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TMI Blog2012 (12) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of royalty by other group companies. - held that:- the claim of assessee is not correct that those documents were furnished by the assessee before Ld. CIT(A) and before us also, these documents are not submitted by way of compliance of the relevant Tribunal rules and, therefore, the same are not admitted - Decided against the assessee. Deduction u/s 80IB - assessee failed to file mandatory form No. 10CCB with the return of income - held that:- even if it was a procedural requirement and the assessee could not submit the same along with return of income for any reason, there could not be any reason for non-submission of the same before the completion of the assessment proceedings and the assessee in the present case has not submitted the same even during assessment proceedings. - Decided against the assessee. Computation of eligible profit - reduction of interest on overdue customers and on staff loan - held that:- if deduction is not allowable to the assessee u/s 80-IB, individual item of income is not required to be examined for eligibility of deduction u/s 80-IB - Decided in favor of assessee. - ITA No.45/Ahd/2009 & 46/Ahd/2009 And ITA Nos.317 & 318/Ahd/2009 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this ground of the assessee is rejected by following the tribunal order in assessee s own case for the assessment year 2002-03. 2.3 Ground No.4 is as under: "4. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in making ad hoc disallowance of Rs.2,08,999/- out of Welfare Expenses." 2.3.1 It was fairly admitted by the Ld. A.R. that this issue is covered against the assessee by the same tribunal order in assessee s own case for the assessment year 2002-03 and the relevant para of the Tribunal order is para 6.3. Accordingly, this ground of the assessee is also rejected by following the earlier year tribunal order. 2.4 Ground No.5, 5.1 and 6 are interconnected, which are regarding deduction claimed by the assessee u/s 80-IB of the Income tax Act, 1961. It was submitted by the Ld. A.R. that ground No.5.1 is not pressed and accordingly, the same is rejected as not pressed. Remaining grounds No.5 6 are as under: "Deduction u/s. 80IB: 5. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in holding that the following amounts are not eligible for deduction u/s 80IB of the Income Tax Act, 1961 ["the Act"] o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has a case for items no. 2 3 i.e. Insurance Claim and Discount Receipt but the A.O. has disallowed deduction u/s 80IB on this basis that mandatory Form No. 10CCB was not submitted even before completion of assessment proceedings and this issue is raised by Revenue in Gr. 1 of its appeal and hence no deduction is allowable to assessee u/s 80IB if the Revenue succeeds in Gr. 1 of its appeal. Otherwise, the A.O. should allow deduction for these two items. Held accordingly. 2.4.4 Regarding ground No.6, it was submitted that these repairs are in the nature of replacement of worn out parts of the building such as replacement of old tiles, fabrication and leveling charges etc. He drawn our attention to para 5.3 of the tribunal order in the assessee s own case for the assessment year 2001-02 and 2002-03 which is available on page 500 of the paper book. Ld. D.R. supported the orders of authorities below. 2.4.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the tribunal decision rendered in the assessee s own case for the assessment year 2002-03. In that year also, in respect of repairs to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Pvt. Ltd. He further submitted that the A.O. has invoked the provisions of Section 40A(2b) and applied notional sale price to the quantity of free cells and worked out the addition. It was further submitted that Section 40A(2b) can be applied in case of claim for expenditure and not to discount allowed on sale and in the present case, there is no expenditure incurred by the assessee. He also submitted that in the earlier years, the department has accepted the claim of the assessee and there is no change in the facts in the current year as compared to past several years. This was also submitted that the scheme is universal and the assessee has offered such scheme to other distributors also and all the distributors including parties covered u/s 40A(2b) were allowed quantity discount under identical terms. The A.O. has presumed that free cells distributed to M/s. Lakhanpal have to be distributed by the said party and therefore, disallowance was required to be made in the hands of the assessee. Reliance was placed on the following judicial pronouncements in support of this contention that discount on sale is not the expenditure.:- (a) EWAC Alloys Ltd. Vs DCIT 42 ITD 218 (Bom) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case are different and hence, this judgement is of no help to the assessee in the present case. - Reliance was also placed on the judgement of Hon ble Madras High Court rendered in the case of CIT Vs A K Subbaraya Chetty Sons (supra). As per the facts of this case, it was the case of the revenue that partners of two firms were closely related and sales by one firm to another was found to be at lower price and for difference between actual price and the price at which goods were sold it was held that this is not an expenditure which can be disallowed. In the present case, there is no dispute regarding sale price. The dispute is regarding free samples given by the assessee to related pay along with other parties which were not related and such free cells were to be passed on to the stockists. All other parties who were not related to the assessee had furnished full details regarding passing on of such free cells to the stockists but the related party has not provided those details and it was simply stated by that party that such free cells were not taken into stock by the related party and hence, they cannot provide the details regarding passing on the same to the stockists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by assessee worked out to about 9.97 per cent of total sales-AO allowed discount only to the extent of 5 per cent and disallowed the remaining amount under s. 40A(2) -Not justified-Similar disallowance has been deleted by the CIT(A) and the Tribunal in the earlier years-Moreover, this is a case of trade discount allowed to a sister concern on sale made to it, and not a case of any business expenditure paid to sister concern, and as such, provisions of s. 40A(2)(a) are not applicable-Also the AO has not been able to prove that the discount allowed by the assessee to the sister concern was excessive or unreasonable having regard to / the commercial practice prevailing in the market-Disallowance rightly deleted by CIT / (A)-United Exports vs. CIT (2009) 28 DTR (Del) 315 followed." In the present case, the dispute is for free cells and not trade discount. Hence, this judgement is not applicable. - The next judgement cited by the Ld. A.R. is the judgement of Hon ble Delhi High Court rendered in the case of United Exports Vs CIT (supra). The headnotes of this case are as under: "Business expenditure-Disallowance under s. 40A(2)-Trade discount-A discount of 11 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted before Ld. CIT(A). On page 391 also is the letter dated 21.07.2009 and on page 398 is the letter dated 21.7.2009. On pages 393-397 are the enclosures to letter dated 21.07.2009 available on paged 392 of the paper book and similarly on pages 399-400 are the attachments to letter dated 21.07.2009 available on page 398 of the paper book and hence, none could have been submitted before the Ld. CIT(A) because the order was passed by Ld. CIT(A) on 03.11.2008 i.e. well before the dates of these letters as noted above. Before us also, these documents are not submitted properly as fresh evidence by complying with the relevant Tribunal Rules i.e. subrule (4) of Rule 18 of the Appellate Tribunal Rules 1963 and there is no application made for admission of additional evidence before us and hence, these documents being additional evidence are not admitted. 2.6.3 It is also submitted in the chart submitted by the Ld. A.R. that data in respect to ALP regarding payment of royalty is also submitted during the appellate proceeding as per the documents available on pages 415-430 of the paper book. These documents on pages 415-430 of the paper book are dated 31.10.2008 and the order of Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of Ld. CIT(A) on this issue. These grounds of the assessee are rejected. 2.7 Ground No.10 is as under: "10 The learned CIT(A) erred in fact and in law in confirming action of the AO in adding sale of scrap generated from manufacturing activities amounting to Rs. 18,66012/- in total turnover for computing deduction u/s. 80HHC of the Act." 2.7.1 It was submitted by the Ld. A.R. that the Tribunal in assessee s own case has followed the judgement of Hon ble Apex Court rendered in the case of CIT vs K Ravindranathn Nair as reported in 295 ITR 228 and decided that the assessee is not eligible for deduction u/s 80HHC but it would be included in formula for the purpose of computation of deduction u/s 80HHC. In this regard, it was pointed out that para 5 of the tribunal order for assessment year 1998-99 is relevant. Accordingly, in this year also, we hold by respectfully following this judgement of Hon ble Apex Court rendered in the case of K Ravindranathan Nair (supra) that assessee is not eligible for deduction u/s 80HHC of the Income tax Act, 1961 in respect of sales of scrap. The A.O. should decide this issue afresh as per the Tribunal direction given in assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. Hence, we set aside the order of Ld. CIT(A) on this issue and restore the mater back to the file of the A.O. for a fresh decision in the light of above discussion and by following the judgement of Hon ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. (supra). Needless to say, the A.O. should provide adequate opportunity of being heard to the assessee. This ground of the assessee is allowed for statistical purposes. 2.10 Ground No.12 is as under: "12 The learned CIT(A) erred in fact and in law in confirming action of the AO in allocating export expenses of Rs.16,70,000/- in proportion of export turnover of trading goods to export turnover of manufactured goods, for the purpose of computing deduction u/s. 80HHC of the Act." 2.10.1 It was submitted by the Ld. A.R. that in assessment year 1998-99, as per para 11, the tribunal has set aside this issue to the file of the A.O. for verification of the claim of the assessee. Accordingly, in the present year also, we set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a fresh decision after verification of the claim of the assessee. This ground is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1998-99, we find that as per this para of the tribunal order in that year, this aspect was decided by the tribunal that new unit has come into existence and, therefore, the assessee is entitled for deduction u/s 80-IA of the Income tax Act, 1961. In fact, in the present year, disallowance was made by the A.O. on this basis that the assessee has failed to file the required mandatory form 10CCB with the return of income. He has also noted that till the passing of his order i.e. assessment order, the assessee company has failed to submit form 10CCB. Hence, this tribunal order in the assessee s own case for the assessment year 1998-99 is not relevant in the present year. This disallowance was deleted by Ld. CIT(A) as per para 5.1 of his order. We find that there is no decision of Ld. CIT(A) on this aspect of the matter i.e. non filing of mandatory form 10CCB with the return of income. Regarding this argument of the Ld. A.R. that this is a procedural lapse, we find that in various cases, it was held by the tribunal and various High Courts that if such procedural lapse is rectified and made good before completion of assessment proceedings, no adverse inference should be drawn but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is not required to be examined for eligibility of deduction u/s 80-IB of the Income tax Act, 1961. In the result, appeal of the revenue stands allowed in terms indicated above. 4. Now, we take up the assessee s appeal No.46/Ahd/2009 for the assessment year 2004-05. 4.1 Ground No.1 in this year is general. 4.2 Regarding ground No.2 3, it was submitted by the Ld. A.R. in the remarks column of the chart that these two issues were decided against the assessee by the tribunal in assessment year 2002-03 and the relevant para of the tribunal order is para 6.3. Accordingly in the present year also, both these grounds of the assessee are rejected. 4.3 Grounds No.4, 5, 5.1 and 5.2 are regarding disallowance of royalty u/s 40A (2b) of Rs.3,72,73,513/-. It was submitted by the Ld. A.R. in the chart that these grounds are similar to grounds No.8 9 in the assessee s appeal in assessment year 2003-04. In that year, we have decided these issue against the assessee as per para 2.6.2above on this basis that the documents stated to have been submitted by the assessee before Ld. CIT(A) in that year were not in fact submitted before CIT(A) and these were also not submitted before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect of the matter is decided against the assessee. Regarding 2nd aspect i.e. insurance claim received by the assessee of Rs.7,18,461/- and discount received by the assessee of Rs.5,81,881/-, it was submitted by the Ld. A.R. in the chart that these two aspects are covered in favour of the assessee. Regarding receipt of insurance claim, it is submitted that this issue is covered in favour of the assessee by the tribunal decision rendered in the case of Nirma Industries Ltd (supra). The remaining aspect regarding discount received is said to be covered in favour of the assessee by the tribunal order in assessee s own case for the assessment year 2002-03 as per para 13.6 of the tribunal order of that year. Ld. D.R. could not show that these two aspects are not covered in favour of the assessee and, therefore, by respectfully following the judgements cited by the Ld. A.R., we decide these two aspects in favour of the assessee. Ground NO.7 is partly allowed and regarding ground No.7.1, we hold that it is not allowable because major issue in ground no.7 is allowed and it is not established by the Ld. A.R. that there is an expenditure incurred for earning this income of Rs.24,165/- on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is similar to ground No.8 in assessment year 2002-03. The Ld. A.R. has also furnished a chart on 4 different types of interest income and the deduction is claimed by the assessee u/s 80HHC and this is also pointed out in the chart that all these four issues were decided by the tribunal against the assessee in assessment year 1998-99 in para 14 of the tribunal order. Accordingly, in this year also, this issue is decided against the assessee and, therefore, ground No.8 is rejected. 4.5.2 Regarding ground No.8.1, it was submitted that netting has to be allowed as per the judgement of Hon ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. Vs. CIT as reported in 247 CTR 372 (S.C.). Since, the authorities below have not examined this aspect in the light of this judgement; we feel it proper to restore this matter back to the file of the A.O. for a fresh decision in the light of this judgement and the facts of the present case. The A.O. should pass necessary order as per law in the light of the facts of the present case after providing reasonable opportunity of being heard to the assessee. Ground No.8.1 is allowed for statistical purpose. We would like to make it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unfounded and, therefore, liable to be rejected. We, therefore decline to interfere in the order of Ld. CIT(A) on this issue. This ground of the Revenue is rejected. 5.2 Ground No.2 is as under: "2. On the facts and in the circumstances of the case, the learned CIT(A) I erred in directing the A.O not to reduce interest on overdue customers at Rs. 83,19,297/- and on staff loan at Rs. 24,165/- in the computation of eligible profit for arriving at the deduction u/s 80IB overlooking the ratio laid down by Apex Court in Sterling Foods Ltd 237 ITR 579 (SC)." 5.2.1 Ld. D.R. supported the assessment order whereas it is submitted by the Ld. A.R. that this issue is in respect of overdue interest form customers of Rs.83,19,297/- which is covered in favour of the assessee by the decision of Hon ble Gujarat High Court rendered in the case of Nirma Industries Ltd. (supra) and the 2nd aspect i.e. interest on staff loan of Rs.28,261/- can be decided in favour of the revenue. Accordingly, we hold that the revenue succeeds in respect of interest income of Rs.28,261/- in respect of interest on staff loan but no interference is called for in the order of Ld. CIT(A) in respect of overdue in ..... 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