Income Tax Appellate Tribunal - Ahmedabad
The Acit,(Osd)Range-1,, Ahmedabad vs M/S. Claris Lifesciences Limited, ... on 29 June, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(Conducted Through Virtual Court)
Before: Shri Rajpal Yadav, Vice President
And Shri Amarjit Singh, Accountant Member
ITA No. 2626 /Ahd/2011
Assessment Year 2007-08
Claris Lifesciences Ltd. Additional
"Corporate Towers, Commissioner of Income
Nr. Parimal Crossing, Vs Tax,
Ellisbridge, Range-1, Ahmedabad
Ahmedabad-380006 (Respondent)
PAN: AAACC6366Q
(Appellant)
ITA Nos. 2681/Ahd/2011 &1814 /Ahd/2016
Assessment Year 2007-08 & 2011-12
ACIT/Dy. Commissioner Claris Lifesciences Ltd.
of Income Tax, "Corporate Towers,
Range-1/Cir-2(1), Vs Nr. Parimal Crossing,
Ahmedabad Ellisbridge,
(Appellant) Ahmedabad-380006
PAN: AAACC6366Q
(Respondent)
Revenue by: Shri S.S. Shukla, Sr. D.R.
Assessee by: Shri S.N. Soparkar, Sr. A.R. &
Shri Parin Shah, A.R.
Date of hearing : 06-04-2021
Date of pronouncement : 29-06-2021
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 2
Claris Life Sciences Ltd. vs. Addl. CIT
आदे श/ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
These three appeals except ITA No. 2626/Ahd/2011 filed by assessee for A.Y. 2007-08 & 2011-12 by the revenue, arise from order of the CIT(A), Ahmedabad , in proceedings under section 143(3) r.w.s. 144C of the Income Tax Act, 1961; in short "the Act". The facts and issues involved in these appeals are interconnected therefore for the sake convenience all these appeals are adjudicated together as follows:-
ITA No. 2626/Ahd/2021 for A.Y. 2007-08 filed by the assessee2. The fact in brief is that return of income declaring total income of Rs.
21,76,12,564/- was filed on 31st October, 2017. The return of income was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 22nd July, 2008. Assessment order u/s. 143(3) r.w.s. 144C of the Act was finalized on 21st February, 2011. The remaining facts of the case are discussed while adjudicating the various grounds of appeal of the assessee as under:-
Ground No. 1 (Confirming addition of Rs. 19,86,525/- by way of upward adjustment in respect of reimbursement expenses on the basis of order u/s. 92C(3) of the Act)
3. During the course of assessment, a reference u/s. 92CA of the Act for the computation of arms length price in relation to international transactions was made to the transfer pricing officer, Ahmedabad. The Assessing Officer stated that according to the order of TPO u/s. 92CA(3) of the Act I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 3 Claris Life Sciences Ltd. vs. Addl. CIT total addition of Rs. 19,86,525/- of international transactions made in the case of the assessee company.
4. Assessee preferred appeal against the addition of Rs. 19,86,525/-
made by the Assessing Officer on the basis of order u/s. 92CA(3) of the I.T. Act. The ld. CIT(A) has dismissed the appeal of the assessee.
5. During the course of appellate proceedings before us, the ld. counsel submitted that the Assessing Officer has not at all made a reference to the TPO u/s. 92CA(1) for computation of arms length price with respect to the reimbursement of expenses to the A.E. and the TPO has exceeded his authority without receiving any reference from the Assessing Officer with regard to the reimbursement of expenses. The ld. counsel further submitted that these expenses were purely reimbursement of the expenses pertaining to the assessee company and there was no element of income accrued to the associated concern. On the other hand, ld. Departmental Representative has supported the order of lower authorities.
6. Heard both the sides on this issue and perused the material. The TPO stated in his order that he has gone through the agreement dated 17th August, 2006 between the assessee and its associate concern pertaining to reimbursement of expenses by the assessee company. As per agreement all the part of the expenses regarding registration of product dossier, market authorization, payment of distributors, custom clearance, payment to outsourcing and any other routine miscellaneous expenses will be reimbursed by the assessee company. The TPO has further stated that the I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 4 Claris Life Sciences Ltd. vs. Addl. CIT total expenses incurred by the parent company and reimbursed by the assessee company during the year under consideration was to the amount of Pesos 3.6 million. The TPO has further stated that only those expenses could be shared which were beneficial to both the parties and he was of the view that all the expenses were clearly related to the establishment of associated concern. Therefore, the TPO stated that Assessing Officer will be required to make an upward adjustment of Rs. 19,86,525/- to the total income of the assessee on account of determining the arms length price of international transaction. During the course of proceedings before the TPO, the assessee has filed the detailed explanation which was also placed before the ld. CIT(A). The assessee has explained that the reimbursement of expenses to its subsidiary company in Philippines were pertained to the expenses incurred by the assessee company in respect of its employees on their visits for sales promotion activities in Philippines. The funds were given by the company to its employees and upon submission of their travelling bills, the expenses were accounted in the books of account of the company by adjusting advances given to the employees. The expenses have been accounted in the books of account of the assessee incurred for the purpose of business of the assessee company. The associated concern has also reflected such expenses in their books of account and shown as expenses reimbursed by the assessee company. All the details and material facts were disclosed before the lower authorities by the assessee company and submitted that no international transaction has taken place between the assessee company and its associated concern in respect of amount shown as reimbursement of expenses, therefore, no question of arms length price determination was arised in its case. It is observed that ld. CIT(A) has not I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 5 Claris Life Sciences Ltd. vs. Addl. CIT categorically disproved the material facts and explanation of the assessee company in support of its contention that it has made only reimbursement of expenses to its associated concerned which were incurred for the purpose of business of the assessee company. The ld. CIT(A) has stated in a general manner that assessee has reimbursed expenses which were the responsibility of associated concern, therefore, the transaction was not at arms length. We observe that ld. CIT(A) has not given specific reason in support of his decision and also not disproved the submission of the assessee pertaining to nature of reimbursement of expenses and the relevant material demonstrating that such expenses were not incurred for any benefit of the subsidiary company. In the light of the above facts and circumstances, we do not find any merit in the decision of the ld. CIT(A). Therefore, this ground of appeal of the assessee is allowed.
Ground No. 2 ( Erred in confirming addition of prior period expenses of Rs. 42,48,547/- disregarding the fact that assessee had disallowed Rs. 84,87,329/- on this account)
7. During the course of assessment, the Assessing Officer noticed that assessee has debited net prior period expenses of Rs. 84,87,329/- in the profit and loss account and the same was added back in the computation of income. The Assessing Officer has further noticed that gross prior period expenses was Rs. 1,27,35,876/- and prior period income was Rs. 42,48,547/- which have been netted to arrive at the net prior period expenses of 84,87,329/-. On query, the assessee has specifically submitted that it has disallowed Rs. 84,87,329/- and the amount of Rs. 30,80,966/- being the liability for expenses claimed and allowed in earlier years by way of I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 6 Claris Life Sciences Ltd. vs. Addl. CIT discount rate etc. no longer payable shall be chargeable u/s. 41(1) and assessee stated that it offered the same to tax. After taking into consideration of the aforesaid submission of the assessee, the Assessing Officer noticed that the prior period income netted was actually Rs. 42,48,548/- instead of Rs. 30,80,966/- as stated by the assessee. The Assessing Officer has further stated that this amount was primarily on account of reversal of discount and sale promotion expenses claimed and allowed in the earilier years and the assessee has offered the same as taxable u/s. 41(1) of the I.T. Act. The Assessing Officer has further stated that this fact has also been confirmed by the assessee during the assessment proceedings vide order sheet entry dated 3rd Nov, 2020 wherein the assessee has agreed to the addition of prior period income of Rs. 42,48,547/-. Accordingly, the Assessing Officer has added an amount of Rs. 42,48,547/- to the total income of the assessee company.
8. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has dismissed this ground of appeal of the assessee.
9. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer noticed that assessee has debited net prior period expenses of Rs. 84,87,329/- to the Profit and Loss Account. On further verification and examination of the information filed, the Assessing Officer observed that assessee has shown netting of prior period income of Rs. 42,48,547/-. On further investigation, the Assessing Officer found that there was no such prior period income and the same was the amount on account of reversal on discount and sales promotion expenses claimed and allowed in the earlier years. On query, the assessee company I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 7 Claris Life Sciences Ltd. vs. Addl. CIT vide letter dated 22nd Nov, 2010 admitted that the amount of Rs. 30,80,966/- was actually the liability for expenses claimed and allowed in the earlier years by way of discount and rate difference etc. and agreed for adding the same u/s. 41(1) of the Act. However, on verification of the material on record, the Assessing Officer has brought to the notice of the assessee that such amount on account of reversal of expenses claimed was Rs. 42,48,547/- . The assessee has agreed for the same for making addition to its total income vide order sheet entry dated 3rd Nov, 2010. In the light of the above facts and finding, we do not find any infirmity in the decision of ld. CIT(A) after considering the supporting material which demonstrate that assessee was agreed for the impugned addition on account of reversal of actual expenses earlier allowed which has nothing to do with prior period expenses. Therefore, this ground of appeal of the assessee is dismissed.
Ground No. 3 (Confirming addition of Rs. 35,87,463 by invoking provision u/s. 40(a)(i) of the Act.
10. During the course of assessment, the Assessing Officer noticed that in the computation of income the assessee has offered for disallowance u/s. 40(a)(i) of the act a sum of Rs. 52,56,550/- . The Assessing Officer has further noticed that aforesaid amount comprised a sum of Rs. 43,03,617/- on which TDS was not deducted. Further an amount of Rs. 9,52,933/- consisted of Rs. 45,40,396 (on provision of various expenses) which has been netted against a sum of Rs. 35,87,463 ( being excess amount of tax deducted at source adjusted against above shortfall). On query, the assessee explained that it had deducted TDS but not paid commission u/s. 194H and u/s. 194A aggregating to Rs. 45,40,396/-. It is further explained that it has I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 8 Claris Life Sciences Ltd. vs. Addl. CIT made excess payment of TDS u/s. 194I, 194C, 194J and that it should be adjusted against the shortfall in payment of TDS u/s. 194H and 194A. The Assessing Officer has not agreed with the submission of the assessee stating that this was clearly against the provision of law as there was no provision in the act which allows such kind of set off and it is entitled for refund and claim of set off was not permissible under any section of the Act. Consequently, the Assessing Officer concluded that deducted tax of Rs. 45,40,396/- not deposited in the government account was disallowable u/s. 40(a)(i) of the Act. Out of the aforesaid amount, the assessee has already offered a sum of Rs. 9,52,933/- for taxation in the computation of income, therefore, the difference amount of Rs. 35,87,463/- was added to the total income of the assessee.
11. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has dismissed this ground of appeal of the assessee holding that TDS liability in respect of each provision is to be separately considered and excess payment in one provision is not adjustable against the short payment in other provisions.
12. Heard both the sides and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has placed reliance on the decision of Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Prayas Engineering Tax Appeal No. 1237 of 2014 dated 17.11.2014. The relevant part of the decision is discussed as under:-
"3. Heard the learned advocate appearing for the appellant-Revenue and considered the submissions. Learned advocate appearing for the appellant has contended that the circular issued by CBDT is very clear and the issue is governed by section 194J. The learned ITAT, while considering the question has observed in para-17 as under:
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 9 Claris Life Sciences Ltd. vs. Addl. CIT "17. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that in respect of payment made by assessee to M/s. Elecon Information Technology Ltd. (EITL) and M/s. Akaaish Mechatonics Ltd. (AML) these was short deduction of tax and therefore the ratio of the Tribunal in the case of Apollo Types Ltd. v. DCIT and UE Trade Corporation (India) Ltd is directly applicable to the facts of this case. In the case of UE Trade Corporation v. DCIT, the Hon'ble Tribunal in similar facts has held as under:
6. We have heard both the parties and gone through the material available on record. We have also gone through the Tax Audit Report in Form Wo. 3CD placed at pages 20 to 49 of the Paper Book. Annexure-XIV of the Tax Audit report gives the details of tax deductible under various sections of the Act. Page 1 of Annexure-XIV gives the details of payments on which tax has not been deducted at all. The total amount of expenditure is at Rs. 7,32,827/-. Pages 2 to 6 of Annexure-XIV give the details where there is a shortfall due to lesser deduction than required to be deducted. The total amount of expenses is at Rs.
20,24,455/- on which shortfall of tax at Rs. 3,26,011/- has been worked out by the tax auditors: .Page 3 of the Annexure gives the details where tax has been deducted but not paid to the credit of the Central Government, the assessee has added back the expenditure on which tax was deductible but no tax was deducted at all and also where tax was deducted at source but not paid to the credit of Central Government amounting to Rs. 20,16,778/-. Details of such expenditure is given at page 1 and page 3 of the Annexure-XIV to the Tax Audit Report. The learned AR of the assessee has claimed the benefit of two decisions, one by the Kolkata Bench and other by the Mumbai Bench of ITAT. In the case of DCIT vs. Chandabhoy S Jassobhoy (supra) the assessee made payment to the consultants by way of salary after deduction of tax at source under sec, 192 and claimed the deduction for the same. Those consultants were working for a period of two years with the assessee. However, the AO applied the provisions of sec, 194-J. In this case it was held that provisions of sec. 192 were applicable to the facts of the assessee's case. Another decision replied upon by the assessee is of Kolkata Bench in the case of DCIT vs. S. K. Tekriwal (supra) . In this case also the difference in shortfall was due to the applicability of provisions. The assessee has deducted tax at source u/s. 194C whereas according to the Assessing Officer provisions of section 1941 are applicable. Thus the assessee' s case is covered by the decisions of the Tribunal referred to about. No doubt assessee is in default as per provisions of sec. 201 but disallowance of tie expenditure is not permissible u/s. 40(a)(ia), respectfully following the precedents it is held that disallowance of Rs. 20,24,455/- is not justified. The Assessing Officer is directed to delete the addition." In view of the above, the order passed by Ld. CIT(A) deleting the additions of Rs. 60,60,960/- and Rs. 8,86,940/- is hereby upheld. Both these grounds of revenue are dismissed."
4. In that view of the matter, the same view is confirmed by the Tribunal in its order, and therefore, we are in complete agreement with the order passed by the Tribunal. No substantial question of law is made out and the appeal is devoid of any merits and deserves to be dismissed. Hence, this appeal is dismissed."
With the assistance of the ld. representatives, we have gone through the above mentioned findings of the Hon'ble Jurisdictional High Court on the issue of short deduction of tax deducted but not paid to credit of the Government wherein after making adjustment no disallowance was made I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 10 Claris Life Sciences Ltd. vs. Addl. CIT u/s. 40(a)(ia). After considering the finding of the Hon'ble Jurisdictional High Court in the above referred case, we restore this issue to the file of Assessing Officer for adjudicating afresh after taking into consideration the observation of the Hon'ble High Court in the above referred case. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes.
Ground No. 4 (Erred in not accepting Rs. 7,37,91,346/- as deduction claimed u/s. 10B of the act as per revised form no. 56G) & Ground No. 5 (Erred in confirming action of Assessing Officer in disallowing/ adding Rs. 1,08,49,764/- by re-computing profits of 100% export oriented unit excluding miscellaneous income, export incentive income and interest)
13. During the course of assessment, the Assessing Officer noticed that assessee has claimed a sum of Rs. 4,99,25,987/-as exemption u/s. 10B. It was the first year of the claim of the assessee company. The assessee has filed the report of chartered accountant in form no. 56G dated 29th October, 2007 for its claim u/s. 10B of the act. The DTA unit was set up in F.Y. 2001-2002 and same was converted to EOU in the year under consideration as per the permission of Development Commissioner, Kandla SEZ. The 100% EOU has started functioning w.e.f. 1st Nov, 2006. The assessee has filed revised form no. 56G as per which deduction u/s. 10B was claimed to the amount of Rs. 73,91,436/-. The assessee explained that it was not a fresh claim but the revised claim was by way of correction of the claim already made in the return of income filed. The Assessing Officer has not agreed with the submission of the assessee and stated that amount worked to be eligible u/s. 10B was computed on proportionate basis and separate books of I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 11 Claris Life Sciences Ltd. vs. Addl. CIT account for different undertakings have not been maintained by the assessee. It is further stated that no additional evidences were submitted in support of the enhanced claim made by the assessee. The Assessing Officer was of the view that the claim of the assessee was clearly unacceptable as the assessee cannot claim reduction in the income offered without filing a revised return of income as held in the decision of Hon'ble Supreme Court in the case of Supreme Court in the case of Goetze (India) Ltd. 284 IRR 323 (SC).
The Assessing Officer has further observed that in its original claim of deduction made u/s. 10B of Rs. 4,99,25,987/-, the assessee company has not excluded the following amount credited to P & L Account:-
Miscellaneous Income 34852178
Export Incentive Income 40222703
Foreign Exchange Rate Difference 24182727
Share Issue A Preliminary expenses 4712108
Interest received 11269904
The Assessing Officer was of the view that various items like service contract income, insurance claim, receipt premium of forward contract, development and license fee, sundry income cannot be said to be derived from the export of article, therefore, same were not eligible for exemption u/s. 10B of the Act. Except amount earned on sale of scrap the Assessing Officer has excluded the miscellaneous income of Rs. 1,54,37,346/- from profit to be considered for exemption u/s. 10B of the Act. In respect of export incentive, the Assessing Officer stated that export incentives were not earned from export of goods as the same were received on account of I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 12 Claris Life Sciences Ltd. vs. Addl. CIT incentives offered from the schemes of the Government. In respect of foreign exchange rate difference the Assessing Officer observed that same was not derived from export and there was no immediate nexus of gain on exchange rate and export of articles or things. The Assessing Officer was also of the view that share and preliminary expenses written off were not on account of profit derived from export of article therefore same was not eligible for deduction u/s. 10B of the act. In respect of interest income, the Assessing Officer observed that same was on account of margin money placed by the assessee company with banks for guarantee and letter of credit which was clearly not derived from the export of article or things and accordingly same was not eligible for exemption u/s. 10B of the Act. Accordingly, a sum of Rs. 1,08,49,547/- was disallowed out of the original amount claimed as exempt u/s. 10B of the act.
14. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.
15. During the course of appellate proceedings before us in respect of ground no. 4 for making revised claim in form no. 56G, the ld. counsel has placed reliance on the decision of Amarpali Capital & Financial Services Ltd. ITA No. 1836/Ahd/2011 and Mitesh Impex 270 CTR 66 (Guj). He has also referred the CBDT Circular No. 37 of 2016. In respect of computing profit excluding misc. income, export incentive and interest income, the ld. counsel has referred decision of Principal CIT vs. Dishman Pharmaceutical & Chemical Ltd. (2019) 112 taxmann.com 91 (Guj), Mitesh Impex 270 CTR 66 (Guj) of Hon'ble Jurisdiction High Court of Gujarat and decision of I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 13 Claris Life Sciences Ltd. vs. Addl. CIT Hon'ble Calcutta High Court in the case of CIT vs. Hindustan Gum Chemical Ltd. [2016] taxmann.com 90 (Cal). On the other hand, Ld. Departmental Representative has supported the order of CIT(A).
16. Heard both the sides and perused the material on record. The assessee has claimed exemption u/s. 10B of the Act to the amount of Rs. 4,99,25,987/-. Subsequently, the assessee has filed revised form no. 56G and made revised claim of deduction to the amount of Rs. 7,37,91,346/-. The Assessing Officer has rejected the revised claim of deduction u/s. 10B of Rs. 7,37,91,346/- stating that assessee has not filed revised return of income in view of the decision of Hon'ble Supreme Court in the case of M/s. Goetze (India) Ltd. 284 ITR 323 (SC). The Assessing Officer also stated that assessee has not filed any additional evidence to substantiate its enhanced claim of deduction. In respect of original claim of deduction made u/s. 10B of Rs. 4,99,25,987/-, the Assessing Officer has excluded an amount of Rs. 9,56,24,788/- pertaining to miscellaneous income, export incentive income, foreign exchange difference, interest income and share issue and preliminary expenses stating that these were not earned because of export of goods therefore Assessing Officer has restricted the deduction u/s. 10B of the act to the amount of Rs. 3,90,76,233/- and disallowed a sum of Rs. 1,08,49,754/-.
During the course of appellate proceedings before us, in respect of revised claim of assessee, the ld. counsel has placed reliance on the decision of Amarpali Capital and Financial Services Ltd. and Mitesh Impex supra and decision of Hon'ble jurisdictional High Court in the case of Principal CIT vs. Dishman Pharmaceutical & Chemical Ltd. (2019) 112 taxmann.com 91 I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 14 Claris Life Sciences Ltd. vs. Addl. CIT (Guj). With the assistance of ld. representatives, we have gone through decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Dishman Pharmaceutical & Chemical (2019) 112 taxmann.com 91 (Guj). The relevant part is discussed an under:-
"60. Thus, sub-section (4) of Section IOB stipulates that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of Section IOB refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of Section IOB of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of Section IOB to exclude the same from the eligible profits. The mode of determining the eligible deduction U/S IOB is similar to the provisions of Section 80HHC inasmuch as both the sections mandates determination of eligible profits as per the formula contained therein. The only difference is that Section 80HHC contains a further mandate in terms of Explanation (baa.) for exclusion of certain income from the "profits of the business which is, however, conspicuous by its absence in Section IOB. On the basis of the aforesaid distinction, sub-section (4) of Section 10A/10B of the Act is a complete code providing the mechanism for computing the "profits of the business" eligible for deduction u/s. IOB of the Act. Once an income forms part of the business of the income of the eligible undertaking of assessee, the same cannot be excluded from the able profits for the purpose of computing deduction u/s IOB of the Act.
61. We take notice that the Karnataka High Court in CIT v. Motorola India Electronics (P.) Ltd. [2014]46 taxman.com 167/225 Taxman 11 (Mag.) makes a reference to the decision of the Supreme Court of Liberty India Electronics (P.) Ltd. 's case (supra). We would like to look into Liberty India Electronics (P.) Ltd. 's (supra) in details. In Liberty India Electronics (P.) Ltd. 's (supra), the assessee had the outstanding borrowings by way of External Commercial Borrowings.
The borrowings were for the business of STP undertaking. The Government had formulated a policy on pre-payment and the policy stated that the approval of pre-payment would be granted only to the extent of 10% of the outstanding loan. In such circumstances, it was required to temporarily park the funds, until the date of repayment, and also keep paying the interest on the loans. The assessee took a business decision to place these funds with its various sister concerns as inter-corporate deposits. The assessee claimed that the interest income as derived from the business of export of articles or things or computer software was eligible for exemption under Section 10A of the Act. The AO disallowed the exemption claimed with respect to the respect income. The ITAT's ruling:
ITAT held that the terminology used in sub-section 4 is 'profits of the business' of the undertaking in contradiction to the word profits and gains derived by the asssessee "from a 100% export oriented undertaking.
It was held that the term "from the business of is much wider than the term "derived from industrial undertaking".
Considering Section 80 HHC, it was observed, that if the legislature intended to exclude interest from the term "profits of business of undertakings" under Sections 1OA and 1 OB of the Act a similar provision as in the case of Section (baa) would have been inserted. I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 15 Claris Life Sciences Ltd. vs. Addl. CIT No such explanation has been introduced in Sections 10A and 10B and therefore, it held that the interest income is exempted from payment of tax and also their claim for allowance of 5% on scientific basis should be allowed.) The High Court took the view as follows:
Subsection (4) says that the profits derived from export of articles or things or computer software shall be the account which bares to the profits of the business of the undertaking and not the profits and gains from the export of articles.
Therefore, profits and gains derived from the export of articles is different from the income derived from the profits of the business of the undertaking.
The profits of the business of the undertaking includes the profits and gains from the export of the articles as well as all other incidental incomes derived from the business of the undertaking.
It is interesting to note that similar provisions are not there while dealing with computation of income under Section 80HHC. On the contrary, there is a specific provision like Section 80HHB which expressly excludes this type of incomes.
In the instant case, the assessee is a 100% EOU, which had exported software and earned the income. A portion of that income is included in EEFC account. Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law.
There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'income from Profits and Gains' incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act.
In taking the aforesaid view, the Karnataka High Court distinguished the following decisions relied upon by the Revenue authorities:
(1) Pandian Chemicals Ltd case (supra) (2) Liberty India's case (supra) (3) Sterling Foods (supra) (4) CIT v. Menon Impex (P.) Ltd. [2003] 28 Taxman 11/259 ITR 403(Mad.) (5) Anil Dang v. ITO [2012] 24 taxmann.cnm 135/209 Taxman 22 (Kar.) (Mag.) (6) CIT v. Shah Originals flQmiJ9rraxrnaa81/327 ITR 19 of Bom.)
62. In view of the aforesaid discussion, we hold that the dividend income, profit on sale of fixed assets, profit on sale of investments, excess provision return back, duty drawback and interest income could be said to have direct nexus with the income of the business of the undertaking.
Although it may not partake the character of profit and gain from the sale of article, yet it could "be termed as an income derived from the consideration realized by the export articles. In view of the definition of "income from profits and gains" incorporated in sub-section (4), the Tribunal committed no error in granting the benefit of exemption, contemplated under Section 10B of the Act.'
63. In view of the aforesaid, the fourth question is answered in favour of the assessee and against the Revenue.
64. In the result, this Tax Appeal fails and is hereby dismissed."
With the assistance of ld. representatives, we have also perused through the decision of Mitesh Impex supra of the Hon'ble Jurisdictional High Court of Gujarat . The relevant part of the decision is reproduced as under:-
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 16 Claris Life Sciences Ltd. vs. Addl. CIT "Section 80-IB of the fncome-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Manufacture) assessee was engaged in activity of segregation and processing of metal scrap -Assessee's claim for deduction under section 80-IB was rejected by Assessing Officer holding that activities undertaken by assessee did not amount to manufacturing activity -Tribunal, however, allowed assessee's claim - Whether in view of fact that assessee put Imported scrap to series of manual and mechanical processes and thereby brought into, existence entirely new, distinct and different commodities which were marketable Tribunal rightly concluded that said process amounted to 'manufacturing1 and, therefore assessee's claim for deduction was to be allowed - Held, yes [Para 20] [In favour o assessee]"
We have also gone through the decision of Hon'ble High Court of Calcutta in the case of CIT vs. Hindustan Gum Chemical Ltd. [2016] taxmann.com 90 (Cal) as follows:-
"The entitlement to exemption is, subject to the provisions contained in the other parts of the section OB. It was not disputed that the only relevant provision to be taken into account is sub- section (4).
The quantum of deduction is dependent upon the total turnover of the business of the undertaking and he export turnover of the undertaking. Once these two figures are available, one has to divide the total turnover by the export turnover in order to work out the percentage of the export turnover, vis-d-vis the total turnover. Suppose total turnover is Rs. 100/- and total export turnover is for Rs 10/-, then the export turnover is 10 per cent of the total turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is Rs. 100, in that case, deduction available to the assessee under section 10 of sub- section (1) of section 10B shall be 10 per cent of Rs. 100, i.e. to say Rs. 10/-. This is the formula which has been provided by sub-section (4) for the purpose of working out the benefit or deduction under sub-section (1). Total turnover shall naturally include receipt on account u/s interest. The legislature does not appear to have provided for excluding the amount of interest from the total turnover as has been done in the case of section 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90 per cent of the same arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under section SOHHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned in interest was not intended to be taken into account for the purpose of giving benefit under sub-action (1) of section 10B may be correct. But the amount of deduction available to a 100 per cent export oriented undertaking is necessarily dependent upon the formula providing sub-section"(4). There is, as "such, no scope for any controversy that part of the money was earned from interest and not from export. [Para J] The Tribunal had held that there is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100 per cent EOU will be the 'profits of the business of the undertaking'. The interest earned on temporarily surplus business funds of the 100 per cent EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100 per cent EOU. As such, the interest earned thereon has to be regarded as part of the 'profit of the business of the undertaking.
The Tribunal considered opinion that the assessee has to succeed. The Assessing Officer had to treat impugned interest as part of the profits of the business of the 100 per cent EOU eligible for deduction under section 10B and compute deduction accordingly. [Para 5] Thus, the Tribunal was right in the view they took. [Para 6]"
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 17 Claris Life Sciences Ltd. vs. Addl. CIT On the issue of filing revised claim in the same case of Mitesh Impex supra the Hon'ble Jurisdictional High Court of Gujarat has recognized the power of appellate commissioner and tribunal to entertain the new claim for the first time though not made before the Assessing Officer. The relevant part of the decision is as under:-
"38. It thus becomes clear that the decision of the Supreme Court in the case of Goetze (India) Ltd. (supra)' is confined to the powers of the assessing officer and accepting a claim without revised return. This is what Supreme Court observed in the said judgment while distinguishing the judgment in the case of National Thermal Power Co. Ltd (supra) and that is how various High Courts have viewed the dictum of the decision in the case of Goetze (India) Ltd.(supra). When it comes to the power of Appellate Commissioner or the Tribunal, the Courts have recognized their jurisdiction to entertain a new ground or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income.
39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to, come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer.
40. Therefore, any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when facts necessary lo examine such ground, contention or claim arc already on record. In such a case the situation would be akin to allowing a pure question of law to be raised at any stage of the proceedings. This is precisely what has happened in the present case. The Appellate Commissioner and the Tribunal did not need to nor did they travel beyond the materials already on record, in order to examine the claims of the assessees for deductions under sections 80-IB and 80IIHC of the Act-41. In the decisions that we have noted above, the Courts have considered such questions when a legal contention or a claim was based on material already on record but raised at an appellate stage. On such premise we wholeheartedly agree that the appellate authority and the Tribunal would have the power to entertain any such new ground, legal contention or claim. However, it is only the Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders (P.I Lid. (supra), which has travelled a little beyond this preposition and come to the conclusion that even if facts necessary to examine such a claim are not placed before the-assessing officer and, therefore, not on record, there would be no impediment in the Commissioner (Appeals) entertaining such a claim. Such an issue does not arise in these appeals. We would therefore, reserve our opinion on this limited aspect of the matter if and when in future the question presents before us in such form. For the present, we answer Questions (3) and (4) against the Revenue and in favour of the assessees in manner described above.
42. In the result all appeals are dismissed."
The ld. counsel has also referred CBDT Circular No. 37 of 2017. We have Gone through the aforesaid circular and the same is reproduced as under:-
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 18 Claris Life Sciences Ltd. vs. Addl. CIT "CIRCULAR NO.37/2016 [F.NO.279/MISC./140/2015/ITJ], DATED 2-11-2016 Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.
2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one.
However, the courts have generally held that if the expenditure disallowed is related to the business activity against -which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows:
(i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law. such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act.
This view was taken by the courts in the following cases:
Income-tax Officer -Ward 5(1) v. Keval Construction [2013] 33 taxmann.com 277 (Guj.) Commissioner of Income-tax-IV, Nagpur v. Sunil Vishwambharnath Tiwari [2016] 63 taxmann.com 241 (Bom.)
(ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: x Principal CIT, Kanpur v. Surya Merchants Lid. [2016] 72 taxmann.com 16 (All.).
The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department.
3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance.
4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/Tribunals may be withdrawn/not pressed upon. The above may be brought to the notice of all concerned."
The ld. CIT(A) has dismissed the appeal of the assessee on this issue in a general manner stating that assessee has not specified how the earlier certificate issued by the chartered accountant was incorrect. The Hon'ble Jurisdictional High Court in the case of Mitesh Impax 270 CTR 66 (Guj) as discussed (supra) in this order has clearly held at para 38 to 41 of the order after distinguishing the judgment in the case of National Thermal Power I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 19 Claris Life Sciences Ltd. vs. Addl. CIT Company Ltd. vs. CIT (1998) 229 ITR 383 (SC) and the decision in the case of Goetze India Pvt. Ltd. supra that appellate commissioner or the Tribunal, the courts have recognized their jurisdiction to entertain a new ground or a legal contention. At para 39 of the order, the Hon'ble Jurisdictional High Court held that claim cannot be shut out for all time to come merely because it is raised for the first time before the appellate authority without resorting to revising the return before the Assessing Officer. We have also gone through the decision of Co-ordinate Bench of the ITAT in the case of ACIT vs. Amarpali Capital Finance Ltd. ITA No. 1836/Ahd/2011 wherein the claim of the assessee was accepted as per revised computation which was rejected by the Assessing Officer on account of not filing of revised return by referring the decision of Goetze India Ltd. In the light of the above judicial findings as discussed supra in this order, we direct the Assessing Officer to consider the claim of the assessee for claim of deduction of Rs. 7,37,91,346/- u/s. 10B as per the revised computation filed on form no. 56G after required verification.
On the issue of excluding of miscellaneous income, export incentive income and interest income to be not eligible for expenses u/s. 10B of the Act as referred in the ground no. 5 of the assessee, we have perused the decision of Hon'ble Jurisdictional High Court in cases of Mitesh Impax 270 CTR 66 (Guj) and PCIT vs. Dishman Pharmaceutical & Chemical (2019) 112 taxmann.com 91 (Guj) wherein it is held that once an income forms part of business of 100 per cent export oriented undertaking (EOU) of the assessee same cannot be excluded from eligible profit for purpose of computing deduction u/s. 10B of the Act. Since the revised claim of deduction u/s. 10B is required verification, therefore, we restore this issue I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 20 Claris Life Sciences Ltd. vs. Addl. CIT raised in the ground of appeal no. 5 of the assessee to the file of the Assessing Officer for deciding de-novo as per the directions laid down in the above referred judicial pronouncements. Accordingly, this ground of appeal of the assessee also allowed for statistical purposes.
Ground No. 6 ( Erred in not accepting alternative claim to compute eligible profits by adding to the income additions/disallowance amounting to Rs. 2,58,35,735/-)
17. Since the ground no. 5 of the assessee has been adjudicated as above, therefore, this ground for alternative claim has become infructuous and the same stands dismissed.
ITA No. 2681/Ahd/2011 filed by Revenue A.Y. 2007-08Ground No. 1 (Deleting addition of Rs. 18,14,537/- made on account of additional depreciation)
18. At the time of assessment, the Assessing Officer noticed that assessee has claimed an amount of Rs. 11,72,41,683/- as additional deprecation on additions made to plant and machinery during the year. The Assessing Officer observed that amount claimed as additional depreciation also included a sum of Rs. 18,14,537/- pertaining to addition made for Cogen plant which was eligible for depreciation @ 15%. On query, the assessee explained that it has fulfilled all the conditions laid down under section 32(1)(iia) of the Act pertaining to plant therefore it was eligible for additional depreciation on this machinery. The Assessing Officer has not accepted the submission of the assessee and referred the decision of Hon'ble Supreme Court in the case of CIT vs. N. C. Nudharua K.N.R. etc. 204 ITR I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 21 Claris Life Sciences Ltd. vs. Addl. CIT 412 (SC). The Assessing Officer was of the view that in the case of assessee it has produced electricity/power which cannot be claimed as movable article eligible for additional depreciation. Consequently the claim of additional depreciation to the extent of Rs. 18,14,537/- was rejected and added to the total income of the assessee company.
19. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee after following the decision of his predecessor on the same issue for assessment year 200-07.
20. During the course of appellate proceedings before us, the ld. counsel has submitted that issue in appeal is covered in favour of the assessee by the decision of ITAT Ahmedabad in the case of assessee itself for assessment year 2006-07 vide ITA No. 947/Ahd/2011. Ld. Departmental Representative is fair enough not to controvert these undisputed fact that issue is covered in favour of the assessee by the decision of ITAT Ahmedabad as referred by the ld. counsel.
21. Heard both the sides and perused the material on record. The Assessing Officer has disallowed the claim of additional depreciation on the plant producing electricity stating that product produced was not of the nature of moveable article. The ld. CIT(A) has allowed the claim of the assessee after following the decision of his predecessor on the same issue on identical facts for assessment year 2006-07 and the Co-ordinate Bench of the ITAT Ahmedabad vide ITA No. 947/Ahd/2011 has adjudicated the similar issue on identical facts in favour of the assessee and sustained the finding of I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 22 Claris Life Sciences Ltd. vs. Addl. CIT ld. CIT(A). The relevant part of the decision of ITAT Ahmedabad as referred above is reproduced as under:-
"8. The AO has disallowed the assessee's claim of additional depreciation in respect of such machinery which were generating electricity on the ground that those machineries were not producing any "article or thing" hence not eligible for additional depreciation as prescribed u/s.32(1)(iia). When the matter was carried before the First Appellate Authority, the issue was decided in favour of the assessee as under:
"I have considered the AO's order, facts of the case and appellant's submission. Assessing officer disallowed appellant's claim of additional depreciation on machinery of power plant on the ground that electricity generated is not articles or things and accordingly the conditions of section 32 (1)(iia) is not satisfied. However appellant submitted that the requirement of the section is acquisition of new plant or machinery and (other than ships and aircraft) after 31 March 2005 by an assessee engaged in the business of manufacturing or production of any article or thing. The four situations are mentioned in proviso to this section in which additional depreciation is not allowable. In the case of appellant, plant and machinery was acquired after 31 March 2005 and appellant is already manufacturing pharmaceutical products which are articles or things. Therefore appellant fulfilled all the conditions for claim of additional depreciation. Appellant during appeal hearing also relied upon following decisions of Madras High Court in which it is held that there is no requirement that the setting up of a new machinery or plant should have any operational connectivity to article or things that were already manufactured by the assessee. (1) CIT vs. Hi Tech Arail Ltd., (321 ITR 477
- Mad) (2) CIT vs. Texmo Precision Castings (321 ITR 481 - Mad) (3) CIT vs. VTM Ltd. (229 CTR 70 - Mad) I have gone through these three decisions and it is clear that assessees in these cases were involved in different items of manufacturing and purchased windmills. On the identical issue, honourable Madras High Court held that assessees are entitled to additional depreciation on cost of windmill acquired. It is also held that the plant and machinery purchased need not be operationally used for manufacturing articles or things. Since the only objection of the assessing officer was that newly purchased machinery generated electricity which is not articles or thing, is no longer a relevant issue in the light of these decisions. From the facts narrated in the assessment order and in the appellant's submission, it is clear that appellant fulfilled all the conditions required for claim of additional depreciation on machinery purchased by it. The addition of machinery was after 31st of March 2005. Appellant was already in the business of manufacturing articles for things. The machine purchased is not covered by any clause of proviso to this section. The same was not used by any person before installation. It is not installed in office or residential premises. This is not office appliance or road transport vehicle. Further these machines are also not eligible for 100 percent depreciation in one year. Considering this appellant fulfils all the conditions required for claim of additional depreciation. Respectfully following the decisions of Madras High Court relied upon by the appellant, assessing officer is directed to allow additional depreciation on new plant and machinery purchased."
9. After considering the submissions of both the sides, we hereby affirm the legal as well as factual finding of learned CIT(A) and dismiss this ground of the Revenue."
Following the decision of Co-ordinate Bench as referred above on identical issue and facts, we do not find any reason to interfere in the I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 23 Claris Life Sciences Ltd. vs. Addl. CIT decision of ld. CIT(A). Therefore, this ground of the appeal of the revenue is dismissed.
Ground No. 2 (Deleting addition of Rs. 1,22,06,926/- made on account of product registration expenses less depreciation)
22. During the course of assessment, the Assessing Officer noticed that assessee has debited a sum of Rs. 1,43,84,135/- as product registration expenses under the head sales promotion expenses. The assessee was asked to explain its claim of these expenses as allowable revenue expenditure u/s. 37(1) of the act. The assessee explained that these expenses have been incurred for registration of product in various foreign countries as required under the domestic regulatory laws of these countries. It was explained that product registration expenses did not bring any benefit of enduring nature to the assessee company and these expenditure were in the nature of sales promotion expenses and rightly claimed as revenue expenditure. However, the Assessing Officer has not agreed with the detailed explanation of the assessee. The Assessing Officer was of the view that once the product was registered and approval was granted by the particular country, the assessee can continue to export its goods over a long period of time and the registration of the product provide benefit of enduring nature to the assessee company. Therefore, the Assessing Officer disallowed the claim of registration expenses as revenue expenditure after providing depreciation of Rs. 21,77,209/- and added the remaining amount of these expenses of Rs. 1,22,06,296/- to the total income of the assessee.
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 24 Claris Life Sciences Ltd. vs. Addl. CIT
23. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee after following the decision of his predecessor on the identical issue in assessment year 2006-07.
24. During the course of appellate proceedings before us, the ld. counsel has brought to our notice that identical issue on similar facts in the case of the assessee itself has been adjudicated by the ITAT Ahmedabad in favour of the assessee vide ITA No. 947/Ahd/2011
25. Heard both the sides and perused the material on record. With the assistance of ld. representatives, we have gone through the decision of Co- ordinate Bench of the ITAT as referred by the ld. counsel vide ITA No. 947/Ahd/2011. The relevant part of the decision is reproduced as under:-
"4. At the outset, we have been informed that the issue of expenditure towards "project registration expenses" stood covered by a decision of ITAT "A" Bench Ahmedabad pronounced in the case of Cadila Health Care Ltd. (ITA No.3140/Ahd/2010, A.Y. 2006-07) order dated 05.03.2012 wherein it was finally held as under:
"3.12. We hereby hold that the payments in question are inextricably linked with the working of the assessee's business. By incurring those expenditure the assessee has not acquired any new right of permanent character. The licenses or the registrations are required to be renewed and therefore part of the day to day running expenditure of the business. [ACIT versus Vodafone Essar Gujarat 38 SOT 51 (Ahd.) l. If an expenditure can give a benefit which is said to be endured for one year or even annually year after year then it is unreasonable to hold that any enduring benefit taken place to the assessee. [Cosmat Max Ltd.29 SOT 436 (Del.)]. An expenditure incurred in the existing line of business in order to run the business smoothly then though the business may run smoothly in future in the years to come but in the absence of creation of any new asset we hereby held that such an enduring benefit may not tantamount to rendering of capital expenditure. [DCIT versus Core healthcare 308 ITR 263 (Gujarat)]. A very identical case law has also been cited pronounced by the Hon'ble Supreme Court in the case of CIT versus Finley Mills Ltd. 20 ITR 475 and the opinion expressed was that an expenditure incurred in registering for the first time its trademark, then by registration the owner is merely absolved thereafter from obligation to prove his ownership of trademark. As per the Hon'ble Court the expenditure is neither for the creation of an asset nor an advantage for ever. We, therefore, hold that this precedent has direct application on the present issue, therefore, following the same and considering the totality of the factual matrix, we hereby allow the claim. Resultantly, Ground Nos.2 & 3 are allowed."
5. Another order of Hon'ble Gujarat High Court has also been cited in the case of M/s. Torrent Pharmaceuticals Ltd., 213 taxmann.com 297 (Gujarat), wherein it was held as under:
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 25 Claris Life Sciences Ltd. vs. Addl. CIT "3. The department preferred an appeal against order of the CIT(A) which culminated into the impugned order. As far as the question of treating garden expenses is concerned, the Tribunal held that the issue was covered in favour of the assessee by its decision in assessee's own case in ITA No.1347 of 2007 for the Assessment Year 2003-2004. The Tribunal relied on its own observations in para 29 of the judgment in the said appeal and accordingly confirmed the order of the CIT(A). With regard to foreign registration fees, the Tribunal concluded that said expenses were incurred for obtaining registration in the foreign country for marketing the products overseas, which was expenditure for sales promotions, without which the assessee company would not have been able to market its product in the overseas market. "Further, these payments are made to drug regulatory authorities in various countries for the products market in the respective countries.
Furthermore, these fees are to be paid on recurring basis depending upon the validity of the various registrations. The fees have been paid on expiry of the registration and out of total payment of Rs.8,03,706/- is in respect of product registration in Poland. Likewise payments have been made in Vietnam, Russia, Ghana and China etc. We find that the exports over the years have increased from the export sale of Rs.26 crores in financial year 1998-1999 to the exports have grown to Rs.160 crores in financial year 2005-06 an increase of more than 600 per cent. Accordingly, these expenses are rightly allowed by learned CIT(A) and we confirm the same."
6. Considering the submission of both the sides in the light of the case law cited and the reason given by the AO for such disallowance, we hereby hold that in a situation when the genuineness of the expenditure was not doubted by the AO but only on a technical point the impugned disallowance was made we hereby hold that the issue being directly covered by the precedents as cited above in favour of the assessee; hence, this ground of the Revenue has no force, therefore, dismissed."
After taking into consideration the findings of the Co-ordinate Bench in the case of the assessee itself as discussed above, we do not find any error in the decision of ld. CIT(A). Therefore, this ground of appeal of the Revenue is dismissed.
Ground No.3 (Directing Assessing Officer to allow deduction u/s 10B of the act on exchange rate gain of Rs. 2,41,82,727/- on revenue account)
26. During the course of assessment, the Assessing Officer noticed that assessee has claimed foreign exchange rate difference of Rs. 2,41,82,727/-. The Assessing Officer was of the view that out of the above, a receipt of Rs. 1,35,74,073/- was of the capital nature being market to market gain difference in foreign currency loan attributable to the extent incurred on domestic capital expenditure. The Assessing Officer was of the view that the same cannot be derived from export of article and was not eligible for I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 26 Claris Life Sciences Ltd. vs. Addl. CIT exemption u/s. 10(2) of the Act. The Assessing Officer observed that the balance amount of Rs. 1,06,08,654/- was gain on exchange rate and same was not derived from export of article or things to be eligible for exemption u/s. 10B of the Act and this gain was due to non-realization of export proceedings and not export per-se. Therefore, the claim of exemption u/s. 10B on foreign exchange rate difference on Rs. 2,41,82,727/- was rejected.
27. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee on foreign exchange rate difference on revenue account.
28. Heard both the sides and perused the material on record. With the assistance of ld. representatives, we have gone through the decision of ld. CIT(A). The ld. CIT(A) has disallowed the claim of the assessee on deduction u/s. 10B on account of exchange fluctuation gain in respect of capital expenditure. However, the ld. CIT(A) has held that assessee is eligible for deduction u/s. 10B in respect of gain of foreign exchange fluctuation on revenue account. In this regard, the ld. counsel has placed reliance on the decision of 367 ITR 594 (Guj), 347 ITR 578 (Mad), 383ITr 402 (Guj) and 230 CTR 72 (Bom).
Respectfully following the these decisions, we do not find any reason to interfere in the finding of ld. CIT(A) and we consider that assessee is eligible for deduction u/s. 10B on foreign exchange fluctuation gain pertaining to revenue account. Therefore, this ground of appeal of the revenue is dismissed.
I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 27 Claris Life Sciences Ltd. vs. Addl. CIT ITA No. 1814/Ahd/2016 filed by revenue A.Y.2011-12 Ground No. 1 (Erred in deleting the disallowance of product registration expenses of Rs. 2,34,11,284/-)
29. As the fact and issue involved in ground no. 2 of appeal vide ITA No. 2626/Ahd/2011 Assessment Year 2007-08 is similar as in ITA No. 1814/Ahd/2016 Assessment Year 2011-12 therefore after applying the decision adjudicated vide ITA No. 2626/Ahd/2011 as supra in this order, this ground of appeal of the revenue is dismissed.
Ground No. 2 (Deleting disallowance u/s. 14A of Rs. 63,259/-)
30. During the course of assessment the assessee has made investment in the shares but has not disallowed any expenditure u/s. 14A incurred for earning exempt income. On query, the assessee explained that assessee company has not earned any exempt income therefore there was no question of making any disallowance u/s. 14A of the Act. The Assessing Officer has not accepted the submission of the assessee and computed the disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962 to the amount of Rs. 63,259 and added to the total income of the assessee company.
31. Aggrieved assessee has filed appeal before ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee.
32. Heard both the sides and perused the material on record. It is undisputed fact that during the year under consideration the assessee has not earned any exempt income. In this regard, the Hon'ble Jurisdictional High I.T.A Nos. 2626 & 2681/Ahd/2011 & 1814/Ahd/2016 Page No 28 Claris Life Sciences Ltd. vs. Addl. CIT Court in the case of CIT vs. Corrtech Energy Ltd. (Tax Appeal No. l 239 of 2013) is held that in the absence of any claim for exempted income no disallowance u/s. 14A of income tax act r.w.s. 8D of IT. Rule 1962 can be made. Following the decision of Hon'ble Jurisdictional High Court as supra, we do not find any infirmity in the decision of ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed.
33. In the result, appeal ITA 2626/Ahd/2011 filed by assessee is partly allowed for statistical purposes and Appeal ITA 2681/Ahd/2011and 1814/Ahd/2016 filed by revenue are dismissed.
Order pronounced in the open court on 29-06-2021
Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad : Dated 29/06/2021
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद