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TMI Blog2015 (4) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit for the purpose of computation of book profit u/s.115JA of the Act in the light of the guide lines laid down by the Hon Courts as cited above. - Decided in favour of assessee. Reduction of amount of profits derived by eligible industrial undertaking referred in s. 80IB [Old Section 80IA] from the book profits u/s 115JA - whether the computation carried out by the AO of the amount of profits derived by eligible industrial undertaking referred in S. 80IA for the purpose of computation of book profits under explanation to Sec. 115JA(1) should be made with reference to the book profits and not the taxable profits? - Held that:- This issue has already been decided in Assessment Year 1999-2000 wherein held that as per the Appellant the deduction U/s 80IA on Silvasa Unit, however the A.O. had allocated certain expenses and reduced the Profit to compute the deduction U/s 80IA. But it was pleaded that this issue was not decided by Ld. CIT(A). Also in the past for A.Y. 1998-99 [2011 (1) TMI 1305 - ITAT AHMEDABAD] this very issue was restored back to the file of Ld. CIT (A) in assessee's own case - Thus for this year as well, this ground may be treated as allowed but for statistic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cious of the fact that the assessee had received the proceeds of the export transaction and gained due to fluctuation the court held that such gain cannot only be said to have been 'derived' from export business but the fluctuation gain arose subsequent to receiving the sale consideration hence part of the export sales . The gain was not due to delayed realization of export proceeds. - Decided in favour of the assessee Inclusion of Sale of scrap in total turnover for the purpose of deduction u/s 80HHC - Held that:- This issue has also been dealt with by us while deciding ground No.4 for Assessment Year 1999-2000, wherein held that for the purpose of availing deduction u/s.80HHC, income from sale proceeds of sale scrap was not included in the "total turnover" but it was shown separately as relying on Punjab Stainless Ltd. case [2014 (5) TMI 238 - SUPREME COURT] - Respectfully, following the above decision, we hereby direct to re- compute the turnover after excluding the sale amount of scarp. - Decided in favour of assessee. Loss on Trading Exports for working out the deduction u/ 80HHC - whether loss computed in respect of the trading turnover should be considered as n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces it is therefore required to restore this issue back to A.O. to examine both the aspects i.e. Revenue Expenditure or Capital Expenditure and then decide the question of disallowance. Resultantly this ground is restored back for denovo adjudication - Decided in favour of assessee for statistical purposes. Interest payment to the Dadhas - CIT(A) allowed the relief - Held that:- Since in the past a consistent view had been taken that once the Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee's other decision taken in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A)- Decided against revenue. Unaccounted sale of spent solvents - CIT(A) deleted the addition - Held that:- The post search period and in the financial year under consideration the Assessing Officer has simply presumed that the assessee might have sold the spent solvents; therefore, following the past history of the case, we hereby hold that the addition merely based upon the presumption; hence, rightly deleted by ld. CIT(A). - Decided ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the ld. CIT(A) has followed the decision in the case of Ipca Laboratories (supra). - Decided against revenue. Deduction under section 80IA reduced by CIT(A)- Assessing Officer has disallowed the profit on sale of DEPB on the ground that the proceeds were not derived from manufacturing activity. - Held that:- Once this issue has been decided by ld. CIT(A) in favour of the Revenue Department, then there was no legal requirement to raise this issue by the Revenue Department. It appears that this ground was inadvertently raised before us. Otherwise also, while deciding the ground No.12 in Assessment Year 1999-2000 in Revenue's appeal, we have decided the question of DEPB sales against the assessee. - Decided against revenue. - ITA No.1400/Ahd/2003, ITA No.1622/Ahd/2003 - - - Dated:- 13-3-2015 - Shri Mukul Kr. Shrawat And Shri Anil Chaturvedi JJ. For the Appellant : Shri Vimalendu Verma, Sr.D.R. For the Respondent : Shri S.N. Soparkar, A.R. ORDER Per Mukul Kumar Shrawat, JUDICIAL MEMBER:- These cross appeals for Assessment Year 2000-01 are emanating from the order of Ld. CIT(A)-IV, Ahmedabad dated 17.01.2003. These two appeals are consolidated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the Hon'ble Court that once the law itself declares that the adjusted book profit is amenable for further deductions on specified grounds in a case where section 80HHC/80HHE of the Act is operations, it becomes clear that computation for the deduction under those sections need to be worked out on the basis of adjusted book profit. In the case of Syncome Formulations (I) Ltd. (supra), the Special Bench of the Tribunal came to the conclusion that deduction claimed by the assessee u/s.80HHC has to be worked out on the basis of adjusted book profit u/s.115JA of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. The view taken by the Special Bench was accordingly affirmed and the Special Leave Petition filed by the Revenue Department was dismissed. We have also noted that a decision of Hon'ble Bombay High Court in the case of Ajanta Pharma Ltd. 318 ITR 252 (Bom.) was in favour of the Revenue Department, however, that decision of the Bombay High Court was, later on, reversed by the Hon'ble Supreme Court cited as 327 ITR 305 , wherein the Department has argued that both the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits. 2.1 The Assessing Officer has noticed that while calculating the book profit u/s 115JA, the assessee has reduced a sum of ₹ 21,16,08,000/- u/s 80IA. That calculation was rejected by the Assessing Officer and curtailed the amount of deduction u/s 80IA to ₹ 20,00,97,591/-. The First Appellate Authority has affirmed the action of the Assessing Officer. 2.2 This issue has already been decided by us in Assessment Year 1999-2000 (supra), in the following manner:- 3.1. As per the Appellant the deduction U/s 80IA was at ₹ 40,13,40,021/-on Silvasa Unit, however the A.O. had allocated certain expenses and reduced the Profit to compute the deduction U/s 80IA at ₹ 38,23,04,924/-. Before us it is pleaded that this issue was not decided by Ld. CIT(A). We have also been informed that in the past for A.Y. 1998-99 this very issue was restored back to the file of Ld. CIT (A) in assessee's own case in ITA No. 363 692/Ahd/2002 vide order dated 7.1.2011.( ref. para 20 page 15 para 22 page 16) Naturally, if the First Appellate Authority has not expressed a view how the Tribunal can comment on the correctness of the same, therefore, for this year as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and argued that the book profit means the net profit as shown in the profit and loss account; hence, the assessee has wrongly calculated the profit for the purpose of section 115JA. 3.4 On the other hand, from the side of the assessee, ld. Authorized Representative Shri S.N. Soparkar appeared and placed reliance on the decisions of TVS Finance Services Ltd, 318 ITR 435 (Mad.) and GE Capital Transportation Financial Services Ltd, 113 ITD 22 (Delhi). 3.5 We have heard both the sides. As per the arguments and facts appearing from the assessment records, we have noted that the assessee has explained that where the annual lease charge is less than the minimum statutory depreciation, a lease equalization credit would arise. Further, it was explained that the lease equalization charge is equal to the annual lease charge less minimum statutory depreciation. Therefore, a separate lease equalization account was opened by the assessee in which there was a corresponding debit or credit to the lease adjustment account. The lease equalization amount was stated to be transferred every year to the profit and loss account and it was disclosed separately as a deduction from addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses debited to profit and loss account, it was noted by the Assessing Officer that the assessee had reduced a sum of ₹ 11,72,828/- on account of exchange rate difference from miscellaneous expenses. According to the Assessing Officer, the assessee has reduced the miscellaneous expenses by the said income which resulted into grant of excess deduction u/s 80HHC. He has held that the said receipt being miscellaneous trading receipt would be part of total turnover of business if shown separately and further 90% of the same was reduced while working the eligible profit for deduction u/s 80HHC. 4.2 This issue has already been decided by us in Assessment Year 1999-2000 in ground No.3, wherein we have held as under:- 3.3. With this factual back ground we have heard both the sides. At the outset we have been informed that now this issue is directly covered in favour of the assessee by an order of Honble Gujarat High Court in the case of CIT vs, Alps Chemicals Pvt Ltd 367 ITR 594. The Hon'ble Court has discussed decisions namely Sterling Foods 237 ITR 579 ( S.C.), wherein the legal proposition was that the source of the income was the export and earned the said income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter of Stainless Steel Utensils. In the process of manufacturing, some portion of the Steel could not be used and it was treated as scrap. The assessee sold this scrap in the local market and income arising from sale was reflected in the Profit Loss account. For the purpose of availing deduction u/s.80HHC, income from sale proceeds of sale scrap was not included in the total turnover but it was shown separately. The Revenue Department has accounted the sale proceeds from scrap in the total turnover . The Hon'ble High Court was of the view that the proceeds generated from the sale of scrap would not be included in the total turnover . On further appeal, The Hon'ble Supreme Court has expressed that the term turnover has not been defined in the Income Tax Act. According to the Hon'ble Court, a meaning of this term was given by ICAI which denotes that in normal parlance the word turnover would be total sales, and according to the Hon'ble Court said sales would not include scrap material. According to the Hon'ble Court, intention behind enactment of section 80HHC of the Act is to encourage export to earn Foreign Exchange. It was finally concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be considered as nil for working out the overall deduction u/s 80HHC. 7.1 The assessee was asked to show-cause as to why the loss on export of trading goods and the profit on export of manufacturing goods was not to be clubbed for the purpose of calculation of deduction u/s 80HHC of Income-tax Act. It was found by the Assessing Officer that the assessee had incurred a loss on the export of trading goods. The assessee has earned profit on export of manufactured goods. While calculating the deduction u/s 80HHC, the assessee has treated the loss on export of trading goods as Rs. Nil . The Assessing Officer has referred Section 80HHC(3) and held that where an assessee is engaged in export of trading goods and manufactured goods, then the profit of the two should be clubbed in the manner prescribed under the Act. Accordingly, deduction u/s 80HHC was recalculated by the Assessing Officer which was challenged. 7.2 Ld. CIT(A) has placed reliance on Ipca Laboratories Ltd, 251 ITR 401, and affirmed the calculation of the Assessing Officer. The said decision of the Hon'ble Bombay High Court was affirmed by the Hon'ble Supreme Court in the case titled as Ipca Labora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account. This finding is not required to be disturbed being covered by the decision of the jurisdictional high court. In the result this ground of the Revenue is allowed. 8.2 Respectfully following the decision of Liberty India (supra), we hereby dismiss this ground of the assessee. Ground dismissed. 9. Ground No. 9 is reproduced below: 9. Re: Reduction of Exchange rate difference in computing the profits of the new industrial undertaking u/s 80IB [Old Section 80-IA]. 9.1 The reduction of exchange rate difference on EEFC balances from the miscellaneous expenses should be upheld for the purpose of computing the profits of the new industrial undertaking u/s 80IA. 9.1 In respect of exchange rate difference, a discussion has already been made above. The exchange rate difference was removed from the miscellaneous expenses. As per above paragraph, we have taken a decision that the gain was not due to delayed realization of export proceeds; therefore, the assessee was held as entitled for the claim of deduction. During the course of hearing, we have been informed that the issue in respect of deduction u/s 80IA pertaining to exchange rate difference was not discussed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the provisions of Sec 35D were not under consideration. The only point to decide was whether a particular expenditure incurred was in the nature of capital expenditure or not. So it was held that the expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital, is directly related to the expansion of the capital base of the company, hence a capital expenditure. Likewise the other decision of Mihir Textiles Ltd.225 ITR 327 (Guj.) was dealing with issue in respect of the expenditure incurred by way of filing fees for increasing the authorised capital of the company, and it was held as capital expenditure. Both these decisions are not dealing the applicability of the provisions of Sec 35D. 10.5) As already mentioned above Sec. 35D would apply only in respect of expenditure which is otherwise not allowable under the law being a capital expenditure. This section subscribed or listed certain types of capital expenditure which can be amortised. But if those are not capital expenditure then the view is that after examining the nature and genuineness of the expenditure the same can be considered as Revenue Expenditure. To elaborate it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned addition was deleted by ld. CIT(A), but the Revenue has filed an appeal before the Hon'ble ITAT. The Assessing Officer has, therefore, mentioned that to keep the matter alive the addition was repeated for the year under consideration. Accordingly, interest was calculated and taxed in the hands of the assessee. 13.2 When the matter was carried before the First Appellate Authority, the view already taken in the past was followed and the addition was deleted. 13.3 Heard both the sides. The issue of addition of interest payment to Dadhas was decided by us in ground No.3 of the Revenue's appeal for Assessment Year 1999-2000 (ITA No.3273/Ahd/2002), wherein we have followed the decisions of the Tribunal as under:- 13.3. With this back ground we have heard both the sides. The issue is resolved vide a consolidated order for A.Y. 99-00,2000-2001, 01-02, 02- 03 03-04 of Aditya Medisales bearing ITA No. 3272/Ahd/2002 , ITA 1623/Ahd/2003, ITA 1353 2180/Ahd/2005 ITA no. 08/Ahd/2007 dated 30/09/2010. In that order there was a reference of an another order of the Tribunal pertaining to Block Assessment of Aditya Medisales bearing IT(SS)A No.95/Ahd/2001 dated 31/05/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee's other decision taken in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A), hence this ground of the Revenue is dismissed. 13.4 Consistent with the view already taken in the past, for this year as well, we hereby affirm the deletion of the impugned addition. In the result, this ground of the Revenue is dismissed. 14. Ground No. 2 is reproduced below: 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 12,03,520/-, made on account of alleged unaccounted sale of spent solvents. 14.1 The Assessing Officer has followed the past history in respect of the addition on account of sale of solvents. This year he has added a sum of ₹ 12,03,520/-, however, which was deleted by the ld. CIT(A). 14.2 The issue of alleged unaccounted sale of spent solvents was discussed by us for Revenue's appeal for Assessment Year 1999-2000 and vide ground No.4, it was decided in the following manner:- 14.4 Heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s appeal vide paragraph No. 16.3 which is reproduced below:- 16.3. Heard both the sides. The assessment Year under consideration is A.Y. 1999-2000. On this issue that whether the depreciation can be compulsorily foisted upon the assessee, an order of the Hon. Gujarat High Court pronounced in Assessee's own case bearing Tax Appeal No. 93 of 2000 dated 17.12.2014 titled as Dy.CIT vs Sun Pharmaceuticals Ind. Ltd. is cited wherein it was held that the Tribunal was right in law in holding that depreciation not claimed by the assessee could be deducted despite the introduction of the block-assets concept. One more order of Hon Guj. High Court is referred as Sakun Polymers Ltd. ( Tax Appeal No. 41 of 2007 with others order dated 23.12.2014) wherein for A.Y. 1995-96 it was held that the Tribunal was not right in law in holding that depreciation , whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to Sec. 32(1) of the Act. Respectfully following these decisions, we hereby affirm the findings of Ld. CIT(A). This ground of the Revenue is dismissed. 15.3 On the same lines, we hereby hold that for the year under consideration, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Punjab Stainless Steel Industries, reported in 364 ITR 144 (SC). Now before us, from the side of the assessee, an order of Hon'ble Bombay High Court pronounced in the case of CIT vs. Pfizer Ltd, 330 ITR 62, has been cited; wherein it was held that the insurance claim is not an independent income; therefore, not liable to be reduced to the extent of 90% while calculating the eligible profit u/s 80HHC of the Income-tax Act. Relevant extract from the held portion is reproduced below:- Held, (i) that if the stock-in-trade of the assessee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be liable to a reduction of ninety per cent for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance was a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on the same footing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness profit arises only if such item of profit is included in business profit. Section 28 of the Act provides for inclusion of certain items as business income because such items otherwise would not have fallen under business profits but for such specific inclusion. In the first place, the items covered by Explanation are items which got included in the 'Business Profit', by virtue of operation of three clauses of section 28. The said three items of income are not referable to any turnover of the assessee and if the items of income are included in the business profit by virtue of operation of Section 28, computation of export profit based on turnover formula will not be correct. So far as brokerage, commission, interest and rent are concerned, because these items of income are income derived from separate operations other than sale of goods; therefore, such items may not fall under the category of total turnover. In so far as the question of insurance receipt is concerned, an examination is required that whether it was on account of loss of goods so as to consider that the insurance receipt form part of the total turnover or not. Because of this reason, we hereby restor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,127/-, whereas the gross lease rental income was at ₹ 2,10,59,614/-. The objection of the Assessing Officer was that why the gross lease rental income is not taken for the purpose of calculation of deduction u/s 80HHC. Accordingly, the computation u/s 80HHC was reduced. 19.2 When the matter was carried before the First Appellate Authority, he has followed the past history and allowed the claim. 19.3 With this brief factual background, we have noted that while deciding ground No.9 of the Revenue Department, we have followed the decisions of ACG Associated Capsules Pvt. Ltd. (supra) and Topman Exports (supra) and held that net amount was to be taken into account for the purpose of claim of deduction u/s 80HHC. Following the above decision in assessee's own case for Assessment Year 1999-2000, the ground raised by the Revenue Department is hereby dismissed. 20. Ground No.8 is reproduced below: 8. The ld. CIT(A) has erred in law and on facts in deleting the consideration of operational charges recovered for computing 'Profit of the Business' for 80HHC purpose. 20.1 It was noted by the Assessing Officer that the assessee had recovered operational c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Laboratories (supra). In any case, while deciding the ground No.7 in assessee's appeal above, we have taken the view against the assessee. Thus, under the totality of the facts and circumstances of the case, the issue raised by the Revenue is decided against the assessee by allowing the contentions as raised in ground No.9 by the Revenue. 22. Ground No.10 is reproduced below: 10. The ld. CIT(A) has erred in law and on facts in reducing the deduction under section 80IA. 22.1 While computing the deduction u/s 80IA, the Assessing Officer has disallowed the profit on sale of DEPB on the ground that the proceeds were not derived from manufacturing activity. We have noted that ld. CIT(A) has affirmed the action of the Assessing Officer and by following the earlier years decisions, decided the issue against the assessee. Once this issue has been decided by ld. CIT(A) in favour of the Revenue Department, then there was no legal requirement to raise this issue by the Revenue Department. It appears that this ground was inadvertently raised before us. Otherwise also, while deciding the ground No.12 in Assessment Year 1999-2000 in Revenue's appeal, we have decided the que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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