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TMI Blog2012 (9) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... r provisions of section 145A. After calling the explanation, the AO added back ₹ 67,27,141 to the closing stock valuation, as per the provisions of section 145A, which prescribes the valuation to be done under inclusive method, as against the exclusive method, adopted by the assessee in the past. 4. The assessee not satisfied, approached the CIT(A), who, following his predecessor s view in assessment year 2000-01 in the case of the assessee itself, allowed the appeal and deleted the addition made. 5. The department, not satisfied, is now before the ITAT. 6. Before us, the DR contended that by the provisions of section 145A are very clear and the AO was correct in applying the inclusive method. 7. On the other hand, the AR, supported the view taken by the CIT(A) and also pointed out that for assessment year 2000-01 and 2001-02, the coordinate Bench in the assessee s own case had decided in favour of the assessee, following Hon ble Delhi High Court in the case of CIT vs Mahavir Aluminium Ltd. reported in 297 ITR 77. ....Ground no. 2 pertains to deletion of addition in respect of MODVAT credit pertaining to closing stock. The Assessing Officer made an addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICAI, which prescribes the statutory working and allow corresponding adjustment to the opening stock in the succeeding year. 11. Thus the ground is allowed for statistical purposes. Ground 2: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not upholding the action of the Assessing Officer in disallowing warranty provision to ₹ 43,97,184/-. 12. The ground taken by the department is against the deletion of provision of warranty, being a contingent liability. The AO disallowed the provision made, holding it to be contingent and unascertained liability and disallowed ₹ 43,97,184/-. 13. The assessee, aggrieved by the decision of the AO, approached the AO, who relying on the various case laws, as mentioned in the impugned order and following his predecessor s order for assessment year 1999-2000 in the assessee s own case allowed the appeal and deleted the addition. 14. The department is in appeal before the ITAT. 15. Before us, the DR relied on the order of the AO. 16. The AR on the other hand placed reliance on the decision of Rotork Controls India (P) Ltd. vs CIT, reported in 314 ITR 62, wherein the Hon ble Ape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 584 (Mum), held, scrap sales represents part of the total turnover and therefore, are required to be considered as part of total turnover and not as other income . The CIT(A), therefore, allowed the assessee s claim and rejected the observations of the AO. 22. The department is now in appeal. 23. Before us, the DR relied on the decision taken by the AO and the AR, defended the decision of the CIT(A), and submitted that now the issue is covered in the assessee s own case in ITA No. 2326/Mum/2006, wherein the coordinate Bench for assessment year 2002-03 has allowed the inclusion of scrap to the total turnover for the purposes of calculation of deduction u/s 80HHC, holding, that the fifth dispute is regarding exclusion of 90% of certain receipts from profit of business while computing deduction under section 80HHC. The first item is the receipt from scrap sale of ₹ 42,07,798/- The assessee has treated it part of business profit but the Assessing Officer has excluded 90% of the same from the business profit as per Explanation (baa). In appeal CIT(A) has confirmed decision of the Assessing officer. We have heard both the parties. In our view scrap is an integral part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 5,11,38,743 to the total turnover. The assessee approached the CIT(A), who relying on relevant decisions, directed the AO to reduce the impugned figure from the turnover. 29. The department is in appeal before the ITAT. 30. Before us, the DR conceded that the issue is covered by the decision of the Hon ble Supreme court in the case of CIT vs Catapharma (India) P. Ltd., reported in 292 ITR 641 (SC), where, the Hon ble Supreme court held: While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the total turnover of exports out of India of trading goods, excise duty and sales tax are not to be included. The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Just as commission received by an assessee is relatable to exports and yet it cannot from part of turnover , excise duty and sales tax also cannot form part of the turnover excise duty and sales tax also cannot form part of the turnover for the purposes of section 80HHC. Just as interest, commission, etc., do not emanate from the turnover so also excise duty and sales tax do not em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s now before the ITAT. 38. Before us, the AR pointed out that the CIT(A) accepts that motor cars can be allowed depreciation at 40% and also pointed out that since assessment year 1999-00, i.e. last four years the assessment was being framed u/s 143(3) and depreciation had not been restricted in either of the preceding four years, he therefore, pleaded that an inconsistent view should not be taken in the current year, specially in a circumstance, that the issue remains consistent. The AR placed reliance on the following judgments, all directly on the issue impugned before us, supporting the claim of the assessee 01. Daleep s. Chandani vs. ACIT 14 SOT 233 (Mum) 02. DCIT vs. Birla Sun Life Distribution Co. Ltd. ITA no. 1197/M/07 03. Godfrey Phillips India Limited ITA no. 2632/M/06 04. Ashok Gangadhar Maratha vs. Oriental Insurance Co. Ltd. 1999 AIR 318 (SC) 05. Radhasoami Satsang vs. CIT 193 ITR 321 (SC) 06. CIT vs. Godaveri Devi Devi 156 ITR 835, 850 (MP) 07. CIT vs. ARJ Security Printers 264 ITR 276 (Del) 08. CIT vs Neo Ply Pack (P) Ltd. 245 ITR 492 (Del) 39. The AO pleaded that in the case of Ashok Gangadhar Maratha (supra), Hon ble Supreme court held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 292 (Hyd. Tri) Vulcan Alloys Inds. (P) Ltd. vs ITO 12 Taxman 99 (Ahd. Trib) Sahni Kirkud (P) Ltd. ITA No. 779/Bom/80 dtd.4/4/81 Echjay Industries (P) Ltd. vs. ITO 26 ITD 259 (Bom) Pratima Hotel Pvt. Ltd. vs ITO 17 TTJ 550)(Bom) ITO vs. Bright Bros. Ltd. 18 TTJ 377 (Bom) CIT vs. Sundaram Industries Ltd. 240 ITR 335 (Mad) DCIT vs. RPG Enterprises Ltd. ITA No. 4931/Mum/2001 49. The CIT(A) observed, that the arguments of the appellant is too spacious. The membership of club is taken for leisure entertainment and to unwind after a day s work. If in the club some business talk is done, it would not change the predominant reason of taking the membership of a club. The predominant reason of expenditure which would determine the allowability of that expenditure. This simply means that the expenditure has not been incurred wholly and exclusively for business purposes. Accordingly, this ground is dismissed . 50. The CIT(A), thus rejected the ground, as raised by the assessee. 51. Aggrieved, the assessee is now before the ITAT. 52. Before us, the AR, reiterated, the submissions made before the CIT(A) and relied on the decisions. The AR also pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully following the above decisions, we reverse the findings of the revenue authorities and set aside the order of the CIT(A) and direct the AO to allow the figure of ₹ 4,14,87,985 as the capital reserve of the assessee as claimed. 62. The alternate argument, taken by the assessee becomes infructuous. 63. The ground is treated as allowed. 64. Ground no. 4 is on account of reduction of 90% of gross commission amounting to ₹ 2,73,60,766 by applying clause (baa) of the Explanation to section 80HHC. 65. The facts involved in the issue, are, that during the year, the assessee has received aggregate commission of ₹ 2,73,60,766/-. While computing the deduction u/s 80HHC, the assessee has not reduced the 90% of the said commission from the profit of the business. The total includes ₹ 2,39,03,065/- textile machinery and ₹ 34,57,071/- for the products. The assessee was asked to explain why the same should not be excluded from the total profit of the business/undertaking for the purpose of computation of deduction u/s 80HHC of the Act. The assessee filed the explanation in this regard and contended that the entire commission cannot be reduced from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nexus between the commission income earned and direct expenditure which could be reduced from gross commission. 73. Since the issue in the preceding year is restored to the AO, to work out the nexus between the commission income and direct expenses which could be reduced from the gross commission, we, in the interest of justice and to bring out a considered and consistent view in the issue, in the case of the assessee, we deem it fit to restore the issue in the current year, as well to the AO. 74. In the result, the order of both the revenue authorities are set aside on the issue with a direction to the AO to decide the issue afresh in line with the decision taken in the preceding years in assessment years 2001-02 2002-03, after giving a fair opportunity to the assessee. 75. The ground is treated as allowed for statistical purposes. 76. Ground no. 5 is not pressed by the assessee, hence it is dismissed. 77. Ground no. 6 is on account of reduction of 90% of compensation received on termination of agency from business income. 78. In the assessment order, the AO has treated the compensation received for termination of agency at ₹ 13,49,466 as income not der ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. 86. The ground is treated as allowed for statistical purposes. 87. Ground no. 7 is on account of reduction of 90% of gross interest from business income. 88. From the order of the CIT(A), we find that despite the fact that the addition was agitated before the CIT (A), which is evidenced by going through ground no. IX, as per GOA. The issue, we find, has not been adjudicated by the CIT(A). Since the issue is not decided, by the CIT(A), we cannot adjudicate on this issue. In the interest of justice and as per judicial propriety, we deem it fit to restore the issue to the CIT(A), with the direction to adjudicate on this issue. 89. In the result, the ground is treated as allowed for statistical purposes. 90. Ground no. 8 is on account of addition of excise duty and sales tax to the total turnover. The issue came up in the department s appeal as well, where we have decided the issue against the revenue, where Hon ble Supreme Court held: While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the total turnover of exports out of India of trading goods, excise duty and sales tax are not to be included. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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