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TMI Blog2013 (8) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... 291/-. 3.2 The assessee in the return of income claimed deduction under Section 35D at Rs.6,50,08,291/- based on additional expenses incurred on issue of foreign currency convertible bonds. The AO restricted the claim under Section 35D at Rs.3,57,23,093/-. 3.3 The CIT(A) following the order for assessment year 1999-2000, wherein he had confirmed the action of the AO in restricting the deduction under Section 35D, confirmed the action of the AO. 3.4 Learned counsel of the assessee submitted that this issue has been decided by the Tribunal against the assessee while disposing the appeal for assessment years 1997-98, 1999-2000 and 2000-2001. 3.5 After considering the order of the AO, CIT(A) and the order of the Tribunal for assessment years 1997-98, 1999-2000 and 2000-2001, we found that similar issue involved in these appeals was decided by the Tribunal against the assessee. The decisions of the Tribunal was taken in ITA No.4733/M/2004 for assessment year 1997-98 and others, vide order dated 4-2-2009. Copy of the order of the Tribunal is placed on record. Therefore, following the order of the Tribunal for earlier year, we confirm the order of the learned CIT(A) for the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares of Veronica. 4.3. Learned counsel of the assessee, who appeared before the Tribunal, argued that the observation of the AO that loss is not genuine, in fact, is incorrect, because all the details filed before him have been mentioned by the AO himself in para 4.2 at page 7 of his order. It has been stated that the shares of M/s Veronica was were purchased from RIDPL. The shares of M/s Veronica was not quoted as it was a private limited company, no market quotation is available on the date of purchase of shares. The transactions are at arm's length, none of the directors of the Veronica or its sharesholders are in any way, related to the directors of the assessee company. It was explained that there is no relationship of the directors of M/s Veronica with the Reliance Infrastructure Development Private Limited. Reliance Infrastructure Development Private Limited (RIDPL) is a portfolio manager of the assessee company, who purchased shares of M/s Veronica on behalf of the assessee. Therefore, whatever the losses incurred on account of purchase of shares of Veronica belongs to assessee company and is allowable as per provision of law. It was further explained that the factum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material on record, we found that the claim of loss is allowable. The assessee has filed each and every detail before the AO. The purchase price of shares of M/s Veronica was paid through proper banking channel, which were purchased in the year 1996-97. Investments were shown in the balance sheet of the assessee. The investment made in the financial year 1996-97 was not doubted as the assessment for assessment year 1997-98 was completed under Section 143(3). We further noted that on liquidation of M/s Veronica a sum of Rs.79,01,418/- only was received by the assessee against cost of shares of Rs.8,91,44,550/-. Whether the decision for purchasing shares was correct or not but there is no dispute in incurring of loss. All relevant details are placed on record, which has been mentioned by the AO also in his order in para 4.2 at page 7. Learned CIT(A) merely observing that the assessee could not file any further evidence in respect of claim of loss, has rejected the claim of the assessee. Once all relevant details are on record, then learned CIT(A) should have considered all these details on merit and the decision should have taken as to whether the loss is allowable or not. After co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lej Cotton Mills Ltd., reported in 116 ITR 1. The assessee has further referred to explanation (3) below section 43A to suggest that any gain or loss on forward contract in foreign currency relating to foreign currency loan, required to be capitalized. Learned CIT(A) after considering the order of AO found that the assessee has taken loans in foreign currency to meet cost of import of machinery required for installation and to set up refinery of the company. As per RBI guidelines, an importer of capital goods is permitted to enter into swap of foreign currency and entering into foreign rate contract to hedge against the risk of exchange fluctuation. Since all the conditions were satisfied to enter into swap of foreign currency and entering into foreign rate contract to hedge against the risk fluctuation, therefore, the CIT(A) found that the contract was for capital asset and, therefore, any profit and loss on account of contract has to be taken on capital account. Accordingly, he held that any profit earned by the assessee, which was a capital in nature and not liable to tax. 5.3 Learned DR placed reliance on the order of AO. On the other hand, learned counsel of the assessee plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y considering the issue in para 8 at page 25 & 26 of his order. Detailed submissions were filed before the CIT(A), which are reproduced in his order at pages 18 & 19. It was explained that the expenses claimed by the assessee pertain to demat charges and other expenses are relating to earning dividend income. It was explained that demat charges of Rs.17,64,625/- are not related to exempted income as they were not incurred for converting holding of investment in shares and securities. These charges were definitely not incurred in relation to earning of exempted income as contemplated under Section 14A of the Act. It was further explained that demat realization charges and the expenses for holding the investments in a particular form and not for earning of income, which can be considered for disallowance under Section 14A. However, learned CIT(A) was also not satisfied with the explanation. Accordingly, he upheld the action of the AO. 6.6 The contentions raised before the learned CIT(A) were reiterated before the Tribunal by the learned AR of the assessee. On the other hand, learned DR placed strong reliance on the order of the AO and learned CIT(A). 6.7 After hearing the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88,28,81,284/- has been claimed by the assessee as the amount of sales tax collected by the assessee from the customers which assessee is not required to pay to the Sales Tax Department in view of Sales Tax Exemption Scheme. It was submitted before the AO that the assessee company is entitled to the sales tax incentives under the Capital Investment Incentive Premier/Prestigious Unit 1995-2000 announced by Government of Gujarat Industries, Mines and Energy Department in their resolution dated 11th September, 1995.The copy of the scheme was also filed. It was also explained that the sales tax collected being the amount of notational sales tax in respect of Refinery Unit at Jamnagar, therefore, the impugned amount was availed as incentive under the scheme notified and the nature of the same is capital in nature, not liable to tax. Reliance was placed on the decision of the Tribunal in the case of parent company i.e. M/s Reliance Industries Limited for assessment year 1985-86 and 1986-87, wherein the similar claims in respect of Sales Tax Incentive were accepted by the Tribunal to be of capital in nature. Further reliance was placed on the decision of the Hon'ble Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Special Bench in the case of parent company of the assessee i.e. M/s Reliance Industries Limited, has allowed the issue in favour of the assessee. Therefore, we see no reason to interfere in the finding of the learned CIT(A). Findings of the learned CIT(A) at pages 4 to 6, remained uncontroverted. In view of these facts and circumstances of the case, we confirm the order of the learned CIT(A) in this respect. 9. Ground No.2 relates to directing the AO not to thrust upon the assessee the claim for depreciation on the assets and accordingly allowed the deduction under Section 80IB without considering depreciation. 9.1 During the assessment proceeding, the AO noticed that the assessee has opted not to claim depreciation on Refinery & SBM Units. The assessee was required that as to why the assessee has not claimed depreciation. It was explained that it is optional for the assessee to claim depreciation and the same cannot be thrust upon it, if not claimed. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Mahendra Mills, reported in 243 ITR 56 and also subsequent decisions of the Tribunal. However, the AO rejected the assessee's contention and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various decisions of the Tribunal, which is also mentioned in the order of learned CIT(A) at pages 12 & 13. Accordingly, it was submitted that the depreciation should not be considered as deductable for the purpose of deduction claimed under Section 80IB. Thereafter learned CIT(A) found that the issue is squarely covered by the decision of the Hon'ble Bombay High Court and by the decision of the Hon'ble Supreme Court in the case of Mahendra Mills (supra). It was also observed by the learned CIT(A) that similar claim in the case of parent company i.e M/s Reliance Industries Limited for assessment year 1997-98 to assessment year 2000-01 have been allowed. Accordingly, he allowed the issue in favour of the assessee and the AO was directed to recompute the deduction under Section 80IB without thrusting upon the depreciation. The findings of the learned CIT(A) have been recorded in para 3.2 to .4 at pages 13 & 14, which are as under :- 3.2. I have carefully considered the submissions of the ld. AR and also gone through the impugned order of assessment. The issue relating to the deduction of depreciation while computing profits and gain? of business has been settled by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on above assets and accordingly allow the 80IB deduction without considering depreciation." 9.3 Learned DR stated that the issue is now squarely covered by the decision of the Hon'ble Bombay High Court in the case of Plastiblends India Limited v. Assistant Commissioner of Income-tax, reported in (2009) 318 ITR 352(Bom), whereby it has been provided that after amendment the depreciation has to be claimed by the assessee on the basis of amended provision of law. 9.4 On the other hand, learned counsel of the assessee fairly stated that though the issue is covered by the decision of the Hon'ble Bombay High Court in favour of the department, however, the AO should be directed to compute the normal income first and thereafter to work out the eligible deduction under Section 80IB as normal computation is necessary before allowing the deduction under Section 80IB. 9.5 We have heard rival submissions and considered them carefully. After considering the submission and taking into consideration the decision of the Hon'ble Bombay High Court in the case of Plastiblends India Limited (supra), we find that the issue is now squarely covered in favour of the department. The Hon'ble Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any expenses towards spouse travelling and, therefore, the ad hoc disallowance was not justified. The CIT(A) asked for the details in respect of travelling expenses. Details of travelling expenses were filed. After perusing the details, the CIT(A) found that no expenses have been incurred towards travelling of spouses of executives of the assessee. Accordingly, he deleted the disallowance of Rs.10 lacs made by the AO on ad-hoc basis. 10.3 After considering the order of the AO and learned CIT(A), we found no infirmity in the findings of the learned CIT(A), who deleted the ad hoc disallowance by ascertaining the factual aspect that no expenses have been incurred on travelling expenses of spouse of the executives of the company. This factual finding given by the learned CIT(A) remained uncontroverted. Accordingly, we confirm the order of the learned CIT(A) in this respect. 11. The remaining issue in appeal of the department is against in holding that deduction of eligible export profit for the purpose of computation of book profit under Section 115JB shall be computed with reference to profit as per books of accounts and not restricted to amounts computed and allowed under normal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in sub sec(1) of sec.80HHC and not by sub-sec (3) of sec.80HHC which is referred in clause (iv) of sec. 115JB Sub-see (3) of sec. 80EHC only suggests the manner in which the deduction should be computed as it lays down the formula for arriving at the deduction u/s 80HHC and hence the omission of the words. "in the manner specified" from the clause (iv) of sec. 115JB do not alter the basis of deduction. I am also of the view that the basis of deduction i.e., 'profits of the business' should be the book profits computed as per sec. 115JB and not Profits and Gains of Business as per normal provisions of the Act as clarified by the CBOT and subsequently approved by Kerala HC decision . 7.4. In view of the clarification issued by CBOT, the observations made by Kerala High Court, careful reading of clause (iii) of sec. 115 J and clause (iv) of see 115 JB and also considering the submissions made by the Appellant, I am of the view that there is no material change in the language of clause (iii) of sec. 115J and clause (iv) of sec. 115JB, therefore direct the AO to compute deduction u/s. 80HHC out of Book Profit u/s. 115JB only with reference to profit as per accounts and not to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of furnishing inaccurate particulars of income on the amount of Rs.21,33,075/-, which disallowed by the AO under Section 14A of the Act. 12.2 Learned CIT(A) restricted the levy of penalty on the amount of Rs.18,74,625/- and the amount of Rs.2,58,450/- was deleted. In this way, the CIT(A) confirmed the levy of penalty of Rs.6,56,118/- out of Rs.10 lakhs levied by the AO. 12.3 Learned AR stated that merely on account of disallowance of expenses, penalty is not leviable. It was also stated that there are two things available as certain decision says that demat charges are allowable as revenue expenses and certain decision says they are not allowable. Therefore, for this reason also, penalty is not leviable. 12.4 On the other hand, learned DR placed reliance on the order of the learned CIT(A). 12.5 After considering the submission and perusing the material on record, we find that the assessee deserves to succeed in this appeal. There is no dispute that each and every details were furnished before the AO in respect of claim of expenditure of Rs.21,33,075/-, however, the AO was of the view that these expenses are to be disallowed under Section 14A as the income in account of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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