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TMI Blog2005 (5) TMI 546X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses of Rs. 2,59,045 incurred in respect of telephone at Guesthouse is to be considered for the purpose of computing disallowance under section 37(4) of the Act. Your appellants submit that telephone expense should not be considered as part of guesthouse expenses for the purpose of computing disallowance under section 37(4) of the Act. Your appellants pray that the JCIT be directed to compute the disallowance under section 37(4) without considering telephone expense. 3. The CIT(A) erred in upholding the disallowance of Rs. 3,80,756 under Rule 6D of the Income-tax Rules, 1962 (the Rules) computed on a per person per trip basis by the JCIT as against your appellants' contention that such disallowance should be worked out at Rs. 2,16,240 on the basis of aggregate trips undertaken by a person during a year. Your appellant pray that the JCIT be directed to delete the additional disallowance of Rs. 1,64,516 made by him. 4. The CIT(A) erred in upholding the addition of Rs. 1,50,000 made by the JCIT on account of estimated travelling expenses in respect of foreign technicians visiting from abroad by holding that the head-quarters in respect of foreign technicians visiting from abr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excise duty as on 31st March, 1995. Your appellants submit that the CIT(A) should have held that the credit balance of Rs. 3,77,299 in personal ledger account and Rs. 54,44,611 in RG 23 MODVAT account represent payments made against the out-standing balance of Rs. 58,21,910 and accordingly, no disallowance is required to be made under section 43B of the Act. Your appellant pray that the JCIT be directed to delete the addition of Rs. 58,21,910 made to their total income. 10. The CIT(A) erred in upholding that for the purpose of computing deduction under section 80HHC, sales-tax and excise duty have to be considered as part of total turnover. Your appellants submit that on a proper appreciation of the provisions of section 80HHC, the CIT(A) should have held that excise duty and sales tax cannot form part of the total turnover of the company. Your appellants pray that the JCIT be directed to re-compute the deduction under section 80HHC accordingly. 11. The CIT(A) erred in upholding that for the purpose of computing deduction under section 80HHC of the Act, carried forward loss of the assessment year 1993-94 should be reduced from the business profits. Your appellants submit that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to determine the facts as to on what occasions the assessee used to reimburse expenses on staff welfare and to examine each expenditure independently. Assessing Officer will pass appropriate order after ascertaining the facts in accordance with principles laid down by Hon'ble Bombay High Court in the case of CIT v. Bharat Petroleum Corpn. Ltd. [2001] 252 ITR 43 . This ground is therefore allowed for statistical purposes. 9. Ground No. 6 is regarding disallowance of Rs. 2 lakhs on entertainment expenses incurred during conferences of dealers, on AGM's and directors meetings etc. This issue was also considered by the Tribunal in ITA No. 3547/M/97 for assessment year 1993-94 in assessee's own case. The Tribunal set aside the same for fresh adjudication in the light of the decision in the case of Lakhanpal National Ltd. v. ITO [1999] 69 ITD 9 (Ahd.) (SB). In view of this, for this year also, the issue is restored back to the file of the Assessing Officer to consider the facts of the case in the light of Lakhanpal National Ltd. (supra). This ground is, therefore, allowed for statistical purposes. 10. Ground Nos. 7 and 8 are about upholding disallowance of Rs. 8,79,962 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted and may not be paid within the prescribed period. In any way, according to Ld. Counsel for the assessee the tax has been paid within two months of deduction and this satisfies Rule 30(b)(i )(1) which requires payment on TDS within 2 months to the Central Government. 11. On the other hand, the Ld. Departmental Representative submitted that tax was in fact deducted only on 31st May, 1995 as mentioned by the Assessing Officer in his order and was paid on the same date. Hence, it is violating the provisions of section 40A(i) and hence addition is called for. 12. We have considered the facts and arguments of the parties. We find that there is some confusion about date of deduction of tax. The Ld. Counsel for the assessee submits that TDS was made on 31-3-1995 and was paid to Central Government on 31-5-1995 after a gap of two months. In our view the facts are required to be ascertained as to on what date TDS was made by the assessee from the payment made to the Sweden National. The applicability of Article 26(6) of DTAA also requires consi-deration by the Assessing Officer. We feel that Assessing Officer needs to examine Article 10, Para 7 of Article 12 and para 7 of Article 13 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the turnover and grant appropriate relief. This ground is therefore allowed. 16. Ground No. 11 relates to the question as to whether brought forward loss of assessment year 1993-94 and earlier years should be reduced from the business profit for computation of deduction under section 80HHC. The ld. counsel for the assessee has relied on the decision of Hon'ble Bombay High Court in CIT v. Shirke Construction Equipments Ltd. [2000] 246 ITR 429 wherein it is held that section 80HHC is a complete code in itself and is not controlled by section 80AB. According to Hon'ble Bombay High Court in Shirke's case (supra) profits for the purpose of deduction under section 80HHC has to be computed only under section 29 and hence brought forward losses are not to be set off for computing profits under section 80HHC. On the other hand, the Ld. Departmental Representative relied on the decision of Hon'ble Supreme Court in IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521 and Hon'ble Madhya Pradesh High Court in the case of Vippy Solvex Products Ltd. v. CIT [2005] 273 ITR 107 wherein it was held that brought forward losses are to be set off against profits of current year for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter VI-A, are to prevail over section 80AB or over any other provision of the Act. 19. In the decisions in Shri Rama Verma HH's case (supra), Kotagiri Industrial Co-operative Tea Factory Ltd.'s case (supra ) and Motilal Pesticides' case (supra), the question thus involved was in respect of computation of deduction from total income under sections 80T, 80P(2) and 80HH. These sections provide for deduction from the income and, therefore, section 80AB comes into operation, i.e., income of the nature described in these sections under Chapter VI-A has to be computed by considering the effect of sections 70-72 of the Act. However, Hon'ble Bombay High Court in Shirke Construction Equipments Ltd.'s case (supra) and Hon'ble Kerala High Court in CIT v. Smt. T.C. Usha [2003] 266 ITR 497 took a country view and held that section 80HHC is a complete code and is not governed or controlled by section 80AB and, therefore, no adjustment of brought forward losses, against current year's export profit is permissible. Thus, the issue now narrows down to decide as to whether brought forward losses from earlier years has to be adjusted against export profit of the current year so as to reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HC independently. Though not in so many words, but by implication, the Hon'ble Bombay High Court distinguished the decision in H.H. Rama Verma's case (supra), Kotagiri Industrial Co-operative Tea Factory Ltd.'s case (supra) and Motilal Pesticides' case (supra). According to Shirke Construction Equipments Ltd.'s case (supra) for the purpose of computing profits, one has to consider section 29 of the Act, which provides that income of business has to be computed in accordance with sections 30-43D which excludes section 72. 20. After this decision Hon'ble Supreme Court in IPCA Laboratories Ltd.'s case (supra) considered the question of applicability of section 80AB. They observed as under :- "Section 80AB is also in chapter VI-A. It starts with the words "where any deduction is required to be made or allowed under any section of this Chapter". This would include section 80HHC. Section 80AB further provides that "notwithstanding anything contained in that section". Thus section 80AB has been given an overriding effect over all other sections in chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over section 80AB or over any other provision of the Act. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of superior court in IPCA Laboratories Ltd.'s case (supra), i.e., Hon'ble Supreme Court. Hon'ble M.P. High Court in Vippy Solvex Products Ltd.'s case (supra), analysed IPCA Laboratories Ltd.'s case (supra) as under :- "In our opinion, the question in so far as the assessment year 1986-87 is concerned; it is squarely covered by the decision of the Supreme Court rendered in the case of IPCA laboratory Ltd. [2004] 266 ITR 521 against an assessee. Indeed once it is held that the loss has to be adjusted against the profit then it logically follows that loss of earlier years has got to be set off against the current year profit even for the purpose of deductions under section 80HHC." 21. Thus, relying on the above decisions, we hold that brought forward losses have to be adjusted to arrive at profit for the purpose of computing deduction under section 80HHC. In this connection, one more, intricately connected issue has been raised by learned counsel for the assessee, i.e., whether all types of losses from business brought forward from earlier years has to be adjusted against export profit of current year, or only brought forward losses from export business alone have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust non-export brought forwarded loss against export profits of current year under section 80HHC. 23. In view of the above, we hold that brought forward loss from export activities alone can be set off against export profits of the current year. The Assessing Officer is directed to compute deduction under section 80HHC accordingly. 24. In result, the appeal of the assessee is allowed partly as indicated above. ITA No. 1516-A/M/99 : 25. This is revenue's appeal. The first ground of appeal by the revenue is directed against the order of the CIT(A) in deleting the disallowance on account of food and beverages as per section 37(4). This issue is covered against the assessee in ITA No. 3869/M/97 in the assessment year 1993-94 dated 7-2-2005. Accordingly this ground of the revenue is allowed. 26. The 2nd and 3rd grounds raised by the revenue is against allowance of deduction of Rs. 45,65,267 being proportionate premium payable on redemption of debentures. This issue is allowed in favour of the assessee by the Tribunal Order for the assessment year 1990-91 in ITA Nos. 6130, 6131 and 6403 and 6404/M, dated 16-7-2003 vide paras 19 to 22. Following above orders, we decline to interfere. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 7-2-2005 had considered this issue and relying on the decision of Jurisdictional High Court in Padamjee's case (supra) held that increased liability on account of change in rate of exchange on outstanding loan on last day of accounting year has to be added to the actual cost for calculating depreciation. Accordingly relying on the decision in assessee's own case in assessment year 1993-94 (supra) this ground of the revenue fails and is dismissed. 32. Ground Nos. 12 and 13 relate to relief allowed by the CIT(A) in respect of an amount of Rs. 72,627 being legal and professional charges and of Rs. 17,100 being service charges held as revenue expenditure. The issue is covered by the decision of Hon'ble Supreme Court in the case of CIT v. Bombay Dyeing & Mfg. Co. Ltd. [1996] 219 ITR 521 , wherein it was held that the amount paid to the solicitor for legal and professional charges was revenue expenditure. Accordingly, the issue is decided in favour of the assessee and the ground of the revenue fails and is dismissed. 33. Ground No. 14 relates to the finding of the CIT(A) that a sum of Rs. 5,05,107 is a revenue expenditure allowable under section 36(1)(iii). According to Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysed in detail the word 'charges' and held that the word 'charges' is coming in the company of other words, i.e., brokerage, commission, interest and rent and, therefore, by applying the principles of ejusdem generis, it would not cover the charges received for providing services, which are technical in nature. 35. Accordingly, we also hold that such technical services are not in the nature of brokerage, commission, rent or interest, which are the receipts other than normal business of the assessee. The main business of the assessee is manufacturing of ball and roller bearing, taper roller bearings and components for textile machinery. The assessee has an expertise in this line. The charges for technical services relate to this line of business. It is not related to or akin to brokerage, commission, rent or interest. They are neither akin to or belong to family of these words. Accordingly, the claim of the assessee has been rightly allowed by the CIT(A). We do not find any reason for interference. Accordingly, this ground of the revenue fails. 36. The appeal of the revenue is partly allowed to the extent indicated above. CO No. 240/M/99 : 37. The CO of the assessee relates ..... X X X X Extracts X X X X X X X X Extracts X X X X
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