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TMI Blog2018 (5) TMI 2003X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [ 2011 (2) TMI 330 - PUNJAB AND HARYANA HIGH COURT] . Allocation Expenses under section 14A - HELD THAT:- Similar matter was considered by the ITAT in the case of the assessee for the assessment year 2001-02 in [ 2014 (4) TMI 1261 - ITAT CHANDIGARH] wherein it has been held that the disallowance was made on surmises and there was no merit in the disallowances made wrongly on the premise that borrowed funds were used for investment purpose. The Tribunal has affirmed the confirming of disallowance of ₹ 1,00,000/- made by the Ld. CIT(A). In the instant year the Ld. CIT(A) has confirmed an amount of ₹ 2,00,000/- being the expenses incurred for earning of the dividend income. Following the same rationale we hereby uphold the order of the Ld. CIT(A). Deduction u/s 80HHC - Calculation of indirect cost of Trading Goods - apportioning proportionate personnel expenses/administrative expenses/financial expenses and depreciation not relating to trading activities of the assessee's business for calculating indirect cost of trading exports while calculating deduction - HELD THAT:- Since the matter travelled up to Tribunal in the earlier years in the assessee s own c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B in respect of these units accordingly. Treatment of Loss on export of trading goods for computation of deduction under section 80HHC - HELD THAT:- Only positive profits can be considered for purposes of deduction. We, therefore, see no substance in the appeal. The same stands dismissed. - Decided in favour of revenue Deduction u/s 80IB on balance profits of EOU Unit - HELD THAT:- CIT(A) agreed the Assessing Officer s contention that where the income of a unit is taken to be exempt under the provisions of Section 10B no part of its income is included in the gross total income and therefore no deduction could be allowed under any other Section of Income Tax Act,1961 included in Chapter XVI. The Ld. CIT(A) agreed with the contention of the assessee that deduction under section 80IB is claimed only on the domestic profits of the undertaking. It was held that the export profits claimed under section 10B are not included in claiming exemption under section 80IB. CIT(A) has referred the matter to the Assessing Officer to verify the claim. Since the principle has been laid down by the Ld. CIT(A) that only domestic profits are eligible for deduction under section 80IB, we see no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over has been upheld. Appeal of the assessee on this ground is allowed. Disallowance of 50% of the Travelling expenses - HELD THAT:- Even before the Ld. CIT(A) no evidence in support of the same has been filed. Even before us no evidence has been filed except a table pertaining to period, amount and purpose. No correspondence of whatever could not been furnished. Hence, we decline to interfere in the order of the Ld. CIT(A) - As a result this ground of appeal of the assessee is dismissed. Disallowance foreign travelling expenses of wife of CMD - Assessee contested that the wife of CMD also attends telephone calls note the messages for CMD in his absence - HELD THAT:- AR relied on the judgment of JK Industries Vs. CIT [ 2011 (3) TMI 23 - CALCUTTA HIGH COURT] wherein such amount was allowed since the tour has been sanctioned by the Board of Directors. However, no such resolution was produced before us in the instant case hence, keeping in view the facts and circumstances specific to this case and since no specific role of the spouse in the corporate meeting could be elicited, the disallowance made by the Ld. CIT(A) is hereby confirmed. As a result, this ground of appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management and conduct of the assessee s business to be carried on more efficient way it should be treated as Revenue expenditure. We find that the software implementation expenditure being in nature of augmenting efficiency should be treated as Revenue expenditure in nature. Income of sale of shares - AO held that the Long Term Capital Gain earned by the assessee be treated as income from speculation business in the context of Explanation to Section 73 - HELD THAT:- The shares have been held as investments in the listed group company namely Vardhman Acrylics Ltd. and in IDBI. Hence, relying on the rationale of DCIT Vs. Jindal Exports Ltd.. [ 2006 (5) TMI 134 - ITAT DELHI-G] wherein it is held that every transaction may give raise to capital gains or income assessable under any other head - we find that the transactions cannot be treated as speculative in nature and we hereby uphold the order of the Ld. CIT(A). - ITA No.681/Chd/2007, ITA No.691/Chd/2007, ITA No.475/Chd/2008, ITA No.530/Chd/2008, ITA No.938/Chd/2008, ITA No.981/Chd/2008, ITA No.528/Chd/2009, ITA No.575/Chd/2009 - - - Dated:- 4-5-2018 - SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts while allocating expenses amounting to ₹ 2,00,000/- to exempted dividend income earned by the appellant and disallowing the same under section 14A of Income Tax Aqt. / 8. That the Ld. CIT(A) has erred in law and on the facts while confirming the action of assessing officer for treating the Sales Tax subsidy/Exemption amounting to ₹ 4,60,68,415/- as a revenue receipt. 9. That the Ld. CIT(A) has erred in law and on the facts while not allowing deduction under proviso to section 80HHC on export incentives amounting to ₹ 79.04 Lacs being DEPB sold instead of 1.72 Lacs being profit on sale of DEPB. Revenue has raised the following grounds in ITA No. 691/Chd/2007 for A.Y. 200203: 1. That the Ld. CIT(A) erred in law and facts in not excluding 90% of following receipts under clause (baa) of Explanation below section 80HHC(4C) of the Act even though these receipts are also of similar nature to the receipts specified in this clause: i) Claims received ₹ 59.92 lacs ii) Excess provision written back ₹ 149.36 lacs iii) Previous year income ₹ 4.65 lacs 2. That the Ld. CIT(A) erred in law and facts in directing not to reduce 90% of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anant-II Anan/-t-III Excise Duty 24,29,868/- 23,16,464/- Export Turnover of Trading Goods - 6,75,09,263/- (e) That the Ld. CIT(A) has erred in law and on the facts while reducing profits of undertakings for calculating deduction u/s 10B by the following amounts: - Particulars Amount (in Rs.) Name of undertakings Anant-II Anant-III Interest From Banks Customers 6,133/- 7,827/- Rent received from employees 99,761/- 83,134/- Cash discount received from cotton suppliers 4,83,159/- 6,19,048/- Brokerage recd against export invoices 2,34,587/- 3,00,564/- Duty Draw Back 22,56,533/- 28,91,184/- Recd against sale of PPE Quota Cert. 80,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts while excluding 100% of interest income amounting to ₹ 20867862 from profits of business eligible for deduction u/s 80HHC for calculating deduction u/s 80HHC of the Income Tax Act. (h) That the Ld. CIT (A) has erred in law and on facts while excluding 90% of sale value amounting to ₹ 11778346 on transfer of DEPB instead of 90% of profit on transfer of DEPB amounting to ₹ 433719 from the eligible profits while calculating deduction u/s 80-HHC of the Income Tax Act. (i) The CIT (A) has erred in law and on facts while not allowing deduction under proviso to section 80HHC (3) on DEPB receipts. 5. That the CIT (A) has erred in law and on the facts while reducing profits of Arisht Spinning Mills, Unit - 1 eligible for deduction u/s 80IB by following amounts: - Particulars Amount(in Rs.) Rent received from employees 89,323/- DEPB Benefit 72,00,370/- 98,73,971/- Revenue has raised the following grounds in ITA No. 530/Chd/2008 for A.Y. 2003- 04: 1. That the Ld. CIT(A)-II has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law and on facts while taxing the capital receipt amounting to ₹ 5,25,05,262/- on account of Sales Tax Exemption/ Subsidy received from Government of Punjab as the revenue receipt of the assessee. 3. Without prejudice to the ground (2) above, the Ld. CIT(A) has erred in law and on facts while taxing the capital receipt amounting to ₹ 5,25,05,262/-on account of Sales Tax Exemption/Subsidy received from Government of Punjab as 'Income from other Sources'. 4. That the Ld. CIT(A) has erred in law and on the facts while confirming the action of the assessing officer for reducing profits of units eligible for deduction u /s 10B ( Anant II, Anant III Arisht EOU ) and 80IB ( Anant II Arisht EOU ) by the following amounts : - (Amount in Rs.) Particulars Anant II Anant III Arisht EOU Interest received from others 4,405/- 7,653/- - Other Claims received 2,368/- 27,043/- 31,382/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC (3)(c)(iii) on export incentives amounting to ₹ 4,10,03,794/-. (v)(b) That without prejudice to ground 9 (xi)(a) above the Ld. CIT(A) has erred in law and on the facts while excluding 90% of DEPB receipts by way of DEPB self consumed as well as DEPB yet to be consumed amounting to ₹ 18.01 lacs and 43.74 lacs respectively. (vi)(a) That the Ld. CIT(A) has erred in law and on facts while applying method of calculating cost of trading goods exported for deduction u/s 80HHC other than that specified u/s 80HHC and at variance to the method regularly adopted by the assessee in earlier years. (vi)(b) That the Ld. CIT(A) has erred in law and on the facts while apportioning full amount of Personnel, Administrative and Financial Expenses and Depreciation to the indirect cost of Trading Goods while calculating deduction u/s 80HHC of Income Tax Act, ignoring the fact that full amount of these expenses were not related to the trading activities. 7. That the Ld. CIT(A) has erred in law and on the facts while confirming the action of the assessing officer for disallowing 50% of the foreign traveling expenses of ₹ 8,71,000/-. 8. That the Ld. CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 200506: 1. The Ld. CIT (A) has erred in law and on facts while confirming the action of the Assessing officer for treating interest income amounting to ₹ 70,41,07.6/-as Income from other Sources instead of Income from Business or Profession . 2. That the Ld. CIT(A) has erred in law and on the facts while confirming the action of the Assessing officer for reducing profits of units eligible for deduction u /s 10B and/or 80IB by the following amounts : - (Amount in Rs. ) Particulars Anant III VSGM(EOU) Auro-W-II Interest received from others 78,274 - - Other Claims received 3,098 - - Rent 4,35,231/- 2,49,469/- 80,621/- Misc. Income 14,67,478/- 37,624/- 34,680/- DEPB - - 8,78,942/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allocate the eligible head office income to the respective unit for calculating deduction u/s 80IB and exemption u/s 10B. 4. That the Id. CIT(A) has erred in law and facts in allowing the deduction u/s 80IB on profits of unit named Vardhman Spinning General Mills (100% EOU) eligible for exemption u/s 10B. 5. That the Id. CIT(A) has erred in law and facts in deleting the addition of ₹ 17,73,346/- made u/s 14A by the A.O. on proportionate basis out of personal, administrative and financial expenses for earning of dividend income. 6. That the Id. CIT(A) has erred in law and facts in vacating the addition of ₹ 20 lac made by the Assessing Officer u/s 35D on account of expenses incurred in connection with the demerger scheme on account of inseparable charges to give effect to demerger scheme. 7. That the Ld. CIT(A) has erred in law and facts in directing the Assessing Officer to consider expenses incurred on post implementation review of the BPCS and TIM system as revenue expenditure instead of Capital expenditure. 8. That the Ld. CIT(A) has erred in law and facts in treating the income from Sale of Shares amounting to ₹ 3,53,86,594/- as income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has noted that these receipts are in the nature of any other receipt as referred to in clause (baa) of Explanation to Section 80HHC and necessarily 90% of these receipts have to be reduced from the profit of the business. 6.3 Referring to the provisions of clause (baa), the A.O, has stated that the expression any receipt and any other receipt of a similar nature shows that the receipt mentioned are not exhaustive in nature but only illustrative. Referring to the Board Circular No. 621 dated 19.12.1991, she has argued that if such receipts as mentioned above, are included in the profit of the business , it would give a distorted figure of export profits. She has further observed that as per the provisions laid down in the Explanation (baa) to Section 80HHC, such receipts, which do not have element of turnover but are included in the Profit Loss Account, should be reduced by 90% before being included in the profit of the business. 6.4 The assessee gave item wise explanation for various incomes excluded by the Assessing Officer and has argued that the assessee has already excluded 90% of interest, commission, brokerage and profit on sale of licenses/ DEPB etc. while cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001-02 (Mahavir Spinning Mills Ltd.). 6.10 We have gone through the order wherein the claims received, excess provisions written back and misc. income, foreign exchange fluctuation were allowed to the assessee relying on the judgment of Hon ble Punjab Haryana High Court in the case of CIT Vs. Metal Man Auto Pvt. Ltd. 336 ITR 434 and VMT spinning Co. Ltd in ITA654/CHD/2005 for the year 2001-02 wide order dated 3107-2006. 6.11 As a result, the ground no 1,2 of 202-03 and similar issue for the other years of the revenue stands dismissed and ground number 1 of 202-03 and similar issue for the other years of the assessee is allowed. 7. Issue No. 2 : Allocation Expenses under section 14A: A.Y. 2002-03 Ground No. 3 of the Revenue s Appeal Ground No. 7 of the Assessee s Appeal A.Y. 2003-04 Ground No. 1 of the Revenue s Appeal A.Y. 2004-05 Ground No. 8 of the Revenue s Appeal A.Y. 2005-06 Ground No. 5 of the Revenue s Appeal 7.1 The assessee has earned dividend income of ₹ 1.8 Crores and claimed it under section 10(33) of Income Tax Act,1961. The Assessing Officer disallowed an amount of ₹ 24.57 lacs under section 14A. 7.2 The Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocumentary evidence as to how the costs under the head heads financial, administrative and personnel relate only to manufacturing activity. It was explained before the A.O. that the assessee had reduced salary of technical employees, wages of workers and trainee allowance from the cost of trading goods as these did not relate to trading activities. 8.4 Similarly FBN interest on manufacturing goods and interest on term loan to arrive at financial expenses to be apportioned for computation of indirect cost of trading goods was reduced for computing expenses which were to be apportioned between trading and manufacturing activities because such expenses related only to manufactured goods only. The A.O., however, did not accept the contention of the assessee. The A.O. noted that as per the provisions of Section 80HHC, the deduction is to be given for the business as a whole and the profit is to be computed in the manner as laid down in Sub-Section (3) of Section 80HHC. She, therefore, observed that the deduction claimed by the assessee unit-wise is not as per the provisions of Section 80HHC. She further observed that the definition of direct cost and indirect cost have been provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has rightly excluded from total expenses, the direct expenses solely relating to manufacturing goods like a. personnel expenses relating to the technical employees, b administrative expenses under the heads like loss on sale of fixed assets, sundry balance written off, c financial expenses such as debenture interest/term loan for expansion. 8.6 The Ld. CIT(A) held that the assessee also filed copy of the order of the Hon'ble ITAT Chandigarh Bench in appeal No.737/Chd/2004 in the case of DCITI, Ludhiana vs. Mahavir Spinning Mills Ltd. for the assessment year 2000-01. In view of this decision it was submitted that the Hon'ble ITAT has held in this case that the indirect cost and direct cost of trading goods has to be worked out keeping in view the decision of the Hon'ble Special Bench of ITAT in the case of Surendra Engineering Corporation vs. ACIT 86 ITD 121 (Mum.) (SB). And directed the A.O. to consider the direct cost and indirect cost as worked out by die assessee and allow deduction u/s 80HHC accordingly. 8.7 Since the matter travelled up to Tribunal in the earlier years in the assessee s own case for the A.Y. 2001-02 in ITA No. 249/CHD/2008 and 280 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -02 while dealing with the Ground No. 4(para 14) by the ITAT Chandigarh. The decision was based on the judgment of Bombay High Court in the case of CIT Vs. Hindustan Lever Ltd. in ITA No. 5794/2010 dt. 01/04/2014 (Bom). 9.4 Since the issue stand settled at this juncture the Assessing Officer is directed to follow the judgment of the Hon ble Bombay High Court. 9.5 This ground of appeal is allowed for statistical purposes. 10. Issue No. 5: Non Exclusion of other income while calculating 10B: A.Y. 2002-03 Ground No. 6(i) of the Assessee s Appeal A.Y. 2003-04 Ground No. 3(e) of the Assessee s Appeal A.Y. 2004-05 Ground No. 4 of the Assessee s Appeal Ground No. 3 of the Revenue s Appeal A.Y. 2005-06 Ground No. 2(i) and 2(ii) and 2(iii) of the Department Appeal 10.1 Brief facts of the case are that the Assessing Officer has increased the total turnover of the undertaking for calculating exemption under section 10(B) by adding excise duty and export turnover of the trading goods. 10.2 The Assessing Officer has relied on the decision of the Hon ble Supreme Court in the case of Chowringhee Sales Bureau(P) Ltd. Vs. CIT 87 ITR 542(Supreme Court) and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office is incurring expenses on behalf of the manufacturing units, the A.O. held that in order to arrive at the actual profits derived from industrial undertaking it was imperative that all the expenses are taken into account by the units. She further observed that the expenses incurred at head office but which actually relate to the units are to be included in the expenses of the units and profits of the units is to be computed correctly. She accordingly allocated out of the head office expenses mentioned above, the following expenses, to the various units in roportion of the turnover: - Arisht-I Anant-II Anant -III Turnover (in crores) 31.36 48.93 54.33 Percentage of share to the total turnover 3.46% 5.27% 6% 11.5 The written submissions of the assessee with regard to the above mentioned ground of appeal are given as under: - 11.6 The Ld. Assessing Officer has proportionately allocated personnel and administrative expenses of head office to the respective units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gents. The revenue's contention that the proportionate income of the managing agency by way of commission must be deducted from the profits of the priority industry to find out the profits and gains of priority industry for the purpose of computation of relief under section 80-1 is not acceptable. Without prejudice to our submissions above, it is respectfully submitted that while apportioning the head office expenses of ₹ 7.47 crores, Ld. Assessing Officer had not considered the other income of ₹ 4.05 crores earned by the head office and expenditure net of income was ₹ 3.42 crores (7.47 crores - ₹ 4.05 crores) and proportionate expenses out of this net amount of ₹ 3.42 crores to units claiming deduction u/s 10B on the basis of reasoning of turnover of units adopted by the Ld. A.O., comes to ₹ 18.02 lacs instead of ₹ 39.35 lacs in case of Anant - 2, ₹ 20.52 Lacs instead of 44.80 Lacs in case of Anant - 3 and ₹ 11.83 Lacs instead of ₹ 25.84 Lacs in case of Arisht - 1 apportioned by Ld. A.O. Copy of the profit and loss account of the head office of the company is enclosed at Annexure G relevant page - 17. The Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary findings, we decline to interfere in the order of the Ld. CIT(A). 11.4 As a result this ground of appeal of the Assessee and of the Revenue is dismissed. 12. Issue No. 7: Treatment of Loss on export of trading goods for computation of deduction under section 80HHC: A.Y. 2003-04 Ground No. 4 of the Revenue s Appeal 12.1 The brief background of the issue is that the Assessing Officer has not adjusted the profits of eligible business for deduction under section 80HHC with the amount of loss on export of trading goods. 12.2 It was argued before the Ld. CIT(A) that the deduction under section 80HHC(3)(c)(i) was computed by taking the profits of the business instead of adjusted profits of the business. The Assessing Officer omitted to adjust the profits of the business by the amount of loss on sale of trading exports. 12.3 Before us the Ld. DR relied on the assessment while Ld. AR relied on the case of IPCL Laboratories Vs. DCIT (2004) 266 ITR 521 (Supreme Court). With the judgment of the Hon ble Supreme Court the matter stand settled, the relevant portion of the Hon ble Supreme Court is as under: With the adoption of the dual system for computing export pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act,1961 included in Chapter XVI. The Ld. CIT(A) agreed with the contention of the assessee that deduction under section 80IB is claimed only on the domestic profits of the undertaking. It was held that the export profits claimed under section 10B are not included in claiming exemption under section 80IB. 13.3 The Ld. CIT(A) has referred the matter to the Assessing Officer to verify the claim. Since the principle has been laid down by the Ld. CIT(A) that only domestic profits are eligible for deduction under section 80IB, we see no reason to interfere in the order of the Ld. CIT(A). 13.4 As a result, the grounds of appeal of the Revenue become infructuous. 14. Issue No. 9: Deduction under section 80IB on Misc. Income: A.Y. 2003-04 Ground No. 7 of the Revenue s Appeal Ground No. 5 of the Assessee s Appeal 14.1 The assessee has received rent from employees and DEPB benefit. The Assessing Officer observed that rent receipts have commercial connection with the profits of the industrial undertaking and there is no direct nexus between the profits and manufacturing activity of the unit. The Assessing Officer observed that these are receipts and not profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from is narrower in connotation as compared to the words attributable to . By using the expression derived from , Parliament intended to cover sources not beyond the first degree; (5) Though the object behind DEPB etc is to neutralize the incidence of customs duty payment on the import content of export product DEPB credit/duty drawback receipt do not come within the first degree source as the said incentives flow from Incentive Schemes enacted by the Government or from s. 75 of the Customs Act. Such incentives profits are not profits derived from the eligible business u/s 80-IB. They are ancillary profits of such undertakings; (6) Even as per AS-2 and the ICAI Guidance Note, duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods but have to be shown as an independent source of income beyond the first degree nexus between profits and the industrial undertaking. 14.5 Respectfully following the judgment of the Hon ble Supreme Court, the issue of DEPB and rent as held by the Ld. CIT(A) is hereby confirmed. 14.6 As a result, this ground of appeal of the Revenue is allowed and of the Assessee is hereby dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) accepted the appeal of the assessee relying upon a judgment of this Court in CIT, Ludhiana Vs. Bicycle Wheels 335 ITR 388 that scrap is generated in the course of manufacturing of goods. The scrap is systematically sold by the assessee forming part of its business. It was held that value of scrap generated goes on to increase the profits of organization and that there is no profit element embedded in the value of scrap. Thus, the order of the Assessing Officer was set aside. But in further appeal before the Tribunal at the instance of Revenue, the Tribunal recorded the following findings:- 9. As regards the inclusion of value of scrap sale in the profits of the business for computing the relief u/s 80HHC, the entire value of scrap sales cannot be included in the profits of the business. What can be included in the profits of the business for working out the relief u/s 80HHC is the profit element in respect of sales of scrap and not the total sales of scrap. On the facts of the case, the profit element on sale of scrap is estimated at 7.5 percent. The AO is directed to include 7.5 percent of sales of scrap in the profits of the business for working out the relief u/s 80HHC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue has been discussed in para 14.0 on page 21 of the assessment order. During the relevant period the assessee received Sales-tax subsidy of ₹ 4,89,49,449/- from the Govt, of Punjab. In the revised return filed on 29.10.2004, the assessee claimed this receipt as a capital receipt and accordingly reduced this amount from its income. The A.O. has referred to the Scheme as per copy of the notification No.INC-11/15/43/96-5/IB/4176 dated 01.06.1996 of Department of Industries and Commerce to explain the nature of the subsidy received by the assessee. The A.O. also referred to a number of decisions in support of her contention that the nature of the Sales-tax subsidy received by the assessee is revenue. She accordingly recomputed the income of the assessee company by considering the above mentioned amount as a revenue receipt. 6. In appeal, the Ld. Counsel for the assessee filed written submissions which are reproduced as under: - The Ld. Assessing Officer vide the impugned order disallowed the claim of assessee for treating the amount of sales tax exemption/subsidy as capital receipt. The Ld. Assessing officer while disallowing the amount of sales tax exemption/subsidy held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the purpose of scheme was to fund a part of the cost of setting up of industry in the backward area, while in the Punjab Scheme the purpose of scheme is not to fund a part of cost of setting up of unit but to lend a helping hand to the industrial undertaking in running its business more profitably. In this connection it is submitted that under Punjab Scheme the object of incentive was to build a conductive industrial climate to attract fresh investment and also facilitate the growth and expansion of the existing industry. The industrial unit was granted incentive according to location and fixed capital invested. Based upon the above the unit was granted the incentive of sales tax exemption for seven years to the extent of notified capital invested. From the above it is clear that like Maharashtra Scheme (where the unit get subsidy/exemption from sales tax in order to accelerate the flow of investment in the industry and infrastructure) the unit get exemption/subsidy for setting up of industry. From the factual position given above, it is clear that the amount of sales tax subsidy/exemption given by government of Punjab is of capital nature and it is an incentive given to sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinning Mills Ltd. Vs. ACI in ITA No. 212-CHD/2005 wherein it has been held as under: 36. Ground No. 10 of the appeal reads as under: 10. That the dl CIT(A) has erred in law and facts in entertaining the claim of the assessee, filed after the expiry of period stipulated under the provision of section 139(5) of the IT. Act. 37. / The issue involved Is regarding the assessee's claim for treating the amount of ₹ 3,60,81,695/- representing exempt sale tax as capital receipt. The assessee made this claim vide letter dated 26.3.2004. It appears that the assessee has not submitted revised return u/s 139(5) of the Act within the stipulated time, and therefore, the Assessing officer did not consider the same. On appeal, the CIT(A) directed the Assessing officer to check up the relevant Sales Tax Rules of the Punjab Government and allow the relief admissible to the assessee as per law. 38. Now the Revenue has challenged the above action of the CIT(A) in this appeal. 39. It if. observed that the issue in hand is covered in favour of the assessee by our order dated 21.10.2015 in the case of Vardhman Acrylic Limited, Ludhiana Vs. Addl. CIT and Others in ITA No. 773/Chd/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government and West Bengal Government are not verbatim, the sum and substance of both the schemes are same. As directed by the Hon'ble High Court on the basis of judgment in the case of Ponny Sugars Chemicals Ltd. (supra), the nature of the sales tax subsidy is to be decided on the basis of character of the receipt in the hands of the assessee. We see that the sales tax subsidy received by the assessee is capital in nature and is nut subjected to tax. In arriving at this conclusion, we are guided by the order of the I.T.A.T. in the case of Bhushan Limited (supra), in which the Coordinate Bench of the I.T.A.T. in the same set of facts and circumstances has held as under: 24. The Hon'ble Supreme Court in the case of Ponnl Sugars Chemicals Ltd. (supra) considering its earlier decision in the case of Sahney Steels Press Works Ltd. (supra) directed that the test is that the character of the receipt in the hands of assessee has to be determined with respect to the purpose for which subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which subsidy is paid, is not relevant. The source is immaterial. The form of subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntive Scheme, 1999 categorically encourage the promotion of industries in the State of West Bengal. 26. Considering the facts and circumstances of the case in the light of decision of the Hon'ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra) and considering the above discussion, we are of the view that sales tax subsidy received by the assessee is capital receipt in nature and are not subjected to tax. The additions made by the Assessing Officer on account of receipt of sales tax subsidy are accordingly deleted in all the assessment years in appeals. The issue remanded to the Tribunal is thus, decided in favour of the assessee and against the revenue in all the appeals under reference. 8. Respectfully following the order of the Coordinate Bench of the Tribunal, we hereby hold that the sales tax subsidy received by the assessee is capital in nature and, therefore, not taxable. 9- The appeal of the assessee is allowed. ' 16.2 Further in the case of Mahavir Spinning Mills Ltd. Vs. JCIT in ITA No. 344/CHD/2009 for the A.Y. 1997-98 the coordinate Bench of ITAT held as under: That the sales tax exemption/incentive received by the company cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as under : 7. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. We have carefully perused the order of I.T.A.T. in the case of Bhushan Limited (supra) and come to a conclusion that this is one of the cases which was before the Hon'ble High Court on the same issue of sales tax subsidy. However, the only difference in the facts of the case of Bhushan Limited (supra) and the current assessee is that in the case of Bhushan Limited (supra), the sales tax subsidy was received from the Government of West Bengal under West Bengal Incentive Scheme 1999 , while in the case of the assessee in question, the subsidy has been received from the Government of Gujarat under the New Incentive PolicyCapital investment Incentive to Premier/Prestigious Unit Scheme 1995-2000 . Therefore, in order to compare the policies of two different States, we have very carefully gone through the schemes of both the Governments produced before us. Since as per the directions of the Hon'ble High Court, we have to judge the nature and purpose of the sales tax subsidy received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, 1999 in the light of the judgement of the Hon'ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra), it is clear that the unit of assessee was set up as per scheme formulated by Government of West Bengal and assessee has been allowed remission of sales tax for 12 years upto 100% of gross fixed capital investment/asset of the approved project. The incentive scheme was available for location of the unit. No incentive is available to units located in group A . The unit of assessee is located in group B (Hooghly). The subsidy would help the growth of industry and not to supplement profit. Subsidy is determined with reference to the fixed capital investment/asset and not profit. No working capital is considered in the scheme. The ld. DR says that the subsidy is given for 12 years after production and as such it is revenue in nature. The arguments of ld. DR cannot be accepted in view of the above facts because the scheme is made to encourage the promotion of industries/setting up in the State of West Bengal. The incentives are provided to approved projects only. The purpose of giving subsidy is thus, to promote and set up industries in State of West Bengal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave gone through the said policy and found that the scheme though not verbatim as that of West Bengal or Gujarat schemes, but the sum and substance of all these schemes are the same, therefore, relying on our finding given in ITA No.773/Chd/2012, we hold that the sales tax subsidy received by the assessee is capital in nature. 6. Respectfully following the order of Coordinate Bench, the issue is decided in favour of the assessee. 7. In the result, the appeal of the assessee is allowed. 16.3 Since the matter is already stands adjudicated by this Tribunal, the appeal of the assessee on this ground is allowed. 17. Issue No. 12: Deduction under 3rd Proviso to 80HHC A.Y. 2002-03 Ground No. 9 of the Assessee s Appeal A.Y. 2003-04 Ground No. 4(i) of the Assessee s Appeal A.Y. 2004-05 Ground No. 6(v)(a)of the Assessee s Appeal 17.1 The Assessing Officer has not allowed deduction under section 80HHC(3)(c)(iii) on export incentives. The assessee submitted before the Ld. CIT(A) that this amendment is not applicable as company adoption to choose duty drawback or DEPB being duty remission scheme. He argued that the Assessing Officer had reduced total DEPB amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dealt while dealing with the issue of Deduction under 3rd Proviso to 80HHC above and the rationale with regard to ultra-vires of the proviso is applicable. Hence, the appeal of the assessee on this ground is hereby allowed. 20. Issue No. 16: Disallowance on account of Foreign Travelling Expenses: A.Y. 2004-05 Ground No. 7 the Assessee s Appeal 20.1 The Assessing Officer disallowed 50% of the Travelling expenses amounting to ₹ 4,35,000/-. It was explained that the expenses were incurred for foreign travelling to Swiss, Brazil, Poland, Bangkok and Germany by various officials of the company. Owing to the non production of any evidence Assessing Officer disallowed the said amount. 20.2 Even before the Ld. CIT(A) no evidence in support of the same has been filed. Even before us no evidence has been filed except a table pertaining to period, amount and purpose. No correspondence of whatever could not been furnished. Hence, we decline to interfere in the order of the Ld. CIT(A). 20.3 As a result this ground of appeal of the assessee is dismissed. 21. Issue No. 17: Disallowance on account of Foreign Travelling Expenses of wife of CMD: A.Y. 2004-05 Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 for the A.Y. 2000-01. Further the assessee also relied on the judgment in the case of VMT Spinning Co. Ltd. Vs. ACIT in ITA No. 682/2007. 23.3 Since the additional grounds taken by the assessee are legal in nature following the above mentioned judgments the same are being admitted. 23.4 Ld. DR argued that the grounds have not been before the Ld. CIT(A) hitherto, an opportunity to be provided to the Revenue to prove to the entire gamut of the issues. 23.5 As the Revenue did not get the benefit of going through the issues and the grounds have been taken for the first time before us, the matter is remanded to the file of Ld. CIT(A) for adjudication and pass a speaking order for all the years in a comprehensive manner. The assessee would be at liberty to make submissions as deemed fit before the Ld. CIT(A). 23.6 As a result this ground of appeal of the Assessee is allowed for statistical purposes. 24. Issue No. 20: Treating of interest income has incurred from other sources : A.Y. 2003-04 Ground No. 2 of the Assessee s Appeal A.Y. 2004-05 Ground No. 1 of the Assessee s Appeal A.Y. 2005-06 Ground No. 1of the Assessee s Appeal Ground No. 1of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-Tax (Appeals), who confirmed the order of the Assessing Officer excluding ninety per cent of the gross interest and gross rent received by the assessee while computing the profits of the business for the purposes of Section 80HHC. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short `the Tribunal'). The Tribunal held, relying on the decision of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip [(2007) 289 ITR 475 (Delhi)], that netting of the interest could be allowed if the assessee is able to prove the nexus between the interest expenditure and interest income and remanded the matter to the file of the Assessing Officer. The Tribunal also remanded the issue of netting of the rent to the Assessing Officer with the direction to find out whether the assessee has paid the rent on the same flats against which rent has been received from the staff and if such rent was paid then such rent is to be reduced from the rental income for the purpose of exclusion of business income for computing the deduction under Section 80HHC. Against the order of the Tribunal, the Revenue filed an appeal before the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar view relying on the decision of the High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra). 6. Learned counsel for the assessee referred to the Memorandum to Finance (No.2) Bill, 1991 explaining the rationale of Explanation (baa) in which inter alia it is stated that as some expenditure might be incurred in earning such incomes, which in the generality of cases is part of common expenses, and thus ad-hoc 10 per cent deduction from such incomes have been provided for to account for these expenses. He submitted that the High Court has not correctly appreciated the Memorandum and has held, relying on the Memorandum, that gross interest and gross rent have to be deducted under Explanation (baa) to Section 80HHC to avoid a distorted figure of export profits. 7. Learned counsel for the Revenue, on the other hand, relied on the reasons given by the Bombay High Court in Commissioner of Income-Tax v. Asian Star Co. Ltd. (supra) and submitted that the Bombay High Court has rightly held that ninety per cent of the gross amount received towards interest and rent have to be excluded from the profits and gains of business for computing the profits of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the head Profits and Gains of Business or Profession . The expression included any such profits in clause (1) of the Explanation (baa) 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 such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining profits of the business of the assessee under Explanation (baa) to Section 80HHC. 11. For this interpretation of Explanation (baa) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head Profits and Gains of Business or Profession , is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. 13. The view that we have taken of Explanation (baa) to Section 80HHC is also the view of the Delhi High Court in Commissioner of Income-Tax v. Shri Ram Honda Power Equip (supra) and the Tribunal in the present case has followed the judgment of the Delhi High Court. On appeal being filed by the Revenue against the order of the Tribunal, the High Court has set aside the order of the Tribunal and directed the Assessing Officer to dispose of the issue in accordance with the judgment of the Bombay High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not deciding the issue whether ninety per cent deduction is to be made from the gross or net income of any of the receipts mentioned in clause (1) of the Explanation (baa). 15. The Bombay High Court has also relied on the Memorandum explaining the clauses of the Finance Bill, 1991 contained in the circular dated 19.12.1991 of the Central Board of Direct Taxes to come to the conclusion that the Parliament intended to exclude items which were unrelated to the export turnover from the computation of deduction and while excluding such items which are unrelated to export for the purpose of Section 80HHC, Parliament has taken due note of the fact that the exporter assessee would have incurred such expenditure in earning the profits and to avoid a distorted figure of export profits, ninety per cent of the receipts like brokerage, commission, interest, rent, charges are sought to be excluded from the profits of the business. In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHCwas clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our judgment in the case of M/s ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax that ninety per cent of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads `Profits and Gains of Business or Profession' is to be deducted under clause (1) of Explanation (baa) toSection 80HHC for determining the profits of the business. Since, the view taken by the High Court in the impugned order is consistent with our aforesaid view, we find no merit in this appeal and we accordingly dismiss the same. There shall be no order as to costs. 24.4 Respectfully following the judgment of the Hon ble Supreme Court the matter is referred to the file of the Assessing Officer to allow the netting of the interest if the assessee is able to prove the nexus between interest expenditure in the interest income. 24.5. As a result this ground of appeal of the Assessee and of the Revenue is allowed for statistical purposes. 25. Issue No. 21: Disallowance of 4/5th expenses under section 35D: A.Y. 2005-06 Ground No. 7 of the Assessee s Appeal Ground No. 6 of the Revenue s Appeal 25.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins or speculation income A.Y. 2005-06 Ground No. 8 of the Revenue s Appeal 27.1 The assessee has earned income of ₹ 3.5 Crores out of sale of shares. The Assessing Officer held that the Long Term Capital Gain earned by the assessee be treated as income from speculation business in the context of Explanation to Section 73 . 27.2 The Ld. CIT(A) deleted the addition on the grounds that the assesse doesn t fall under the Explanation to Section 73. 27.3 We have gone through the facts on record. The shares have been held as investments in the listed group company namely Vardhman Acrylics Ltd. and in IDBI. Hence, relying on the rationale of DCIT Vs. Jindal Exports Ltd. 101 ITD 129 (Del) wherein it is held that every transaction may give raise to capital gains or income assessable under any other head. 27.4 In the facts and circumstances of the case we find that the transactions cannot be treated as speculative in nature and we hereby uphold the order of the Ld. CIT(A). 27.5 As a result the appeal of the Revenue on this ground is dismissed. 28. In the result appeals of the Assessee and the Revenue are partly allowed. Order pronounced in the open court. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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