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TMI Blog2009 (11) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 25% under item-(1) under the aforesaid head. After considering the rival arguments, we see no reason to interfere. The orders of the income tax authorities on this point are upheld and the ground is dismissed. 3. Ground no.2 is in two parts. In the first part the assessee has disputed the inclusion of the sales-tax and excise duty amounting to ₹ 76,53,354.00 and ₹ 6,03,67,032/- respectively in the total turnover, which is the denominator in the formula prescribed in section 80HHC of the Act. This issue has been decided in favour of the assessee by the order of the Tribunal dated 29-3-2006 in ITA Nos.3079 and 3080/ Ahd/2003 for the assessment years 1996-97 and 1997-98. This issue also stands covered in favour of the assessee by the judgment of the Supreme Court in CIT Vs. Lakshmi Machine Works, 290 ITR 667. Respectfully following the order of the Tribunal and the judgment of the Supreme Court, we direct the AO to exclude the sales-tax and excise duty from the total turnover. 4. The second part of the ground no.2 also relates to the deduction under Section 80HHC. The assessee raised a bill dated 31-3-1998 for ₹ 88,13,339/- on M/s.Gharda Chemicals Ltd. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed. 5. Ground no.3 relates to the disallowance of ₹ 2,87,204/- out of the interest claimed by the assessee as deduction. The interest was paid in respect of the cash credit account and overdraft account with the bank. From the perusal of the details of borrowings from the bank the AO noticed that it included the borrowing for payment of advance tax of ₹ 3.04 crores on 12-3- 1998 and due to this borrowing the assessee s account showed a debit balance of ₹ 3.73 crores. The interest was paid by the assessee at the rate of 18% on the debit balance. The AO, relaying on section 40(a)(ii) of the Act held that since taxes on the assessee s income are not allowable as a deduction, the interest paid on borrowings effected for payment of taxes cannot also be allowed as a deduction. He calculated the interest at 18% for the period 12-3- 1998 to 31-3-1998 at ₹ 2,87,204/- and disallowed the same while computing the business income. On appeal, the assessee contended that the advance tax cannot be said to have been paid out of the borrowings from the bank since all the sale proceeds of the year were also deposited in the same account with the bank and that the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that the judgment of the Calcutta High Court (supra) supports the assessee s case. There the assessee was having an overdraft account in the bank and the entire profits of the relevant year, which were far in excess of the advance tax liability, were deposited in the overdraft account. The assessee withdrew monies from the said account both for business purposes and also for payment of advance tax. The facts in that case show that on 12-12-1969 the overdraft account showed a debit balance of ₹ 1,39,412/-. The assessee paid advance tax on 15-12-1969 in the amount of ₹ 18,05,000/- which increased the overdraft to ₹ 14,63,593/- on 31-12-1969 which was the last day of the accounting year relevant to the assessment year 1970-71. While dealing with the assessee s claim for deduction of the interest paid to the bank on the overdraft account, both the AO and the first appellate authority held that though the profits of the business were embedded in the combined financial transactions, yet at the time of payment of the advance tax the assessee did not have a credit balance in the overdraft account and it was forced to resort to the overdraft facility speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of payment of the advance tax there was a debit balance in the overdraft account. Even so, as held by the Calcutta High Court in the judgment cited above, a presumption should be drawn that the advance tax was paid out of the profits of the year and not out of the overdraft facility. It makes no difference to this principle that on the date of making the tax payment there is a debit balance in the overdraft or cash credit account. When there is a presumption as above, then there is no question of the assessee discharging any onus of proving that the tax payment came out of the business receipts. Thus, respectfully following the judgment of the Calcutta High Court, we hold that departmental authorities were not justified in disallowing ₹ 2,87,204/- from the interest claim. We delete the disallowance and allow the ground. 8. The fourth ground relates to the disallowance of the expenditure of ₹ 1,30,478/- incurred on replacement of crates and ₹ 93,635/- incurred on steam ejector system. So far as the ejector system is concerned, a similar expenditure has been held to be revenue expenditure by the Tribunal in the assessee s own case for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stification for writing off the balances has been given by the assessee at pages 103 and 104 of the paper book. So far as the amount of ₹ 51,175/- is concerned, it represent interest income credited and offered to tax twice, once in the assessment year 1995-96 and again in the assessment year 1996-97. The circumstances under which the amount was wrongly credited in the accounts for the assessment year 1996-97 have also been narrated in the said pages. This mistake, namely, that the interest was twice offered to tax, was sought to be corrected by reversing the entry in the accounts for the year under appeal. The AO does not appear to dispute the factual position, but says that the assessee should have corrected the mistake in the accounts of the year ended 31-3-1995, in which year the mistake was committed, and not in the accounts for the year under appeal. We are unable to agree with the view taken by the AO because the closed accounts for an earlier year cannot be reopened and corrective measures have to be taken only in the accounts of the year which are open. Accordingly, we delete the disallowance of ₹ 51,175/-. 11. As regards the interest of ₹ 32,878/- it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Profit on sale of fixed assets: Rs.25,498.00 iii) Misc. income : Rs.24,915.00 iv) Notice pay : Rs.8,749.00 v) Penalty account : Rs.98,206.00 vi) Sales (Misc.)account : Rs.579.00 vii) Insurance claim received : Rs.16,74,455.00 viii) Interest earned on FDRs. : Rs.43,79,814.00 ix) Interest earned-others : Rs.35,86,163.00 13. Some of the aforesaid items of receipts for the assessment years 1996-97 and 1997-98 have been considered by the Tribunal in the context of section 80IA in its order dated 22-11-2007 in ITA Nos.2979 and 3267/Ahd/2003, a copy of which has been placed at pages 123 to 127 of the paper book. These receipts have been considered while dealing with the claim for deduction under Section 80IA in respect of the profits of units-V and VI of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC and particularly with reference to Explanation (baa) below the section. While therefore accepting the assessee s claim for netting, in principle, we restore the matter to the AO with the direction to him that only the net interest, that is, after adjusting the interest paid by the assessee, if any, against the interest from the fixed deposits, can be excluded from the eligible profits. He may examine all the relevant facts in this connection and find out the net interest and exclude the same. Needless to add that the assessee shall be given due opportunity of being heard and substantiate its claim before the AO takes any decision. 16. As regards the interest of ₹ 35,86,163.00 earned from others, it is stated before us that only the interest received from the customers for late payment of the bills is eligible for deduction as profits derived from the industrial undertaking. Reliance is placed on the judgment of the Hon ble Gujarat High Court in Nirma Industries Ltd. Vs. DCIT, (2006) 283 ITR 402. The learned SR-DR has however relied on the judgments of the Supreme Court in Pandian Chemicals Ltd. Vs. CIT, (2003) 262 ITR 278 and Liberty India Vs. CIT, (2009) 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest and allow the same as deduction, after giving the assessee due opportunity of being heard. 17. The second part of the ground no.6 is directed against the calculation of the gross total income of units-V and VI as made by the AO for purpose of allowing deduction under Section 80IA. The annexure-B to the assessment order shows that the total income of the aforesaid units have been taken by the AO as per sales income ratio, i.e. after estimating the expenditure of the respective units on the basis of the sales income. He has not allowed the actual expenses as a deduction, on the ground that the actual expenses have been understated in order to inflate the profits from these units which are eligible for the deduction. The contention of the assessee before us is that the audit certificate filed in support of the claim for deduction contains the correct calculations and therefore should be the basis for allowing the claim. Our attention has been drawn to the order of the Tribunal in the assessee s own case in ITA No.2626/Ahd/1991 dated 24-9-1993 for the assessment year 1985-86. Reliance is also placed on the order of the Bangalore Bench of the Tribunal in Wipro GE Med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of ₹ 46,28,894/- in the value of the closing stock as on 31-3-1998. This issue stands covered in favour of the assessee by the order of the Tribunal in the assessee s own case, for the assessment year 1996-97 and 1997-98 in ITA Nos.2979 and 3267/Ahd/2003 dated 22-11-2007. In para-30 of this order, it has been held, following the judgment of the Madras High Court in the case of English Electric Company, 243 ITR 512 that the element of excise duty is not to be included in valuing the closing stock. The controversy is the same for the year under appeal and therefore respectfully following the aforesaod order of the Tribunal, we delete the addition of ₹ 46,28,894/-. We may add that section 145A was introduced only with effect from 1-4-1999 and therefore is not applicable for the year under appeal. The ground is allowed. 19. The eighth ground is directed against the disallowance of the foreign travel expenses of ₹ 92,250/- incurred in respect of Rakesh Suri, the sales agent. The reasons for the disallowance is mainly that in the agreement entered into with him for payment sales commission, there is no provision to the effect that his foreign trip expenses would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the order of the Special Bench of the Tribunal in the case of Nirma Industries Ltd. Vs. ACIT, 95 ITD 199. While completing the assessment and while determining the profit eligible for deduction under Section 80HHC, the AO deducted 90% of the miscellaneous income of ₹ 48,04,407/- from the profits assessed under head business purporting to act under Explanation (baa) below the section. The miscellaneous income consisted of the following: i) Misc. income : Rs.24,915/- ii) Notice pay : Rs.8,749/- iii) Penalty recovered : Rs.98,206/- iv) Sales (Misc.) account : Rs.579/- v) Sales (scrap) account : Rs.45,76,690/- vi) Sales Tax refund received : Rs.95,266/- Total : Rs.48,04,407/- The action of the AO resulted in a lesser deduction being allowed under Section 80HHC. The contention of the assessee befo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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