9911796707
TMI Blog2024 (5) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of one another. GROUND NO. 1 (a) The Commissioner of Income Tax (Appeals) -15 (hereinafter referred to as the "CIT(A)") erred in holding that the appellant would not be eligible for depreciation on assets that stood vested in Ciba Specialty Chemicals (India) Ltd., (CSCIL) pursuant to the scheme of demerger. (b) The CIT(A) erred in holding that a consideration had flowed to the appellant for the transfer of the assets to CSCIL GROUND NO. 2 The CIT(A) erred upholding the action of the Assessing Officer (hereinafter referred to as the "AO") of disallowing the expenditure on computer software/licence fees of Rs. 1,22,12,738 in nature of application software on the ground that the same is capital expenditure of enduring nature. GROUND NO. 3 (a) The CIT(A) erred in upholding the action of the AO in disallowing advances written off pre predominantly MODVAT credit claims receivable from parties towards purchase of finished goods amounting to Rs. 16,68,997 charged to the profit and loss account. (b) Without prejudice, the CIT(A) ought to have allowed the above under section 37(1) as business expenses. GROUND NO. 4 (a) The CIT(A) erred in confirming the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the arm's length price of the said international transaction has erred in using the CUP method by taking the third party rates for sale of Rifampacin as on the date of sale of Rifampacin to associated enterprises without making appropriate adjustments for differences between the international transactions and the uncontrolled transactions on account of quantity of products sold. GROUND NO. 8 The Learned CIT(A) erred in computing the arm's length price of the international transaction pertaining to export of Rifampacin by not considering the +/-5% variation from the arm's length price permitted to the Appellant under the provisions of section 92C(2) of the Act. GROUND NO. 9 The CIT(A) ought to have directed the AO to charge interest under section 234C per Revised Return of Income. The appellants crave leave to add to, amend, alter, vary, omit or substitute the above grounds of appeal or add a new ground or grounds at any time before or at the time of the hearing of the appeal. 3. The brief facts of the case are that, the assessee company is engaged in the Life sciences business consisting of manufacture and sale of Pharmaceuticals, Animal Health Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the book value (i.e. book WDV) of transferred assets and not IT WDV which has to be reduced from the assessee's block of assets for the purpose of depreciation. The book WDV of the assets transferred to M/s Ciba Speciality Chemicals India Ltd comes to Rs 20,7868,221/-. On reduction of the above book WDV from the assessee's block of assets, the depreciation admissible under the I.T. Act for this year comes to Rs 114,544,180/- as per the 'without prejudice depreciation chart' submitted by the assessee vide letter dated 24.11.05, as against depreciation of Rs.122,132,992/- claimed by the assessee in its computation of Income filed with the Return. The depreciation allowance is accordingly allowed at Rs.114,544,180/- only. Net addition on this account comes to Rs.7,588,812/-. Needless to say, in subsequent years also depreciation will be allowed on the reduced WDV as per this order after exclusion of the book WDV of transferred assets at Rs.20,98,08,221/- from the block of assets as discussed above. Penalty proceedings u/s.271(1)(c) for furnishing inaccurate particulars of income are initiated separately" 4. The A.O. on the second disputed issue, with respect to claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been taken into account to determine the taxable income of the assessee for the relevant year. It is held by the apex court that in this regard section 145 of the IT Act not only confers the relevant powers of the AO but also imposes duty upon him to make such computation in such a manner so as to ensure that all costs involved in bringing the stock-in-trade which forms part of the closing stock have to be included in the valuation of such closing stock. Exclusion of any part of cost would result in distorted picture so as computation of taxable income of the assessee for this year is concerned. On being confronted, the assessee vide letter dated 09.12.2005 submitted a without prejudice statement of freight component on closing stock of finished goods at depots which comes to Rs.60,29,327/-. It is further submitted by the assessee that an amount of Rs.44,45,792/- was added in assessment order for A.Y.2002-03. Therefore, there would be an increase in the value of the opening stock for A.Y.2003-04 by an amount of Rs.44,45,792/-. Therefore, the net amount of freight component as per assessee's without prejudice statement thus works out to Rs.15,83,535/-. On the basis of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the opinion that the claim cannot be fully allowed and observed at Para 7.4 of the order as under: "7.4 It was, however, submitted that depreciation may be allowed in respect of similar treatment to the computer software expenses in the earlier years. The assessee filed a working of the depreciation allowable on the amounts capitalised in the earlier years. As per this working, the assessee claimed depreciation of Rs.29,18,517/- on the items capitalised in the earlier years. This working is not acceptable as it does not account for the items pertaining to the demerged division have not been excluded by the assessee. A revised working was by the assessee as per which, the depreciation allowable on items capitalised in the earlier years and which are continued to be owned by the assessee and used in the business of the assessee, is Rs.24,83,645/-. The same is allowed to the assessee" 8. The A.O on the sixth disputed issue with respect of Foreign Travel expenses, found that the assessee has claimed foreign travel expenses as revenue expenditure. Whereas from the A.Y 1993-94 onwards, 25% of foreign travelling expenses incurred by the assessee have been disallowed on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed issue with respect to expenditure on tax free bonds / dividends. The AO found that the assessee has claimed deduction u/sec 80M of the Act in respect of the dividend income received. The assessee has filed the details explaining the reasons and the basis of claim of deduction vide letter dated 24.11.2005, whereas the AO considered the facts, submissions and made disallowance observing at Para 11.5 of the order as under: 11.5 In view of the above and since no details in this regards have been filed by the assessee, 2% of the gross dividend earned at Rs.93,43,470/- being Rs.1,86,869/- is reasonably estimated as the proportionate expenditure for earning the above exempted income. u/s 80M is, therefore, to be limited to Rs.91,56,601/-. Based on this finding, the expenditure claimed by the assessee in its profit and loss account towards administrative and other overheads is to be disallowed u/s. 80M read with section 80AB to the extent of Rs. 1,86,869/- as only net dividend is exempt u/s 80M. In view of the above, the amount of Rs. 1,86,869/- is added to assessee's income 12. The tenth disputed issue is in respect of claim of deprecation on DLP projector, the AO found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent money lent in the ordinary course of business of banking or money lending as the assessee does not carry on any such business. Therefore, the claim of bad debts of Rs, 16,68,997/- is disallowed and added to the total income of the assessee. Penalty u/s271(1)(c) is initiated separately for furnishing inaccurate particulars of income." 16. The fourteenth disputed issue, being computation of claim of deduction U/sec80HHC of the Act. The AO found that that assessee has claimed deduction u/sec 80HHC to the extent of Rs.14,61,000/-, whereas while calculation of the total turnover, the assessee has not included sales tax and also the excise duty.The AO has dealt on the facts, provisions, elaborate submissions, CBDT circular and has restricted the claim dealt at Para 17.16 to 17.23 of the order as under: "17.16 In view of the discussion above the amount to be reduced from the profits for the purpose of Sec. 80HHC are as follows. Therefore, 90% of 212,311,111/- i.e. Rs. 191,080,000/- is reduced from the profits and gains of business to work out profits of the business for the purpose of deduction u/s.80HHC 17.17 During the year the assessee company had profits from sale of DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined the notional income of house property dealt at Para 18.10 of the order as under: "18.10 As the assessee has failed to indicate the exact area in respect of the residential buildings as per the details filed by the assessee, 58% of the total area of 26,342 Sq.ft. is being used by M/s Ciba Speciality Chemicals Ltd. Therefore, total residential area let out is 15,278 Sq.ft. Applying the market rate Rs.15/- per Sq.ft. per month for residential property, the annual value is determined Rs.2,750,105/- for the residential property The total annual value of the let out property is therefore, held to beRs.2,750,105/-. Further considering the inflation and other factors, the total annual value of the let out property is increased by 5% i.e. Rs.1,37,505/-. Therefore, the total annual value of the let out property is, therefore, held to be Rs.2,887,610/-. Since the assessee has not indicated the depreciation claimed in the return of income in respect of the let out property or the expenditure by way of repairs and maintenance incurred on this property, deduction, u/s.24 is not allowed for separately as depreciation and repairs expenditure in respect of the said property have alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sale of land 28,59,250 Less: Cost of acquisition 48945.90Sq.mtrX63X447/100= 1,37,83,655 Long term Capital Gain 17,99,02,095 19. The seventeenth disputed issue being the claim of amortization charges of leasehold land, the AO found that the assessee has made claim of amortization expenses of leasehold land Rs.2,14,000/- in the revised return of income, whereas the AO found that the assessee has amortized the leasehold charges of land at Mahad Factory and cannot be treated as revenue expenditure. 20. The eighteenth disputed issue with respect to international transactions with Associates Enterprises (AE). The AO has referred to the Transfer Pricing Officer(TPO) for determination of ALP of the international transactions. The TPO having considered the facts and submissions has made a transfer pricing adjustment of Rs. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Tribunal order for the A.Y 200203. The Ld.AR substantiated the submissions with the factual paper book, chart and judicial decisions and prayed for allowing the appeal. Per Contra, the Ld. DR relied on the order of the CIT(A) to some extent and submitted that the revenue has filed the cross appeal. 24. We heard the rival submissions and perused the material on record. On the first ground of appeal, where the CIT(A) has erred in not allowing the deprecation on assets transferred to Ciba Speciality Chemicals(India) Ltd pursuant to the scheme of demerger. The Hon'ble Tribunal in ITA No.6832 & 6772/Mum/2010 & C.O.190/Mum/2011 for the A.Y 2002-03 dated 20-03-2024 has allowed the ground of appeal observing at Page 51to 60 Para No.22 to 33 of the order read as under: "22. At the time of hearing, Ld.AR of the assessee brought to our notice the relevant facts relating to the issue arising in this ground of appeal are on allowability of depreciation under section 32 of the Income-tax Act, 1961 ('Act') on the assets relating to the specialty chemicals division after demerger of the said undertaking by the Appellant to Ciba Specialty Chemicals (India) Ltd. The Assessee was init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Assessee's depreciation claim for the first time in the previous year relevant to assessment year 1997-98, whereby he reduced the book written value of the demerged assets from the written down value of the block of assets. Upon further appeal, the Ld.CIT(A) has accepted the conclusion of the Assessing Officer however directed the reduction of the tax written down value of the block of assets as against book value. Thereafter, the same stand has been taken by the Assessing Officer / Ld.CIT(A) in all the later years including the year under consideration. 26 In this regard, it was submitted before us that disallowance of depreciation on assets transferred on account of demerger has been deleted by the Hon'ble Income-Tax Appellant Tribunal in the Assessee's own case for AY 1997-98 in ITA No 5283/Mum/2003 and ITA No 6224 and 6225/Mum/2004, Ld AR brought to our notice the relevant paras 8.2 and 8.3 of the Order. 27 Further, it was submitted that aforesaid order has been followed in the orders for AY 2000-01 (ITA 6226 & 5981/ MUM/2004) and AY 2001-02 (ITA 3379 & 3046/MUM/2009). The relevant Para no. 3.7 of AY 2001-02 was brought to our notice in which the coordinate benches hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in existence in the beginning of the year and it can be considered as discarded in the provisions with "NIL" value. This issue needs to end some point of time. In that case, the value of the assets has to be written off this year and to be claimed as loss in the statement of income (instead of depreciation). Therefore, we are inclined to direct the Assessing Officer to treat the opening balance of the assets to the extent of assets, which was already transferred to the demerged company as loss of assets or discarded. Accordingly, this ground of appeal filed by the assessee is partly allowed. 29 It was submitted before us that in order to effectively follow the above direction given in the order for the AY 2008-09, it was prayed that the claim of depreciation for the period 2002-03 be allowed by following the earlier order of Tribunal in AY 2000-01 and 2001-02, the Assessee must be granted depreciation on written down value of the demerged assets so that the opening written down value as on 1 April 2007 can be allowed as a loss for the AY 2008-09 in compliance of the Tribunal's order. Further it was also submitted that the Assessee has not accepted the ruling of Tribunal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the WDV with reference to assets in question. It further submitted that reliance placed by the AO with regard to the treatment given by another assessee in its own case was irrelevant and also that the observation made by the AO that the assessee had fraudulently claimed excess depreciation was wholly unjustified, that it had fully disclosed the stand taken by it in the return filed. After considering the submissions of the assessee and the order of the AO, he held,that an assessee had to be the owner of a particular asset on which depreciation had been claimed, that the said assets had to be used for the purpose of its business, that the assessee was neither the owner of the assets transferred nor were same used for the business purposes during the year under consideration, that it had failed to satisfy the basic condition prescribed u/s.32 of the Act on the assets transferred to CSCIL, that the assessee was not justified in claiming that nothing should be reduced from its block of assets and that depreciation should be granted on the full block of assets as existing prior to the transfer of assets, that the reliance placed by the assessee on section 43(6)(c)(i)(B) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money's worth and applicability of section 41(2)of the Act as under: " 19. We are unable to accept the contention that the word `money' should be interpreted as `money's worth'. The reasons given by us earlier are sufficient and we need not add to them. The reason for introducing a fiction in S.41 (2) of the Act as explained in Bipinchandra Maganlal& Co. Ltd. (41 I.T.R. 290) quoted in Artex Manufacturing Co. (1997) 6 S.C.C. 437 that it is for the purpose of recoupment by the Revenue of the benefit allowed to the assessee in the previous years does not alter the situation. 20. In the result, we do not find any error in the view expressed by the High Court in the judgment under appeal.We are in agreement with the reasoning and conclusion of the High Court in this case." Respectfully, following the above, we reverse the order of the FAA. We find that what was transferred, in the transaction in question, was not money. In our opinion, facts of the above case are quite similar to the case under appeal. We have also taken note of fact that it is a case of demerger, not of sale or exchange. Last ground of appeal, raised by the assessee, is decided in its favour." 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to treat the opening balance of the assets to the extent of assets, which was already transferred to the demerged company as loss of assets or discarded. Accordingly, this ground of appeal filed by the assessee is partly allowed." 33 In the above decision, the coordinate bench has directed the Assessing Officer to allow the outstanding value of block of assets as on 1.4.2007 as loss in the AY 2008-09. In order to follow the above recent decision on this issue, the depreciation disallowed by the Assessing Officer has to be allowed in favour of the assessee relying on the earlier decision of the coordinate bench prior to AY 2001-02 and issue involved in this appeal is relating to AY 2002-03, therefore, we direct the Assessing Officer to allow the depreciation similar to the decision in the case of the assessee in the AY 2001-02. Accordingly, the ground raised by the assessee is allowed." 25. We found that the issue in respect of value of block of assets has been already considered in the assessee's own case for the A.Y 2002-03. Accordingly, we fallow the judicial precedence and direct the AO to allow depreciation and the ground of appeal is allowed in favour of the assessee. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue nature. 11.1. Before us, DR supported the order of the AO.AR contended that similar issue was decided in favour of the assessee by the Tribunal while deciding the appeal for the year 91-92 and 9596.He referred to pages 236-37 of the paper book. He relied upon the case of Ashi Glass safety India Ltd.(245CTR)delivered by the Delhi High Court. 11.2. We find that while deciding the appeal for the year 1995-96(ITA/1749/mum/2003-25.09. 2013),Tribunal has dealt the issue as under: "The AO was of the opinion that the benefits of the software are long term or of enduring nature arid accordingly treated this expenditure as capital and allowed the depreciation and disallowed the remainder. Assessee strongly agitated this issue before CIT(A). The CIT(A) has considered this grievance of the assessee at para 8 and para 30 of its order. The CIT(A) was convinced that the application software of computers get outdated in no time. Hence, such expenditure cannot be treated as capital expenditure. The CIT(A) further observed that in immediately two preceding assessment years, his predecessors have treated similar expenditure as revenue expenditure, following the findings of his predece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an addition of Rs.20.48 Lacs. Consequently, similar depreciation of earlier years for Rs.18.98 Lacs was allowed to the assessee disregarding the depreciation on assets pertaining to demerged division. 8.2 The Ld. CIT(A) noted that the payments were in the nature of license fees or for right to use certain packages which have normally longer periods of life, usage and validity and therefore, the benefits would be enduring in nature. Accordingly, the action of Ld. AO was upheld. Aggrieved, the assessee is in further appeal before us. 8.3 We find that this issue has been adjudicated in Tribunal's order for AY 2000-01, para nos.2 to 5. The bench, following earlier years, held that the expenditure was revenue in nature. Upon perusal, we find that this ground is covered in assessee's favor in several earlier years 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 allow the expenditure fully and reverse the depreciation adjustment thus made in the assessment order. Ground No.1(a) of assessee's appeal stands allowed whereas Ground No.1(b) has been rendered infructuous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively as business loss u/s 28. For the same, we draw support from the decisions of Hon'ble Bombay High Court in Lord Dairy Farm Ltd. V/s CIT (1955 27 ITR 700); IBM World Trade Corpn. V/s CIT (48 Taxman 11); the decision of Mumbai Tribunal ion ACIT V/s Sodexo Food Solutions India Private Ltd. (ITA Nos.5781/Mum/2016 &ors. dated 03/10/2018). The ratio of all the stated decisions support the conclusion that advances lost during the course of business would be business losses. Therefore, we are inclined to delete this addition. Ground No. 8 stands allowed." 87 Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in assessee's case for the preceding assessment year is respectfully followed, accordingly, ground raised No.7 raised by the assessee is allowed. 29. Whereas the advance written off predominantly Modvat credit claims receivables was first time raised by the assessee in this assessment year in comparison to A.Y.2002-03, were the claim was only for advances written off and was allowed by the Honble Tribunal as discussed above. The Ld.AR relied on decision of the Honble High Court Of Bombay in the case of CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery hire receipts are to be excluded for computing the business for the purpose of deduction u/s. 8o HHC as against the action of the AO in reducing 90% of the gross machinery hire receipts." 36. At the outset, the learned Counsel for the assessee stated that this issue of exclusion of excise duty and sales tax is squarely covered in favour of assessee and against Revenue by the jurisdictional High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom), wherein it is held as under: - "6. We find merit in the contentions of the assessee. Under section 80HHC, the Legislature intends that the profits from exports should not be taxed. For this purpose, a formula has been introduced whereby if the business is of composite nature then the proportionate profit relatable to the export business is to be found out by multiplying the profits of a business by export turnover and dividing the product by total turnover. This formula finds place in section 80 HHC (3) as it stood at the relevant time. Under clause (b) to the Explanation of section 80HHC, export turnover is defined to mean sale proceeds received in India by the assessee in foreign exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such goods bears to the total turnover of the business. In fact, the earlier section 80 HHC (3) consisted of two parts, namely, whether the assessee carried on business as 100% exporter and, secondly, whether the assessee carried on composite business. In the latter case, it was provided that the profits derived from exports shall be the amount which bears to the profits of the business as computed under the head 'Profits and gains of business or profession', the same proportion as the export turnover to the total turnover. The emphasis is on the words 'profits derived from the exports'. Therefore, weightage must be given to such profits. Such profits cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover. Therefore, the turnover should be restricted to such receipts which have element of profit in it. It is the only actual sale price which is relevant. Anything charged by the assessee by way of excise duty and sales tax cannot be taken into account as they do not have any element of profit. Even according to the accounting principles, such levies do not form part of profit and loss account. In fact, they are shown as liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n who is primarily dealing in scrap. In the case on hand, as the respondent-assessee is not primarily dealing in scrap but is a manufacturer of stainless steel utensils, only sale proceeds from sale of utensils would be treated as his "turnover"" 35. According to the learned Counsel both the issues is covered in favour of assessee and against Revenue. We find that the issue is squarely covered in favour of assessee on both the grounds and against Revenue. Respectfully, following the Hon'ble Bombay High Court decision in the case of Sudarshan Chemicals Industries Ltd. (Supra) and Hon'ble Supreme Court decision in the case of Punjab Stainless Steel Industries (Supra). We allow the claim of the assessee and confirm the order of CIT(A). This issue of Revenue's appeal is dismissed." 97. Further, in assessee's own case for the A.Y. 2001-02 the Coordinate Bench of the Tribunal in ITA.No. 3379/Mum/2009 dated 30.04.2021, held as under: - "17.1 The assessee claimed deduction u/s 80HHC for Rs.177.76 Lacs. It transpired that for the purpose of computation, the assessee did not include sales tax and excise duty in total turnover. The Ld.AO opined that these components would be includib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction u/s 80HHC from Rs.177.76 Lacs to Rs.167.14 Lacs. The working of the same has been made part of assessment order as „Annexure-1‟. From the perusal of the same, it could be observed that the adjusted total turnover (net of export of trading goods) has been computed at Rs.46693.69 Lacs after adding back Sales Tax, excise duty and scrap sales. The profits of the business (after reducing profit from export of trading goods) and 90% of receipts (as tabulated above) has been computed at Rs.3038.16 Lacs. The adjusted export turnover of manufactured goods has been computed at Rs.423.05 Lacs. Finally, the deduction available u/s 80HHC(3)(c)(i) on export of manufactured goods has been computed at Rs.27.52 Lacs which is further increased by profit on trading goods for Rs.178.35 Lacs. Finally, deduction against 90% of export incentive has been added to arrive at total deduction of Rs.167.14 Lacs. 17.3 The Ld. CIT(A), following decision of Hon'ble Apex Court in Lakshmi Mills (290 ITR 667) directed Ld. AO not to include sales tax and excise duty in total turnover for the purpose of computing deduction u/s 80HHC. Regarding scrap sales, if the proceeds were out of scrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment of the assessee situate outside India ; In this appeal, the expressions „profits of the business‟ fall for our adjudication. The Ld.AO has opined that tabulated items do not have element of turnover and therefore, these would stand excluded from profits of the business as „any other receipt of similar nature‟ as mentioned in explanation (baa) to Sec.80HHC. The stand of the assessee is that these items, being arising out of operational business, would form part of profits of the business. 18.2 The Hon'ble Bombay High Court in CIT V/s Pfizer Ltd. (2010 233 CTR 521), considering its earlier decision in CIT V/s Dresser Rand India (P) Ltd. (2010 232 CTR (Bom.) 52-Ed.) as well as the decision of Hon‟ble Apex Court in CIT V/s K.Ravindranathan Nair (2007 165 Taxman 282), held as under: - Re : Question A 3. The assessee engages in the manufacture of Pharmaceuticals and animal health products. For the assessment year in question the assessee claimed a deduction under section 80HHC. The AO, while computing the deduction excluded 90 per cent of the amount of an insurance claim which was related to the stock-in-trade of the assessee. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,89,17,545 are not to be excluded from profits of business within the meaning of clause (baa) of Explanation to section 80HHC of the Act for the purpose of computation of deduction under section 80HHC of the IT Act, 1961?" 6. This Court by its decision held that in terms of the judgment of the Supreme Court in Ravindranathan Nair (supra) the issue of processing, charges would stand covered by the decision. This Court noted that the Supreme Court had held that the processing charges, though they form a part of the gross total income, constitute independent income like rent, commission and brokerage and that hence 90 per cent of the same had to be reduced from the gross total income to arrive at business profits. The concluding para of the judgment of this Court records the concession of counsel appearing on behalf of the assessee that the discussion in respect of the issue in regard to processing charges as an independent income unrelated to export, would similarly apply to the other issues raised in the question of law framed by the Revenue viz. in regard to recovery of freight, insurance and packing receipts, sales-tax refund and service income. The question of law was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business as computed under the head of profits and gains of business or profession. This has to be reduced under clause (1) by ninety per cent of any sum referred to in clauses (iiia), (iiib) and (iiic ) of section 28 which are in the nature of incentive incomes or "of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits". Receipts by way of brokerage, commission, interest, rent or charges have been held, by the judgment of the Supreme Court in Ravindranathan Nair case (supra) to constitute independent incomes. Being independent incomes unrelated to export, Parliament contemplated that ninety per cent of such receipts would have to be reduced from the profits of business as defined in Expln. (baa). The rationale is explained in the following observations of the Supreme Court : "That, profit incentives and items like rent, commission, brokerage, charges etc., though formed part of gross total income had to be excluded as they were 'independent incomes' which had no element, of export turnover. That, the said items distorted the figure of export profits." Again, in para 21 the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the sale would not be sustainable to a reduction of ninety per cent for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance is a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-intrade. The indemnification that is made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, we are clearly of the view that the insurance claim on account of the stock-in-trade does not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent under clause (1) of Expln. (baa). 11A. Counsel appearing on behalf of the Revenue submitted that the insurance claim has no element of export turnover and that consequently it must sustain a reduction of ninety per cent under Expln. (baa). Now it is necessary to note that Expln. (baa) in terms does not refer to export turnover. Subsection (1) of section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be whether it was an independent income having no nexus with export turnover. The objective was to avoid distortion in the figure of export profits. 18.3 In the background of statutory provisions as well as the principle laid down by Hon‟ble Courts as above, our adjudication to each of the item would be as follows: - Interest on employee's loan-The interest arises from the fact that the assessee has granted loans to its employees as an incentive to retain their loyalty towards business enterprises. The employees are connected with the business of manufacture and sale of pharmaceuticals. Interest on overdue debtors- This income has arisen to the assessee because the customers have delayed the payment of debts within the stipulated credit period allowed to them. The interest so charged could not be said to be an independent source of income but could be said to have arisen only out of normal business operations only. Interest on deposit with MSEB & MIDC- The income arises on account of deposit placed by the assessee with MSEB for obtaining power connections to run the manufacturing facility. Similarly, deposits with MIDC have been placed for obtaining land on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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)- It has been argued that these receipts would not be an independent source of income. Reliance has been placed on the decision of SMC bench of Jaipur Tribunal in Wolkem India Ltd. V/s CIT (65 TTJ (JP) 68). However, we are of the considered opinion that interest on Income Tax Refund arises to the assessee only because it has paid more taxes than what was required to be paid. The same accrues to the assessee as compensation for excessive payment to the revenue and has nothing to do with business operations. Similar is the situation with interest on sales tax refund. Both these items, in our opinion, would be covered by explanation (baa) and accordingly, required to be reduced to the extent of 90% while computing profits of the business. However, as per the decision of Hon‟ble Apex Court in ACG Associates Capsules Pvt. Ltd. V/s CIT (334 ITR 89), nettingoff would be available to the assessee. The Ld. AO is directed to re-work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee brought to our notice the decision of the Tribunal in assessee's own case for the AY 2001-02 (ITA 3379 & 3046/MUM/2009) (Page no. 854 to 859 of Legal Paper-book -2) following the rule of consistency for the earlier AYs he submitted that 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 entity so 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. This being the case, the ITAT held that it could very well be said that the premises was being used by the assessee only in furtherance of its business interest, the objective of which was to facilitate demerger. Therefore, the ITAT concluded that on the peculiar facts and circumstances, the action of Assessing Officer in bringing to tax notional rental value of the common premises was not justified and hence, the addition ought to be deleted. 104. In view of the above subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. In the above background, Ld.AO proceeded to work out notional rent in terms of Section 22 of the Act. The assessee, without prejudice, contended that Municipal Rateable Value (MRV) of the premises was Rs.88,088/- for approx. 50,000 square feet of commercial and residential premises being used by CSCIL. However, Ld. AO opined that since the assessee had let out the property but did not charge the rent then in terms of decision of Hon‟ble Bombay High Court in M.V. Sonavala Vs. CIT (177 ITR 246) Bom.), it was possible for AO 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective businesses. Upon demerger, CSCIL could not have been asked to vacate the said premises immediately. They were allowed to occupy the premises for the purpose of their business for a reasonable time till they were able to find an alternate facility. Therefore, the arrangement should be viewed as occupation of the property by assessee for its own business. In the alternative, Ld. Sr. Counsel submitted that the annual value could not exceed municipal retable value in terms of various judicial decisions and not in the manner as estimated 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealt by the Hon'ble Tribunal in ITA No.6832 & 6772/Mum/2010 & C.O.190/Mum/2011 for the A.Y 2002-03 dated 20-03-2024 and has allowed the ground of appeal observing at Page 114 to 116 Para No.119 to 125 of the order read as under: "119. At the time of hearing, Ld.AR of the assessee submitted that even in subsequent assessment year (for AY 2003-04 to AY 2006-07) for sale of land from the big parcel of land admeasuring to 2,96,713.20 sqmtr, the assessee continued placing reliance on the valuation of report of M/s Knight Frank which determined cost of acquisition as on 01.04.81 at Rs..63 sq feet which was later revised with appropriate reasoning by M/s Knight Frank at Rs..8090 per sq feet as supplemented by the fresh value report from Poonager Billimoria & Co to justify the fair market value as on 1 April 1981 at Rs 63 per sq feet. 120 It is submitted that similar to the captioned assessment year, even in subsequent assessment years from AY 2003-04 to AY 2006-07, the Assessing Officer rejected both valuations furnished by the assessee. However, to bring finality to the issue, in AY 2004-05, the Assessing Officer made a reference to the District Valuation officer ('DVO') for obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds raised by the assessee are accordingly allowed." 35. We considered the facts, submissions and fallow the judicial precedence as in earlier year A.Y.2002-03 and direct the AO to adopt the fair market value as determined by the D.V.O as on 1-04-1981.Accordingly, we allow the ground of appeal of the assessee . 36.The ground of appeal No. 7 is in respect of international transactions exports to A.E, but due to the smallness of amount/ addition, the addition is not contested by the assessee and treated as not pressed. And this ground of appeal is dismissed. 37.The ground of appeal No. 8 is in respect of computing of ALP of international transactions in not considering the +/-5% variation from the ALP. but due to the smallness of amount/ addition, the addition is not contested by the assessee and treated as not pressed. And this ground of appeal is dismissed. 38. On the last ground of appeal, the Ld.AR submitted that the interest u/sec 234C of the Act has to be calculated based on the revised return of income filed. The Ld. AR has filed a computation of income and the acknowledgement of revised return of income. We considering the facts and information direct the Assessing office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer. Per Contra Ld.AR submitted that the disputed issue is covered in favour of the assessee, in its own case for the earlier years and the CIT(A) has relied on the assessee own case for the A.Y.1994-95 to A.Y.2002-03 and dealt at Para 4.1 to 4.4 of the order and deleted the addition. The Ld.AR emphasized that the Hon'ble Tribunal in ITA No.3379 & 3046/Mum/2009 & C.O.218/Mum/2009 for the A.Y 200102 dated 30-04-2021 has dismissed the ground of appeal of the revenue with the findings at Para No.4.1 to 4.3 of the order.The Ld.DR could not controvert the findings of the CIT(A) with any new cogent information and relied on the findings of the Assessing Officer. Accordingly, we do not find infirmity in the order of CIT(A) on this disputed issue and uphold the same and dismiss the ground of appeal of the revenue. 45. We respectfully follow the decision of the Hon'ble ITAT in the assessee's own case for earlier year and fallow the judicial prudence. Accordingly, the ground of appeal no 2 of the revenue is dismissed and the C.O ground.no.1 of the assessee is infructuous. 46. The revenue has raised following ground of appeal: "3. On the facts and in the circumstances of the case a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997,AY.1993-94, dated 19/08/ 2005) held as under: "First issue is regarding the deletion of addition of Rs. 21,85,160/made to the valuation of closing stock as on 31.03.1993 attributable to estimate pro-rata freight on stock dispatched to various depots on the reasoning that the assessee company is regularly following the method of accounting and also the addition to the closing stock consequently increase the opening stock of next year which ultimately no benefit to revenue. As far as this issue is concerned, the Mumbai Bench 'B' of the Tribunal, vide Paras3,4 & 8, in ITA.No. 7894/ Mum/1995, the issue was been decided in favour of the assessee by holding as under: "We have considered the facts and the rival contentions. It is not disputed before us that the assessee has been consistently following the method of valuing the closing stock by excluding the expenses incurred pm freight and cartage outwards and packing of the goods for the purpose of enduring the transport from central distribution depot on various depots across the country. Now, the departmental authorities are entitled to discord the consistent method following by the assessee, but only if the true profits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenses incurred for facilitation of the transport of the goods can be excluded from cost only if the goods have already been sold and that in the present case, the goods have not been sold, and therefore, such costs cannot be excluded. The answer to this argument is that these costs have been incurred after the manufacture of the products and though the goods have not been sold, the expenses will have to be considered as part of the selling expense. Certainly, while fixing ;the price, the assessee will take into account the selling expenses and recover the same in the pricing of the products, but that is not a satisfactory reason to hold that such expenses or costs should be taken into account even while valuing the closing stock. In our opinion, there is no impediment to the deduction of true profits and gains of the business because of the method of valuation followed by the assessee consistently and which has also been accepted by the departmental authorities. A stray departure just for one year tends to upset the calculations. When the method has not been found fault with for a long period of years. It acquires fundamental character and forms a sound basis for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 of revenue's appeal stand dismissed which render ground no.2 of assessee's cross objections infructuous." 51. We respectfully follow the decisions of the Hon'ble ITAT in assessee's own case for earlier years and fallow the judicial prudence. Accordingly, the ground of appeal no 3 of the revenue is dismissed and the C.O ground.no.2 of the assessee is infructuous. 52. The Revenue has raised the ground of appeal.no.4: - "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 VRS amounting to Rs.3,28,52,834/- and also to allow that part of actual payment out of Rs.4,05,06,586/- which related to the provisions created during the F.Y.1992-93 but disallowed in A.Y.1993-94, by merely following the appellate orders of the earlier years without appreciating the facts and circumstances of the case." 53. Further, in the cross objection filed by the assessee, the assessee has raised following ground,no.3. "3.. The respondent submits that the AO be directed to allow deduction for the payment of Rs. 3,94,74,834/- (wrongly mentioned as Rs. 4,05,06,586/- in Annexure-A of departments appeal papers) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave carefully gone through the orders of the lower authorities and the order of the Tribunal. We find that the Tribunal in its order at para 40 has followed the findings given by the Tribunal in A.Y. 1993-94 and has restored this issue back to the file of AO to examine and verify the actuary valuation certificate and the agreement with the company and the employee and if he finds that the liability has been calculated on a scientific basis, may allow the claim of the assessee. Facts and circumstances being identical, respectfully following the afore stated direction of the Tribunal in assessee's own case for A.Y. 1994-95, this issue is restored back to the file of AO. The AO is directed to decide in the light of A.Y. 1993-94 and 1994-95. Ground no. 6 is allowed for statistical purposes." Respectfully, following the above order of the Tribunal, Ground of appeal No.1 is decided in favour of the assessee." 56. Similarly in the assessee's own case for the A.Y. 200102, the Honble Tribunal in ITA.No. 3379/Mum/2009 dated 30.04.2021 observed at Page15 Para 61 to 6.3 as under: "6.1 The assessee claimed an amount of Rs.253.73 Lacs towards incremental VRS (Voluntary Retirement Scheme) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss-objection infructuous. The assessee's cross objection stands dismissed as infructuous." 57. We respectfully follow the decision of the Hon'ble ITAT in the assessee's own case for earlier years and fallow the judicial prudence. Accordingly, the ground of appeal no 4 of revenue is dismissed and the C.O ground.no.3 of the assessee is in fructuous. 58. The Revenue has raised the ground of appeal.no.5: 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in directing the Assessing Officer to delete the disallowance of Rs.37,97,052/-, being 25% of total foreign expenses, without appreciating the fact that the disallowance was made for assessee's failure to prove that the time and energy spent by the Directors and executives on the foreign tour was devoted wholly and exclusively for assessee's business and not in connection with the business of the parent foreign company or the foreign shareholders." 59. The Ld.DR submitted that the CIT(A) has erred in deleting the disallowance of foreign travelling expenses, overlooking the findings of the Assessing officer. Per Contra Ld.AR submitted that the disputed issue is covered in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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