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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 ..... ), both assessee and revenue are in appeal before us. 3. Shri J.D.Mistry, Learned Senior Counsel appeared on behalf of the assessee and submitted detailed chart of each and every ground taken by the assessee and Revenue duly mentioning the relevant para of AO & CIT(A)'s order where they have been dealt with, and the relevant para of the order of the Tribunal by which the issue is covered. The chart was handed over to the bench as well as to the learned CIT DR along with copy of the orders of the Tribunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was fixed by the AO at Rs. 1,20,56,040/- the income from the fifth floor was thus computed at Rs. 96,44,832/-. The learned CIT(A) directed the AO to compute income from the fifth floor, taking annual letting value thereof at Rs. 24 lakhs as against Rs. 1,44,058/- offered by the assessee and Rs. 31,20,36,040/- fixed by the AO. 12. x x x x x 13. x x x x x 14. In Mr. M V Sonavala Vs. CIT (1989) 177 ITR 246 (Bom), the Hon'ble Bombay 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 prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 55,347.34 per kg., is higher than the price paid by other importers, accordingly, the AO invoked provisions of Section 92 and made addition of Rs. 2,83,68,000/- in respect of raw material Cefotaxime Sodium, and Rs. 5,76,97,336/- in respect of raw material Roxythromycin. By the impugned order, CIT(A) partly allowed assessee's claim after having following observations :- "10. The submission made by the 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 deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y similar issue was dealt with and following conclusions were arrived at :- "28. In view of the above we hold that the transaction between the assessee and the non-resident company was not an "arranged transaction". The certificates produced by the assessee from various parties establish that the assessee did not buy the product cefoaxime sodium at a price higher than the price 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court. Thereafter relying the same, the Tribunal in assessee's own case for the assessment year 2000-01 has decided the issue in favour of the assessee. 8.2 As the facts and circumstances during the year under consideration are same, respectfully following the decision of the Tribunal in assessee's own case, we do not find any merit in the action 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company stopped manufacturing certain industrial products permanently at this Mulund unit, therefore, business of assessee, as far as manufacturing of those particular products was concerned, is stopped. As per the AO, VRS expenses incurred by the assessee is only allowable to it in case of going concern. As per AO, 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 eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACG Associated Capsules (supra), held as under :- "2.10.2 We have perused the records and considered the matter carefully. The dispute is regarding applicability of provision of Explanation (baa) to processing charges and sales tax refund and setoff. As regards the processing charges, the issues is covered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal has upheld the order of the CIT(A) by observing as under :- "2.11.2 We have perused the records and considered the* matter carefully. The dispute is regarding computation of indirect cost while. computing deduction u/s 80HHC in respect of export of trading goods. The. assessee was procuring goods 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct, as it is not based on the correct appreciation of facts and hence, cannot be upheld in respect of balance amount of bad debts it is to be held as correct. Therefore, out of the total disallowance while the disallowance of Rs. 5,25,24,668/- is deleted in respect of the balance amount of Rs. 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal of the assessee we have deleted the disallowance of interest even for 20 days upheld by CIT(A). Therefore, the appeal filed by the revenue deserves to be dismissed. The order of CIT(A) is upheld." Learned AR also submitted 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndependent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed grievances in respect of taking the indirect cost for computing the deduction in respect of export of trading goods at a higher amount holding that all expenses not directly related to manufacturing activities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts derived from such export shall be the export turnover45 in respect of such trading goods as reduced by the direct costs and indirect costs attributable to such export; (c) ............ Explanation.-For the 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 excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so affect the validity of the entire assessment proceedings. If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be accepted. Hence the expenditure incurred at Hyderabad branch office to the extent not directly related to domestic sales is also required to be taken as part of the indirect cost for working out deduction under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... baa) to section 80HHC read with the words used in clauses (iiid) and (iiie) of section 28, the assessee was entitled to a deduction under section 80HHC on export profits, the benefit of such deduction 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 partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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