Income Tax Appellate Tribunal - Ahmedabad
Inox India Ltd.,, Baroda vs Assessee on 23 January, 2009
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before S/Shri Bhavnesh Saini, JM and D.C.Agrawal, AM
ITA No.2765/Ahd/2006
Asst. Year :2000-01
Inox India Ltd.,ABS Vs. Dy CIT, Circle-1,
Tower, 4 t h Floor, Old Baroda.
Padra Road, Baroda.
(Appellant) .. (Respondent)
ITA No.1/Ahd/2007
Asst. Year :2000-01
Asstt. CIT, Cir.1(2), Vs. M/s Inox India Ltd.,
Baroda. ABS Tower, 4 t h floor,
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.282/Ahd/2007
Asst. Year :2001-02
M/s Inox India Ltd., Vs. Dy CIT, Circle-1,
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.2765/Ahd/2006
Asst. Year 2000-01 & others
ITA No.490/Ahd/2007
Asst. Year :2001-02
Asstt. CIT, Cir.1(2), Vs. M/s Inox India Ltd.,
Baroda. ABS Tower, 4 t h floor,
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.283/Ahd/2007
Asst. Year :2002-03
M/s Inox India Ltd., Vs. Dy CIT, Circle-1,
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.491/Ahd/2007
Asst. Year :2002-03
Asstt. CIT, Cir.1(2), Vs. M/s Inox India Ltd.,
Baroda. ABS Tower, 4 t h floor,
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.284/Ahd/2007
Asst. Year :2003-04
M/s Inox India Ltd., Vs. Dy CIT, Circle-1,
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
2
ITA No.2765/Ahd/2006
Asst. Year 2000-01 & others
ITA No.492/Ahd/2007
Asst. Year :2003-04
Asstt. CIT, Cir.1(2), Vs. M/s Inox India Ltd.,
Baroda. ABS Tower, 4 t h floor,
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.147/Ahd/2008
Asst. Year :2004-05
M/s Inox India Ltd., Vs. Asstt. CIT, Cir.1(2),
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.457/Ahd/2008
Asst. Year :2004-05
Asstt. CIT, Cir.1(2), Vs. M/s Inox India Ltd.,
Baroda. ABS Tower, 4 t h floor,
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.148/Ahd/2008
Asst. Year :2005-06
M/s Inox India Ltd., Vs. Asstt. CIT, Cir.1(2),
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
3
ITA No.2765/Ahd/2006
Asst. Year 2000-01 & others
ITA No.2964/Ahd/2009
Asst. Year :2006-07
M/s Inox India Ltd., Vs. Dy CIT, Circle-1,
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
ITA No.2963/Ahd/2009
Asst. Year :2007-08
M/s Inox India Ltd., Vs. Asstt. CIT, Cir.1(2),
ABS Tower, 4 t h floor, Baroda.
Old Padra Road,
Baroda.
(Appellant) .. (Respondent)
Assessee by :- Shri Millin Mehta, AR
Revenueby:- Shri Shelley Jindal, Sr.DR
ORDER
Per D. C. Agrawal, Accountant Member.
Out of all these thirteen appeals, some are filed by the assessee and for some Asst. Years cross appeals are filed by both Department and assessee involving different Assessment Years. Since all these appeals involve common issues also, they are disposed of by this common order for the sake of convenience.
ITA No.2765/Ahd/2006 Asst. Year : 2000-01(Assessee's appeal)
2. In this appeal the assessee has raised the following grounds :-
1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing 90 % of 4 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income:
a) Interest from hank on Margin Money 11,61,870
b) Interest on ICD given at the same rate at 9,64,740 which the monies are borrowed by the company
c) Insurance Claim 3,42.628 Total Interest Income 24,69.438 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to he excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income,
2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 80IA of the Act on the ground that these incomes are not derived from industrial undertaking;
Amount (Rs.)
a) Interest from hank on Margin Money 11,61,870
b) Interest on ICD given at the same rate at which 9,64,740 the monies are borrowed by the company
c) Intel-rat on IDB1 Omni Bonds 49,920
d) Insurance Claim Received 3,42,828
e) Income from Operations 47,39.022
f) Lease Rent on lease of assets 1,07,74,556 manufactured by the appellant It is submitted that all the above incomes including of repairing activity and installation and lease is business activity form an integral part of the manufacturing activity and hence has to be treated as income derived from industrial undertaking and therefore eligible for deduction u/s.80IA of the Act,
3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in excluding various incomes from the profits and gains from business or profession and from profits derived from industrial undertaking for computing the deduction u/s. 80HHC and 80IA respectively on the basis of "gross 5 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others receipts" thereof and in not allowing any expenditure incurred for earning the respective income.
4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective.
The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s 10B of the Act on the ground that no exemption u/s. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange,
5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the disallowance of Rs.10,540 being prior period expenses.
6. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s, 234B and 234D of the Act.
7. The ld. Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(1)(c) of the Act.
3. The assessee is engaged in the business of manufacturing of Vacuum Insulated Tanks, Cold Converter System, Atmospheric Vaporisers and Cryo Containers etc.
4. The first issue relates to reduction of 90% of the amounts such as interest from bank on margin money, interest from ICD, insurance claim from the profits of business for the purposes of computation of deduction under section 80 HHC.
6 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
5. We have heard the parties and carefully perused the material on record. It was submitted by the ld. AR that this issue has been set aside by the Tribunal in Asst. Year 1999-00 in ITA No.1063/Ahd/2003 for Asst. Year 1999-00 and ITA No.823/Ahd/2003 Asst. Year 1999-00 pronounced on 23/01/2009 following the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. 243 ITR 02 (SC) in para 30 of their order.
6. The ld. DR on the other hand supported the orders of authorities below.
7. Respectfully following the above decision of the Tribunal, we restore the matter to the file of AO to decide the issue afresh after considering the decision of Hon. Supreme Court as referred above.
8. The issue regarding interest on inter corporate deposits and insurance claim received, has been confirmed by the Tribunal in the previous year as referred to above vide para 31 of their order as under :-
"31. Coming to interest on inter corporate deposits and insurance claim received, we are of the opinion that the order of the CIT(A) in respect to this issue requires no interference from our end and, therefore, assessee's ground to this extent is rejected."
Respectfully following the above decision, we confirm the order of ld. CIT(A). Part of the ground No.1 of assessee is accordingly rejected.
9. Ground No.2 relates to the interest and other income from the income eligible for deduction under section 80IA. The interest from bank on margin money, interest on ICD and interest on IDBI Omni Bonds have been decided against the assessee by the Tribunal in the preceding year vide para 10.1 of their order as under :-
7 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
"10.1 So far as interest from bank & others and miscellaneous income are concerned, we are of the opinion that law with respect to nature of this income is now well settled as per various decisions of Hon. Supreme Court, according to which the income from these sources has to be taxed as income from other sources and if that is the case, then the same cannot be considered as derived from "industrial undertaking". Consequently, the Revenue's ground with this respect is allowed."
Accordingly these issues are confirmed against the assessee.
10. The issue regarding insurance claim has to be decided in favour of assessee following the decision of ITAT (Special Bench) in Nirma Industries Ltd. vs. ACIT (2005) 95 ITD 199 (Ahd) (SB). It has been held therein that insurance claim relates to business of the assessee and, therefore, will be part of business profit and accordingly will be eligible for deduction under section 80IA. Claim of deduction under section 80IA on income from operation at Rs.47,37,022/- is decided in favour of the assessee following the decision of the Tribunal in assessee's own case for the previous year as per para 10 of their order as under :-
"10. After careful consideration of the rival submissions, facts and circumstances of the case and various decisions, we are of the opinion that so far as income from operations and liability bal. written back are concerned, the same being related to business transactions are to be considered as derived from 'industrial undertaking' and, therefore, are entitled to deduction u/s 80-IA of the Act."
Accordingly, this part of the assessee's ground is allowed.
11. Lease rent on lease of assets manufactured by the assessee has been set aside to the file of ld. CIT(A) for fresh consideration in the previous year by the Tribunal as per para 10.2 of their order as under:-
8 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others "10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions."
Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes.
12. Ground No.3 relates to rejection of claim of 100% EOU u/s 10B of the Act on the ground that no exemption u/s 10B is available to the assessee.
13. The ld. AR relied on the decision of Hon. Delhi High Court in CIT vs. Shri Ram Honda Power Equipment 289 ITR 475 for the proposition that netting should be allowed. However, Hon. Bombay High Court in the case of CIT vs. Asian Stars, Bombay, pronounced on 5th April, 2010 held that netting of expenditure is not allowable under explanation (baa) to section 80HHC. Hon. Bombay High Court disapproved the decision in Lalson Enterprises 95 ITD 25 (Del) and also declined to follow the decision of Hon. Delhi High Court in Shri Ram Honda Power Equipment (supra). It is held by Hon. Delhi High Court that explanation (baa) to section 80 HHC already provides 90% of receipt by brokerage commission, interest, rent etc. etc. to be reduced from the business profits. Since some expenditure might have been incurred in earning this income their deduction @ 10% from such income is allowed. Once Parliament has legislated both on the nature of exclusion and extent thereof, it would not be open to the court to order otherwise. Therefore, once 90% of interest received is excluded then question of allowing netting would not arise as related expenditure is already covered in 10%. Accordingly, we respectfully follow the decision of Hon. Bombay High 9 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others Court on this issue and decide the issue against the assessee. This ground is accordingly rejected.
14. Ground No.4 relates to rejection of claim of 100% EOU u/s 10B of the Act on the ground that no exemption u/s 10B is available to the assessee as the entire sales are in domestic market and also the assessee has not received any sale proceeds in convertible foreign exchange.
The ld. AR has heavily relied on the proviso contained in section 10B(1). This proviso reads as under :-
Provided that where in computing the total income of the undertaking for any assessment year its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000 the undertaking shall be entitled to the deduction referred to in this sub- section only for the unexpired period of aforesaid ten consecutive assessment years.
15. According to the ld. AR this proviso means that if assessee is allowed exemption under section 10B(1) in Asst. Year 2000-01 by virtue of provisions as existing prior to its amendment by Finance Act, 2000 then such undertaking would be entitled to exemption consecutively for next nine unexpired period. In other words, according to the ld. AR if assessee satisfies the conditions of section 10B(1) in Asst. Year 2001-02 then notwithstanding whether it satisfies further conditions in subsequent years, the assessee would be entitled to exemption. Further, in other words, the onus on the assessee that it satisfies the conditions as laid down in section 10B as stood for Asst. Year 2001-02 is discharged in that year then assessee would be entitled to such exemption in all subsequent unexpired years notwithstanding that it satisfies the conditions in those subsequent years, or not. Thus if AO allows exemption to the assessee in one initial year year then assessee will be continued to be granted such exemption for next unexpired period without looking into whether it 10 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others satisfies such conditions in such subsequent years. The ld. DR on the other hand opposed this contention put forward by the ld. AR and supported the order of CIT(A).
16. We have heard the rival submissions and perused the material on record. In our considered view the interpretation advanced by ld. A.R. is not correct. Income of every Asst. Year has to be computed in accordance with the provisions of the Act as existing for that Asst. Year. The applicability of the amended provisions has to be looked into and is to be seen whether assessee satisfies those conditions or not and whether it falls into charging section relevant to that Asst. Year. In our considered view the AO is duty bound to see whether assessee is satisfying the conditions laid down in the relevant provisions of the Act for that particular Asst. Year before allowing deductions of the exemption or the allowance claimed by the assessee. The only meaning that can be attached to the proviso to section 10B(1) as substituted by Finance Act 2000 is that assessee will be entitled to exemption only for the unexpired period and that its inning cannot be started afresh from subsequent year/years if there is an amendment in the Act. Thus in respect of those assessees who are given exemption for certain number of years prior to amendment in section 10B by Finance Act, 2000 then such assessees will be entitled to exemption after the amendment by Finance Act 2000 in respect of those years only which are still left unexpired as balance out of 10 years. Thus this proviso in fact restricts the allowability of exemption for only unexpired period out of 10 years and thus disables the assessee to start a fresh inning of 10 years after this amendment by Finance Act 2000. But that does not mean that conditions laid down in section 10B as brought in by Finance Act 2000 or by subsequent amendment in that section are not required to be satisfied by the assessee. The restriction imposed by the 11 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others proviso is only on number of years for which exemption is allowable and does not provide exemption from condition imposed for allowance of exemption in subsequent years by subsequent amendments in the law. In other words assessee has to satisfy that it fulfills the conditions laid down in the relevant Asst. Year before it claims exemption under section 10B. We reject this argument of assessee that conditions imposed by subsequent amendment are not required to be examined by the AO and assessee has to be allowed exemption in subsequent years only on the basis of its satisfying conditions laid down prior to amendment by Finance Act 2000. Now coming to the question as to what condition assessee has to satisfy, in subsequent years. We note that sub-section (3) of section 10B as amended by Finance Act, 2000 has brought in following new conditions:-
(3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in or brought into India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf.
Explanation -1 -For the purposes of this sub-section the expression "competent authority" means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation -2 - The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.
Thus it has to be seen that assessee is bringing foreign exchange into India as a result of its export. The argument of the assessee is that other concerns to whom assessee has sold its product in India are bringing convertible foreign exchange in India through export of their product contained in the containers manufactured by the assessee. Thus products of the assessee in fact are exported by the other concerns and convertible 12 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others foreign exchanges are brought by them into India. We are unable to subscribe to this view. It is because phrase mentioned in sub-section (3) is ".....are received in......., or brought into India by the assessee in convertible foreign exchange..." Thus it is the assessee who has to bring convertible foreign exchange in India out of its own export. If other parties are bringing convertible foreign exchange in India then it will not be the fulfillment of the conditions imposed by sub-section (3). It is admitted position of facts that assessee is not in fact bringing convertible foreign exchange and entire of its products are sold in India in Indian rupees. Therefore, the assessee will not be entitled to exemption under section 10B. Accordingly this ground of assessee is rejected.
17. Ground No.5 relates to disallowance of Rs.10,540/- being prior period expenses. We noticed that this ground is not seriously contested as amount involved is petty. Considering the totality of facts and circumstances of the case, this ground of assessee is rejected.
18. Ground No.6 relates to charging of interest under section 234B & 234D of the Act.
19. We have heard the parties and carefully perused the material on record. Interest under section 234D is chargeable from Asst. Year 2004- 05 and cannot be charged in earlier Asst. Year even though regular assessments for those Asst. Years are framed after 1st June, 2003 or refund is issued accordingly after the said date. We respectfully follow the decision of ITAT (Special Bench) in ITO vs. Ekta Promoters P. Ltd. 305 ITR (AT) 01 (Del) in this regard. Since present Asst. Year involved is 2000-01 interest under section 234D cannot be charged. Thus this ground of assessee is partly allowed. Charging of interest u/s 234B is consequential.
13 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others ITA No.1/Ahd/2007 Asst. Year 2000-01 (Revenue's appeal)
20. The Revenue has raised the following grounds in this appeal :-
1(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of Rs.2,58,77,511/- and sales tax of Rs.74,81,908/- from the total turnover for the purpose of computing deduction u/s.80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 67 ITR 542 (SC) and Sinclair Murray & Co P. Ltd. vs CIT 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover.
1(b) The CJT(A) also failed to take note of the definition of total turnover in clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance.
1(c) The CIT{A) failed to take note of the mandate of section 145A(b), inserted w.e.f, 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover.
2(a) On the facts and In the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of Rs. 1,07,74,556/- from the profits of the business in the computation of deduction u/s 80 HHC on the sole ground that the lease rent was assessable as business income, without appreciating that Explanation (baa)(1) below section 80 HHC provides for exclusion of 90%, inter alia, of rent, only when the same was assessable as business income, i.e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits"
in this Explanation and, in case such rent was assessable as income from house property or other sources, there was no question at all of any portion of the same entering into the computation of deduction u/s 80HHC.14 ITA No.2765/Ahd/2006
Asst. Year 2000-01 & others 2(b) The CIT(A) failed to take note of the ratio of the jurisdictional High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj) specifically holding such rent as excludible to the extent of 90% in the computation of deduction u/s 80HHC, besides the decisions in the case of CIT vs K.K. Doshi & Co, 245 ITR 849 (Bom) and CIT vs. Kantilal Chhotala 246 ITR 439 (Bom).
3(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of income of Rs.47,39,022/- from repairs and other service charges from the profits of the business in the computation of deduction u/s 80HHC, on the sole ground that the same was assessable as business Income, without appreciating that Explanation (baa)(1) below section 80HHC provides for exclusion of 90% of "charges" and "any other receipt of a similar nature", only when the same were assessable as business income, i.e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits" in this Explanation and, in case such receipt was assessable under the head "Income from other sources", there was no question at all of any portion thereof entering into the computation of deduction u/s 80HHC 3(b) CIT(A) failed to take note of the jurisdictional High Court decision in the case of Alembic Chemical Works Ltd, vs CIT 266 ITR 47 (Guj) specifically holding such miscellaneous incomes as excludible to the extent of 90% in the computation of deduction u/s 80HHC besides the decisions in the case of CIT vs K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom) holding that 90% of all receipts which do not form part of turnover are excludible under the Explanation (baa) that was enacted in order to remove distortion In the working of profits derived from the export by apportionment of the profits of the business in the ratio of export Turnover to total turnover, which envisages entire profits as arising from turnover.
21. The first ground of this appeal of Revenue is regarding exclusion of sales-tax and excise duty from the total turnover while computing deduction under section 80 HHC.
15 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
22. This issue is now directly covered in favour of the assessee by the decision of Hon. Apex Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667(SC). Accordingly this ground of Revenue is rejected.
23. Ground No.2 is relates to exclusion of lease rent from the profits of the business in the computation of deduction under section 80 HHC.
24. This issue in assessee's appeal has been restored to the file of ld. CIT(A) and accordingly entire issue has to be examined by him afresh including the point raised by the Revenue. Accordingly, this ground of Revenue is allowed for statistical purposes.
25. Ground No.3 relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected.
26. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes.
ITA No.282/Ahd/2007 Asst. Year 2001-02 (Assessee's appeal)27. The assessee has raised the following grounds in this appeal :-
1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing 90 % of the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income:
a) Interest from bank on Margin Money 19,38,857
b) Interest on ICD given at the same rate at 6,00,000 which the monies are borrowed by the company
c) Insurance Claim _ 2,28,886 16 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others Total Interest Income 27.67,743 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income.
2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in Confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 80IA of the Act on the ground that, these incomes are not derived from industrial undertaking-
Amount (Rs.)
a) Interest from bank on Margin Money 19,38,857
b) Interest on ICD given at the same rate at 6,00,000
which the monies are borrowed by the company
c) Insurance Claim Received 2,28,886
d) Income from Operations 66,06h532
e) Lease Rent on lease of assets 1,07,10,082
manufactured by the appellant
It is submitted that all the above incomes including of repairing activity and installation and lease is business activity form an integral part of the manufacturing activity and hence has to be treated as income derived from industrial undertaking and therefore eligible for deduction u/s.80IA of the Act.
3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in excluding various incomes from the profits and gains from business or profession and from profits derived from industrial undertaking for computing the deduction u/s. 80HHC and 80IA respectively on the basis of "gross receipts" thereof and in not allowing any expenditure incurred for earning the respective income.
4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the 17 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others assessment year in which the amended provisions were made effective.
The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s. 10B of the Act on the ground that no exemption u/s. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange.
5. The learned Commissioner of Income Tax (Appeals) erred in fact, and in law in confirming the disallowance of Rs.8,003 being prior period expenses.
6. The learned Commissioner of Income Tax (Appeals) erred in. fact and in law in confirming the action of the AO in charging interest u/s. 234B and 234Dof the Act.
7. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 27l(l)(c) of the Act.
28. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra). This part of the ground is allowed for statistical purposes.
29. The issue regarding interest on corporate deposit and insurance claim is confirmed following our order for Asst. Year 2000-01.
30. Ground No.2 relates to deduction of interest and other income from the income eligible for deduction under section 80IB.
18 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
31. Similar issue had arisen in the case of assessee for Asst. Year 2000-01 wherein we have confirmed the order of AO in respect of interest from bank on margin money, interest from ICD and interest from IDBI omni bonds. Following our decision in Asst. Year 2000-01 we confirm the order of the AO in respect of interest from bank on margin money and interest from ICD. However, the issue relating to insurance and income from operation is allowed in favour of assessee following our order for Asst. Year 2000-01.
32. The issue regarding lease rent on lease of assets manufactured by the assessee is restored to the file of AO following our order in Asst. Year 2000-01.
This ground of assessee is partly allowed and partly allowed for statistical purposes.
33. Ground No.3 relates to reduction of gross amount of various income instead of net amount.
34. Similar issue had arisen before us in Asst. Year 2000-01. Following the same we confirm the order of ld. CIT(A), wherein we have held that 90% of gross amount has to be reduced from the profits of the business instead of net. Following the same we confirm the order of ld. CIT(A). This ground of assessee is rejected.
35. Ground No.4 relates to claim of 100% EOU exemption u/s 10B. Similar issue had arisen before us in assessee's appeal for Asst. Year 2000-01. We have rejected the claim of assessee after discussing the issue in detail for that year. As the facts are the same, following our above 19 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others order, we reject the claim of assessee this year also. This ground of assessee is dismissed.
36. Ground No.5 relates to disallowance of prior period expenses. Following our order for Asst. Year 2000-01 we confirm the order of ld. CIT(A) and dismiss the ground of appeal filed by the assessee.
37. Ground No.6 is regarding charging of interest under section 234D. This issue is decided in favour of assessee following our order for Asst. Year 2000-01.
ITA No.490/Ahd/2007 Asst. Year 2001-02 (Revenue's appeal)38. The Revenue has raised the following grounds in its appeal:-
1(a) On the Facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of Rs.3,23,51,323/- and sales tax of Rs.1,00,69,057/- from the total turnover for the purpose of computing deduction u/s.80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murray & Co P. Ltd. vs CET 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover, 1(b) The CIT(A) also failed to take note of the definition of total turnover fn clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance.
1(c) The CIT(A) failed to take note of the mandate of section 145A{b)r inserted w.e.f. 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover, 20 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others 2(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of Rs.96,39,073/- from the profits of the business in the computation of deduction u/s SO HHC, on the sole ground that the lease rent was assessable as business income, without appreciating that Explanation (baa)(l) below section 80 HHC provides for exclusion of 90%, inter alia, of rent, only when the same was assessable as business income, i,e, under the head "Profits and gains of business or profession1', as is clear from the words "Included in such profits"
in this Explanation and, in case such rent was assessable as income from house property or other sources, there was no question at all of any portion of the same entering into the computation of deduction u/s 80HHC, 2(b) The CIT(A) failed to take note of the ratio of the jurisdictional High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj} specifically holding such rent as excludible to the extent of 90% in the computation of deduction u/s 80HHC, besides the decisions in the case of CIT vs. K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom).
3(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of income of Rs.59,45,878/- from repairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80HHC, on the sole ground that the same was assessable as business income, without appreciating that Explanation (baa)(l) below section 80HHC provides for exclusion of 90% of "charges" and "any other receipt of a similar nature", only when the same were assessable as business income, i,e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits" in this Explanation and, m case such receipt was assessable under the head "income from other sources", there was no question at all of any portion thereof entering into the computation of deduction U/s 80HHC.
3(b) CIT(A) failed to take note of the jurisdictional High Court decision In the case of Alembic chemical Works Ltd. vs. CIT 266 ITR 47 (Guj) specifically holding such miscellaneous incomes as excludible to the extent of 90% in the computation of deduction u/s 80HHC besides the decisions in the case of CIT vs. K.K. Doshi & 21 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotalal 246 ITR 439 (Bom) holding that 90% of all receipts which do not form part of turnover are excludible under the Explanation (baa) that was enacted in order to remove distortion in the working of profits derived from the export by apportionment of the profits of the business in the ratio of export turnover to total turnover, which envisages entire profits as arising from turnover,
39. Ground No.1 of Revenue's appeal relates to exclusion of sales-tax and excise duty from total turnover while computing deduction under section 80 HHC.
40. This issue has been decided in favour of the assessee in Asst. Year 2000-01 following the decision of Hon. Supreme Court in CIT vs. Laxmi Machine Works (supra). Accordingly, this ground is decided in favour of assessee.
41. Ground No.2 relates to exclusion of lease rent from the profits of business in the computation of deduction u/s 80 HHC. Following our order in Asst. Year 2000-01 we restore this issue to the file of AO for reconsideration.
42. Ground No.3 relates to exclusion of income from operation from the profits of the business while computing deduction u/s 80 HHC. This issue has been decided in favour of assessee in Asst. Year 2000-01 and accordingly this ground of Revenue is rejected.
43. As a result, the appeal of Revenue is partly allowed and partly allowed for statistical purposes.
ITA No.283/Ahd/2007 Asst. Year 2002-03 (Assessee's appeal)44. The assessee has raised following grounds in this appeal:-
22 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing 90 % of the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income1
a) Interest from bank on Margin Money 22,63,124
b) Interest on ICD given at the same rate at 6,00,000 which the monies are borrowed by the company
c) Interest on Income Tax Refund 1,00,470 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income.
2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 801A of the Act on the ground that those incomes are not derived from industrial undertaking:
Amount (Rs.)
a) Interest from hank on Margin Money 22,63,124
b) Interest on ICD given at the same rate at 6,00,000 which the monies are borrowed by the company
c) Interest on Income Tax Refund 1,00,470
d) Income from Operations 81,84,014
e) Lease Rent on lease of assets 84,51,958 manufactured by the appellant It is submitted that all the above incomes including of repairing activity and installation and lease is business activity form an integral part of the manufacturing activity and hence has to be treated as income derived from industrial undertaking and therefore eligible for deduction u/s 80lA of the Act.
3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in excluding various incomes from the profits and gains from business or profession and from profits derived from industrial undertaking for computing the deduction u/s. 80HHC and 80IA respectively on the basis of "gross 23 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others receipts" thereof and in not allowing any expenditure incurred for earning the respective income,
4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing deduction claimed u/s. 80IA from the profit of the business while calculating deduction u/s.80HHC of the Income Tax Act, 1961.
5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective.
The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s, 10B of the Act on the ground that no exemption U/B. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange.
6. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the disallowance of Rs.39,891 being prior period expenses.
7. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in disallowing bad debts of Rs.73,47,881 despite the fact that the appellant had satisfied all conditions mentioned in section 36(1)(vii) of the Act.
It may also be mentioned that the Commissioner of Income Tax (Appeals) has erred in fact and in law in observing that the claim of the appellant is not allowable on the ground the said sum represents penalty for breach of law. it may be mentioned that there is no breach of law. The said sum represents amount not received on account of breach of agreement and not on account of breach of law.
8. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s, 234B and 234D of the Act, 24 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others
9. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(l)(c) of the Act.
45. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra).
46. The issue regarding interest on corporate deposit and insurance claim is confirmed following our order for the Asst. Year 2000-01.
47. The issue regarding interest on income-tax refund cannot be considered at par as interest from business and therefore, this will not come into computation of deduction u/s 80 HHC at all. This part of the ground is rejected.
48. Ground No.2 relates to deduction of interest and other income from the income eligible for deduction under section 80IB.
49. Similar issue had arisen in the case of assessee for Asst. Year 2000-01 wherein we have confirmed the order of AO in respect of interest from bank on margin money, interest from ICD and interest from IDBI omni bonds. Following our decision in Asst. Year 2000-01 we confirm the order of the AO in respect of interest from bank on margin money and interest from ICD. However, the issue relating to insurance 25 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others and income from operation is allowed in favour of assessee following our order for Asst. Year 2000-01.
50. The issue regarding lease rent on lease of assets manufactured by the assessee is restored to the file of AO following our order in Asst. Year 2000-01.
This ground of assessee is partly allowed and partly allowed for statistical purposes.
51. Ground No.3 relates to reduction of gross amount of various income instead of net amount.
52. Similar issue had arisen before us in Asst. Year 2000-01. Following the same we confirm the order of ld. CIT(A), wherein we have held that 90% of gross amount has to be reduced from the profits of the business instead of net. Following the same we confirm the order of ld. CIT(A).
53. Ground No.4 relates to deduction claimed u/s 80IA from the profit of business while computing deduction u/s 80 HHC.
54. This issue is directly covered by the decision of the Tribunal (Special Bench) in ACIT vs. Hindustan Mint and Agro Products Ltd. 119 ITD 107 (Del)(SB). Accordingly the issue decided against the assessee. This ground of assessee is, therefore, rejected.
55. Ground No.5 relates to claim of 100% EOU exemption u/s 10B. Similar issue had arisen before us in assessee's appeal for Asst. Year 2000-01. We have rejected the claim of assessee after discussing the issue 26 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others in detail for that year. Therefore, following our above order, we reject the claim of assessee this year also.
56. Ground No. 6 relates to disallowance of Rs.39,891/- being prior period expenses.
57. A similar issue had arisen before us in assessee's own case for Asst. Year 2000-01 vide ground No.5. We notice that this ground is not seriously contested as amount involved is petty. Considering the totality of facts and circumstances of the case, this ground of assessee is rejected.
58. Ground No.7 relates to disallowance of bad debts. According to the assessee it has raised bill of Rs.2,61,73,095/- on APLDA during 2001-
02. This amount was included in the sales for that year and accordingly tax was offered on income generated from it. The assessee received a sum of Rs.1,88,25,213/-. Balance of the sum remained in dispute between the parties. APLDA stopped making payment to the assessee on the ground that assessee did not comply with the conditions mentioned in the agreement for supply of material. It accordingly chose to write off the amount from its books. Once the amount is written off it is allowable as bad debt u/s 36(1)(vii). Following the decision of Hon. Supreme Court in the case of T. R. F. Ltd. Vs CIT 323 ITR 397 (SC) in which it was held as under:-
"This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has 27 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off."
We restore the matter to the file of AO to verify whether the amount has been actually written off and then decide the issue in accordance with the decision of Hon. Apex Court in TRF Ltd. vs. CIT (supra). Accordingly, this issue is allowed for statistical purposes.
59. Ground No.8 is regarding charging of interest u/s 234D of the Act. This ground is decided in favour of assessee following our order for Asst. Year 2000-01.
ITA No.491/Ahd/2007 Asst. Year 2002-03 (Revenue's appeal)60. The Revenue has raised the following grounds in this appeal:-
l(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of Ra.88,3l,207/- and sales tax of Rs.2,53,24,858/- from the total turnover for the purpose of computing deduction u/s,80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murray & Co P- Ltd. vs. CIT 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover.
l(b) The CTT(A) also failed to take note of the definition of total turnover in clause (ba) of the? Explanation below section 80HHC, excluding only freight & insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance.
l(c) The CIT(A) failed to take note of the mandate of section 145A(b) inserted w.e.f. 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction 28 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover.
2(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of Rs. 34,5l,958/- from the profits of the business in the computation of deduction u/s 80 HHC, on the sole ground that the lease rent was assessable as business income, without appreciating that Explanation (baa)(l) below section 80 HHC provides for exclusion of 90%, inter alia, of rent, only when the same was assessable as business income, i.e, under the head "Profits and gains of business or profession", as is clear from the words "included in such profits"
in this Explanation and, in case such rent was assessable as income from house property or other sources, there was no question at all of any portion of the same entering into the computation of deduction u/s 80HHC.
2(b) The CIT(A) failed to take note of the ratio of the jurisdictional High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj) specifically holding such rent as excludible to the extent of 90% in the computation of deduction u/s 80HHC, besides the decisions in the case of CIT vs K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom), 3(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of income of P.s.81,84,014/- from repairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80HHC, on the sole ground that the same was assessable as business income, without appreciating that Explanation (baa)(l) below section 80HHC provides for exclusion of 90% of "charges" and "any other receipt of a similar nature", only when the same were assessable as business income, i.e. under the head "Profits and gains of business or profession", as is clear from the words "included in such profits" in this Explanation and, in case such receipt was assessable under the head "Income from other sources", there was no question at all of any portion thereof entering into the computation of deduction u/s 80HHC, 3(b) CIT(A) failed to take note of the jurisdictions! High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj} specifically holding such miscellaneous incomes as excludible to the extent of 90% in the computation of deduction u/s 29 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others SOHHC besides the decisions in the case of CIT vs K.K. Doshi & Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom) holding that 90% of all receipts which do not form part of turnover are excludible under the Explanation (baa) that was enacted in order to remove distortion in the working of profits derived from the export by apportionment of the profits of the business in the ratio of export turnover to total turnover, which envisages entire profits as arising from turnover.
61. Ground No.1 relates to exclusion of excise duty and sales tax from the total turnover for the purposes of computing deduction u/s 80 HHC.
62. This issue is now directly covered in favour of the assessee by the decision of Hon. Apex Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667(SC). Accordingly this ground of Revenue is rejected.
63. Ground No.2 of this appeal relates to exclusion of lease rent from the profits of the business in the computation of deduction u/s 80 HHC.
64. The issue of lease rent on lease of assets manufactured by the assessee has been set aside to the file of ld. CIT(A) for fresh consideration in the previous year by the Tribunal as per para 10.2 of their order as under:-
"10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions."
Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes.
30 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
65. Ground No.3 relates to exclusion of income from rapairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80 HHC.
66. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected.
67. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes.
ITA No.284/Ahd/2007 Asst. Year 2003-04 (Assessee's appeal)68. The assessee has raised following grounds in this appeal :-
1. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing 90 % of the following amounts from profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income-
a) Interest from bank on Margin Money 15,05,952
b) Interest on ICD given at the same rate at 6,00,000 which the monies are borrowed by the company
c) Interest on Income Tax Refund 1,39,365
d) Sales Tax refund and interest thereon 3,47,275
e) Lease Rent 54,66,866 6
f) Income from Operations 56,01,175 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in not giving any decision on item nos. (e) and (f) above despite the fact that specific grounds were taken by the appellant and also submissions were made at the time of hearing.
The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income.
31 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective.
The learned Commissioner of Income Tax (Appeals) also erred in fact and in law in upholding the action of the AO in rejecting the claim of 100 % EOU u/s. 10B of the Act on the ground that no exemption u/s. 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange.
3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the disallowance of Rs.16,623 being prior period expenses.
4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s. 234B and 234D of the Act.
5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(l)(c) of the Act.
69. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra).
70. The issue regarding interest on corporate deposit and insurance claim is confirmed.
32 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
71. Ground No.2 relates to claim of exemption u/s 10B. Similar issue had arisen before us in assessee's appeal for Asst. Year 2000-01. We have rejected the claim of assessee after discussing the issue in detail for that year. Therefore, following our above order, we reject the claim of assessee this year also.
72. Ground No.3 relates to disallowance of prior period expenses. This issue came up before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same. Following our order for Asst. Year 2000-01 we confirm the order of ld. CIT(A) and dismiss the ground of appeal filed by the assessee.
73. Ground No.4 relates to charging of interest u/s 234D of the IT Act. Similar issue came up for adjudication before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same. This issue is decided in favour of assessee following our order for Asst. Year 2000-01.
ITA No.492/Ahd/2007 Asst. Year 2003-04 (Revenue's appeal)74. The Revenue has raised following grounds in this appeal:-
1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to exclude excise duty of Rs.1,71,77,281/- and sales tax of Rs,60,75,207/- from the total turnover for the purpose of computing deduction u/s 80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 87 ITR 542 (SC) and Sinclair Murray & Co. P. Ltd. vs CIT 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover.
2. The CIT(A) also failed to take note of the definition of total turnover in clause (ba) of the Explanation below section 80HHC, excluding only freight & insurance up to the customs station, 33 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others leaving the concept of total turnover to be understood as in common commercial parlance.
3. The CIT(A) failed to take note of the mandate of section 145A(b), inserted w.e.f. 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover.
75. Ground No.1 of this appeal relates to exclusion of excise duty and sales-tax from the total turnover for the purpose of computing deduction u/s 80 HHC.
76. Similar issue came up before us for adjudication in Revenue's appeal for Asst. Year 2000-01.
77. This issue is now directly covered in favour of the assessee by the decision of Hon. Apex Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667(SC). Accordingly this ground of Revenue is rejected.
78. Ground No.2 is relating to exclusion of lease rent from the profits of the business in the computation of deduction under section 80 HHC.
79. This issue in assessee's appeal has been restored to the file of ld. CIT(A) and accordingly entire issue has to be examined by him afresh including the point raised by the Revenue. Accordingly, this ground of Revenue is allowed for statistical purposes.
80. Ground No.3 relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected.
34 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
81. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes.
ITA No.147/Ahd/2008 Asst. Year 2004-05 (Assessee's appeal)82. The assessee has raised following grounds in this appeal:-
1. The learned Commissioner of Income Tax (A) -I, Baroda [the CIT(A)] erred in fact and in law in confirming action of the Assistant Commissioner of Income Tax, Circle - 1(2) ["the AO"] in reworking deduction u/s 80HHC of the Income Tax Act, 196l ("the Act") by making various adjustment to the claim of the appellant.
a. The CIT(A} erred in fact and in law in confirming action of the AO in reducing the following amounts from the profit of the business on the ground that they do not constitute business income.
Particulars Amount (Rs.)
Interest on Margin money 7,24,039/-
Interest on IT Refunds 2,56,738/-
Interest on NSC 933/-
TOTAL 9,81,760/-
b. The CIT(A) erred in fact and in law in confirming action of the AO in holding that gross amount of interest and other income which is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income.
2. The learned CIT (A) erred in fact end in law in confirming action of the AO in applying the amended provision of section 10B of the Act despite the fact that the appellant was entitled to exemption u/s 10B of the Act, for assessment year 2000-2001 being the A.Y. immediately preceding the A.Y. 2001-02, the A.Y. in which the amended provision were made effective.
The learned Assessing officer erred in fact and in rejecting the claim of 100% EOU u/s 10B of the Act, on a mistaken ground that 35 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others no exemption u/s 10B is available to the appellant as the entire sales are in domestic market and also the appellant has no received any sale proceeds in convertible foreign exchange.
3. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234D of the Act.
4. The Learned CIT(A) erred in fact and in law in confirming the action of the AO in withdrawing interest u/s 244 A of the Act
5. The Learned CIT(A) erred In fact and in law in confirming the action of the AO in initiating the penalty proceedings u/s 271(1)(c) of the Act.
83. Ground No.1 of this appeal relates to deduction of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee's appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra).
84. The issue regarding interest on income-tax refund cannot be considered at par as interest from business and therefore, this will not come into computation of deduction u/s 80 HHC at all. This part of the ground is rejected.
85. This ground of assessee is partly allowed for statistical purposes.
86. Ground No.2 relates to claim of exemption u/s 10B. This issue came up for consideration before us in assessee's own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that 36 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also.
87. Ground No.3 relates to charging of interest u/s 234D of the Act. Similar issue came up for adjudication before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same in favour of the assessee. This issue is decided in favour of assessee following our order for Asst. Year 2000-01. Accordingly this ground is allowed.
88. Ground No.4 relates to withdrawing interest u/s 244A of the Act.
This issue is not seriously contested and hence rejected.
89. Ground No.5 relates to initiation of penalty proceedings u/s 271(1)(c) of the Act. This issue is premature at this stage and hence rejected.
ITA No.457/Ahd/2008 Asst. Year 2004-05 (Revenue's appeal)90. The Revenue has raised the following grounds in this appeal:-
1(a) On the facts and in the circumstances of the case and in law, the ld.
C1T(A) erred in deleting the addition of Rs.6,37,345/- on account of expenditure incurred on ceiling renovation, construction of road and boundary wall, concrete flooring etc. treated as capital expenditure by the assessing officer.
(b The Id. CIT(A) failed to appreciate that renewal, replacement or modification of an asset or part of an asset cannot be treated as allowable expenditure under the Income-tax Act, though as per accounting norms, these could be treated as revenue expenditure or current expenditure in the light of the Supreme Court decision in the case of Ballimal Naval Kishore vs CIT 224 1TR 414 and CIT vs Saravana Spinning Mills Pvt. Ltd., 293 ITR 201(SC).
2(a) The Id. CIT(A) erred in negating the exclusion of lease rent of Rs.52,30,180/- from the turnover of the business in the 37 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others computation of deduction u/s 80HHC, without appreciating that Explanation (baa) (1) below section 80HHC provides for exclusion of 90% of rent and other non-business income including receipts from exchange rate fluctuations.
(b) The ld. CIT(A) erred in negating the exclusion of income of Rs.82,24,440/- from repairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80HHC, without appreciating that Explanation (baa)(1) below section 80HHC provides for exclusion of 90% of "charges" and "any other receipt of a similar nature", only when the same was assessable as business income, i,e. under the head "Profits and gains of business or profession", as is clear from the words 'included in such profits" in this Explanation and, in case such rent was assessable under the head "income from other sources", there was no question at all of any portion of the same entering into the computation of deduction u/s 80 HHC.
91. Ground No.1 of this appeal relates to deletion of addition on account of expenditure incurred on ceiling renovation, construction of road and boundary wall, concrete flooring etc.
92. During the course of assessment proceedings the AO found that assessee has claimed current repairs at Rs.9,42,322/-. On verification of bills and vouchers it was further found that a sum of Rs.6,72,190/- has been incurred in respect of repairing of roads, boundary wall, concrete flooring and renovation of factory toilets in the factory building etc. The AO treated them as Revenue expenditure but the ld. CIT(A) allowed the claim as capital by holding that nature of expenditure is civil work carried out by the assessee and is in the nature of current repairs in connection with renovation of factory and its premises and facilities including that of the road leading to the factory. No new addition to the asset of any enduring nature is made, therefore, there was no case of any disallowance.
38 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
93. We have heard the parties and carefully perused the material on record. In our considered view there is no case for interference in the order of ld. CIT(A). The expenditure was incurred for preserving and maintaining the already existing asset. No part of the expenditure was incurred for acquiring any new asset. Even the ld. AO has not brought out any material to show that assessee has created a new asset by incurring such expenditure. Accordingly, we decide this issue in favour of the assessee. Our view is supported by the decision of Hon. Apex Court in CIT vs. Saravana Spinning Mills P. Ltd. 293 ITR 201 (Del). This ground of Revenue is rejected.
94. Ground No.2(a) relates to exclusion of lease rent from the turnover of the business in the computation of deduction u/s 80 HHC.
95. The issue of lease rent on lease of assets manufactured by the assessee has been set aside to the file of ld. CIT(A) for fresh consideration in the previous year by the Tribunal as per para 10.2 of their order as under:-
"10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions."
Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes.
96. Ground No.2(b) relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. Similar issue came up before us for consideration in Revenue's appeal for Asst. Year 2000-01.
39 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others The same has been decided in favour of the assessee by following the decision of the Tribunal in assessee's own case in earlier year. Accordingly this ground of Revenue is rejected.
ITA No.148/Ahd/2008 Asst. Year 2005-06 (Assessee's appeal)97. The following grounds have been raised by the assessee:-
1. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Income Tax Act, 1961 despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A.Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were made effective.
The Learned AO erred in fact and in law in rejecting the claim of 100% EOU u/s 10B of the Income Tax Act. 1961 on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange,
2. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in disallowing claim of excise duty of Rs. 5,71,534/-
Without prejudice to above the learned AO erred in fact and in law in not allowing the deduction u/s 43B despite the fact that the said claim is clearly allowable as per the provisions of section 43B of the Income Tax Act, 1961.
3. The ld. CIT(A) erred in fact and in law in confirming the action of the AO in making disallowance of Rs. 22,750/- on the ground that the said expenses are prior period expenses
4. The Learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in initiating the penalty proceedings u/s 271(l)(c) of the Income Tax Act, 1961.
98. Ground No.1 of this appeal relates to claim of exemption u/s 10B. This issue came up for consideration before us in assessee's own appeal 40 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also.
99. Ground No.2 relates to disallowance of excise duty of Rs.5,71,534/-.
100. The AO observed that assessee has debited a sum of Rs.5,71,534/- on account of excise duty. It was explained that excise duty of Rs.1,23,878/- was paid against free replacement of Cryoseal containers sold with warranty period but due to non-performance of some of the containers free replacement was given and accordingly excise duty chargeable on their leaving the factory gate was debited in the profit and loss account. Further a sum of Rs.4,44,608/- being excise duty was paid on free sale to a Research Unit of Government of India. As per Excise Law assessee takes the benefit of 8-10% of the duty as MODVAT on raw material and if it does not charge any excise duty on sale of product then such 8-10% excise duty on sale has to be recovered from the customers. Since it was a free sale to the Research Unit of Government of India no excise duty was charged on such free sale then MODVAT component had to be debited in the profit and loss account and adjusted in the MODVAT a/c. Thus it becomes additional cost to the company. Similarly a sum of Rs.3048/- was also paid as excise duty for repairing the product on behalf of the customer. The MODVAT a/c has to be adjusted by debiting in the profit and loss account as it was also a free replacement. The AO, however, took the view that assessee has been following exclusive method in accounting for the excise duty i.e. excise duty is separately accounted whether paid or received but in this case assessee 41 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others has adopted inclusive method by debiting the same to the profit and loss account. He accordingly disallowed the claim.
101. The ld. CIT(A) confirmed the addition by observing as under :-
"7. I have considered the rival submissions. It is observed that in effect the submissions made by the appellant are a reiteration of the stance taken up before the AO who had considered the same and rejected by saying that the acceptance of the claim would amount to the reversal of the method of accounting regularly employed by the appellant since it would mean that the appellant has been resorted to the inclusive method of accounting in respect of the excise duty paid. It is observed that the appellant has not squarely met this objection. Under the circumstances, I find no reason to interfere with the order of the AO on this point. The disallowance made by the AO of 5,71,534/- is confirmed."
102. We have heard the parties. In our considered view the issue requires reconsideration on the part of the AO. He has to give opportunity to the assessee to show what would be the effect on profit and loss account if this excise duty is also considered on exclusive method. If the result is the same at the end of the accounting period the claim has to be allowed. Accordingly, this ground is allowed but for statistical purposes.
103. Ground No.3 relates to disallowance of prior period expenses. Similar issue came up before us for consideration in Asst. Year 2000-01 (ground no.5 in that year). We have decided the same confirming the order of ld. CIT(A) on this issue. Following our order for Asst. Year 2000-01 we dismiss the ground of appeal filed by the assessee.
104. Ground No.4 relates to initiation of penalty proceedings u/s 271(1)(c)..
105. This issue is pre-mature at this stage and hence it is rejected.
42 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others ITA NO.2964/Ahd/2009 Asst. Year 2006-07 (Assessee's appeal)
106. The assessee has raised following grounds in this appeal:-
1. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Income Tax Act, 106! despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A,Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were made effective.
2. The Learned AO erred in fact and in law in rejecting the claim of 100% EOU u/s 10B of the Income Tax Act, 1961 on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sates are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange.
3. The learned Commissioner of Income Tax (A) erred in fact and in law in charging penalty u/s 271(1)(c) of the Income-Tax Act, 1961.
4. The learned Commissioner of Income Tax (A) erred in fad and in law in charging interest u/s 234C. 234D, & 244 of the Income-Tax Act, 1961.
107. Ground Nos.1 & 2 relate to claim of exemption u/s 10B. This issue came up for consideration before us in assessee's own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also.
108. Ground No.3. relates to charging of penalty u/s 271(1)(c) of the I.T. Act, 1961.
109. This issue is pre-mature and hence it is rejected.
43 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
110. Ground No.4 relates to charging of interest u/s 234C, 234D & 244 of the Act.
111. The issue regarding charging of interest u/s 234C & u/s 244 of the Act is consequential in nature and will depend upon the assessed income. This issue is accordingly rejected.
112. So far as the issue regarding charging of interest u/s 234D is concerned, similar issue came up for adjudication before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same in favour of the assessee. This issue is decided in favour of assessee following our order for Asst. Year 2000-01. Accordingly this ground is partly allowed.
ITA NO.2963/Ahd/2009 Asst. Year 2007-08 (Assessee's appeal)
113. The assessee has raised following grounds in this appeal:-
1. The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Income Tax Act, 106! despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A,Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were made effective.
2. The Learned AO erred in fact and in law in rejecting the claim of 100% EOU u/s 10B of the Income Tax Act, 1961 on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sates are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange.
3. The learned Commissioner of Income Tax (A) erred in fact and in law in charging penalty u/s 271(1)(c) of the Income-Tax Act, 1961.
4. The learned Commissioner of Income Tax (A) erred in fad and in law in charging interest u/s 234C. 234D, & 244 of the Income-Tax Act, 1961.44 ITA No.2765/Ahd/2006
Asst. Year 2000-01 & others
114. Ground Nos. 1 & 2 relate to claim of exemption u/s 10B. This issue came up for consideration before us in assessee's own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also.
115. Ground No.3. relates to charging of penalty u/s 271(1)(c) of the I.T. Act, 1961.
116. The issue of charging interest is pre-mature at this stage and hence it is rejected.
117. Ground No.4 relates to charging of interest u/s 234C, 234D & 244 of the Act.
118. The charging of interest is consequential and would depend upon the finally assessed income and hence it is pre-mature and rejected.
119. So far as the issue regarding charging of interest u/s 234D is concerned, it is stated that similar issue came up for adjudication before us in assessee's own appeal for Asst. Year 2000-01 wherein we have decided the same in favour of the assessee. This issue is decided in favour of assessee following our order for Asst. Year 2000-01. Accordingly ground No.4 is partly allowed.
45 ITA No.2765/Ahd/2006Asst. Year 2000-01 & others
120. In the result assessee's appeal in -
ITA No.2765/A/2006 is partly allowed and partly allowed for statisticalpurposes.
ITA No.282/A/2007 is partly allowed and partly allowed for statisticalpurposes.
ITA No.283/A/2007 is partly allowed and partly allowed for statisticalpurposes.
ITA No.284/A/2007 is partly allowed for statistical purposes. ITA No.147/A/2008 is partly allowed for statistical purposes. ITA No.148/A/2008 is partly allowed for statistical purposes. ITA No.2964/A/2009 is partly allowed. ITA No.2963/A/2009 is partly allowed.and Revenue's appeals -
ITA No.1/A/2007 is partly allowed for statistical purposes. ITA No.490/A/2007 is partly allowed and partly allowed for statisticalpurposes.
ITA No.491/A/2007 is partly allowed for statistical purposes. ITA No.492/A/2007 is partly allowed for statistical purposes. ITA No.457/A/2008 is partly allowed for statistical purposes.Order was pronounced in open Court on 13/8/2010 Sd/- Sd/-
(Bhavnesh Saini) (D.C.Agrawal) Judicial Member Accountant Member Ahmedabad, Dated : 13/8/2010 Mahata/- Copy of the Order forwarded to:- 46 ITA No.2765/Ahd/2006 Asst. Year 2000-01 & others 1. The Assessee. 2. The Revenue. 3. The CIT(Appeals)- 4. The CIT concerns. 5. The DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, Deputy/Asstt.Registrar ITAT, Ahmedabad 47