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TMI Blog2013 (9) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... e return was processed u/s 143(1) of the Act and subsequently the assessment was completed u/s 143(3) of the Act on 24-03-2006 wherein various additions were made by the learned AO by disallowing certain claims. On appeal by the assessee, the learned CIT(A) partly allowed the appeal by deleting certain disallowances/additions made by the learned AO. Aggrieved, the revenue and the assessee are in appeal before us against the order of the learned CIT(A). 3. The revenue has raised five elaborate grounds in its appeal wherein grounds No. 5 is general in nature and do not survive for adjudication. Surviving four grounds are briefly stated as under: "1. The learned CIT(A) erred by deleting disallowance of village development expenses of Rs.7,41,376/- though they were not expended for the purpose of business. 2. The learned CIT(A) erred by deleting the disallowance for the contribution made to REGMA amounting to Rs.20,96,137/- though the expense was not wholly incurred for the purpose of business. 3. The learned CIT(A) erred in directing the AO to exclude sales tax of Rs.1,96,37,874/- and excise duty of Rs.5,42,20,184/- from the total turnover for computing deduction u/s 80 HHC. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1994-95 and 2001-02. The issue has been decided in favour of the appellant and the entire expenditure has been allowed. 13. In view of the above, and following the earlier orders this disallowance of Rs.7,41,376/- is cancelled and the addition so made is deleted." Aggrieved by the aforesaid findings of the learned CIT(A), the revenue is now in appeal before us. 6. At the time of hearing the learned DR supported the order of the learned AO. On the other hand, the learned AR relied on the order of learned CIT(A) and submitted that the issue in appeal is covered by the various decisions of the ITAT Ahmedabad Benches in assessee's on case in earlier instances and hence, the same may be decided in favour of the assessee. The learned DR could not controvert to the submission of the assessee by any cogent material evidence. 7. We have heard the rival submissions, perused the orders of the authorities below and also carefully considered the materials on record along with the paper book submitted by the assessee. On perusal of the paper book, it is apparent that this issue has been decided by the ITAT Ahmedabad "A" Bench in departmental appeal in ITA No.3748/Ahd/2003 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case, cannot be said to be outside the ambit of business of the assessee. Therefore we find no infirmity in the order of Ld. CIT(A). Thus, ground No.3 of the Revenue is dismissed. 7.1 In the assessment year 2001-02 also, Ahmedabad "A" Bench in departmental appeal in ITA No.2460/Ahd/2004 vide order dated 06th July, 2012 in assessee's own case has decided this issue in favour of the assessee and against the revenue by following the aforesaid order of the Tribunal cited supra for AY 2000-01 dated 17-02-2012. The relevant portion of the above order is extracted herein under: "9. As per ground No.3, the dispute is regarding direction of Ld. CIT(A) to reduce village development expenses from the total income. This issue is also decided in favour of the assessee in the same tribunal order in assessee's own case for assessment year 2000-01 and the relevant paras are 25-28 of the tribunal order. Since no difference in facts could be pointed out by the Ld. D.R. in the present year, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue also. Therefore, this ground of revenue is also rejected." 7.2 Considering the facts of the case, submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed this issue on the ground that the amount collected from the members of the association was used for the purpose of defraying expenses of the association and the assessee had no right over the amount so collected and no capital asset had been build up by the association. It was further submitted by the learned AR that against the order of the learned CIT(A) the revenue went in appeal before the Tribunal and the ITAT Ahmedabad "A" Bench while disposing off the their appeal in ITA No.2460/Ahd/2004 for AY 2001-02 held this issue in favour of the assessee and against the revenue. Accordingly, the assessee prayed that the issue may be decided in its favour in the present year also. 10. We have heard the rival submissions, carefully perused the orders of the authorities below and considered the materials on record before us along with the paper book submitted by the assessee. On perusal of the records, it is apparent that this issue has been decided by ITAT Ahmedabad "A" Bench while adjudicating revenue's appeal in ITA No.3748/Ahd/2003 in assessee's case for AY 2000-01 cited supra in favour of the assessee and against the revenue vide order dated 17-02-2012 where in the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and facts, we find no infirmity in the order of Ld. CIT(A). Thus ground No.4 of the Revenue is dismissed." 10.1 Since the facts of the present case on this issue are similar and identical as in the assessment years 2000-01 and 2001-02, following the decision of our Co-ordinate Bench in AY 2000-01 and 2001-02 cited supra, we uphold the order of the learned CIT(A) and dismiss this ground of appeal of the revenue. 11. Ground No.3:- Exclusion of sales tax of Rs.1,96,37,874/- and excise duty of Rs.5,42,20,184/- from total turnover for computing deduction u/s. 80 HHC. For computing deduction u/s 80 HHC of the Income Tax Act, 1961 the assessee had excluded excise duty and sales tax from the total turnover since these items do not form part of turnover. The excise duty and sales tax so excluded by the assessee amounted to Rs.5,42,20,184/- and Rs.1,96,37,874/- respectively. However, the learned AO rejected the contention of the assessee relying on various case laws and accordingly gross turnover of the business was taken by including the elements of excise duty and sales tax for the working of deduction u/s 80 HHC of the Act. When the matter cropped up before the learned CIT(A), the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court cited supra. The relevant portion of the order is reproduced herein under for reference: "5. Ground No.2 relates to issue whether sales tax and excise duty form part of total turnover for claiming deduction under Section 80 HHC. The issue is now covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works 290 ITR 667 (SC), wherein it is held as under: (Head notes) "Section 80HHC of the Income-tax Act, 1961 is a beneficial Section: it was intended to provide incentive to promote exports. The intention was to exempt profits relatable to exports. Just as commission received by the assessee is relatable to exports and yet it cannot form part of "turnover" for the purpose of section 80HHC, excise duty and sales tax also cannot form part of "turnover". Just as interest, commission, etc., do not emanate from the "turnover" so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover such taxes had to be excluded. Commission, interest, rent etc., do yield profits, but they do not partake of the character of turnover and therefore they are not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before us against the order of the learned CIT(A). 14. The learned DR supported the order of the learned AO and on the other hand, the learned AR relied on the order of the learned CIT(A). The learned AR further submitted that this issue is covered in favour of the assessee by the order of the ITAT Ahmedabad "A" Bench in departmental appeal in ITA No.2460/Ahd/2004 for the assessment year 2001-02 dated 06-07-2012. The learned DR fairly conceded to the submission of the learned DR. 15. We have heard the rival submissions and carefully perused the orders of the authorities below along with the materials before us. As contend by the learned AR we find that the ITAT Ahmedabad "A" Bench has decided this issue in favour of the assessee while disposing off the revenue's appeal for AY 2000-01 in the case of the assessee in ITA No.3748/Ahd/2003 order dated 17-02-2012 cited supra in its favour and against the revenue. Relevant Para 24 of the above order are reproduced hereunder for reference: "24. We have heard the rival submissions and perused the facts of the case. We concur with the view of Ld. CIT(A) that the export turnover remains Rs.80.40 crores and this figure is verifiab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd prays that the same be deleted. 4. In confirming the disallowance to the extent of 3% of the dividend earned for the purpose of computing deduction under section 80 M on net amount (Gross dividend earned minus expenses relating to the dividend income earned). Your appellant submits that the disallowance is not justified and prays that the same be deleted." 18. Ground No.1:- Disallowance of Rs.60,00,000/- out of expenditure on professional fees. During the course of the assessment proceedings the learned AO observed that the assessee had paid an amount of Rs.60 lacs to M/s. Krishnadeep Housing Development Pvt. Ltd. On being enquired the assessee replied that this payment was made towards management consultancy services rendered by the recipient. It was further explained that the Assessee Company had huge funds and they had to be managed in such a manner which is most beneficial to the interest of the company and, therefore, services from specialized consultants had to be engaged. However, the learned AO disallowed this amount of Rs.60 lacs for the following reasons: (i) As per the Memorandum/Articles of Association of the Company the assessee is in the business of manufacturi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the revenue. The relevant portion of the said order dated 06-07-2012 is reproduced herein below for reference: "16. We have considered the rival submissions, perused the material on record and have gone through the orders of the authorities below. We find that initially, the disallowance was made by the A. O. of Rs.46.10 lacs out of payment of professional fees. The same included the amount of Rs.1.10 lacs as payment of professional fee to Shri Arun Mohan and this disallowance was upheld by Ld. CIT(A). The remaining amount of Rs.45 lacs was paid as consultancy fees to Kriishnadeep Housing Development Pvt. Ltd. and Ascon Maangement for investment advisory services. It was the submission of the assessee before Ld. CIT(A) that firstly, the assessee company has invested in fixed assets, debentures, advances, ICD and bank deposits, immovable property and shares and mutual funds etc. and therefore, it cannot be said that the services rendered by these two persons is in respect of investment in shares. Ld. CIT(A) has confirmed the disallowance of Rs.2,63,972/- being 10% of the dividend income and deleted the balance disallowance. From the assessment order, we find that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the materials on record. From the orders of the authorities below, it is apparent that the assessee had paid Rs.81,653/- to Shri P. N. Vijay for obtaining management portfolio services in respect of purchase and sale of securities. This issue is identical to the issue decided by our Co-ordinate Bench for the assessment year 2001-02 based on which a similar disallowance is confirmed by us for an amount of Rs.60 lacs paid to M/s. Krishnadeep Housing Development Society Pvt. Ltd. hereinabove. Therefore, following the same decision, we hereby confirm the orders of the revenue and accordingly this ground raised by the assessee is dismissed. 25. Ground No.3:- Disallowance of Rs.9,60,000/- being charges for extension of time for construction of building at Noida:- During the course of assessment proceedings the learned AO noticed that the assessee claimed Rs.9,60,000/- against charges paid for extension of time for construction in Noida. The assessee was required to furnish the nature and details of expenditure and the reason for allowability. The assessee vide its letter dated 26-02-2006 submitted that the payment was made by the assessee company for extension of time limit due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of computing deduction under section 80 M. The learned AO noticed that the assessee had declared Rs.1,43,87,123/- as dividend income and in the computation of income the same amount had been claimed as income distributed for deduction u/s 80 M of the Act. The assessee was asked to furnish the details of dividend income, dividend distributed and details of expenses incurred for earning the dividend income. The assessee was also required to explain as to how deduction u/s 80 M should be granted on the entire gross dividend amount and why expenses incurred for earning such dividend should not be considered for calculating deduction u/s 80 M of the Act. It was submitted by the assessee that it had earned Rs.1,43,87,123/- and as per u/s 80 M of the Act dividend paid by the assessee amounting to Rs.3,47,34,000/- was deductible in the AY 2003-04. It was further submitted by the assessee that TDS on dividend was deducted and more than 95% of the dividend was received from single company on preference shares for which investments were made from internal accruals of the assessee company and hence, no specific expenditure was incurred to earn such dividend. The learned AO was of the opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, the addition made by the AO and enhanced by the ld. CIT(A) is deleted and the appeal filed by the assessee is allowed. 30.1 The facts of the case cited above by the assessee are quite different from the facts of the present case. Our Co-ordinate Bench in ITA No.3179/Ahd/2009 for the assessment year 2006-07 have rendered the aforesaid decision with respect to addition u/s 14A of the Act and Rule 8D of the Income Tax Rules, while as the case before us falls under different provisions of the Act. Allocation of expenses to an activity is a primary principle to determine the correct income of the assessee which may be sometimes cumbersome, however, inevitable. The assessee ought to have allocated its expenses for earning the dividend income which it failed to do so. Therefore, the revenue had no other option but to make an addition on estimate basis. The learned CIT(A) was gracious to reduce the disallowance from 10% of the dividend earned to 3%. Considering the facts and circumstances of the case and in the interest of justice and equity, we are of the opinion that such disallowance of 1% on the dividend earned will suffice. Accordingly, this ground raised by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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