9911796707
TMI Blog2016 (5) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... that up to assessment year 1999-2000, income received in respect of units of UTI were eligible for deduction under section 80L of the Act. Thus, the dividend income was not taxable. Computation of deduction under section 80HHC - Held that:- The issue arising before us is identical and we hold that receipts of income i.e. Interest on IT Refund, NSC Interest, Bank Interest and Other interest are not eligible for claim of deduction under section 80HHC of the Act. It may be clarified here that the assessee had raised issue of computation of book profits under section 115JA of the Act consequent to reworking of deduction under section 80HHC of the Act. Entitlement to claim of deduction under section 35AB @ 1/6 th of the total know-how fees paid allowed Disallowance of deduction claimed of appropriate part of exchange fluctuation loss - Held that:- The claim of the assessee before us is identical as claimed in assessment year 1998-99. Following the same parity of reasoning, we remit this issue also back to Assessing Officer, who shall determine the amount, which is to be allowed in the hands of assessee in the present year on account of exchange fluctuation loss Claim of deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that:- This issue stands covered against the assessee by the ratio laid down by the Hon ble Supreme Court in IPCA Laboratories Ltd. Vs. DCIT reported in (2004 (3) TMI 9 - SUPREME Court ), wherein it has been held that before computing deduction under section 80HHC of the Act, losses from trading activity are to be adjusted against profits, if any, of the manufactured goods and then balance profits are eligible for claiming deduction under section 80HHC of the Act. Allowance of claim of VRS expenditure - Held that:- The assessee had incurred the aforesaid expenditure on VRS Scheme floated by it in order to reduce number of its workforce for smooth and efficient running of its business operations and hence, the said expenditure had business expediency and where the expenditure was incurred wholly and exclusively for the purpose of running business, the same is allowable as revenue expenditure. Eligible profits while computing deduction under section 80HHC - whether interest on customers and hundies, interest on MSEB/MIDC were part of business income ? - Held that:- We find that the Tribunal in assessment year 1996-97 had held that the interest received on deposits with MIDC/MSEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im to dig out the details for earlier years, however, following the principles of natural justice, we deem it fit to restore the issue to the file of Assessing Officer and direct the assessee to furnish requisite details before the Assessing Officer in order to establish its claim. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee Disallowance of set off of interest paid against interest received - Held that:- The interest paid under sections 220, 234B and 234C of the Act cannot be set off against interest received under section 244 of the Act. Whether interest under section 244A received for assessment year 1999-2000 is to be assessed in assessment year 1999-2000 itself as the assessment proceedings for the year were in progress? Held that:- The interest was computed by the Assessing Officer on 30.06.2000 and consequently, the same is includable in the hands of assessee in the year ending 31.03.2001, which has been so included by the authorities below. Further, there is no merit in the plea raised by the assessee that only interest as finally determined could be assessed in the hands of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 1,268,541 on Master shares and other units of UTI is exempt under section 10(33) of the Act, The learned CIT(A) ought to have treated the said dividend as exempt and excluded the same from the total income of the Appellant. 2.2 The Appellant prays that the aforesaid dividend should be considered as exempt and excluded from the total income of the Appellant. 3 Computation of book profits Under Section 80HHC of the Act 3.1 For the purposes of computing book profits under section 115JA of the Act, the CIT(A) erred in reducing the profit eligible for deduction under section 80HHC of the Act based on the deduction allowable under the said section. In computing the book profits for the purposes of section 115JA of the Act, the CIT(A) ought to have reduced the profits eligible for deduction under section 80HHC, based on the book profits as per the profit and loss account, as adjusted by the amounts referred to in section 115JA. The Appellant prays that for the purposes of computing book profits under section 115JA of the Act, the profits eligible for deduction under section 80HHC of the Act (which are to be reduced from the net profit as per the profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Ground No.3.1 above, in computing the profits eligible for deduction under section 80HHC of the Act, which are to be reduced in computing the book profits under section 115JA of the Act, the CIT(A) erred in rejecting the Appellant's claim that income distributed on Master shares and other units of UTI should be included in profits eligible for deduction under section 80HHC of the Act, which are to be reduced in computing the book profits under section 115JA of the Act. The Appellant prays that without prejudice to Ground No.2 and 3.1 above, the aforesaid dividend income should be considered as "Profits of Business" while computing the profits eligible for deduction under section 80HHC of the Act, which have to be reduced in computing the book profits under section 115JA of the Act. 5. Further, the assessee further raised additional grounds of appeal, which read as under:- Additional Ground 1: Deduction under section 35AB of the Income Tax Act, 1961 ("the Act") in respect of lump sum know how fees of ₹ 1,47,07,778/- The learned CIT(A) ought to have held that the assessee is entitled to deduction of ₹ 1,47,07,778/- in respect of lump sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 8,04,000/- also paid to M/s. Softcell and sum of ₹ 87,062/- spent on software were capital expenditure, on which the assessee was entitled to depreciation and balance sum of expenditure being for maintenance of SOPIC systems, Sweden of ₹ 8,74,000/- and other expenditure were revenue in nature. 13. The assessee by way of ground of appeal No.1 is in appeal against the order of CIT(A). 14. The learned Authorized Representative for the assessee pointed out that similar issue arose before the Tribunal in assessee's own case in ITA No s. 1841 & 1842/PN/2012 and ITA Nos.2053 & 2054/PN/2012, relating to assessment years 2002-03 & 2003-04, order dated 31.12.2014 and the issue was decided in favour of the assessee by allowing claim of the assessee. 15. We find that similar issue of allowance of computer software expenses as revenue expenditure arose before the Tribunal in assessee's own case in assessment year 2002-03, wherein it was held as under:- "22. We have considered the rival arguments made by both the sides. We find the issue stands squarely decided in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1998-99, order dated 11.12.2015. The Tribunal (supra) had taken note of the fact that up to assessment year 1999-2000, income received in respect of units of UTI were eligible for deduction under section 80L of the Act. Thus, the dividend income was not taxable. The Tribunal in assessment year 1998-99 in turn relied on the ratio laid down in assessee's own case in ITA No. 579/PN/2000 relating to assessment year 1995-96, order dated 04.11.2010. The issue arising in the present year i.e. assessment year 1999-2000 is squarely covered by the order of Tribunal and hence following the same, ground of appeal No.2 raised by the assessee is dismissed. 19. The issue in ground of appeal No.3 is against the computation of deduction under section 80HHC of the Act. The Assessing Officer had partiallyallowed the deduction claimed under section 80HHC of the Act and in respect of following receipts held that the same are not includible in eligible profits of business while computing deduction under section 80HHC of the Act:- i. Interest on IT Refund - Rs.1,20,46,639/- ii. NSC Interest - Rs.3,36,249/- iii. Bank Interest - Rs.2,35,759/- iv. Other Interest - Rs.96,195/- 20. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome i.e. Interest on IT Refund, NSC Interest, Bank Interest and Other interest are not eligible for claim of deduction under section 80HHC of the Act. It may be clarified here that the assessee had raised issue of computation of book profits under section 115JA of the Act consequent to reworking of deduction under section 80HHC of the Act. However, the learned Authorized Representative for the assessee only stressed and referred to issue in ground of appeal No.3.3 and no other issue in 3.1, 3.2, 3.4 and 3.5 was stressed. Hence, we dismiss ground of appeal No.3 to 3.5. The ground of appeal No.3 raised by the assessee is dismissed. 23. The assessee has raised additional ground of appeal No.1, which is consequential to the said issue decided in assessment years 1997-98 and 1998-99. The assessee had entered into an Agreement with AB Sandvik Coromant, Sweden and had made payment for acquisition of technical know- how. The Tribunal in ITA No.525/PN/2003, relating to assessment year 1997 - 98 vide order dated 10.04.2015 held that the assessee is entitled to claim of deduction under section 35AB of the Act on lump sum know-how fees paid. The Tribunal vide paras 13 to 34 held as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ik know-how and advice provided for the purpose of designing and or manufacturing the products in India. Further, as per clause 2.3 of the agreement, it was agreed upon that Sandvik know-how and the advice and assistance to be provided by the Sandvik shall be given to the extent required by the assessee to be able to manufacture the products with quality corresponding to the quality reached in Sandvik own production of the products. Under clause 2.4 of the agreement, it is enlisted the nature of advice and assistance to be provided by Sandvik to assessee in the field of manufacturing, raw material and packaging. Further, under clause 2.6 of the agreement, it was agreed that Sandvik shall make provision for training of individual members of technical staff of assessee. Under clause 2.7 of the agreement, Sandvik was to make available the assessee marketing and sales experts for the purpose of advising and assisting the assessee in relation to marketing and sales of the products at prices and other terms and conditions to be agreed upon. Further, under clause 2.8 of the agreement, the said assistance and services provided by the Sandvik does not shoulder any responsibility upon Sandvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts only." 17. Under clause 6.1 of the agreement, it was agreed that the assessee shall pay Sandvik the lump sum as stated in Article 6.5 and also royalty. As per clause 6.2, royalty was fixed at 5% of NPS for sales by the assessee of products within India and 8% of NPS for sales by the assessee outside India. As per clause 6.5, it is provided that the assessee has to pay to Sandvik in Sweden a lump sum corresponding to US$ 2 million. The said lump sum was to be paid in three installments i.e. 1/3rd at the date of approval by the authorities, 1/3rd at the delivery of Sandvik know-how and 1/3rd at the commencement of production, but not later than four years from the receipt of Sandvik know-how. The validity of the said agreement was for a period of 7 years as per clause 7.2 of the agreement. The effects of termination are enlisted in clause 8 of the agreement, which reads as under:- "8. Effects of Termination 8.1 Notwithstanding the expiration of this Agreement, SAL shall have the right, subject to the compliance with the obligations in respect thereof imposed by this Agreement, to continue without any limit of time and without any charge using any unpatented Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notwithstanding the termination of the agreement, the royalty shall be payable with regard to all products manufactured during the period of 7 years from the commencement of commercial production of the products. After the expiry of said period, the assessee shall have the right to use Sandvik know-how in all the countries free of charge and to use in India also free of charge. Further, the termination of agreement also could not affect the assessee's secrecy obligation to Sandvik. The claim of the assessee before us is that the expenditure incurred on the acquisition of technical know-how was for the right to use the technology and under the said agreement, no right was assigned to the assessee in the technical know-how. Since the assessee had only acquired the right to use the technology, the said expenditure incurred by the assessee was claimed to be revenue expenditure. However, as pointed out by us in the paras hereinabove, the assessee while filing the return of income had claimed said expenditure to be allowable under the provisions of section 35AB of the Act. 19. The provisions of said section 35AB read as under:- "35AB. (1) Subject to the provisions of sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue which has to be addressed is whether the assessee is entitled to the claim of deduction in entirety, for which reliance was placed by the learned Authorized Representative for the assessee on the ratio laid down by the Hon'ble Supreme Court in Alembic Chemical Works Co Ltd Vs CIT (supra). The plea of the assessee in this regard, was that the expenditure incurred by the assessee over a period of seven years even if was an expenditure of enduring benefit and applying the ratio laid down by the Hon'ble Supreme Court in Empire Jute Co Ltd Vs CIT (supra) and also Alembic Chemical Works Co Ltd Vs CIT (supra), such expenditure is to be allowed as deduction under section 37(1) of the Act and the provisions of section 35AB of the Act were not applicable. Further, the learned Authorized Representative for the assessee placed reliance on the ratio laid down by the Hon'ble Apex Court in Jonas Woodhead and Sons (India) Ltd. Vs. CIT (1997) 224 ITR 342 (SC) for the similar proposition of what is the meaning of enduring benefit. In the facts of the case before the Hon'ble Supreme Court, the assessee had acquired new technology for the manufacture of a product and payment was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of above decision was not applicable. 24. The learned Departmental Representative for the Revenue in reply had pointed out that the issue has now been settled by the Hon'ble Supreme Court in Drilcos (India) (P.) Ltd. Vs. CIT (2012) 25 taxmann.com 228 (SC), wherein it has been held that where the assessee had entered into an agreement for acquiring know-how, which in turn was to be used in the business of the assessee, section 35AB of the Act would come into play and section 37(1) of the Act would have no application. The learned Departmental Representative for the Revenue further placed reliance on the decision of Hon'ble Madhya Pradesh High Court - Indore Bench of the Tribunal in CIT Vs. Bright Automotives & Plastics Ltd. (2004) 141 TAXMAN 582 (MP), wherein it was held that in order to attract the provisions of section 35AB, it may not be necessary for the assessee to actually become absolute owner of know-how. Where the assessee is able to run his business effectively with the aid of know-how obtained by him pursuant to an agreement on payment of consideration, then the provisions of section 35AB of the Act gets attracted and it was further held that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Authorized Representative for the assessee on the ratio laid down by Hon'ble Apex Court in Empire Jute Co Ltd Vs CIT (supra) for the proposition of test of enduring benefit. The Hon'ble Apex Court while applying the test for determining whether the expenditure was capital or revenue in nature, observed that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. The Hon'ble Apex Court further propounded that what was material to be considered was the nature of advantage in commercial strengths and only when the advantage was in the capital field, then that expenditure would be disallowed on that account. The plea of the assessee while placing reliance on the ratios laid down by Hon'ble Supreme Court was that the payment for technical know-how even for enduring benefit was on revenue account and hence, was to be allowed as deduction under section 37(1) of the Act. It may be put on record that both these decisions were delivered prior to introduction of section 35AB of the Act, which was inserted by the Finance Act, 1985, w.e.f. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the legislature in inserting the said section. Section 35AB of the Act inserted by Finance Act, 1985 lays down that where the assessee has paid in any previous year 'any lump sum consideration for acquiring any know-how for use for the purpose of its business' 1/6 th of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year and the balance amount shall be deducted in equal installments for each of the five immediately succeeding previous years. Explanation, appended below the section, defines know-how and reads as under:- "For the purpose of this section, "know-how" means any industrial information of technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto)." 29. Section 35AB of the Act does not speak of the nature of expenditure i.e. whether capital or revenue, but talks of consideration paid for acquisition of technical know-how. Thus, where the assessee has paid consideration for acquiring technical know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved by the Hon'ble Supreme Court in the case of CIT v. IAEC (Pumps) Ltd [1998] 232 ITR 316 for determining whether the expenditure is capital or revenue in nature. Applying the ratio of the aforementioned decisions of the Apex Court in the instant case, since the assessee is entitled to use the technical information for the manufacture of the products even after the termination of the agreement and the documentation, drawings are not to be returned back on expiry of the agreement after 10 years, the expenditure is dearly capital in nature and outside the purview of section 37(1). 20. There is no disputing the facts that acquisition of the technical knowhow by the assessee company for manufacture of new textile machinery components as specified in the agreement without any limitation with regard to utilisation period thereof has resulted in an enduring benefit to the assessee which lies in the capital field. The expenses have essentially resulted in augmentation and expansion of the profit-earning apparatus of the assessee company. Such expenses which are inextricably connected with the capital structure of the company would clearly be of capital nature and therefore outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. CIT (supra) had held that after insertion of section 35AB of the Act, where the expenditure is to be used in business of assessee, section 35AB of the Act would come into play and the provisions of section 37(1) of the Act are not applicable for units established prior to 01.04.1998. Following the same parity of reasoning, we hold that provisions of section 35AB of the Act are to be applied to the lump sum consideration paid for acquisition of technical know-how by the assessee. 32. Another plea raised by the assessee was that the assessee had only acquired the right to use the technical know-how. The reading of clauses of agreement with special reference to clause 8 i.e. effect of termination of agreement reflects that the assessee had acquired the said technical know- how in perpetuity. Even after the termination of period of agreement i.e. 7 years, the assessee had the right to use the said technical know-how and continue to manufacture the items using both the patented and un-patented Sandvik know-how provided by Sandvik to it. As per the agreement, the technical know-how in such circumstances, was acquired by the assessee by paying the consideration against the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year and has paid tax at source on the balance installments in the succeeding years. In this regard, we find merit in the plea of learned Authorized Representative for the assessee that this was at best of the case of short deduction of tax and not non-deduction of tax at source and there was no merit in invoking the provisions of section 40(a)(i) of the Act. 33. The Pune Bench of the Tribunal in ITA No.758/PN/1999 & CO No.58/PN/2005 and another, in assessee's own case had held as under:- "18. We have carefully considered the rival submissions. Looking at the conspectuous of facts as emerging from the orders of the authorities below, it appears that though the claim of the assessee is under head "provision for doubtful debts", in actuality the claim is based on certain deductions claimed to be made by the Government buyers as liquidated damages for late supply of goods, etc. The Commissioner of Income-tax (Appeals) in his order dated 28.11.1997 has referred to two journal entries in this regard and on that basis directed the Assessing Officer to allow the claim, subject to the verification that the liability crystalised in this year or not. Osten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it was a common ground between the parties that for the assessment year 1992-93, similar issue has been adjudicated by the Tribunal vide its order in ITA No 119/PN/96 dated 13.9.2011 in favour of the assessee. In view of the precedent, copy of which has been placed on record, the decision of the Commissioner of Income-tax (Appeals) deleting the addition of ₹ 1,99,43,610/- on account of Excise Duty payable on finished goods not included in the valuation of closing stock is hereby affirmed. Thus, Revenue fails on this Ground. 24. The facts in relating to second Ground are that during the year, the assessee received interest of ₹ 25,63,992/- from the Income-tax Department and also paid interest of ₹ 10 lakhs to the Department. The claim of the assessee was that only the net interest should be charged to tax. This plea was rejected by the Assessing Officer whereas the Commissioner of Income-tax (Appeals) allowed the plea of the assessee in view of the decision of the Delhi Bench of the Tribunal in the case of R N Agarwal v. ITO. Against such a decision, Revenue is presently in appeal before us. 25. Before us, it was a common point between the parties that simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: 6. Deduction under Section 37(1) of the Act on account of exchange fluctuation loss of ₹ 51,72,003. 6.1 The learned CIT(A) erred in rejecting the Appellant's claim that exchange fluctuation loss of ₹ 51,72,003 is deductible under section 37( 1) of the Act. The above loss was incurred by the Appellant on actual payment of technical know-how fees paid during the year and on restatement of outstanding liability at the exchange rate prevailing on 3 1 March 1998. The Appellant prays that the above loss be allowed under section 37(1) of the Act. 8.1 The ld. AR submitted that the exchange fluctuation loss was suffered by the assessee on actual payment of technical know-how fee paid during the year. The ld. AR referred to Table 5 in the list of the table placed before us and submitted that deduction allowable u/s. 35AB and exchange differences have been worked out in accordance with the decision of Hon'ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Woodward Governor India P. Ltd. reported as 312 ITR 254 (SC). The relevant table on which the ld. AR has placed reliance is as under: "Table 5 : Deduction allowable u/s. 35AB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep out or purview of clause (baa) to Sec. 80HHC. 2.3 The Ld. CIT(A) ought to have followed the ratio of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. 262 ITR 278 (SC) wherein it was held that such income cannot be treated as derived from export business. 2.4 The Ld. CIT(A) ought to have appreciated the fact that the first appellate authorities have all the power of Assessing Officer in determination of the income of the assessee as held in CIT Vs. Kanpur Coal Syndicate 53 ITR 225 (SC) and in Jute Company of India Ltd. Vs. CIT 187 ITR 688 (SC). 3.1 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that loss, if any, would be allowed to be set off against 90% of sum referred in clause (iiia) (iiib) & (iiic) in the same proportion as the export turnover as bears to the total turnover of the business. 3.2 The Ld. CIT(A) ought to have followed the Hon. Supreme Court decision in the case of IPCA Laboratories Ltd. (266 ITR 521) and jurisdictional High Court decision delivered in ITA No.376 of 2003 (ITA No.5211/Bom/2003) dt. 04/08/2004, wherein, it is held that in case of loss from export business, no deduction is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved for voluntary retirement scheme. The Assessing Officer thus, held that the assessee was not entitled to the claim of deduction of ₹ 4,00,39,000/-. 31. The CIT(A) after taking note of various reliances placed upon by the learned Authorized Representative for the assessee noted that the VRS Scheme floated by the assessee was for the employees in order to reduce workforce so as to run the business more efficiently, the said expenditure was incurred on the ground of commercial exigency and hence, was incurred for the purpose of business. The CIT(A) further held that the benefits could not be held to be in capital field even though could be enduring in some sense. The CIT(A) thus, held that the expenditure was incurred wholly and exclusively for the purpose of business and was revenue expenditure. 32. The Revenue is in appeal against the order of CIT(A) in this regard. 33. The learned Departmental Representative for the Revenue pointed out that where the expenditure was of enduring benefit, then the said expenditure is a capital expenditure and is also covered under section 35DDA of the Act. 34. The learned Authorized Representative for the assessee on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed in its entirety in the year in which it is incurred and it could not be spread over number of years even though the assessee had written it off in its books over a period of years. 37. The Hon'ble High Court of Madras in CIT Vs. Simpson & Co. Ltd. (supra), in turn, relied on the ratio laid down in CIT Vs. George Oakes Ltd. (1992) 197 ITR 288 (Mad) also held that the matter of amount paid to employees under VRS Scheme pertains to business consideration and expediency and the expenditure incurred by the assessee in this regard was for the purpose of business and also with a view to maintain good relationship with the labour and such an expenditure had to be considered as having been laid out wholly and exclusively for the purpose of business. 38. The issue arising before us is thus squarely covered by the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Bhor Industries Ltd. (supra) and the Hon'ble High Court of Madras in CIT Vs. Simpson & Co. Ltd. (supra). The assessee had incurred the aforesaid expenditure on VRS Scheme floated by it in order to reduce number of its workforce for smooth and efficient running of its business operations and hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Representative for the assessee drew our attention to page 17 at para 8 and pointed out that the ground of appeal raised by the Revenue is mis-placed as the present issue is decided in favour of the assessee. 45. The perusal of order of CIT(A) at page 8 reflects that the CIT(A) had held that considering the provisions of section 80HHC(1) of the Act, that in case of loss, the effect of proviso to section 80HHC(3) of the Act would be to allow set off of loss by 90% of sum referred to in clauses (iiia), (iiib) & (iiic) in the same proportion as the export turnover bears to the total turnover of business. Otherwise, it would tantamount to allow deduction under section 80HHC of the Act more than the profits derived by the assessee from export of said goods or merchandise. Therefore, the claim of the assessee was rejected by CIT(A). Accordingly, we hold that ground of appeal No.3 raised is mis-placed and hence, the same is dismissed. 46. Now, coming to ground of appeal No.4 i.e. against the direction of CIT(A) in excluding sales tax and Excise duty collected from the total turnover for the purpose of computing deduction under section 80HHC of the Act. 47. We find that the present is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st interest received under section 244A of the Act. 5. Reduction of ninety per cent of gross receipts The learned CIT(A) has erred in confirming that ninety per cent of gross receipts in relation to interest, rent and commission should be reduced from the profits of the business in computing deduction under section 80HHC of the Act. The appellant prays that in computing deduction under section 80HHC ninety per cent of net interest, net rent and net commission should be excluded from the profits of the business. 6. Disallowance of deduction under section 35AB of the Act The learned CIT(A) has erred in enhancing the assessed income by ₹ 5,322,114 being disallowance of deduction under section 35AB of the Act. The appellant prays that the impugned be allowed as deduction under section 35AB of the Act. 50. The assessee has raised additional grounds of appeal as under:- Additional Ground 1: Deduction under section 35AB of the Income Tax Act, 1961 ("the Act") in respect of lump sum know how fees of ₹ 1,47,07,778/- The learned CIT(A) ought to have held that the assessee is entitled to deduction of ₹ 1,47,07,778/- in respect of lump sum know ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. Accordingly, the Ass essing Officer came to the conclusion that the amount of ₹ 91 ,45,000/- had to be assessed as capital gains. However, as sums of ₹ 42,95,400/- and ₹ 18,20,000/- had been already considered for assessment for the assessment years 1991-92 & 1995-96 respectively, he assessed only the balance amount of ₹ 30,30,000/- (it should have been ₹ 30,50,000/-) for the present assessment year under the head "Long Term Capital gains". 54. Before the CIT(A), the assessee made new plea as under:- "8.2.1 During the course of the appeal proceedings, the appellant and its learned Authorized Representative filed copies of the agreements entered into the earlier years in the matter of assignment of development rights. The first agreement was dated 4.1.1990 and the consideration involved therein, in respect of assignment of 3,695 sq.mtrs. of land, was ₹ 42,95,400/-. This amount was assessed for the assessment year 1991-92. Then there were agreements dated 26.4.1994 & 22.2.1995 assigning development rights in respect of further land admeasuring 2377.0 sq.mtrs. each. The consideration for such assignment was ₹ 9,10,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessments for the assessment years 1991-92 & 1995-96. In his reply dated 16.8.2004, the Assessing Officer informed that although the appellant had received the payments from time to time, no information in respect of such payments had been furnished along with the Returns of Income filed for the relevant assessment years viz. assessment years 1993-94, 1994-95, 1997-98 & 1999- 00, and that such information was filed for the first-time along with the Return of Income for the assessment year 2000-01. The Assessing Officer also reported that even though this issue, i.e. taxability of ₹ 30,30,000/-, had been raised during the course of the assessment proceedings for this assessment year, the appellant's Authorized Representative had not raised any objection whatsoever. It was accordingly submitted that the addition made on this score be confirmed." 56. The CIT(A) was of the view that submissions made by the assessee need scrutiny and after analyzing various aspects of the issue in paras 8.4.1 and 8.4.2 at pages 11 to 14 of appellate order, had set -aside the issue to Assessing Officer to examine the assessability of impugned receipt of ₹ 30,30,000/- unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant facts had to be considered that the damages actually related to supply of goods which had been accounted for as income and whether the liability in respect of damages were contractual in nature and whether the contractual liabilities got crystallized during the year. The assessee in response, filed list of parties who had made the deductions. However, evidence was filed only in respect of one case of deduction of ₹ 13,527/-, other details / evidences called for were not furnished. During the subsequent hearing, the assessee was given another opportunity to furnish details. However, the learned Authorized Repre sentative for the assessee argued that when the matter was already covered by the order of CIT(A) for the preceding assessment year, it was not at all necessary to furnish any more details in this matter and in any case, it was not possible to dig out the evidence after lapse of so many years. The CIT(A) noted his jurisdiction to examine all the facts relevant to the issue agitated before him and also noted his power of enhancement and reiterated the issue involved is one of the facts and unless the facts involved in two assessment years were identical on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liquidated damages date-wise paid by the assessee. The perusal of liquidated damages reflect the payments to the tune of ₹ 1,82,181/- on 18.05.1999, ₹ 1,01,000/- on 18.05.1999 and ₹ 1,59,485/- on same date. Further, the assessee has claimed ₹ 1,20,000/- on 31.03.2000 along with other details on different dates. The total of the list of liquidated damages is ₹ 11,15,441/-. The case of the assessee that it had paid the aforesaid liquidated damages for not delivering the goods in time and which was in accordance with purchase orders placed by the respective government agencies, is allowable in case the assessee furnishes evidence in respect thereof. During the course of appellate proceedings, the assessee furnished only one evidence to expenditure claimed of ₹ 13,527/-, which was allowed by the CIT(A). However, the assessee before the CIT(A), aggressively stated that the details could not be produced because of lapse of time and time and again reliance was placed on the ratio laid down by the CIT(A) in earlier years. Undoubtedly, the said ratio has some bearing in deciding the issue, but where the issue is purely factual and both before the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the profits of business for determining profits of the business under Clause (1) of Explanation (baa) to section 80HHC of the Act. The Hon'ble Supreme Court held as under:- "10. Under clause (1) of Explanation (baa) to section 80HHC of the Act, ninety per cent. of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and gains of business or profession". The expression "included any such profits" would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and gains of business or profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and gains of business or profession", ninety per cent. of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,80,611/- only. Hence, differential of ₹ 53,22,114/ - was added as income of assessee. 73. The issue of allowability of deduction under section 35AB of the Act and quantum of deduction has already been decided by Tribunal in ITA No.525/PN/2003 relating to assessment year 1997-98. The Assessing Officer has been directed to compute the deduction @ 1/6th of ₹ 8.82 crores. The Tribunal has further applied the said ratio in assessment year 1998-99 (supra). In the paras hereinabove while deciding the additional ground of appeal No.1 raised by assessee in assessment year 1999-2000 also similar directions have been given. 74. Further, we find the assessee in the present appeal has also raised additional ground of appeal No.1 on same issue of allowability of deduction under section 35AB of the Act as in assessment year 1999-2000. Following the same line of reasoning, we direct the Assessing Officer to compute the deduction under section 35AB of the Act in the hands of assessee as per our directions in assessment year 1999-2000. The ground of appeal No.6 and additional ground of appeal No.1 raised by the assessee are allowed. 75. Further, the assessee has raised additional gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;) 1999-2000 and AY 2000 -2001, while calculating "profits of the business" for the purpose of computing the deduction under section 80HHC of the Act. The appellant prays that the unabsorbed depreciation of Titex India Private Limited should not be reduced in computing the "profits of the business" for the purpose of computing the deduction under section 80HHC of the Act. 6. Total turnover under section 80HHC to include Scrap sales The learned CIT(A) has erred in confirming inclusion of scrap sales in "total turnover" while computing the deduction under section 80HHC of the Act. The appellant prays that the scrap sales of ₹ 14,420,000 should be excluded from the "total turnover" while computing the deduction under section 80HHC of the Act. 7. Set off of losses of trading activity against manufacturing activity The learned CIT(A) has erred in confirming the set off of loss from export of trading goods against profits from export of manufactured goods while computing deduction under section 80HHC of the Act. The appellant prays that loss from export of trading goods should not be set off against profit from export of manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,47,07,778 The learned CIT(A) ought to have held that the assessee is entitled to deduction of ₹ 1,47,07,778/- in respect of lump sum know how fees u/s.35AB of the IT Act. Additional Ground 2: Assessee entitled to deduction of Exchange Fluctuation loss. The learned CIT(A) ought to have held that the assessee is entitled to deduction of appropriate part of exchange fluctuation loss of ₹ 51,72,000/- Additional Ground 3: Advances written off: The CIT(A) erred in not disposing off ground of appeal no.2 field before CIT(A) for ₹ 21,00,000/- in respect of advances written off claimed by the appellant in the revised return of income. 78. The issue in ground of appeal No.1 raised by the assessee is against disallowance in respect of computer software expenses being capital in nature is identical to the issue raised by the assessee vide ground of appeal No.1 in ITA No.1439/PN/2004 and following the same parity of reasoning, we hold that the assessee is entitled to the claim of expenditure of ₹ 41,41,000/-. The ground of appeal No.1 raised by the assessee is thus, allowed, 79. The issue in ground of appeal No.2 raised by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and section 29 of the Act states that income referred to in section 28 of the Act shall be computed in accordance with provisions containing in section 30 to 43D of the Act, hence, the provisions of section 32(2) of the Act have to be taken into account to arrive at the correct profit of current year. In view thereof, the Assessing Officer held that set off of brought forward depreciation loss of ₹ 5.83 crores is to be deducted from the profits of business before allowing deduction under section 80HHC of the Act. 84. The CIT(A) held as under:- "14.1 In this appeal, the appellant has argued that the Assessing Officer erred in taking the unabsorbed depreciation of Titex India Pvt. Ltd. [merged with the appellant with effect from 1-1-2001] for computing the deduction admissible to it under section 80HHC. 14.2. I have carefully considered the reasons cited by the Assessing Officer as well as the ground raised by the appellant. The adjustment made by the Assessing Officer has to be confirmed. Section 80HHC provides for deduction to the extent of the profits derived by an assessee from the export of goods or merchandise to which the said section applies. Sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. got amalgamated with the assessee company w.e.f. 01.01.2001 and the issue was in respect of unabsorbed depreciation available in the hands of said entity relating to earlier years. The learned Authorized Representative for the assessee referred to the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Shirke Construction Equipment Ltd. (2007) 291 ITR 380 (SC), wherein it was held that for claiming the deduction from export business, section 80AB of the Act provides that profits are to be computed in accordance with provisions of the Act and unabsorbed business losses of earlier years are to be set off. However, it was further pointed out by the learned Authorized Representative for the assessee that when there is amalgamation with another company, how can losses of the company for earlier years be considered for computing deduction under section 80HHC of the Act? 87. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 88. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.5 is also connected with the computation of deduction under section 80HHC of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levies as was case with sales tax and Excise duties. Accordingly, inclusion of scrap sale of ₹ 1,44,20,000/- in total turnover was made, while computing the deduction under section 80HHC of the Act. 91. The learned Authorized Representative for the assessee placed reliance on the ratio laid down by the Hon'ble High Court of Madras in CIT Vs. Ashok Leyland Ltd. (2008) 297 ITR 107 (Mad) for the proposition that scrap sale is not to be included in the total turnover for the purpose of calculating deduction under section 80HHC of the Act. 92. We find that the issue is squarely covered in favour of the assessee. While computing deduction under section 80HHC of the Act since the assessee has not shown export of scrap as such, scrap sales would not form part of total turnover, while computing deduction under section 80HHC of the Act. Hence, the scrap sale is excludable from both the export and total turnover for calculating deduction under section 80HHC of the Act. Accordingly, we direct so. The ground of appeal No.6 raised by the assessee is allowed. 93. The next issue vide ground of appeal No.7 is setting off of loss from export of trading goods against profits from export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and tax demand was raised upon the assessee, then the assessee was liable to pay interest under section 234D of the Act on excess refund granted to it. Applying the said ratio, we uphold the order of CIT(A) in this regard, though interest under section 234D of the Act is to be charged from 01.06.2003 to till the date of assessment order and ground of appeal No.10 raised by the assessee is thus, dismissed. 101. The issue in ground of appeal No.11 is whether interest under section 244A of the Act of ₹ 4,02,663/ - received for assessment year 1999-2000 is to be assessed in assessment year 1999-2000 itself as the assessment proceedings for the year were in progress. 102. The claim of the assessee before us was that in case pursuant to assessment completed under section 143(3) of the Act, the interest under section 244A of the Act is reduced, then only the reduced amount would form part of income of that year. The CIT(A) vide para 21.2 notes that the refund to which the impugned interest pertains had been determined on processing the assessee's return of income for the assessment year 1999-2000 under section 143(3) of the Act on 26.06.2000 after adjusting the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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