Income Tax Appellate Tribunal - Chandigarh
Abhishek Industries Ltd.,, Ludhiana vs Department Of Income Tax on 22 September, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A' CHANDIGARH
BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 321/Chd/2009
Assessment Year: 2004-05
M/s Abhishek Industries Ltd., Vs. The JCIT, Range-1,
Ludhiana Ludhiana
&
ITA No. 259/Chd/2009
Assessment Year: 2004-05
The DC IT, Circle-1, Vs. M/s Abhishek Industries Ltd.,
Ludhiana Ludhiana
(Appellant) (Respondent)
Appellant By : Shri Ajay Sharma
Respondent By : Shri Ashwani Kumar
Date of hearing : 22.09.2011
Date of Pronouncement : 27.09.2011
ORDER
PER H.L.KARWA, VP These cross appeals by the assessee and Revenue are directed against the order of C IT(A), Jalandhar dated 30.12.2008 relating to assessment year 2004.-05.
2. Firstl y, we will take up the assessee's appeal i.e. ITA No. 321/Chd/2009, wherein ground No.1 raised by the assessee reads as under:-
1. That order passed u/s 250(6) by the Ld. CIT(A), Jalandhar is against law and facts on the file in as 2 much as he was not justified to hold the action of the Assessing Officer in:
i) Disallowing prior period expenditure amounting to Rs. 45,44,691/- on the ground that they do not relate to the period under appeal.
ii) Denying deduction u/s 80G of the amount of donation of Rs. 1,25,000/- on the ground that the receipts is in the name of Shri Rajinder Gupta and not in the name of the appellant company.
3. Ground No.1 (i) relates to disallowance to prior period expenditure amounting to Rs. 45,44,691/-. During the course of assessment proceedings, the Assessing Officer asked the assessee to submit details of the liabilit y which had arisen during the year out of this expenditure. However, no details were furnished before the Assessing Officer. The Assessing Officer held that the concept of matching principles was to be applied to determine the total income of the assessee and that onl y income and expenditure relevant to previous year was required to be considered. He, therefore, held that no deduction of the prior period expenditure of Rs. 54,56,428/- was to be allowed. However, the Assessing Officer excluded a sum of Rs. 9,11,737/- relating to assessment year 2005-06. The net disallowance of Rs. 45,44,691/- was made on this account.
4. On appeal, the CIT(A) confirmed the disallowance stating that the assessee has not lead any evidence to show that the expenditure arose in the relevant previous year. According to him, the expenditure pertain to the earlier years. The onus was on the assessee to show that the liabilit y for incurring these expenses arose in the relevant previous year. The 3 CIT(A) has categoricall y stated that no evidence was produced before the Assessing Officer or before him in support of the assessee's claim. He, therefore, upheld the disallowance.
5. We have heard the rival submissions. At the time of hearing of appeal Shri Ashwani Kumar, Ld. counsel for the assessee produced a copy of the order of this Bench of the Tribunal dated 31.3.2008 passed in assessee's case in ITA Nos.837 & 311/Chandi/2007 relating to assessment years 2002-03 and 2003-04. The Tribunal has restored the issue to the file of the Assessing Officer with certain directions and guidelines. The findings of the Tribunal given in para 20 of the above order read as under:-
"20. We have examined the plea of the assessee and also the orders of the lower authorities in this regard. We find that the disallowance has been made without recording a finding or even reference to any material which could establish that the liability represented by the impugned amounts has not crystallized during the assessment year under consideration. We therefore deem it proper to set-aside the order of the CIT(A) and restore the issue for re-examination by the Assessing Officer. The assessee shall furnish evidence in support of the plea that the liabilities represented by the impugned amounts arose during the year under consideration so as to justify their deduction in computing the income of the year under consideration.
Thus on this Ground the assessee succeeds for
statistical purposes.
6. The facts of the present year are similar to that of assessment years 2002-03 and 2003-04 and therefore, respectfull y following the order of 4 Tribunal dated 31.3.2008 passed in assessee's own case for assessment years 2002-03 and 2003-04, we set aside the order of C IT(A) on this issue and restore the matter to the file of the Assessing Officer with a direction to decide the issue afresh keeping in view the directions and guidelines given by the Tribunal in its order dated 31.3.2008 in assessee's own case in ITA Nos. 837 & 311/Chandi/2007 relating to assessment years 2002-03 and 2003-04. The Assessing Officer shall pass a speaking order after affording due and reasonable opportunity of being heard to the assessee.
Ground No. 1(i) stands allowed for statistical purposes.
7. Ground No. 1 (ii) regarding denying deduction u/s 80G was not pressed before us and accordingl y, we dismiss the same as not pressed.
8. Ground No.2 of the appeal reads as under:-
2. That the Ld. CIT(A) was not justified to hold the action of the Ld. Assessing Officer in computing the deduction u/s 80IA after excluding a sum of Rs.
2,69,96,242/- (comprised of miscellaneous Income of Rs. 2,32,124/-, interest Rs. 67,03,027/- and insurance claim of Rs. 2,00,71,091/-).
9. The assessee claimed deduction u/s 80IA of the Act after excluding a sum of Rs. 2,69,96,242/- (comprising of Misc. Income of Rs. 2,32,124/-, Interest Income of Rs. 67,03,027/- and Insurance claim of Rs. 2,00,61,091/-). The Assessing Officer did not allow the above claim of the assessee and in further appeal the CIT(A) confirmed the order of Assessing Officer and hence assessee is in appeal before the Tribunal. At the very outset Shri Ashwani Kumar, Ld. counsel for the assessee submitted that the issue of claim of deduction u/s 80IA of the Income Tax 5 Act, 1961 (in short 'the Act') of Misc Income of Rs. 2,32,124/- is covered against the assessee by the judgment of the Hon'ble Supreme Court in the case of Libert y India vs C IT (2009) 317 ITR 218 (SC) wherein it has been held that section 80-I, 80-IA and 80-IB provide for incentive in the form of deductions which are linked to profits and not investment. On anal ysis of section 80-IA and 80-IB it become clear that any industrial undertaking which becomes eligible on satisfying sub-section (2) would be entitled to deduction under sub-section (1) onl y to the extent of profits derived from such industrial undertaking after the specified date. Apart from eligibilit y, sub section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from an industrial undertaking" as against "Profits attributable to an industrial undertaking." In view of the ratio laid down by the Hon'ble Supreme Court in the case of Libert y India Vs. CIT (supra), we hold that Misc. Income claimed by the assessee is not derived from any industrial undertaking and therefore, the assessee is not entitled to claim deduction u/s 80-IA of the Act in respect of Misc. Income.
10. As regards the deduction u/s 80-IA in respect of Interest Income of Rs. 67,03,027/-, we find that the same is also not allowable as deduction u/s 80-IA in view of the judgment of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd v C IT (2003) 262 ITR 278 (SC). In view of the above judgment of the Hon'ble Supreme Court, we hold that Interest Income earned by the assessee from others could not be said to flow directl y from the industrial undertaking itself and was not profit or gains derived by the undertaking for the purpose of deduction u/s 80-IA. In view of the decision of the Hon'ble Supreme Court in the case of 6 Pandian Chemicals Vs. C IT (supra), the issue is decided against the assessee and in favour of the Revenue.
11. The assessee also claimed deduction of Rs. 2,00,61,091/- u/s 80-IA of the Act. This amount was received by the assessee company on account of Insurance Claim for loss of profit policy. The Assessing Officer has noted that this claim was a one time receipt which accrues onl y on the happening of certain mishap like break down or loss due to fire etc. It was received by the assessee since the assessee's plant was shut down for a specific period. The Assessing Officer took the view that the sources of Insurance Claim received on account of shut down is not the industrial undertaking itself but an insurance policy taken to cover certain losses arriving on contingencies. He further held that insurance claim though related and attributable to the industrial undertaking arose out of risk coverable policy of the insurance company and cannot not be said to be derived from industrial undertaking.
12. On appeal the C IT(A) upheld the order of Assessing Officer rel ying on the decision of the jurisdictional High Court in the case of CIT v Khemka Container (P) Ltd (2005) 275 ITR 559 (P&H) wherein the Hon'ble Court upheld the stand of the Revenue that Insurance claim did not arise from the industrial undertaking of the assessee. The CIT(A) observed that in the present case the Assessing Officer has himself not excluded the insurance claim received in respect of machinery break down since it was on the reimbursement. The sum of Rs. 200.61 lacs, is however, not a reimbursement and all expenses have already been debited in the accounts, observed the C IT(A). The CIT(A) has also referred to the decision of the Hon'ble Supreme Court in the case of Libert y India v CIT 7 (supra). The CIT(A) following the ratio of the judgment in the case of Libert y India (supra) and Khemka Containers (supra), upheld the order of Assessing Officer.
13. We have heard the rival submissions and have also perused the materials available on record. The assessee has claimed deduction u/s 80- IA of the Act for a sum of Rs. 200.61 lacs which was received on account of Insurance Claim from Oriental Insurance Company Ltd due to loss on profit policy. According to Assessing Officer, insurance claim received of Rs. 200.61 lacs is not the receipt from cogeneration of power which is the eligible business for claim of deduction u/s 80IA of the Act. According to him, the receipt is onl y incidental to the eligible business. Accordingl y, deduction u/s 80IA of the Act was not allowed on the same.
14. Shri Ashwani Kumar Ld. counsel for the assessee relied upon on the judgment of the Hon'ble Delhi High Court in the case of C IT v Sportking India Ltd (2010) 324 ITR 283(Del.), and submitted that the amount received from the insurance company by the assessee had to be taken into account in determining the profits and gains of an industrial undertaking of the t ypes prescribed u/s 80IA of the Act. On the other hand the Shri Ajay Sharma Ld. DR for the Revenue heavil y relied upon the decision of the Hon'ble jurisdictional High Court in the case of C IT Vs. Khemka Containers (supra) and submitted that the amounts of insurance claim received by the assessee could not be held to be income derived from industrial undertaking so as to qualify for deduction u/s 80IA of the Act.
15. In the case of CIT v M/s Sportking India Ltd (supra), in the previous year relevant to assessment year 1998-99, on account of loss of 8 goods which was destroyed by fire, the assessee company received an insurance claim of Rs. 39,35,841/- The Assessing Officer denied benefit of section 80IA of the Act to the assessee holding that the amount received from the insurance company was not 'derived from' the manufacturing activity of the assessee company. On appeal, the C IT(A) reversed the order of Assessing Officer and the order of the CIT(A) was confirmed by the Tribunal. The Revenue went in appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court at page 288 held as under:-
"The case of Pandian Chemicals (2004) 270 ITR 448 (SC) has held that sale of scrap is not a revenue receipt derived from business though the same was held eligible by the Madras High Court in the earlier cases of CIT v.
Sundaram Clayton Ltd. (1982) 133 ITR 34 and CIT v. Wheels India Ltd. (1983) 141 ITR 745 (Mad). So far as the judgment of Pandian Chemicals (2004) 270 ITR 448 (SC) holds that the profit amount received from the insurance company is not a revenue receipt, the same would be at divergence with the view of the Supreme Court in the case of Raghuvansi Mills Ltd. (1952) 22 ITR 484. We note that the Pandian Chemicals case does not refer to the decision of the Supreme Court in Raghuvanshi Mills Ltd. V. CIT (1952) 22 ITR 484 which clearly holds that the amount received from an insurance company on account of loss of profit is very much a revenue receipt.
So far as the Supreme Court decision in the case of Vania Silk Mills P. Ltd. (1991) 191 ITR 647, the same cannot be applied to the facts of the present case inasmuch as the said decision turned upon the meaning of the word "transfer" as occurring in section 45 of the Act for the purpose of determining capital gains. The decision dealt with the issue that if the machinery is damaged by fire then, it 9 cannot be said that there is transfer within the meaning of section 45 of the Act merely because the scrap has to be given to the insurance company which realizes proceeds from the sale of the scrap. On the facts of the case it was, therefore, held that the money received under the insurance policy in such case was not a consideration for transfer of the property and hence was not a capital gain within the meaning of section 45 of the Act.
In view of the above, we accept the contention of the assessee and reject the contention of the Revenue and answer the question of law framed by holding that the Income-tax Appellate Tribunal/Commissioner of Income-tax (Appeals) did not err in deleting the disallowance made by the Assessing Officer on account of the assessee's claim for deduction under section 80-IA in respect of the insurance claim receipt. The Appeal is accordingly dismissed."
16. In the above decision, the Hon'ble Delhi High Court has categoricall y held that sum received from insurance company is compensation of goods destroyed by fire should be taken into account in determining the profits and gains of industrial undertaking of the t ypes specified u/s 80-IA of the Act.
17. In the case of Khemka Containers (supra), the assessee received an amount of Rs. 1,50,733/- towards insurance claim on account of loss of raw material in the firm. The assessee included the said amount in profits and claimed deduction u/s 80I of the Income Tax Act. In this case the Assessing Officer as well as the C IT(A) rejected this claim but the 10 Tribunal on further appeal, held this amount as close connection with the profits derived from industrial undertaking. It was observed that raw material which was lost in fire would have been used in generating income for the industrial undertaking and therefore, compensation received for such raw materials could be held as profit derived from the industrial undertaking. On a reference, the Hon'ble jurisdictional High Court following the decision of the Hon'ble Apex Court in Pandian Chemicals (2003) 262 ITR 278 and Sterling Foods [1999 237 ITR 579 at page 562 held as under:-
".........we are clearly of the view that the amount of insurance claim received by the assessee cannot be held to be income derived from the industrial undertaking so as to qualify for deduction under section 80-I of the Act. We, however, make it clear that the amount of Rs. 1,50,733 is the amount received from the insurance company in respect of the claim of raw material destroyed in fire. However, while computing the profits of the industrial undertaking for the purposes of deduction under section 80-I, what has to be excluded is not the gross receipt but the income arising out of this receipt. Such income can only be computed by deducting the cost of raw material destroyed in fire from the gross receipt of insurance claims. The raw material had been admittedly purchased during the year under consideration and its cost debited in the purchase account of the year.
Accordingly, the question is answered in the negative, i.e., in favour of the Revenue and against the assessee. However, in view of the observations made above, the Tribunal will compute the profit attributable to the receipt of insurance claim and exclude only such profit out of the total income for working out the deduction under section 80-I of the Act."11
18. No doubt, the decision of the Hon'ble Delhi High Court in the case of Sportking India ltd (supra), is in favour of the assessee, however, the decision of the Hon'ble jurisdictional High Court in the case of Khemka Containers (supra) is in favour of the Revenue. Considering the facts and circumstances of the case as well as settled legal position of law and precedents, we are bound to follow the ratio laid down by the jurisdictional High Court in the case of Khemka Containers (supra) particularl y when there is no direct authorit y of the Supreme Court on this point. Respectfull y following the ratio laid down by the Hon'ble jurisdictional High Court in the case of Khemka Containers (supra), we uphold the order of CIT(A) and held that the insurance claim of Rs. 2,00,61,01/- is not allowable as deduction u/s 80IA of the Act.
19. Ground No.3 raised of the appeal is as under:-
That the Ld. CIT(A) was further gravely erred in upholding the action of the Ld. Assessing Officer in the matters of calculation of deduction u/s 80HHC on the following grounds:-
a) Excluding the scrap sale of Rs. 1,33,19,595/- from the profits of the business.
b) Holding that sales tax subsidy amounting to Rs.
6,80,61,977/- is to be treated as business income but at the same time 90% of such receipt is to be excluding from the profits of the business.
c) Reducing 90% of miscellaneous income of Rs.
1,27,60,909/- insurance claim of Rs. 2,00,61,091/-
profits of the business.
d) Disallowing deduction u/s 80HHC in respect of whole
amount of DEPB entitlement amounting to Rs.
19,45,46,911/- by not considering it as an expert benefit. 12
e) Treating interest receipt amounting to Rs. 1,66,76,874/-
as income from other sources and denying deduction u/s 80HHC in respect thereof.
20. This ground of appeal has five parts. Firstl y we will adjudicate ground No.3 (a) in succeeding paras.
21. At the time of hearing of the appeal, Shri Ashwani Kumar, Ld. counsel for the assessee did not press for this ground i.e Ground No. 3(a) of appeal and accordingl y we dismiss the same as not pressed.
22. As regards, the issue raised by the assessee vide ground No. 3(b) of the appeal, Ld. counsel for the assessee submitted that the issue is squarel y covered by the decision of the jurisdictional High Court in the case of C IT v Abhishek Industries Ltd (2006) 286 ITR 1(P&H) wherein it has been held that sales tax subsidy received by the assessee is held to be Revenue receipt and not capital in nature. Ld. counsel for the assessee submitted that this amount should not be excluded for the purpose of computing profits of the business u/s 80HHC of the Act, because this income does not fall under the parameters provided in clause (baa) to Section 80HHC (4C) 23 We have heard the rival submissions. In view of the decision of the jurisdictional High Court in the case of CIT v Abhishek Industries ltd (supra), we hold that sales tax subidy amounting to Rs. 6,81,61,977/- to be treated as Revenue income. As regarding the plea of Ld. counsel for the assessee that 90% of such receipts should not be excluded for the purpose 13 of profits of the business u/s 80HHC of the Act is concerned, we find merit in the same because the amount of sales tax subsidy does not fall in clause (baa) below section 80HHC(4C). Clause (baa) below section 80HHC (4C) reads as under:-
[(baa) "profits of the business" means the profits of business as computed under the head "Profits and gains of business or profession": as reduced by -
(1) ninety per cent of any sum referred to in clauses (iiia), (iiib) (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent charges or any other receipt of a similar nature included in such profits; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India:
24. In view of the above, we direct the Assessing Officer not to exclude 90% of amount of sales tax subsidy from "profits of the business" for the purpose of computing deduction u/s 80HHC of the Act.
25. At the time of hearing of the appeal, Ld. counsel for the assessee did not press for ground No. 3 (c ) of the appeal regarding the misc. income of Rs. 1,27,60,909/-. We, therefore, reject the ground regarding misc. income of Rs. 1,27,60,909/-.
26. As regards the Insurance Claim of Rs. 2,00,61,091/-, we have held that the amount of insurance claim received by the assessee could not be held to be income derived from industrial undertaking to qualify for deduction u/s 80-IA of the Act. In that view of the matter, Insurance 14 Claim of Rs. 2,00,61,091/- cannot be considered as profits of the business and hence such receipts is to be excluded from the profits of the business. We, therefore, dismiss the ground No. 3(c ) of the appeal.
27. As regards ground No. 3(d), we find there is as direct decision of Hon'ble Bombay High Court on this issue. The Hon'ble Bombay High Court in the case of CIT v Kalapataru Colours and Chemicals (2010) 328 ITR 451 (Bom.) while deciding a similar issue held as under:-
"Under sub-section (1) of section 80HHC of the Income-tax Act, 1961, a deduction is allowed to the extent of profits "derived by the assessee" from the export of goods. Since the deduction is in respect of profits derived from export, sub-section (3) laid down a formula on the basis of which export profits have to be computed. Under clause (a) of sub-section (3), the expression "profits derived from" is defined to be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. However, where an assessee carries on the business of export of trading goods, clause (b) defines "export profits" to be the export turnover in respect of such trading goods which is to be reduced by the direct and indirect costs attributable to the export. In the application of the formula to a manufacturer exporter, clause (a) refers to the profits of the business.
The expression "profits of the business" in Explanation (baa) to section 80HHC means profits as computed under the head of "profits and gains of business or profession" under sections 28 to 44D and they are thereupon to be reduced to the extent provided by clauses (1) and (2). Section 28 elucidates incomes which shall be chargeable to 15 income-tax under the head of "profits and gains of business or profession". Clauses (iiia), (iiib) and (iiic) were inserted into the section by the Finance Act of 1990. By the Finance Act of 2005, Parliament inserted a specific clause, namely, clause (iiid) in section 28 to the effect that profits on transfer of DEPB, i.e., the amount received on transfer of DEPB is income chargeable to tax under the head "Profits and gains of business or profession".
As regards the deduction under section 80HHC, the Legislature substituted Explanation (baa) in section 80HHC so as to exclude 90 per cent of the profits received on transfer of DEPB from the profits of business for the purposes of section 80HHC and inserted the second and third provisos to section 80HHC(3). The second proviso provided that in the case of an assessee having an export turnover not exceeding Rs. 10 crores, the profits computed under section 80HHC(3) shall be increased by 90 per cent, of the sum referred to in section 28 (iiid). The third proviso provided that in the case of assessee having an export turnover exceeding Rs. 10 crores, the profits computed under section 80HHC(3) shall be increased by 90 per cent. Of the sum referred to in section 28 (iiid) subject to the two conditions set out therein. What constitutes profits under section 28(iiid) is the amount received on transfer of the DEPB credit and not the amount of credit which the assessee was entitled to under the DEPB scheme. In other words, the amount equivalent to the face value of DEPB as well as the amount received in excess of the DEPB would constitute profits of business under section 28(iiid) and merely becaus e a part of such profits of business (face value) was offered to tax in the year in which the credit accrued to the assessee would not be a ground to hold that such profit was not covered under section 28(iiid). Where the face value of DEPB credit is offered to tax as business profits under section 28(iiid) in the year in which the credit accrued to the assessee, then any further profit arising on transfer of the 16 DEPB credit would be taxed as profits of business under section 28(iiid) in the year in which the transfer of the DEPB credit took place.
There is another perspective from which the issue can be looked at. The DEPB credit to which an exporter is entitled is a form of an export incentive. No part of the credit that is available under the DEPB scheme can fall for classification under clause (iiib) of section 28 which deals with cash assistance, received or receivable against any scheme of the Government of India. Clause (iiib) was enacted at a time when the export incentives that were available were
(i) import entitlement licences; (ii) cash compensatory support; and (iii) duty drawback. The DEPB scheme was not in existence when clause (iiib) came to be enacted into section 28 by the Finance Act of 1990. The DEPB scheme was brought into existence with effect from April 1, 1998. The value of the DEPB credit cannot be regarded as a cash assistance which is received or receivable by a person against exports under any scheme of the Government of India.
It cannot be inferred from the speech of the Finance Minister that the insertion of clause (iiid) in section 28 was made with a view to tax only the amount which has been received in excess of the face value of the DEPB credit. DEPB credit introduced with effect from April 1, 1997, which was after the insertion of clause (iiib) in section 28; section 28(iiib) refers to cash assistance received by the assessee from the Government pursuant to a scheme of the Government within the meaning of clause (iiic); and when section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB. The entirety of the sale consideration would fall within the purview of section 28(iiid)."
17
28. Since the issue is squarel y covered by the decision of the Hon'ble Bombay High Court in the case of CIT v Kalapataru Colours and Chemicals (supra), therefore, respectfully following the same, we hold that deduction in respect of 90% of DEPB and DFRC benefits are not allowable u/s 80HHC of the Act. We, therefore, dismiss ground No.3(d) of the appeal.
29. Ground No.3(e) of the appeals is dismissed as not pressed. ITA No. 259/Chd/2009
30. In this appeal, ground No.1 raised by the Revenue is as under:-
1. That the Ld. CIT(A) has erred in considering the softwar e expenditure amounting to Rs. 58,82,239/- as Revenue expenditure instead of capital expenditure considered by the Assessing Officer.
31. While framing the assessment the Assessing Officer held that computer software expenditure amounting to Rs. 58,82,239/- was capital expenditure. The Assessing Officer after treating the computer software as plant and machinery allowed depreciation @ 60% on the same as applicable to the computers. On appeal, the C IT(A) held that Computer Software expenditure to be Revenue expenditure following the order of the Tribunal passed in the case of assessee for as y 2001-02 by the Tribunal. The CIT(A) has also stated that Hon'ble Punjab & Haryana High Court have concurred with that decision of the Tribunal. He, therefore, allowed the ground of appeal and hence the Revenue is in appeal before the Tribunal.
18
32. We have heard the rival submissions. We find that the issue is squarel y covered in favour of the assessee and against the Revenue by the decision of the jurisdictional High Court in the case of C IT v Varinder Agro Chemicals Ltd (2009) 309 ITR 272 (P&H). In the said case, the Hon'ble High Court held as under:-
"Held, that there was nothing to show that the software used by the assessee was of enduring nature and would not become outdated. Since technology is fast changing and day-by-day systems are being developed in a new way, software may be needed like raw material. Computer software expenses were Revenue expenditure and deductible as such."
33. Respectfull y following the ratio laid down by the jurisdictional High Court in the case of CIT v Varinder Agro Chemicals Ltd (supra), we do not find any merit in this ground of appeal and accordingly we dismiss the same.
34. Ground No.2 of the appeal reads as under:-
2. That the Ld. CIT(A) has erred in treating sale tax subsidy as income from business and profession instead of 'income from other sources' and directing the Assessing Officer to reduce 90% of the sale tax subsidy from profits of business for the purpose of computing of deduction u/s 80HHC.
35. While deciding the ground No. 3(b) in ITA No. 321/Chd/2009, we have held that sales tax subsidy is a Revenue receipt in view of the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd (supra). Further, we have held that the amount 19 of sales tax subsidy is to be excluded for the purpose of computing profits of business u/s 80HHC of the Act. We, therefore, do not find any merit in this ground of appeal and dismiss the same.
36. Ground No.3 of the appeal reads as under:-
3. The Ld. CIT(A) has erred in directing to reduce only 90% of discount received from customers from profits of business for computation of deduction u/s 80HHC as the discount received is not linked with export businessman.
37. We have heard the rival submissions. The Ld. DR strongl y supported the order of the Assessing Officer and Ld. counsel for the assessee reiterated the submissions made before the lower authorities. The C IT(A) has discussed this issue in para 12.4 of the order which reads as under:-
"12.4 However, as regards discount of Rs. 31.92 lac, since this is stated to be received on early payment by the appellant for goods purchased, it is inextricably linked to the export turnover of the assessee and is, therefore, held by me not to be independent income of the nature of brokerage, commission, etc. Hence, the Assessing Officer is directed not to exclude 90% of discount received of Rs. 31.92 lac from profits of the business for the purpose of computing deduction u/s 80hshc. This ground if partly allowed."
38. In our view, the decision given by the C IT(A) on this issue deserves to be upheld. The amount of Rs. 31.42 lacs has been received on earl y payment made by the assessee for the goods purchased which is directl y linked to the export turn over of the assessee. The amount in question is not covered by the provisions of clause (baa) below Explanation to 20 section 80HHC (4C). In that view of the matter, the CIT(A) has correctl y directed the Assessing Officer not to exclude 90% of discount received i.e. Rs. 31.92 lacs from profits of the business for the purpose of computing deduction u/s 80HHC of the Act. Accordingl y, we uphold the order of C IT(A) on this issue and dismiss the ground No.3 of the appeal.
39. In the result, appeal of the assessee is allowed partly and partl y for statistical purposes while the appeal of the Revenue is dismissed.
Order Pronounced in the Open Court on this 27 t h day of September, 2011.
Sd/- Sd/-
(MEHAR SINGH) (H.L.KARWA)
ACCOUNTANT MEMBER VICE PRESIDENT
Dated : 27 t h September, 2011
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar,
ITAT, Chandigarh