has deleted the penalty on the reason that merely that the AO included or excluded certain items within the term indirect cost that should not be a basis for levying penalty u/s 271(1)(c) for concealing particulars of income or furnishing inaccurate of income thereof. As decided in the case of CIT Vs. Reliance Petro Products Ltd. 2010 (3) TMI 80 - SUPREME COURT held that a mere making a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars in respect of income of the assesse. Considering the above facts and findings we find no infirmity in the decision of ld. CIT(A) in deleting the impugned penalty therefore this ground of appeal of the revenue is dismissed. Penalty for claiming deduction u/s 80-O - HELD THAT - We find that in support of its claim of deduction u/s 80-O the assessee has furnished form no. 10HA certified by the tax auditor in the tax audit report. It was also pointed out that in the earlier assessment year i.e 1997-98 the similar claim of deduction has been granted to the assessee in respect of royalty received. In view of the above fact we consider that assessing officer has not brought any material to substantiate that assessee has concealed the particulars of income or furnished inaccurate particulars of income. As considering the similar facts and finding as given above for deleting the penalty levied of claim of deduction u/s 80HHC we don t find any merit in this appeal of the revenue, therefore, this ground of appeal of the revenue is dismissed. Exclusion of deduction u/s 80-IB for the purpose of computing deduction u/s 80HHC with respect to profit on traded goods - AO has reduced an amount on the ground that for similar amount deduction has been claimed u/s 80-IB of the Act, therefore, the same lead to double deduction - HELD THAT - During the course of appellate proceedings before us the ld. Counsel referred the decision of Hon ble jurisdictional Bombay High Court in the case of Associated Capsules (P) Ltd. Vs. DCIT, Mumbai 2011 (1) TMI 787 - BOMBAY HIGH COURT wherein it is held that after allowing of deduction computed under various provisions under heading C of chapter VI-A do not exceed 100% of profit of business of the assessee then deduction computed under other provisions under heading C of chapter VI-A has to be restricted the profit of business that remain after excluding profit allowed as deduction u/s 80IA, so that total deduction allowed under heading C of chapter VI-A does not exceed profit of business. In view of the above facts and finding we restore this issue to the file of the assessing officer for deciding afresh. Deduction u/s 80IA in respect of duty drawback and interest income allowed. TDS u/s 195 - Allowance of deduction u/s 40(a)(i) in respect of expenditure incurred in foreign currency - HELD THAT - After perusal of the nature of expenditure and finding of the ld. CIT(A) given that the assessee has made payment for the various expenses as referred above to the non-residents who were having no business connection in India, therefore, no tax was deducted for such payments. During the course of appellate proceedings before us revenue has not brought any material contrary to the finding given by the ld. CIT(A), therefore, we don t find any merit in this ground of appeal of the revenue and the same stand dismissed. Interest u/s 234B - HELD THAT - During the course of appellate proceedings before us the assessee submitted that it has paid the total advance tax of Rs. 204,00,00,000/- whereas assessed tax comes to Rs. 195,36,36,406/- and 90% of the assessed tax comes to Rs. 175,82,72,765/-, therefore, there was no shortfall in payment of advance tax. During the course of appellate proceedings before us revenue has not brought any material contrary to the submission and finding of the ld. CIT(A) therefore, this ground of appeal of the revenue also stand dismissed.

Summary

Issues Involved:
1. Taxability of surplus on redemption of securities under the head Capital Gain.
2. Taxability of surplus on redemption of Treasury bills under the head 'Profits and Gains of Business'.
3. Deduction of the cost of Dies and moulds leased to Job Workers.
4. Reduction of the cost of the assets by the Penalty charges recovered for the purpose of granting depreciation.
5. Deduction of expenditure incurred with respect to Masala Grinder and toaster.
6. Disallowance of fines and penalties.
7. Deduction in respect of Wealth Tax paid.
8. Exclusion of job work receipts from total turnover while computing deduction under section 80HHC.
9. Exclusion of costs incurred for manufacturing while computing indirect expenses in respect of traded goods for deduction under section 80HHC.
10. Allowing deduction u/s 80 IA on profits after deducting depreciation.
11. Disallowing deduction under Section 80-O in respect of royalty received.
12. Exclusion of surrender of tenancy rights while computing the book profit as per section 115JA.
13. Exclusion of indirect cost attributable to export of trading goods for deduction under section 80HHC.
14. Inclusion of duty drawback and interest while computing deduction under section 80HH and 80IA.
15. Addition on account of provision for doubtful debt.
16. Deduction on account of provision for doubtful debts in the year of actual write-off.
17. Deduction under section 35D in respect of GDR issue expenses.
18. Depreciation in respect of sale and lease back transaction with JCT Limited.
19. Allowing deduction in respect of expenditure incurred on dies and moulds as revenue expenditure.
20. Allowing penalty charges recovered from suppliers of capital goods as capital receipts.
21. Allowing deduction of expenditure incurred in respect of jigs and fixtures as revenue expenditure.
22. Allowing deduction in respect of proportionate premium on leasehold land.
23. Allowability of deduction in respect of foreign traveling expenses of wife of Managing Director.
24. Deleting disallowance of proportionate interest expense attributable to earning exempt income.
25. Allowing deduction for prior period of expenses.
26. Exclusion of 90% of certain receipts from the profits of the business while computing deduction under section 80HHC.
27. Allowance of deduction u/s 40(a)(i) in respect of expenditure incurred in foreign currency.
28. Deletion of interest u/s 234B.

Summary:

1. Taxability of Surplus on Redemption of Securities:
The ITAT upheld the Ld. CIT(A)'s decision that the surplus on redemption is liable to tax under the head Capital Gain, following the Supreme Court's decision in Grace Collins v/s CIT.

2. Surplus on Redemption of Treasury Bills:
The ITAT directed the AO to assess the surplus on redemption of Treasury bills as capital gains, following the Bombay High Court's decision in British Bank of Middle East v/s CIT.

3. Deduction of Cost of Dies and Moulds:
The assessee did not press this ground, and it was dismissed.

4. Reduction of Cost of Assets by Penalty Charges:
This ground was also not pressed by the assessee and was dismissed.

5. Deduction for Masala Grinder and Toaster:
The ITAT directed the AO to delete the addition made towards expenditure on Masala Grinder and Toaster after verification.

6. Disallowance of Fines and Penalties:
The ITAT dismissed the assessee's appeal, following the co-ordinate bench's decision in previous years.

7. Deduction of Wealth Tax Paid:
The ITAT directed the AO to delete the disallowance of wealth tax paid, following the co-ordinate bench's decision in previous years.

8. Exclusion of Job Work Receipts:
This ground was not pressed by the assessee and was dismissed.

9. Exclusion of Costs for Manufacturing:
This ground was not pressed by the assessee and was dismissed.

10. Deduction u/s 80 IA after Depreciation:
The ITAT dismissed this ground, following the co-ordinate bench's decision in previous years.

11. Deduction u/s 80-O for Royalty:
The ITAT allowed the deduction, following the co-ordinate bench's decision in previous years.

12. Exclusion of Surrender of Tenancy Rights:
This ground was not pressed by the assessee and was dismissed.

13. Exclusion of Indirect Cost for Export of Trading Goods:
The ITAT allowed this ground, following the co-ordinate bench's decision in previous years.

14. Inclusion of Duty Drawback and Interest:
The ITAT directed the AO to allow deduction u/s 80 IA for duty drawback and interest income, following the Supreme Court's decision in CIT v/s Meghalaya Steels Ltd.

15. Addition for Provision for Doubtful Debt:
The ITAT restored this issue to the AO for fresh decision, following the co-ordinate bench's decision in previous years.

16. Deduction for Provision for Doubtful Debts in Year of Write-off:
This ground was dismissed as it became infructuous after adjudicating the previous ground.

17. Deduction u/s 35D for GDR Issue Expenses:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

18. Depreciation for Sale and Lease Back with JCT Limited:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

19. Deduction for Expenditure on Dies and Moulds:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

20. Penalty Charges from Suppliers of Capital Goods:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

21. Deduction for Expenditure on Jigs and Fixtures:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

22. Deduction for Proportionate Premium on Leasehold Land:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

23. Foreign Traveling Expenses of Wife of Managing Director:
The ITAT allowed the revenue's appeal, following the jurisdictional High Court's decision.

24. Disallowance of Proportionate Interest:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

25. Deduction for Prior Period Expenses:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

26. Exclusion of 90% of Certain Receipts:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

27. Deduction u/s 40(a)(i) for Foreign Currency Expenditure:
The ITAT dismissed the revenue's appeal, following the co-ordinate bench's decision in previous years.

28. Deletion of Interest u/s 234B:
The ITAT dismissed the revenue's appeal, following the verification of advance tax paid by the assessee.