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TMI Blog2017 (3) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of provision for leave encashment for Rs. 17,63,884/- in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee made provision for leave encashment to the tune of Rs. 17,63,884/- and claimed the same as deduction which was disallowed by the ld AO by invoking the provisions of section 43B(f) of the Act. The ld CITA sustained the disallowance by placing reliance on the decision of the Hon'ble Supreme Court in the case of Exide Industries Ltd. Aggrieved, the assessee is in appeal before us on the following ground:- "That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not holding that provision for leave encashment for Rs. 17,63,884/- is neither statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s. 43B(f) of the I. T. Act, 1961." 2.2. The Learned AR argued that since the decision of the Calcutta High Court in the case of Exide Industries Ltd 292 ITR 470 (Cal) has struck down the provisions of section 43B(f) of the Act, the deduction may be granted towards leave encashment made on provision basis itself in line with the decision of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in upholding the disallowance of Rs. 2,66,665/- made u/s 14A of the Act in the facts and circumstances of the case 3.1. The brief facts of this issue is that the ld AO observed that the assessee had received dividend income of Rs. 45,63,162/- and claimed exemption for the same. The assessee had not considered any proportionate interest and administrative expenses related to earning of this exempt income and accordingly sought to invoke Rule 8D of the Rules. The assessee replied that it is engaged in the business of manufacture and sale of Guar Gum, Powder Gum, Guar Split etc. All the expenses incurred were in relation to its business only. The shares on which dividend was received were purchased out of own funds and no borrowed funds were utilized for investments. It was also submitted that the dividend in respect of units of mutual funds is usually reinvested in the respective schemes without being actually received by the assessee. The dividend warrants received from companies are required to be deposited in the assessee's bank account for which practically no expenditure was incurred. Accordingly it prayed that no disallowance u/s 14 A of the Act is required to be made. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o borrowed funds were utilized for the same. However, we find that the ld AO while framing the assessment for Asst Year 2004-05 u/s 143(3) of the Act had not made any disallowance under Rule 8D(2)(ii) of the Rules appreciating the contentions of the assessee that investments in earlier years were made out of own funds. We also find that the assessee had explained the source of each investments made by it before the ld CITA during appellate proceedings for Asst Year 2005-06 together with the details of investments made in respective years out of its own funds. The ld CITA granted relief to the assessee in this regard and against which the revenue had not preferred any appeal before us. In view of these facts and circumstances, we hold that no disallowance under Rule 8D(2)(ii) of the Rules towards proportionate interest is warranted in the instant case. In respect of disallowance made towards administrative expenses under Rule 8D(2)(iii) of the Rules, we hold that the co-ordinate bench of this tribunal in the case of REI Agro Ltd supra had held that only dividend bearing investments should be taken into account for the purpose of working out the disallowance under Rule 8D(2)(iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee dealer in the instant case is invited with levy of penalty. It is not for infraction of any law for the time being in force. He also argued that assessee had preferred an appeal against the levy of penalty before the appellate authority and the same is pending disposal. He argued that in the meanwhile, similar issue in the case of another assessee dealer (i.e Ami Pigments) had travelled upto High Court and the Hon'ble High Court had set aside the issue to the file of the assessment officer to have a relook on the facts and the applicability of relevant provisions of sales tax act. Accordingly he argued that the issue under dispute is squarely debatable and no penalty would be exigible automatically. He stated that by taking shelter on the said High Court judgement, the assessee is confident of winning its appeal before the appellate authority for cancellation of levy of penalty of Rs. 2,45,835/-. In these circumstances, he prayed that the same may not be treated as incurred for infraction of any law for the time being in force . In response to this, the ld DR vehemently supported the orders of the lower authorities and stated that the same is incurred only for infraction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 respectively. Aggrieved, the revenue is in appeal before us on the following ground:- "1. That is the facts and in law of the case the Ld. CIT(A) erred in allowing the exempted income u/s. 10B for interest earned from other income in the form of interest, duty drawback etc. of Rs. 18,20,101/-." 5.2. The ld DR argued that Staff accommodation rent is not derived from export of articles or things as per section 10B of the Act. The income in the form of duty drawback is squarely covered in favour of the revenue by the decision of the Hon'ble Supreme Court in the case of Liberty India vs CIT reported in 317 ITR 218 (SC) wherein it was held that duty drawback receipts and DEPB benefits do not form part of the net profits eligible industrial undertakings for the purpose of deduction u/s 80IA / 80IB of the Act as they are not derived from the industrial undertaking. In respect of excess liabilities written back, he argued that it is not known whether the liabilities were originally created in this 100% EOU or for other units as admittedly the assessee is having both taxable unit as well as exempt unit. In response to this, the ld AR argued that the provisions of section 10B(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and loss account of 100% EOU furnished by the assessee before the lower authorities. Hence the entire other income becomes the profits of the business of the undertaking (i.e 100% EOU) . Then automatically the assessee is entitled for deduction as per the computation mechanism provided in section 10B(4) of the Act. For the sake of convenience, the provisions of section 10B(1) and 10B(4) of the Act are reproduced hereunder:- "10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the undertaking and the export turnover of the undertaking. Once these two figures are available, one has to divide the total turnover by the export turnover in order to work out the percentage of the export turn over, vis-à-vis the total turn over. Suppose total turn over is Rs. 100/- and total export turn over is for Rs. 10/-, then the export turn over is 10 % of the total turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is Rs. 100, in that case, deduction available to the assessee under Section 10 sub-section (1) of Section 10B shall be 10% of Rs. 100, i.e. to say Rs. 10/-. This is the formula which has been provided by subsection (4) for the purpose of working out the benefit or deduction under subsection (1). Total turnover shall naturally include receipt on account of 5 interest. The legislature does not appear to have provided for excluding the amount of interest from the total turn over as has been done in the case of 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond question of law in both the appeals do not arise for consideration." Mr. Dudhoria, learned Advocate appearing for the revenue drew our attention to a judgment of the Madras High Court in the case of International 7 Components India Ltd. vs. Assistant Commissioner of Income Tax reported in 2015 - (372) - ITR- 0190 - Madras wherein the following view was taken : "In the light of the above said decision, we are of the firm view that the interest earned from deposits with Corporation Bank, Electricity Board and on staff advances does not have direct or immediate nexus with the business of the assessee's undertaking and, consequently, they are not eligible for grant of deduction under Section 10B of the Act, which is akin to Section 80HH of the Act dealt with in the decision referred supra." Mr. R.N.Bajoria, Learned senior advocate rightly pointed out that the judgment of the Madras High Court is of no relevance for the simple reason that sub-section (4) of Section 10B was not taken into account by the Hon'ble Madras High Court. Therefore, this judgment is of no assistance in deciding the issue. The learned Tribunal has passed the following order: "There is no requirement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act when the language stipulated in section 10B (4) of the Act is very categorical and unambiguous. 5.3.2. In view of our aforesaid findings and respectfully following the decision of the Hon'ble Jurisdictional High Court in assessee's own case supra, we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, we dismiss the Ground No. 1 raised by the revenue. 6. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of additional depreciation in the facts and circumstances of the case. 6.1. The brief facts of this issue is that the assessee installed plant and machinery in the earlier year which was put to use for less than 180 days and had claimed additional depreciation at 50% of applicable rates. The remaining 50% was claimed by the assessee during the year under appeal on the premise that the grant of additional depreciation is an incentive provision and is granted for encouraging investment in capital field by the assessee and the same is an one time allowance which is allowable only in the year of installation. Hence it was argued that there is nothing wrong in claiming the remaining 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on written down value (WDV). 5. The Ld AR before us submits that the case in hand is squarely covered by the decision of the Hon'ble Karnataka High Court in the case of CIT & Anr Vs. Rittal India Pvt. Ltd reported in (2016) 380 ITR 423(Karn). 6. The Ld. Sr. DR relied on the orders of the authorities' below. 7. Heard both the parties and perused the relevant material on record. In this regard, we may refer to the decision of the Hon'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd (supra). The facts of the case therein are that the assessee being an existing industrial undertaking had acquired and installed new plant and machinery in the F.Y 2006-07 and claimed 50% of additional 20% depreciation i.e, 10% additional depreciation under section 32(1)(iia) of the Act in the corresponding assessment year 2007-08 for the reason that the new machinery was acquired after 01-10-2006. The relevant portions at page no's at 9 and 10 of which is reproduced herein below for better understanding:- "The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent. of the actual cost of such machinery or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put to use for a period of less than 180 days in that previous year. According to AO in his order at page no-4 referred that the assessee put to use new plant and machinery for less than 180 days and confirmed by the CIT-A in para-8 of impugned order and it is a requirement under 2nd proviso to section 32(1) which lifts the restriction on AO allow the further depreciation of 10% of which remained unclaimed out of 20% as referred in Clause (iia) to sub-section (1) of section 32 of the Act. The facts of the present are similar to the decision supra relied on by the assessee. Therefore, we are of the view that the law laid down by the Hon'ble High Court of Karnataka in the case of CIT and another vs Rittal India Private Ltd supra is applicable to the present case, thus we hold that the assessee is entitled to claim remaining 50% depreciation of such 20% which is equal to the actual cost of new plant and machinery, accordingly ground no-1 raised by the assessee is allowed." Respectfully following the same, we dismiss Ground No. 2 raised by the revenue. 7. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of Rs. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing on 31.3.2008 was neither notional nor contingent but represented an actual loss as on the balance sheet date. Due to adverse fluctuations in the exchange rate as on 31.3.2008, the assessee was required to pay the aforesaid sum of Rs. 82,32,966/- to the bank with whom the forward contracts were made. The principle of prudence demanded that an assessee following the mercantile system of accounting had to provide for such loss in its accounts for the year ended 31.3.2008. The ld CITA appreciated the contentions of the assessee and by placing reliance on the decision of co-ordinate bench of Delhi Tribunal in the case of Bechtel India (P) Ltd vs Additional CIT reported in (2013) 33 taxmann.com 213 (Delhi Trib) , deleted the disallowance of Rs. 82,3,2966/- . Aggrieved, the revenue is in appeal before us on the following ground:- "3."That is the facts and in law of the case the Ld. CIT(A) erred in allowing the provision from mark to market losses as the said provision is not allowable as per the CBDT Instruction No. 312011." 7.3. The ld DR reiterated the findings of the ld AO and stated that the loss arising due to restatement based on exchange rate prevailing on 31.3.2008 is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into forward contracts in order to hedge its exchange risk in respect of export proceeds receivable by it in foreign exchange. The assessee's forward contracts were not by way of trading as such in foreign exchange derivatives. Hence, Instruction No. 3/2010 cannot be made applicable to the facts of the instant case. We find that the decision relied upon by the ld AR on the decision of the Hon'ble Bombay High Court supra is in favour of the assessee wherein the question raised before the Hon'ble Court and the decision rendered thereon is as under:- "The Revenue has urged the following question of law for our consideration:- "Whether on the facts and in the circumstances of th case and in law, the Tribunal was justified in deleting the addition of 'Mark to Market' Loss of Rs. 78,10,000/- made by the Assessing Officer on account of disallowance of loss on foreign exchange forward contract loss and not appreciating the fact that the said loss was a notional loss and hence cannot be allowed?" 7. The impugned order of the Tribunal has, while upholding the finding of the CIT (Appeals), independently. come to the conclusion that the transaction entered into by the Respondent asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2003] 261 ITR 256/[2004] 134 Taxman 376 (Mum.) was not brought to the notice of the Tribunal when it rendered its decision in S. Vinodkumar Diamonds (P.) Ltd. (supra). In the above case, this court has held that forward contract in foreign exchange when incidental to carrying on business of cotton exporter and done to cover up losses on account of differences in foreign exchange valuations, would not be speculative activity but a business activity. 8. In the above view, the question of law, as formulated by the Revenue, does not give rise to any substantial of law. Thus, not entertained." 7.5.1. We find that the co-ordinate bench of Mumbai Tribunal supra had also decided this issue in favour of the assessee wherein it was held that:- "8. We have carefully considered the order of Ld. Commissioner of Income Tax and the submissions of Ld. Representatives of the parties. We have also carefully considered the cases cited before us (supra). It is relevant to state that in the case of Woodward Governor India (P.) Ltd. (supra), the Hon'ble Apex Court observed and held that the assessee debited to its profit and loss account certain unrealized loss due to foreign exchange fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r fortified by the fact that DRP in its own order in subsequent year has itself held that the issue about the loss on mercantile system is pending dispute in AY 2008-09. Therefore, the allowability of the loss on actual payment in AY 2009-10 has been made subject to the allowability of the loss for AY 2008-09. This stand of the DRP itself negates the observations of assessing officer that it is a notional loss and establishes that it is a business loss incurred by the assessee on mercantile system which method is consistently followed by the assessee. Under these circumstances, we are inclined to allow the foreign exchange fluctuation loss to assessee in this year. This ground of the assessee is allowed." 7.5.3. Respectfully following the aforesaid decisions and in view of the facts and circumstances, we do not find any infirmity in the order of the ld CITA in this regard. Hence the Ground No. 3 raised by the revenue is dismissed. 8. The last issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the provision on account of VAT in the facts and circumstances of the case. 8.1. The brief facts of this issue is that the ld AO observed that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within the ambit of section 43B of the Act. Moreover, pursuant to withdrawal of notification by the Govt of Rajasthan, VAT department , the assessee had reversed this provision and offered the same to the total income in the subsequent year. Hence if this addition is sustained, then it would result in double taxation of the same item. 8.4. We have heard the rival submissions and perused the materials available on record. We find that the ld CITA had deleted the disallowance by observing as under:- "5.9 Ground No.10 This ground of appeal is against the action of the Assessing Officer for making disallowance of Rs. 18888720/- as not ascertained liability and further that the liability was not allowable u/s 438 of the IT Act. I am inclined to agree with the submissions of the appellant. The provision made by the appellant for the previous year relevant to the assessment year 2008-09 was an ascertained liability. According to the notification issued on February 25, 2008, Guar Gum was exempt from VAT with effect from April 1, 2006. Accordingly, no VAT was payable on the said commodity with effect from April 1, 2006. The VAT paid by the appellant as part of the purchase price of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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