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TMI Blog2010 (8) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that the nomenclature of commercial vehicles should not be so construed as to deprive the assessee of higher depreciation when all the conditions specified in the Act and the Rules had been met by the assessee – Decided in the favour of the assessee Capital expenditure claimed by assessee on research and development - ld. Counsel for the assessee has not been able to produce the said bills and in the absence of the same, we find no justifiable reason to interfere with the impugned order of the ld. CIT(A) sustaining the disallowance made by the A.O. on this issue to the extent of Rs. 39,76,739/- for want of supporting bills As regards the balance disallowance of Rs. 7,70,190/- made by the A.O. on account of work-in-progress - A perusal of the order of the A.O., however, shows that the disallowance was not made by him on this ground and the same was made on the ground that capital work-in-progress was not used by the assessee for its business purpose during the year under consideration - In this regard, it is observed that as per clause (iv) of sub-section (1) of section 35, deduction is allowed in respect of any expenditure incurred by the assessee of a capital natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the value of opening stock on account of unutilized Modvat credit, which was to the tune of Rs. 2,25,82,000/- and only the net amount of Rs. 52,54,000/-, at the most, could be added to the total income of the assessee on this issue. It was pointed out that a similar adjustment was allowed by the ld. CIT(A) in assessee s own case for A.Y. 2002-03 by reducing the addition on account of unutilized modvat credit to Rs. 1,38,40,788/- as against Rs. 2,25,82,000/- made by the A.O. 4. The A.O. did not find merit in the main contention raised on behalf of the assessee company that no addition on account of unutilized modvat credit pertaining to closing stock was required to be made. According to him, the exclusive method of valuation followed by the assessee for valuation of closing stock was contrary to the provisions of section 145A and it was mandatory as per the said provision to increase the value of closing stock of inputs by the unutilized modvat credit pertaining to the said inputs. He held that the contention of the assessee that grossing up of tax, duty etc. will have no impact on the profit was factually incorrect. He, however, found merit in the alternative contention rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejudice to the above contention, the ld. Counsel submitted that if at all the amount in question being excise duty pertaining to closing stock is to be added to the value of closing stock as per the provisions of section 145A, similar adjustment as required to be made to the value of purchases, sales and opening stock as per the said provisions. He contended that if such adjustments on account of excise duty are made to the value of purchases, sales and inventory, there will not be any effect ultimately on the profit of the assessee for the year under consideration. In this regard, he invited our attention to the working prepared and furnished in the paper books to show that such adjustments if made on account of excise duty as per the provisions of section 145A will not have any effect on the profit of the assessee company. He also made an attempt to substantiate this position by referring to the guidance note issued by the Institute of Chartered Accountants of India and especially pointed out to the hypothetical working given therein to show that if the assessee is following exclusive method , the adjustments made by including the excise duty in the value of the purchases, sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id raw material. As rightly submitted by the ld. DR, it is not the excise duty payable by the assessee under any law but it is a case of reimbursement of excise duty paid by the supplier of the said raw material and going by this very nature, we are of the view that the said amount is liable to be added to the value of closing stock as per the specific provisions contained in section 145A. We, therefore, find no merit in the contention of the ld. counsel for the assessee on this issue. 10. We, however, find merit in the contention of the learned counsel for the assessee that as per the provisions of section 145A, adjustment on account of excise duty is required to be made not only to the value of closing stock alone but the same is required to be made to the value of purchases, sales and opening stock of the year under consideration. In this regard, the ld. Counsel for the assessee has furnished a working showing therein that if such adjustments are made to the value of purchases, sales as well as inventory as per the provisions of section 145A, there will be no effect on the profit of the assessee for the year under consideration. He has also made an attempt to substantiate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. On a careful reading of the judgment of Hon ble Bombay High Court in the case of Kalpataru Colours Chemicals ( supra ), we find it difficult to accept the contention of the ld. Counsel for the assessee. In order to appreciate the context in which the observations relied upon by him in support of the assessee s case have been recorded by the Hon ble Bombay High Court, it would be worthwhile to refer to entire para No. 33 which is reproduced hereunder: The submission that prior to the insertion of clause (iiid) in section 28, the face value of the DEPB credit realized on the transfer of such credit constituted export profits, but not the amount realized in excess of the face value of the DEPB is similarly without any basis. This is because (i) the object of DEPB was to furnish an incentive to exporters so as to adjust the credit against the customs duty payable on any goods imported into India. However, where an exporter instead of utilizing the credit transfers the credit at a premium, it cannot be said that the exporter has utilized the credit (ii) The legislature considers that the customs duty and excise duty paid on raw materials used in the export product, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of clause (iiic) and (c) When section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB. 13. As is evident from the above, one of the contentions raised on behalf of the assessee before the Hon ble High Court was that the face value of DEPB credit realized on the transfer of such credit constitutes export profits. While rejecting the said contention holding the same to be without any basis, Hon ble Bombay High Court referred to the object of the DEPB which was to furnish an incentive to exporters so as to adjust the credit against the customs duty payable on any goods imported to India. It was held by the Hon ble Bombay High Court that where an exporter instead of utilizing the credit transfers the credit at a premium, the situation obtained will be different and the amount received on such transfer would be business profits and not export profits. When it was sought to be contended on behalf of the assessee that the face value of the DEPB credit utilized on the transfer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB. 15. In para 25 of the judgment, Hon ble Bombay High Court considered the nature of DEPB credit and observed that under the Exim policy, the scheme relating to the DEPB entitlement is in the nature of an option which is made available to an exporter who does not wish to go through the licensing procedure. It was noted that the transfer of a DEPB credit is similar to trading in a licence and when the licence is sold, the holder receives the entire amount as profit which is treated by the legislature as profits of business within the meaning of section 28. It was held by the Hon ble Bombay High Court that there would be no justification for this court, logically and as a matter of first principle, to treat the amount which is received by the exporter on the transfer of the DEPB credit any differently than the profits which are made on the sale of an import licence under clause (iiia) of section 28. It was held that both these amounts would have to be treated as profits of business under section (iiid) of section 28. 16. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciding the following sub-grounds in Ground no. 3 of the grounds of appeal, in the context of claim for deduction under section 80HHC, while disposing of the appeal. He should accordingly be directed to give his decision on the said grounds: (1) The learned assessing officer has not reduced 90% of the income in relation to interest on overdue debtors of Rs. 58,17,871/- in computing the profits of the business. (2) The learned assessing officer has reduced 100% of the other interest of Rs. 37,73,629/- which he should have netted of against interest paid. Without prejudice to the above he should have reduced 90% of the interest income. (3) The learned assessing officer has netted off the trading loss of Rs. 1,00,39,000/- against manufacturing profit and export incentives. 18. As the above issues have not been decided by the ld. CIT(A) despite the same having been specifically raised by the assessee company in its appeal filed before him, we remand the same to the file of ld. CIT(A) for deciding the same on merits. Gr. No. 2(b) of the assessee s appeal is accordingly treated as allowed for statistical purpose. 19. As regards ground No. 3, it is observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither any specific submissions were made on behalf of the assessee nor any specific decision was rendered by the ld. CIT(A) on this issue. At the time of hearing before us, the ld. Counsel for the assessee has relied on the provisions of clause (iv) of sub-section (1) of section 35 to contend that the work-in-progress being expenditure of capital nature on scientific research, there was no reason for the A.O. to disallow the same. The ld. D.R., on the other hand, has submitted that the onus was on the assessee to prove that the work-in-progress represented expenditure incurred on scientific research and there being failure on the part of the assessee to discharge the said onus, the disallowance on this count was rightly made by the A.O. A perusal of the order of the A.O., however, shows that the disallowance was not made by him on this ground and the same was made on the ground that capital work-in-progress was not used by the assessee for its business purpose during the year under consideration. In this regard, it is observed that as per clause (iv) of sub-section (1) of section 35, deduction is allowed in respect of any expenditure incurred by the assessee of a capital nature on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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