Income Tax Appellate Tribunal - Ahmedabad
Metrochem Industries Limited,, ... vs Assessee
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C" AHMEDABAD
Before S/Shri T.K. Sharma, JM and D.C.Agrawal, AM
ITA No. Asst. Year
1692/Ahd/2004 1999-2000
1693/Ahd/2004 2000-2001
M/s Metrochem Indus. V/s. CIT-II, Ahmedabad/
Ltd., 505-506, Surya ACIT, Cir-4/ ITO Wd-
Rath, Nr. Panchwati, 4(3), Ahmedabad
Ahmedabad-380006.
PAN No.AABCM 8019K
(Appellant) .. (Respondent)
Appellant by :- Shri M. K. Patel, AR
Respondent by:- Shri Shelley Jindal, CIT,DR
ORDER
Per D.C.Agrawal, Accountant Member.
These are two appeals filed by the assessee against two separate orders of ld. CIT(A) dated 31.3.2004 for Asst. Years 1999-2000 & 2000-
01. Since the issues involved in these appeals are common, these are taken up together for the sake of convenience.
ITA No. 1692/Ahd/2004 Asst. Year 1999-20002. The facts of the case are that assessee is manufacturer of special chemical, trading in dyechems and intermediaries and their export.
3. The first ground relates to depreciation on fixed assets. This has been dealt by ld. CIT(A) in para 4 of his order. There was a claim of depreciation of Rs.1,47,478/- in respect of office building called Metro House in unit-1 and unit-II of the company namely Rahul Dyechem Industries and Metro Dychem (India) Ltd. The disallowance of the depreciation was made by the AO following his orders of earlier years. The ld. CIT(A) also confirmed this disallowance
4. We have heard the parties. It is submitted by the ld. AR that issue has been decided in favour of assessee in Asst. Year 1998-1999 by the Tribunal vide its order in ITA No.1463/Ahd/2002 dated 2.4.2007 as per para 13 thereof as under :-
"13. The ground No.1 relates to the deletion of the disallowance of depreciation amounting to Rs.1,63,864/-. The AO has disallowed the depreciation. The ld. CIT(A) has allowed the depreciation following the order for the Asst. Year 1997-98. Having heard both the parties, we find that the issue in controversy is decided by the Tribunal in favour of the assessee in ITA Nos.1481 & 1482/Ahd/2001 wherein the Tribunal has allowed the claim by observing as under :-
'We have heard the parties and considered the rival submissions. Facts and circumstances being similar, the Tribunal having accepted the claim of the assessee in the base year, where the depreciation was claimed for the first time, we uphold the order of the CIT(A) in allowing the claim of the assessee, in this year as well.' Respectfully following the aforesaid order of the Tribunal, we dismiss this ground of appeal of the revenue."
Respectfully following the above order, we allow the claim of the assessee. This ground of assessee is allowed.
25. Ground No.2 relates to contribution to effluent treatment plant. This has been dealt by ld. CIT(A) in para 5 of his order. The ld. AO noted that expenditure of Rs.44,52,108/- has been incurred by the assessee on pollution control equipment. The expenditure of similar nature was treated as capital nature in the earlier years.
6. It appears that none appeared before the ld. CIT(A), therefore, order of the AO was confirmed by him. It was argued by ld. AR for the assessee that this issue was considered by the Tribunal in Asst. Year 1997-98 vide its order in ITA No.1208/Ahd/2001 and 1484/Ahd/2001 dated 30.3.2007 and in ITA No.1462 & 1463/Ahd/2002 for Asst. Years 1998-99 & 98-99 wherein the claim was allowed in favour of the assessee. The Tribunal has observed as under :-
"14. The second ground of appeal of the revenue relates to the deletion of the amount of Rs. 44,52,108/- holding it to be revenue expenditure. The assessee made contribution to Green Environment Services Co-op. Society Ltd. The Assessing Officer treated this expenditure as capital whereas the Ld. CIT(A) has allowed this expenditure as revenue following the order of 1997-98. We have heard both the parties. Looking to the facts and circumstances of the case, we find that similar matter came up before the Tribunal for the assessment year 1997-98 and the Tribunal in its order in ITA Nos. 1208/Ahd/2001 and 1484/Ahd/2001 dated 30.3,2007. We find that the facts for the year under consideration are similar to the assessment years 1996-97 and 1997^98, Therefore, we restore this issue to the file of the Assessing Officer to decide the same afresh as per the outcome of the assessment years 1996-97 and 1997-98. We direct accordingly."
Since the issue relating to contribution to Green Environment Sercices Co-op. Society Ltd. has been restored to the file of AO in Asst. Year 1997-98 and 98-99, we also restore the matter to his file following the order of the Tribunal. The AO will decide the issue in accordance with 3 the decision he takes in previous year two years. Accordingly this ground is allowed but for statistical purposes.
7. Ground No.3 relates to lease rent expenses of Rs.9,90,259/-. This issue is also covered in favour of assessee by the decision of the Tribunal vide its order for Asst. Year 1998-99 in ITA No.1463/Ahd/2003 in assessee's own case. The Tribunal vide para 15 had observed as under :-
"15. The third issue relates to the deletion of the disallowance of lease rent amounting to Rs.14,08,011/-. We have heard the rival contentions of both the parties. We find that the issue in controversy is already dealt with in ITA No.1208/Ahd/2001 & 1484/Ahd/2001 wherein we uphold the order of the CIT(A). The ld. CIT(A) has followed the order for the Asst. Year 1998-99. We confirm the order of the ld. CIT(A)."
It is noticed that appellant company has taken on lease a D.G. generating set from sister concern namely M/s Metrochem Capital Trust Ltd. for which lease rent of Rs.9,09,259/- was paid. AO has held that this purchase by M/s Metrochem Capital Trust Ltd. was a sham transaction and consequently lease rent paid by the assessee company to Metrochem Capital Trust Ltd. was not a genuine expenditure. As none appeared before the ld. CIT(A), he confirmed the addition.
8. Since the issue has been decided in favour of the assessee by the earlier order of the Tribunal, we respectfully follow the same and delete the addition. This ground of assessee is, therefore, allowed.
9. Ground No.4 relates to exclusion of following amounts from the profits for the purpose of deduction under section 80IA.
4(1) Foreign exchange fluctuation, vatav, kasar & incidental charges and managerial remuneration amounting to Rs. 3,86,352/- and Rs.50,000/-.
(2) Exclusion of duty draw back and export incentives Rs. 22,84,617/-
and Rs.6,92,898/- respectively.
(3) Exclusion of Gross Interest income amounting to Rs.36,42,695/-
and Rs.91,398/-.
(4) Allocation of pollution expenses incurred in Unit-IV, to profits of Unit-II and Unit-III amounting to Rs.1,48,84,137/-& Rs.61,09,767/- respectively.
(5) Loss incurred from unit-II in trading transactions amounting to Rs.18,94,496/-
10. Regarding foreign exchange fluctuation gain amounting to Rs.3,86,352/- on vatav, kasar or incidental charges received during export activities, were held relating to business of export and directly connected with foreign exchange receipts. The foreign exchange gains were received within the statutory period or within the extended time and accordingly it was held to be deductible under section 80IA as vatav and kasar are directly held to be derived from industrial undertaking. The issue is covered by the decision of the Tribunal in ITA No.2344 & 2545/Ahd/2000 for Asst. Year 1994-95 & 95-96 vide para 12 of its order dated 30.3.2007 as under :-
"12. The sixth ground is against the allowance of deduction u/s 80I on vatav/kasar. This is a discount on purchases and would decrease the cost of purchase of the assessee and consequential increase in profit would be a part of the profit derived from the industrial undertaking. The CIT(A) was justified in allowing the claim of the assessee and accordingly the same is upheld."5
11. The issue regarding foreign exchange gain in respect of goods exported is covered by the decision of the Tribunal in ITA No.2067/Ahd/1999 for Asst. Year 1993-94 vide para 5 of its order dated 31.10.2005 as under :-
"5. The third ground relates to the direction by the learned C1T(A) for exclusion of the amount of miscellaneous income, being Sales-tax set off (Rs.46,909) and income by way of foreign exchange fluctuation (Rs. 11,988) for reduction in the computation of profits of the business in terms of explanation (baa)(1) to Sec.80HHC, The same was done by the learned CIT(A) on finding on finding force with the contention of the assessee that the two amounts are a part of the assessee's turnover/trading receipt, inasmuch as the Sales-tax set off is on its purchases (so that the same might as well be deducted from the purchase amount) and the receipt by way of foreign exchange fluctuation is also in respect of goods sold. He, therefore, adverting the Circular of CBDT, explaining the provisions of Finance (No.2) Act, 1991, vide which the said explanation was introduced in the statute, i.e. to remove the distortion that otherwise enters into the computation of export income, i.e, when the amount of interest, rent. dividend etc. are not excluded, finding merit in the assessee's contention, directed their deletions We are inclined to be in agreement with the observations of the learned CIT(A); the amount of Sales-tax as well as the foreign exchange fluctuation both contain an element of turnover, being only in relation to the goods traded in and not an ancillary income, which could be taken to brokerage, commission, interest, rent, etc., following the principle of ejusdem generis. However, at the same time, we also find that there is another amount of income, i.e., Rs.52,161, being miscellaneous balances written off the nature of which has not been discussed by the learned CIT(A) in his order. As such, this matter, to this extent, would require to be restored to his file for adjudication in accordance with law. We order accordingly."
Since both the issues regarding foreign exchange fluctuation and vatav/kasar are covered by the decision of the Tribunal in earlier years as pointed out above, we allow the claim of the assessee. This ground of assessee is accordingly allowed.
12. The second exclusion while computing deduction under section 80- HHC isregarding duty draw back and other incentives. This issue is covered against the assessee by the decision of Hon. Supreme Court in Liberty India vs. CIT (2009) 317 ITR 218 (SC) wherein the Hon. Supreme Court has held as under :-
6"Sections 80-I, 80-IA and 80-IB provide for incentives in the form of deductions which are linked to profits and not investment. On analysis of sections 80-IA and 80-IB it becomes clear that any industrial undertaking which becomes eligible on satisfying sub- section (2) would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after the specified date. Apart from eligibility, sub- section (1) purports to restrict the quantum of deduction to a specified percentage of the profits. This is the importance of the words "derived from an industrial undertaking" as against "profits attributable to an industrial undertaking".
DEPB/Duty drawback are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962. Incentive profits are not profits derived from eligible business under section 80-IB: they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB."
Respectfully following the above decision of Hon. Supreme Court, we decline to interfere in the order of ld. CIT(A). This ground of assessee is rejected.
13. The next issue is regarding exclusion of gross interest income. The ld. AR has relied on the decision of Hon. Delhi High Court in CIT vs. Shriram Honda Power Equipment & Ors. 289 ITR 475 (Del) for the proposition that netting of expenditure against receipt of interest income should be allowed. However, this decision could be applicable only when it is held that interest income is derived from business of industrial undertaking. Since there is no such finding by the authorities below and also no facts have been put up before us, we decline to take a different view than what the authorities below have taken. It is for the assessee to 7 submit his claim with proper evidence which has not been done. Accordingly this ground of the assessee is rejected.
14. The next issue is regarding allocation of pollution expenses. The ld. CIT(A) and the AO noticed that a sum of Rs.2,19,27,738/- has been debited to Unit -IV for operating CETP (common effluent treatment plant). According to the AO, CETP is common and must have been utilized by other manufacturing units. It was submitted by the assessee vide his letter dated 17.1.2001 that Units II & III have got independent effluent treatment plants and CETP is exclusively used by Unit-I as it is manufacturing dyes intermediates, which generates highly concentrated acidic effluents. This CETP is not useable for other units. Unit-II is manufacturing synthetic organic dyes and dye intermediates and Unit-III is also manufacturing same type of dyes and is using ultra filtration technology and spray dryer system. The quality and quantity of effluent is quite different and CETP cannot be utilized for Unit-II and Unit-III. It was accordingly submitted that expenditure on CETP incurred on Unit-I could not be allocated to Unit-II and Unit -III. In this connection it may be noted that Units II & III are claiming deduction under section 80IA whereas Unit I is not entitled for such deduction and accordingly AO seems to have thought that expenditure incurred on CETP has been only debited in Unit I even though it is being utilized by Units II & III also, and thereby profits of Unit I is reduced whereas profits of Units II & III is inflated and higher deduction under section 80IA has been claimed. Such deduction would have been reduced if part of the CETP expenditure is allocated to Units II & III. The AO did not believe on the explanation submitted by the assessee and allocated part of the expenditure on CETP to Units II & III and thus reduced the business profits of Units II & III and accordingly allowable deduction under section 80IA.
815. Ld. CIT(A) confirmed the decision of the AO.
16. Before us, ld. AR submitted that such allocation has been done by the AO only on presumption basis ignoring the fact that Units II & III have their separate effluent treatment plants. Separate accounts for the two units are maintained. It was further submitted that similar disallowance was made by AO for Asst. Year 1998-99 and ld. CIT(A) had deleted the same. But the department has not preferred second appeal against this decision of ld. CIT(A).
17. Against this, ld. DR relied on the orders of authorities below.
18. After considering the rival submissions, we restore this issue to the file of AO to actually verify, may be physically, whether CETP has been utilized for treatment of effluents in Unit II & III. He may obtain experts report on the issue or take any other necessary steps to come to the conclusion whether CETP was exclusively used by Unit I or was also utilized by other units. So far as basis of allocation is concerned which has been taken on turnover basis, is upheld and in case it is necessary to allocate expenditure on CETP then such allocation would be done on turnover basis. Accordingly this ground of assessee is allowed but for statistical purposes.
19. The next issue is about adjustment of loss incurred in Unit II on trading transactions against profits of Unit III before computing deduction under section 80IA.
920. We have heard the parties. In our considered view there is no case for inference in the order of ld. CIT(A) it is because there is no distinction between income from manufacturing activities or from trading activities for the purpose of computing business profit for deduction under section 80IA. If both are derived from business of industrial undertaking then both are to be clubbed to arrive at net business profit of the unit and it would become basis for deduction under section 80IA for that unit. This ground of assessee is accordingly rejected.
21. Ground No.5 relates to deduction under section 80 HHC. In his order ld. CIT(A) has enhanced the income by directing to give effect to the provisions of section 80IA(9) while computing deduction under section 80 HHC. He has directed to give this effect while computing income in a regular course and also while computing income as per book profit. In para 10.1 of his order ld. CIT(A) has calculated business profit at Rs.5,77,64,641/- and deduction under section 80IA at Rs.3,84,54,035/-. By giving effect to section 80IA(9), business profit for the purpose of computing deduction under section 80HHC is reduced to Rs.1,93,10,606/-. Thereafter various other adjustments and calculation have been done by ld. CIT(A) in a very logical and reasoned manner to arrive at deduction under section 80 HHC at Rs.1,45,09,811/-. Ld. CIT(A) has also carried out similar reasoned calculation for calculating deduction under section 80 HHC for the purpose of computing book profit under section 115JA. He has allowed the adjustment of Rs.1,45,09,811/- in the book profit for deduction under section 80 HHC. This deduction was calculated by him earlier for the purpose of computing income in the normal course. Thus adjusting deduction under section 80 HHC at Rs.1,45,09,811/- ld. CIT(A) arrived at book profit of Rs.4,55,30,316/-.
1022. The case of the assessee is that the capping u/s 80IA(9) can be applied only when income is computed in normal course. The issue is covered against the assessee by the decision of ITAT (SB) in ACIT vs. Hindustan Mint Agro Product (P) Ltd. (2009) 315 ITR(AT) 401, ITAT (Del)(SB). Such capping is applied for computing available deduction under section 80 HHC, once deduction under section 80IA is allowed. He fairly accepted the computation done by ld. CIT(A) as per para 10.1 of the order. However, according to the ld. AR, when one is computing book profit under section 115JA then only effect to be given is about deduction under section 80 HHC. No effect for deduction under section 80IA is to be given as it is not so provided in section 115JA. Once no such adjustment of deduction under section 80IA is permissible while computing book profit under section 115JA then there is no case for invoking provisions of section 80IA(9) to reduce deduction under section 80HHC. Since ld. CIT(A) has reduced the business profit by the deduction under section 80IA (for computing deduction under section 80HHC which is to be adjusted in the book profit) his calculation in para 11 is accordingly incorrect. Similar issue has been discussed by us in ITA No.1000/Ahd/2004 wherein the Tribunal has held in para-8 as under :-
"8. We may also clarify here that effect of capping under section 80IA(9) is not required to be given while computing deduction under section 80 HHC for the purpose of computing income as per book profit because section 115JA requires adjustment of deduction under section 80 HHC only and adjustment of deduction under section 80IA or 80IB would be required only in case of an industrial undertaking which is engaged in infrastructural facilities. In other words both deductions under sections 80IA/80IB and 80HHC can be availed of by a Company which is engaged in providing infrastructural facilities as mentioned in clause (vi) of Explanation to section 115JA read with Explanation to sub-sec.(4) of section 80IA. For the sake of convenience we reproduce Explanation to 11 section 115JA and sub-section(4) containing Explanation in section 80IA as under :-
Sec.115JA Explanation.--For the purposes of this clause, the loss shall not include depreciation; or
(iv)........
(v).........
(vi) the amount of profits derived by an industrial undertaking from the business of developing, maintaining and operating any infrastructure facility as defined under sub-section (12) of section 80-IA, and subject to fulfilling the conditions laid down in sub-
section (4A) of section 80-IA; or
(vii).....
(viii).....
(ix).......
Sec. 80IA (1).......
(2).......
(3).......
(4) This section applies to--
(i) any enterprise carrying on the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating any infrastructure facility which fulfils all the following conditions, namely :--
(a) it is owned by a company registered in India or by a consortium of such companies ;12
(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, (ii) maintaining and operating, or (iii) developing, maintaining and operating a new infrastructure facility subject to the condition that such infrastructure facility shall be transferred to the Central Government, State Government, local authority or such other statutory body, as the case may be, within the period stipulated in the agreement ;
(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995 :
Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.
Explanation.--For the purposes of this clause, "infrastructure facility" means,--
(a) a road, bridge, airport, port, inland waterways and inland ports, rail system or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette ;
(b) a highway project including housing or other activities being an integral part of the highway project ; and
(c) a water supply project, irrigation project, sanitation and sewerage system ;13
Thus from a reading of two provisions together it is gathered that adjustment in the book profit can be done for the deduction under section 80IA and 80HHC in case of an industrial undertaking deriving profit from the business of developing, maintaining and operating infrastructural facilities. Once this is so that is in the case of an industrial undertaking where both the deductions are available (i.e. both under section 80 HHC and 80IA in respect of infrastructural undertaking) then capping of section 80IA(9) would be effective. But in a case of other industrial undertaking, even if deduction under section 80IA is claimed by them in the normal computation of income but no adjustment is required to be done while computing book profit under section 115JA. Once deduction under section 80IA is not required to be adjusted while computing book profit in case of non-infrastructural industrial undertaking then no capping as provided under section 80IA (9) is required to be done while computing book profit under section 115JA. The present assessee is engaged in the business of insecticide, drugs and chemical and is not engaged in the business of developing infrastructural facilities. Therefore, adjustment of claim of deduction under section 80IA is not required to be done while computing book profit under section 115JA. Thus where no adjustment of deduction under section 80IA is required to be done while computing book profit then capping under section 80IA(9) will not be required to be carried out for adjusting deduction under section 80 HHC in the book profit."
Since we have held in ITA No.1000/Ahd/2004 for the same Asst. Year that if section 115JA does not provide for adjustment of deduction under section 80IA while computing book profit then provisions of section 80IA (9) cannot be invoked to reduce business profit for calculating deduction under section 80 HHC for being adjusted in the book profit. Following our decision therein we direct the AO not to reduce business profit by the deduction under section 80IA for calculating deduction u/s 80 HHC but adopt full business profit which is taken by ld. CIT(A) at Rs.5,77,64,641/- and calculate deduction under section 80 HHC by substituting full amount of business profit at Rs.5,77,64,641/- in place of Rs.1,93,10,606/- and make adjustment of that deduction under section 80 HHC while computing book profit. There is no other adjustment or 14 replacement modified by us in the computation of deduction under section 80 HHC carried out by ld. CIT(A) in para 10.1 of his order dated 31.3.2004 which otherwise affirmed subject to above single modification. Accordingly this part of the ground of assessee is allowed.
23. The next part of ground No.5 is about not allowing deduction under section 80 HHC in respect of business profits from lab. sample test, for foreign exchange fluctuation gain, vatav/kasar, incidental charges, sales-tax S.T.set off, balace, write-off, exclusion of miscellaneous income and excess provision written back. Ld. CIT(A) confirmed the order of AO in excluding the above receipts on the ground that they are not connected with business of exports or remotely connected with export receipts.
24. Before us, ld. AR for the assessee submitted that this issue is covered in favour of the assessee by the order of the Tribunal for Asst. Year 1997-98 in ITA No.1484/Ahd/2001 as per para 13 thereof wherein the Tribunal has observed as under :-
"13. The fifth ground is in respect of 80HHC deduction on (a) Laboratory sample testing receipts, (b) foreign exchange fluctuation, (c) discount, kasar and incidental charges, (d) sales-tax set off, (e) insurance premium, (f) sundry balance written off, (g) miscellaneous written off, and (h) excess provision written off. As regards the issues in respect of
(a) to (f) are decided by us in favour of the assessee in our earlier order, in assessee's own case. Facts and circumstances being similar, we respectfully following our earlier order, uphold the order of the CIT(A) in allowing the claim of the assessee on these issues, as aforesaid. In respect of items in (g) miscellaneous written off, and (h) excess provision written off. Both these issues, i.e. (g) & (h) are covered against the assessee by the decision of the Supreme Court in the case of DCIT vs. Mira Industries (87 ITD 475) and therefore, the assessee is not entitled for deduction u/s 80 HH of the Act. This ground is partly allowed."15
However, no deduction under section 80 HHC can be allowed in respect of miscellaneous items written off and excess provision written off. Respectfully following the above order, we allow the claim of the assessee as indicated in Asst. Year 1997-98. This ground of appeal is partly allowed.
25. Next part of ground no.5 relates to not allowing deduction under section 80 HHC on gross interest receipt amounting to Rs.1,15,12,656/-. Similar issue has been dealt by the Tribunal in ITA Nos.2207/Ahd/2005, 2469/Ahd/2004 for Asst. Years 1999-2000 & 2001-02 and others, wherein vide para 39 the Tribunal has observed as under :-
"39. Ground No.5 relates to netting of interest income for the purpose of deduction under section 80 HHC/80IA. This issue had also come up before us in assessee's appeal. There we have held that deduction under section 80IA would not be admissible to the assessee on interest income as it was not derived from industrial undertaking. The claim of deduction under section 80HHC on the amount is not examined. The AO has not taxed interest as income from other source and by implication, ld. AR that argues that it should be treated as business income. Again whether this interest income would be treated as income from export business or income from other business has to be decided by the AO. Accordingly the issue is restored to the file of AO, for first deciding whether interest income earned from deposits on surplus funds would be export income or non-export income. In case it is treated as export income then netting would be required in view of the decision of Hon. Delhi High Court in the case of CIT vs. Shri Ram Honda Power Equipment & Others (supra). The assessee will produce necessary evidence to show that expenditure of interest was in connection with earning of interest income in case interest income is treated as income earned from business of export. Accordingly for this limited purpose, we restore this matter to the file of AO. As a result, this ground of Revenue is partly allowed but for statistical purposes."
26. Accordingly the issue is partly set aside for statistical purposes.
1627. The next part of ground no.5 is about allowing deduction under section 80 HHC on export incentives amounting to Rs.33,14,608/-. Similar issue has been dealt by the Tribunal in ITA Nos.2207/Ahd/2005, 2469/Ahd/2004 for Asst. Years 1999-2000 & 2001-02 and others, wherein vide para 18 to 21 the Tribunal has observed as under :-
"18. Ground No.9 relates to not giving deduction u/s 80 HHC on export benefit of Rs.2,62,82,847/-. According to ld. AR assessee has been carrying out export and against those export proceeds it has credited certain benefits allowable under the scheme framed by the Government of India and has offered it for taxation. It has, therefore, claimed deduction under section 80 HHC. If it is not a benefit then it should also not be considered as income. If it is treated as benefit due to export it should be considered for deduction under section 80 HHC. For calculating the allowable deduction he referred to the decision of the Tribunal, Mumbai Special Bench in Topman Exports vs. ITO (2009) 125 TTJ 289 (Mum). The gist there-from is as under:-
(i) The argument of the Revenue that DEPB is a post export event and has no relation with the purchase of goods cannot be accepted. There is a direct relation between DEPB and the customs duty paid =on the purchases. For practical purposes, DEPB is a reimbursement of the cost of purchase to the extent of customs duty;
(ii) The DEPB benefit (face value) accrues and becomes assessable to tax when the application for DEPB is filed with the concerned authority. Subsequent events such as sale of DEPB or making imports for self consumption etc are irrelevant for determining the accrual of the income on account of DEPB;
(iii) Though s. 28 (iiib) refers to a "cash assistance against exports", it is wide enough to cover the face value of the DEPB benefit;
(iv) S. 28 (iiid) which refers to the "profits on transfer of the DEPB" obviously refers only to the "profit" element and not the gross sale proceeds of the DEPB. If the Revenue's argument that the sale proceeds should be considered is accepted there would be absurdity because the face value of the DEPB will then get assessed in the year of receipt of the DEPB and also in the year of its transfer;
(v) Consequently, only the "profit" (i.e. the sale value less the face value) is required to be considered for purposes of s. 80HHC.
Interest income from funds placed with the bank is not includible in profits. According to the ld. AR for calculating allowable deduction 17 matter should be referred to AO in accordance with the decision of Tribunal, Mumbai (Special Bench) in the above case.
19. On the other hand, ld. DR submitted that assessee has only created notional profit and it has not referred to any scheme under which the assessee is entitled for any export incentive. Once it is not in any scheme, it will not be treated as export benefit and no deduction under section 80 HHC can be allowed.
20. Ld. AR in rejoinder submitted that deduction under section 80 HHC is allowable on such notional credit incentives in view of decision of the Tribunal in the case of United Phosphorus Ltd.vs. JCIT (2002) 81 ITD 553 (Ahd) also. He referred to this decision because it is pertained to allowable deduction on export benefits under section 80I and 80IA. This is issue is also covered by the decision of Hon. Supreme Court in Liberty India's case (supra). The present issue is about deduction under section 80 HHC on export benefit and applicability of decision in Topman Exports case (supra).
21. After considering the rival submissions, we restore the matter to the file of AO. The assessee will provide the scheme under which assessee is entitled for benefit credited by it in the P & L accounts. The AO will examine whether assessee is so entitled for such benefit as per the scheme; whether any certificate or sanction order has been issued by the Government Department conferring export incentive to the assessee; or whether any application has been filed by the assessee for receiving such export benefit from the concerned department; or even otherwise how assessee will be entitled for export benefit on such notional credit income. What has been the basis for calculating such income? Whether such basis is approved by any scheme framed by Government of India? Even if it is so whether calculation made by the assessee is correct? Thus in the light of decision of Tribunal, Mumbai (Special Bench) in the case of Topman Exports (supra) AO will examine the case, and if necessary, calculate allowable incentive to the assessee and accordingly part of the profits to be included as export profits eligible for deduction under section 80 HHC. For carrying out necessary enquiry and calculation, on the issue, matter is restored to the file of AO. This ground is allowed but for statistical purposes."
1828. Respectfully following above order, we restore the matter to the file of AO to decide accordingly. This ground is allowed but for statistical purposes.
29. The next part of this ground is about not setting off trading loss against trading receipts to the extent of Rs.18,94,496/- for the purpose of deduction under section 80 HHC.
30. We have heard the parties. The issue is covered against the assessee by the order of Tribunal in ITA No.1463/Ahd/2001 for Asst. Year 1998-99 vide para 18 thereof which is as under :-
"18. The sixth ground of appeal relates to the order of the CIT(A) holding that the loss from exports of trading goods were taken as Nil for computation deduction u/s SQHHC This issue stands covered against the assessee by the decision of the Supreme Court in the case of IPCA Laboratory Ltd., 266 ITR 521, wherein it has been observed as under:
"A plain reading of section 80HHC makes it clear that in arriving at profits earned from export of both self manufactured goods and trading goods, the profit and losses in both trades have to be taken into consideration. If after such adjustments there is a positive profit the assessee would be entitled to deduction under section 80 HHC(l). If there is a loss, the assessee would not be entitled to deduction.'' However, in view of the amendment in section SQHHC, the matter is to be reexamined. We, therefore, set aside the order of the CIT(A) and remit the matter back to the file of the Assessing Officer to examine the same in the light of the amended provisions and decide the matter afresh in accordance with law."
As a result, ground no.5 is partly allowed and partly allowed for statistical purposes.
31. Ground No.6 is not pressed and hence rejected.
1932. Ground No.7 is about charging of interest u/s 234A, 234B & 234C. It is consequential in nature and will depend upon finally assessed income hence it is rejected.
33. As a result, appeal filed by the assessee is partly allowed and partly allowed for statistical purposes.
ITA No.1693/Ahd/2004 Asst. Year 2000-0134. Ground no.1 relates to depreciation on fixed assets. This issue is the same as ground no.1 in ITA No.1692/Ahd/2004 for Asst. Year 1999- 2000 above. Following the reasoning given in that year the issue is decided in favour of assessee. This ground is allowed.
35. Ground No.2 is about compensation paid under voluntary retirement scheme, amounting to Rs.21,81,487/-. The AO noted that assessee company had incurred an expenditure of rs.24,22,763/- by way of compensation under voluntary retirement scheme which was treated by the assessee company as deferred revenue expenditure, spread over the period of 10 years. Accordingly a sum of Rs.2,42,276/- being one tenth was debited by the assessee in the profit and loss account for the year ending 31.3.2000. The AO treated the claim as capital expenditure and, therefore, he declined to allow even amortization of expenditure. The ld. CIT(A) confirmed the order of AO holding that there is no material on record which could indicate that expenses incurred by the assessee company on account of VRS was of revenue nature.
2036. It was submitted by the ld. AR that entire expenditure is consequence to salary payable to the employees. Even though the assessee has treated it as deferred revenue expenditure entire payment is an allowable expenditure in view of the decision of the Tribunal, Jodhpur Bench in PI Industries Ltd. vs. ACIT (2006) 104 TTJ (Jd) 333. Whatever may be the treatment assessee might have given in the books of account will not be relevant and its true nature has to be decided as held in following three judgements:-
(1) DCIT vs. Core Healthcare Ltd. (2001) 251 ITR 61 (Guj) (2) CIT vs. Gujarat Mineral Dev. Corpn. (1981) 132 ITR 377 (3) Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363
37. Against this, ld. DR relied on the orders of authorities below.
38. After considering the rival submissions, we are of the view that the claim is basically revenue in nature as it is directly connected with salary expenditure. The assessee has saved future salary by accepting voluntary retirement of the employees. But this benefit will accrue to the assessee in subsequent years. Hence it has been rightly treated as deferred revenue expenditure. Accordingly the claim made by the assessee at 10% of the total expenditure was reasonable and should have been accepted by the revenue authorities. Accordingly claim of the assessee at Rs.2,42,276/- is allowed. The question of making addition of Rs.21,81,487/- does not arise because this amount is not claimed as revenue expenditure in the profit and loss account. As a result, this ground of assessee is allowed.
39. The next issue is regarding payment of lease rent of Rs.16,84,000/. This issue has been decided in favour of assessee in Asst. Year 1999- 21 2000 and following that order we allow this claim of assessee this year also.
40. Ground No.4 relates to various items -like foreign exchange fluctuation, incidental charges, export incentives etc. which are excluded for calculating deduction under section 80IA.
41. The issue regarding foreign exchange fluctuation and incidental charges is treated as derived from business of industrial undertaking. This issue has been decided in favour of assessee for Asst. Year 1999-2000. Following that order, the claim of assessee is allowed.
42. Ground regarding exclusion of duty draw back and export incentives has been decided against the assessee in Asst. Year 1999-2000. Following that order this issue is decided against the assessee this year also.
43. Gross interest income is restored to the file of AO to decide whether it is derived from business of industrial undertaking or is to be assessed under income from other sources. Following our order for Asst. Year 1999-2000 above, we restore this issue to the file of AO.
44. The issue regarding deduction u/s 80IA -of allocation of expenditure on effluent treatment plant has been restored to the file of AO in the Asst. Year 1999-2000 for enquiries to be carried in the matter. Following that order, we also restore this issue to the file of AO for this year also.
2245. Next issue is about adjustment of trading loss of Rs.80,32,515/-. In Asst. Year 1999-2000 this issue was decided against the assessee. This year also, the issue is decided against the assessee following the same reasons. Accordingly, this part of the ground is rejected.
46. Ground No.5 relates to giving effect to section 80IA(9) while computing deduction under section 80 HHC while computing book profit as per section 115JA. As per the detailed reasoning given by us in Asst. Year 1999-2000 we hold that capping as provided in section 80IA(9) would be applicable when deduction under section 80 HHC is computed in the normal course of computation of income as per I.T. Act. The effect of such capping cannot be given in computation of deduction under section 80 HHC if income is computed as per book profits under section 115JA. Accordingly this ground of assessee is partly allowed.
47. The next part of ground No.5 relates to not ignoring trading loss and adjusting the same against trading profits for the purpose of computation of deduction under section 80 HHC. This issue has been decided by us against the assessee in Asst. Year 1999-2000. Following the same we decide this issue against the assessee this year also.
48. The next issue is regarding exclusion from business profit of gains from laboratory sample test, foreign exchange fluctuation, incidental charge, ST set off, insurance etc. amounting to Rs.35,05,874/-.
49. While disposing of ground no.5 for Asst. Year 1999-2000 we have decided this issue in favour of assessee. Following the same we decide this issue this year also in favour of assessee. This part of ground is allowed.
2350. Next part of the ground is about exclusion of gross interest receipt. Similar issue had come before us in Asst. Year 1999-2000. We have held therein that issue required to be examined afresh by the AO to decide whether the interest income is business receipt or it is an income from other sources. If it is business receipt then for the purpose of netting nexus is required to be established by the assessee of the expenditure incurred with the interest receipt. If assessee is able to establish the nexus netting may be allowed. In case interest income is treated as income from other sources then assessee has to establish nexus of interest expenditure with the earning of interest and if it is so netting is to be done. However, this would be considered separately under the head of income from other sources and will not have any effect on the computation of deduction under section 80 HHC. It is only when interest income is considered business income and netting is required to be done then 90% thereof would be excluded from business profit as per expression (baa) to section 80 HHC. This part of the ground is allowed but for statistical purposes.
51. The next part of the ground is exclusion of export incentives of Rs.11,57,407/-. For Asst. Year 1999-2000 similar issue had come before us and we have restored the same to the file of AO to decide afresh in the light of the decision of the Tribunal Special Bench in Topman Exports vs. ITO (supra). Following the same, we restore this issue this year also to the file of AO to act accordingly. This part of the ground is allowed but for statistical purposes.
52. Ground No.6 is general in nature and rejected.
2453. Ground No.7 is about charging of interest under section 234A, 234B & 234C which is consequential in nature and it depends upon the income finally assessed. Since no specific adjudication is required, this ground is rejected.
54. The appeal of the assessee is partly allowed and partly allowed for statistical purposes.
55. In the result, both the appeals of assessee are partly allowed and partly allowed for statistical purposes.
Order pronounced in Open Court on 5/3/2010
Sd/- Sd/-
(T.K. Sharma) (D.C.Agrawal)
Judicial Member Accountant Member
Ahmedabad,
Dated : 5/3/2010
Mahata/-
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
Deputy/Asstt.Registrar
ITAT, Ahmedabad
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