Income Tax Appellate Tribunal - Mumbai
Acc Ltd ( Formelry Known As The ... vs Assessee on 7 December, 2011
ITA Nos 6262 & 6263 and 6279 to 6284
ACC Ltd Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"H" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri B. Ramakotaiah, Accountant Member
ITA Nos. 6262 & 6263/Mum/2010
(Assessment Years:1990-91 & 1991-92)
Addl. C.I.T. Sp Range-4 ACC Limited
29th Floor Centre-1, Cement House
World Trade Centre 121, M.K. Road
Cuffe Parae, Mumbai 400005 Vs Mumbai 400020
PAN No: AAACT 1507 C
Appellant Respondent
ITA Nos.6279 to 6284/Mum/2010
(Assessment years: 1990-91 to 1994-95 & 1996-97)
ACC Limited Asst. Commissioner of
Cement House, Income Tax, Range 1(1)
121 MK Road, Mumbai
Mumbai 400020 Vs
PAN: AAACT 1507 C
Appellant Respondent
Department by: Shri Srinivasa Rao
Assessee by: Shri Vijay Shah &Basant Karat
Date of Hearing: 07/12/2011
Date of Pronouncement: 21/12/2011
ORDER
Per Bench:
In these eight appeals, there are cross appeals for assessment year 1990-91 and 1991-92 by the assessee and Revenue, whereas there are only assessee appeals in other assessment years. Since common issues are involved, these were heard together and decided as under.Page 1 of 21
ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai Assessee appeals: ITA 6279 to 6284/ M /2010 In all assessee's appeals, various grounds raised are on four issues. The assessee has furnished a chart indicating the issues and grounds of appeal relevant to each assessment year. Accordingly, on the basis of the chart and submissions from the learned Counsel and learned Departmental Representative, the issues are decided as under.
Issue No.1. Exclusion of rental income, interest income and management fees in computing profits from business for the purpose of deduction under section 80HHC:
1.0 This issue arises as Ground No.1 in assessment years 1992-
93, 1993-94, 1994-95 and as ground no 1 & 2 in AY 1996-97. The contention is with reference to exclusion of above receipts from profits of business under Sec. 80HHC.
1.1 In the course of arguments, the learned Counsel did not press the issue with reference to exclusion of rental income and interest income in view of the orders of the ITAT in earlier years as well as the decision of the Hon'ble Bombay High Court in the case of Asian Star Co. Ltd 326 ITR 56. Hence that part of the ground pertaining to the exclusion of rental income and interest income was treated as withdrawn.
1.2 The other issue to be considered in these grounds is with reference to the receipt of management fees. The assessee has entered into an agreement with the Yanbu Cement Company Ltd to offer technical knowhow for the operation, maintenance and efficient working of their cement plants. The assessee received consideration in foreign currency by way of management consultancy fees. It is the claim of the assessee that the receipt is nothing but income arising in the course of main business, hence to be considered as 'profits of the business' for the purpose of deduction under section 80HHC. The matter was originally raised Page 2 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai as additional grounds before the Income Tax Appellate Tribunal which set aside the issue to the file of the Assessing Officer for examination on facts. The Assessing Officer vide the order giving effect to in Para 4 discussed this matter, examined the issue with reference to provisions of Explanation baa to Sec.80HHC. Since the assessee is not having any branch office outside India, he also discussed this issue whether it is covered by baa (ii) and since no facts were submitted with reference to nature of receipts, he has given a finding that factual verification of assessee's claim is not possible and accordingly, dismissed the assessee's claim. CIT(A) upheld the same.
1.3 Before us the learned Counsel reiterated the same submissions. After considering the facts, we are of the opinion that the orders of the Assessing Officer and CIT (A) on this issue are to be upheld. Even though the assessee claims that it is operational income to be considered as 'profits of business', these receipts have no direct relationship with the assessee's claim under section 80HHC on export of goods. These are services separately rendered by the assessee company to a foreign company. Therefore, even though it is a business income, these incomes will fall under non operational income like brokerage, commission, interest or any other receipt of similar nature to be excluded at 90% under the provisions of section 80HHC Explanation (baa). Even in the proceedings before the AO when restored by ITAT, assessee did not submit any details to substantiate the claim. Considering that assessee originally excluded the same and only contested before the ITAT as additional ground, the Assessing Officer's and the CIT (A)'s orders on this issue are upheld and assessee's ground is rejected.
1.4 In the result, all respective grounds on this issue stands rejected.
Page 3 of 21ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai Issue-2. "Exclusion of miscellaneous receipts from profits and gains in computing deduction under section 80I":
This issue arises as Ground No.3 in assessment year 1996-97 only.
2.1 The facts of the issue are that the assessee included miscellaneous receipts as profit & gains of business while computing deduction under section 80I in respect of Madukarai Unit. The AO did not allow deduction on the above incomes but, CIT (A) has allowed the same. Against the orders of the CIT (A), the Revenue went in appeal. The Hon'ble ITAT has restored the matter to Assessing Officer for deciding the issue in the line with decisions of Hon'ble Ahmedabad Special Bench in the case of Nirma Industries Ltd vs. ACIT (2005) 95 ITD 199 (Ahd-SB) as well as decision of Delhi Special Bench in the case of Lalson Enterprises vs. DCIT 89 ITD 25(Del.SB). In computing deduction under section 80HH and 80I, in consequential orders, relief was not granted by the Assessing Officer in respect of the following amounts:
Particulars Amount (`)
Car & Bus Hire Charges 14,716.80
Sale of Empty Oil Drums 4,544.70
Rent recovered from outside parties 18,23,465.00
School Grant received 3,11,269.15
Incidental charges on material received 26,859.00
Recovery of lost tools 400.00
Consultancy service charges 10,200.00
Rebate on franking machine 901.00
Sundry 5,83,397.51
HO Entry 4,47,599.00
Total 32,23,352.16
The Assessing Officer examined the amounts and has come to the conclusion that these receipts were nowhere established to have Page 4 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai direct or immediate nexus with the industrial undertaking. Accordingly he disallowed the claim under section 80I. Before the CIT (A) the assessee reiterated the same submission and the CIT (A) allowed the amount to the extent of incomes arising from sale of empty oil drums, incidental charges on material received and recovery of lost tools whereas he did not allow other amounts.
2.2 Before us, the learned counsel fairly submitted that the assessee was not in a position to correlate the amounts received as rent from outside parties as recovery of the amounts paid and other receipts, details of which are not available at present. In view of this, we have no other option than to confirm the action of the Assessing Officer in treating the miscellaneous expenses as not related to the industrial undertaking. Even though the assessee relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. Sundaram Industries Ltd (2002) 253 ITR 396 (Mad), the issue was related to sale of scrap which the CIT (A) has allowed. Similar reliance on CIT vs. Eltek SGS (P) Ltd (2006) 10 SOT 178 (Del) is also misplaced where the issue is with reference to amount of duty drawback, the principle of which was subsequently reversed by the Hon'ble Supreme Court in Liberty India 317 ITR218 (SC). Assessee could not relate the receipt of the above income to the industrial unit for claim of deduction under section 80I. In view of this, the assessee's claim cannot be allowed. Accordingly the ground on this issue is dismissed.
Issue-3. "Error on computation of interest under section 244A:
This issue arises as Ground No.1 in AY 1990-91 and AY 1991-92, as Ground No.2 in AY 1992-93 and AY 1994-95 and as Ground No.4 in 1996-97.
3.1 The assessee was aggrieved by the method of calculation of interest on the refund under section 244A. The main grievance of the assessee was that the interest under section 244A is to be Page 5 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai calculated on the tax refund without reducing the interest granted earlier on refund.
3.2 It was fairly submitted before us that this issue was considered by the ITAT Mumbai Benches (A) in Abudhabi Commercial Bank Ltd vs. DCIT in ITA No.5136/Mum/2009 (copy placed on record) wherein it has been held that the interest needs to be calculated on the refund due to the assessee without reducing the interest under section 244A which is part of refund earlier granted. In the above case it was held vide Para 7 & 8, as under:
7."We have considered the rival contentions and relevant record. It is evident from the orders of the lower authorities that the Assessing Officer has calculated the interest under section 244A by reducing the refund of tax already granted to the assessee. In the amount of refund the interest which was granted earlier occasions also included. Therefore, the Assessing Officer has reduced the total refund granted which consists refund of tax and interest already granted under section 244A. Therefore, we find force in the contention of the learned Authorized Representative that while computing the interest under section 244A, the Assessing Officer has reduced both the refund of tax as well interest granted under section 244A from the refund due to the assessees. In order to compute the interest under section 244A, the amount of balance refund due to the assessee has to be determined after deducting the amount of tax already refunded and not amount of interest already granted under section 244A.
Thus, the interest component in the refund already granted should be excluded while the same is to be reduced from the refund due to the assessee for the purpose of section 244A for future interest on the balance refund due amount. Accordingly, we are of the view that the method adopted by the Assessing Officer suffered from grave error as the same has resulted the reduction of interest payable to the assessee because the principal amount is reduced by interest component already granted and then future interest is computed. The interest already granted up to a date is relevant only for exclusion of period for which it is granted and the future interest has to be granted from the subsequent period. Therefore, the interest already granted cannot reduce the principle refund due to the assessee but the amount which represents the tax already refunded has to be reduced Page 6 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai from the total refund due to the assessee for computation of interest under section 244A. We note that the CIT (A) has decided the issue in Para 2.2 of the impugned order as under:
"2.2 I have considered the appellant's request and examined the facts. In view of the facts above, I find that the issue relates to calculation method adopted by the department and assessee. It is seen that method adopted by the Assessing Officer is being consistently followed in respect of all assessee's. Therefore, I am of the view that method adopted by the Assessing Officer as per provisions of the act cannot be faulted. I therefore included to agree with the computation method adopted by the Assessing Officer. Accordingly, the ground under appeal is dismissed".
8.From the above it is clear that the CIT (A) has not gone into the question of correctness of method adopted by the Assessing Officer but decided the issue on the ground that the method adopted by the Assessing Officer is being consistently followed in respect of all assessees. Therefore, the impugned order of the CIT (A) qua this issue is not sustainable in law and liable to be set aside. We accordingly decide this issue in favour of the assessee and direct the Assessing Officer to calculate the interest on the refund due to the assessee without reducing the interest under section 244A which is part of the refund earlier granted from the refund due". 3.3 Respectfully following the above, since the issue is same, the Assessing Officer is directed to recalculate the interest under section 244A by excluding the amount of interest already granted in the earlier refund. With these directions, respective grounds are considered as allowed.
Issue.4. Non-grant of interest under section 244A on refund arising due to additional grounds taken before Hon'ble ITAT:
This issue arises in the appeal at ground No.2 for the AY1990-91 & 1991-92, Ground No.3 in AY1992-93, Ground No.2 in AY1993-94 & 1994-95 and Ground No.5 in AY 1996-97.
4.1 The issue arises in a peculiar way in the assessee's case as the assessee has not made certain claims before the Assessing Officer Page 7 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai in the course of original assessment or before the CIT (A). It raised additional grounds before the ITAT on inclusion and exclusion of certain amounts for deduction under section 80HHC and 80I. Income Tax Appellate Tribunal after admission of additional grounds restored the issues to the file of the Assessing Officer for fresh consideration. While giving effect to the orders of the ITAT the Assessing Officer allowed certain claims resulting in refund to the assessee due to re-determination of total income. It was the assessee's contention that the interest under section 244A was not allowed on such refund on the reason that the assessee has not made claims originally under section 244A (2) and any delay on the part of the assessee should be excluded. CIT (A) agreed with the above contention stating that since the assessee has not claimed the amounts originally, the Assessing Officer was correct in not allowing interest under section 244A to the appellant company in compliance to the provisions of section 244A(2) of the Income Tax Act.
4.2. It was the submission of the learned counsel that similar issue arose in the case of CIT vs. South Indian Bank Ltd (2011) 237 CTR 74 (Ker) wherein it was held that belated claims of deduction by the assessee will not justify denial of interest on refund arising out of such claims otherwise eligible under section 234A(1). However it was also the submission that the Assessing Officer has not followed the provisions of section 244A(2) and declined interest under section 244A(2) without referring the matter to CCIT or CIT and therefore, the Assessing Officer's action cannot be justified following the principles laid down by the ITAT in the cases of DCIT vs. Videocon International Ltd 6 SOT 227 (Mum) and Artist Tree Pvt. Ltd vs. Income Tax Officer (2005) 93 ITD 603 (Mum). It was also submitted that giving effect to the orders of the ITAT are proceedings equivalent to Sec.154 as has been considered by the Hon'ble Bombay High Court in the case of Empire Industries Ltd vs. Page 8 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai CIT (1992) 93 ITR 295 (Bom). Further issue is such that two views are possible, the Assessing Officer's action in denying the interest under section 244A in consequential proceedings is not correct.
4.3. The learned Departmental Representative however, submitted that the decision of the assessee's in making the claim belatedly has resulted in refunds in consequential proceeding only and had the assessee made the claims at the time of filing the return, the Revenue would have issued refund without any interest liability at the earliest possible time and therefore, the Assessing Officer was correct in denying the interest on the delay attributable to the assessee under section 244A(2). The Ld.DR relied on CIT Vs Assam Roofing Ltd,330 ITR 87 (Gau) for thr proposition that appellate proceedings has to be included in the expression 'proceeding' as appearing in sub section 2 of Sec. 244A. Therefore delay in making claim is attributable to assessee as held in the above case.
4.4 We have heard the rival contentions and perused the orders placed on record on this issue. Even though the Hon'ble Kerala High Court has held in the case of CIT vs. South Indian Bank Ltd (2011) 237 CTR 74 (Ker) that the belated claim of deduction by the assessee will not justify the denial of interest and refund arising out of such claims otherwise eligible under section 244A(1), in this case the refund arose consequent to the orders of the ITAT under section
254. Therefore, in our view the provisions of section 244A(3) will apply which is as under:
"244A. Interest on refunds: ......
(1).....
(2)....
(3) Where, as a result of an order under sub-section (3) of section 115WE or section 115WF or section 115WG or sub-section(3) of section143 or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on Page 9 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly. ( emphasis supplied) There is no denying the fact that the assessee was allowed interest under section 244A(1) earlier in the original assessment proceedings. Therefore, as a result of orders under section 254 which the Assessing Officer has passed now, the interest under section 244A(1) will have to be increased or reduced accordingly and the Assessing Officer has no option to vary the period on interpretation of provisions of section 244A(2). Provisions of section 244A(2) does not apply in these facts of the case, as the assessee was already been granted interest under section 244A(1) and the period for such refund has already been determined. If consequent to the orders under section 254 the resultant order gives rise to further refund, the Assessing Officer has to increase the interest on the enhanced refund without varying the period for which interest was granted earlier.
4.5 The case of revenue is supported by judgment of Hon'ble Gauhati High Court in the case of CIT Vs Assam Roofing Ltd, 330 ITR 87( Gau) but in that case interest u/s 244A (1) was granted for the first time after the order of CIT(A) in which claim was made. Moreover the Hon'ble Kerala High Court in the case of South Indian Bank (supra) held against revenue and in favor of assessee. No jurisdictional High Court judgment was brought to our notice. Therefore, the view favourable to assessee is to be followed. However, we are of the view that provisions of Sec 244A(3) are applicable on the facts of this case. AO has no obligation to re Page 10 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai determine the period for which interest was to be granted once interest was granted in earlier proceeding. He has to enhance or decrease on the quantum only. In view of this, we direct the Assessing Officer to increase or reduce the interest under section 244A(1) r.w.s. 244A(3) and rework the interest accordingly.
4.6 Since the Assessing Officer also has not referred the matter to the Chief Commissioner or CIT where any question arises as to the period to be excluded, the action of the Assessing Officer in excluding certain period is also not acceptable. Respectfully following the principles laid down by the ITAT in the case of DCIT vs. Videocon International Ltd (2006)6 SOT 247 (Mum) and Artist Tree Pvt Ltd vs. Income Tax Officer (2005) 93 ITD 603 (Mum), Assessing Officer's action cannot be justified on this reason also. However, as provisions of section 244A(3) are very clear, in our opinion, Assessing Officer has no option to vary period for granting increased interest when the period was already fixed in the original proceedings under section 244A(1). Accordingly the Assessing Officer is directed to rework the interest. The respective grounds are considered allowed.
5. In the result, appeals in AY 1990-91 and AY 1991-92 are allowed, whereas appeals in AY 1992-93, AY 1993-94, AY1994-95 and AY 1996-97 are partly allowed.
Revenue appeals ITA 6262 & 6263/Mum/2010 ITA Nos. 6262: Assessment year 1990-91.
6. Ground No.1 in the Revenue's appeal is with reference to non allowance of claim on road transport subsidy. Briefly stated the assessee had received certain road transport subsidy under the Transport Subsidy Scheme 1971 for setting up new industrial unit at Bilaspur in Himachal Pradesh. This issue was restored to the file of the Assessing Officer for deciding on merits vide the ITAT orders dated 18.01.2007. The Assessing Officer while giving effect to the Page 11 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai order did not grant relief in respect of the above. However, the CIT (A) decided the issue in favour of the assessee on the basis of the decision of the ITAT in other years in assessee's own case following the decision of Apex Court in CIT vs. Ponni Sugars & Chemicals Ltd (2008) 306 ITR 392 (SC).
6.1 It was fairly admitted that the identical claim for all the latter years in assessee's own case has been decided by the ITAT in favour of the assessee and accordingly this issue is covered against the Revenue. We have perused the orders placed on record in all the years from the assessment year 1991-92 to 1998-99 in the respective ITA Nos as given below:
A.Y 91-92 ITA No.1105/M/97 (Para 9.0) A.Y 92-93 ITA No.3961/M/97 (Para 9.0) A.Y 93-94 ITA No.6901/M/97 (Para 9.0) A.Y 94-95 ITA No.3055/M/98 (Para 9.0) A.Y. 96-97 ITA No.3783/M/00 (Para 4.0) A.Y. 97-98 ITA No.3298/M/01 (Para 3-5) A.Y 98-99 ITA No.6289/M/03 (Para 4-6) The CIT (A) also not only followed the above orders, but also analyzed the issue in the light of the Supreme Court judgment and the jurisdictional High Court in the case of DCIT vs. Reliance Industries Ltd (2004) and the orders of the CIT (A) is as under:
"5.8 I have carefully considered the submission made on behalf of the appellant. I have also gone through the Transport Subsidy Scheme, 1971. From the perusal of the scheme and various facts placed before me, I found that, the Gagal Unit of the appellant company is situated in the state of Himachal Pradesh which is among one of the selected areas eligible for transport subsidy. On perusal of the preamble and other salient features of the scheme, it is seen that the purpose of the introduction of scheme was to encourage setting up of industries to promote growth in certain selected areas and the selected areas specified in the scheme were industrially underdeveloped areas and hence thrust was sought to be given for their industrial growth. From the Page 12 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai reading of the scheme, it is evident that the purpose of the scheme was to encourage industrialization on backward areas. Hence, applying the ratio of the decision in the case of the Apex Court in the case of Sahney Steel (supra) and Ponni Sugar (supra), it is held that the Road Transport Subsidy is in the nature of capital receipt. The said view is also fortifies by the decision of special bench of jurisdictional ITAT and also by the jurisdictional High Court, both in the case of Reliance Industries (supra). Furthermore, transport subsidy availed in subsequent assessment years, pursuant to the same scheme, has been held as capital receipt by the jurisdictional ITAT in appellant's own case. Therefore, the Assessing Officer is directed to treat the Road Transport Subsidy received by the appellant as capital receipt and exclude the same in computing total income. This ground is thus allowed".
We do not see any reason to interfere with the orders of the CIT as similar issue was decided in favour of the assessee in all the later years on the same scheme. Accordingly Revenue ground is rejected.
7. Ground No.2 pertains to non exclusion of profits on sale of fixed assets from book profits computed under section 115J. The assessee's claim for exclusion of sale of fixed assets in computing the book profit by way of additional ground was raised before the ITAT in the original appellate proceedings. The matter was restored to the file of the Assessing Officer to decide it afresh. The Assessing Officer while giving effect to the orders of the ITAT did not grant relief. The CIT (A) allowed the ground in favour of the assessee following ITAT orders in other years.
7.2 It was fairly admitted that this issue is to be decided against the assessee and in favour of the Revenue consequent to the orders of the special bench of the Hyderabad ITAT in the case of Rain Commodities Ltd vs. DCIT 41 DTR 449 (Hyd). This issue is also supported by the principles laid down by the Hon'ble Bombay High Court in the case of CIT vs. Veekaylal Investment C.(P) Ltd 249 ITR 597 (Bom) wherein the Hon'ble High Court decided the income from capital gain should be included for the purpose of computing book Page 13 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai profit under section 115J. Therefore, the issue is to be decided in favour of the Revenue and against the assessee. The order of the CIT (A) is modified to that extent and the order of the Assessing Officer is restored. The ground is considered as allowed.
8. Ground No.3 pertains to the addition of provision of interest on income tax to book profit under section 115J. The assessee claimed exclusion of interest under the income tax in computing book profit by way of additional ground the issue of which was restored to the file of the Assessing Officer. The Assessing Officer while giving effect to the orders did not allow claim contending that the provisions of interest on income tax is unascertained liability and hence falls under the ambit of clause (c) to Explanation to Section 115J of the Act. The CIT (A) gave relief to the assessee by stating as under:
"8.3 I have considered the submission made by the AR of the appellant and also perused the decision relied upon by them. As per clause (a) of Explanation to section 115J, only the amount of income tax paid or payable be added back in computing book profit. Income Tax is charged under section 4 of the Act at the rate specified in the Finance Act, whereas interest is charged under the various other provisions of the Act. Thus there are distinct provision for charging income tax and interest. The purpose of charging income tax and interest is altogether different. While there was provision for waiver of interest, there is no provision for waiver of income tax. Thus, it is not possible to treat interest as part of income tax. The above views is fortified by the decision of Panaji ITAT in the case of Salgoacar Mining Ind. (P) Ltd - vs. JCIT (2006) 102 ITD 289 (Panaji).
8.4 Following the said decision and also the decision of Kerala High Court referred to herein above, the Assessing Officer is directed to exclude interest on income tax of `46,57,560/-in computing book profit under section 115J. This ground is thus allowed".
8. 2 After considering rival arguments, we are of the opinion that there is no need to modify the order of the CIT (A) on this issue. The issue is covered by the Hon'ble High Court of Kerala decision in the Page 14 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai case of CIT vs. Fertilizer &Chemicals Travancore Ltd 261 ITR 484(Ker) wherein it was held that section 115J (1A)Explanation(a) mentions only the amount of income tax paid or payable and does not include the interest on income tax. The Hon'ble High Court held as under:-
"Held (i) that in so far as interest on income-tax was not mentioned in section 115J, Explanation (a) of the Income Tax Act, 1961, the Assessing Officer could not add interest on income tax of `7,72,421/- for determining the "book profit" for assessment year 1990-91".
The inclusion of interest as part of Income Tax was effective from 1.4.2002 (consequent to modification in provisions) under the provisions of 115JB which are not applicable for the year under consideration. In view of these, order of the CIT (A) is upheld and the ground is rejected.
9. Ground No.4 pertain to denial of deduction under section 80HHC on the basis of book profit under section 115J. During the assessment year under consideration, the assessee has claimed deduction under section 80HHC computed on the basis of book profit before the Hon'ble ITAT by way of an additional ground. The Hon'ble ITAT vide order dated 18.01.2007 has restored the said issue to the Assessing Officer to decide it afresh.
9.2 The Assessing Officer while giving effect to the order of Income Tax Appellate Tribunal dated 18-01-2007 did not grant the said relief contenting that the assessee has not filed audit report in Form No.10CCAC duly verified by the CA/Auditor along with return of income for the assessment year under consideration. The CIT (A) allowed the deduction under section 80HHC from book profit on the contention that requirement of filing Form 10CCAC is mandatory if the assessee is claiming deduction under section 80HHC in the normal computation of total income. No such requirement has been specified in the provisions of section 115J.
Page 15 of 21ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai 9.3 It has been submitted that identical issue has been decided in favour of the assessee by the ITAT in the assessment year 1998-99 following the decision of the Hon'ble Supreme Court in the case of Ajanta Pharma 327 ITR 305 (SC). The ITAT held as under:
"18. The short issue involved in this appeal is as to what is the amount of deduction under section 80HHC - export profits computed under the head 'profits and gains from business and profession, or export profits as per books of account to be excluded for the purpose of computation of book profits under section 115JA. While the Assessing Officer has held that the profit to be excluded is profits computed under the head 'profits and gains from business and profession', the CIT (A) has confirmed the said action by placing reliance on the IPCA Laboratories Limited vs DCIT (251 ITR 401). The assessee is not satisfied and is in further appeal before us.
19. In the case of Ajanta Pharma Ltd vs. Cit (327 ITR
305), the question which came up for consideration of Hon'ble Supreme Court was "whether for determining the "book profits" in terms of section 115JB, the net profits as shown in the profit and loss account have to be reduced by the amount of profits eligible for deduction under section 80HHC or by the amount of deduction under section 80HHC?. Their Lordships, inter alia, noted that the provisions regarding Minimum Alternate Tax and incentives for exports operate in two different spheres and formula meant for computing export incentive cannot be used in adjustment of the book profits for minimum alternative tax. Hon'ble Supreme Court, inter alia, observed as follows:
....sec 80HHC provides for tax incentives. Section 80HHC(1) at one point of time laid down that an amount equal to the amount of deduction claimed should be debited to the P&L A/c of the previous year in respect of which deduction is to be allowed and credited to the reserve account to be utilized for the business purpose. Section 80HHC(1) concerns eligibility whereas section 80HHC(3) concerns computation of the quantum of deduction/tax relief.
......A bare reading of section 80AB shows that computation of deduction is geared to the amount of income, but section 80HHC(3) which refers to quantification of deduction is geared to the exports Page 16 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai turnover and not to the income. On the other hand, section 115JB refers to levy of MAT on the deemed income. The above discussion is only to show that section 80HHC and 115JB operate in different spheres. Thus, two essential conditions for invoking section 80HHC(1) are that assessee must be in the business of export and secondly that sale proceeds of such exports should be receivable in India in convertible foreign exchange. Hence, section 80HHC(1) refers to "eligibility"
whereas section 80HHC(3) refers to computation of tax incentive. Coming to section 80HHC(1B) it is clear that after Finance Act, 2000 with effect from assessment year 2001-02 exporters would not get 100 per cent deduction in respect of profits derived from exports but that they would get deduction of 80 per cent in assessment year 2001-02, 70 per cent in the assessment year 2002-03 and so on. Thus, section 80HHC(1B) deals not with "eligibility" but with the "extent of deduction". As earlier stated section 115JB is a self contained code. It taxes deemed income. It begins with a non abstante clause. Section 115JB refers to computation of "book profits" which have to be computed by making upward and Downward Adjustments. In the Downward Adjustment, vide clause (iv) it seeks to exclude "eligible" profits derived from exports. On the other hand, under section 80HHC(1B) it is the extent of deduction which matters. The word "thereof" in each of the items under section 80HHC(1B) is important. Thus, if an assessee earns `100 crores then for the assessment year 201-02, the extent of deduction is 80 per cent thereof and so on which means that the principle of proportionality is brought into scale down the tax incentive in a phased manner. However, for the purposes of computation of book profits which computation is different from normal computation under the 1961 Act/computation under Chapter VIA. We need to keep in mind the Upward and Downward Adjustments and if so read it becomes clear that clause
(iv) covers full export profits of 100 per cent as "eligible profits" and that the same cannot be reduced to 80 per cent by relying on section 80HHC(1B). Thus, for computing "book profits" the Downward Adjustment, in the above example, would be `100 crores and not `90 crores. The idea being to exclude "export profits" from computation of book profits under section 115JB which imposes MAT on deemed income. The above reasoning also gets support from the Memorandum of Explanation to the Finance Bill 2000.
Page 17 of 21ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai
10. One of the contentions raised on behalf of the Department was that if clause (iv) of Explanation to section 115JB is read in entirety including the last line thereof (which reads as "subject to the conditions specified in that section"), it becomes clear that the amount of profits eligible for deduction under section 80HHC computed under clause (a) or clause (b) or clause
(c) of sub section 3 or sub section (3A), as the case may be, is subject to the conditions specified in that section. According to the Department, the assessee herein is trying to read the various provisions of section 80HHC in isolation whereas as per clause (iv) of Explanation to sec 115JB, it is clear that book profit shall be reduced by the amount of profits eligible for deduction under section 80HHC as computed under clause (a) or clause (b) or clause (c) of sub-section 3 or sub-section (3A), as the case may be, of that section and subject to the conditions specified in that section, thereby meaning that the deduction allowable would be only to the extent of deduction computed in accordance with the provisions of section 80HHC. Thus, according to the Department, both "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause (iv) of Explanation to section 115JB. We find no merit in this argument. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then section 115JA will cease to be a self-contained code. In section 115JB, as in section 115JA, it has been clearly stated that the relief will be computed under section 80HHC(3)/(3A) subject to the conditions under sub- sections (4) and (4A) of that section. The conditions are only that the relief should be certified by the Chartered Accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in clause (iv) of Explanation to section 115JB (subject to the conditions specified in sub-section (4) and (4A) of that section) to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.
20. The same principles apply on the situation before us. Therefore, what is to be excluded must start with book profits of export business as base. One cannot have computation of book profit with tax profits as the base. In this view of the matter, and in view of the broad principles clearly discernable from Hon'ble Supreme Court's judgment in Ajanta Pharma case (surpa), we uphold the grievance of Page 18 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai the assessee and direct the Assessing Officer to give resultant relief, if any"
9.4. In view of this, there is no need to modify the orders of the CIT (A) and accordingly the ground of the Revenue stands dismissed. In the result, this appeal is partly allowed.ITA No.6263/Mum/2010:
10.0 Ground No.1 in this Revenue appeal pertains to the issue of exclusion of miscellaneous receipts from profits and gains in computing deduction under section 80HHC. It was submitted that the miscellaneous receipts are inextricably linked to the industrial undertaking and have in essence reduced the corresponding expenses of the industrial undertaking. Therefore, following the principles established by the Hon'ble Mad High Court in the case of CIT vs. Sundaram Industries Ltd (2002) 253 ITR 396 (Mad), the above amounts are to be included for the purpose of profits and gains in computing deduction under section 80HHC and 80I. The learned Departmental Representative however referring to the order of the Assessing Officer while giving effect to the order of the ITAT submitted that the assessee has not furnished any evidence with reference to the nature of receipt of sale of stores and materials. That is the reason the Assessing Officer did not include the above amount as part of income of the above profit of the undertaking. Further referring to the order of the CIT (A) it was submitted that the CIT (A) also without examining the nature of the amount directed the Assessing Officer to include the amount of receipts from profits and gains of the undertaking.
10.2. We have considered the issue and the nature of the amount as stated above. Even though the ground refers to the amount of `22,71,530/- the CIT (A) did not allow the other amounts which the assessee has not contested in his appeal. Therefore, the only issue is with reference to the amount of `20,91,406/- pertaining to sale of stores and materials to contractors. It was Page 19 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai fairly admitted before us that the details of the above amount are not available with the assessee at present as the assessment year involved is 1991-92. Considering that the other amounts also pertain to supply to the contractors which the assessee has not contested, we are of the opinion that the sale of stores and materials to the contractors also is of similar nature. In the absence of any details being furnished by the assessee before the Assessing Officer consequent to the directions of the ITAT, it is not correct on the part of the CIT (A) to direct the Assessing Officer to include the amount without examining the nature of the amount. Therefore, we are not in agreement with the order of the CIT (A). Since the assessee could not establish the nature of the receipts as pertaining to the income derived from the undertaking, we uphold the order of the Assessing Officer and reverse the directions of the CIT (A). Accordingly ground No.1 is allowed.
11. Ground No.2 pertains to claim of exclusion of sale of machinery in computing 'total turnover' for the purpose of deduction under section 80HHC. The assessee claimed exclusion on account of sale of machinery from total turnover in computing deductions under section 80HHC before the Hon'ble I.T.A.T. by way of additional ground. The Hon'ble ITAT has restored the matter to the file of the Assessing Officer. The Assessing Officer while giving effect to the order of the Hon'ble ITAT did not grant relief in this respect on the contention that the items to be excluded to work out the "total turnover" are clearly specified in explanation (baa) below section 80HHC(4C) of the Act. The CIT (A) has held that the total turnover should not include any income which has no nexus with the sale proceeds and directed the Assessing Officer to exclude the sale of machinery from total turnover in computing deduction u/s 80HHC. Since similar issue was decided in favour of the assessee in assessment year 1998-99 in ITA No.6289/M/2003 following the decision of the Hon'ble Supreme Court in the case of CIT vs. Page 20 of 21 ITA Nos 6262 & 6263 and 6279 to 6284 ACC Ltd Mumbai Lakshmi Machine Works (2007) 290 ITR 667 (SC), we do not see any reason to interfere with the orders of the CIT (A) on the issue. Therefore, this ground is also rejected. This appeal is partly allowed.
12. In the result, Assessee appeals in AY 1990-91 and AY 1991-92 are allowed, whereas its appeals in AY 1992-93, AY 1993-94, AY 1994-95 and AY 1996-97 are partly allowed. Revenue appeals are partly allowed Order pronounced in the open court on 21st December, 2011.
Sd/- Sd/-
(D. Manmohan) (B. Ramakotaiah)
Vice President Accountant Member
Mumbai, dated 21st December, 2011.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "H" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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