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TMI Blog2014 (8) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... are those as determined for the purpose of the Act, will apply for determining profits from export business for the purposes of the deduction under section 80HHC Disallowance made u/s.14A - CIT(A) computed such disallowance as ½% of the average investment and restrict the disallowance u/s.. 14A to ₹ 1,87,954/- - Held that:- We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A). - ITA No. 660, 661 & 662/Mum/2009 & ITA/616,617 & 618/Mum/2009, CO/117,118 &119/Mum 2009 - - - Dated:- 1-8-2014 - S.Sh.Vijay Pal Rao,Judicial Member and Rajendra,Accountant Member Assessee by :Sh.J.D.Mistri Revenue by :Sh.Santosh Kumar Per Bench Challenging the orders of the CIT(A)-III,Mumbai,assessee-company as well as the Assessing Officer(AO)has filed cross appeal for the years under consideration.Assessee has also filed cross objections. Grounds of appeal filed by the assessee read as under: - ITA/660/Mum/2009-AY.2003-2004: 1.That, on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,544/- on account of interest, allocation of Head Office expenses and expenses of another division namely, Global Export Marketing to 100% export oriented unit and the CIT(A) has erred in confirming the above disallowance. The learned AO be directed to increase the exemption U/S 10B and reduce the total income-as per normal provision of the act and reduce the book profit U/S 115JB accordingly. 7. On the facts and in the circumstances of the cases and in law, the learned CIT(A) has also erred in making enhancement and withdraw the exemption U/S 10B on the ground that undertaking is not approved by the Board particularly appointed U/S 14 of the Industrial (Development and Regulation) Act. The learned AO be directed to allow the exemption U/S 10B and reduce the total income as per normal provision of the act and reduce the book profit U/S 115JB accordingly. 8. Without prejudice to the claim of the appellant that the exemption claimed U/S 10B is allowable to the appellant, on the facts and in the circumstances of the cases and in law, the learned CIT(A) has erred in not allowing the exemption U/S 10A. The learned AO be directed to allow the exemption either U/S 10A or U/S 10B a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in confirming the order of the learned AO. The learned AO be directed to allow deduction u/s 80HHC on profits from business or profession before allowing deduction of ₹ 10,76,525 claimed by the appellant and reduce the total income under the normal provisions of Income Tax Act as well as U/S 115JB accordingly. 11. Without prejudice to the claim of -appellant company that ₹ 19,64,93,193 incurred on marketing and technical know-how expenses on acquisition of Madura Garments during the AY 2001-02 is allowable fully in A Y 2000-01 itself. However if it is held in A Y 2000-01 that the same expenditure is allowable in five installments as held by AO in the assessment order. The learned AO be directed to allow the deduction of ₹ 3,92,98,638/- and to reduce the total income accordingly. 12. On the facts and in the circumstances of the case and in law, the learned AO has erred in a ding back the provision for deferred tax of ₹ 25,22,00,000 to the book profits computed 115JB learned CIT(A) has erred in confirming the order of the learned AO The learned AO be directed to delete the addition of provision for deferred tax of ₹ 25,22,00,000 and reduce th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the learned AO. The learned AO be directed to allow the deduction of ₹ 1,76,74,126/- and to reduce the total income accordingly. 3. On the facts and in the circumstances of the cases and in law, the learned AO has erred in reducing the exemption u/s 10B by ₹ 1,10,488/- on account of allocation of Head Office expenses to 100% export oriented unit and the CIT(A) has erred in confirming the above disallowance. The learned AO be directed to increase the exemption u/s 10B and reduce the total income and reduce the book profit u/s 115JB accordingly. 4. On the facts and in the circumstances of the cases and in law, the learned CIT(A) has also erred in making enhancement and withdraw the exemption u/s 10B on the ground that undertaking is not approved by the Board particularly appointed u/s 14 of the Industrial (Development and Regulation) Act. The learned AO be directed to allow the exemption u/s 10B and reduce the total income and book profit u/s 115JB accordingly. 5. Without prejudice to the claim of the appellant that the exemption claimed u/s 10B is allowable to the appellant, on the facts and in the circumstances of the cases and in law, the learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in reducing the MAT credit available to ₹ 6,20,17,944 against the MAT credit available to the appellant of ₹ 14,76,34,018 and the learned CIT(A) erred in not considering the ground of appeal. The learned AO be directed to allow correct available MAT credit and increase the refund amount accordingly 11. Without prejudice to the claim of the appellant company that no TDS was applicable u/s195 on fees paid to lead managers to the issues during A Y 1994-95 as also held by Hon'ble IT AT and If in department appeal at higher level, it is held that withholding tax on fee paid to lead manager is required to be deducted then the deduction u/s 35D should be allowed to the appellant. 12.Without prejudice to the claim of appellant company that ₹ 19,64,93,193 incurred on marketing and technical know-how expenses on acquisition of Madura Garments during the A Y 2000-01 is allowable fully in A Y 2000-01 itself. However if it is held in A Y 2000- 01 that the same expenditure is allowable in five installments as held by AO in the assessment order. The learned AO be directed to allow the deduction of ₹ 3,92,98,638/- and to reduce the total income accordingly. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in disallowing the claim of deduction u/s 80GGB/37 of ₹ 2,40,00,0001- on account of contribution to General Electroal Trust. The learned CIT(A) has erred in confirming the order of the learned AO .The learned AO be directed to allow the claim for deduction of ₹ 2,40,00,0001- and increase the deduction u/s 80GGb/37 by ₹ 2,40,00,0001- and to reduce the total income accordingly. 6.Without prejudice to the claim of the appellant that the deduction claimed uls.36(1)(iii) or interest on loans taken for new projects/expansion /modernization during assessment years 1995- 96 to 1999-2000 is revenue expenditure, however, if it is held in those years that the said expenditure is not revenue expenditure, the appellant claims that the said expenditure be capitalized to the actual cost of fixed assets and depreciation be allowed on the same and to reduce the total income accordingly. 7.Without prejudice to the claim of the appellant company that no TDS was applicable u/s 195 on fees paid to lead managers to the issues during A Y 1994-95 as also held y Hon'ble ITAT and If in department appeal at higher level, it is held that withholding tax on fee paid to lead manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y.2004-2005: 1. On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting the amount of ₹ 7,15,73,958/- being the MODVAT credit available to the assessee without appreciating the provisions of section 145A of the I.T.Act. 2. On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting amount of ₹ 20,03,282/- being payment made to Ind. Rayon School Veraval without appreciating that the same is not covered u/s 40A(9) of the I. T. Act . 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. ITA/618/Mum/2009-AY.2005-2006: 1. On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting the amount of ₹ 7,03,57,036/- being the modvat credit available to the assessee without appreciating the provisions of section 145A of the I. T.Act. 2. On the facts and circumstances of the case and in law the Ld CIT(A) erred in deleting amount of ₹ 24,19,517/- being payment made to Ind. Rayon School Vera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenses. c. Applying the Rule 80 r.w.s. 14A retrospectively. 3. The appellant reserves the right to add, alter, amend and delete the above ground/s at or before the time of hearing CO/119/Mum/2009-AY.2004-2005: 1.That,on the facts and circumstances of the case and in law the learned Assistant Commissioner of Income Tax (hereinafter referred to as AO ) has erred in not increasing opening stock by an amount of ₹ 5,04,24,066 on account of addition made to closing stock on account of MODVAT credit during the previous year relevant to assessment year 2003-04 and the learned Commissioner of Income Tax (Appeals) Central-II has erred in confirming the action of the learned AO. The learned AO be directed to allow the claim of deduction of MODVA T credit of ₹ 5,04,24,066 and to reduce the total income of the appellant accordingly. 2.The appellant reserves the right to add, alter, amend and delete the above ground/s at or before the time of hearing. During the course of hearing before us,Authorised Representative (AR) informed that Grounds of appeal no.1,3,8,11,15,Grounds no.1,5,8,11,12 and Grounds no.1,6,7,8 for the AY.s.2003-04 to2005-06 respectively,wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by the order of the Tribunal delivered for the AY 2002-03 (ITA / 615/ Mum/2009,dated 30.06.2014). 3.1.We find that sum of ₹ 3.33 crores,Rs.2.50 crores and ₹ 1.87 crores was found to be incurred by the assessee for the AY.s.2003-04.2004-05 and 2005-06 respectively on account of marketing and knowhow incurred on acquisition of Madura Garments division.We find that the identical issue was deliberated upon by the Tribunal while deciding the appeal for earlier AY. We are redproducing the relevant paragraph of that order and same reads as under: 18.Ground No. 8 reads as under: That, on the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing depreciation of ₹ 3,33,86,719 claimed by the appellant on goodwill of ₹ 20.35 crores acquired on acquisition of Madura Garments division from Madura Coasts Ltd. on a going concern basis and learned CIT (A) has erred in confirming the order of the learned AO. The learned AO be directed to allow the depreciation on goodwill and to reduce the total income accordingly. 18.1.We find that this issue has already been allowed in assessee s own case in ITA No.5421/ M/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years is about disallowance of ₹ 36.05 lakhs, 38.57 lakhs and 36.23 lakhs and is related to claim of deduction u/s. 80IA and 80IB of the Act.Before us,AR and DR stated that while deciding the issue for the AY 2002-03, the Tribunal had deleted allocation of head office expenses in computing 10B deduction.A reference was made to page 14 paras no.19- 20 of the order for the AY 2002-03(supra). 5.1.We would like to reproduce the paragraphs no.19 and 20 of order of the Tribunal for the AY 2002-03 (supra) and same read as under: 19.Ground No. 9 reads as under: On the facts and in the circumstances of the cases and in law, the learned AO has erred in reducing the exemption u/s.10B i) by ₹ 75,083/- on account of allocation of Head Office expenses to 100% export oriented unit and; ii) by ₹ 32,289/- on account of allocation of expenses of another division namely, Global Export Marketing to 100% export oriented unit and iii) by ₹ 25,943/- on account of interest income earned by 100% export oriented unit; and the CIT(A) has erred in confirming the above disallowance.The learned AO be directed to increase the exemption u/s. 10B and reduce the total income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: On the facts and in the circumstances of the cases and in law, the learned CIT(A) has also erred in making enhancement and withdrawing the exemption u/s.10B on the ground that undertaking is not approved by the Board particularly appointed u/s. 14of the Industrial (Development and Regulation) Act. The learned AO be directed to allow the exemption u/s. 10B and reduce the total income and reduce the book profit u/s. 11 5JB accordingly. 21.1.At the very outset, we have to state that this is not the first year of claim of exemption u/s.10B of the Act.The Hon ble Bombay High Court in the case of CIT Vs Paul Brothers 79 Taxman 378 and in the case of Western Outdoor Inter Active Pvt. Ltd. 25 Taxmann.com 340 has laid down that if the claim of deduction/exemption is allowed in earlier years, the same cannot be withdrawn in subsequent years unless deductions allowed in the initial year is withdrawn. We find that there is no change in the facts which were in existence during the year vis- -vis the claim of exemption u/s10B of the Act. We also find that this is not the first year of claim therefore the department cannot deny the benefit of Sec.10B without withdrawing the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of imports for manufacturing an export product, any amount realised by the assessee over and above the DEPB credit on transfer of the DEPB credit would represent profit on the transfer of the DEPB credit. Thus, while the face value of the DEPB credit will fall under clause (iiib) of section 28 of the Act, the difference between the sale value and the face value of the DEPB credit will fall under clause (iiid) of section 28 of the Act. The cost of acquiring the DEPB credit is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB credit which accrues to a person against exports has a cost element in it. The DEPB credit represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB credit is not utilised by the exporter but is transferred to another person, the credit continues to remain as a cost to the exporter. When, therefore, the DEPB credit is transferred by a person, the entire sum received by him on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB credit which represents his profits on transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (iiid) and not ninety per cent of the entire sale value including the face value of the DEPB credit will get excluded from the profits of the business . Thus, where the ninety per cent. of the face value of the DEPB credit does not get excluded from profits of the business under Explanation (baa) and only ninety per cent. of the difference between the face value of the DEPB credit and the sale value of the DEPB credit gets excluded from profits of the business , the assessee gets a bigger figure of profits of the business and this is possible when the DEPB credit accrues to the assessee in one previous year and transfer of the DEPB credit takes place in the subsequent previous year. The result in such case is that a higher figure of profits of the business' becomes the multiplier in the formula under sub-section (3)(a) of section 80HHC for arriving at the figure of profits derived from exports. To the figure of profits derived from exports worked out according to the formula under subsection (3)(a) of section 80HHC, the additions as mentioned in the first, second, third and fourth proviso under sub-section (3) are made to the profits derived from expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80HHC, but he would get the benefit of exclusion of a smaller figure from profits of the business under Explanation (baa) to section 80HHC of the Act. There is nothing in Explanation (baa) to section 80HHC to show that this benefit of exclusion of a smaller figure from profits of the business will not be available to an assessee having an export turnover exceeding ₹ 10 crores. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Explanation (baa) to section 80HHC read with the words used in clauses (iiid) and (iiie) of section 28, the assessee was entitled to a deduction under section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee. Respectfully following the same,we decide Ground 10(b) for the year 2003-04 in favour of the assessee.As the facts for the ground no.7 for the year 2004-05 are identical that of the ground no.10(b)of the previous year, therefore, following it ground of appeal no.7 for AY.2004-05 is also decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80-IA(9) does not refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail the allowance of deduction and not the computation of deduction under any other provisions under heading C of Chapter VI-A of the Act. The Legislature has used specific words whenever it intends to affect the computation of deduction. As the words used in section 80-IA(9) relate to allowance and not computation of deduction, it cannot be inferred that section 80-IA(9) was inserted with a view to affect computation of deduction under any other provisions under heading C of Chapter VI-A. Since section 80-IA(9) uses the words shall not be allowed , the section seeks to restrict the allowance of deduction and not the computation of deduction under any other sections under heading C of Chapter VI-A of the Act. Therefore the reasonable construction of section 80-IA(9) would be that where the deduction is allowed under section 80-IA(1), then the deduction computed under other provisions under heading C of Chapter VI-A have to be restricted to the profits of the business that remain after excluding the profits allowed as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the order for the earlier years,including AY.2002-03.Reference was made to the paragraphs no. 25-26 of the order of the AY 2002-03.We reproduce the said paragraphs which read as under: 25. Ground No. 14 reads as under: On the facts and in the circumstances of the cases and in law, the learned CIT(A) has erred in not entertaining the additional ground to direct the AU to exclude from taxable profit, the sales tax exemption benefit of ₹ 5,89,11, 855/-, the learned CIT(A) be directed to accept the ground of appeal and the learned AO be directed to exclude the sales tax exemption amount of ₹ 5,89,11,855 from the taxable income. 26.We find that an identical issue was considered by the Tribunal in assessee s own case in ITA No. 5421/M/2005 for A.Y.2000-01 at para-28 of its order and at para-31, the Tribunal directed the AO to adjudicate on this issue as per law and relying on the decision in the case of Reliance Industries Ltd. 82 TTJ 765 following the decision of the Tribunal in ITA Nos. 6668 6669/M/03. Facts and issues being similar, respectfully following the decision of the Co-ordinate Bench as mentioned hereinabove, we direct the AO accordingly. Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the Modvat credit was set off against their excise duty liability. The assessee had, in valuing their stock, uniformly adopted the net method , viz., valuing the raw materials at the purchase price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw materials and the work in progress at the end of the year. The Assessing Officer took the view that the Modvat credit should be treated as an income or advantage in the nature of income and added back the Modvat credit. The Appellate Tribunal held that the Modvat credit could not be added back to the income of the assessee. that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of duty-paid raw material, that would not amount to income which was liable to be taxed under the Act : income was not generated to the extent of the Modvat credit on unconsumed raw material ;(ii) that it was not permissible for the Assessing Officer to adopt the gross method for valuation of raw materials at the time of purchase and the net method for valuation of stock on hand. Respectfully following the above decision Grounds no.2,1 and 1 for the AY.s.2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this assessment year as well, the expenditure of ` 2,80,263, has to be held as allowable. Consequently, the disallowance made by the Assessing Officer is deleted. Appeal in respect of ground no.4, is disposed off as allowed. 46. After hearing the rival contentions, we find that the assessee was providing milk to the employees and workers at subsidised rates.The milk was also used for preparing tea/coffee for the staff/visitors.The assessee had maintained certain cows to ensure good quality of milk and had incurred certain expenditure on maintenance thereof. The milk was sold at subsidised rates to the employees. There was a net deficit and this was charged to the Profit Loss account. On these facts, we uphold the findings of the Commissioner (Appeals) that the expenditure incurred in question is incurred out of commercial expediency and, hence, has to be allowed as a deduction. Respectfully following the same,ground no.1 is decided against the AO. 19.Next ground(GOA-3) of appeal is about deduction u/s 80 M of the Act and the amount involved is ₹ 5.43 lakhs.Before us,DR supported the order of the AO. AR conceded that matter was to be decided against the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2.It was explained before the Ld. CIT(A) that total amount of investment in group company is ₹ 54.30 crores. It was further explained that in respect of investment in group companies, the assessee does not have to incur any expenditure at all.The Ld. CIT (A) was convinced with this explanation of the assessee. However, in respect of balance investment, the Ld.CIT(A) was of the opinion that disallowance u/s.. 14A need to be made. The Ld.CIT(A) computed such disallowance as % of the average investment and restrict the disallowance u/s.. 14A to ₹ 1,87,954/-. 32.3. Before us, the Ld. DR could not bring any distinguishing facts or decision in favour of the Revenue. The Ld. DR relied upon the findings of the AO. 32.4.The Ld. Sr. Counsel for the assessee fairly conceded to the findings of the Ld. CIT(A). 32.5.We have carefully perused the orders of the authorities below. We find that the major investment of the assessee is in its group companies. After considering this facts, the Ld. CIT(A) has restricted the disallowance to ₹ 1.87 lakhs. We do not find any reason to interfere with the findings of the Ld. CIT(A). Ground No. 2 is accordingly dismissed. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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