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TMI Blog2012 (7) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... after contend while filing the return of income that such income should not be treated as having accrued in the year under consideration, as duty-free raw material had not actually been imported till the end of the relevant year but it should be treated as income accrued in the year, when raw material had actually been imported - CIT(A) had rightly held that the income by way of ALBR duly accounted for as income in the books of account maintained by the assessee in the year under consideration on accrual basis could not be excluded from the taxable income of the year under consideration. Dis allowance of claim in respect of deduction paid to GIDC as premium on leasehold land - Held that:- As Coordinate Bench decision in assessee’s own case is against them, thus following the same ground raised by assessee is dismissed - against assessee. Dis allowance of miscellaneous expenses in respect of leasehold land - Held that:- Considering the nature of the expenditure incurred on the land being utilized in the business the amount is allowable as revenue expenditure - in favour of assessee. Disallowance on account of depreciation - Held that:- Considering the assessee's submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sudha Multani and the learned CIT (DR) Shri Subachan Ram. The learned Counsel also placed on record a chart indicating the grounds and how various issues are covered. The learned DR placed on record the written submission with reference to Ground No.1 which was also countered by assessee in its written reply rejoinder dated 18/4/2012. These submissions of the Counsel are considered and the issues are decided as under. For the sake of record, the grounds and the additional grounds are extracted summarily as under: 1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the Dy. Commissioner of Income Tax in including in the total income, advance license benefit receivable amounting to Rs..5,46,20,751/-. 2. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the Dy. Commissioner of Income Tax in not allowing the claim in respect of deduction of a sum of Rs..22,88,579/- paid to GIDC as premium on leasehold land. 3. On the facts and circumstances of the case and in law, the CIT (A) erred in rejecting the appellants claim for deduction in respect of stamp duty paid amounting to Rs..8,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has shown advance license receivable of Rs.5,46,20,751/- under the head Advance license benefit receivable and has thus shown lower consumption of raw material. In the computation of income the deduction of this amount was claimed by relying on the decision in the case of M/s. Jamshri Ranjitsinghji Spg. Wvg. Mills Ltd. v. IAC [1992] 41 ITD 142. It was the submission that the amount does not accrue till assessee utilized the advance license for import of raw material. Accordingly it claimed adjustment of the amounts accounted for in the books of account while offering the amount of earlier year which were utilized during the year. Consequent to the stand taken in assessment year 1992-93, AO did not allow assessee s claim and brought to tax the amount as adjusted in the books of account. The CIT (A) following his order in earlier year confirmed the same. 4. It was fairly admitted that this issue of taxability of advance benefit license receivable was held against assessee by the ITAT Ahmedabad Tribunal in assessee s own case for assessment years 1992-93, 1995-96, 196-97 and 1997-98. It was also further submitted that Hon'ble Gujarat High Court admitted the questions in all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Bombay High Court. Accordingly constitution of Special Bench is not required. The learned Counsel specifically placed on record all the orders of the Coordinate Bench in the case of Excel Industries and Mafatlal Industries Ltd which were approved by the Hon'ble High Court. The learned CIT DR, however, in the written submissions submitted that the decision of the Hon'ble Ahmedabad Bench in assessee s case has been specifically referred by the Special Bench of the ITAT in the case of Topman Exports Vs. Income Tax Officer 33 SOT 337 (Mum) which order was ultimately approved by the Hon'ble Supreme Court. Even though the issue therein was with reference to the DEPP since issue of accrual of DEPP, which is comparable with the present issue of advance license was considered therein, the Special Bench decision is binding because the same was approved by the Hon'ble Supreme Court. He has specifically referred to the proposition in Para 33 and 34 as under: When DEPB income accrues 33. Before we venture to decide the accrual of income on account of DEPB, it is essential to note that both the appellants before us are following the mercantile system of accounting. Under this method of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that stage. The Ahmedabad Bench of the Tribunal in a well reasoned order in United Phosphorus Ltd. v. CIT [2002] 81 ITD 553 has held that the value of advance license benefit receivable by the assessee has to be treated as income accruing to it in the year in which the exports are actually made and is chargeable to tax accordingly in that year alone. The Hon ble Punjab Haryana High Court in the case of CIT v. Punjab Bone Mills [1998] 232 ITR 7952 considered a case in which the assessee, following the mercantile system of accounting, accounted for cash incentives for exports on receipt basis. The Assessing Officer treated this amount as income on accrual basis. It was argued on behalf of the assessee that accrual of income would occur only when the amount was sanctioned and not when application, claiming cash incentives, was filed by the assessee on the making of the exports. The Tribunal took the view that the cash incentives accrued to the assessee on the date on which application for the claim was made to the competent authority. Approving the view of the Tribunal, the Hon ble High Court held that the right to receive export incentive accrued to the assessee on the filing of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l appeal no.1699 of 2012). As regards the decision of the Hon ble Tribunal in the appellant s case, it was already pointed out that the Bombay Bench of the Tribunal in the case of Excel Industries Ltd has taken a view different from the view taken by the Ahmedabad Bench in the appellant s case after considering the earlier order. The Revenue s appeal against the order passed in the case of Excel Industries Ltd has been dismissed by the High Court at Bombay and, therefore, the order in the appellant s case need not be followed. As regards the allegation that the benefit is recorded in the books, it is submitted that it is well settled that the making of entries in the books of account is not determinative of the taxability of an amount. In this connection, reliance is placed on the decision of the Supreme Court in the case of CIT vs Shoorji Vallabhdas and Co (46 ITR 144) and CIT vs India Discount Co Ltd (75 ITR 191). As regards the decision of the Hon ble SC, it is submitted that while calculating deduction under section 8OHHC, the issue for consideration before the Hon ble SC was whether entire sale proceeds or only the profit on transfer of Duty Entitlement Passbook Benefit (DEP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the appellant under the Advance License Scheme is in the form of exempon/concession in custom duty for importin9 duty free raw material against fulfillment of certain export obligation. Thus, until the raw material is actually imported, no benefit arises. It is contingent since the assessee may choose not to import the raw material in question because of various factors some of them being as under: (a) increase in the price of such raw material in the foreign country, (b) fluctuation in the foreign exchange rate, (c) variation in the rate of custom duty and (d) variation in the purchase price of raw material in the domestic market. There are several such factors which establish beyond doubt that ALBR benefit is contingent and it materializes only when the relevant imports are made and not earlier and therefore the same cannot be said to accrue prior to the import of raw material. It is also submitted that no benefit can be said to have arisen immediately on exports since the said license is not transferrable. Thus, it is submitted that the mere grant of the advance license does not result in a benefit to the appellant since such benefit can actually be availed of by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot override sections 4 and 5 of the Act. If an income has neither accrued nor received in the relevant year within the meaning of section 5, whatever section 145 says, such income cannot be charged to tax even though a book keeping entry has been made recognizing such income, which in law and on facts does not really accrue or arise or received in previous year. Section 145 thus does not affect the range or ambit of taxable income. Such computation provision contained in section 145 cannot enlarge or restrict the content of taxable income. It is the duty of the Assessing Officer to consider in each case as to whether the assessee has employed a regular method of accounting and whether annual profits can be properly deduced from the method so employed. The Assessing Officer should also examine whether the accounts maintained are correct and complete. Once the Assessing Officer is satisfied about the regularity of the method of accounting and about the correctness and completeness of the books of account and is also convinced that true income can be properly deduced, the Assessing Officer is bound to compute the taxable income of the assessee as per section 145(1) in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in the year when the exports were actually made or such income would accrue only in the year when the duty-free raw material was actually imported pursuant to such import licenses. The assessee had consistently followed the method of recognizing such income in its books of account in the year when the exports were actually made. But while submitting the income-tax return, they claimed that such income could not be treated as income accrued to the assessee in the year when the exports were made but it should be treated as having accrued only in the year when the duty-free raw material was actually imported. The assessee had maintained their accounts on accrual basis. The various accounting standards and guidelines on accrual system of accounting relied upon by the parties indicate that there are various alternative recognized methods of accounting in relation to Import Entitlement License, etc. One of the methods is that the cost of raw material imported by the assessee will be debited in the books of account on the basis of actual cost in the year when it is actually imported. In such a case no accounting entry of import entitlement license is required to be made. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and the same time period. The matching concept is therefore an essential part of accrual accounting. Even under the Conservatism Concept of accounting, the revenues should be recognized when there is reasonable certainty about their realization. In the present case, the assessee had accounted for the value of benefit receivable by way of import of duty-free raw material against specific export orders in the year in which corresponding export obligation had actually been discharged. Under the Export Promotion Scheme, the assessee was entitled to duty-free import of raw material against exports made by them. The only obligation of the assessee for earning right to import such duty-free raw material was that the specified export should be made. The assessee had accounted for the value of such benefit only in the year in which the corresponding export obligation had duly been dis-charged. It was in consonance with the matching concept implicit in accrual system of accounting. The moment the assessee had exported the goods, it acquired a legally enforceable right to get the import license for importing duty-free raw material according to the norms specified in the relevant Impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e board of directors while finalizing the annual accounts are under an obligation to ensure that the profits/loss as per profits loss account of the relevant year should disclose a true and fair position of the profits of the year. It is expected that the board must have taken into consideration all the relevant facts and circumstances so as to satisfy themselves about the reasonable certainty of realization of such benefit receivable by the assessee. The term true and fair view connotes that the balance sheet and the profit loss account should give the true and fair presentation of the actual state-of-affairs and the working results of the company. The directors are accountable and responsible for presenting the true and fair state-of-affairs in the balance sheet and also in respect of the profit/loss as shown in the profit loss account. The directors are also responsible for adherence to the disclosure requirements as per Schedule VI of the Companies Act. The board of directors must had, therefore, applied their serious attention to this item of income accounted for in the books of account, as was apparent from the fact that a detailed note in the Notes of Accounts had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonably anticipate that such substantial benefit by way of duty-free import of raw material was surely and certainly receivable by the assessee in consideration of the goods exported by them. The appellant company had taken adequate care to provide for adequate margin arising due to all such contingencies, uncertainties and other factors which might result in some variation of the net income accrued and adjusted in the year under consideration. That clearly indicated that the amount of such benefit accounted for by the appellant company in its books of account was based on a realistic, systematic and appropriate method. Accordingly, the Commissioner (Appeals) had rightly held that the income by way of ALBR amounting to Rs. 8,29,87,603 duly accounted for as income in the books of account maintained by the assessee in the year under consideration on accrual basis could not be excluded from the taxable income of the year under consideration. 10. This order of the ITAT is at present subjudice before the Hon'ble Gujarat High Court since assessee s original assessment jurisdiction is with ITAT Ahmedabad and now files are transferred to Mumbai. The A.O in all earlier cases includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versed by the Hon'ble Bombay High Court in the case of Kalpataru Colours Chemicals (2010) 328 ITR 451, the same was not approved by the Hon'ble Supreme Court in the case of M/s Topman Exports vs. CIT others in Civil Appeal No.1699 of 2012. In case of present assessee, issue has already been decided against it by Ahmedabad bench of the Tribunal and the matter is seized by the Hon'ble High Court of Gujarat. We also considered that difference between the advance license benefit receivable granted by the Duty Exemption/Remission Scheme by the Govt. of India and DEPP and DFRC schemes. The advance license was issued for import of raw materials. The license can only be utilized for import of inputs for exports and unless imports are made, license cannot be availed or utilized. In the case of DFRC and DEPP, these are the issued for import of raw materials in manufacture of goods, without payment of basic custom duty, surcharge etc, in respect of export products covered under SION as notified by DGFT. In that scheme the exporters shall be entitled for benefit in respect of any duty paid, whether imported or indigenous use in export products as per SION scheme. Therefore, import of raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance in respect of interest capitalized in assessment year 1992-93. Assessee has furnished revised statement of depreciation after excluding depreciation on interest capitalized in earlier year. In assessment year 1992-93 the interest capitalized but claimed as revenue was not allowed and accordingly the depreciation had to be increased on a higher written down value in assessment year 1992- 93. This claim of depreciation is consequent to the decision in 1992- 93. AO is directed to examine whether the interest capitalized in the books was allowed as revenue expenditure in that year. If it is allowed as revenue expenditure, the ground will become infructuous. Otherwise, AO is directed to allow depreciation on the capitalized interest portion if it is not done already. With these directions the ground is considered allowed for statistical purposes. 17. Ground No.8 pertains to deduction under section 80 and 80IA without deducting depreciation eligible under the I.T. Act. It was fairly admitted that this issue is against assessee by the orders of the ITAT in 1995-96 (Para XII(8)(B), 81 ITD 553 at page 657 and also by ITAT order 1996-97 and 1997-98. It was further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, it is held that the loss derived from export of traded goods should be added back to the profits of the business while computing the adjusted profits of the business as required by clause (b) of the Explanation below section 80HHC(3) for arriving at the amount of deduction eligible under sub-section 3(c)(i). Hence this ground of appeal is allowed . 20. In view of the above, AO is directed to work out the deduction accordingly. This part of ground is allowed 21. Ground No.10b pertains to claim of deduction as a supporting manufacture in respect of export through export houses for which disclaimer certificate was obtained. It was fairly admitted that this issue was not discussed by AO even though it was claimed and mentioned in 80HHC report. The CIT (A) also did not allow the ground. We are of the opinion that this issue requires reexamination by AO and in case assessee has furnished necessary certificates and disclaimer certificates as prescribed, these are to be examined by AO. For this, the issue in this ground is restored to the file of AO for fresh consideration according to law and facts. 22. In the additional grounds of appeal, assessee has not pressed Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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