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TMI Blog2014 (10) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ross rent or gross interest, but the net thereof shall have be excluded - Revenue gets automatically answered since the amounts referred to in the said question are to be excluded for the purpose of deduction under section 80HHC of the Act - The foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not qualify for such deduction u/s 80HHC of the Act – Decided against revenue. Calculation of deduction u/s 80IA - Sale of various items disallowed – Sale of poster paper, iron scrap, gunny bags, LDO sale, soap stone barden. Misc. sales, compound sale, waste paper craft sale, plastic waste sale, barrel sale, HCO sales – Held that:- Following the decision in Commissioner of Income Tax -Ahmedabad-III Versus Nirma Ltd. [2014 (10) TMI 388 - GUJARAT HIGH COURT] – as decided in Deputy CIT v. Harjivandas Juthabhai Zaveri [1999 (12) TMI 5 - GUJARAT High Court] – the benefit of deduction u/s 80I of the Act is to be gratned on various incomes, such as, job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste - Such questions are, therefore not required to be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income such as Job charges of ₹ 25,590/-; F.D interest of ₹ 1,82,180/-; other interest ₹ 4,481/-; Insurance claim of ₹ 1,76,305/-; Misc. income of ₹ 30,716/-; truck hire charges of ₹ 1,45,796/- and similar nature of interest or other incomes. (Kanpur Division). [4] Whether the Appellate Tribunal is right in law and on facts in restoring the issue back to the Assessing Officer to decide for granting benefits of the netting to the assessee and further directing the Assessing Officer to allow expense after verifying nexus with various income such as F.D interest of ₹ 19,57,988/-; other interest of ₹ 3,79,776/-; insurance claim of ₹ 11,467/-; Misc. income of ₹ 81,773/-; truck hire charges of ₹ 6,95,471/- and similar nature of interest or other incomes (Indore Division). [5] Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance of interest from debtors of ₹ 25,92,658/- (Mandali division) made by the Assessing Officer for the purpose of calculation of deduction under section 80HH 80HHC of the I.T Act and further directing the Assessing Officer to allow the same while rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bags (Rs.63,92,021/-); sale of other bardan (Rs.2,05,437/-); sale of iron scrap (Rs.33,394/-) in respect of Kanpur Division of the assessee, for the purpose of calculation of deduction under section 80HH of the I.T Act and directing A.O to allow the same, while relying upon its own decisions in the cases of Nirma Limited for A.Ys 1993-94; 1994-95 1995-96 have not reached finality and without considering the fact that such expenses incurred from the business income only and not for earning income liable to be excluded ? [9] Whether the Appellate Tribunal is right in law and on facts in confirming the order of CIT (A) deleting the disallowances of ₹ 1,67,83,302/- made by Assessing Officer on account of sale of various items such as sale of plastic waste (Rs.44,524/-); sale of iron scrap (Rs.35,909/-); sale of gunny bags (Rs.63,94,562/-); sale of Bardan (Rs.3,850/-); sale of soap stone (Rs.3,01,890/-); Sale of Aluminum (Rs.1,400/-); sale of Waste (Rs.1,986/-) in respect of Indore Division of the assessee, for the purpose of calculation of deduction under section 80IA of the IT Act and directing A.O to allow the same, while relying upon its own decisions in the cases of N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d senior counsel Shri S.N Soparkar with Shri Bandish Soparkar, learned advocate for the respondent and Mr. Nitin Mehta, learned standing counsel for the Department. 3. At the outset, it needs to be noted that this Tax Appeal arises for the A.Y 1998-98 in a case of respondent-company which is engaged in the business of manufacturing and marketing toiletry products. The company filed its return of income declaring the total income at ₹ 43,63,56,523/- after claiming deductions under Sections 80I, 80IA, 80HH 80HHC of the Act. The assessment was completed after scrutiny, determining the total income at ₹ 113.17 Crores [rounded off ]. 4. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-Tax {Appeals}-IX, Ahmedabad which partly allowed such appeal of the assessee. 5. Both the Revenue as well as the assessee, preferred appeals before the Tribunal which, by a common order dated 31st July 2013, allowed the appeal of the assessee and partly allowed the appeal of the revenue, dismissing the cross objection of the assessee. Aggrieved by the same, Revenue is before this Court raising aforementioned questions of law for our consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as as expense in accordance with sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head Profits and gains of business or profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included int eh profits of business of the assessee as computed under the head Profits and gains of business or profession , is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business. In view of such decision, question No.3 raised by the Revenue gets automatically answered since the amounts referred to in the said question are to be excluded for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exporter is also engaged in the local business or not. However, this distinction would not be material insofar as central question of exclusion of certain profit from the activity which is not eligible for deduction under section 80HH and 80-I are concerned. The logic being when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded. That is precisely how this Court in the case of Rajoo Engineers (supra) viewed the situation. That is how the Delhi High Court in the case of Essel Shyam Communication (supra) held referring to the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra). It is true that in the case of Bloom Decor Ltd., a question was suggested by the assessee which may have some bearing on the controversy on hand. However, the entire focus of the order of the Court was regarding applicability of the decision of the Supreme Court in the case of Topman Exports (supra) and not on the question of netting. In any case, therein, the decision in the case of ACG Associated Capsules Pvt. Ltd was not noticed. 8. All t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese questions are, therefore, not required to be considered. 11.1 While so holding, reliance is placed on the decision in case of Nirma Industries Limited v. Deputy CIT, reported in 283 ITR 402 (Guj). This issue accordingly is answered in favour of the assessee. 12. In the present Tax Appeal, Questions [12], [13] [14] have been raised, which in Tax Appeal No.811 of 2013 was raised in the form of Question no. 13. 13. At this stage, it is necessary to make a mention of the submissions made by learned senior standing counsel Shri Mehta that the Question in Tax Appeal No. 811 of 2013 pertains to interest on disallowance of Soda Ash Project whereas as far as the instant case is concerned, it relates to Soda Ash Project Expenses [other than interest expenses] and therefore, reliance of the Court while deciding such an issue on the decision of CIT v. Alembic Glass Industries Limited, 103 ITR 715 (Guj) as also in case of Dy. CIT v. Core Health Care Limited, 298 ITR 194 (SC) would have no bearing. 14. Learned senior advocate Shri Soparkar has empathetically urged that both the authorities in the earlier year and in the present year had held the issue in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below of this Court in the case of Alembic Glass Industries Ltd. (supra) laid down tests for ascertaining whether a business was part of existing business or the assessee was starting a new unit. It was held that merely because the unit was coming to a distant point by itself would not mean that it was a new business. If the facts as recorded by the CIT (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called 'lab' for its captive consumption for the purpose of its existing manufacturing business. It is no doubt that the assessee is engaged in the business of manufacture of soap and the soda ash and 'lab' so produced is used by way of captive consumption. When such facts viewed in light of the findings of the CIT (Appeals) and the Tribunal, we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the counsel for the Revenue, a serious question of claiming preoperative ..... X X X X Extracts X X X X X X X X Extracts X X X X
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