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TMI Blog2013 (10) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 1,20,52,503/-. The case was re-opened by issuing notice under Section 148 dated 29.06.2001 and thereafter the assessment was finalized under Section 143(3) read with section 147 of the Act vide order dated 25.03.2003 and the total income was determined at Rs. 3,10,91,550/-. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) vide order dated 29.11.2006 granted partial relief to the Assessee. Aggrieved by the aforesaid order of CIT(A), the Revenue is now in appeal before us and has taken the following effective ground. 1. The Ld. CIT(A) erred in law and on facts of the case in directing the A.O. to compute the deduction u/s 80HHC unit-wise (without insisting for revised auditors' report) ignoring the fact that the Ld. CIT(A) himself had given contrary decision in the assessee's own case for A.Yrs. 2000-01 & 2001-02 wherein the action of the A.O. in taking all the units as a whole for the purpose of deduction u/s 80HHC of the Act was upheld. 4. During the course of assessment proceedings, Assessing Officer noticed that Assessee has claimed deduction under Section 80HHC amounting to Rs. 1,09,59,205/- against export turnover of Rs. 8,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report in Form No. 10CCAC as per the aforesaid order of the CIT(A)." 7 On receipt of this letter, the appellant has submitted reply on 26.5.2005 stating that there is no scope to file a revised audit report. The original claim u/s 80HHC was computed unit-wise and not for the business as a whole and this was certified by the auditor in his certificate in form No. 10CCAC filed along with the return of income. The AO has disallowed certain items and Id. CIT(A) has allowed part relief. In view this matter. there is no scope to file revised auditors report. In course of hearing it is stated by the ld. A.R. that the above petition u/s 154 is still pending for disposal. On going through the ld. CIT(A)'s order I find that there is no direction of CIT(A) for obtaining revised auditors certificate for allowing deduction u/s 80HHC unit-wise. The CIT(A) has directed to allow relief u/s. 80HHC unit-wise and not taking business as a whole. 7.1 On careful consideration of the matter mentioned above. I am of the view that there is no need for filing a revised auditors report since the original report of the auditor in form 10CCAC was filed along with the return of income whereby deduction has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the clause was to disallow a part of the allowance under the section only when the entire claim could not be regarded as being relatable to export. In CIT v. Suresh B. Mehta reported in (2007) 291 1TR 462 (Mad) in similar set of facts, where the assessee maintained the separate accounts for domestic transaction as well as the export transaction, Hon. High Court held that the assessee was maintaining separate accounts independent of his other business and that there was no intermingling of expenditure or interlacing of funds of any kind whatsoever the assessee was entitled to the relief. In the light of these decisions and view taken in the assessee's own case by the ITAT in the A. Y. 1993-94, we have no alternative but to uphold the findings of the Id. CIT(A) in directing the A.O. to adopt export turnover and total turnover of the solvent unit at Rakhial and sanitary units at Kadi for the purpose of deduction u/s 80HHC of the Act, especially when the assessee was found to be maintaining separate books of accounts for these units and the profitability of each unit can be determined. Therefore, the ground raised by the Revenue in relation 'to the aforesaid issues are dismissed whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in course of penalty proceedings. Therefore, the AO's observation that appellant has not furnished any reply in support of its claim is not correct. 6.1 The Ld. CIT(A) has allowed relief (a) on account of exclusion of excise duty and sales tax from total turnover, (b) unitwise computation of deduction and not the business as a whole and, (c) claims of provisions written back. In respect of exclusion of interest income and other income from business profit, the Id. CIT(A) has upheld the order of the AO. It is necessary to note that in appellant's case in my order No. CIT(A)VII/Cir.4/l 22/2004-05 dated 29.11.2006 for A.Y. 1999-2000 I have directed to the AO to give correct appeal effect or rectify the order u/s 250 dated 31.3.2004. This will, no doubt reduce the disallowance of deduction u/s 80HHC. Regarding different items of disallowance confirmed by Id. CIT(A), there are divergent opinions of court. For eg. in respect of interest income there is a decision of Hon'ble I.T.A.T., Delhi (SB) in case of Lalson Enterprises, 89 ITD 15(Del) which says that only net interest income should be excluded from business profit for computation of deduction u/s 80HHC. Same is the issue with oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under 80HHC for the reason that the deduction u/s 80HHC has been a contentious issue and the issue is debatable and therefore addition made on account of variation to deduct u/s 80HHC cannot be considered as concealment of income. He thus supported the order of CIT(A). 13. We have heard the rival submissions and perused the material on record. We find that CIT(A) while deleting the addition has noted that Assessee has disclosed all the material facts while filing the return of income. Further he has also noted that many issues like unitwise deduction, exclusion of excise duty and sales tax from total turnover etc. had been a matter of dispute between the Department and the Assessee and thus the issue of deduction is a debatable one on which two opinions are possible. He further held that disallowance of Assessee's claim of such issues cannot amount to concealment of income or furnishing of inaccurate particulars of income. Further while deciding the quantum appeal in ITA No. 781/Ahd/2010 order hereinabove, we have decided the issue in favour of Assessee. In view of the aforesaid facts, we are of the view that no penalty for concealment of income is leviable in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that interest on term loan, interest of partly covertible debentures and interest paid to CLFI, cannot be used for the purpose of investment in shares or dividend earning investment. However, interest income of the appellant, particularly interest on FDRs with Bank of Baroda (Rs. 4,17,442/-) and interest on inter corporate deposits (Rs. 95,55,118/-) cannot be said to be out of own sources since the appellant has failed to furnish any clarification and evidence regarding this. On consideration of the facts of the case it will be reasonable to exclude the following from total expenditures out of total expenditure claimed of Rs. 1,44,68,904/-: Term Loan Rs. 21,31,019/- Int. on partly conv. Debentures Rs. 35,00,000/- Int. paid to CLFI Rs. 5,25,163/- Rs.61,56,182/- The balance should be disallowed on pro-rata basis as worked out by the Assessing Officer in his assessment order by applying the same formula.In the earlier appeal for A.Y. 2000-01, ld. CIT(A) has also held the same view. The Assessing Officer is, therefore, directed to recalculate the disallowance as directed above. 5.3The next part of this ground is regarding disallowance of administrative and general exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the Management expenses incurred, it is seen that the A.O. has disallowed management expenses by working out the in the proportion of exempt income to the total receipts. He has not pin pointed any particular expenses which the assessee has incurred for earning exempt income. 33 In the case of Catholic Syrian Bank & Ors. 237 CTR 164 (Ker) it has been held as under:- "In the absence of any precise formula for proportionate disallowance, no disallowance is called for in respect of administrative cost attributable to earning of tax free income until Rule 8D came into force," 34 In the case of ACIT vs. Torrent Pharrnaceuticals Ltd., 23 Taxmann.com 55 (Ahd,), the co-ordinate Bench has held as under:- Section 14A of the Income Tax Act, 1961 - Expenditure incurred -- In relation to income not includible in total income -Assessment Year 2005-06 ~~ Whether proportionate disallowance u/s, 14A should be limited to only interest liability and not overhead or administrative expenditure, which should be considered for disallowance under rule 3D from 2007-08 - Held, yes ~~ whether following ratio in case of CIT vs. Catholic Syrian Bank Ltd. [2002] 207 Taxman 2/ [2011] 9 taxmann.com 148 (K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us, the Ld. A.R. fairly submitted that in view of the provisions section 35DD, the issue has to be decided against the assessee. The ld. D.R. on the other hand supported the order of CIT(A). We have heard both the parties and in view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus this ground of Assessee is dismissed. Ground no. 5 is with respect to prior period expenses. 24. During the course of assessment proceedings, Assessing Officer noticed that Assessee had debited the following amounts to the profit and loss account and were not related to the assessment years. He accordingly considered the same to be prior period expenditure and disallowed the same. (i) Rakhial division Rs. 135821/- (ii) Nimbahera Rs. 47341/- (iii) Wind farm unit Rs. 100/- (iv) Corporation office Rs. 334523/- Rs 517785/- 25. Aggrieved by the order of Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) granted partial relief to the Assessee by holding as under:- 7. The next ground is regarding prior period expenses. The Assessing Officer has disallowed prior period expenses amounting to Rs. 5,17,785/-. In course of hearing befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the A.O to re-compute the disallowance made on account of interest of Rs. 5,56,080/- and to restrict the administrative expenses of Rs. 1 lakhs to Rs. 25,000/-. 2. The Ld. CIT(A) has erred in law and on the facts of the case in directing the A.O to restrict the disallowance made on account of prior period expenses from Rs. 5,17,785/- to Rs. 2,10,807/- without giving any clear findings on the issue. 31. Before us both the parties submitted that the ground raised in this appeal are interconnected with the ground raised in ITA No. 766/AHD/2007. It was further submitted that the submissions made by them would be equally applicable to the present grounds. 32. We have heard the rival submissions and perused the material on record. Since ground no. 1 of the present appeal is connected with ground no. 2 & 3 of ITA No. 766/AHD/2007 which is with respect to disallowance under 14A and since ground no. 2 & 3 in Assessee's appeal in ITA No. 766/Ahd/2007 hereinabove has been decided in favour of the Assessee, this ground of Revenue is dismissed. 33. Since ground no. 2 of the present appeal is connected with ground no. 5 of ITA No. 766/AHD/2007 which is with respect to prior period expens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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