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TMI Blog2013 (5) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... o one issue which read as under : 1. Whether on the facts and circumstances of the case, and in law the Ld.CIT(A) has erred in overlooking the fact that there was no dichotomy of EOU and Non-EOU units of the assessee in respect of operations of accounting a fact which was evident from the assessees own submission of consolidated Balance Sheet of both units by way of revised return for A.Y. 2004-05 and no separate books were produced in respect of EOU unit during Assessment Proceedings u/s 143(3) for the year under consideration. 2. Whether on the facts and circumstances of the case, and in law the Ld.CIT(A) has erred in deleting the set off of unabsorbed depreciation of ₹ 70,36,530/- and increasing deduction allowable to the assessee U/s. 10B of the IT. Act, 1961 to that effect ? 3. Whether on the facts and circumstances of the case, and in law the Ld.CIT(A) has erred in holding that in computing exemption which is in respect of profits and gains of a hundred percent export oriented unit only, there is no scope for set off of unabsorbed depreciation of earlier year of the non-EOU unit without appreciating that there is no such provision in the Act. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of income. The company has claimed the deduction u/s 10B on the profits and gains derived by 100% EOU without setting off the accumulated losses pertaining to noneligible undertaking. In this respect, the assessee company relies on the decision of Supreme Court in the case of Canara Workshop Ltd. (161 ITR 120) . 3.1 However, the AO was not convinced with the explanation given by the assessee. He observed from the revised return of income filed by the assessee that for the purpose of calculation of income of EOU the assessee has reduced and set off only the unabsorbed depreciation brought forward from A.Y. 2003-04 amounting to ₹ 70,36,530/-. He observed that it is not known as to how the assessee determined the figure of ₹ 70,36,530/- because as per the assessment order of A.Y.2003-04 the unabsorbed depreciation loss of A.Y. 2003-04 was only ₹ 5,08,721/-. On the contrary, there was substantial depreciation loss for A.Y. 1998-99, 1999-2000 and 2001-02. There were business losses of ₹ 19,73,34,979/- for A.Y. 2000-01 and 2001-02. He observed that originally both the units of the assessee i.e. unit for manufacturing of heat exchangers (now claimed as 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action while giving appeal effect. 27. Secondly, it is submitted by the learned AR that an amount of ₹ 26,26,633/- set off against the profit of the eligible EOU was actually the depreciation of the erstwhile non-eligible unit located in Domestic Tariff Area (DTA) and the same relates to a year when the eligible EOU had not even came 'into existence . It is further submitted that the entire amount of unabsorbed depreciation of the non-eligible unit (including the said amount of ₹ 26,26,633/- ) has been fully set off against profits and gains of business for the A.Y. under consideration ,and, therefore, the same cannot again be set off against the profit of the EOU. 28. Thirdly, it is submitted by the learned A.R. that deduction under sec.10B which falls in Chapter-Ill is required to be made while computing income under the head Profit Gains of Business and not from Gross Total Income as envisaged under Chapter VI-A. 29. I have given careful consideration to the matter. Chapter III of the I.T. Act has been explained as follows in Sampath lyengar's 'Law of Income tax' (10th Edition , Vol.1, Page 1248): In this chapter (sections 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o substantial amount of unabsorbed depreciation and business loss of non 10B undertaking incurred prior to coming into existence of 10B undertaking. Referring to Pages 39 to 44 of Paper Book No.2 he submitted that the assessee had filed revised return together with the prescribed report in Form 56G duly certified by the accountant as required u/s 10B. All the requirements had been fulfilled. There is no requirement to maintain separate set of books for the 10B undertaking and profit thereof could be properly deduced from the records. Referring to page 45 of the Paper Book No.2, he submitted that the assessee had rightly set off the unabsorbed depreciation of the 10B undertaking itself brought forward from the preceding A.Y. 2003-04 at ₹ 70,36,530/-from the profits. The fact has been duly noted by the A.O. in the succeeding A.Y. 2005-06. Referring to Page Nos. 49 and 50 of the Paper Book No.2 he submitted that the A.O. has passed order u/s154 rectifying order giving effect after due verification of aforesaid figures for the A.Y. 2005-06. 3.6 The Ld. Counsel for the assessee further submitted that deduction u/s 10B has to be made at source i.e. by excluding profit of 10B und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A gross total income to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under Section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under Section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law is answered in favour of the assessees and against the Revenue. 3.9 In view of the decisions cited above we do not find any infirmity in the order of the CIT(A). Accordingly, grounds raised by the revenue are dismissed. 4. Ground of appeal No.7 by the Revenue reads as under : 7. Whether on the facts and circumstances of the case, and in law the CIT(A) has erred in holding that interest provision of ₹ 38,35,199/- on account of excise duty liability is a ascertained liability and is not to be added to book profit u/s.115JB of the I.T. Act 1961 when the A.O. has held the same to be a contingent and unascertained liability. 4.1 Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings noted that the assessee in the computation of income has made the following provision which were added back in the computation of income : a. Interest provision on Excise Clause 17K ₹ 38,35,199/- b. Provision for doubtful debts ₹ 52,15,971/- He noted that although the assessee has added back the above amounts for the purpose of computing its income, however, none of these provisions were considered for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized principle of Accrual and Prudence laid down in mandatory Accounting Standard-1 issued by the ICAI, recognized and required to be followed under the Companies Act and also in consonance with the Accounting Standard I notified under Section 145 by the CBDT. He submitted that the said provision for interest payable was for the known liability and the audited Profit Loss Account was drawn up in accordance with Part II and III of Schedule VI to the Companies Act. The said provision for interest on excise duty partook the character of statutory due u/s 43B and therefore was added back in the computation of total income under normal tax provisions. He submitted that the CIT(A) on the aforesaid basis has given the finding that the said liability was an ascertained liability and ought not to have been added back to the book profits determined under provisions of Sec. 115 JB. He accordingly submitted that the ground by Revenue on this issue be dismissed. 4.6 We have considered the rival arguments made by both the sides, perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We find the assessee had submitted before the Ld. CIT(A) that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequent to which a gain of ₹ 68,01,159 accrued to the company which was credit3ed to the Profit and Loss Account. The company is of the view that such a gain constitutes a Capital Receipt which is not chargeable to tax. Nevertheless, on a conservative basis, the company has included this amount in the computation of Total income. However, the company reserves the right to claim the profit on prepayment of sales tax deferral liability as a capital receipt exempt from tax and make appropriate submissions in this regard in the course of assessment proceedings for the financial year ended March 31,2004. The inclusion of the above amount in the Computation of Total Income should not be regarded as acknowledgement by the company of the taxability of this amount. In this connection, the company wishes to point out that in Subhash Chandra SarveshKumar V CIT 132 ITR 619 (all.), the High Court laid down the principle that a claim should not be denied merely because it has not been made in the tax return. If the necessary particulars for allowing the claim are subsequently on record, the assessing authority should consider them and allow the claim of the assessee is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. He noted that to bring any amount under the tax net u/s 41(1), following conditions must be satisfied : (i) An allowance or deduction has been made in the assessment for any year in respect of expenditure or trading liability incurred by the assessee. (ii) Subsequently, the assessee has obtained whether in cash or in any other manner whatsoever, any amount in respect of such expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof. In the case of the assessee both of the above conditions are satisfied to bring the amount of ₹ 68,01,159/- under the tax net u/s 41(1) of the IT. Act. During F.Y. 1999- 2000 relevant to A.Y. 2000-01, the assessee has collected the amount of ₹ 1,20,97,694/- on account of sales tax which was a trading liability for the assessee and the deduction of this liability was allowed to the assessee u/s. 43B of the IT. Act as admitted by the assessee. Thus, the first condition is satisfied in the case of the assessee. Further, the assessee has obtained benefit of ₹ 70,69,074/- from Government of Maharashtra in respect of trading liability by way of cessation thereof. Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Bench of the Tribunal in the case of Sulzer India Ltd. was in favour of the assessee. Further, the Hon ble Bombay High Court in the case of S.I. Group India Ltd. reported in 326 ITR 117 has held that provisions of Section 41(1)(a) are not applicable to remission or cessation of liability. He submitted that since the necessary facts are on record and since the issue has a bearing on the tax liability and involves question of law, therefore, the assessee has raised this additional ground. 5.8 Referring to the decision of the Mumbai Bench of the Tribunal in the case of Aditya Birla Nuvo Ltd. Vs. ACIT reported in 131 ITD 51 he submitted that the Tribunal in the said decision has held that a legal question arises in case of the assessee as to whether sales tax subsidy granted by the State Government was of the nature of the capital receipt and could not be taxed. It was held that adjudicability of the ground is different from the admissibility of the ground. Accordingly, the additional ground was admitted and the issue was restored to the file of the Assessing Officer for passing a fresh order. 5.9 Referring to the decision of Hon ble Supreme Court in the case of NTPC Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that alternate contention not raised before the AO and CIT(A) cannot be entertained by ITAT since Assessing Officer has not conducted any enquiry in this angle and full facts on the issue are not available on record. Referring to the decision of Hon ble Allahabad High Court in the case of CIT Vs. G.S. Rice Mills reported in 136 ITR 761 he submitted that claim for relief not made before the ITO and when there is no material available on record supporting such claim the Tribunal cannot direct the ITO to examine the claim on merits. He accordingly submitted that the additional ground raised by the assessee should not be admitted. 5.12 The Ld. Counsel for the assessee in his rejoinder submitted that the various decisions relied on by the Ld. Departmental Representative are distinguishable and not applicable to the facts of the present case. In those cases the assessee had failed to make out a case that the issue raised before appellate authorities involved a mistaken belief of fact or law and had failed to put full facts or material on record. In the instant case however full facts are on record and the issue involved is a pure question of law. 5.13 We have considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals), is too narrow a view to take of the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld, that the Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the income-tax authorities and having a bearing on the tax liability of the assessee. [Matter remanded to Tribunal for consideration of new grounds raised by the assessee on the merits]. 5.16 We find the Special Bench of the Tribunal in the case of All Cargo Logistics Ltd. has held as under (Head Notes) : Section 253 of the Income-tax Act, 1961 Appellate Tribunal Appeals to Assessment Years 2004-05 to 2009-10 Whether question which has not been raised before any of the lower authorities and obviously not decided by any one of them, cannot lead to a grievance in respect of which a ground can be validly taken in memorandum of appeal Held, yes In course of appellate proceedings before Tribunal, assessee raised a ground that assessment order was invalid as jurisdiction of Assessing Officer to make assessment under section 153A was vitiated Revenue s objection was that since aforesaid ground was not taken before Commissioner (Appeals), his decision was not available in this matter and, consequently, that ground did not arise out of order of lower autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,14,51,012/- which was already on record before the AO as the same was included in the total sales figure of ₹ 928.36 crores. This claim of the assessee has not been controverted before us by the Revenue. Therefore the fact that the assessee had availed sales-tax exemption which had been shown as part of the sales was already on record before the lower authorities. In view of the decision of the Special Bench of the Tribunal in case of Dy. CIT Vs. Reliance Industries Ltd. (Supra) which held that sales-tax subsidy granted by the State Government was of the nature of capital receipt and could not be taxed, a legal question does arise in case of the assessee whether the sales-tax exemption received by the assessee from the UP Government was taxable or not. Such question has a direct bearing on computation of tax-liability of the assessee. Therefore in our view the legal question raised by the assessee as an additional ground has to be admitted. The adjudicability of the ground is different from the admissibility of additional ground. In case, for adjudicating a ground already admitted, some more material is required the Tribunal can always restore the issue to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance amount of ₹ 13,95,263 has been claimed as revenue expenditure. On being asked by the Assessing Officer to submit the note on the expenditure and to furnish the copies of the invoices and the expenditure claimed as revenue receipt the assessee replied as under : The product development expenses incurred on new products are capitalized and written off over 5 years. However, the product development expenses incurred on components for the existing running model/product is charged off during the year. The amount of ₹ 13.95 lakhs was the amount paid to IFB Industries Ltd. for the development of new blower motors for Tata Motors Ltd. cars like Indica and Indigo etc. . 6.2 The AO specifically asked the assessee to produce the copies of invoices raised by IFB Industries Ltd. However, no bills were produced by the assessee. The assessee only submitted copies of purchase order raised on the IFB Industries Ltd. On perusal of the purchase order the Assessing Officer noted that the orders were raised on 03-04-2000 and 13-04-2001. It is not known as to how the expenditure on account of orders raised in April 2000 and 2001 have been debited by the assessee in F.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.6 The Ld. Counsel for the assessee at the outset submitted that identical issue had come up before the Tribunal in assessee s own case for A.Y. 2001- 02 and the Tribunal on similar facts had held that prima-facie the expenses were towards testing of products manufactured by the assessee. However, the matter was remitted to the file of the Assessing Officer for verification. As such factual assertion was not made before the Assessing Officer. He accordingly submitted that the issue may be set-aside to the file of the Assessing Officer in the light of the direction of the Tribunal. 6.7 The Ld. Departmental Representative on the other hand submitted that he has no objection if the matter is restored to the file of the Assessing Officer. 6.8 After hearing both the sides we find the Tribunal in assessee s own case in ITA No.779/PN/2010 order dated 26-03-2012 for A.Y. 2001-02 discussed the issue and restored the issue to the file of the Assessing Officer by holding as under : 9 We have carefully considered the rival submissions. The crux of the controversy revolves around the nature of the expenditure of ₹ 42,21,665/- which has been debited in the account books un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddressing the legal aspects of the controversy, it is imperative that the complete and true particulars of the expenditure are culled out. Before us, the assessee has submitted photocopies of invoices raised by Behr Gmbh Co. Germany, which have been placed at pages 26 to 67 of the Paper Book, which prima facie support the assertion of the assessee that the expenditure is towards testing of the products manufactured by the assessee. So, however, it is apparent that the aforesaid factual assertion was not made before the Assessing Officer. Such a plea, though in a generalized formulation, was made before the Commissioner of Income-tax (Appeals) as it appears from para 17 of the order of the Commissioner of Income-tax (Appeals). Of-course there is no determination on this aspect made by the Commissioner of Incometax (Appeals) who has proceeded on the same basis as that of the Assessing officer. Be that as it may, in our view, it is imperative that the complete particulars of the expenditure are culled out and since the same requires factual appreciation, we deem it fit and proper to restore the matter to the file of the Assessing officer. The orders of the authorities below are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars of the non-EOU unit against the profits of EOU unit? 7.1 After hearing both the sides we find the above grounds by the Revenue are identical to grounds of appeal No. 1 to 6 in ITA No.1352/PN/2010. We have already decided the issues and the grounds raised by the Revenue have been dismissed. Following the same reasoning the above grounds by the Revenue are dismissed. ITA No.1013/PN/2010 (A.Y. 2005-06) (By Assessee) : 8. Ground of appeal No.1 by the assessee reads as under : 1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in rejecting the appellant s claim for deduction of expenditure incurred ₹ 1,42,62,575/- (Rs.1,24,79,754/- net of depreciation) for the improvisation and testing of appellant s products being revenue expenditure incurred in the said A.Y. in the ordinary course and on an ongoing basis in the conduct of appellant s business . 8.1 After hearing both the sides we find the above ground is identical to ground of appeal No. 2 in ITA No.1375/PN/2010. We have decided the issue in the preceding paras 6.8 and 6.9 and the matter has been restored to the file of the Assessing Officer with certain directions. Following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to facilitate its business operations and enable the assessee to conduct its business more effectively, smoothly and efficiently. Referring to the details of software support and license user fees placed at Paper Book Pages 98 to 100 the Ld. Counsel for the assessee submitted that the assessee has not acquired any right or interest in the property and the expenses are purely revenue in nature. Referring to the decision of Hon ble Bombay High Court in the case of CIT Vs. Raychem RPG Ltd. reported in 316 ITR 138 he submitted that under similar facts and circumstances the Hon ble High Court has held that the software expenses are allowable as revenue expenses. 9.4 The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). 9.5 We have considered the rival arguments made by both the sides. We find the Assessing Officer following his order for A.Y. 2004-05 treated the entire expenses of ₹ 76,75,183/- as capital in nature and allowed depreciation on the same. We find the Ld. CIT(A) held that an amount of ₹ 59,39,334/- only has to be treated as capital expenditure and he allowed the balance amount as revenue expenditure. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.60 lakhs is of revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the LD AR of the assessee. 3. In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure. 9.8 Respectfully following the decision of the jurisdictional High Court cited (Supra) we hold that the software expenditure incurred by the assessee has to be allowed as revenue expenditure. This ground by the assessee is accordingly allowed. 10. The additional ground raised by the assessee reads as under : The Ld. Assessing Officer (ACIT, Range-8, Pune) ought to have excluded from the total income of the appellant the amount of notional surplus of ₹ 8,65,69,314/- due to premature payment of deferred sales tax loan at net present value for the A.Y. 2005-06 10.1 After hearing both the sides we find the additional ground by the assessee is identical to the additional ground raised by the assessee in ITA No.1375/PN/2010. We have admitted the additional ground raised by the assessee and the matter has been restored to the file of the Assessing Officer for deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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