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TMI Blog2009 (11) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R D facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs.58.54 lakhs, he is in-charge of R D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of Rs.133.92 lakhs and building repairs Rs.37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. Thus, we allow the claim of the assessee and this issue of the Revenue s appeal is dismissed and that of the assessee s CO is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is covered in favour of the assessee by the decision of ITAT, Ahmedabad Bench in assessee's own case for the AY 1997-98 in ITA No.1044/Ahd/2002. wherein the ITAT has upheld the order of the CIT(A) and dismiss the ground raised by the Revenue by observing in its order in paragraph 3-series, which is reproduced as under: "3.1 Ground no.2 is in respect of deletion of Disallowance on account of selling publicity and medical literature expenses Rs.7,83,87,87/- 3.2 Facts of the issue are that the Assessing Officer following earlier years allowed only 1/3rd expenditure. The CIT(A) followed earlier years orders of CIT(A) and deleted the addition. Aggrieved, the department has come up in appeal and urged cancellation of the CIT(A) order. 3.3 Heard the parties. It is found that this matter is also covered by the order dated 23.02.05 of the ITAT, Ahmedabad passed in appeal filed by the department beating ITA No.1150/A/1997 for the assessment year 1993-94 wherein the Tribunal has held as under: 13. Ground No.3 reads as under: 3. The ld. CIT(A) has erred I law and on facts in deleting the disallowance of Rs.2,44,03,667/- out of expenses on selling publicity etc. 14. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the same is dismissed. The order of the ld. CIT(A) in this regard is upheld." 3.4 Thus, respectfully following the above order of the Tribunal as the revenue did no dispute that facts were not identical, we uphold the order of the CIT(A), deleting the disallowance made by the Assessing Officer." Respectfully following the said order of the ITAT, as the Revenue did not dispute that facts were not identical, we uphold the impugned order of the CIT(A) in disallowance made by the Assessing Officer. 11. In the light of the aforesaid decision of the Tribunal for the AY 1998- 99, following their decision for the assessment year 1997-98 in ITA No.1044/Ahd/2002 while undisputedly facts and circumstances remaining the same as in the earlier assessment years, we have no alternative but to uphold the findings of the ld. CIT(A). Therefore, ground no.2 is dismissed." We find that the above issue is covered in favour of the assessee and against the Revenue. Respectfully following the Tribunal's decision in assessee's own case in ITA No.3146/Ahd/2003 (supra) in immediate preceding year, on similar facts, we confirm the order of CIT(A) allowing the claim of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure to be allowed for the purpose of deduction u/s.35(2AB) of the Act for the relevant assessment year. According to the Assessing Officer, the date of approval in Form No.3CL is 23-01-2004 and the assessee has filed its copy of letter sent by DSIR to DG (Income-tax Exempt) Kolkata, dated 27-01-2004. The assessee submitted the total break up of expenditure allowed as per Form No.3CL as under:- (Rs. in lacs) A.Y. 2001-02 i) Capital Expenditure Land: Building Nil 49.92 ii) Capital Expenditure Other than Land & Building 1 78.61 iii) Recurring Expenditure (Building related) 37.55 iv) Recurring Expenditure (Other than building) 1723.02 v) Total cost of In-house research facility excluding land & Building 1901.63 vi) Total cost of In-house research facility including land & Building 1989.10 vii) Expenses related to clinical trials outside the approved facility not included in the above 51.26 According to the Assessing Officer the assessee claimed expenditure for R & D as under:- "(1) Revenue expenses Rs.19,45,75,518/- (2) Capital expenditure (Other than bldg.) Rs. 1,78,61,110/- Rs.21,24,36,628/-" But DSIR in Form No.3CL allowed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied us to assessee's paper book at page 127 and 128 and narrated the facts as given as under:- Financial Year - 2001-02 (Rs.In lac) Sr. Claimed Granted Disallowed (i) Capital Expenditure: Land Nil Nil 0.00 Building 49.92 49.92 0.00 (ii) Capital Expenditure (other than land & building) 178.61 178.61 00 (iii) Recurring Expenditure (other than building) 37.55 -- 37.55 (iv) Recurring Expenditure (other than building) 1856.94 1723.02 133.92 (v) Total cost of In-house research facility excluding land & building 2073.10 1901.63 -- (vi) Total cost of In-house Research facility including land & building 2123.02 1989.10 -- (vii) Expenses related to clinical trials outside the approved facility not included in the above 51.26 51.26 -- The Ld. counsel for the assessee also co-relate the expenditure disallowed as under:- Rs.in Lac. 1. Recurring Expenditure - 37.55 (Building related) 2. Recurring Expenditure: (other than building) i) Security expenses 11.01 ii) Gardening expenses 9.44 iii) Municipal Tax 6.93 iv) Professional Fees 48.00 v) Salary to Dr. C. Dutt 58.54 133.92 133.92 171.47 And further stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irs, it is eligible for weighted deduction u/s.35(2AB). So far as security expenses of Rs.11.01 lacs is concerned, it is submitted that in-house research activity requires proper tight security to avoid leakage through visitors, and only in-house staff will have access to the said Building and no others, and to preserve research which is completed but its clinical trial is pending. Considering all these factors, security expenses of Rs.11.01 lacs is eligible for weighted deduction u/s.35(2AB). So far as gardening expenses of Rs.9.44 lacs, it is submitted as under:- The company has a dedicated research centre where extensive research is carried out. The company has a very composite R & D facility. The company is conscious of the environmental issues and has put up effluent treatment plant (costs approx. Rs.36 lacs.). As is widely accepted the vegetation particularly the trees help contain the pollution resulting from the release of pollutants (including gases). So the trees and plants become an integral part of the research centre. Once having accepted this position any expenditure incurred on gardening should be fully allowed under the provisions of section 35(2AB) of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue expenditure relating to building and another sum of Rs.133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & D facilities. As regards to salary paid to Dr. C.Dutt amounting to Rs.58.54 lakhs, he is in-charge of R & D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arely covered by the aforesaid decision of the Tribunal. Ld. AR added that applying the same principle, addition on account of packing material had been deleted by the ld. CIT(A). On the other hand, the learned DR did not dispute the submissions of the learned AR 18. We have heard both the parties and gone through the facts of the case as also the decision relied upon. We find that while adjudicating a similar claim in respect of presentation articles, the ITAST in their decision dated 29-5-2009 in the assessee's own case for the AY 1999-2000 held as under:- "27. We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities. We noted that the incurrence of the expenditure by the assessee for the purpose of business has not been denied by the AO. The AO has merely presumed as if the assessee has inflated the cost of the expenditure so incurred by getting the bills from M/s. Baldevbhai Dosabhai Cotton Co. We do not find any cogent material or evidence on record which may prove that the assessee has inflated the expenses except presumption being made by the AO. The AO has not denied the incurrence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemicals, resulting in addition of Rs.2,75,49,042/-. On appeal, relying upon his own order in AY 1999- 2000, the learned CIT(A) deleted the addition. 20. The learned AR while inviting our attention to the decision of the ITAT dated 29-5-2009 in the assessee's own case in ITA No./590/Ahd/2003 for the AY 1999-2000 contended that the issue is squarely covered by the aforesaid decision of the Tribunal. On the other hand, the learned DR did not dispute these submissions of the learned AR. 21. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue, the ITAT in their aforesaid decision dated 29-5-2009 held as under: "23 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We have also gone through the case law as relied on before us. It is not denied that M/s Vimal Chemicals is not a concern in which the assessee is any way related. No material was brought to our knowledge which may prove that the findings given by the CIT(A) is incorrect to the effect that the price at which similar material has been purchased by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2000-01 amounting to Rs.133.68 lakhs. 15. We have heard the rival contentions and going through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of CIT(A). The brief facts leading to this issue are that the AO has stated that the assessee had made provision for liability of Rs.236.28 lacs as provisions for leave encashment and explained that the assessee-company was hitherto not providing for leave accrued in the account. But from the financial year 2000-01 it as changed the policy and has made provisions for leave encashment as under:- "Assessment year 2000-01 Rs.136.68 lacs Assessment year 2001-02 Rs. 96.6 lacs" The assessee had explained that the amount of Rs.136.68 lacs had crystallized in this year also. The assessee by a letter dated 05-03-2004 explained that the assessee-company in the past as a matter of policy did not provide for such expenditure on accrual basis. The management however decided to provide for such accrued liability in order to meet with the requirements of the Accounting Standard-15 as prescribed by the Institute of Chartered Accountants of India and acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the year, based on actuarial valuation is Rs.8,24,64,000. The change in the method is bona fide. The change was necessary to present a true and fair view as prescribed under the Companies Act. The change is also now continuously followed thereafter. Since the change in the method is bona fide backed by scientific method of provisions for accrued liability and since the liability is not contingent in nature, the entire provisions of Rs.8,24,64,000 is allowable" Before us it was argued that there is absolutely no justification in bifurcating the expenditure in the form of a provision for this year and earlier year as is done by the Assessing Officer and the entire expenditure of Rs.236.28 lacs ought to have been allowed. 16. We further find that the CIT(A) has deleted the addition by holding as under:- "8.2 I have considered the assessment order and the above submissions. It is true that the assessee made provision for liability of Rs.236.28 lacs on account of leave encashment in the books of account for the year. The company was in the past not provided any such liability in the books. Now it as decided to changeover the method of accounting the liability of leave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Apex Court has held as under:- "6. The learned CIT(Appeals)-V, Ahmedabad erred in confirming that excise duty is part of total turnover for the purpose of calculation of deduction u/s.80HHC of the Act." "In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the Assessing Officer [See : page No.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc., It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. The view which we have taken is in the light of the amendments made to section 80HHC from time to time." As the issue is squarely covered in favour of the assessee, we dismiss this issue of the Revenue's appeal. Accordingly, this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income. However, this will apply only where there is a specific finding by the Assessing Officer that the interest income is not business income. If in a given case the Assessing Officer has held that the interest income is business income, and this has not been challenged by the Department thereafter'/ that question cannot to be permitted to be reopened and the only question then will be if netting should be allowed. Clause (baa) of the Explanation to section 80HHC envisages a two-step process in computing profits derived from exports, first, the Assessing Officer is required to apply sections 28 to 44 in order to compute the profits and gains of business or profession. In doing so, the Assessing Officer may find that certain incomes, which have no nexus to the export business of the assessee, are not allowable and therefore ought to be treated as income from other sources. Once the Assessing Officer computes what is business income then he proceeds to the next step of deducting 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest less the expenditure incurred by the assessee in earning such interest. To summarize the conclusions : (i) In computing what the profits derived from exports for the purposes of section 80HHC(1) read with section SOHHC(3) are, the nexus test has to be applied to exclude that which does not I partake of profits that can be said to have been derived from the business of exports, (ii) In the specific context of clause (baa) of the Explanation to section 80HHC, while determining the "profits of the business", the Assessing I Officer has to undertake a two-step exercise in the following sequence. He has I to first "compute" the profits of the business under the head "Profits and gains of business or profession." In other words, he will have to compute business profits, in terms of the Act, by applying the provisions of sections 28 to 44 thereof. (Hi) In arriving at the profits of the business by the above method, the Assessing Officer will exclude all such incomes which partake of the char-I Jeter of "income from other sources" which in any event are treated under I sections 56 and 57 of the Act and are therefore not to be reckoned for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to draw an analogy from section 37, will require to be shown by the assessee for application of the netting principle. Rani paliwal v. CIT [2004] 268ITR 220 (P & H) dissented from. Respectfully following the aforesaid decisions, we restore the issue to the file of the AO to decide the same as per the above decision. These issues of the Revenue's appeal are allowed for statistical purposes. 19. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting of capital loss on the sale of land amounting to Rs.7,34,051/-. The Assessing Officer noted in his assessment order that the assessee sold land which was acquired in assessment year 1994-95 on account of merger of Torrent Medi System Pvt. Ltd. and the land was acquired by in financial year of merger and not the year in which the amalgamating company Torrent Medi System Pvt. Ltd. acquired the same. He has accordingly computed the index cost by considering the year of acquisition to be financial year 1993-94 and not financial year 1998-89. Thus, he has recalculate excess capital loss of Rs.7,34,051/- and disallowed capital loss by this amount. Aggrieved, the assessee preferred an appeal before CIT(A). 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and against the Revenue by the decision of Hon'ble Madras High Court in the case of CIT v. Chemplast Sanmar Ltd. (2009) 314 ITR 231(Mad), wherein the Hon'ble High Court considering the Delhi High Court's decision in the case of CIT v. Jindal Exports Ltd. (2009) 314 ITR 137 (Del) held as under:- "The learned counsel further relied on Circular No.14 of 2006, dated December 28, 2006 [2007] 288 ITR (St.) 9), and contended that the amendment in Explanation 1 after section 34B brought about by the Finance Act, 2006, with effect from April, 1, 007, is clarificatory in nature and, therefore, retrospectivity should be given. The learned counsel also placed reliance on the decision of the apex court in the case of Allied Motors P. Ltd. v. CIT reported in [1997] 224 ITR 677 and CIT v. Suresh N. Gupta reported in [2008] 97 ITR 322 (SC). The learned counsel further contended that the expression under "sub-sections (4) and (5) of section 115JAA" is "set off" and not "deduction". Therefore, the tax credit has to be set off against tax payable. By relying on the decision of Deli High Court in the case of CIT v. Jindal Exports Ltd. [2009] 314 ITR 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent with the statutory rule but made the rule crippled and redundant in the absence of any challenge to the rule." The Hon'ble High Court quoted the Tribunal's decision as under:- "In the present case, the intention of the Legislature is to give tax credit to tax and not to the tax and interest. Once the intention is clear, the Revenue cannot rely on Form No.1 too say that the MAT credit under section 115JAA should be given only after tax and interest. Further, we have answered the first question of law in favour of the assessee, i.e., the MAT credit under section 115JAA should be given effect to before charging the interest under sections 234B and 234C. Rule 12(1)(a) and Form No.1 cannot go beyond the provisions of the Act. Form No.1 cannot lay down the order of priority of adjustment of TDS, advance tax, MAT credit under section 115JAA which is contrary to the provisions of the Act. The order passed by the Tribunal is in accordance with law and we do not find any error or illegality in the order of the Tribunal so as to warrant interference. Accordingly, we answer questions Nos. 2 and 3 also in favour of the assessee and as against the Revenue." The iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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