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TMI Blog2020 (11) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... udice, that the Commissioner of Income-tax (Appeals) further failed to appreciate that disallowance under section 40(a)(ia) of the Act was, in any case, not warranted, since: (a) no amount was payable as on the last date of the previous year; and (b) non-deduction of tax was on account of bona fide view taken by the appellant. 2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not only confirming but also enhancing the disallowance of provision made for sales incentive in respect of "Shahenshah Sales Incentive Scheme". 2.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the provision made by the appellant under the aforesaid scheme was not being made on a scientific or logical basis and therefore, the entire provision, is not allowable as deduction. 2.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in restricting the amount of provision allowable as deduction to the extent of 15% on an "ad-hoc" basis and in consequently, enhancing the amount of disallowance by Rs. 29,56,344. 2.3 That the Commissioner of Income-tax (Appeals) exceeded his jurisdiction in enhancing the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbargo/ prohibition contained in the case of Goetze India Limited: 284 ITR 323 (SC) do not apply to the powers of the appellate authority to entertain any fresh/ new claim. 6. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not directing the assessing officer to allow deduction of excess provision of bad debts written back of Rs. 2,58,164. 6.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not adjudicating the aforesaid claim on the ground that the claim was not made by filing a revised return, without appreciating that: (a) the decision in the case of Goetze India Limited: 284 ITR 323 (SC) had no application in case of mere enhancement of a claim of deduction; and (b) the embargo/ prohibition contained in the aforesaid case do not apply to the powers of the appellate authority to entertain any fresh/ new claim. " 3. The assessee company is engaged in the business of manufacturing of switchgears, energy meters, cables & wires, Electrical fans, compact fluorescent lamp and related components and trading luminaries lighting fixtures and exhaust fans. The assessee filed e-return declaring an income of Rs. 50,72,33,272/- o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid foreign entity was authorized for certification of products for export which is a mandatory requirement for selling products in Europe, Middle East Countries, and South African Countries. The explanation given by the assessee before the Assessing Officer for not withhold tax at source on the aforesaid payment of Rs. 5,68,856/- made to the overseas entity, since the assessee bonafidely believed that such certification fee was not liable to tax in India, as the same was not covered within the meaning of " Fee for Technical Services" as provided u/s 9(1) (vii) of the Act and/or the overriding provisions of the Double Taxation Avoidance Agreements. The aforesaid issue stands covered in favour of the assessee by the order of the Tribunal passed in the assessee's own case for Assessment Year 2006-07 (ITA No. 4813/Del/2010 & Assessment Year 2007-08 being ITA No. 6073/Del/2010). The Tribunal vide order dated 30/09/2019 passed in Assessment Year 2006-07 held that the payment made by the assessee to very same party i.e. M/s KEMA Quality BV Netherland cannot be brought to tax in India as "Fees for Technical Services" in accordance with India Netherland DTAA. In the present Assessment Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. DR relied upon the assessment order and the order of the CIT(A). 8. We have heard both the parties and perused the material available on record. It is pertinent to note that during the previous year Assessment Year 2007-08, the assessee made a provisions of Rs. 5,01,73,763/- in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors. The said scheme was introduced to promote sales and ensure timely collection of payments from its customers. Out of the provisions made till date payment of Rs. 1,04,82,408/- was made by the assessee during the Assessment Year under consideration. The Tribunal in A.Y. 2007-08 held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. The facts in the present assessment year is identical, thus the issue is squarely covered in assessee's own case for Assessment Year 2007-08. Besides this, the CIT(A) enhanced the addition without giving show cause notice and hearing to the assessee which is unjust and improper on part of the CIT(A). Hence, Ground No. 2, 2.1, 2.2, 2.3, 2.4, 2.5 are allowed. 9. As regards to Ground Nos.3 and 3.1 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of ACIT vs. Goldmine Shares & Finance (P) Limited 302 ITR 208 (Ahemdabad) (SB) and without appreciating the facts of the case and correct position in law, held that in terms of section 80-IA(5) of the Act, losses of eligible undertakings viz., Baddi Unit-2 and Haridwar Unit, relating to earlier assessment years 2006-07 and 2007-08 was required to be set off on a notional basis, against profits of the said unit(s) in assessment year 2008-09 in order to determine the amount of deduction that the assessee is eligible to claim under Section 80IC of the Act. On this account, the Assessing Officer educed the claim of deduction made by the assessee under Section 80IC of the Act by Rs. 4,67,99,123 by making the following adjustments: Particulars Amount (in Rs.) Loss at Haridwaar Unit pertaining to Assessment Year 2006-07 (Notional) Rs. 3,75,70,429 Loss at Haridwar Unit pertaining to Assessment Year 2007-08 (Notional) Rs. 74,70,681 Total Loss at Haridwar Unit Rs. 4,50,41,110 Losa at Baddi (EOU) Unit pertaining to A.Y 2007-08 (Notional) Rs. 44,88,013 Total loss t be adjusted in current year Rs. 4,95,29,123 Less: Deduction u/s 80IC wrongly adjusted with the claim u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of income and deduction has to be allowed only vis-à-vis profits derived from the eligible unit unaffected by the profits/losses of other units owned by the assessee. The Ld. AR submitted that the Assessing Officer/CIT(A), in the present case, has grossly misconstrued the application of the aforesaid provisions of sub-section (5) of section 80IA of the Act. The aforesaid provisions do not provide that the losses/ depreciation of the eligible unit relating to any earlier assessment year(s) which are already absorbed against profits of other units/ other incomes in the respective year(s) should once again be notionally brought forward and adjusted against the profits of the current assessment year for computing deduction allowable u/s 80IC of the Act. The Ld. AR submitted that the effect of the deeming fiction enabled in the provisions of section 80IA(5) of the Act are that it seeks to set at rest long standing controversy, i.e., whether for computing deduction losses incurred in one eligible unit is required to be set-off against the profits of the other eligible undertaking or not. The Ld. AR pointed out that the aforesaid controversy came up for consideration before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer, rejected the claim of the assessee on the ground that the gross total income of the assessee, before deductions under Chapter VI-A, was "nil" and, therefore the assessee was not entitled to the benefit of deductions under Sections 80HH and 80-I of the Act. The assessee, however, contended that since for the purposes of Section 80-I each unit has got to be treated separately, in view of the deeming fiction in sub-section (6) thereof, the loss suffered by the oil division could not be adjusted against the profits of the chemical division. The assessee relied upon Section 80I(6) of the Act to contend that since the profits of an industrial undertaking were required to be computed as if such industrial undertaking was the only source of income, the profits of the chemical division were required to be treated as the only source of income. It was further contended that since sub-section (6) starts with a non obstante clause, the provisions of Section 80A(2) and Section 80B(5) could not be read while giving effect to the said provisions. Construing the provisions of sub-section (6) of Section 80I of the Act, the Hon'ble High Court observed that the said sub-section me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Synco Industries (supra). On perusal of the aforesaid, the Ld. AR pointed out that the Hon'ble High Court observed that the non-obstante clause in sub-section (6) of Section 80I has limited application and does not override Section 80A of the Act. Similarly, the Ld. AR submitted that the non-obstante clause in sub-section (5) of Section 80IA has limited application and does not override the provisions relating to intra head/ inter head set off as also set off of unabsorbed losses/ deprecation to bring an altogether new concept of notional carrying forward of absorbed losses/ depreciation. The Ld. AR vehemently reiterated that set off of unabsorbed losses are governed by Chapter VI of the Act. Once in accordance with the said provisions unabsorbed losses are set off against any income, under the provisions of the Act there is no provision for notionally carrying forward such losses, which stand absorbed. The Ld. AR submitted that there is no provision whatsoever for once again notionally bringing forward the already absorbed losses/depreciation for setting off the same against the profits of the eligible undertaking for computing deduction under Section 80-IA of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut forth the claim, revenue authorities cannot take into consideration loss and depreciation from eligible business of earlier assessment years which were already set-off against income of assessee from other business activities in such assessment years. The Hon'ble Rajasthan High Court in case of CIT vs. Mewar Oil & General Mills Ltd. 271 ITR 311, while considering identical issue, observed that losses of earlier years already set off against income of previous year should not be reopened again for computing deduction under Section 80I of the Act. Thus, the Ld. AR submitted that the action of the Assessing Officer/CIT(A) in reducing the amount of deduction claimed by assessee under Section 80-IC of the Act in respect of Baddi Unit-II and Haridwar Unit, by notionally bringing forward losses already set off against income of preceding assessment years, is legally unsustainable and calls for being deleted. 10. The Ld. DR relied upon the assessment order and the order of the CIT(A). 11. We have heard both the parties and perused the material available on record. It is pertinent to note that no deduction under Section 80-IC of the Act was claimed in respect of Baddi Unit-2 and Harid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med at par value, but merely on account of repatriation of proceeds received on exchange fluctuation, such gain was treated as capital receipt, not eligible to tax in the return of income filed for the relevant Assessment Year 2008-09. The Assessing Officer held that assessee had purchased shares in a foreign company for which purchase consideration was remitted from India and further on redemption, the sale/ redemption proceeds so received in foreign currency were remitted back to India which resulted in gain. Since the gain arose on sale or redemption of shares, the same was taxable as capital gains in terms of Section 45 of the Act. On appeal, the CIT(A) confirmed the addition made by the Assessing Officer and held that investment was made by the assessee out of commercial expediency as the assessee has deep interest in its immediate subsidiary which in turn made investments in other subsidiaries in order to increase the market share both in terms of production and expanded customer base and therefore, the income would be taxable. Further, the CIT(A) also relied upon the decision of the Hon'ble Supreme Court in the case of S.A Builders vs. CIT 288 ITR 1 to draw an inference that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the subsidiary company. The exchange gain of Rs. 2,55,82,186/- was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of shares. The Ld. AR submitted that it is trite law that every receipt is not income. The Ld. AR relied upon the following decisions: i) CIT vs. Shaw Wallace and Company: 2 Comp Cases 276 (SC) ii) Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT 227 ITR 172 (SC) iii) Cadell Weaving Mills Company Ltd vs. CIT 249 ITR 266 (Bom) [affirmed by SC in 273 ITR 1] The Ld. AR further submitted that the nature of the foreign exchange gain shall depend upon the nature of the transaction - if the transaction of remittance is for revenue account purpose, then, exchange gain/ loss shall be revenue income/ gain, whereas if the transaction of remittance is for a capital account purpose, then, the gain/ loss is on a capital account. The Ld. AR relied upon the decision of the Hon'ble Supreme Court in case of CIT vs. Tata Locomotive and Engineering Co. Ltd. [1966] 60 ITR 405 (SC) wherein it was held that foreign exchange gain on capital account is not taxable und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court held that the act of retaining $36,123 in the United States for capital purposes after obtaining sanction of the Reserve Bank of India was not a trading transaction in the business of manufacture of locomotive boilers and locomotives, but was clearly a transaction of accumulating dollars to pay for capital goods. It was, therefore, held that surplus attributable to $ 36,123 was capital accretion and not profit taxable in the hands of the assessee. Further reliance is also placed on the decision of Hon'ble Supreme Court in case of CIT v. Canara Bank Ltd. 63 ITR 328 (SC) wherein the assessee, a public limited company carrying on banking business in India, had opened a branch in Karachi. The Karachi branch of the assessee had with it a sum of Rs. 3,97,221 belonging to its head office. The assessee did not carry on any business in foreign currency in Pakistan and the amount of Rs. 3,97,221 lying with the Karachi branch remained idle there and was not utilised in any banking operation even within Pakistan. The assessee remitted the amount of Rs. 3,97,221 to India and owing to the difference in the rate of exchange, the assessee made a profit of Rs. 1,73,817 from such remissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid decision, the Court held that in case of profit resulting from fluctuation or escalation of exchange price is independent of the primary transaction and such profit can be taxed only if the assessee is a dealer in foreign exchange. The Ld. AR relied upon the decision of the Hon'ble Bombay High Court in case of Homi Mehta & Sons P. Ltd. v. CIT 222 ITR 528. In this case, the assessee company was holding certain shares in limited companies in the UK by way of investment. Dividend income earned by the assessee on these shares was kept in a current account in UK. The accumulation in the current account was utilized by the assessee for the purchase of right shares after obtaining the approval of the RBI. The balance of the accumulated amount in the current account was invested by the assessee in call deposits in the banks in the UK, when the balance in current account became sufficiently large. The interest received on call deposits was also credited to the current account and utilized for investment in rights share. During the relevant year, the assessee was compelled to repatriate the balance in the above current account as well as in the call deposit account to India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. v. CIT 136 ITR 25 (Calcutta HC) iii) V.S. Dempo and Co. (P) Ltd. 206 ITR 291 (Bom. HC) iv) E.I.D. Parry Ltd. v. CIT 174 ITR 11 (Mad. HC) v) CIT v. PVP Ventures Ltd. 211 Taxman 554 (Mad. HC) The Ld. AR further submitted that fluctuation arising in foreign currency resulting in increase/decrease in liabilities pertaining to purchase of capital assets was on capital account, not liable to be considered for computing taxable income. For the said contention/prepositions, the Ld. AR relied upon the following decisions: i) Union Carbide India Ltd. vs. CIT 130 ITR 351 (Cal.). ii) Periyar Chemicals Limited vs. CIT 162 ITR 163 (Ker.) iii) Ashok Textiles Ltd. vs. CIT 178 ITR 94 (Ker.). iv) CIT vs. South India Viscose Ltd. 120 ITR 451 (Mad.). v) CIT vs. Elgi Rubber Products Ltd. 219 ITR 109 (Mad.). vi) CIT vs. Rohit Mills Ltd. 219 ITR 228 (Guj.). vii) CIT vs. Motor Industries Co. Ltd. 173 ITR 374 (Kar.) viii) Hindustan Machine Tools Ltd. vs. CIT 175 ITR 220 (Kar.) ix) Beco Engineering Company Limited vs. CIT 236 ITR 344 (P&H). x) Apollo Tyres Ltd. vs. ACIT 89 ITD 235 (Del. Spl. Bench). xi) Munjal Showa Ltd. vs. DCIT 147 Taxman 69 (Delhi Bench) (Mag.) 25 ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gain in $/ GBP X applicable rate of exchange as per Rule 115 = NIL (in present case) X Rate = NIL. In the present case, since capital gains in GBP/ Euro was NIL, the resultant gain in Indian Rupees is NIL. The Ld. AR submitted that gain arose to the assessee on account of repatriation of foreign currency to India, which is an event separate and distinct from the event of transfer of shares of the subsidiary company. The exchange gain of Rs. 2,55,82,186/- was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of shares. Thus, the applicability of Section 45 does not come in picture in the present case. Therefore, the Assessing Officer was not right in applying Section 45 for making the addition. Hence, Ground No. 4 and 4.1 are allowed. 15. As regards Ground Nos. 5 and 5.1 relating to the claim of the allowance of deduction of Rs. 54,21,514/-in respect of Education Cess and Secondary Higher Education Cess, the Ld. AR submitted that in the previous year relating to the Assessment Year 2008-09, the assessee had paid the education cess and secondary higher education cess amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r secondary cess as per Section 4 of the Act which provides that income tax is charge at the rate as an enacted in any Central Act. Every year the Finance Act provides for the rate of tax applicable for the relevant Assessment Year. The levy of education cess on Income tax is distinct from that of an income tax or surcharge since the letter to form part of part one of the first schedule which defines income tax and provides rate of levy thereof. Unlike income tax and surcharge which are levied for general purpose, Government has explained an education cess and is admittedly levied for specific purpose that is to fulfill the commitment of the government to provide quality health services and finance universalized quality basic education and secondary and higher education. Unlike surcharge which was an exclusive component of income tax, education cess as introduced vide Finance Act, 2004 was also imposed an additional levy on indirect taxes namely Customs, Excise and Service Tax. Education cess does not part take the care of being a component of income tax per say as levied under the provisions of the Act. The Ld. AR relied upon the decisions of the Hon'ble Supreme Court in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of creation of the provision, therefore, the same was not liable to be offered to tax in the current Assessment Year when the excess provision was claimed. Subsequently, the assessee during the course of assessment proceedings realize that out of the total provision written back of Rs. 49,10,060/- in its books of accounts only amount of Rs. 46,51, 869/- had been excluded by computing taxable income and a balance amount of Rs. 2,58,164/- was wrongly offered to tax resulting in double taxation in same income. The Ld. AR submitted that the same may be remanded back to the file of the Assessing Officer for verification as the said contention of the assessee was not taken into account by the Assessing Officer after verification. 19. The Ld. DR relied upon the assessment order and the order of the CIT(A). 20. We have heard both the parties and perused the material available on record. It is pertinent to note that the Assessing Officer has not verified the proper deduction of excess provisions of bad debts written back and the contentions of the assessee during the assessment proceedings were not verified. Therefore, it will be appropriate to remand back this issue to the file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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