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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 ..... hat the JCIT be directed to delete the disallowance. 2. The CIT(A) erred in holding that the telephone 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. 9. The CIT(A) erred in holding that the JCIT is justified in disallowing an amount of Rs. 58,21,910 being the unpaid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the decision of ITAT in ITA No. 3869/M/97 for assessment year 1993-94 in assessee s own case, the issue was restored back to the file of the Assessing 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 Lakhanp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of the time prescribed under section 200(1) then such royalty will be treated as income. From this, it follows that before this amendment, the only condition was tax should be deducted 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] 268 ITR 232 (Kar.) 4. CIT v. Sundaram Fastners Ltd. [2004] 272 ITR 652 (Mad.). 15. Following the above decisions the issue is decided in favour of the assessee. Assessing Officer is directed to exclude sales tax and excise duty from 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tories Ltd. s case ( supra ) on which the Ld. Departmental Representative has heavily relied, it was held that provisions of section 80AB has been given an over-riding effect over all other sections in Chapter-VIA. Section 80HHC does not provide that these sections under Chapter 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked out from business profits. While section 80AB refers to computation based on income, section 80HHC refers to computation based on export turnover." Thus, it was held by Hon ble Bombay High Court that section 80HHC is a complete code in itself and will not be governed by section 80AB and deduction has to be computed under section 80HHC 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. s case ( supra ) but a clear decision is given by the Apex Court that Hon ble Bombay High Court s decision in Shirke Construction Equipment Ltd. s case ( supra ) and Kerala High Court s decision in Smt. T.C. Usha s case ( supra ), which held that section 80HHC is a complete code in itself and section 80AB cannot override section 80HHC is not a correct law. Therefore, we are bound by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business will be treated as current year s loss for the purposes of set off against current year s income from the same business. This will also be consistent with section 80HHC 3( c ) which provides for computation of "profits derived from such export". In working out profits derived from export one can only adjust losses from the export activity, whether of the current year or brought forward from earlier years. There is no scope to adjust 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounting to Rs. 1,12,64,359. According to the CIT(A) this amount was not actually paid but was capitalised by the assessee and depreciation was claimed by relying on the ratio of Bombay High Court in the case of Padamjee Pulp Paper Mills Ltd. v. CIT [1994] 210 ITR 97 . The grievance of the revenue is that the CIT(A) ought to have applied the ratio of decision of Calcutta High Court given in Century Enka Ltd. v. CIT 197 ITR 447 (Cal.) ( sic ). The Tribunal in their order 3869/M/97, dated 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required by this clause. The assessee has relied on the decision of ITAT in the case of Asstt. CIT v. Herbal Isolates (P.) Ltd. [2002] 83 ITD 310. This was the case of the assessee who was engaged in the business of manufacturing spice products and essence items. It has received charges for drying and grinding and distributing for other companies for whom it did the job work of this nature. The Assessing Officer had treated these charges as covered under clause ( baa ). The ITAT, in their order in Herbal Isolates (P.) Ltd. s case ( supra ), 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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