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TMI Blog2003 (10) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ONGC in respect of arrears of its claim for gas liability referred to in question No. (a) was also not allowable as the same was contingent liability? (c) Whether the Tribunal was right in law in holding that the profits of Panpharma Division for the purposes of computing the deduction under sections 80HH and 80-I should not be computed on the basis of accounts submitted by the Panpharma Division but after apportioning indirect expenses incurred by the appellant being commission to selling agents amounting to Rs. 2.25 aores, publicity and medical literature expenses amounting to Rs. 51 lakhs, interest and discount charges of Rs. 1.28 crores and other expenses of Rs. 61.45 lakhs as the said expenses were incurred only by the appellant for marketing the said products taken by it from the Panpharma Division at a much lower price as the said division was not required to incur the said expenditure as it was selling the same to another division of the appellant itself and, therefore, whether the Tribunal applied the correct principle for computing the profits of Panpharma Division by providing for allocation of the aforesaid expenses reducing the profits of the division for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the action of the Assessing Officer. Being aggrieved, the assessee carried the matter in appeal before the TribunaL The Tribunal for the reasons stated in its order dated August 9, 1999, confirmed the action of the Assessing Officer on all the four counts and, hence, the present appeal. I. Liability towards ONGC Mr. K.H. Kaji, the learned advocate appearing on behalf of the appellant, submitted that the appellant had claimed deduction of payment for supply of gas by ONGC for the period subsequent to January 29, 1987. That for the period prior to January 29, 1987, it was held by the Supreme Court of India on May 4, 1990, that ONGC was entitled to demand the price as per their decision and the same was not open to challenge. That while holding so, the apex court had reversed the decision of this court in that behalf, wherein this court had taken the view that the demand for the price by ONGC was erroneous in law. That on January 30, 1987, the Government of India had issued a circular fixing the price for the gas supplied by ONGC That the said circular had been challenged before this court. In 1993, the petition filed by the appellant and others came to be dismissed by this court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law in relation to accrual of income in the following terms: "When an Income-tax Officer proceeds to include a particular income in the assessment, he should ask himself, inter alia, two questions, namely: (i) what is the system of accountancy adopted by the assessee, and (ii) if it is the mercantile system of accountancy, subject to the deeming provisions, when has the right to receive that amount accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding assessment year. No power is conferred on the Income-tax Officer under the Act to relate back an income that accrued or arose in a subsequent year to another earlier year, on the ground that the said income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of ascertaining when a particular income accrued or arose." This decision has been followed and applied by the apex court when it was called upon to decide the question of incurring of liability and deduction thereof. In the case of CIT v. Swadeshi Cotton and Flour Mills Private Limited [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 80HH and 80-I. The appellant-company claimed deduction of the statutory percentage from profits and gains derived from the industrial undertaking, viz., Panpharma Division located in Panch Mahals district. There is no dispute that this division is entitled to deduction under sections 80HH and 80-I of the Act as it fulfills all other conditions stipulated in both the sections. According to the Assessing Officer, in order to claim: deduction at a higher figure, the assessee arrived at the profits and gains of the industrial undertaking without deducting therefrom indirect expenses like commission to selling agent, publicity and medical literature expenses, interest and discount charges and other miscellaneous expenses. The case of the Assessing Officer is that as the appellant had debited the entire aforesaid expenses in its books without allocating the same to Panpharma Division, the profits of the said division had been increased resulting in the appellant being in a position to claim higher deduction under sections 80HH and 80-I of the Act. Therefore, the Assessing Officer reduced the profit of the Panpharma division after allocating such indirect expenses. This view h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned standing counsel appearing on behalf of the Revenue, submitted that the accounts were found to be incorrect and not properly drawn and, hence, the exercise undertaken by the Assessing Officer was justified. It was further submitted that for this purpose the power of the Assessing Officer could be found in sections 80HH(6) and 80HH(7) of the Act. It was finally contended that the Tribunal had recorded a finding of fact and no substantial question of law could be said to arise out of the Tribunal's order and the appeal was required to be dismissed on this count alone. Section 80HH of the Act as is necessary for the present purpose is reproduced hereinbelow: "80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.--(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... primarily the gross total income of the assessee has to include profits and gains derived from an industrial undertaking; the deduction at 20 per cent. is allowable from such profits and gains. Therefore, the assessee becomes entitled to deduction under this section provided there is an industrial undertaking from which profits and gains have been derived. In other words there has to be a situation where the assessee and the industrial undertaking have to be separate and independent. In fact this is clear from the provision of sub-section (6) of section 80HH of the Act. In the present case, admittedly, the assessee and Panpharma division are independent units. The Panpharma Division is an industrial undertaking which fulfills all other conditions for claiming deduction, and the profits of Panpharma division have been included in the gross total income of the assessee. The dispute only relates to the fact as to whether the price at which the goods were transferred from Panpharma division to the main division was "market value" of such goods, and whether it was open to the Assessing Officer to substitute such apparent consideration if he arrived at a finding that the same was not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for transfer for the purpose of computing deduction under this section. The Explanation below subsection (6) of section 80HH specifically indicates that market value means the price that such goods would ordinarily fetch on sale in the open market. The next question therefore that requires to be resolved is the case of a single buyer and where the seller sells 100 per cent. of the production of the seller to such single buyer what would be the price that such goods would ordinarily fetch on sale in the open market. This question cannot be answered in the abstract. Each case will turn on its own facts: as to what are the goods, what is the market for such goods, whether there are any restrictions in dealing with such goods, and various other diverse factors which cannot be enumerated. In the circumstances, each matter will have to turn on its own facts. Once the provision envisages a particular situation, viz., deemed sale at market value, it is not possible to state that the Assessing Officer cannot substitute his opinion. Such an opinion has to be an objective opinion based on the facts and circumstances obtaining on the date of transfer. Hence, in a given situation, it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson, and only after its profits are included in the gross total income of the appellant-assessee would the question arise as regards computing the profits and gains derived from the industrial undertaking from which deduction at the stipulated percentage can be granted. As the language employed by section 80-I of the Act is identical in terms, the aforesaid discussion in relation to claim under section 80HH of the Act would also apply mutatis mutandis to the claim under section 80-I of the Act. In the result, this ground of appeal fails and there is no infirmity in the impugned order of the Tribunal which would call for interference. IV. Deduction under section 80HHC of the Act. In the computation of income deduction under section 80HHC of the Act was claimed at Rs. 1,06,33,710 duly supported by the statutory audit report in the prescribed form. The Assessing Officer noticed that deduction under section 80HHC of the Act had been claimed on income like rent, computer charges, service charges, miscellaneous income, insurance, etc. As the Assessing Officer was of the opinion that deduction could not be granted on such items he worked out the figure at Rs. 85,21,970 and ultimately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as one understood in the common parlance. That once 90 per cent. of any sum referred to in section 28(iiia) or section 28(iiib) or section 28(iiic) of the Act was reduced from the profits computed under the head "Profits and gains of business of profession", the Assessing Officer cannot also reduce such profits by way of receipts like brokerage, commission, interest, rent, etc. That the word "or" cannot be substituted by the term "and" for the purpose of applying clause (baa) of the Explanation below section 80HHC of the Act. Thatthe Assessing Officer had read the word "or" as "and". The Commissioner of Income-tax (Appeals) and the Tribunal confirmed this interpretation of the provision. It is not possible to accept the contention. On a plain reading of the provision as it stands it is apparent that what the provision stipulates is that "profits of the business" for the purpose of section 80HHC of the Act mean the profits of the business as computed under the head "Profits and gains of business or profession". While computing such profits under the head "Profits and gains of business or profession" if any sum referred to in clause (iiia), (iiib) or (iiic) of section 28 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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