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TMI Blog2010 (2) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R D facilities. As regards to salary paid to Dr. C. Dutt, he is in-charge of R D Centre at Bhatt. He is the person through whom all coordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure and building repairs on which weighted deduction u/s.35(2AB) is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue s appeal is dismissed and that of the assessee s CO is allowed. Facts being identical to the facts of the assessee in AY 2001-02 and in absence of any distinguishing features, pointed out by the revenue. we allow the ground of appeal of the assessee and dismiss the ground of appeal of the revenue. Deduction u/s. 80HHC - CIT(A) held that deduction u/s. 80HHC, sales tax was not to be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. HELD THAT:- We find that the issue is squarely covered by the decision in the case of Eastman Industries Ltd. Vs. DCIT [ 2007 (7) TMI 338 - ITAT DELHI-B] , wherein on the similar facts, the Tribunal by relying on the CBDT Circular No.2 of 2006 has held that AO was not justified in charging interest u/s 234B and 234D as a consequence of reduction in the claim of deduction u/s 80HHC in view of the retrospective amendment of law by the Taxation Laws (Amendment) Act, 2005 with effect from 1.04.1998. We therefore, allow these grounds of appeals of the assessee and direct the AO not to charge interest in respect of the income which relates to the lesser grant of deduction u/s 80HHC as a consequence to retrospective amendment brought by the Taxation Laws (Amendment) Act, 2005. Disallowance made by AO from out of expenditure on selling publicity and medical literature - Deleted by CIT(A) following the order of the Tribunal in assessee s own case for A/Y s 1990-91 and 1991-92. HELD THAT:- The Ld DR merely relied upon the order of the AO. He could not point out why the order of the Tribunal for AY 1990-91 and 1991-92 should not be followed in the present year of appeal. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to show that there was some business exigency necessitating the deployment of funds which resulted in the yield of interest to it. In our considered opinion, in view of the case of Topman Exports (Supra), the above contention of the assessee is not tenable and such interest income is assessable only under the head income from other sources. As a consequence of it, the assessee cannot claim any deduction u/s 80HHC in respect of such interest income which does not form the part of business income. Therefore, CIT(A) was not justified in allowing netting off of such interest income against interest expenditure and holding that only 90% of the net interest income is to be excluded for the purposes of computing deduction u/s 80HHC. We therefore, set aside the order of CIT (A) on this issue and restore that of the AO. Thus, this ground of appeal of the revenue is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival submissions and perused the materials available on record. We find that similar issue of disallowance of weighting deduction on professional fee under section 35(2AB) was considered by the Tribunal in the assessee's own case in Assessment Year 2001-02 wherein the Tribunal allowed weighted deduction on professional fees by observing as under:- "6. The Revenue has raised the following ground No.2:- ". The Ld. CIT(A) has erred in law and on facts in directing to exclude only ₹ 48 lacs for professional fees and garden expenses of ₹ 6.93 lacs for the computation of deduction u/s.235(2AB) instead of ₹ 1,71,47,000/- as done by the A.O." Whereas the assessee has raised the following ground No.1 in C.O.:- "1. In law and in the fats as well as circumstances of the respondent's case the learned CIT(A) has grossly erred in holding while disposing of the ground regarding the disallowance of ₹ 85,73,500 as inadmissible weighted deduction u/s.35(2AB) that the expenditure of ₹ 48,00,000 being professional fees and ₹ 6,93,000 (the correct figure should be ₹ 9,44,000) being garden expenses are not related to the research activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowed by DSIR (1) Bldg. repairs ₹ 37,55,000/- (2) Other revenue exp. ₹ 1,33,92,000/- ₹ 1,71,47,000/- ₹ 17,74,28,518/- (2) Capital expenditure (Other than bldg.) ₹ 1,78,61,110/- ₹ 19,52,89,628/- "Whereas the Assessing Officer finally disallowed as under:- (1) Allowable @ 150% on ₹ 19,52,89,628/- ₹ 29,29,34,442/- Allowable @ 100% on ₹ 1,71,47,000/- ₹ 1,71,47,000/- ₹ 31,00,81,442/- (2) Claimed ₹ 31,86,54,942/- ₹ 85,73,500/- (Addition of ₹ 86,73,500/-)" Aggrieved, the assessee preferred appeal before CIT(A), who confirmed the exclusion of ₹ 48 lakhs on account of professional fee paid to Dr. C Dutt as well as garden expenses of ₹ 6.93 lakhs and allowed the balance deduction by holding in para-5.3 of his appellate order as under:- "5.3 I have considered the above submissions and the assessment order. On perusal of the nature of expenditure is on market research, sales promotion quality control testing commercial production style change or routine data collection. Therefore the disallowance of the above expenditure made by the assessing officer only on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 35(2AB) the assessee is entitled to weighted deduction for the following expenditure:- Rs. In lac i) Capital expenditure (other than land & building) 178.61 ii) Revenue expenditure relating to building 37.55 iii) Recurring expenditure i.e. revenue expenditu9re (other than building) 1856.94 iv) Expenses related to clinical trials outside the approved facility not included in the above expenditure. 51.26 2124.36 v) Actual weighted deduction at 1.1/2 times of the eligible expenditure above referred to of ₹ 2124.36 lacs. 3186.54 In view of the above facts and figure, the Ld. counsel for the assessee stated that the weighted deduction should be allowed to the assessee as per the provisions of Section 35(2AB) of the Act. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the prescribed authority has separately indicated ₹ 51.26 lacs for the clinical trials and as per the explanation to the sec. 35(2AB) the assessee incurring expenditure on scientific research & development in relation to drugs and pharmaceuticals, shall be granted expenditure incurred on clinical drug t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 35(2AB) of the Income Tax Act. In this connection, we would like to add that the Gujarat Pollution Control Board has also directed that such trees and gardens should be developed and watered treated by the ETP should be utilized for a forestation purposes. Over and above this, good laboratory practices require that research centers should have green cover so that pollution levels (including dust) are eliminated. Since the object of the assessee company is to have a world class R & D center such gardens (and therefore the gardening expenses) become a necessary. In respect of salary of ₹ 58.54 lacs paid to Dr. C. Dutt, he is in-Charge of Research & Development Centre at Bhatt. Through him only, entire in-house research activity is carried on by the assessee. He is the person through whom all coordination of the technical scientists and other technical persons is carried out and smooth functioning is carried out in various research activities. To convey and for reporting of entire research activity to the management he has been taken to the Board of Directors by the assessee-company. Therefore, salary paid to Dr. C. Dutt is eligible for weighted deduction u/s.35(2AB). Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of ₹ 133.92 lakhs and building repairs ₹ 37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue's appeal is dismissed and that of the assessee's CO is allowed." 8. Facts being identical to the facts of the assessee in Assessment Year 2001-02 and in absence of any distinguishing features, pointed out by the revenue, respectfully following the above quoted decision, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the revenue. 9. Ground no.2 of the appeal of the assessee and ground no.6 of the appeal of the revenue reads as under:- "2. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred in not accepting the erroneous contention that for quantification of deduction u/s. 80HHC, sales tax was not to be treated as part of total turnover." 6. The Ld. CIT(A) has further erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sec.80HHC, when the turnover exceeds ₹ 10 Cr., deduction u/s.80HHC receipt is not available, unless the appellant fulfills the conditions specified therein. The appellant has not furnished any evidence, which shows that it satisfies all the conditions. Hence, the action of the A.O. is justified and the same is hereby upheld." 13. The Learned Authorised Representative of the assessee submitted that in view of the decision of the Special Bench of the Tribunal in the case of Topman Exports Vs. ITO (2009) 125 TTJ (Mumbai) (SB) 289, the matter should be restored back to the file of the Learned Assessing Officer to allow deduction under section 80HHC on profit from sale of DEBP. 14. The Learned Departmental Representative supported the order of the Learned Commissioner of Income Tax(Appeals). 15. We have heard the rival submissions and perused the materials available on record. The claim of disallowance under section 80HHC in respect of income from DEBP of ₹ 4,22,85,605/-, was denied by the lower authorities to the assessee on the ground that the additional conditions envisaged in the third proviso to section 80HHC(3) was not satisfied in the instant case. 16. The Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile making amendment in section 28 and 80HHC(3) vide Tax Law Amendment Act, 2005 directed that no interest be charged u/s. 234A, 234B, etc on the demand on account of any disallowance made with reference to income of DEPB license." 19. We have heard the rival submissions and perused the materials available on record. In the instant case, the deduction claimed under section 80HHC was restricted to a lesser amount on account of profit on sale of DEBP by applying the law which was retrospectively amended by the Taxation Laws (Amendment) Act, 2005. As a consequence of the above demand was raised against the assessee and interest under section 234A, 234B and 234C was levied on the assessee by the Learned Assessing Officer. 20. On appeal, the Learned Commissioner of Income Tax(Appeals) has not allowed the claim of the assessee that interest under section 234A, 234B and 234C should not be charged in respect of demand which was created as a consequence of retrospective amendment of law. We find that the issue is squarely covered by the decision of the Delhi Bench of the Tribunal in the case of Eastman Industries Ltd. Vs. DCIT (2007) 110 TTJ (Del) 798, wherein on the similar facts, the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In subsequent years, including up to 2002-03, the Learned Commissioner of Income Tax(Appeals) has deleted the similar disallowance made from year to year. The Learned Assessing Officer has noted that in Assessment Year 1995- 96 on similar issue, the Department's appeal has not been allowed. 26. After hearing the rival submissions and perusing the orders of the lower authorities and the material available on record, we find that the disallowance made by the Learned Assessing Officer from out of expenditure on selling publicity and medical literature was deleted by the Learned Commissioner of Income Tax(Appeals) following the order of the Tribunal in assessee's own case for Assessment Years 1990-91 and 1991-92. The Learned Departmental Representative merely relied upon the order of the Learned Assessing Officer. He could not point out why the order of the Tribunal for Assessment Year 1990-91 and 1991-92 should not be followed in the present year of appeal. Hence, we do not find any good and justifiable reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals) which is confirmed and the ground of appeal of the revenue is dismissed. 27. Ground no.3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revent the health of the workers engaged in production. Therefore, the assessee maintained the garden for maintaining better environment in the factory and the expenditure incurred in the process was therefore, for the purposes of the business of the assessee and was rightly allowed by the Learned Commissioner of Income Tax(Appeals). We therefore, confirm the order of the Learned Commissioner of Income Tax(Appeals) and dismiss the ground of appeal of the revenue. 30. Ground no.4 of the appeal of the revenue reads as under:- "4. The Ld. CIT(A) has erred in law and on facts in deleting the addition made under transfer pricing u/s.92CA(3) of the Act ₹ 1,63,887/-." 31. The Learned Commissioner of Income Tax(Appeals) has decided as under:- "7.1 The fifth ground of appeal relates to addition of ₹ 1,63,887/- by applying the provisions of Sec. 92CA(3) of the Act. The AO has made addition on this point by applying the provisions of Sec. 92CA(93) of the Act. The appellant has invited reference to circular No. 12 dated 23.08.2001, wherein it is stated as under: "However, this is a new legislation. In the initial years of its implementation, there may be room for diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be followed, as held in various cases. 7.2 I have considered the facts and the submissions given by the appellant. I am inclined to agree with the appellant's views. As per Board's Circular, supra, if the variation is less than 5%, no adjustment has to be made. Hence, following the said circular, the appellant is allowed relief on this point." 32. We have heard the rival submissions and perused the materials available on record. In the instant case, the difference in the Arm's length price as taken by the assessee and as applied by the Learned Assessing Officer was less than 5% of the price taken by the assessee is not in doubt or debate. Therefore, the Learned Commissioner of Income Tax(Appeals) following CBDT Circular No.12/2001 dated 23.08.2001 has held that the Addition made by the Learned Assessing Officer is not tenable. Learned Departmental Representative could not point out any error in the order of the Learned Commissioner of Income Tax(Appeals) which was passed following the CBDT Circular. Thus, we do not find any merit in the ground of appeal of the revenue. Therefore, this ground of appeal of the revenue is dismissed. 33. Ground no.5 of the appeal reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - on investment of surplus funds of business. To adjudicate the issue before us, the first question which is to be decided is that the head under which such interest income is assessable to tax. On the above facts, the contention of the assessee is that the same is to be assessed under the head business income whereas as per the Learned Assessing Officer the same is assessable under the head income from other sources. We find that the issue is covered by the decision of Mumbai Special Bench of the Tribunal in the case of Topman Exports (Supra). The Hon'ble Special Bench has held that to decide the head under which interest income is assessable, it is not relevant whether it is deployment of business fund but the issue is to be decided by looking at the nature of activity, which results into such income. If the funds of the business are parked for safe keeping or with a view to earn interest income dehors the main business activity, the interest resulting therefrom cannot assume the character of business income and hence will resultantly fall under the head income from other sources. In the instant case, we find that the assessee has brought no material either before any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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