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TMI Blog2010 (8) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... of the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income: a) Interest from hank on Margin Money 11,61,870 b) Interest on ICD given at the same rate at which the monies are borrowed by the company 9,64,740 c) Insurance Claim 3,42.628 Total Interest Income 24,69.438 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to he excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income, 2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 80IA of the Act on the ground that these incomes are not derived from industrial undertaking; Amount (Rs.) a) Interest from hank on Margin Money 11,61,870 b) Interest on ICD given at the same rate at which the monies are borrowed by the company 9,64,740 c) Intel-rat on IDB1 Omni Bonds 49,920 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest from bank on margin money, interest from ICD, insurance claim from the profits of business for the purposes of computation of deduction under section 80 HHC. 5. We have heard the parties and carefully perused the material on record. It was submitted by the ld. AR that this issue has been set aside by the Tribunal in Asst. Year 1999-00 in ITA No.1063/Ahd/2003 for Asst. Year 1999-00 and ITA No.823/Ahd/2003 Asst. Year 1999-00 pronounced on 23/01/2009 following the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. 243 ITR 02 (SC) in para 30 of their order. 6. The ld. DR on the other hand supported the orders of authorities below. 7. Respectfully following the above decision of the Tribunal, we restore the matter to the file of AO to decide the issue afresh after considering the decision of Hon. Supreme Court as referred above. 8. The issue regarding interest on inter corporate deposits and insurance claim received, has been confirmed by the Tribunal in the previous year as referred to above vide para 31 of their order as under :- "31. Coming to interest on inter corporate deposits and insurance claim received, we are of the opinion that the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year by the Tribunal as per para 10.2 of their order as under:- "10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions." Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes. 12. Ground No.3 relates to rejection of claim of 100% EOU u/s 10B of the Act on the ground that no exemption u/s 10B is available to the assessee. 13. The ld. AR relied on the decision of Hon. Delhi High Court in CIT vs. Shri Ram Honda Power Equipment 289 ITR 475 for the proposition that netting should be allowed. However, Hon. Bombay High Court in the case of CIT vs. Asian Stars, Bombay, pronounced on 5th April, 2010 held that netting of expenditure is not allowable under explanation (baa) to section 80HHC. Hon. Bombay High Court disapproved the decision in Lalson Enterprises 95 ITD 25 (Del) and also declined to follow the decision of Hon. Delhi High Court in Shri Ram Honda Power E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired years notwithstanding that it satisfies the conditions in those subsequent years, or not. Thus if AO allows exemption to the assessee in one initial year year then assessee will be continued to be granted such exemption for next unexpired period without looking into whether it satisfies such conditions in such subsequent years. The ld. DR on the other hand opposed this contention put forward by the ld. AR and supported the order of CIT(A). 16. We have heard the rival submissions and perused the material on record. In our considered view the interpretation advanced by ld. A.R. is not correct. Income of every Asst. Year has to be computed in accordance with the provisions of the Act as existing for that Asst. Year. The applicability of the amended provisions has to be looked into and is to be seen whether assessee satisfies those conditions or not and whether it falls into charging section relevant to that Asst. Year. In our considered view the AO is duty bound to see whether assessee is satisfying the conditions laid down in the relevant provisions of the Act for that particular Asst. Year before allowing deductions of the exemption or the allowance claimed by the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation -2 - The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Thus it has to be seen that assessee is bringing foreign exchange into India as a result of its export. The argument of the assessee is that other concerns to whom assessee has sold its product in India are bringing convertible foreign exchange in India through export of their product contained in the containers manufactured by the assessee. Thus products of the assessee in fact are exported by the other concerns and convertible foreign exchanges are brought by them into India. We are unable to subscribe to this view. It is because phrase mentioned in sub-section (3) is "…..are received in……., or brought into India by the assessee in convertible foreign exchange…" Thus it is the assessee who has to bring convertible foreign exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od as in common commercial parlance. 1(c) The CIT{A) failed to take note of the mandate of section 145A(b), inserted w.e.f, 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover. 2(a) On the facts and In the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of ₹ 1,07,74,556/- from the profits of the business in the computation of deduction u/s 80 HHC on the sole ground that the lease rent was assessable as business income, without appreciating that Explanation (baa)(1) below section 80 HHC provides for exclusion of 90%, inter alia, of rent, only when the same was assessable as business income, i.e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits" in this Explanation and, in case such rent was assessable as income from house property or other sources, there was no question at all of any portion of the same entering into the computation of deduction u/s 80HHC. 2(b) The CIT(A) failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of Revenue is rejected. 23. Ground No.2 is relates to exclusion of lease rent from the profits of the business in the computation of deduction under section 80 HHC. 24. This issue in assessee's appeal has been restored to the file of ld. CIT(A) and accordingly entire issue has to be examined by him afresh including the point raised by the Revenue. Accordingly, this ground of Revenue is allowed for statistical purposes. 25. Ground No.3 relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected. 26. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes. ITA No.282/Ahd/2007 Asst. Year 2001-02 (Assessee's appeal) 27. The assessee has raised the following grounds in this appeal :- 1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing 90 % of the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s. 10B of the Act on the ground that no exemption u/s. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange. 5. The learned Commissioner of Income Tax (Appeals) erred in fact, and in law in confirming the disallowance of ₹ 8,003 being prior period expenses. 6. The learned Commissioner of Income Tax (Appeals) erred in. fact and in law in confirming the action of the AO in charging interest u/s. 234B and 234Dof the Act. 7. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 27l(l)(c) of the Act. 28. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we restore the issue regarding interest from bank on margin money to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue's appeal) 38. The Revenue has raised the following grounds in its appeal:- 1(a) On the Facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of ₹ 3,23,51,323/- and sales tax of ₹ 1,00,69,057/- from the total turnover for the purpose of computing deduction u/s.80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murray & Co P. Ltd. vs CET 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover, 1(b) The CIT(A) also failed to take note of the definition of total turnover fn clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance. 1(c) The CIT(A) failed to take note of the mandate of section 145A{b)r inserted w.e.f. 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcludible to the extent of 90% in the computation of deduction u/s 80HHC besides the decisions in the case of CIT vs. K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotalal 246 ITR 439 (Bom) holding that 90% of all receipts which do not form part of turnover are excludible under the Explanation (baa) that was enacted in order to remove distortion in the working of profits derived from the export by apportionment of the profits of the business in the ratio of export turnover to total turnover, which envisages entire profits as arising from turnover, 39. Ground No.1 of Revenue's appeal relates to exclusion of sales-tax and excise duty from total turnover while computing deduction under section 80 HHC. 40. This issue has been decided in favour of the assessee in Asst. Year 2000-01 following the decision of Hon. Supreme Court in CIT vs. Laxmi Machine Works (supra). Accordingly, this ground is decided in favour of assessee. 41. Ground No.2 relates to exclusion of lease rent from the profits of business in the computation of deduction u/s 80 HHC. Following our order in Asst. Year 2000-01 we restore this issue to the file of AO for reconsideration. 42. Ground No.3 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m profits derived from industrial undertaking for computing the deduction u/s. 80HHC and 80IA respectively on the basis of "gross receipts" thereof and in not allowing any expenditure incurred for earning the respective income, 4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing deduction claimed u/s. 80IA from the profit of the business while calculating deduction u/s.80HHC of the Income Tax Act, 1961. 5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective. The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s, 10B of the Act on the ground that no exemption U/B. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from ICD and interest from IDBI omni bonds. Following our decision in Asst. Year 2000-01 we confirm the order of the AO in respect of interest from bank on margin money and interest from ICD. However, the issue relating to insurance and income from operation is allowed in favour of assessee following our order for Asst. Year 2000-01. 50. The issue regarding lease rent on lease of assets manufactured by the assessee is restored to the file of AO following our order in Asst. Year 2000-01. This ground of assessee is partly allowed and partly allowed for statistical purposes. 51. Ground No.3 relates to reduction of gross amount of various income instead of net amount. 52. Similar issue had arisen before us in Asst. Year 2000-01. Following the same we confirm the order of ld. CIT(A), wherein we have held that 90% of gross amount has to be reduced from the profits of the business instead of net. Following the same we confirm the order of ld. CIT(A). 53. Ground No.4 relates to deduction claimed u/s 80IA from the profit of business while computing deduction u/s 80 HHC. 54. This issue is directly covered by the decision of the Tribunal (Special Bench) in ACIT vs. Hindustan Mint and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off." We restore the matter to the file of AO to verify whether the amount has been actually written off and then decide the issue in accordance with the decision of Hon. Apex Court in TRF Ltd. vs. CIT (supra). Accordingly, this issue is allowed for statistical purposes. 59. Ground No.8 is regarding charging of interest u/s 234D of the Act. This ground is decided in favour of assessee following our order for Asst. Year 2000-01. ITA No.491/Ahd/2007 Asst. Year 2002-03 (Revenue's appeal) 60. The Revenue has raised the following grounds in this appeal:- 1(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of Ra.88,3l,207/- and sales tax of ₹ 2,53,24,858/- from the total turnover for the purpose of computing deduction u/s,80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion of 90% of "charges" and "any other receipt of a similar nature", only when the same were assessable as business income, i.e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits" in this Explanation and, in case such receipt was assessable under the head "Income from other sources", there was no question at all of any portion thereof entering into the computation of deduction u/s 80HHC, 3(b) CIT(A) failed to take note of the jurisdictions! High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj} specifically holding such miscellaneous incomes as excludible to the extent of 90% in the computation of deduction u/s SOHHC besides the decisions in the case of CIT vs K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom) holding that 90% of all receipts which do not form part of turnover are excludible under the Explanation (baa) that was enacted in order to remove distortion in the working of profits derived from the export by apportionment of the profits of the business in the ratio of export turnover to total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from Operations 56,01,175 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in not giving any decision on item nos. (e) and (f) above despite the fact that specific grounds were taken by the appellant and also submissions were made at the time of hearing. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income. 2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective. The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s. 10B of the Act on the ground that no exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting to exclude excise duty of ₹ 1,71,77,281/- and sales tax of Rs,60,75,207/- from the total turnover for the purpose of computing deduction u/s 80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murray & Co. P. Ltd. vs CIT 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover. 2. The CIT(A) also failed to take note of the definition of total turnover in clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance. 3. The CIT(A) failed to take note of the mandate of section 145A(b), inserted w.e.f. 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover. 75. Ground No.1 of this appeal relates to exclusion of excise duty and sales-tax from the total turnover for the purpose of computing deduction u/s 80 HHC. 76. Similar is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o exemption u/s 10B of the Act, for assessment year 2000-2001 being the A.Y. immediately preceding the A.Y. 2001-02, the A.Y. in which the amended provision were made effective. The learned Assessing officer erred in fact and in rejecting the claim of 100% EOU u/s 10B of the Act, on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sales are in domestic market and also the appellant has no received any sale proceeds in convertible foreign exchange. 3. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234D of the Act. 4. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in withdrawing interest u/s 244 A of the Act 5. The Learned CIT(A) erred In fact and in law in confirming the action of the AO in initiating the penalty proceedings u/s 271(1)(c) of the Act. 83. Ground No.1 of this appeal relates to deduction of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of ₹ 52,30,180/- from the turnover of the business in the computation of deduction u/s 80HHC, without appreciating that Explanation (baa) (1) below section 80HHC provides for exclusion of 90% of rent and other non-business income including receipts from exchange rate fluctuations. (b) The ld. CIT(A) erred in negating the exclusion of income of ₹ 82,24,440/- from repairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80HHC, without appreciating that Explanation (baa)(1) below section 80HHC provides for exclusion of 90% of "charges" and "any other receipt of a similar nature", only when the same was assessable as business income, i,e. under the head "Profits and gains of business or profession", as is clear from the words 'included in such profits" in this Explanation and, in case such rent was assessable under the head "income from other sources", there was no question at all of any portion of the same entering into the computation of deduction u/s 80 HHC. 91. Ground No.1 of this appeal relates to deletion of addition on account of expenditure incurred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from profits of the business while computing deduction u/s 80 HHC. Similar issue came up before us for consideration in Revenue's appeal for Asst. Year 2000-01. The same has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected. ITA No.148/Ahd/2008 Asst. Year 2005-06 (Assessee's appeal) 97. The following grounds have been raised by the assessee:- 1. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Income Tax Act, 1961 despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A.Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were made effective. The Learned AO erred in fact and in law in rejecting the claim of 100% EOU u/s 10B of the Income Tax Act. 1961 on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange, 2. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss account as it was also a free replacement. The AO, however, took the view that assessee has been following exclusive method in accounting for the excise duty i.e. excise duty is separately accounted whether paid or received but in this case assessee has adopted inclusive method by debiting the same to the profit and loss account. He accordingly disallowed the claim. 101. The ld. CIT(A) confirmed the addition by observing as under :- "7. I have considered the rival submissions. It is observed that in effect the submissions made by the appellant are a reiteration of the stance taken up before the AO who had considered the same and rejected by saying that the acceptance of the claim would amount to the reversal of the method of accounting regularly employed by the appellant since it would mean that the appellant has been resorted to the inclusive method of accounting in respect of the excise duty paid. It is observed that the appellant has not squarely met this objection. Under the circumstances, I find no reason to interfere with the order of the AO on this point. The disallowance made by the AO of 5,71,534/- is confirmed." 102. We have heard the parties. In our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961. 109. This issue is pre-mature and hence it is rejected. 110. Ground No.4 relates to charging of interest u/s 234C, 234D & 244 of the Act. 111. The issue regarding charging of interest u/s 234C & u/s 244 of the Act is consequential in nature and will depend upon the assessed income. This issue is accordingly rejected. 112. So far as the issue regarding charging of interest u/s 234D is concerned, similar issue came up for adjudication before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same in favour of the assessee. This issue is decided in favour of assessee following our order for Asst. Year 2000-01. Accordingly this ground is partly allowed. ITA NO.2963/Ahd/2009 Asst. Year 2007-08 (Assessee's appeal) 113. The assessee has raised following grounds in this appeal:- 1. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Income Tax Act, 106! despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A,Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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