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TMI Blog2010 (5) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... 2002-03: 1. "The Ld. Commissioner of Income-tax (Appeals)-XI, Ahmedabad has erred in law and on facts while directing assessing officer to allow depreciation of ₹ 3,77,59,296/- on the basis of findings given in earlier years and to consider the depreciation for computing the book profit u/s 115JB of the Act. 2. The Ld. CIT(A)-XI, Ahmeabad has erred in law and on fact while directing assessing officer to recomputed the deduction u/s 80HHC of the Act, after giving effect to the appellate order and reduce the same from the book profit. 3. The Ld. CIT(A)-XI, Ahmedabad has further erred in law and on fact while deleting the addition of ₹ 1,11,75,348/- made by AO while computing the book profit u/s 115JB of the I.T. Act. 4. The Ld. CIT(A)-XI, Ahmedabad has also erred in law and on facts while deleting the disallowance of ₹ 14,075/- made on account of ESI payment. 5. The Ld. CIT(A)-XI, Ahmedabad has further erred in law and on fact while directing AO to verify and determine the claim of long term capital loss and allow the same for carry forward and to set-off in the succeeding years. 6. The Ld. CIT(A)-XI, Ahmedabad has also erred in law and on fact while directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after the due date. 3 .On the facts and in he circumstances of the case, the Ld. CIT(A)-XI, Ahmedabad ought to have upheld the order of the Assessing Officer. for AYs 2002-03, 2003-04 and 2004-05 Rajratna Metal Industries Ltd., Ahmedabad 4. It is, therefore, prayed that the order of the Ld. CIT(A)-XI, Ahmedabad may be set aside and that of the Assessing Officer be restored." ITA No.1089/Ahd/2008[Assessee]-AY 2002-03 1. "That the learned CIT(A) has erred in law and facts by confirming the disallowance of claim of deduction under section 80HHC of the Act, as the amendment in the Act is retrospective, discriminative, against the constitution and the operation of the amendment has been stayed by the various Courts, and therefore the Assessing officer be directed to allow the deduction under section 80HHC as claimed, while computing the total income. 2. Without prejudice to Ground No.1, the deduction under section 80HHC of the Act is to be correctly computed. 3. That the learned CIT (A) has erred in law and facts by not reducing the amount of deduction under section 80HHC of the Act, while computing Book profit under section 115JB of the Act and accordingly the learned AO be dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction under section 80HHC of the Act, while computing Book Profit under section 115JB of the Act and accordingly the learned AO be directed to reduce the amount of deduction under section 80HHC while computing book profit under section 115JB of the Act. 3. Your appellant craves a leave to add, alter or amend any ground at the time of hearing." 3. Adverting first to ground no.1 in ITA no.1467/A/06, ground nos.2 & 3 in ITA no.546/A/2007 and ground no.1 in ITA no.3242/Ahd./2007 in the three appeals of the Revenue, facts, in brief, as per relevant orders for the AY 2002-03 are that return declaring nil income filed on 31.10.2002 by the assessee, manufacturing SS wires, bright bars and trading in metals and chemicals, after being processed on 11.3.2003 u/s 143(1) of the Income-tax Act,1961 [hereinafter referred to as the 'Act'] was taken up for scrutiny with the issue of notice u/s 143(2) of the Act on 27.10.003. During the course of assessment proceedings, the Assessing Officer[ AO in short] noticed that during the previous year relevant to AY 1997-98, the assessee had claimed additional depreciation not pertaining to AY 1997-98 by changing the method of calculating the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim while relying upon the appellate orders of the earlier years. 5 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR pointed out that issue of depreciation raised in AY 1997-98 has not become final since appeal by the Revenue in AY 1997-98 in second round is pending before the ITAT. On the other hand, the ld. AR on behalf of the assessee contended that the ld. CIT(A) relied upon the order of his predecessor for the AY 2001-02 in these three assessment years. On appeal by the Revenue in that year, the ITAT vide their order dated 20.2.2009 following their decision in ITA No.215/Ahd/2002 for the AY 1998-99 ,upheld the findings of the ld. CIT(A). 6 We have heard both the parties and gone through the facts of the case as also the decisions of the ITAT relied upon. We find that the ITAT in the assessee's own case for AY 1998-99 in ITA No.215/Ahd/2002, adjudicated a similar issue in the following terms: " 2.1 So far as issues involved in ground Nos.1 & 2 are concerned, the DR relied on the order of the AO, whereas, ld. counsel for the assessee has supported the order of the CIT(A), after relying on the decision of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /06, ground nos.2 & 3 in ITA no.546/A/2007 and ground no.1 in ITA no.3242/Ahd./2007.As regards plea of the ld. DR in relation to pendency of appeal for the AY 1997-98, we have gone through that appeal and the impugned order of the ld. CIT(A). In that connection, we may clarify that in the event there is any change in WDV on account adjudication of claim of depreciation in the AY 1997-98 by the ITAT, consequent effect should be percolated in these three assessment years. 7 Ground no.2 in ITA no.1467/A/06 relates to direction of the ld. CIT(A) to re-compute deduction u/s 80HHC after giving effect to appellate order and reduce the same from book profit. The AO noticed that during the year under consideration, the assessee claimed deduction u/s 80HHC of ₹ 3,55,38,688/- as per the report submitted in form no. 10CCAC. For the purpose of calculating the said deduction, the assessee adopted turnover of ₹ 44,41,09,117/- and profit of the business at ₹ 5,07,69.555/- in respect of only manufacturing division, excluding the profit / loss and turnover of trading unit . However, the AO while referring to his own order in the preceding assessment year and the definitions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the previous year. 7.3 As it could be seen that excess provision made by the appellant towards income-tax was already considered by the AO for previous assessment year, therefore, the same issue cannot be considered for computation of book profit u/s 115JB of Income-tax even it is refunded or provision is written back. The fact is that the said excessive provision has already been considered for the previous assessment year while computing income u/s 115JB of I.T. Act. Therefore, the addition of ₹ 1,11,75,348/- while computing book profit u/s 115JB of IT Act is deleted." 12 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of the ld. CIT(A). 13. We have heard both the parties and gone through the facts of the case. Undisputedly and as pointed out by the ld. CIT(A), the provision of ₹ 1,11,75,348/-. for income-tax for the AY 2001-02 made by the assessee was added back by the AO while computing the book profit for the assessment year 2001-02.In the year under consideration, the assessee wrote back the excess provision and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d [(108 Taxman 322 (Ker.)] and disallowed the claim ,resulting in addition of an amount of ₹ 3,774/- being employees' contribution and ₹ 10,301/- as being employer's contribution to the total income. 15. Similarly in the AY 2003-04, the AO disallowed an amount of ₹ 3,01,060/- and in the AY 2004-05, ₹ 27,075/- on account of belated payments of ESI. 16 On appeal, the learned CIT(A) while relying upon his own decision for the preceding assessment year, allowed the claim in the AY 2002-03. In AY 2003-04 & 2004-05 , the ld. CIT(A) accepted the plea of the assessee that payments having been made before filing of the return are admissible. 17 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The learned DR supported the order of the AO and the learned AR on behalf of the assessee supported the order of the CIT(A) while relying upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC). 18 We have heard both the parties and gone through the facts of the case. We find that in the preceding assessment year, the ITAT vide their order dated 20.10.2009 in ITA no. 2556/Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be "income". S. 36 (1) (va) provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc legislation, the assessee shall be entitled to a deduction. The second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident etc fund shall be allowed as a deduction only if paid on or before the due date specified in36(1)(va). After the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income. The Hon'ble High Court while considering whether the benefit of s. 43B can be extended to employees' contribution as well which are paid after the due date under the PF law but before the due date for filing the return, held that (i) Though the Revenue has argued that a distinction is to be made between "employers' contribution" and "employees' contribution" and that employees' contribution being in the nature of trust money in the hands of the assessee cannot be allowed as a deduction if not paid on or before the due date specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case, in this regard, the AO is directed to verify the appellant's claim, if any, from his record and determine the Long Term Capital loss and allow the same for carried forward and set off in next assessment years in accordance with law." 20. The Revenue is now in appeal against the aforesaid findings of the ld. CIT(A).After hearing both the parties, we find that the learned CIT(A) has merely directed the AO to verify the assessee's claim, if any, and determine the long term capital loss as also allow the same to be carried forward and set off in succeeding assessment years in accordance with law. The Revenue having failed to point out any infirmity in these directions, we are not inclined to interfere. Thus, this ground in ITA no. 1467/Ahd./2006 is dismissed. 21 Ground no.6 in ITA no. 1467/Ahd./2006 relates to computation of interest u/s 234B and 234C after allowing credit available u/s 115JAA of the Act. The AO ,inter alia, while assessing the income under the normal provisions of the Act, levied interest u/s 234B &234C of the Act. On appeal, the lea rned CI T(A) vide para -16 of his order upheld such levy, levy of interest u/s 234B and 234C o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Hon'ble Supreme Court in the case of Chowranghee Sales Bureau Pvt. Ltd. v/s. CIT 87 TTR 542 and Sinclare Murray & Co. Pvt. Ltd. v/s. CIT 97 ITR 615. Inter alia, the AO relied upon decision of the Ahmedabad Bench of the ITAT in IT A No.231/Ahd/2000 dated 24.8.2000 in the case of Gujarat Fluro Chemicals Ltd. for A.Y.96-97, following the decision of Britania Industries Ltd. 71 ITD 14 (Cal) & Ponds (India) Ltd. 64 ITO 33 (Mumbai), holding that sales tax and excise are integral part of the total turnover . 25 On appeal, the learned CIT(A) following his predecessor's order directed to exclude the sales-tax and excise duty from total turnover for computing deduction u/s 80HHC of the Act. 26 The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR supported the order of the AO in the light of provisions of sec. 145A of the Act while the ld. AR on behalf of the assessee relied upon the order of the AO in view of judgment of the Hon'ble Supreme Court in the case of CIT vs Lakshmi Machine Works 290 ITR 667 (SC). 27. We have heard both the parties and gone through the facts of the case. We are not inclined to accept the plea of the ld. DR t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction was "business profits" as computed under section 28, a portion of which had to be apportioned in terms of the above ratio of export turnover to total turnover. Section 80HHC(3) was a beneficial section. It was intended to provide incentives to promote exports. The incentive was to exempt profits relatable to exports. In the case of combined business of an assessee having export business and domestic business the Legislature intended to have a formula to ascertain export profits by apportioning the total business profits on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. This method earlier existed under the Excess Profits Tax Act, it existed in the Business Profits Tax Act. Therefore, just as commission received by an assessee is relatable to exports and yet it cannot form part of "turnover", excise duty and sales tax also cannot form part of the "turnover". Similarly, "interest" emanates from exports and yet "interest" does not involve an element of turnover. The object of the Legislature in enacting section 80HHC of the Act was to confer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other laws like the Central sales tax or as defined in accounting principles. The words "total turnover" in section 80HHC have to be read as part of the formula which sought to segregate the "export profits" from the "business profits . Therefore, we are of the opinion that excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3) of the Act. 27.2 In the case of Sony India Pvt. Ltd. Vs. DCIT, in ITA no. 1181/Del/2005 dated 23/9/2008 for the AY 2001-02 ,ITAT Delhi Bench ,following the aforesaid decision of the Hon'ble Supreme Court directed to exclude excise duty while working out total turnover for the purpose of deduction u/s 80HHC of the Act. 27.3. In view of aforesaid decision of the Hon'ble Supreme Court, we are of the opinion that the ld. CIT(A) was justified in directing the AO to exclude excise duty and sales tax while working out total turnover for the purpose of deduction u/s 80HHC of the Act. Thus, ground no.7 in ITA no. 1467/Ahd./2006 is dismissed.. 28 Now adverting to ground nos.1& 2 in the assessee's appeal in ITA no.1089/Ahd/2008 for AY 2002-03, ground no.1 in ITA no. 1242/Ahd./2007 for the AY 2003-04 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now in appeal before us against the aforesaid findings of the ld. CIT(A) . The learned AR on behalf of the assessee while reiterating their submissions before the ld. CIT(A) contended that that deduction u/s 80HHC needs to be recomputed in the light of decision dated 11.8.2009 in the case of M/s Topman Exports,318 ITR(AT) 87(Mumbai) (SB). On the other hand, the learned DR supported the findings of the ld. CIT(A). 31. We have heard both the parties and gone through the facts of the case as also the decision relied on . The relevant provisions of sec. 28(iiid) applicable w.e.f 1.4.1998 read as under : "(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992)" 31.1 The third proviso to sec.80HHC(3) of the Act as introduced by the Taxation Laws (Second Amendment) Act, 2005, w.e.f 1.4.1998 reads as under: "Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of DEPB or making imports for self consumption etc are irrelevant for determining the accrual of the income on account of DEPB; (iii) Though s. 28 (iiib) refers to a "cash assistance against exports", it is wide enough to cover the face value of the DEPB benefit; (iv) S. 28 (iiid) which refers to the "profits on transfer of the DEPB" obviously refers only to the "profit" element and not the gross sale proceeds of the DEPB. If the Revenue's argument that the sale proceeds should be considered is accepted there would be absurdity because the face value of the DEPB will then get assessed in the year of receipt of the DEPB and also in the year of its transfer; (v) Consequently, only the "profit" (i.e. the sale value less the face value) is required to be considered for purposes of s. 80HHC. 31.3 Since the ld. CIT(A) have not recording any findings as to how the DEPB licenses utilized for own use/import of raw material fall within clause (iiid) of the sec. 28 of the Act and the provisions of third proviso to sec. 80HHC(3) have been invoked in respect of the entire amount nor the ld. CIT(A) had the benefit of the aforesaid decision in the case of Topman Exports(supra), we consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO, whereas the ld. counsel for the assessee has supported the order of the CIT(A), after relying on the decision of ITAT Mumbai Bench "H" (Special Bench) in the case of Dy. CIT vs. Syncome Formulations (I) Ltd. (2007) 106 ITD 193 (Mum) (SB) and in the case of CIT vs. Atul Products (255 ITR 85) (Guj) 23 After careful consideration of the rival submissions, facts and circumstances of the case and the decisions (supra), we are of the opinion that this issue is now covered in favour of the Assessee and against the Revenue as per the decision of ITAT Mumbai Bench (Special Bench) in the case of Syncome Formulations (I) Ltd. and, therefore, following the same, we uphold the order of the CIT(A) and Revenue's ground is rejected." The ld. AR also relied upon decision of the Hon'ble Madras High Court in CIT Vs. Rajnikant Schnelder & Associates P Ltd.,302 ITR 22(Mad) and pointed out that SLP had been dismissed by the Hon'ble Apex Court in 320 ITR 21(ST). 33.1 The ld. DR on the other hand supported the order of the ld. CIT(A). 34. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. We find that while adjudicating the claim for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sub-s. (1B). All the provisions are inter-related and cannot be read de hors one and other. If sub-s. (1B) is not read in sub-s. (1) then the expression "no deduction shall be allowed in respect of the assessment beginning on the 1st day of April, 2005 and any subsequent year", shall be rendered otiose. 25. Insofar as s. 115JB(2), Expln. 1(iv) is concerned, in computing the book profits the export profits under s. 80HHC had to be reduced. The object of s. 115JB was to impose tax on companies which are known as zero tax companies. These companies though making huge profits and paying handsome dividends, were not paying any tax. The object of the section was, therefore, that they pay tax not in a manner of total income computed by other companies, but on the book profits which had to be calculated in terms of s. 115JB(2). The assessee's do not dispute this. Their argument is that reduction must be of the whole of the book profits computed under sub-s. (3) or (3A) of s. 80HHC. The object of s. 80HHC as originally introduced was to exempt the whole of the export profits. By virtue of sub-s. (1B) introduced w.e.f. 1st April, 2001 the deduction is only a percentage of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it would be a harmonious construction. A class of companies covered by s. 80HHC cannot be sub-classified into two classes, when more so, for intermittent periods Parliament had even denied the benefit of s. 80HHC to MAT companies. If the argument of the assessee is to be accepted, what then is the mischief, that s. 115JB sought to avoid? What s. 115JB did was to continue the deductions also to the MAT companies. The only difference was that instead of calculating tax at 30 per cent of the book profits as in the case of ss. 115J, 115JA, it was made 7.5 per cent and from 1st April, 2007 it is 10 per cent. The language used in cl. (iii) to Expln. 1 to sub-s. (2) of s. 115J or cl. (vii) to Expln. 1 of s. 115JA(2) or cl. (iv) of Expln. 1 of s. 115JB(2) is "eligible for deduction". 27. The argument of the assessee is basically based on the memorandum of understanding in the Finance Bill, 2000 which we have earlier reproduced. It only says that export profits under s. 80HHC and others are kept out of the purview of the provision during the period of phasing out of deductions available under the provisions. At the same time, in the Notes of Clauses it is clearly stated that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under s. 80HHC. That section as we have noted, did not originally include exemption allowed to exporters under s. 80HHC. By the virtue of the Explanation and cl. (iii) thereto, which came into effect from 1st April, 1989, the reduction under s. 80HHC became available. The issue before the Kerala High Court was, what is profit that should be taken into consideration considering the accounting system that have to be followed while working out the book profits. Therefore, the judgment would be of no assistance in considering the question framed for consideration. 30. It was also sought to be then contended that if two views are possible then the construction of s. 115JB, Expln. 1(iv) considering the decided law, the view in favour of the assessee should be accepted. The question is whether there are two views possible. In our opinion, no two views are possible. The only view as explained earlier is that the MAT companies are entitled to the same deduction of export profits under s. 80HHC as any other company involved in export in terms of s. 80HHC(1B). Once that be the case, this argument is also devoid of merit. " 34.2 However in the case of Rajnika nt Schnelder & Associates P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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