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TMI Blog2021 (4) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... ther production expenses for producing advertisement films and commercials to be used as TV spots and promotional films - HELD THAT:- CIT(A) correctly relying up Tribunal s decision for AY 1996-97 and the decision of Hon ble Bombay High Court in CIT V/s M/s Geoffery Manners Co. Ltd. [ 2009 (2) TMI 13 - BOMBAY HIGH COURT] held that the expenditure would be revenue in nature and therefore, an allowable deduction. Inclusion of Freight Component on closing stock - HELD THAT:- We find that this issue is squarely covered in assessee s favor by the various decisions of Tribunal right from AYs 1992-93 to AY 2000-01. The Ld. CIT(A) has also followed the appellate orders of earlier yearsTherefore, this adjudication in the impugned order, on this issue, would not require any interference on our part. Incremental VRS Interest - HELD THAT:- As in Tribunal s order for AY 2000-01 [ 2017 (7) TMI 1435 - ITAT MUMBAI] deduction would be allowable to the assessee. Nature of expenses - Disallowance of Club membership fee - AO opined that the expenditure being enduring in nature, the same would be capital in nature - HELD THAT:- We find that the findings that the expenditure was incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. [ 2009 (4) TMI 182 - BOMBAY HIGH COURT] held that unutilized MODVAT credit should be added to the closing stock of the assessee and the same would also necessitate similar adjustments to opening stock. Respectfully following the same, we direct Ld. AO to adopt the same methodology as adopted in AY 2000-01 pursuant to the aforesaid directions of the Tribunal. Disallowance u/s. 14A - assessee earned exempt dividendand interest on tax free bonds and claimed the same to be exempt u/s 10(33) and u/s.10(15) - HELD THAT:- Also, it is settled position that the provisions of Rule 8D are not applicable to this year. Therefore, following the aforesaid adjudication of Tribunal for AY 2000-01 [ 2017 (7) TMI 1435 - ITAT MUMBAI] we confirm estimated disallowance of 2% as made by Ld. AO. The stand of Ld. CIT(A) stand reversed. Delayed ESIC payments - HELD THAT:- We find this issue stood covered in assessee s favor by the decision of Hon ble Bombay High Court in the case of CIT V/s Hindustan Organic Chemical Ltd. [ 2014 (7) TMI 477 - BOMBAY HIGH COURT] wherein Hon ble High Court, following the decision of Hon ble Apex Court in CIT V/s Alom Extrusions Ltd. [ 2009 (11) TMI 27 - S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to a third-party but was a case wherein to facilitate demerger and to ensure smooth running of existing business, an arrangement was made between the assessee and its demerged entity that the business premises would be shared with an understanding that the proportionate cost would be recovered from the demerged entity till the time an alternative facility was arranged by the demerged entity - premises was being used by the assessee only in furtherance of its business interest, the objective of which was to facilitate demerger. It is quite discernible that this similar arrangement is continuing since AYs 1997-98 onwards and such an arrangement has never been disturbed by Ld. AO while framing assessment for AYs 1997-98 to 2000-01 which is evident from extract of assessment orders of those years as placed on record. Therefore, rule of consistency would operate in assessee s favor - action of Ld.AO in bringing to tax notional rental value of the common premises was not justified. Deduction u/s. 80HHC - exclusion or inclusion of an item would be whether it was an independent income having no nexus with export turnover - Interest on employee s loan - HELD THAT:- The intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck of expenditure which were early shown payable but no longer required to be paid. The write-backs are not in the nature of actual receipts but reversal of early provisions. Cost of Services Recovered - The cost of services refers to recovery of costs in the nature of Municipal Taxes, Security and Electricity Charges of a shares premises between the assessee and CSCIL. These expenses have first been paid by the assessee and later on recovered from CSCIL. These are mere recoveries of expenses from associate concern. Profit u/s 41(3) on sale of R D Assets The research development activity is directly connected with manufacturing activities and could not be said to be independent source of income for the assessee. Misc. Claims - These are petty claims arising out of business activity. We are of the considered opinion that all these items would form part of Profits of business and accordingly, not required to be reduced while computing deduction u/s 80HHC. 18.4 The remaining items have been dealt with as under: - Interest on Sales Tax Refund Income Tax Refund (Gross ) -I nterest on Income Tax Refund arises to the assessee only because it has paid more taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n- 1 to Section 115JB(2) by Finance Act, 2009 w.r.e.f. 01/04/2001 which envisages that book profits are to be increased by the amount or amounts set aside as provision for diminution in the value of any asset, we restore this issue back to the file of Ld.AO to ascertain the nature of provision and re-adjudicate the same considering the statutory provisions. Interest levied u/s 234C - CIT(A) correctly concurred with assessee s submission that tax would not include interest and therefore, interest u/s 234C was not to be added back in computing Book-Profits. Reliance was placed on the decision of this Tribunal in Insilco Ltd. V/s JCIT [ 2004 (6) TMI 285 - ITAT DELHI-F] Adjustment of Book Profits vis- -vis deduction u/s 80HHC - We find that this issue is covered in assessee s favor by the decision of Hon ble Supreme Court in Ajanta Pharma Ltd. [ 2010 (9) TMI 8 - SUPREME COURT] and therefore, no interference is required in the impugned order, on this issue. Applicability of the provisions of Sec.234D - HELD THAT:- The provisions of Sec.234D would apply to the assessee. The interest would run from the date of grant of refund u/s 143(1). However, the interest would be cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27/02/2009 in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 143(3) on31/12/2003. The assessee has also filed cross-objections against the revenue s appeal. 1.2 While framing assessment, assessee s income was determined at Rs.709.63 Lacs as against revised returned income of Rs.499.38 Lacs filed on 29/11/2002. The returned Book-Profits of Rs.3007.07 Lacs u/s 115JB were determined at Rs.5751.40 Lacs after certain adjustments. Upon further appeal, Ld. CIT(A) has granted partial relief to the assessee which has given rise to cross-appeals before us. The assessee being resident corporate assessee is stated to be engaged in manufacturing of pharmaceuticals products and pesticides etc. 1.3 As elaborately noted by ld. AO in the assessment order, the assessee is engaged in life sciences business consisting of manufacture and sale of Pharmaceuticals, Animal Health products, eye-care products. It operates through three divisions namely-(i) Pharmaceuticals; (ii) Animal Health; (iii) Ciba Vision. 1.4 During the year under consideration, the assessee has divested its agri business comprising of crop-protection and seed division. These divisions have been transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) erred in holding that the provisions of Rule 8D were applicable to the assessment year in appeal. (b) Without prejudice to above, the CIT(A) erred in not giving a finding on the ground of appeal filed by the appellants on the disallowance originally made by the ACIT. (c) Without prejudice to the above, the CIT(A) ought to have directed the AO not to disallow any expenditure with respect to investments made in the past years, GROUND NO.7 (a) The CIT(A) ought to have held that the provisions of section 43B are not applicable to ESIC. (b) Without prejudice to the above, the CIT(A) erred in upholding the action of the ACIT in disallowing ESIC dues aggregating to Rs.2,62,310 under section 43B which were paid by the appellants before the end of financial year, or before the due date of filing Return of Income, on the ground that these were paid after the due date and the amended provisions of Section 43B by the Finance Act 2003 w.e.f. 01.04.2004 would not be applicable retrospectively. GROUND NO. 8 (a) The CIT(A) erred in upholding the action of the ACIT in disallowing Bad Debts and advances amounting to Rs.1,80,30,995 written off and charged to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80HHC. GROUND NO. 10 (a) The CIT(A) erred in confirming the action of the AO in computing the income from house property at a notional value. (b) The CIT(A) further erred in not considering the Municipal Rateable Value for the purpose of arriving at the annual value of the property. (c) Without prejudice to above and in any event, as the amount recovered towards Municipal taxes, water charges, etc. was Rs.92,24,000 the amount to be considered for the purpose of annual value of the property cannot exceed the said amount, GROUND NO.11 The CIT(A) erred in upholding the AO's action of allowing depreciation on DLP projector @ 25% as against @ 60% claimed by the appellants. GROUND NO. 12 The CIT(A) erred in not directing the AO to exclude the following amounts aggregating Rs.5,15,06,985 while computing the book profits under section 115JB for the assessment year 2001-02, as these have been offered to tax under the normal computation by the appellants and taxed by the AO in the earlier years. Sr no . Particulars Rs. Rs. AY in which offered to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting disallowance of assessee's claim of Rs.38,07,569/- incurred towards cost of advertisement films holding that the expenditure of the assessee is covered by the decision of Bombay High Court in the case of M/s. Geoffery Manners Co. Ltd. dt. 09/02/2009 overlooking the fact that the facts of the assessee's case are distinguishable and the revenue has not accepted the decision of the Bombay High Court in the aforesaid case. 3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.44,09,851/- to the valuation of the closing stock towards estimated prorata freight on the stock lying at depots on the ground that the assessee has been allowed relief by the appellate authorities in the earlier A.Ys without appreciating the facts and merits of the addition and the fact that the revenue has not accepted the decision of the appeallate authorities on this issue for earlier years. 4. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to allow the incremental liability for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital in nature. 2. The respondents submit that the AO be directed to increase the value of the opening stock of the subsequent year i.e. assessment year 2002-03 by a similar amount in case the AO's action of enhancing the value of closing stock on account of estimated pro-rate freight on stocks lying at depots is upheld. 3. The respondents submit that the AO be directed to allow deduction for payment of Rs.4,17,76,531 if the action of the AO in not allowing deduction of Rs.2,53,72,531, accrued on account of the payment of pension under the Voluntary Retirement Scheme (hereinafter referred to as VRS) in respect of the workers of the appellants of their erstwhile Bhandup unit is upheld. 2.1 The learned Senior Counsel, Shri Jehangir D. Mistry along with Shri Nitesh Joshi, advanced arguments assailing the additions as sustained in the impugned order. Reliance has been placed on various judicial pronouncements as well as the decision in assessee s own case for various other years including order for AY 2000-01. The copies of the orders have been placed on record. A specific reference has been made to the latest decision of the Tribunal for AY 2000-2001 ITA No.6226/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate entrance fee 6. Adjustment of book profit u/s 115JB 7 8 Adjustment of 80HHC deduction u/s. 115JB 9. General in nature In the cross-objections against revenue s appeal, the assessee is seeking alternative relief on account of cost on advertisement films, valuation of closing stock and incremental liability for VRS. Relevant facts and Issue-wise Adjudication 3. Depreciation on block of assets transferred to Ciba Specialty Chemicals (India) Limited (CSCIL): 3.1 Under the scheme of arrangement sanctioned by the Hon'ble Bombay High Court, the assessee transferred certain assets at Written down Value (WDV) pertaining to Specialty chemical business to CSCIL w.e.f. 01/04/1996. However, during assessment proceedings for AY 1997-98, it was noted that the assessee did not reduce from its block of assets the value of assets transferred to CSCIL while computing depreciation under the Income Tax Act, 1961. Similar depreciation was claimed in this year on the reasoning that it was a case of demerger. 3.2 It was alternatively submitted that in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY which is absurd and totally unacceptable situation. So far as the expression monies payable‟ is concerned, the transfer was not made by the assessee free of any consideration. As per scheme of arrangement, the consideration has been paid by transferee-company by issue of equity shares in the ratio prescribed in arrangement order. Instead of transfer consideration being paid to the transferor i.e. the assessee-company, consideration has been paid by Transferee Company directly to share holders of Transferor-Company by issue of shares. In effect and substance both are one and the same thing. Nowhere was it mentioned that monies payable should be given directly by the transferee to the transferor. Therefore, claim as made by the assessee was not admissible. 3.5 Regarding assessee s revised working wherein the assessee excluded Income Tax WDV while computing depreciation claim, the same was also not accepted since in terms of arrangement, the assets liabilities were transferred at book value on the date of transfer and not at Income Tax WDV. Secondly, CSCIL adopted book WDV of the transferred assets for the purpose of claim of depreciation in its return of income for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening WDV of block of assets and the explanation 2A to Sec.43(6) would have no application. The Ld. DR has submitted that the revenue has preferred further appeal in earlier years before Hon ble Bombay High Court and the same is pending for adjudication. However, we find that, as of now, the issue is covered by earlier decisions of the Tribunal. Hence, respectfully following the consistent view of the Tribunal, we direct Ld. AO to allow depreciation on same methodology as given in AY 2000-01 pursuant to the directions of the Tribunal. Ground No.5 of assessee s appeal stand allowed whereas Ground No.1 of revenue s appeal stand dismissed. 4 . Production of Advertisement Films :- 4.1 The advertisement expenses claimed by assessee included expenses of Rs.38.07 Lacs incurred towards cost of purchase of films and other production expenses for producing advertisement films and commercials to be used as TV spots and promotional films. However, Ld. opined that TV films and commercials have a life span of a number of years and they continue to be exhibited on various TV channels along with various serials which are sponsored by assessee-company. Secondly the films are used to promote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the adjustment made by Ld. AO. 5.3 We find that this issue is squarely covered in assessee s favor by the various decisions of Tribunal right from AYs 1992-93 to AY 2000-01. The Ld. CIT(A) has also followed the appellate orders of earlier yearsTherefore, this adjudication in the impugned order, on this issue, would not require any interference on our part. Ground No.3 of revenue s appeal stand dismissed which render ground no.2 of assessee s cross-objections infructuous. 6. Incremental VRS Interest :- 6.1 The assessee claimed an amount of Rs.253.73 Lacs towards incremental VRS (Voluntary Retirement Scheme) for Bhandup unit which was on the basis of actuarial valuation. As held in earlier years, the liability was a contingent liability. Similar disallowance made in AY 1993-94 was confirmed by Ld. CIT(A). Similar disallowance was in assessment order for AYs 1994-95 to 2000-01. However, actual payment of VRS payment made during relevant year was to be allowed. In this year, assessee made payment of Rs.417.76 Lacs which was to be allowed whereas the claim of Rs.253.72 Lacs as per actuarial valuation was to be disallowed. The said adjustment resulted into net relief of Rs.164 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . AO disallowed the same and added back it to assessee s income. 7.2 The Ld. CIT(A), relying upon various decisions, observed that club fees was paid by the assessee itself and not by its directors or employees and therefore, the expenditure was an allowable deduction. Aggrieved, the revenue is in further appeal before us. 7.3 We find that the findings that the expenditure was incurred by the assessee as a corporate entity remain undisputed before us. This being so, this issue is covered in assessee s favor by the decision of Hon ble Apex Court in CIT V/s United Glass Mfg. Co. Ltd. (28 Taxmann.com 429 12/09/2012) wherein Hon ble Court has observed as under: - 3.3 .As far Question No. 2 is concerned, we find that a series of judgments have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this court. Even otherwise, we are of the view that it is a pure business expenses. Similar is the decision of Hon ble Bombay High Court in Otis Elevator Co. (India) Ltd. V/s CIT (1992 60 Taxman 215). Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 25% of foreign travel expenses incurred by assessee were disallowed on the ground that the assessee has not proved that the time and energy spent by directors and executives was devoted wholly and exclusively for business and not in connection with the business of the parent company or foreign shareholders. In AY 1991-92, the addition of 20% was confirmed by Ld. CIT(A). Therefore, similar disallowance of 25% was made in this year which resulted into disallowance of Rs.45.29 Lacs out of total expense of Rs.181.19 Lacs claimed by the assessee. 9.2 The ld. CIT(A), following appellate orders for AYs 1997-98 to 2000-01, directed Ld. AO to restrict the additions to the extent of 20%. Aggrieved, the assessee is in further appeal before us. 9.3 We find that this issue has been adjudicated in Tribunal s order for AY 2000-01, para nos.6 to 9. The bench, following earlier years, fully allowed the claim of the assessee. Upon perusal, we find that this ground is covered in assessee s favor in several earlier years also and the department has accepted the ruling of the Tribunal in those years and has not preferred further appeal, on this issue. This being the case, we direct Ld. AO to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening stock of subsequent year should be increased by MODVAT amount. The Ld. AO was directed accordingly. Aggrieved, the assessee has raised ground no.4. 11.3 We find that this issue has been adjudicated in Tribunal s order for AY 2000-01, para nos.18 to 21. The bench, following the decision of Hon ble Bombay High Court in CIT V/s Mahalaxmi Glass Works Pvt. Ltd. (2009; 318 ITR 116 ) held that unutilized MODVAT credit should be added to the closing stock of the assessee and the same would also necessitate similar adjustments to opening stock. Respectfully following the same, we direct Ld. AO to adopt the same methodology as adopted in AY 2000-01 pursuant to the aforesaid directions of the Tribunal. Ground No.4 of assessee s appeal stands dismissed. 12. Disallowance u/s. 14A : 12.1 The assessee earned exempt dividend of Rs.255.52 Lacs and interest on tax free bonds for Rs.267.54 Lacs and claimed the same to be exempt u/s 10(33) and u/s.10(15) respectively. Regarding disallowance u/s 14A, it raised a plea that investments were made in the past from own resources and not from borrowed funds and therefore, no interest cost was incurred towards earning of exempt income. Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions Ltd. (319 ITR 306 ) held that amendments to the said section brought about by the Finance Act, 2003 with effect from 1st April, 2004 were retrospective in nature and would operate from 1st April, 1988. This being the case, the impugned disallowance stands deleted. Ground No.7 stand partly allowed. 14. Disallowance out of bad debts and advances written off : 14.1 The assessee claimed bad debts written-off which include write-off of trade advances and advance to contract manufacturer amounting to Rs.169.09 Lacs. A further amount of Rs.11.21 Lacs representing old MODVAT balances was also written-off and claimed as deduction. The assessee submitted that the trade advances written-off in the books represent advances made while carrying on the business incidental to it. Trade advances were not voluntary payments but made in the course of business and hence incidental to the business. The obligation of the parties to whom advances were made was to provide moneys‟ worth to the company in the form of goods or services. Since obligation was not honored and in turn the refund of trade advances become irrecoverable and hence, these amounts were charged to Profit Loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 8 stands allowed. 15. Depreciation on DLP projector : 15.1 The assessee claimed depreciation on DLP projector @ 60% on the reasoning that DLP projector unit was a unique projector used in conjunction with laptop computers for making display and presentation. However, the Ld. AO restricted the depreciation to 25% which was the rate applicable to plant and machinery. The stand of Ld. AO, upon confirmation by Ld. CIT(A), is in further challenge before us by the assessee. 15.2 We find that DLP projector is a unique projector which is used in conjunction with Laptop computers for display and presentation. In other words, DLP projector is an output support device to the Laptop. Therefore, DLP projector was to be used with a computer and its functions were integrated with the computer. This being the case, the assessee would be entitle for depreciation at the same rate as applicable to computer systems as held by Mumbai (Special Bench) of Tribunal in DCIT V/s Datacraft India Ltd. (40 SOT 295 09/07/2010 ). Hence, we would hold that the assessee was entitled for depreciation of 60% against this item. Ground No.11 stands allowed. 16. Income from House Property : 16.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to take into consideration the amount for which the property might be let from year to year or AO could also consider the annual ratable value. Considering the market rate for commercial premises at Goregaon, the rates would be in the region of Rs.30/- per square feet per month and that of residential premises being Rs.15/- per square feet. Applying these rates to commercial area of 34,570 square feet and residential area of 15,278 square feet, Ld. AO arrived at ALV of Rs.124.45 Lacs for commercial space and Rs.27.50 Lacs for residential space. The total ALV was thus determined at Rs.151.95 Lacs. The statutory deduction u/s 24 would not be allowed separately since the assessee did not indicate depreciation claimed in respect of let out property and also did not indicate quantum of repairs maintenance claimed for this property. Further, both these expenditure were already claimed in the computation of income. 16.3 The Ld. CIT(A), while confirming the stand of Ld. AO, directed him to grant statutory deduction u/s 24(a). Aggrieved, the assessee is in further appeal before us. 16.4 The Ld. Counsel explained that assessee prior to its merger with Sandoz (India) Limited in 1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated by Ld. AO. Another alternative argument was that the amount of Rs.92.24 Lacs recovered by the assessee from CSCIL ought to have been reduced from notional rental value as computed by the Ld. AO. 16.5 We have carefully considered the peculiar facts of the case. It is noted that prior to its demerger, the assessee was carrying on various businesses from various premises including premises at Goregaon (Mumbai). In 1997, the chemical business got demerged from the assessee and new entity i.e. CSCIL came to existence to carry out the chemical business. Since the business was continuing, as a part of demerger arrangement, CSCIL was allowed to use the said premises on the basis that costs would be shared. M/s CSCIL has paid proportionate cost of Rs.92.24 Lacs to the assessee during the year which has actually gone to reduce the assessee s expenditure under the head municipal taxes, water charges and security charges. Therefore, it was not a case where the property was actually let out by the assessee to a third-party but was a case wherein to facilitate demerger and to ensure smooth running of existing business, an arrangement was made between the assessee and its demerged entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.18 Lacs 5. Interest on Sales Tax Refund 2.69 Lacs 6. Interest on Income Tax Refund (gross) 158.18 Lacs 7. Sales Tax Set-off 553.86 Lacs 8. Insurance Claims realized 20.61 Lacs 9. Cash Discount 2.36 Lacs 10. Scrap Sales Income 13.58 Lacs 11. Misc. Claims 0.26 Lacs 12. Excise duty Refund 54.95 Lacs 13. PDC equipment Lease 53.34 Lacs 14. Conversion Charges 4.83 Lacs 15. Other Misc. write backs 136.38 Lacs 16. Profit on Sale of R D Assets 37.62 Lacs 17. Cost of Services recovered from CSCIL 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover. However, scrap sale of packing material was to be included as per the decision of Hon ble Bombay High Court in Sudarshan Chemical Industries Ltd. (245 ITR 769). 17.4 Proceeding further, Ld. CIT(A), relying upon the decision of Hon ble Apex Court in Pandian Chemicals Ltd. V/s CIT (262 ITR 278) which held that the term derived from‟ must be understood as something which has a direct or immediate nexus with the assessee s industrial undertaking, held that the tabulated receipts were not directly derived from export activities and therefore, the same should not form part of the eligible profits. Another plea that only net receipts should be reduced was also dismissed. Aggrieved, the assessee is in further appeal before us . Our findings adjudication 18.1 Upon perusal of statutory provisions, we find that sub-section (1) of Sec. 80HHC provides for certain deduction to a person who is engaged in the business of exports. Such deduction is of profits derived by the assessee from the export of goods or merchandise. Sub-section (3) thereof provides the formula for determining such profits derived from exports. Clause (c) as applicable to manufacturer exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1998-99 it had come to the conclusion that there was no justification to exclude 90 per cent of the insurance claim. Besides this, the Tribunal held that the insurance claim formed part of the income of the business of the assessee and was liable to be considered as part of the profits of the business in view of Expln. (baa) to section 80HHC. The Tribunal was of the view that the insurance claim was not in the nature of brokerage, commission, interest, rent or charges, and therefore, was not any other receipt of a similar nature within the meaning of Expln. (baa). The Tribunal, therefore, held that 90 per cent of the insurance claim could not be excluded. 4. Counsel appearing on behalf of the Revenue submits that an insurance claim constitutes an independent income which is not relatable to the export turnover. Hence, it has been urged that 90 per cent of the insurance claim is liable to be excluded from the profits of the business under Expln. (baa) to section 80 HHC. Reliance was sought to be placed in this regard on the judgment of the Supreme Court in CIT v . K. Ravindranathan Nair [2007] 213 CTR (SC) 227 : [2007] 165 Taxman 282 (SC). On the other hand it was urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. From this it is apparent that insofar as the insurance claim was concerned, Dresser Rand (supra) proceeded on a concession by counsel appearing on behalf of the assessee. That apart the facts do not contain an elaboration of the nature of the insurance claim in that case. The judgment of the Division Bench in Dresser Rand (supra) would therefore not conclude the issue which has fallen for determination in this appeal. 7. Sub-section (1) of section 80HHC contemplates a deduction to an assessee, being an Indian company or a person resident in India and engaged in the business of export out of India of any goods or merchandise to which the section applies. The deduction is to be allowed in computing the total income of the assessee to the extent of the profits derived by the assessee from the export of such goods or merchandise. Clause (a) of sub-section (3) of section 80HHC provides the formula for determining the profits derived from the export of goods or merchandise to which the section applies. Where the export out of India is of goods or merchandise manufactured or processed by the assessee, the profits derived from such export shall be the amount which bears to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in business profits, had to be deducted from business profits computed in terms of sections 28 to 44D of the IT Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from business, profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc. formed part of gross total income being business profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and independent incomes constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. 10. In determining in each case as to whether a receipt which forms part of the profits of business is liable to undergo a reduction of ninety per cent as stipulated in clause (1) of Expln. (baa), it is necessary for the Court to consider whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the assessee from the export of goods or merchandise to which the section applies. The basic issue therefore is to determine the extent of profits derived by the assessee from the export of such goods or merchandise. The formula in sub-section (3) of section 80HHC has been provided by the Parliament, for the purposes of sub-section (1) to compute the profits derived from the export of goods. Clause (a) of sub-section (3) specifies that where the export is of goods or merchandise manufactured or processed by the assessee the profits derived from the export shall be the amount which bears to the profits of business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. In other words, in determining the profits derived from the export of goods or merchandise the proportion of the export turnover to the total turnover of the business is applied to the profits of the business. The profits of the business in turn are defined in Expln. (baa) to section 80HHC. Hence, the element of export turnover is a facet which has been taken care of by the legislature in the application of the formula which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits are placed the assessee would not be able to manufacture the goods. Thus, the deposits have been placed only out of business compulsion. Insurance Claims - These represents claims allowed by insurance company in respect of loss of trading goods. A contract of insurance is in the nature of indemnity and indemnifies the assessee for loss of stock-in-trade. Had the goods not been destroyed, the same would have been sold at profits and therefore, the insurance claims are compensatory in nature. The claims could not be said to be an independent source of income for the assessee and could not be equated with receipts of similar nature‟ as mentioned in explanation (baa). Scrap Sales Income - This income arises from the sale of packing material and other material realized during manufacturing process and directly related with manufacturing activities of the assessee. Cash Discount - This represent discount received by the assessee on early payment to suppliers in respect of purchase of goods. These are directly related to normal trading operations and could not be said to be an independent source of income. Equipment lease rentals - represent amount received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund - These two items would stand excluded in view of the fact that as per the impugned order, sales tax aswell as excise duty would not form part of total turnover in the denominator. When denominator has been reduced by these two components, similar connected items would stand excluded from the numerator also. 18.5 The Ld. AO is directed to re-compute the deduction available to the assessee u/s 80HHC in the light of our adjudication on various issues effecting computations u/s 80HHC. Ground No.9 of assessee s appeal stand partly allowed. 19. Computation of book profit u/s. 115 JB (Assessee s Grounds) In Ground No. 12, the assessee is seeking exclusion of sum of Rs.515.06 Lacs while computing Book Profits u/s 115JB since these have been offered to tax under normal computation and taxed by Ld. AO in earlier years. This ground was taken as additional ground before Ld. CIT(A). From the impugned order, it appears that certain items viz. expenses disallowed u/s 43B, write-off of property, provision of debts expenses etc. has been disallowed by the assessee in earlier AYs 1999-2000 2000-01 while computing income under normal provisions. The same were accepted by Ld.AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , increased the Book-Profits to that extent. The Ld. CIT(A), relying upon Tribunal s decision in N.W. Exports 34 BCAJ 1368 Mumbai Tribunal ) as well as the decision of Kolkata Tribunal (SB) in JCIT V/s Usha Martin {288 ITR (AT) 62 SB-Kol )}, held that the same was not to be added back while computing Book-Profits u/s 115JB. Aggrieved, the revenue is in further appeal before us. In view of insertion of clause (i) to Explanation- 1 to Section 115JB(2) by Finance Act, 2009 w.r.e.f. 01/04/2001 which envisages that book profits are to be increased by the amount or amounts set aside as provision for diminution in the value of any asset, we restore this issue back to the file of Ld.AO to ascertain the nature of provision and re-adjudicate the same considering the statutory provisions. ( iii) Interest levied u/s 234C The assessee debited interest paid u/s 234C for Rs.52.54 Lacs being interest levied u/s 234C and sought reduction in Book-Profits to that extent. However, Ld. AO opined that interest partake the character of taxes and therefore, it was to be added back to Book-Profits. The Ld. CIT(A) concurred with assessee s submission that tax would not include interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to apply correct rates of interest chargeable u/s 234D. This was in the background of the fact that Section 234D was inserted only w.e.f. 01/06/2003 and therefore, it would apply only from AY 2004-05. 22.2 However, Ld. CIT(A) opined that interest was chargeable w.e.f. 01/06/2003 and there was no mention of any assessment year. Hence, any proceedings which are completed after 01/06/2003 would be very much covered by the provisions of Sec.234D. Accordingly, the grounds raised by the assessee was dismissed. Aggrieved the assessee is in further appeal before us. 22.3 The Ld. Sr. Counsel pleaded that interest u/s 234D was to be charged only in respect of the tax component of amount received pursuant to intimation issued u/s 143(1) and not on the interest granted u/s 244A. The provisions of Sec.234D, enable charging of interest only in respect of amount refunded. Refund‟ would mean returning back of something which was paid earlier. Pursuant to intimation received u/s 143(1), the assessee has received refund of excess tax paid by him. The interest received at that point of time u/s 244A could not be regarded as refund. The Ld. Sr. Counsel distinguished the decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at excess refund determined under section 143(3) of the Act is deemed to be tax payable by the assessee. However, as there was no provision of interest on the grant of refund under Section 143(1) of the Act it became necessary to provide for the same by having a charging provision. This was done by section 234D of the Act in respect of all pending assessments in which refund was given. Thus even if, a refund has already been granted the same would be subject to the provisions of section 234D of the Act. Under section 234D(1) where the refund under section 143(1) is in excess of the amounts refundable on regular assessment, interest on the excess amount would be payable. In any case after the introduction of Explanation 2 there can be no doubt that even where refund is granted prior to 1/06/2003 the same would carry interest provided the proceedings for assessment are completed after 1/06/2003. The respondent has not contended that the Explanation 2 to section 234D of the Act is not retrospective. Their only contention is that it would not apply to refunds granted prior to 1/06/2003 even in respect of assessments completed after the cut-off date of 1/06/2003. This submission ignores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kerala [1966] 60 ITR 262 , Maharajah of Pithapuram v. CIT [1945] 13 ITR 221 (PC) and CIT v. Scindia Steam Navigation Co. Ltd, f 1961142 ITR 589 (SO. The aforesaid decisions are not relevant for our purpose particularly, in view of the fact that Explanation 2 to section 234D of the Act as introduced by the Finance Act,2012 being declaratory in nature would be retrospective. This amendment make it cleat that it shall apply assessment years even prior to 1/06/2003. 27. In view of the above, we hold that the decision of the Tribunal in /TO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) (SB) which has been followed in the impugned order by the Tribunal is not correct. One more aspect of the matter which must be borne in mind is that till such time as the assessment proceedings are completed in respect of any assessment year, the amendment made to the Act would be applicable even in case of pending proceedings. It is not the case of the respondent that the proceeding in regard to refund which has been granted under section-143(1) of the Act are concluded and final. The refund which has been granted under section 143(1) of the Act is provisional, to be finally determined whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund is granted to the assessee u/s 143(1) and no refund is due on regular assessment or the amount refunded u/s 143(1) exceeds the amount refundable on regular assessment, the assessee would be liable to pay interest on the whole or the excess amount so refunded. We find that the expression used in Sec. 234D is 'amount refunded' and not 'tax refunded'. Clearly the intention is to charge interest on excess amount refunded to the assessee either by way of refund of tax or by way of interest. Our view is fortified by the provisions of Sec. 143(4) which provides that if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. The expression again used is 'amount refunded' and not 'tax refunded'. 23.4 The Ld. Sr. Counsel has sought distinction of the judgment of Hon'ble Bombay High Court in Suresh B.Jain V/s PKP Nair (supra) by submitting that the same was rendered in the context of Sec.245 of the Act and therefore, woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mr. Mistry appears to be attractive but I am unable to persuade myself to agree with him for the simple reason that, while interpreting the provisions of section 245 of the Income-tax Act, we cannot give such a restricted meaning to the word refund . It is important to bear in mind in this connection that the expression refund is a commonly understood generic term which refers to the payment by the Income-tax Department of any amount due to an assessee and it does not mean only the return of an excess amount paid to the Department by an assessee. The Income-tax Act envisages several situations where amounts are to be paid to the Department or by the Department which include income-tax, penalty, interest, etc., for any assessment year, arrears in respect of these items for earlier years, amounts under any head wrongly paid or paid in excess, amounts pertaining to one person considered in another's hands and, while computing the tax liability or penalty for any year, separate notices are issued for different items but the demand or refund is made of the net figure which cannot, therefore, be identified as tax, penalty, etc., as such. The Income-tax Act is a wholesome stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest could not be equated with payment of refund. However, rejecting the same, the Hon'ble Court held that the expression refund is a commonly understood generic term which refers to the payment by the Income-tax Department of any amount due to an assessee and it does not mean only the return of an excess amount paid to the Department by an assessee. Further, the amount payable by assessee / revenue may include Income Tax, penalty, interest etc., however, the demand or refund is made of the net figure which cannot, therefore, be identified as tax, penalty, etc. as such. Therefore, interest paid on refunds should not be treated in isolation and that the concept of the word refund does not admit of a limited meaning but must be held to mean any amount payable by the Department to an assessee whether as and by way of refund or interest . After all, the amount of interest payable to an assessee under section 244(1 A) is also an amount that is refunded by the Department to an assessee. We are of the considered opinion the principle enunciated therein equally apply here and the aforesaid adjudication also supports the view taken by us. In view of the same, this plea as rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
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