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TMI Blog2014 (8) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of VRS & early retirement incentives – Held that:- Various manufacturing unit of assessee at Mulund, Ankleshwar and Goa and under loan licence agreement part of the corporate business and many of the projects which were being maintained at Mulund were continued to be produced under loan licence agreement - the expenditure incurred on VRS was wholly and exclusively for the purpose of business – there was no merit in the action of the lower authorities for declining the assessee’s claim for deduction of VRS and early retirement incentives paid to the workers – Decided against Revenue. Sales-tax set off and refund to be included in the total turnover - Computing of deduction u/s 80HHC – Reduction of Processing charges – Held that:- Following the decision in ACG Associated Capsules Vs. CIT [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - sales tax refund and set off will be considered for reduction as per Explanation (baa) to Section 80HHC -the AO that only net receipts after deducting expenditure incurred for earning such income will be considered for reduction from eligible business profit as per Explanation (baa) – thus, the Matter is remitted back to the AO for adjudication – ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the fraction had to be applied - the processing charges constituted independent income similar to rent, commission, etc., which formed part of the gross total income, the same had to be reduced by 90% as contemplated in clause (baa) to arrive at Business Profits - the processing charges were includible in the total turnover in the formula under Section 80HHC(3) of the I.T. Act - the AO is directed to re-compute the deduction u/s.80HHC after excluding the net income from processing charges - bad debts recovered is neither part of total turnover nor export turnover for the purpose of Section 80HHC. Re-computation of indirect cost attributable to export of trading goods – Held that:- Following the decision in AVENTIS PHARMA LTD. Versus DEPUTY COMMISSIONER OF IN COME TAX, RANGE-8(1), MUMBAI [2013 (1) TMI 257 - ITAT MUMBAI] - for the purpose of sec. 80HHC(3)(b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the CIT(A) - the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal by which ground taken by the assessee and Revenue are covered. After learned AR completed his argument with regard to each and every ground taken by the assessee and Revenue, learned DR was asked regarding various grounds raised by learned AR as having been covered by the order of the Tribunal. Learned DR fairly conceded that each ground narrated by the learned AR in the chart are duly covered by the order of the Tribunal in assessee s own case in the immediately assessment year i.e. A.Y. 2000-2001 vide order dated 16-4-2014. 4. We have carefully gone through the orders of the authorities below as well as the order of the Tribunal in assessee s own case and found that the grounds which covered by the order of the Tribunal, are decided in the following paragraphs. 5. Both in assessee s appeal as well as Revenue s appeal, ground No.1 is regarding computation of income from HP in respect of 5th floor of Hoechst House. 6. Facts in brief are that assessee has let out 5th Floor of its building known as Hoechst House located at Nariman Point with total area of 7442 sq.ft. at a monthly rate of Re.1/-. The assessee has computed income of ₹ 1,29,096/- in respect of this fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court has held that the income from house property has to be computed on the basis of the sum for which the property might reasonably be let out from year to year and the annual municipal ratable value. It has been taken note of that in the cases of properties subject to rent control legislation provided for fixation of standard rent, the standard rent alone can be the base for fixation of municipal ratable value for the purposes of municipal tax (As per Dewan Daulat Rai Kapoor Vs. New Delhi Municipal Committee (1980) 122 ITR 700 (SC) , Dr. Dalbir Singh Vs. MCD (1985) 46 CTR (SC)= 152 ITR 388 (SC) and Sheila Kaushish Vs. CIT (1981) 131 ITR 435 (SC). In the last referred case, the Hon ble Supreme Court has held that the annual value of the property is required to be determined with reference to standard rent and not the actual rent received. As such, the grievance of the assessee justified. Gross annual ratable value of the property, viz 5th floor Hoechst house is directed to be determined at ₹ 1,44,058/-, being the annual value determined by the Municipal Corporation for the purposes of computation of property income. As such, ground No.5 is allowed. Learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant's representative has been considered. As cited above, the issue in so far as the applicability of the provisions of Section 92 of the Act is concerned, it is a repetitive issue and has been there in the assessment year 1999-00 as well. In the appellate order dated 20/03/2003, the action of the Assessing Officer in this respect has been confirmed. Since the facts in the year are the same as in the preceding assessment year, for the reasons given in the appellate order dated 20103/2003 in this year as well, the action of the Assessing Officer to hold that the provisions of Section 92(1) are applicable in respect of the transactions of import of two raw materials utilised by the appellant company in its manufacturing process is held correct and on that account the decision calls for no interference. 11. As far as the computation of the amount to be added on the account is concerned, there is merit in the claim made by the appellant s representative. The Assessing Officer without bringing into account any new fact warranting higher addition has been guided solely by his decision in the immediately preceding assessment year 2000-01 where on account of typographical err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice at which the same product was sold to others. Accordingly, we hold that the assessing officer failed to establish a case where provisions of section 92 could be applied to disown the loss incurred by the assessee. Therefore, we do not find a reason to take a different view than the one arrived at by the learned CIT(A). We therefore reject the ground of the Revenue. 7.4 The relevant observation in the order of Hon ble Bombay High Court, dated 8-9-2009, reads as under :- 1. Heard learned Counsel for parties. 2. Following two substantial questions of law are sought to be raised in the appeal. a) Whether on the facts and in the circumstances of the case the Tribunal is justified in law in deleting the additions made on account of provisions for liability towards long service entitlement and leave salary encashment? b) Whether on the facts and in the circumstances of the case the Tribunal is justified in law in confirming the order of CIT(A) in deleting the addition of ₹ 7.42 crores on the ground that the Assessing Officer was not justified in invoking provisions of Section 92 of the Act. 3. So far as first question is concerned, it is squarely covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO for declining assessee s claim of depreciation on obsolete assets. 9. Ground No.4 is in regard to fair market value as on 01.04.1981 for computation of LT capital gain on sale of 1st phase of land at Mulund to Nirmal Lyfestyles Pvt. Ltd. It was fairly conceded by the ld. AR that this issue is covered by the decision of the Tribunal in assessee s own case for A.Y.1998-99 and 1999-2000 and 2000-01 against the assessee. Therefore, respectfully following the order of the Tribunal in assessee s own case, we dismiss this ground of assessee and decide in favour the Department. 10. Ground No.5 is regarding disallowance u/s.14A. Learned AR stated that this issue has been decided by the Tribunal in assessee s own case for A.Y.1990-91 and 1998-99 in favour of the assessee, against which the department has not filed any appeal before the High Court. Precise observation of the Tribunal for the A.Y.1998-99 reads as under :- 22. The AO has not applied section 14A. In fact this section was not in the statute during that year. The learned CIT(Appeals) has factually analyzed the issue and has come to a conclusion that no expenditure can be attributable to the earning of tax fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the business expenditure is allowed for a business only when it is carried on by the assessee, where the business has been closed down and not merely suspended, the compensation paid to the employees while winding up the business should not be allowed as a deduction. The AO also observed that expenditure claimed by the assessee is not in the nature of VRS expenses but it is expenses incurred for compulsory retrenchment, as per AO this is the cost incurred by the assessee for winding up and not to reach its business. It is not at all covered by the Scheme of VRS. By the impugned order, the CIT(A) by observing that entire sum disallowed by the AO does not partake the character of retrenchment compensation and that part of the amount is one time character of ex-gratia payment that the employees are eligible to receive even otherwise on retirement or resignation even where there is no closure is to be allowed. Accordingly, it was held by the CIT(A) that disallowance is to be restricted as to what has been paid as the VRS amount and early retirement incentive for Mulund Factory that has arisen on account of closure into accounting years. Against this order of CIT(A), both assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the judgement of Hon ble Supreme Court in case of Ravindranathan Nair (295 ITR 228) in which it has been held that the processing charges form an independent item of income like commission rent etc. and, therefore, 90% of the same is required to be reduced from profit of business as per Explanation (baa). We therefore hold the processing charges will be covered by Explanation (baa). The issue of applicability of provision of Explanation (baa) to seals tax refund had been considered by the Hon ble High Court of Bombay in case of Dresser Rand (322 ITR 449) in which it has been held that receipts like recovery of freight insurance, packing charges, sales tax refund and service income will not be part of business profit and has to be considered for reduction as per Explanation (baa). Subsequently, however Hon ble High Court in case of Pfizer Ltd. (330 ITR 62) after referring to the judgement of in case of Dresser Rand (supra) held that insurance claim on stock in trade was not an independent item of income and therefore has to be considered as integral part of business profit. However, since the sales tax refund has been specifically considered by the Hon ble High Court in case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods at both branches i.e. Hyderabad branch and Mumbai branch for the purpose of export; The dispute is whether the expenses at the Hyderabad branch could be considered as part of indirect cost. The case of the assessee is that there was no export at Hyderabad and, therefore, expenses: Incurred at Hyderabad could not be considered as part of indirect cost. We, however, find that the same issue had come up for consideration before Tribunal in A.Y.1998-99 in ITA No.4173/Mum/2013. In that year, CIT(A) had held that expenditure incurred at branch office at Hyderabad which had no connection or link with export could not be considered as part of indirect cost. The Tribunal however did not uphold the view taken by CIT(A) and held that the indirect cost to be considered for the purpose of Section 80HHC would be the total indirect cost incurred for the total turnover and not only relating to the export turnover. Therefore, the expenses incurred at Hyderabad branch not directly related to domestic sales have to be considered as part of indirect cost. The order of CIT(A) is therefore upheld. 14.3 As the issue raised is similar to the above decision of the Tribunal in assessee s own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the balance amount of ₹ 65,95,038/- the disallowance is sustained. Appeal in respect of Ground No.9 is thus disposed off as partly allowed. We have considered rival contentions. The finding recorded by CIT(A) with regard to writing off old foreign debt, in respect of export made in 1998, we do not find any infirmity in his order. With respect of balance of ₹ 65,95,038/-, in view of the decision of the Hon ble Supreme Court in the case of T.R.F. Ltd., 323 ITR 397, since the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee, therefore, the matter is remanded back to the file of the AO for fresh consideration. This ground of the assessee is allowed for statistical purposes. 16. Ground No.11 in assessee s appeal is in regard to levy of interest of ₹ 54,71,276/- u/s.234D. 16.1 The AO passed the assessment order u/s.143(3) in consequent to which levied interest on the excess refund granted to it, which has been passed after amendment in Section 234D vide Finance Act, 2012, dated 1-6-2003, the date on which the provision of Explanation 2 to Section 234D came into force. In appeal, the CIT(A) confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that this issue has also been decided by the Tribunal in assessee s own case for the A.Y.2000-01 vide order dated 16-4-2014 against the Revenue. 18.1 We have gone through the order passed by the Tribunal and found that the aforesaid issue has been decided by the Tribunal in assessee s favour. As the facts and circumstances during the year are same, respectfully following the order of the Tribunal in assessee s own case as cited above by the learned AR, we dismiss the ground raised by the Revenue. 19. Ground No.(iv) in Revenue s appeal is regarding directing the AO to exclude the excise duty from the total turnover while computing the eligible deduction u/s.80HHC. This issue has been decided by the Hon ble Supreme Court in the case of CIT Vs. Laxmi Machine Works, 290 ITR 667(SC), wherein it was held that excise duty has no element of profit, therefore, not includible in total turnover for computing deduction u/s.80HHC. Respectfully, following the decision of the Hon ble Supreme Court, we do not find any infirmity in the order of CIT(A) directing for exclusion of excise duty from the total turnover for computing deduction u/s.80HHC. 20. Ground No.(v) is regarding excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the I.T. Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the government, shall not be included in the total turnover in the above formula (See:Commissioner of Income Tax, Coimbatore v. M/s. Lakshmi Machine Works - 2007(6) Scale 168). 22. In the present case, the processing charges were included in the gross total income from cashew business. That, even according to assessee the said charges constituted an important component of gross total income from cashew business. This is not disputed. Therefore, in terms of clause (baa), 90% of the independent income had to be deducted from gross total income to arrive at Business Profits to which the fraction had to be applied. Since, the processing charges constituted independent income similar to rent, commission, etc., which formed part of the gross total income, the same had to be reduced by 90% as contemplated in clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities to be taken for the said purpose. 22.1 It was contended by the learned DR that this issue is covered by the decision of the Tribunal in assessee s own case for A.Y.1998-99, wherein the Tribunal has decided this issue in favour of the department, wherein the Tribunal has held as under :- 10.12 It is clear from the working of the Assessing Officer that for determining the indirect cost, the AO has reduced from the total cost of business, cost of goods as well as the other items. Therefore, we do not find any error as far as the formula adopted by the Assessing Officer for computation of indirect cost allocated to the export of trading goods. 22.2 On the other hand, learned Senior AR appearing for the assessee contended that the AO committed factual error in determining the indirect cost, insofar as no export was effected from Hyderabad branch, therefore, the cost at Hyderabad branch with respect to the local sales cannot be attributed to the export of trading goods effected from Mumbai. As per learned Senior AR for the purpose of computation of indirect cost allocable to the export of goods under Section 80HHC(3b), the expenses, which has nothing to do with the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of this sub-section,- (a) .. (b) (d) . (e) indirect costs means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; (f) 10.2 It is clear from the combined reading of sub. Sec. 3(b) and clause (e) of explanation to sec. 80HHC(3) that the profit derived from export of trading goods shall be the export turnover of trading goods minus direct cost and indirect cost attributable to such exports. The indirect cost has been defined under clause (e) of Explanation which means the indirect cost which is not direct cost and allocated in the ratio of export of trading goods to the total turnover. 10.3 The total turnover further defined under clause (ba) of Explanation to sub sec. 4C. Therefore, the total turnover includes the local sales as well as the export sales regarding manufacturing goods and trading goods except certain items which shall be included as per clause (ba). When the indirect cost has to be allocated in the ratio of export turnover of trading goods to the total turnover, then the indirect cost subjected to be allocated in the said ratio incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee. 10.8 The CIT(A) has given the findings on the issue in paras 28 to 30 as under; 28. After careful consideration of the submission, it has to be said that the section of the Assessing Officer does not appear to be correct. What cannot be ignored is that subsection (3)(b)dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80 HHC (3)(b) of the Act, The Assessing Officer shall rework out the indirect cost under the section accordingly. x x x x x x 10.10 As we have already discussed that for the purpose of sec. 80HHC(3)(b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the CIT(A). x x x x x x x 10.12 It is clear from the working of the Assessing Officer that for determining the indirect cost, the AO has reduced from the total cost of business, cost of goods as well as the other items. Therefore, we do not find any error as far as the formula adopted by the Assessing Officer for computation of indirect cost allocated to the export of trading goods. 22.4 As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee s own case, the ground in the Revenue s appeal is allowed and the cross objection filed by the assessee is dismissed. 23. Ground No.(vii) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction cannot be denied to the assessee. The impugned judgment and .orders of the Bombay High Court are accordingly set aside. The appeals are. allowed to the extent indicated in this judgment. The Assessing Officer is directed to compute the deduction under section 80HHC in the case of the appellants in accordance with this judgment. There shall be no order as to costs. 23.1 We have considered rival contentions and perused the record. As the issue is covered by the decision of the Hon ble Supreme Court in the case of Topman Exports (supra), respectfully following the same, we direct the AO to compute deduction on DEPB since license sold in terms of decision in the case of Topman Exports (supra). 24. In regard to ground No.(ix), we have already decided the issue while deciding the ground No.10 in the appeal of the assessee, wherein we have remanded the matter back to the file of the AO for fresh consideration only to the extent of the write off. Hence, this ground of the Revenue is partly allowed. 25. Ground No.(x) of the Revenue is regarding inaction on the part of the CIT(A) in directing the AO to make adjustment in the valuation of closing stock. It was submitted be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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