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TMI Blog2013 (11) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... e deductions for these incomes is decided against the assessee but for these remaining items, the issue was restored to the file of AO for granting benefit of netting income to assessee in case the assessee was able to establish nexus between expenses incurred, if any, for earning these income. In that situation, only net income should be excluded from the business profit for the purpose of computing deduction allowable to assessee under these two Sections – Decided against Assessee. Disallowance of Interest Expense - Held that:- Disallowance of small amount of interest was not justified - All the business payments were also made from the same bank accounts and business receipts were credited in the same bank account, it cannot be said conclusively that overdraft in the bank account on the date of payment of advance tax was on account of payment of advance tax and not on account of other business payments made on the same date or preceding dates - Considering all these facts, we feel that in the fact of the present case, the disallowance was not justified and we, therefore, delete the same – Decided in favour of Assessee. Allowability of Deduction u/s. 80I on Gross Profit – H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement u/s. 35AB of the Act i.e., all the expenditure was incurred by the assessee for acquiring technical know-how on or after 01-04-1986 and if the claim of the assessee is within the period of six years from the year in which the expenditure was incurred and the amount is also equal to 1/6th of such expenditure then the claim of assessee should be allowed. The Assessing Officer should pass necessary order as per law after providing reasonable opportunity of being heard to assessee – Decided in favour of Revenue. Disallowance Made u/s 40A(2) - Merely because the price paid to related party is excessive by price of Rs.0.01 per kg. which is less than 2% paid to the outsider, there cannot be any conclusive finding that price paid by the assessee to the related party was excessive or unreasonable without going into this aspect as to whether some other benefit is also received by the assessee or not from the related party as discussed above. Because of smallness of amount, we feel that going into these aspects will be a futile exercise and hence, we decline decline to interfere in the order of Ld. CIT (A) on this issue – Decided against Revenue. - ITA No.2512 & 2543/Ahd/2000 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the case of Lalsons Enterprises v. DCIT (2004) 89 ITD 25 (Del) (SB), benefit of netting is allowable to the assessee and only net interest income is to be excluded from the business profit for allowing deduction under these two Sections. Ld. DR of the Revenue submitted that this issue is covered against the assessee by the Tribunal s decision in assessee s own case and hence, this ground of assessee should be rejected. 5. We have considered the rival submissions and perused the materials available on record and gone through the orders of authorities below and the Tribunal s judgment cited by the Ld. AR of the assessee, Ld. AR of the assessee fairly conceded that regarding allowability of deduction under these two Sections in respect of this income of Rs.78,698/- on account of FD interest, the issue is covered against the assessee and hence, we hold accordingly. However, the request of assessee is this that as per the decision of the Special Bench of the Tribunal rendered in the case of Lalsons Enterprises (supra), benefit of netting should be allowed to the assessee. We find that as per this decision of the Special Bench of the Tribunal and also as per subsequent decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of allowing deduction under these two Sections. The main aspect i.e. allowability of these deductions for this income is decided against the assessee. 8. It was also submitted by Ld. AR of the assessee that the issue regarding Kanpur Division is also identical being FD interest of Rs.2,77,442/-, interest income of Rs.20,300/- and rent income of Rs.3,500/- and for these three items of income also, the issue should be restored back to the file of AO for granting benefit of netting. As per our decision in the above Paras in respect of Mandali Division, for Kanpur Division also, we direct the AO to grant benefit of netting to the assessee in respect of these three incomes if assessee is able to establish nexus between these income and expenditure incurred for earning these incomes as per our direction given for Mandali Division. The main aspect i.e. allowability of these deductions for these incomes is decided against the assessee. 9. He further submitted that similarly for Indore Division also, the issue involved is regarding FD interest of Rs.83,58,945/-, interest on loan of Rs.92,06,866/-, FD Interest of Rs.5,07,976/-, discount of Rs.29,02,192/-, insurance of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said accounts and only because on the date of payment of advance taxes, the assessee was having temporary overdraft, it cannot be said that interest expenditure is incurred for payment of advance tax and therefore, disallowance of interest is not justified. Ld. DR of the Revenue supported the order of Ld. CIT(A). 13. We have considered the rival submissions. We find that disallowance was confirmed by Ld. CIT(A) on this basis that interest expenditure is corelated with the payment of advance tax and hence, that is not an allowable expenditure and he has noted various contentions of Ld. AR of the assessee raised before him as per which, it was submitted by Ld. AR of the assessee before Ld. CIT(A) that all business receipts are credited in the same bank accounts and all business payments are also made and debited in the same bank account and moreover, the assessee has also earned interest income of Rs.1,032,992/- and therefore, disallowance of small amount of interest is not justified. No finding has been given by Ld. CIT (A) regarding these contentions of Ld. AR of the assessee. In the facts and circumstances of the present case, we are of the considered opinion that since all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Appellant company challenged very basic levy of interest u/s. 234B of I.T. Act. He ought to have deleted interest u/s. 234B of I.T. Act. 18. Ground No.5 is for charging of interest u/s. 234B and it is held to be consequential. Ground No. 6 for initiation of penalty proceeding is premature and hence rejected. Ground No. 7 is general. 19. In the result, appeal of assessee is partly allowed in the terms indicated above. Coming to Revenue s appeal in ITA No.2543/Ahd/2000. 20. Ground No.(i) is as under:- (i) to allow deduction u /s. 80HH on income from Aos undertaking. 21. Ld. DR of the Revenue supported the assessment order and Ld. AR of the assessee fairly conceded that this issue is covered against the assessee by the Tribunal s order in assessee s own case for AY 1994-95 as per Tribunal s decision available in paper book. Accordingly, this ground is decided in favour of Revenue and against the assessee. 22. Ground No.(ii) is as under:- (ii) To allow deduction u/s. 80I on gross profit at Ind. Undertaking without reducing deduction us. 80HH. 23. Ld. DR of the Revenue supported the assessment order whereas it is submitted by Ld. AR of the assessee that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome should be excluded from the business profit for computing deduction allowable to the assessee u/s. 80I / 80IA / 80HH of the Act in respect of profit of Mandali Division. 27.1 Regarding second item of miscellaneous income i.e. sale of newspaper of Rs.29,110/-, Ld. DR of the Revenue supported the assessment order whereas it was submitted by Ld. AR of the assessee that this issue is covered in favour of assessee as per Tribunal s order in assessee s own case for AYs 1993-94, 1994-95 and 1995-96 copy of which are available on page 6, 37, and 41 of the Paper Book. He also submitted that as per the judgment of Hon ble jurisdictional High Court rendered in the case of DCIT v, Harjivandas Juthabhai Zaveri And Another (2002) 258 ITR 785 (Guj) also, this issue is covered in favour of assessee. 27.2 We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below and the judgments cited by Ld. AR of the assessee. In the case of Harjivandas Juthabhai Zaveri And Another (supra), the issue before the Hon ble jurisdictional High Court was this as to whether deduction u/s. 80I is allowable in respect of income on account of job wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A) and it was also submitted that as per judgment of Hon ble jurisdictional High Court rendered in the case of Harjivandas Juthabhai Zaveri And Another (supra), this issue is covered in favour of assessee. While deciding ground No. (iii) (ii) we have seen that as per the judgment of Hon ble jurisdictional High Court, no exclusion is required from business profit on account of sale of soda ash bardana, empty barrels and plastic waste and in the present case, the impugned receipts on account of sale of poster papers, iron scrap, gunny bags, plastic waste sale bardana etc., are of similar nature and hence, respectfully following this judgment of Hon ble jurisdictional High Court rendered in the case of Harjivandas Juthabhai Zaveri And Another (supra), we decline to interfere in the order of Ld. CIT(A) on this issue. 27.5 Next item is interest on loan given to staff of Rs.55,287/- and for this item, Ld. DR of the Revenue supported the assessment order whereas it is submitted by Ld. AR of the assessee that in assessee s own case for AY 1993-94, the Tribunal had restored this matter back to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from debtors of Rs.39,26,316/-, Ld. DR of the Revenue supported the assessment order whereas Ld. AR of the assessee supported the order of Ld. CIT(A). He also submitted that as per Tribunal s decision in assessee s own case for AY 1994-95, this issue is covered in favour of assessee. He also placed reliance on the judgment of Hon ble jurisdictional High Court rendered in the case of Nirma Industries Ltd. v. DCIT (2006) 283 ITR 402 (Guj). Respectfully following this judgment of Hon ble jurisdictional High Court, this issue is decided in favour of assessee and this ground of Revenue is rejected. 29.1 Regarding items No. 2 and 3 i.e., insurance claim of Rs.72,902/- and truck hire charges of Rs.1.40 lakh, it was agreed by both sides that this can be decided on similar line as in the case of Mandali Division. While deciding similar issue in respect of Mandali Division, we have already restored the matter back to the file of Assessing Officer for fresh decision in respect of granting the benefit of netting to the assessee. With similar direction, in respect of Trikampura division also, we set aside the order of Ld. CIT (A) in respect of these two receipts and restore the matter back to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom debtors RS.238,97,496/- (ii) Other sales RS. 75,68,786/-" 31.1 For the Indore Division, there are two issues involved i.e., interest from debtors of Rs.2,38,97,496/- and sales of plastic waste, barrels, iron scrap, gunny bags and bardana of Rs.s75,68,786/- and both these are covered in favour of assessee by same two judgments of Hon ble jurisdictional High Court rendered in the case of Nirma Industries Ltd. (supra) and Harjivandas Juthabhai Zaveri And Another (supra) and respectfully following these two judgments, we decline to interfere in the order of Ld. CIT(A) for the Indore Division also. 32. Ground No.(vii) is as under:- vii) to exclude following interest expenditure against part of interest income held as not eligible for deduction u/s. 80-I / 80IA / 80HH and to exclude net interest income for deduction: (a) Mandali Division Rs. 82,98,839/- (b) Trikampura Division Rs. 9,25,330/- Kanpur Division Rs.40,38,063/- (d) Indore Division Rs. 4,75,178/-" 32.1 Ld. DR of the Revenue supported the assessment order whereas it is submitted by Ld. AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Industries Ltd. v. CIT And Another (2005) 278 ITR 546 (SC). Accordingly, this issue is decided in favour of Revenue and against the assessee. This ground of Revenue s appeal is allowed. 36. Ground (xi) is as under:- xi) to delete disallowance of entertainment expenses of Rs.7,92,720/-. 36.1 Ld. DR of the Revenue supported the assessment order whereas it is submitted by Ld. AR of the assessee that actual amount disallowed by the Assessing Officer is Rs.6,77,888/- because the assessee has already disallowed Rs.1,14,883/- in the return of income. He submitted that this expense is incurred on account of tea and coffee for the employees and this issue is covered in favour of assessee by the Tribunal s decision in assessee s own case for AY 1995-96 and our attention was drawn to para-28 of the Tribunal s order on page-41 of the paper book. We have examined the earlier year s order of Tribunal for AY 1996-97 and find that there is no specific discussion in the Tribunal s order on account of entertainment expenses. However, we feel that this issue should also go back to the file of Assessing Officer for fresh decision and if assessee can establish the amount of expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,73,761/- and Lab Project expenses of Rs.16,71,71,909/-. 40. Ld. DR of the Revenue supported the assessment order whereas it is submitted by Ld. AR of the assessee that in respect of interest expenses and part of the project expenses, the matter is covered in favour of assessee by the Tribunal s order in assessee s own case for AY 1996-97. Regarding allowability of depreciation expenditure of both the projects i.e. soda ash project and Lab. Project, it was submitted that this issue is also covered in favour of assessee by the Tribunal s order in assessee s own case for AY 1997-98 in ITA No. 1823/Ahd/2001 dated 30-09-2008 which is available on page 122 to 158 of the paper book. He also placed reliance on the judgment of Hon ble jurisdictional High Court rendered in the case of CIT v. Core Healthcare Ltd. Tax Appeal No. 284 of 2010 dated 19-06-2009 and submitted that the copy of this judgment is available on pages 1 to 9 of paper book 3. He also placed reliance on the judgment of Hon ble Madras High Court rendered in the case of CIT v. Rane (Madras) Ltd. 293 ITR 459 (Mad). He also submitted that depreciation is not expenditure. 41. We have considered rival submissions and peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of assessee by the Tribunal s order in assessee s own case for AY 1999-00 and it was pointed out by him that relevant Para is para-5 of this Tribunal s order which is available on page-45 of the paper book. At this juncture, the bench wanted to know as to which is the year in which the relevant expenditure was incurred because deduction is allowable in respect of such expenditure in six yearly installments and if that period of this six years has already expired in earlier year then no more deduction is allowable u/s. 35AB of the Act. In reply, it was submitted by Ld. AR of the assessee that this is second year and to verify this aspect, the matter may be restored back to the file of Assessing Officer for verification. 44. We have considered the rival submissions and we find that that the provision of Section 35AB of the Act was introduced in the Statute Book as per Finance Act 1985 which effect from 01-04-1986 and deduction is allowable to the assessee in respect of expenditure incurred on acquiring technical know-how in six yearly installments. Hence, this is very much necessary to know as to in which year, the relevant expenditure was incurred and how much such expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of authorities below. We find that as per the requirement of Section 40A(2) of the Act, if the Assessing Officer finds that expenditure incurred by the assessee in respect of which payment has been made to related persons is excessive or unreasonable having regard to the fair market value of the goods or the benefit derived by the assessee therefrom then such excessive amount can be disallowed. In the present case, the difference in price paid to the related party with the price paid to outsider is Rs.0.01 per kg as compared to price paid to outsider of Rs.0.60 per kg. which is not even 2% of such price paid to outsider. Apart from getting the goods from the outsider and from the related party, there may be other benefits accruing to the assessee in respect of purchase from related party as compared to purchase from outsider i.e., there may be an assured and timely supply, there may be extra credit allowed by the related party etc., and hence, merely because the price paid to related party is excessive by price of Rs.0.01 per kg. which is less than 2% paid to the outsider, there cannot be any conclusive finding that price paid by the assessee to the related party is excessive or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income. 54. We have considered the rival submissions, perused the materials on record and gone through the orders of authorities below. We find that on page No.25 of the assessment order, the allegation of the Assessing Officer is this that assessee is claiming double deduction for interest expenses, one on account of interest payment to the lenders and secondly for the payment made by one division i.e., General Division to other division by passing book entry. The case of AR is this that no double deduction is claimed. The finding of the Ld. CIT(A) on this issue is in para-24.4 on page No.25 of his order and finding is this that transfer of expenses from soda ash project to General Division cannot be considered as income of the assessee but he has not given any finding as to whether the assessee has claimed double deduction of interest expenses. In AY 1999-00, the matter was restored back by the Tribunal to the file of Assessing Officer with a direction to verify the contentions of the assessee. The claim of the assessee before the Tribunal in that year was that the revenue on one hand disallowed complete interest and out of this total interest account adjustment of inter di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 80HHC of the Act. Regarding other interest income, it is held by Ld. CIT (A) that netting should be allowed of interest expenditure of Rs.228.27 lakhs and 90% of net interest income only should be excluded from business profit for the purpose of computing deduction allowable to the assessee u/s. 80HHC. In this regard, we feel that matter should go back to the file of Assessing Officer for fresh decision because the assessee has to establish nexus of interest expenditure and interest income. Hence, for this part of issue, we set aside the order of Ld. CIT(A) and restore the matter back to the file of Assessing Officer for fresh decision. The burden is on the assessee to establish the nexus between interest income excluding interest from debtors of Rs.448.36 lakh and to the extent, the assessee is able to establish nexus, netting should be allowed to the assessee and 90% of such net interest income should be excluded from business profit for the purpose of computing deduction allowable to the assessee u/s. 80HHC of the Act. This ground of Revenue s appeal stands partly allowed for statistical purposes. 58. Ground xix) is as under:- xix) not to exclude 90% of insurance claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, and interest liability u/s. 234C of the Act should be worked out on that basis. Hence, we set aside the order of Ld. CIT (A) on this issue and we restore the matter back to the file of Assessing Officer for fresh decision. Since, the date of amalgamation is with effect from 01-09- 1996, the income of these companies up to 31-08-1996 does not belong to assessee-company and hence, there is no effect of amalgamation in respect of installment of advance tax falling due on 15-06-1996. For the purpose of computing advance tax to be paid on 15-09-1996, income of amalgamating companies has to be considered with effect from 01-09-1996 and if any advance tax was paid by these amalgamating companies on 15-09-1996 or 15-12-1996 then such payment of advance tax by amalgamating companies should also be considered as advance tax paid by the assessee-company and the interest liability u/s. 234C of the Act should be worked out on this basis. The Assessing Officer should pass necessary order as per law after providing reasonable opportunity of being heard to the assessee. This ground of Revenue s appeal stands allowed for statistical purposes. 63. In the result, appeal of Revenue is partly all ..... 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