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TMI Blog2013 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax Circle 6(3) Mumbai (hereinafter referred to as the ACIT) erred in upholding the stand of the ACIT in not allowing the appellants claim for depreciation on Rs.22,67,281 and Rs.16,42,617 being part of the Share Dilution expenses incurred in the assessment year 1984- 85 and 1986-87 submitted as relatable to programmes of capital expenditure in the AYs 1984-85 and 1986-87 respectively". 3.1 This issue arises originally in AY 1984-85 and consequent to the capitalization of the amount in that year consequential depreciation benefits are being claimed by assessee. 3.2 Before us both the Counsels agreed that the issue of disallowance of depreciation of share valuation expenses is covered in favour of assessee and the against the Revenue by the Coordinate Bench decisions rendered in assessee's own case from AY 1984-85 to 1997-98. It was further informed that the Hon'ble jurisdictional High Court in assessee's own case in AY 1986-87, 1988-89 and 1991-92 upheld ITAT orders. Consistent with the view taken therein, we direct AO to allow on the above amount capitalized in AY 1984-85 on which the depreciation claim is consequential. Ground is allowed. 4. Ground No.2 is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f part of building 72 leased to M/s Hongkong & Shanghai Banking Corporation Ltd. Depreciation for the current AY Rs,40,000 Depreciation on depreciation disallowed Rs. 4,000 in AY 1994-95, 1995-96, 1996-97 and 1997-98 and 1998-99 Rs.44,000" d) The CIT (A) erred in upholding the action of the ACIT in disallowing deprecation of Rs.95,000 from the block "Factory/Office Buildings" in respect of property at Chennai leased to M/s Concorde Motors Private Limited". 5.1 Ground No.3a and 3b pertains to the issue of reduction of estimated WDV block of assets of FPU transferred in assessment year 1995-96 from the respective blocks and computation of depreciation disallowed in earlier years. As per the record, the family product undertaking was transferred as a going concern at slump price of Rs.180 crores in the previous year relevant to the assessment year 1995-96. Both the parties submitted that the issue has been set aside by the Tribunal in ITA No.1420/Mum/99 and ITA No.1594/Mum/99 vide order dated 16.6.2006 wherein the Tribunal held that the transaction was not exigible to the capital gain tax. Further, AO was directed to deduct from such block the WDV of assets transferred to M/s Hein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.5 is given below: "The CIT (A) erred in upholding the stand of the JCIT that all interest other than interest on securities deposit is assessable under the head "income from other sources". The appellants submit that following interest income is related to and incidental to business and as such forms a part of business income: Rs.in lakhs A Interest on Bank/Inter Corporate Deposit 92.05 B Interest on GOI Securities 30.17 C Interest on Treasury Bills 6.22 D Interest on debentures/bonds 149.55 E Interest on IDBI Bonds/UTI MIP (Investment of LTCG under section 54EA) 50.45 328.44 7.1 Ground No.5 pertains to the treatment given to interest income as income from other sources. Before us, both the parties agreed that this issue was earlier decided by the Tribunal in assessee's own case for assessment years 1989-90 to 1991- 92, 1992-93 to 1993-94, 1994-95 to 1998-99 respectively, wherein the Tribunal restored the issue to the file of Assessing Officer for adjudication afresh by observing as follows:- "57. Learned counsel for the assessee supported the order of the learned CIT (A). We have considered the rival submissions as also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business income by reducing the same from income from other sources. The action of AO in those years may be correct on facts but AO has to examine how much of the income do pertain to be the business income. It was informed that the interest included interest on inter corporate deposits, tax refunds, GOI securities, debentures/bonds etc. Since the nature of interest incomes are to be examined, the issue is restored to the file of AO. This ground is thus, allowed for statistical purposes. 8. Ground No.6 and Ground No.8 are given below: "6(a) The CIT (A) erred in upholding the stand of ACIT of including the sale of scrap in total turnover for arriving at the ratio of export turnover to total turn over for the purpose of computing the deduction under section 80HHC. (b)(i) For the purpose of reducing 90% of items forming of "miscellaneous income" the CIT (A) having held that the following items are not to be reduced by 90% in accordance with Explanation (baa) to section 80HHC erred in stating that none of the receipts could be treated as having a direct nexus with the business activities of the appellant. The appellants submit that the below listed items are not envisaged by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in computing the profits of the business. Vide Page 15 of AO's order AO discussed various other incomes received by assessee and listed out amounts to the extent of Rs.754.48 lakhs as other income which is to be excluded at 90% under Explanation (baa) to section 80HHC. Assessee contested the same before the CIT (A). The learned CIT (A) after extracting the amounts in Para 12.4a mentioning the decision of the ITAT therein has decided as under: "12.4a...................... If this test is applied to each of the items listed above, it would be seen that none of the receipts could be treated as having a direct nexus with the business activities of the appellant company. AO is therefore, directed to recomputed deduction under section 80HHC without reducing 90% of these items in accordance with Explanation (baa) to section 80HHC. This sub ground of appeal is therefore, allowed". 8.3 As there is inconsistency in the order of the CIT(A), both assessee is contesting the same and the Revenue is in appeal corresponding to Ground No.8 in their appeal. It was the contention that none of the receipts can be excluded as they are not items which are envisaged by the said explanation and sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tached to the return of income. The same amount was not offered to income tax in the previous year relevant to the AY 1998-99, though credited in the Profit & Loss A/c in that year. In this year the amount of Rs.1018.50 lakhs which was an advance licence accrued during the year for exports made during the year was credited in the Profit & Loss A/c and a sum of Rs.4,66,77,440 being closing balance of advance licence as at 31.03.1999 has been excluded from the total income on the ground that the same has not been accrued to assessee. The net relief claimed by assessee is therefore, Rs. 88,69,795. Consisting with the orders in AY 1998-99, AO considered that amount of Rs.3,78,07,645 was to be taxed in that year and therefore, the net amount offered was accepted as income on protective basis. However, AO analysed the nature of the advance licence and after discussion vide Page 21 of the assessment order ultimately concluded that this amount is the income taxable under section 28(iv) is not derived from the exports and therefore, not eligible for deduction under section 80HHC. Thus the profits of the business shown by assessee under section 80HHC has been adjusted. This matter was contes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Mumbai Bench of the Tribunal in Jamshri Rajitsinghji Spg. & Wvg. Mills Ltd. vs. IAC (1992) 41 ITD (Bom) 142, in which it was held that until the goods are imported and the raw materials are consumed, no income by way of advance licence benefit accrues to the assessee. This order was followed by the Tribunal in its order dated 27th January 2004 for the assessment year 1993-94 in ITA No.4145/Mum/1998. For the assessment year 1995-96 the issue again came before the Tribunal in ITA No.2067/Mum/2000. This appeal was disposed of by the Tribunal on 7th March 2005. This order took the same view as in the earlier years. What is significant in this order is that the department relied on the decision of the Ahmedabad Bench of the Tribunal in the case of United Phosphorus Limited vs. JCIT (2002) 81 ITD 553 (Ahd), in which a view was taken that the advance licence benefit was taxable in the year in which it was received, without waiting for the actual imports and the consumption of the raw material. This order of the Ahmedabad Bench of the Tribunal was strongly relied upon by the revenue in the appeal for the assessment year 1995-96. The Tribunal in its order for the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Bench Decision of Mumbai in the case of Topman Exports vs. ITO 124 ITD 1 (Mum.) (S.B.) particularly in paras 33 and 34 of the Orders, it was submitted that income on advanced licence will accrue to the assessee when the exports were made and accordingly, following the principles laid down by the Special Bench which was in fact upheld ultimately by the Hon'ble Supreme Court, the issue is to be decided against the assessee holding that income on advance licence arises, the moment exports were done and application was made and not at the time of actual imports as contended by the assessee. Further, referring to the Orders in ITA. No. 6969/Mum/2008, It was specially submitted that the ITAT referred to the Judgment of the Hon'ble Bombay High Court in the case of CIT vs. Kalpataru Colours& Chemicals 328 ITR 451 (Bom.) to dismiss the revenue's contention in view of the then existing Bombay High Court Judgment referred above, which was reversed by the Hon'ble Supreme Court in the case of Topman Exports vs. CIT & Others in Civil Appeal No.1699/2012. In view of the above, it was submitted that Special Bench decision got approved by the Hon'ble Supreme Court. Therefore, the issue is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd was also upheld by the Hon'ble High Court. We may also note that even though the issue of accrual of income on DEPB was discussed by the Special Bench in paras 33 and 34, the present issue is not with reference to DEPB but advance licences which is not transferable unlike the DEPB benefits granted under the scheme. The Hon'ble Supreme Court in the case of Topman Exports vs. CIT, Mumbai and others had not dealt with accrual of income but dealt with the issue of bringing to tax the sale proceeds of the DEPB, profit on sale of DEPB and how they can be considered under section 28. The issue was not about the accrual of income but bifurcation of proceeds of DEPB/DFRC into face value and profit and year of taxability. In view of this, to the extent of accrual of income is concerned, we are of the opinion that issue was decided in favour of the assessee in assessee's own case by the Hon'ble High Court in the orders referred (supra). Respectfully, following the same, we allow the grounds raised by the assessee. Assessing Officer is directed to do the needful in accordance with the Orders on the issue as in the earlier years and make necessary adjustments, if any required in the computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, we set aside the impugned order of the CIT (A) and restore the issue back to the file of AO for de novo adjudication in accordance with the law consistent with earlier year's orders. Thus this ground is allowed for statistical purposes. 10. Ground 9 is as under: "9. The CIT (A) erred in upholding the stand of the ACIT in disallowing expenses of Rs.71.481 (including interest) being amount paid under Kar Vivad Samadhan Scheme debited to Profit & Loss A/c penalties". 10.1 Assessee claimed an amount of Rs.71,481 paid under the Kar Vivad Samadhan Scheme. AO disallowed the same holding that to be in the nature of penalty. It was assessee's submission before the CIT (A) that the sum represents the payment made under the Kar Vivas Samadhan Scheme in Central Excise Department and as per the copy of the certificate issued, the tax arrears to the tune of Rs.66,573 being penalty and Rs.4,908 being the interest. It is the submission that the sum in question, is not paid for any infraction of law and therefore, is to be allowed as a deduction. The learned CIT(A) held as under: "3. Ground No.2 of appeal is against the action of AO in disallowing an amount of Rs.71.481 being amount p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 10th June, 1997 a sum of Rs.18,06,887 which represents the interest payable for the period 1.4.1997 to 31.3.1998 be allowed as a deduction. Betnelan demand. The Appellants submit without prejudice to their contentions that they be allowed deduction for the demand in each of the AYs to which they pertain i.e. 1995-96 and 1996-97, the entire amount of Rs.1,20,42,318 be allowed in AY 1998-99 as the demand was raised vide letter/order dated 10.6.1997 of the Department of Chemicals and Petrochemicals". 11.1 These are the additional grounds raised in the course of present appellate proceedings vide letter dated 9.8.2007. The facts leading to the present issue are that during the previous year relevant to assessment year 1998-99, assessee received a demand dated 10th June, 1997 from the Department of Chemicals & Petrochemicals (DCP) amounting to Rs.1,90-,43,347/- towards overcharging of price in respect of the Appellant's product "Betnelan Tabs sold during the period January 1995 to July 1995. The demand was revised to Rs. 1,20,42,312/-. Interest of Rs. 84,29,619/- upto 31.12.1999 was charged on the demand at the rate of 15% per annum. Aggrieved by the DCP's order, assessee fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,75,000 observing that the entire amount of dividend comprises only one dividend warrant received on earlier investments without appreciating that the Calcutta High Court has, in the case of United India Fire & General Insurance Co. Ltd (161 ITR 295) held that dividend income exempt under section 80M is only the net income and that management expenses have to be apportioned for distribution of the said income and therefore, AO rightly worked out expenses of Rs.1,68,750 on earning of the gross dividend of Rs.33,75,000. 12.1 This ground pertains to disallowance at 5% of an amount of Rs.1,68,750 being the estimated expenses incurred on earning the gross dividend of Rs.33,75,000. After hearing both the parties and on perusal of the records available before us, we find that this issue is covered by the judgment of Hon'ble Jurisdictional High Court in CIT v/s General Insurance Corporation of India, (2002) 254 ITR 204 (Bom.), as well as the decision of Chandigarh Special Bench of the Tribunal in Punjab State Industrial Corporation Ltd., (2006), 102 ITD 001 (Chandi.). Consistent with the view taken by the Tribunal in earlier assessment years, we set aside the impugned order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1999 to 31.3.1999 and was actually written off in the books of account in May, 1999. He has therefore, held that this amount does not pertain to the AY in question. As per provisions of 36(1)(vii) for an amount to be deductible as a bad debt, the same has to be written off as irrecoverable in the accounts of assessee for the previous year. AO has nowhere contended that this amount does not pertain to the year under consideration and further the requirement of the section is that the amount should be written off in the accounts of assessee in the previous year even if the write off is done actually after the end of the previous year, at the time of closing of the books. Since the accounts for the year ended 31.3.1999 were finalized on 21.7.1999 and the write off has been done in May, 1999, I hold that requirement of section 36(1)(vii) has been fulfilled in that the amount claimed as irrecoverable has been written off in the accounts of assessee in the previous year under consideration. I therefore, hold that this addition should be deleted. This sub-ground is allowed". 14.3 After considering the rival submissions, we do not see any reason to interfere with the order as the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not form part of total turnover under section 80HHC(3). Respectfully following the aforesaid judgment of the Hon'ble Supreme Court, we reject the ground of the Revenue and uphold the order of the CIT (A) on this issue. 17. Ground No.6 and 7 are given below: "6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that for the purpose of working out indirect cost in the case of export of trading goods, the export division is an independent, self- contained division and therefore, the Head Office administration expenses including interest should not be allocated to the said Division for the purpose of working out deduction under section 80HHC, relying upon the CIT (A)'s order for the AY 1997-98 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to ITAT. "7. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A O. to take 'net' interest charges for allocation of expenses for the purpose of computation of deduction under section 80HHC on profit on export of trading gods, relying upon the CIT (A)'s order for the AY 1997-98 in assessee's own case whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, we set aside the order of the learned CIT(A) on this aspect of the issue and remit the matter to the file of assessing officer for fresh deduction for both the years. The assessee would be at liberty to furnish all the details regarding this aspect of the issue." 17.2 Allocation of office expenses including interest and netting thereof to export division for working out cost relating to export of trading goods has to be re-determined after examination. Consistent with the view taken by the co-ordinate bench of this Tribunal in assessee's own case for earlier assessment years, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer for adjudication afresh in accordance with law and after providing adequate opportunity of being heard to the assessee. The issue in Ground no 6 and 7 are restored to AO in assessee appeal for re determination. This ground is, thus, allowed for statistical purposes. 18. Ground No. 8 is as under: 8. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A O. to recomputed deduction under section 80HHC without reducing 90% of various it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... npaid interest liability which corresponds to Ground No.7 of assessee's appeal. Consistent with the stand taken therein, as the issue was restored to AO, the ground is considered allowed for statistical purposes. 16.2. In the result, Revenue appeal is partly allowed. C.O. No. 274/Mum/2004 - Assessee 21. Assessee raised the following grounds in the cross objection: "1. The respondents submit that in case AO's action of allocation of H.O Administration expenses while working out the indirect cost in the case of export of trading goods for the purpose of deduction under section 80HHC is upheld, then the amount of Rs.9.30 lakhs being allocation made from other services which has already been included in the Export Division expenditure, should be excluded. 2. The respondents submit that in case the AO's action of not allowing benefit on the amount of the advance licence benefit actually utilized by the Appellant as envisaged in the proviso to section 80HHC (3) is upheld, then AO be directed to grant the benefit on the amount of the advance licence benefit credited to the Profit & Loss A/c and taxed by him in this AY irrespective of the utilization of the benefit as envisaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not allowable and therefore, AO rightly disallowed 5 per cent of the interest received on tax free securities towards expenditure under section 14A of the Income Tax Act". 22.1 Ground No.1 to 3 pertains to the deduction of staff cost of Rs.362.56 lakhs to the Nashik Unit which claimed 8th year of deduction. The CIT (A) allowed 75% of staff cost and 100% of the other costs. The CIT (A) further directed not to add any finance cost to Sterile Dry Vial Unit as it is a self financing unit. Hence Revenue is aggrieved. These grounds are considered in favour of assessee in earlier years. 22.2 The order of the ITAT in AY 1997-98 is as under: "10. Ground No.7 pertains to the claim of deduction under section 80I and 80IA. The dispute is pertaining to (a) adjustment of interest cost against interest income, (b) allocation of additional staff cost to Nashik Units and (c) alternately disallowance in the same proportion as the head office expenses allocation. 11. We have heard the rival contentions and we find that this issue is covered by the decision of the ITAT in assessee's own case for assessment year 1989-90 and 1991-92 in ITA Nos.10002/Bom/92, 8341/Bom/93, and 7742/Bom/94 vide Para ..... X X X X Extracts X X X X X X X X Extracts X X X X
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