9911796707
TMI Blog2002 (7) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that in the case of the present assessee being a company, sub-cl. (c) of s. 140 requires the appeal to be signed by the managing director of the company and only for any unavoidable reason it can by any director of the company. Since the appeal memo in the present case has not been signed by the managing director nor any reason has been shown regarding his unavailability and since a director has not signed the same, the appeal is not maintainable. It was stated that in the present case, the appeal memo has been signed by a person authorised by the board of directors to sign the same. In the situation, the appeal cannot be entertained. He, thereafter, referred to the following decisions and vehemently argued that following the case laws cited, the appeal cannot be entertained : 1. Special Manager, Court of Wards, Naraindas Narsinghdas vs. CIT (1950) 18 ITR 204 (All) 2. Commr. of Agrl. IT vs. Sri Keshab Chandra Mandal (1950) 18 ITR 569 (SC) 3. New India Construction Co. vs. CIT (1979) 120 ITR 763 (Cal) 4. National Insurance Co. Ltd. vs. CIT (1995) 127 CTR (Cal) 238 : (1995) 213 ITR 862 (Cal) 5. CIT vs. Swastic Motors (1992) 195 ITR 368 (Raj) 6. CIT vs. Dr. Krishnan Lal Goy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where suits are instituted or defended on behalf of a public corporation, public interest should not be permitted to be defeated on a mere technicality. Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable. 10. It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under O. 6 r. 14 of the CPC, a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity, it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 r. 1 of the CPC, therefore, provides that in a suit by or against a corporation the secretary or any director or other principal officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading O. 6, r. 14 together with O. 29, r. 1 of the CPC it would appear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ark was put by him. The Revenue raised a plea that signature was proper when duly authorised, and absence of mark should not be considered as not properly signed. The Supreme Court by majority decision dismissed the plea of Revenue and held that since the signature as required under law is not found, no action can be taken against the assessee. The Department in that case sought to raise a plea that it was only a technical breach and signature should be presumed. The Court upheld the plea of the assessee and came to the conclusion that in prosecution proceedings there cannot be any presumption nor it was held that there is a defect in the signature. In view of this decision of the Supreme Court it was, therefore, urged before us that defect in signing the appeal memo as required by law invalidates the appeal and hence should not be entertained. The case before us is entirely on different facts than before the Supreme Court in the case of Shri Keshab Chandra Mandal (supra). The assessee, which was assessed under s. 143(3) has preferred an appeal based on the provisions of the IT Act. Though there is a provision in the Rules that only a person as mentioned in the Rules can sign the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that these are only provisions and not actual write off. He also held that in the absence of details of each and every account which has been written off, the amount cannot be allowed as deduction. It is also stated by the AO that in the absence of any subjective satisfaction by the assessee, the provision made is not allowable. The CIT(A) confirmed the order of the AO for the reason given in the assessment order. The CIT(A) also stated that the assessee is making the provision to suit its own requirement and not based upon the subjective satisfaction so that the assessee can claim maximum benefit under the IT Act. 3.4. Before us, the learned authorized representative of the asssessees, Mr. Pradeep, made detailed submissions. It was stated that the details were broadly filed though not pertaining to individual accounts. However, it was demonstrated that the segment-wise write off was filed with the AO as well as the CIT(A). In one year even the account-wise details were also filed. He argued that if the CIT(A) was not satisfied with the details, he could have asked for detailed accounts which was never denied. After having furnished segment-wise details of write-off, i.e., f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2001, wherein an Explanation has been inserted w.e.f. 1st April, 1989, to the effect that any provision for bad and doubtful debts made in accounts is not eligible for deduction. Hence, as per amendment there has to be actual write off of the amount in respect of each party and a combined entry for all the doubtful debts is not sufficient. He, thereafter, sought to raise a plea that in any case, it has to be proved that the amount has really become bad. For this proposition, he relied upon the following decisions : (i) N. Annajee Rao & Brother vs. CIT (1974) 97 ITR 265 (AP) (ii) CIT vs. Dunlop India Ltd. (1994) 122 CTR (Cal) 39 : (1994) 209 ITR 221 (Cal) (iii) CIT vs. Annapurani Veerappan (1992) 193 ITR 426 (Mad) (iv) CIT vs. Coates of India Ltd. (1998) 150 CTR (Cal) 311 : (1998) 232 ITR 324 (Cal) In all these abovereferred cases, it has been held that the condition that the amount has become bad is to be proved. 3.6. At this moment, the attention of the learned Departmental Representative was drawn to the amendment made to s. 36(1)(vii) w.e.f. 1st April, 1989, which states that it is not necessary that the amount has to be bad in a particular year but only write off is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the account of respective debtor or advances. It was argued that the decision cited in the case of Vittahal Das (supra) still holds for the proposition that the writing off in the accounts can be by way of debit to the P&L a/c. 3.7. At this moment, an alternative claim was put up by the learned authorised representative to demonstrate the nature of incremental provision for bad debts and advances. It was stated that the same consists of various types of debits. Provision was required to be made for the following reasons : I. Short shipment'Short supply of some of the peripherals in large projects in domestic technological business. II. Incentive sales'Incentive to be given to the dealers for the targets achieved which are not properly communicated to the sales department. III. Contractual obligations for defective performance/delays'customer invoking contractual terms and refusing to pay full amount of debts. IV. Sales cancellation'Company raising invoices for period of services committed but the customer cancelling the services in between resulting in elimination of revenue recognised. V. Errors in invoices'Erroneously billing not paid by customers whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the accounts of the assessee for the previous year". Thus, it is the objective satisfaction of the assessee while writing off any bad debt which is to be seen and the assessee is not required to prove that the debt has become bad in the relevant previous year. If the amended provision is read in the light of the above proposition, only then the intention of the amendment is truly given effect to. If the assessee is still required to prove the debt to be bad even though it has written off the same in the accounts then the controversy whether the debt has become bad or not in the relevant previous year will still continue and the effect of the amendment will be nullified. Our above view is fortified by the decision of the Gujarat High Court in the case of Dy. CIT vs. Patidar Ginning & Pressing Co. (1999) 157 CTR (Guj) 177 : (2000) 108 Taxman 476 (Guj), where it was held that it was enough if the assessee wrote off the debt as bad and need not establish the same to have become bad. 3.10. For asst. yr. 1992-93, we find the facts bit differently. The CIT(A) called for the details. The assessee has given complete details with name, amount and reason thereof in brief. This fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim was made. Therefore, it was open to the High Court to entertain the claim for deduction with reference to s. 31 also, having regard to the wide nature of the question referred to it, notwithstanding the fact that no specific plea was made by the assessee before the Department or the Tribunal for deduction under s. 31 of the Act." Thus, it is amply clear that the deduction claimed under s. 36(1)(vii) if not allowable under the said section, is allowable under s. 37. The nature of deductions, claimed thereunder are of seven different types. Since the relevant material for allowing the claim was not before the lower authorities, we restore the matter back to the file of the AO to verify the claim in respect of the various natures in line with the view pronounced hereunder : (i) In respect of short shipments, the matter is restored back with a direction that the assessee will demonstrate the claim thereof and if the claim is found genuine, the same will be allowed as deduction as not being income under s. 28 of the Act itself. (ii) As regards the claim of the dealers in respect of incentive sales due to them, the same is allowable under s. 37 subject to furnishing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, since that exercise has not been done and an amount of ₹ 1 lakh has been disallowed as ad hoc the same should be reasonably estimated. It was also argued that the limit of ₹ 150 per day under r. 6D has been raised to ₹ 1,500 per day by amendment in the rules w.e.f. asst. yr. 1992-93. The learned Departmental Representative supported the orders of the authorities below. 4.3. On the basis of the material found on record, we hold that a sum of ₹ 50,000 be disallowed in asst. yr. 1991-92. However, since the limit for travelling expenses has been substantially raised from ₹ 150 per day to ₹ 1,500 per day, even considering the trip-wise disallowance, the same appears to be within the limits prescribed under r. 6D and, therefore, for asst. yrs. 1992-93 and 1993-94, we delete the entire addition of ₹ 1 lakh made. 5. The next issue in the appeals pertaining to asst. yrs. 1990-91, 1994-95, 1995-96 and 1996-97 is relating to disallowance of foreign travel expenses for spouses of employees. The same was not pressed by the learned authorized representative saying that the same does not survive in view of the order giving effect to the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certify as to what portion is attributable to employees and hence the entire expenses in the nature of entertainment expenses are mentioned in the audit report. Expln. 2 to s. 37(2)/37(2A) as prevailing at the relevant time specifically mentioned that expenditure on tea/coffee or beverages provided by the assessee to its employees is not part of entertainment expenditure. Since the AO himself has attributed 50 per cent of the expenses to the employees for asst. yrs. 1996-97 and 1997-98, we hold that similar treatment needs to be given to the expenses of such nature for asst. yrs. 1991-92 to 1995-96. We. therefore, direct that out of the amount referred in the tax audit report as entertainment expenditure. 50 per cent thereof be treated as attributable to the employees to which provisions of disallowance are not attracted. This view is also held in assessee's own case for asst. yr. 1988-89 in ITA No. 650/Bang/1994. Disallowance to that extent is deleted. 7.1. The next issue in appeal for asst. yr. 1991-92 under the head 'entertainment expenses' pertains to club expenses of ₹ 40.778 disallowed by the AO holding it as entertainment expenses. The CIT(A) endorsed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entertainment expenses based on either as per past practice or as expenses though on guests for business promotion yet are within the definition of entertainment expenses. The CIT(A) has endorsed the view. It was upheld either because the full details were not furnished or it was held to be lavish in nature for highly paid employees of company. The facts which emanate from record pertaining to conference expenses are summarised below : (a) Wipro Ltd. Asst. yr. Total conference expenses (Rs.) Amount held as attributable to employees or not as entertainment expenses by AO (Rs.) Amount held as entertainment expenses (Rs.) 1993-94 6,64,057 1,66,014 (25%) 4,98,043 (75%) 1994-95 10,43,809 10,43,809 (100%) - 1995-96 5,44,643 1,36,161 (25%) 4,08,482 (75%) 1996-97 21,86,884 10,93,442 (50%) 10,93,442 (50%) 1997-98 6,73,525 1,68,382 (25%) 5,05,143 (75%) (b) Wipro Infotech Ltd. 1993-94 ₹ 4,72,416 ₹ 1,00,000 hall charges ₹ 1,86,208 ₹ 1,86,208 Balance 50 per cent It was stated that conference expenses for asst. yrs. 1992-93 and 1994-95 have been allowed in full by AO. The fact relating to allowability of the seminar expenses for asst. yr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enough as given in the Explanation to s. 37(2) to cover all sorts of hospitality. It was lastly argued that the CIT(A) was right in concluding that even "annual sales conference" expenses would be covered by word "entertainment" as held in the case of H.M.M. Ltd. vs. CIT (1998) 144 CTR (P&H) 371 : (1998) 231 ITR 726 (P&H). 8.4. We have given our considered thought to the issue in appeal. It is not case of anybody that conference expenses are not part of business revenue expenditure. The issue here is only for limited extent as to whether any of entertainment expenditure has to be read therein or not. The CIT(A) has upheld the order of the AO mainly because full details were not furnished either to the AO or to him. The finding given by the CIT(A) has not been challenged by the representative of the assessee. If the claim of the assessee is to be upheld full details have to come from it. If full details are not furnished, the general statement made that it is for staff only cannot be entertained. The judgment relied upon by the CIT(A) in HMM Ltd. (supra) has dealt with the issue at great length. In the said judgment the earlier decisions of Hon'ble Karnata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 1996-97. The issue relates to disallowance of excise duty paid of ₹ 35,90,637 for asst. yr. 1994-95, ₹ 2,46,98,096 for asst. yr. 1995-96 and ₹ 1,49,80,350 for asst. yr. 1996-97. The amounts relate to excise duty paid but held in personal ledger account (PLA) under excise rules maintained by the assessee. The amount of duty paid is shown as loans and advances in the balance sheet and not debited to the P&L a/c. However, the assessee has claimed the same amount during the course of assessment proceedings. 10.2 The AO held that since the claim was not raised in the return of income and since it is claimed towards payment of future liability the same was not allowable. The CIT(A) considered the claim and held that the assessee is entitled to lodge the claim so long as it is made before the assessment order is passed. The CIT(A) asked for explanation of the assessee regarding the claim. The assessee submitted that the liability for payment of excise duty is on manufacture of goods and is only postponed for payment till the goods are removed. As per the method of accounting employed by the assessee, the excise duty is debited to the P&L a/c on removal of goods an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the closing date of the previous year is equal to or less than the excise duty on goods manufactured but not removed from the factory, then the position is that the assessee is entitled to claim the same as a deduction as an expenditure incurred and hence deduction otherwise allowable under the Act and allowable under s. 43B because the amount is actually paid in that previous year. But mercantile system of accounting followed by the assessee required that the assessee has to increase the value of the closing stock of finished goods by the same amount which is claimed as allowable as expenditure for the goods manufactured. It can be seen that corresponding to the debit of the claim, in working out the profit there would be an addition to the value of closing stock and the profit does not alter by this exercise. This is the requirement of neutrality of accounts in respect of profits on unsold goods and also the matching principles of accounting." He, therefore, held that though the deduction even if allowable there will be corresponding increase in the value of closing stock and hence there would be no effect on the total income determined. He, therefore, refused to entertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, a liability which is otherwise allowable under the Act. The assessee has also paid the excise duty during the previous year. As per the method of accounting regularly employed the amount paid is firstly debited to the PLA under excise rules. On removal of goods the amount is debited to P&L a/c by crediting to the PLA. Sec. 43B is a non obstante clause and the payment of a nature referred therein, which also includes excise duty, is allowable on actual payment basis irrespective of the method of accounting employed by the assessee. In view thereof, disregarding the method of accounting employed the amount paid during the year which is less than the liability incurred is allowable. This view is supported by the decision in the case of Lakhanpal National Ltd. (supra), wherein the Court held as under at pp. 246, 247 and 248 : "On a perusal of the language of s. 43B, it is clear that it opens with a non obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, s. 43B will have overriding effect. Keeping this in mind, if we examine the langauge of the section, it clearly brings out the intention of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id goods was incurred by the petitioner-assessee. When that is so, it is also clear that the deduction of the said excise duty and import duty even on the closing stock was allowable in the accounting year 1983, but because of the specific language of s. 43B of the Act which has an overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and hence, in this case, it is not the case of the respondent that the payment of the said duty is not made and, therefore, it is not allowable. Therefore, the submission of Mr. Shelat that deductions in respect of the amounts which are not allowable under commercial principles are claimed as deductions merely because they are paid, cannot be accepted." 10.7 Similar view is also expressed in the case of (i) Indian Communication Network vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 206 ITR 97 (Del)(SB), (ii) Dy. CIT .vs. Stone India Ltd (2000) 69 TTJ (Cal) 569 and (iii) Honda Siel Power Products Ltd. .vs. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del). In view of the above facts and the decisions cited, the amount paid by the assessee towards excise duty and shown in the PLA under excise ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty, by way of advance, in the PLA is in substance pari materia with the payment of excise duty as discussed while dealing with the earlier issue, however, we find that the excise duty paid cannot form part of the cost of goods but the custom duty paid on raw materials imported definitely forms part of the cost of goods. If the assessee chooses to debit the customs duty paid in PLA, the value of imported raw materials held as stock-in-trade is not increased. However, if the same amount is claimed as deduction permissible because the liability is incurred, the value of closing stock of imported raw materials necessarily increases. These are the costs incurred for bringing the goods to its present situation. The assessee cannot claim that the method of accounting regularly employed by it does not include the customs duty paid in valuation of the closing stock. It is a necessary ingredient for valuation of closing stock. The method howsoever long employed by the assessee cannot be accepted so long as it is not the correct method of accounting. This view has also been upheld by the apex Court in the case of CIT vs. British Paints India Ltd. (1991) 91 CTR (SC) 108 : (1991) 188 ITR 44 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,51,27,659 12.2. The learned counsel for the assessee contended that imported raw materials and stores are cleared by paying applicable customs duty or adjusting the same in PLA balance. Thus, the landed cost of purchase includes customs duty paid. The landed cost of purchases which includes customs duty is valued at cost at the year end. Therefore, a portion of customs duty paid gets included in the closing stock valuation since the closing stock includes customs duty portion and since the amount is paid, the same should be separately allowed as deduction as per s. 43B of the Act. He also relied upon the decision in the case of Lakhanpal National (supra) and Dy. CIT vs. Addison & Co. Ltd. (1995) 53 ITD 514 (Mad), whereas the learned Departmental Representative has strongly relied on the order of the CIT(A). 12.3. We have heard the parties and perused the materials including the chart presented by the learned authorised representative of the assessee. We find that, at the first instance the customs duty paid on raw materials imported is debited to PLA. The account is thereafter transferred to the raw material account on clearing the bill of entry. Therefore, the duty paid for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-s. (2),' (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up of a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation." 14.3. Reading the above provision, it appears that to claim the expenditure under s. 35D(1), the expenditure needs to be provided in s. 35D(2). Sec. 35D(2)(c)(iii) allows the fee paid for registering the company under the provisions of the Companies Act. Further, s. 35D(1)(ii) allows the expenditure incurred after the commencement of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word 'tax' cannot mean as per definition in s. 2(43) only. 15.4. Since the amount is paid by way of income-tax on the profits derived from business or profession in USA, taxes so paid are still covered by s. 40(a)(ii). Even otherwise, taxes paid cannot be called an expenditure laid out or expended wholly and exclusively for the purpose of business or profession. It is a tax on the income and not an expenditure incurred in the course of business. The tax is payable after the profits and gains of business are calculated. In view of the above, and more particularly, in view of s. 40(a)(ii), taxes paid outside India are not allowable as expenditure under s. 37(1) of the Act. The above- referred payments, are, therefore, not allowable. The order of the CIT(A) on this ground is upheld and the ground is rejected. 16.1. The next ground of appeal relates to Wipro Infotech Ltd. for asst. yrs. 1991-92 and 1993-94. The issue relates to disallowance of premium payable on redemption of debentures. The amount for asst. yr. 1991-92 is ₹ 10 lakhs and for 1993-94 is ₹ 5,93,800. 16.2. The AO disallowed the claim during the course of assessment proceedings on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the AO is to allow the claim proportionately in each year from the year of issue of debentures till the debentures are redeemed. 17.1. The next ground of appeal relates to Wipro Ltd.. for asst. yr. 1996-97. The issue relates to deductibility of provision for leave encashment amounting to ₹ 5,17,17,000. 17.2. The assessee made a provision for leave encashment of ₹ 8,24,64,000 in its accounts towards leave benefits accrued till the end of the previous year. Out of the above sum, ₹ 3,07,47,000 relate to relevant previous year while ₹ 5,17,17,000 relate to earlier years, i.e., for past service liabilities. Till the immediately preceding assessment year, the assessee was not providing for any provision towards leave benefits. However, after the Accounting Standards AS-15 issued by the Institute of Chartered Accountants of India were declared mandatory, the assessee had provided for the entire liability accrued till the end of the relevant financial year. The said standard, inter alia, provided that accrued liability based on actuarial valuation should be provided in the books in respect of leave encashment benefit payable on retirement. It is an accepted fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits covered therein. Leave encashment benefit on retirement is one of the benefits covered therein. As per the standard prescribed, the assessee provided for the entire liability accrued as a result of operation of the abovereferred accounting standards. To that extent, this may be called the change in the method of accounting in respect of provision for retirement benefits. Since the total liability of the assessee as at the end of the relevant previous year, including the liability for past years, is ascertained during the year and hence, fully allowable. 17.5. Shri Amitabh Kumar. the learned Departmental Representative, supported the order of the CIT(A). He referred to the same decision on which reliance was placed by the CIT(A) for the proposition that the accounting standards and IT Act cannot march hand-to-hand. What may be required to be provided under Companies Act as per the accounting standards is not binding under the IT Act. The accounting standards are prescribed for presenting a true and fair picture as per the Companies Act. However, IT Act is a code in itself for collecting taxes on income. The assessee was all the while following mercantile system of accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past service cost is in return for services to be rendered by employees in future and, therefore, this cost ought to be allocated over the periods during which the services are to be rendered. Accounting Standard 28. In respect of gratuity benefit and other defined benefit schemes the accounting treatment will depend on the type of arrangement which the employer has chosen to make. (i) If the employer has chosen to make payment for retirement benefits out of his own funds, an appropriate charge to the statement of profit and loss for the year should be made through a provision for the accruing liability. The accruing liability should be calculated according to actuarial valuation. However, those enterprises which employ only a few persons may calculate accrued liability by reference to any other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year." 17.8. From a reading of the above standards, it is clear that the assessee needs to ascertain its liability in respect of retirement benefits. Leave salary encashment on retirement is one of the benefits for which provision is made in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. This ground is, therefore, allowed and the order of the CIT(A), to this extent, is reversed. 18. The next ground of appeal relates to M/s Wipro Infotech Ltd. for asst. yr. 1992-93 and for Wipro Ltd. for the asst. yr. 1997-98. The issue relates to the disallowance of expenses of the nature of advertisement covered under s. 37(3) r/w r. 6B. For asst. yr. 1992-93, the total amount disallowed being only ₹ 9,872, the same was not pressed. We, therefore, dismiss the ground for want of prosecution. 19.1. For asst. yr. 1997-98, as per para 4(iv) of the audit report in Form No. 3CD, the articles presented or intended for presentation where expenditure on each article exceeded ₹ 1,000 is ₹ 1,40,119. It was mentioned by auditors the that the company contended that the above gifts did not carry any logo of the company or its products/services was not in the nature of advertisement and was, therefore, outside the purview of r. 6B. It was also mentioned that the expenditure incurred on articles distributed for sales promotion and cost of free samples given in the normal course of business were not considered for the above. 19.2. The AO referred to this note and also obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bankers, contractors and other business associates. It is a customary payment on various festivals. Our attention was drawn to the fact that for similar expenses incurred the same was fully allowed by the same Appellate CIT for asst. yr. 1993-94. 19.6. We have carefully considered the rival submissions and perused the record. Sec. 37(3) r/w r. 6B applies to an expenditure referred to in s. 37(1) of the Act. Sec. 37(3) applies to an expenditure in the nature of advertisement expenses. Hence, if the analogy of the CIT(A) is accepted, any expenses falling within s. 37(3) can never be allowed under s. 37(1). However, that is not the correct interpretation. Sec. 37(3) only restricts the allowance otherwise allowable under s. 37(1) by an artificial disallowance, as per r. 6B. However, to apply s. 37(3), expenses have to be in the nature of advertisement expenses. Para 4(iv) of the tax audit report in Form No. 3CD does not refer to the expenditure covered under r. 6B only. The auditor is required to furnish, information in respect of all the articles presented where the value exceeds ₹ 1,000 on each article. It, therefore, cannot be held that whatever is reported in para 4(iv) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction of ₹ 1,48,57,579 being lease rent for the entire period of 11 years for the property taken on lease from an associate concern, M/s Wipro Infotech Ltd. It appears that the assessee filed details before the AO but not the relevant lease deed. The AO held that what is paid covers lease rent and is prepaid expenses and, hence, cannot be allowed. The AO tried to distinguish the judgment relied upon by the assessee in the case of CIT vs. HMT Ltd. (1993) 109 CTR (Kar) 392 : (1993) 203 ITR 820 (Kar). It was held that the relevant decision considered the issue whether amount paid is a capital expenditure or revenue expenditure. 21.2. Before the CIT(A) also the assessee reiterated the arguments and relied on the decision of the Karnataka High Court in HMT Ltd. (supra). The CIT(A) considered the relevant decision and concluded as under : "As mentioned earlier, the fact to be considered here is whether amount has been 'paid' as per the definition given in s. 43(2) of the IT Act so that it can be considered as rent paid and allowable. The decision of the jurisdictional High Court relied on by the assessee is also in accordance with the definition. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Based on the lease deed, it was argued that the facts are identical with the facts narrated in the case of HMT Ltd. (supra) decided by the Hon'ble Karnataka High Court, the jurisdictional one. 21.5. We now consider the relevant clause of the lease deed. Clause 1 of the said deed reads as under : (1) In pursuance of the said agreement and in consideration of the premises and of the rents and the lessee's convenants, conditions and provisions hereinafter reserved and contained the lessor's doth hereby demise unto the lessee the said lands hereditaments and premises admeasuring 43,239 sq. ft. or thereabouts situate at 6, Brunton Road, Bangalore, and more particularly, described in the first schedule hereunder written together with all buildings and structures standing thereon with the rights, easements and appurtenances thereto, but subject to all existing easements and rights if any over or in respect thereof including the rights of drainage and any other rights which any person may be entitled to over in or under the same (all of which are hereinafter for brevity's sake referred to as 'the said premises') TO HAVE AND TO HOLD the said premises for 11 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the evidence produced before us. The CIT(A) has remanded the matter back to the file of the AO with a limited direction. However, the time-limit given was only 4 weeks. As per s. 251(1)(a), the CIT(A) has power to set aside an assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by the CIT(A). This also amounts to passing of an order under s. 250 of the Act. As per s. 153(A) where the assessment has been set aside under s. 250, the AO shall have power to decide the issue at any time before the expiry of two years from the end of the financial year in which the order under s. 250 is passed. The fetters put by the CIT(A) by way of reducing the time-limit is not in accordance with law. Since the direction given by the CIT(A) is not in accordance with law, we proceed to deal with the issue. 21.9. The CIT(A) has given a finding that if the payment is towards payment of rent, once and for all, and no part of it is to be received back or adjusted against the rent determined as payable for each month or year of use, the payment during .... can be taken towards liability incurred. If. on the other hand, the payment is towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 10A. The assessee has not explained how the newspaper, diesel drum, wooden racks, etc. are connected with the industrial activity. 22.2. We have considered the facts of the case. It is not in dispute that the very nature of expenses in the form of newspaper, diesel drum and certain packing materials have formed part of the expenses incurred in the course of carrying on export-oriented units. The expenses of such nature have reduced the eligible profit of the export-oriented unit. When the same items of expenses are reduced while calculating the eligible profit the income which actually reduces such type of expenses should not be treated as other income not forming part of profit of eligible business. While calculating the profit of the eligible business the expenses and the income of the same unit are required to be netted out. The expenses and the income are relatable to the same nature. We direct that the computation should be made after netting out the expenditure by reducing the income of the nature in dispute. In other words, though it cannot be held that the income of the nature in dispute is income arising out of the activity as an export-oriented unit, however, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected to the observation of the CIT(A). The ground for disallowance by the AO was not due to non-furnishing of the details. The AO has held that the loss is a contingent liability. He has also held that even though the loan was raised and held as working capital, since it is held as capital, it is a capital loss. It was never held by the AO that the loan was obtained for acquiring any capital asset and, hence, not allowable. It was, therefore, not correct on the part of the CIT(A) to have, on one hand, decided that the loss in respect of working capital is an allowable loss and, at the same, remitting the matter back to furnish further details as to utilization of loan, etc. The issue regarding utilization of loan has already been examined by the AO and hence, he was not correct in allowing the AO a second inning. 23.5. The learned authorized representative also outlined the facts of the borrowing. It was stated that the transaction in foreign exchange is translated in the Indian currency on the date of transaction at the prevailing exchange rate. If any liability or asset is outstanding on the date of balance sheet, it is required to be stated at the exchange rate prevailing on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties. We have also appreciated the facts of the case. At the outset, we say that the facts are not in dispute that part of the loan under foreign currency was utilized for acquiring capital asset and part of the loan was held as working capital. The AO has disallowed the loss because no reduction of loan has taken place during the year. To that extent, it was held as a contingent liability and hence, the deduction was not allowed. The AO has noted that even though the FCNRB loan from SBI is towards working capital, it is a capital loss. The finding of the AO is not disputed by the CIT(A). The CIT(A) has categorically held that the purpose of utilization of the borrowal is not relevant but the actual utilization thereof is relevant in considering the allowabiiity of the deduction. He has also held that the decision in the case of Groz Beckert Saboo Ltd. (supra) is required to be applied in the sense that if the loss is sustained towards trading account, it is a trading loss and if it is suffered towards capital account, it is a capital loss. The loss, therefore, should be allowed accordingly following the above decision. 23.8. We find that once the AO has given a finding, base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether devaluation loss is revenue loss or capital loss what is relevant is the utilization of the amount at the time of devaluation and not the object for which the loan had been obtained. Even if the foreign currency was intended or had originally been utilized for acquisition of fixed asset, if at the time of devaluation it had changed its character and had assumed the new character of stock-in-trade or circulating capital, the loss that occurred on account of devaluation shall be a revenue loss and not a capital loss. (vii) The way in which the entries are made by an assessee in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee." In view of the above, both the losses as claimed by the assessee are allowed. The ground is disposed of accordingly. 24.1. The next ground of appeal relates to Wipro Ltd. for the asst. yr. 1997-98. The issue relates to disallowance of royalty paid outside India on which no tax has been deducted. 24.2. The assessee has made a provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative argued that s. 40 overrides the provisions of ss. 30 to 38 of the Act. It is, therefore, implied that when the claim of royalty is made under s. 37 of the Act, in view of the embargo put under s. 40(a)(i), the same cannot be allowed without deduction of tax at source as per Chapter XVII-B. The proviso added to s. 40(a)(i) also says that when the tax has been paid or deducted under Chapter XVII-B in any subsequent year in respect of any sum such sum shall be allowed as deduction in the year in which such tax has been deducted. Hence, if the tax is deducted for the subsequent year then the amount is allowable in the subsequent year and not the relevant previous year. 24.5. We have considered the rival submissions and perused the record. We have also considered the judgment relied upon by the learned authorized representative. It is true that following mercantile system of accounting the assessee was required to provide for royalty payable for the period January, 1997 to March, 1997. The same is an ascertained liability and not a contingent one and, hence, the same is otherwise allowable under s. 37 of the Act. However, s. 40(a)(i) puts a restrictive covenant in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion) at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter."' Reading s. 190(1), it appears that though the regular assessment in respect of any income arising to the recipient has to be made in a later assessment year, the tax on such income is required to be made by deduction at source in accordance with the provisions of Chapter XVII-B itself. We are, therefore, of the considered opinion that since the assessee has not deducted the tax at source on the provision made for the royalties payable outside India, s. 40(a)(i) is applicable and, hence, the amount of royalty payable of ₹ 10,61,908 is not allowable as a deduction. The ground is therefore, rejected and the order of the CIT(A) is confirmed. 25.1. The next ground of appeal relates to Wipro Ltd. for asst. yr. 1997-98. This issue relates to claim for deduction of ₹ 33,88,585 being royalties payable outside India on which no tax has been deducted at source. The AO and the CIT(A) disallowed the claim of the assessee since proof for deducting the tax at source on such payment was not produced before them. Applying the provisions of s. 40(a)(i) the amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative that s. 10A contemplates two things, i.e., manufacture of an article in any electronic hardware technology park (EHTP) or software technical park (STP) and second, export of all such undertaking should not be less than 75 per cent of the total turnover of such undertaking. He also placed before us the Exim Policy announced by the Director General of Foreign Trade pertaining to set up of EHTP and STP, under what circumstances the SILs are being granted. He also drew our attention to the minimum export performance to be given by the undertaking. Our attention was also drawn to the condition for obtaining SIL. It was thereafter stated that SIL can be used for the purpose of importing certain goods which are not in the OGL category. However, if the licence is not immediately required, it can be sold in the market which fetches a premium. If the goods are imported as raw materials, it has also a cost to the assessee. However, instead of importing if the same material is purchased in the local market, the price payable for the domestic purchase includes some element of cost of the SIL incurred by the domestic vendor. Hence, the benefit received from the sale of SIL should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such sections should also govern the interpretation to s. 10A. He thereafter, heavily relied upon the decision of the Supreme Court in the case of Sterling Foods (supra) and argued that the income arising out of the sale of SIL has its route in the scheme of the Government and not in the industrial undertaking. In the absence of the income having any nexus which can indicate the income is derived from an industrial undertaking the income arising out of sale of SIL cannot be held to be exempt under s. 10A. 26.4. The learned authorized representative in the rejoinder argued that but for the exports the SIL would not have been granted to them and only because of sale of such SIL the income has arisen. Hence, it should be treated as income derived from the industrial undertaking. It was also argued that if the section is interpreted otherwise, it will not be a workable proposition. In the end, it was argued that when some benefits are given to an assessee the interpretation of the relevant section should be liberally construed, relying on the decision of the Supreme Court in the case of Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). 26.5. We have give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facility of obtaining Special Import License (SIL) which allows them to import certain items which otherwise are not permitted. SIL is also tradable/transferable. At present, SIL entitlement is @ 15 per cent of Net Foreign Exchange Earned (NFEE). If the unit is ISO 9000 certified then additional SIL @ 5 per cent of the FOB value of exports (excluding deemed exports). SIL is also being allowed to ISO 9000 'Quality Consultancy Services'. The procedure for obtaining SIL is as follows." 26.7. The intention behind the introduction of s. 10A when it was first introduced in the Act can be found from the relevant speech of the Finance Minister while presenting the same and the memorandum explaining have also been considered by us. The same is also reproduced below : "I had earlier in my speech referred to the imperative need to promote our exports in view of our difficult balance of payments situation. To encourage establishment of export-oriented industries in the Free Trade Zone, the Government proposes to allow complete tax holiday in respect of units set up in these zones for an initizal period of five years in lieu of other concessions. Incentives for export-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits availing of the complete tax holiday now proposed will not be entitled to such concessions even after the expiry of the tax holiday period." 26.8. Reading the above provisions in the Act and the relevant scheme which are required to be complied with to set up an eligible unit, we find that the two sections, though granting relief to the assessee, are different in nature. Whereas s. 80HH requires only to set up an industrial undertaking in a specified area while s. 10A requires the assessee to set up a unit not only in a particular area but also to export substantially the whole of its products manufactured. The condition as to the export of articles manufactured is not found in the scheme and s. 80HH. The intention behind granting benefit to a unit under s. 80HH is to develop a backward area whereas the intention behind granting exemption under s. 10A is to earn the foreign exchange. The benefit under s. 80HH is available only on certain percentage of profit of the industrial undertaking whereas the benefit under s. 10A is in respect of the entire profit of the eligible industrial undertaking. 26.9. When a unit is exporting almost the entire production of it the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deny exemption to such profit arising out of export benefits, therefore, amounts to defeating the purpose of the relevant section. 26.12. The word 'derived' is not defined in the Act. Hence, we resort to the dictionary meaning of the same. The Oxford Illustrated Dictionary defines the word 'derived' as "get, obtain from a source, have one's or its origin from, deduce from, be descended or have one's." In the case of a 100 per cent export-oriented unit, the origin or source of export benefits in the form of import entitlement is the business of export only. The scheme of the Government is only an enabling factor. The judgment of Hon'ble Supreme Court in the case of Sterling Foods (supra) is, therefore, distinguishable, since the present issue is under s. 10A and not under s. 80HH as in the said case of Sterling Foods (supra). 26.13. At this juncture, we are referring to an earlier decision of Hon'ble Madras High Court in the case of CIT vs. Wheel and Rim Co. of India Ltd. (1977) 107 ITR 168 (Mad). The Court was dealing wilh similar issue on rebate of profit derived from sale of import entitlements under s. 2(5)(a) of Finance Act, 1966. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export are confined together in s. 10A, the amount of eligible deduction to such units is defined in s. 10A(4). As per the meaning assigned, the formula is to be applied which means : Profit of the business of undertaking x Total turnover of business of the undertaking The income in nature of export benefit in nature of sale of SIL forms part of profit of business undertaking as per s. 28(iiic) of the Act. The intention of the amendment in s. 10A has to restrict the exemption to such profit of the undertaking from export activity only. However in such restriction, the words 'derived from' are conspicuously absent which are otherwise used in all other sections granting deduction or exemption. We are not holding that the amendment to s. 10A is retrospective in nature. We are only trying to see the intention of legislature as to the eligible amount in granting benefit to the assessee. The intention also seemed to be the same as we had pronounced earlier. 26.17. In view of the relevant provisions of the Act, the scheme of the Government under which the units are set up, the intention of the legislature in granting the benefit under s. 10A, we hold that the income arising f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units set up under EHTP/HTP are eligible for exemption under s. 10A Act. Some of the other divisions are either eligible for deduction under ss. 80HH, 80-I and 80-IA. Some of these are not eligible for any sort of exemptions/deductions. 27.3. In the first appeal before the CIT(A), the assessee has not challenged this. However, the same was taken up as an additional ground which the CIT(A) has admitted. It is argued by the assessee before the CIT(A) that the revenue trial balance in respect of the Wipro Infotech group which shows unallocated expenditure is definitely available. All the arguments raised before the AO were also reiterated before the CIT(A). However, they did not find favour with the CIT(A). The CIT(A) held that since the exact details of the allocation of overheads including the interest are not available, the same have to be worked out on ad hoc basis. It was held that, major component or rather the entire component of unallocated expenditure is in respect of interest only and since sums are likely to be locked up for a longer period by way of expenses in the software export services and longer period in receiving the amount from foreign concerns, the interest is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. The same is also clear from the summary. The entire administrative expenses are either recovered from various sub-divisions or recovered from software export division. Out of the total interest out-go, there is payment by intra-business units also and from the interest earned the same is in respect of charging from intra-business also. However, the entire interest cannot be allocated to the sub-divisions because the same is not borrowed specifically for those sub-divisions. It was also argued that while dismissing the ground the CIT(A) has done so, on the basis of hypothesis and not based on facts. Our attention was drawn to this specific finding giving by the CIT(A) which is purely on surmises, conjunctures and not based on cogent material. The only reason shown by both the AO and the CIT(A) for reducing the claim under s. 10A is that no details are furnished or the accounts are prepared to suit assessee's own convenience which is not the correct fact. The assessee has, in fact, prepared unit-wise accounts, got them audited and furnished along with the return itself. When there is no defect found in any of the accounts, it is wrong to say that the assessee is preparing acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n no specific defect is found in respect of the accounts of the eligible s. 10A units, such allocation is not permissible. It was demonstrated that the interest expenses in respect of such units have specifically been charged to those units themselves. In the end, he strongly urged to allow the claim of the assessee and reverse the findings of the CIT(A). 27.7. We have considered the rival submissions carefully and perused the records. At the outset, we shall consider what is the exact expenses and interest which are either recovered or unallocated. Summary of the expenses as furnished before the AO is as under: Rs. Rs. A Expenses consisting of salaries, travel, etc., excluding interest less revenues 7,37,98,774 Less: Recoveries from sub-divisions other than software exports sub-division 4,93,49,416 Sub-total 2,44,49,358 Less: Recoveries from software exports sub-division 3,70,00,000 A Excess recoveries (1,25,50,642) Interest out go to intra-business and external agencies 20,11,34,657 Less: Interest earned from deployment of funds intra-business and with external agencies 9,38,24,255 B Net interest out go 10,73,10,402 Net loss (A+B) 9,47,59,760 Now, from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since it is deductible under s. 36(1)(iii), the same was reduced from the eligible profit worked out for the purpose of s. 10A of the Act. All these working were filed before the AO along with return of income. However, we do not find the details as regards what is the total interest paid to outside agencies, the total interest earned from deployment of funds and the intra-unit charge and recovery of the interest. It is true that under s. 36(1)(iii) interest paid for the purpose of business is an eligible expenditure. At the same time, it is equally true that if the interest is paid for the units that are eligible for exemption under s. 10A, to that extent the amount of exemption available is liable to be reduced. 27.9. An attractive argument was raised before us, justifying non-allocation of interest to the units eligible for exemption under s. 10A. It was argued that what is exempt under s. 10A is the profit derived from the industrial undertaking. The word "derived from" are to be given narrow meaning just like interest earned by the eligible unit is not to be treated as profit derived from the industrial undertaking; in the reverse way, the interest which though may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 10A of the Act. Decision cited, therefore, is not helping the case of the Revenue. (b) M.S.P. Raja & Anr. (supra) : the Hon'ble Madras High Court held as under : (i) "that the principle applicable to a case where an assessee carried on a single business part of whose profit is not assessable to tax is different from a case where the assessee carries on more than one business; (ii) in the present case, there is a finding by the Tribunal that the business carried on by the assessees through the three different funds do not constitute a single business and this finding was not attempted to be challenged; (iii) any business expenditure has to be related to a business which is taxed or taxable before it can be deducted and there is no scope for deduction of interest in the instant case, as there is no business income, taxed or taxable, to which it relates; (iv) sec. 67(3) of the Act provides for the deduction of any interest paid by the partner on capital borrowed by him for the purpose of investment in the firm and in order to justify a claim for deduction under the section there must be some share income from that firm; (v) in the case of interest payable by a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and also against dividend income being income realized from investment in shares. We find that there is specific finding by the AO that the amount was borrowed for dual purposes and the interest was rightly allocated. However, we do not find any finding that the amount was borrowed for eligible units claiming exemptions under s. 10A of the Act. The case is, therefore, distinguishable on facts of it. 27.12. We shall now consider the cases relied upon by the learned authorized representative of the assessee. (A) Indian Bank Ltd. (supra) : The Hon'ble Supreme Court noted as under : "There is nothing in the language of s. 10 of the Indian IT Act, 1922, from which it can be fairly implied that an expenditure or allowance falling within the section must fulfil some other condition before it can be allowed. In construing the several clauses of the section, we must adhere closely to the language of the Act. In allowing a deduction which is permissible one need not look beyond the expenditure and see whether it has the quality of directly or indirectly producing taxable income. The respondent, a banking company, in the course of its business, invested a large sum in securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relevant circumstance. There is no basis for the view that only expenditure incurred in respect of the business activity giving rise to income, profits or gains taxable under the Act can be allowed as a deduction under s. 10(2)(xv) and not otherwise. To find out whether a deduction claimed is permissible under the Act or not, all that has to be done is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. The provisions of the statue have to be taken provisions as they stand. If the allowance claimed is permissible under the Act then the same has to be deducted from the gross profit. If it is not permissible under the Act, it has to be rejected." In this case. before the Supreme Court the assessee has two types of activities. The income from the agricultural operation is not forming pan of total income whereas the other activities giving rise to taxable income. The question regarding the allocation of administrative overhead over the exempt income and taxable income was negatived by the Hon'ble Supreme Court. It was held that when expenditure is laid out for the purpose of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The profits of such eligible undertaking are even exceeding the entire profits of all the other units. This fact is amply demonstrated before us. It can, therefore, be implied that there is always a surplus fund with the eligible units under s. 10A of the Act. The actual interest paid by such units on its borrowals has been deducted in calculating its profits. The same fact has been noted by us in the earlier paragraphs. The assessee is also required to maintain its corporate image, set up a corporate house and employ various persons as well as operate for such purposes. The same cannot, therefore, be related to any of the industrial undertaking, nonetheless the expenditure is wholly and exclusively for the purpose of business. As far as the administrative expenses are concerned, the assessee has allocated the same for its various units. Even in respect of software units, the expenses were allocated. However, when the claim of interest is made under s. 36(1)(iii) of the Act, the facts emerging are that it is borrowed for the purpose of business and it is not utilized for an undertaking claiming exemption under s. 10A of the Act. 27.14. In view of these entire facts of the case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. yr. 1991-92, the same has to be rejected. However, it was remarked that the assessee may proceed with its claim under s. 154 of the Act. 29.2. The assessee has claimed the amount of ₹ 2,93,230, in its return of income for the asst. yr. 1992-93. Since as per the audit report the amount was shown as pertaining to asst. yr. 1991-92, the AO disallowed the claim for asst. yr. 1992-93 on the ground that the expenses relate to asst. yr. 1991-92. The AO has not given any finding whether the expenses are revenue expenditure or otherwise allowable or not. We also find from the appellate order that the entire details of ₹ 2,93,230 were filed even before the CIT(A). All these expenses, including ₹ 2,17,719 in respect of purchase of materials are revenue in nature. When the expenditure is revenue in nature and otherwise allowable, the CIT(A) is not justified in brushing aside the argument of the assessee. He could have very well directed the AO to verify the claim on the basis of details to be submitted by the assessee. When the AO has himself treated that the expenses are pertaining to asst. yr. 1991-92 and has noted from the details filed that the expenses are revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asst. yr. 1992-93. The issue relates to treatment of ₹ 55,000 as capital expenditure instead of revenue expenditure as claimed by the assessee. 31.2. The learned authorized representative of the assessee fairly conceded that in view of the said amount of capital expenditure incurred, the incidental expenditure estimated by the AO does not call for any interference. This ground is, therefore, rejected as no argument in support of the ground is taken before us. 32.1. The next ground of appeal relates to Wipro Infotech for asst. yr. 1993-94. The issue relates to claim of ₹ 41,760 being penalty levied under the ST Act.. The amount is paid in lieu of confiscation of goods under the Karnataka ST Act. It was contended that the revised Form 39 under the Karnataka ST Act was misplaced by the transporter and could not be produced at the intra-district border check post. The goods would otherwise have been confiscated had the assessee not paid the said amount. The AO disallowed the claim which was upheld by the CIT(A) holding that the amount is paid for infringement of law. 32.2. Before us, the learned authorised representative of the assessee has failed to produce any material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in appeal before us. 33.3. We have carefully considered the rival contentions and gone through the record. We have also perused the decisions cited. The Delhi Bench of the Tribunal in the case of Honda Seil Power Products (supra) has considered the decision of the Mumbai Bench in the case of Pink Star (supra). Quoting from the decision of the Mumbai Bench, the claim of the assessee was allowed by the Delhi Bench of the Tribunal. The Mumbai Bench has discussed the issue at paras 15 to 18 of its order which have been quoted by the Delhi Bench. If we are to follow the above two decisions, we need to find that the facts are also identical. The facts before the Mumbai Bench in the case of Pink Star, as noted in para 18 of the order, are as under : ".... in the present case, revenue receipt in the form of interest went to reduce the revenue expenditure of interest, because funds were borrowed for the purpose of business and funds were kept in fixed deposits for the purpose of business. It was one of the conditions laid down by the bank while granting credit facilities to the assessee. Therefore, interest income was inextricably linked with the business of the assessee and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the industrial undertaking for deduction under ss. 80HH and 80-I of the Act. 34.2. The other income of the assessee amounting to ₹ 12,01,884 was excluded while computing the eligible profit derived from the industrial undertaking. The break up of the other income given by the assessee was as under : Interest income 59,935 Miscellaneous income 11,41,949 12,01,884 The assessee has furnished details before the AO stating that the miscellaneous income consisted of discount received against early payment in the case of sundry debtors written back. The CIT(A) held that since the assessee has not given the break up of the other income the matter was restored back to the file of the AO. He also directed the assessee to submit the details within four weeks of the receipt of the appellate order. The CIT(A) further noted as under : "I find the contentions of the assessee in respect of discount received from suppliers for earlier payment and amount written back in respect of sundry credit balance, as correct. At the time of hearing, Sri P.V. Srinivasan mentioned that the assessee has no objection to treating these items as not forming part of profit derived from the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellaneous income which is in the nature of trading receipt like discount received from suppliers for early payment and the amount written back in respect of sundry credit balances would form part of the profit derived from the industrial undertaking eligible for deduction under ss. 80HH and 80-I of the Act. The AO is directed to include the sum of ₹ 11,41,949 being the miscellaneous income while computing the profit derived from industrial undertaking for the purpose of deduction under ss. 80HH and 80-I of the Act. 34.4.1. As regards the interest income of ₹ 59,935, we restore the matter back to the file of the AO, as held by us in the case of the assessee for the asst. yrs. 1991-92, 1992-93 and 1993-94. The AO shall examine the claim in relation to interest income of ₹ 59,935 as directed by us in the appeals relating to the asst. yrs. 1991-92, 1992-93 and 1993-94. 35.1. The next ground of appeal relating to M/s Wipro Ltd. for asst. yr. 1995-96 reads as under : "16. The authorities below erred in excluding the following income in computation of profit derived from Amalner Industrial undertaking : Miscellaneous income 84.333 Interest received 1,60,515 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of deduction under s. 80-IA : Miscellaneous income 3.24.540 (a) Wipro fluid power at Peenya unit: Miscellaneous income 1,219,092 Total 1,219,092 (b) Peripheral Unit at Mysore : Interest 2,23,633 Miscellaneous income 28,08,570 Total 30,32,203 36.1.1. As regards interest income of ₹ 2,23,633 in respect of peripheral unit at Mysore, the issue is set aside to the file of the AO. The AO is directed to follow our direction given in para 180 above in respect of the assessee (erstwhile Wipro Infotech) for asst. yrs. 1991-92, 1992-93 and 1993-94. 36.1.2. As regards the miscellaneous income in respect of Wipro Fluid Powder at Peenya unit and peripheral unit at Mysore, no details have been furnished either before the CIT(A) or before us. We are, therefore, unable to consider the claim of the assessee. Therefore, the said miscellaneous incomes cannot be said to have been derived from the industrial undertaking so as to claim deduction under s. 80-IA of the Act. 37.1. The next ground of appeal relates to M/s Wipro Ltd. for the asst. yrs. 1993-94, 1995-96, 1996-97 and 1997-98. The effective ground raised in this regard reads as under : "The authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dard costing with fair reasonable margin of profit. The cost includes cost of octroi duty payable at Mumbai and Amalner which the assessee used to pay while processing the non-edible oil outside. 37.2.1. The AO noted that the working of the intermit transfer price of fatty acid was scrutinized for the preceding assessment year, i.e., asst. yr. 1992-93. It was found that the assessee-company was working out such transfer price by including, inter alia the Mumbai octroi, the Amalner octroi and the transportation of fatty acids from Mumbai to Amalner to the cost of raw material and conversion charges of raw material into fatty acids, etc. After examining the issue in detail it was held in the asst. yr. 1992-93 that the octori of Mumbai Municipality, freight from Mumbai to Amalner and Amalner octroi should be excluded for computing the transfer price of fatty acid from FAGP to the toilet soap unit. If the transfer price is worked out in this manner, it would reduce the total transfer price and the profits of the FAGP unit. Therefore, the deduction under ss. 80HH and 80-I which was worked out at certain percentage of the profits would stand reduced. The AO also noted that the working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AGP unit by ₹ 46,35,479. The AO has followed the method adopted in the assessment order for the asst. yr. 1992-93 which was confirmed in the first appeal before the CIT(A). The Hon'ble CIT(A) upheld the order of the AO for asst. yr. 1992-93 even while acknowledging in the appellate order that an attempt should be made to determine the reasonable market value of fatty acid manufactured by the FAGP unit and treat the same as the price at which fatty acid should have been transferred to the toilet soap unit. It is respectfully submitted that while confirming the reduction in profit of the FAGP unit for the asst. yr. 1992-93, the Hon'ble CIT(A) failed to apply properly the provisions contained in sub-s. (8) of s. 80-I. The legislative intent has been brought in unambiguous terms by s. 80-I(8) that the transfers between two industrial undertakings should be at the market value of the goods transferred. Market value in the commercial parlance is understood as the price at which goods are ordinarily traded at a given location. Since there is no ready market for fatty acid and further the fact that it is not locally available at Amalner, the value at which it can be sourced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) whereas the learned Departmental Representative supported the orders of the authorities below. We have given our considered thought to the issue on hand. The assessee is manufacturing fatty acids and glycerine at Amalner and the said unit is eligible for deduction under ss. 80HH and 80-I of the Act. The material produced is not sold outside but transported to its another unit manufacturing toilet soaps at Amalner itself. It is an accepted proposition that when the sale of material is taking place by way of intra-unit transfer, a reasonable sum of profit is required to be added to its cost. This view, as canvassed by the learned counsel for the assessee, is supported by the decision of the Gujarat High Court in the case of CIT vs. Ahmedabad Mfg. & Calico Printing Co. Ltd. (1986) 57 CTR (Guj) 132 : (1986) 162 ITR 760 (Guj). The AO and the CIT(A) invoked the previsions of s. 80-I(8) and the Explanation thereto, the relevant provisions of which are reproduced below : "Where any goods held for the purposes of the business of the industrial undertaking . ...... are transferred to any other business carried on by the assessee,....... the consideration, if any, for such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have paid will become the market price. 37.6. Sec. 80-I(8) of the Act requires that only if the consideration recorded in the accounts of the industrial undertaking does not correspond to the market value then only the profits of the undertaking has to be computed by replacing the market value of such goods. The onus is, therefore, on the AO to prove that the transfer by the industrial undertaking does not correspond with the market price. It is the AO who is required to find out the market price. On the contrary, the CIT(A) has requested the authorized representative of the assessee to produce the material to show what is the market value of the material transferred. Since the authorized representative of the assessee was not able to furnish any information, in the absence of any market for fatty acids at Amalner, the CIT(A) rejected the claim of the assessee. This is not the correct approach of interpreting s. 80-I(8) of the Act. On the contrary, a hypothetical market should be presumed at Amalner and if an independent person was to sell the goods at Amalner, the market value would have definitely included not only the cost prevailing at Mumbai but also expenses like frei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of ₹ 300.90 crores and has already invested ₹ 242.99 lakhs in fixed assets under the above expansion/modernisation programme. The unit falls under the trust sector for category of electronics. Accordingly, the unit is eligible for 100 per cent sales-tax exemption (CST and KST) on sale of finished goods for a period of five years from 30th Sept., 1993, i.e., from the date of commencement of production under the expansion/modernisation programme in terms of Government Order No. C1/138/SPC/90(PX), dt. 27th Sept., 1990 and Finance Department Notification No. FD/239/CSL/90, dt. 19th June, 1991. As per this scheme a sum of ₹ 32,90,666 is given by the Government by way of exemption from sales-tax. It was submitted by the learned counsel for the assessee that the sales-tax incentive is by way of past manufacturing activity and hence will be revenue receipt in the hands of the assessee. It is an assistance for carrying on business. Relying on the decision in the case of Sahney Steel & Press Works Ltd. & Ors. vs. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC), the learned counsel stated that the incentive is part and parcel of the income of the industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us giving the bifurcation of ₹ 32,90,666), the same shall be treated as capital receipt to be reduced from the cost of respective assets and not to be treated as revenue income of the assessee. To this extent, the profit of the industrial undertaking itself will be reduced which is forming part of the gross total income and also from the cost of the assets on which depreciation has been claimed. 38.5.1. We. therefore, remit the matter back to the file of the AO, to verify the exact nature of the receipt and allow or refuse the claim of the assessee based on our following observations : (I) If the assessee has been granted the cash assistance by way of subsidy, though it may be treated as revenue income of the assessee, yet the assessee is not entitled to deduction under s. 80-IA of the Act as it cannot be said to be profit derived from the industrial undertaking in view of the decision of the Hon'ble Supreme Court in the case of Sterling Foods (supra). (II) If the assessee was asked to pay the sales-tax which has been paid and was held to be revenue expenses either in this year or in earlier years and if such sales-tax is reimbursed then the assessee will be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to consider that question in order to correctly assess the tax liability of an assessee. We find that whether the assessee is eligible for deduction under s. 80HHC or not is available as per the record of the AO. The assessee, in the first instance, might not have claimed the deduction under s. 80HHC of the Act. However, when the assessee realized its mistake and since the assessment was finalized, the CIT(A) should have entertained the additional around raised by the assessee. The CBDT, by its Circular No. 14(XL-35) of 1955, dt. 11th April, 1955, issued the following direction : "Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some relief or refund is due to him. This attitude would, in the long run, benefit the Department, for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrived at as per computation of the assessee itself which was filed along with the return of income. The learned counsel for the assessee submitted that instead of deducting 90 per cent of the commission income and 90 per cent of the interest income, the assessee, by mistake, reduced the entire amount of commission and interest income. The grievance of the assessee is that instead of allowing the rebate directly, the CIT(A) should not have remitted the matter back. 40.3. From the details available including the orders of the authorities below, we find that if the assessee has any grievance in calculation of deduction under s. 80HHC which, in fact, has been allowed as per the computation of the assessee itself furnished along with the return of income, the assessee should have resorted to the provisions of s. 154 of the Act by filing a rectification application. In any case, the issue has simply been set aside by the CIT(A) to the AO to grant rebate as given in the assessment order taking the correct figure of commission income and interest income for reducing 90 per cent thereof from the profits and gains of business as provided in the Expln. (baa) to s. 80HHC of the Act. The AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software developed by the assessee for a specified period should go under the meaning of rent. The learned counsel for the assessee, therefore, argued that by any stretch of imagination, this cannot be equated with the word "rent". He, therefore, urged that on a proper interpretation of Expln. (baa) to s. 80HHC the amount of software export cannot be reduced from the profits and gains of business. On the other hand, the learned Departmental Representative argued that s. 80HHC is intended to give benefit in respect of profits of the export of goods. In the present case, what has been exported by the assessee is the software which cannot be considered to be goods or merchandise. The assessee may claim the deduction under s. 80HHE of the Act in respect of export of software. When there is specific section for claiming benefit in respect of export of software, the assessee is not eligible for deduction under s. 80HHC in respect of such software exports. This necessarily implies that the income from export of software is not income from export of goods or merchandise and, hence, the CIT(A) is justified in excluding the receipt from software exports while calculating the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sst. yr. 1996-97. One of the main businesses of the assessee is export of software. It cannot, therefore, be held that the receipts are of such a nature which cannot be considered to be part of the total turnover of the assessee. The receipts from the export of software cannot be said to be other receipts of a similar nature. The principle of ejusdem generis to be applied will indicate that the receipt should be of the nature of akin to brokerage, commission, interest, rent or charges. The receipt can also not be treated as rent. The word 'rent' is defined to mean a payment made usually on fixed interval to an owner of land or property in return for the right to occupy or use it. Applying the age-old principle of various nature of capital which will yield various receipts like investment capital will yield 'interest'; immovable property will yield 'rent'; knowledge capital will yield 'remuneration'. Thus, the meaning of the word 'rent' will necessarily relate to the use of immovable property only. If one is rendering his services, he cannot be said to have realized 'rent' for it. It can also not be held to be charges. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO did not accept the plea of the assessee. Relying on the decision in the case of CIT vs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), the AO held that proportionate managerial expenses are to be reduced from the gross dividend. In the absence of details, the AO estimated the expenses at 5 per cent of the gross dividend from companies of ₹ 2,59,99,949. However, the AO did not deduct any amount from UTI. The AO, accordingly, worked out the deduction under s. 80M as under : Income by way of dividend from companies 2,46,99,952 2/5 of dividend from UTI 95,106 2,47,95,058 The AO noted that in earlier assessment years also, similar computations were made and the assessee did not raise any objection to the same. 42.3. The CIT(A) considering the above and after discussing the decisions in the case of Distributors (Baroda) (P) Ltd. vs. Union of India (1985) 47 CTR (SC) 349 : (1985) 155 ITR 120 (SC) and the decision of the Bombay High Court in the case of CIT vs. Maganlal Chaganlal (P) Ltd. (1999) 153 CTR (Bom) 447 : (1999) 236 ITR 456 (Bom) held that there are various decisions to the effect that the qualifying sum on which deductions are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proposition that there is no scope for estimating the expenditure and correspondingly reducing the deduction under s. 80M. 42.5. On the other hand, the learned Departmental Representative submitted that it cannot be denied that atleast some expenditure is required to be met to earn the dividend income. Either some funds should have been invested out of borrowals or also some managerial expenditure is required to manage the portfolio of collection of the dividend. It is also found that similar computation made in the earlier years has not been challenged by the assessee and hence, it is presumed that the assessee has accepted the proposition that some expenditure is incurred for earning the dividend income. Therefore, the estimation made by the AO, to that extent, is proper and does not call for any interference. The learned Departmental Representative also relied on the decision of the apex Court in the case of CIT vs. United General Trust Ltd. (supra), wherein the apex Court has held that proportionate management expenses are to be deducted from the gross dividend for determining the amount eligible for deduction under s. 80M of the Act. 42.6. We have considered the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s expenditure incurred and hence, the gross dividend income is held as the net dividend income and, accordingly, deduction under s. 80M is allowable on such net dividend income, without deducting any estimated expenditure for earning such dividend income. 42.8. This ground of appeal is, accordingly, allowed. 43.1. The next ground of appeal relates to deduction under s. 80-O of the Act for the asst. yrs. 1990-91, 1991-92, 1992-93, 1993-94, 1995-96 and 1996-97. The ground taken is as under : "The authorities below erred in restricting the deduction under s. 80-O on the net income as against the claim of the appellant to grant deduction on the basis of net remittance of foreign exchange to India. The authorities below ought to have granted the deduction on the amount of foreign exchange remitted and ought not to have restricted the quantum of deduction after reducing the expenditure incurred in India." "The authorities below erred in not granting deduction under s. 80-O in respect of ₹ 1,41,25,195 remitted subsequent to 30th Sept., 1995." 43.1.1. For the asst. yrs. 1991-92, 1992-93 and 1993-94, the assessee has raised the issue by way of an additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under s. 80-O is allowable on the amount realised in foreign exchange. The provisions of the Act allow deduction of an amount equal to 50 per cent of the income so received in or brought into India. Thus, what is to be seen is the income brought into India and this amount can only be the gross receipts of the assessee without deducting any expenditure in respect of earning the same. He invited our attention to the decision of the Hon'ble Calcutta High Court in ITP No. 112/1998 in the case of CIT vs. M.N. Dastur & Co. Ltd. (supra), wherein reference application under s. 256(2) of the Act was rejected by the Hon'ble Calcutta Court against the decision of the Tribunal, Calcutta Bench, which held that for the purpose of quantifying relief under s. 80-O the expenditure incurred in relation to such earning should not be deducted. It was so held despite the provisions of s. 80AB which require the computation of net income of that nature for the purpose of computing relief under s. 80-O. It was argued that reference under s. 256(2) was made at the instance of CIT, Kar II and since the reference has been rejected, this becomes the binding decision of the jurisdictional High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 159 CTR (Cal) 417 : (2000) 243 ITR 10 (Cal) (supra) that deduction under s. 80-O has to be allowed on the income which is computed in accordance with the provisions of this Act, in a later decision, in the case of the very same assesseee, the Hon'ble Calcutta High Court has held that the same is allowable before deducting any expenditure in relation to earning of such income. It was, therefore, argued that the later decision should be applied in preference to the earlier decision. The later decision is under the jurisdiction of a case falling with CIT, Karnataka and, impliedly, therefore, it becomes a binding decision in the State of Karnataka. 43.7. We have considered the rival submissions and the relevant facts of the case as well as the various case law as relied upon by the rival counsels. For the proper interpretation of the relevant provisions, ss. 80AB and 80-O are reproduced below : Sec. 80AB : "Where any deduction is required to be made or allowed under any section included in this Chapter under the heading 'C'.'Deduction in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken but it is only the income derived for which deduction is sought and as computed in accordance with the provisions of the Act that can be eligible for deduction. In the case of the assessee, the fee that it had received from abroad constituted its gross receipts and the "income from fee" which was required to be computed in accordance with the provisions of the Act, for deducting from the gross receipt, such amounts as were required to be deducted under the provisions of the Act and which would only be the amount so determined that would constitute "income from fees" for the purpose of s. 80-O deduction of the Act. The word "income" referred to in s. 80-O of the Act is the income computed in accordance with the provisions of this Act. Therefore, it is clear that deduction under s. 80-O is allowable on the income and not on the receipts or the gross receipts. Gross receipts and income are not synonymous. After reducing the expenditure incurred in relation to such receipts the income can be computed. What is forming part of the gross total income is the income after reducing the expenditure. For computing the income which is received by way of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportionate expenses incurred in India are not required to be deducted for computing the income of the nature referred to in s. 80-O. What s. 80AB requires is that for the purpose of computing deduction under s. 80-O, the amount of income of that nature computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee. Thus, in our opinion, only the direct expenses incurred by the assessee in earning the income of the nature referred to in s. 80-O is required to be deducted. There is no scope for reducing the income by estimating certain expenses as would have been incurred for earning such income. We. therefore, hold that the direct expenses as narrated in Col. IV of the Table above, are required to be reduced from the gross receipts stated to be the amount realized in convertible foreign exchange as narrated above in column No. II and on the balance amount the assessee is eligible for deduction being 50 per cent of such income under s. 80-O of the Act. No estimated expenditure relatable to offshore revenue is to be deducted from such receipts for computation of deduction under s. 80-O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised) 31,43,34,639 Income from other sources Dividend income 2,65,94,361 Gross total income 34,09,29,000 Less : Deduction under Chapter VI-A Sec. 80HH relief on Amalner FAGP unit 94,13,191 Sec. 80HH relief on Amalner soap unit 60,44,242 Sec. 80HH relief on Micro sales-Infotech Division 1,19,56,776 Sec. 80HHC relief on leather products/Engg. Lighting, etc. 64,31,201 Sec. 80-I relief on Amalner FAGP unit 1,17,66,489 Sec. 80-IA relief on peripheral unit Infotech Division 1,21,27,870 Sec. 80M Dividend Received 2,62,37,714 Sec. 80-O relief on software exports 41,49,96,456 50,08,03,983 Total deduction under Chapter VI-A restricted to gross total income as per s. 80-A 34,09,29,000 Total Income NIL 61. The data regarding profit of various units/activities eligible for deduction under Chapter VI-A (other than ss. 80HHC and 80M) and the deduction as claimed by the appellant through the revised computation of total income filed with the revised return and corresponding figures as computed by the AO are given below : Sl. No. Unit of activity eligible for deduction Section As shown by the assessee As adopted by the AO Eligible Profits Deduction Eligible Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be higher than the aggregate of income computed under the head profits and gains of business or profession." 44.2.1. Similarly, for asst. yr. 1996-97, the CIT(A) noted as under : "29. The assessee worked out the total income declared for the purpose of assessment in the following manner (vide para 1 above) Profits and gains of Business Rs. Rs. Income from other sources 46,04,44,729 Dividend income 4,19,23,055 Gross total income 50,23,67,784 Less : Deduction under Chapter VI-A : Sec. 80G 50,000 Sec. 80HH Amalner FAGP unit 63,94,624 Sec. 80HH Soap unit 20,46,674 Sec. 80HH Tumkur FAGP unit 38,31,206 Sec. 80HHC 48,77,421 Sec. 80-IA Peenya unit 54,17,169 Sec. 80-IA peripherals unit 1,59,74,005 Sec. 80-IA Amalner unit 79,93,280 Sec. 80-IA Amalner soap unit 25,58,342 Sec. 80-I Tumkur FAGP unit 47,89,008 Sec. 80-O 54,65,61,810 Sec. 80M 3,81,92,725 63,86,86,265 Total deduction under Chapter VI-A restricted to gross total income as per s. 80A 50,23,67,784 Long-term capital gains for the year ₹ 4,67,082 adjusted against long-term capital loss carried forward NIL Total income NIL 29.2. The data regarding profit of various units/act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,20,13,74,426 apart from profit derived from soap unit which appears to have been overlooked by him." 44.3. The CIT(A) has directed the AO suo motu to recompute and allow the eligible deductions under ss. 80HH, 80-I, 80-IA and 80-O after adjusting the losses from other businesses carried on by the assessee. The assessee has set up various industrial undertakings in respect of which it is eligible for deductions under ss. 80HH, 80-I, 80-IA and the assessee has also undertaken activity for which it is eligible for deduction under s. 80-O. These deductions were claimed on the basis of activity carried on by each of the industrial undertaking and eligible profits were arrived at on the basis of separate P&L a/c, etc., prepared in respect of each of these activities. The assessee had claimed deduction under respective sections. The AO after verification and certain disallowances discussed earlier had computed the eligible deductions under each of the sections. For the asst. yrs. 1996-96 and 1996-97, the total of deductions under Chapter VI-A were reduced from the gross total income computed under the Act. This computation, according to the CIT(A), was erroneous as the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the CIT(A) thought it fit not to grant the time sought and directed the enhancement without waiting for objections from the assessee. 44.4. Though the directions of enhancement are for asst. yrs. 1995-96, 1996-97 and 1997-98 the issue is relevant only for asst. yrs. 1995-96 and 1996-97. For the asst. yr. 1997-98 neither the assessee has claimed any deduction under Chapter VI-A nor has it been allowed by the AO. Hence, the direction for enhancement for this year by the CIT(A) is incorrect and irrelevant, and the mistake may be by oversight. 44.5. The CIT(A) while directing the AO to adjust the losses of non-priority business activity against the eligible profits under ss. 80HH, 80-I, 80-IA and 80-O has relied on the decision of the Supreme Court in the case of CIT vs. Kotagiri Industrial Co-op. Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC), another decision of the Supreme Court in the case of H.H. Sir Rama Varma vs. CIT (1994) 116 CTR (SC) 55 : (1994) 205 ITR 433 (SC) and also of the Supreme Court in the case of Motilal Pesticides (I) (P) Ltd. vs. CIT (supra), and host of other decisions. 44.6. The learned counsel for the assessee arguing against the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to suffer because it keeps company with some other industry in the hands of the assessee. It makes no difference that the other industry is also a priority industry." The said decision was also reaffirmed by the decision of the Supreme Court in of M.S.P. Nadar & Sons (1993) 112 CTR (SC) 243 : (1993) 201 ITR 1044 (SC). Further, the jurisdictional High Court in the case of CIT vs. Siddaganga Oil Extractions Ltd. (supra) upheld the treatment given by the assessee and the AO. It was further submitted that recently the Andhra Pradesh High Court in the case of CIT vs. Visakha Industries Ltd. (2001) 171 CTR (AP) 300 : (2001) 251 ITR 471 (AP) has reaffirmed the position of law and which supports the treatment given by the assessee. In view of this legal position, it was submitted that the decisions of the Supreme Court and of the Karnataka High Court should be followed and the CIT(A)'s enhancement which is contrary to these decisions should be quashed. 44.7. The learned Departmental Representative reiterated the argument of the CIT(A) and submitted that the notice issued by the CIT(A) was perfectly in order and the CIT(A) has afforded sufficient opportunity to the assessee, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red even if the appeals were to be dealt by a new incumbent. Further, it is an incorrect approach to make up one's mind even before the other side is heard. Sec. 251(2) makes it mandatory that sufficient opportunity should be given prior to enhancement. On this issue itself the direction of the CIT(A) is liable to be vacated. However, before doing so, we deal on the merits, as all the details are available on record. Further, both the sides have also argued the matter on merits and. hence, there is no need to set aside the matter. 44.10. The issue whether loss from non-priority business should be adjusted against the profits of the industrial undertakings eligible for deductions under ss. 80HH, 80-I and 80-IA has been dealt with by the Supreme Court in the case of Canara Workshop (P) Ltd. (supra), and is in favour of the assessee. The Supreme Court has reiterated the same in the case of M.S.P. Nadar Sons (supra), the relevant portion of the judgment is extracted below : "Learned counsel for the appellant relied on the decision of this Court in CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC). That was a case arising under s. 80E of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the legislature is to provide the benefit of deduction from the profits and gains of an industrial undertaking, which fulfils the conditions specified in the respective provisions of the Act. The said benefit is an incentive intended to boost industrial activity. Hence, the proper interpretation is that the deduction shall be in respect of the profits and gains of an industrial undertaking, specified in the provisions of the Act and not with reference to the profits of the assessee." 44.11. Further, the explicit language of s. 80-I(6) is : "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-s. (1) apply shall, for the purposes of determining the quantum of deduction under sub-s. (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Madras Bench 'C') in the case of Sundaram Finance Ltd. vs. IAC (1984) 18 TTJ (Mad)(SB) 348 : (1984) 7 ITD 845 (Mad)(SB), the expenses on local conveyance and telephone so far they are for the purpose of the business are not to be taken into account for the purpose of computation of disallowable expenditure under r. 6D. 45.3. Before us, the learned Departmental Representative submitted that the whole of the expenses in connection with travelling by an employee are to be considered for the purpose of r. 6D. It was, therefore, submitted that since the local conveyance and telephone expenses are part of expenses in connection with travel by an employee the limit prescribed in r. 6D shall apply to such expenses also and, accordingly, the disallowance deleted by the CIT(A) is not justified. On the other hand, the learned counsel for the assessee submitted that the local conveyance and telephone expenses are not incurred in connection with travel by an employee but is incurred by the employee for the purpose of business. The expenses covered under r. 6D are only expenses which are like travel fare and stay expenses, etc., i.e., lodging and boarding expenses, but cannot cover an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 ITD 490 (Del). The AO observed that the assessee did not furnish any evidence that the expenditure was incurred in account of contractual obligation and also observed that similar disallowance for asst. yr. 1990-91 was conformed by the CIT(A). He, therefore, disallowed the expenses. The CIT(A) held that the expenditure on travel of employees working abroad has a nexus only with the earning of income from abroad on which the assessee claims several benefits. It was, therefore, held as allowable expenditure wholly and exclusively for the purpose of business abroad and earning the foreign income. The Revenue is, therefore, in appeal before us. 46.2. It was submitted by the learned Departmental Representative that there is no material available before the AO to suggest that the expenditure for the foreign travels of the spouses of the employees is contractual in nature. In the absence of such information, it cannot be inferred that the assessee was obliged to spend on the spouses of the employees. The learned Departmental Representative relied upon the decision of the Gujarai High Court in the case of Bombay Mineral Supply Co. (P) Ltd. vs. CIT (1985) 153 ITR 437 (Guj); the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the income earned from export of software being exempt under s. 80-O will have to be excluded while arriving at the profits and gains from individual undertaking for purposes of allowing deduction under ss. 80HH and I " 47.1.1. The next ground of appeal in the case of M/s Wipro Ltd. for the asst. yrs. 1994-95, 1995-96, 1996-97 and 1997-98 is as under : "The CIT(A) ought to have directed the AO to allow deduction under s. 80-I on the profits and gains of the industrial undertaking without excluding the deduction allowed under s. 80HH". 47.2. At the time of hearing, the learned Departmental Representative did not press the above grounds. For want of prosecution, these grounds are dismissed. 48.1. The next ground of appeal in relation to M/s Wipro Ltd. for the asst. yrs. 1995-96, 1996-97 and 1997-98 is as under : "The CIT(A), having opined that for purposes of computation of deduction under s. 80HHC the excise duty and sales-tax should be considered as part of total turnover as per para 35, p. 3 of the order ought not to have allowed the relief claimed by the assessee following the decision of Bombay High Court in the case of CIT vs. Sudharshan Chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used inhouse increased, which is purely a capital expenditure, and at best the assessee is entitled only for depreciation on such enhanced cost." 50.2. The AO held as under : " The essential difference in the usage of imported software inhouse is that the assessee-company is commercially exploiting the software copyright, in the form of developing software for its clients based on the requirements of the clients. Since on this amount, the assessee has not paid any TDS, applying the provisions of s. 195 r/w s. 40(a)(i), the payment for the import of the software used inhouse being in nature of royalty on which tax has not been paid or deducted, not allowed as deduction". The CIT(A) considered the issue at length and held that since the imported software packages are goods, s. 195 has no application. He. therefore, held that the amount cannot be disallowed resorting to s. 40(a)(i) of the Act. The Revenue is challenging the above observation of the CIT(A). 50.3. The learned Departmental Representative submitted that the assessee has itself agreed that the said software is used inhouse. it becomes a tool of business and, accordingly, the same cannot be held as revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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