Income Tax Appellate Tribunal - Ahmedabad
Hindustan Inks & Resins Ltd.,, Vapi. vs Department Of Income Tax on 24 February, 2004
N THE INCOME TAX APPELLATE TRIBUNAL AT
AHMEDABAD
AHMEDABAD "D"BENCH
Before Shri G.D. Agarwal, Vice-President (AZ) and
Shri Mahavir Singh, Judicial Member
IT A No.1483 & 1508/ Ahd/2004
[Asstt.Year: 2000-01]
ACIT, Vapi Circle, Vapi -vs- Hindustan Inks & Resins Ltd.
Incom e Tax Office, Ajitnagar, [Presently known as Micro
Chala, Vapi Inks Ltd.] Parishra, Muktanand
Marg, Chala, Vapi
PAN No. AAACH7063F
M/s. Micro Inks Lim ited -vs- ACIT, Vapi Circle, Vapi
(Formerly known as Vapi
M/s. Hindustan Inks & Resins
Muktanand Marag, Chala,
Vapi, Gujarat
(Appellant) (Respondent)
Revenue by : Shri C.K. Mishra, SR-DR
Assessee by: Shri M.K. Patel, AR
ORDER
PER Mahavir Singh, Judicial Member:-
These cross appeals - one by Revenue and another by assessee are arising out of the order of Commissioner of Income-tax (Appeals), Valsad in appeal No.CAS(VLS)/79/02-03 dated 24-02-2004. The assessment was framed by ACIT, Vapi Circle u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 29-11-2002 for assessment year 2000-01.
First we will take up Revenue's appeal in ITA No.1483/Ahd/2004.
2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by Assessing Officer on account of foreign travel expenses amounting to Rs.12,61,299/- out of total expenses on this account at Rs.63,06,498/- and disallowance comes to 1/5th of the total foreign travel expenses.
ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 2 Even though the assessee has furnished the details, the Assessing Officer concluded that it could not justify the number of days of stay abroad by a particular person is mainly for the purpose of business. Accordingly, he made disallowance and CIT(A) allowed the claim of the assessee by observing in para-7 of his appellate order, which reads as under:-
"I have carefully considered the submission of the learned counsel, the finding and remand report of the Assessing Officer and the relevant decisions relied upon. The Assessing Officer has not pointed out which of the expenses are not for the purpose of business. The expenses can no be disallowed in a summary manner. He could not prove the foreign travel as a pleasure trip. Nor he could prove that the expenditure was personal in nature. I agree wit the finding given by my predecessor in the appellant's own case for the Asstt. Year 1997-98 and the disallowance are deleted for the same reasoning."
Aggrieved, Revenue came in appeal before the Tribunal.
3. Ld. counsel for the assessee stated that CIT(A) has followed assessment year 1997-98 and Tribunal in assessment year 1997-98 in ITA No.700/Ahd/2002 dated 31-05-2007 has allowed the claim of assessee vide para-3 as under:-
"3. We have heard the parties and considered the rival submissions. In absence of any material justifying the stay by Directors for personal purposes, no disallowance can be made. Prima facie the visits were for business purposes, and therefore, the CIT(A) right in allowing the same."
Even now before us Revenue could not justifying the disallowance by any cogent material that the same was not for the purpose of business and the assessee has filed complete details regarding, visits, purpose and number of days of stay by its Directors. It is a fact that the stay was by the Director and not by any other person and that also for the purposes of business. In view of these facts, we find no reason to interfere in the order of CIT(A) accordingly this issue of Revenue's appeal is dismissed.
4. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting the addition made by Assessing Officer on account of oil and petrol expenses amounting to Rs.11,47,189/-. Ld. counsel for assessee has referred to the order of Tribunal in ITA No.391/Ahd/2003 for assessment year 1998-99 dated 20-
ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 3 07-2007, wherein the Tribunal vide para-27 & 28 allowed the claim of assessee, which read as under:-
"27. The ground Nos. 3 and 4 of he appeal are directed against the order of the ld. CIT(A) allowing relief to he assessee out of 1/4th disallowance on account of oil and petrol expenses of Daman and Vapi Units respectively.
28. The facts of the case are that the AO disallowed 1/4th of the expense incurred on oil and petrol on account of personal use of the vehicles by the Director sin respect of Daman and Vapi Units. In appeal, the ld. CIT(A), following the decision of the Hon'ble Gujarat High Court in the case of Sayaji Iron & Engg. Co., 253 ITR 749, wherein it was held that there cannot be a disallowance on account of personal use of a car by the director in the hands of the company, deleted the disallowances made by the AO. The ld. Departmental Representative could not point out any contrary decision to one relied upon by the ld. CIT(A). Hence we do not find any infirmity in the order of the ld. CIT(A). Accordingly, these grounds of appeal of the revenue are dismissed."
5. We have heard the rival contentions and gone through the facts and circumstances of the case. We have noticed from the orders of the lower authorities that the facts are exactly identical, what was in assessment year 1998-99, which has been followed by the CIT(A) also. The total expenditure debited by the assessee on account of oil and petrol expenses was to the tune of Rs.60,48,300/- for Daman Unit and Rs.1,87,645/- for Vapi Unit and the Assessing Officer made the disallowance at Rs.11,11,660/- for Daman Unit and Rs.35,529/- for Vapi unit. The Assessing Officer has simply mentioned that the personal user of vehicles is not ruled out but this observation of the Assessing Officer is without any evidence or basis. Respectfully following the Tribunal's decision in immediate preceding year, we dismiss the issue of Revenue's appeal.
6. The next issue in this appeal of Revenue is against the order of CIT(A) in deleting the addition made by Assessing Officer on account of preliminary expenses amounting to Rs.32,998/-. Ld. counsel for assessee has referred to the order of Tribunal in ITA No.391/Ahd/2003 for assessment year 1998-99 dated 20-07-2007, wherein the Tribunal vide para-21 to 24 allowed the claim of assessee, which read as under:-
ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 4 "21. In the revenue's appeal, the first ground of appeal is directed against the order of the CIT(A) allowing the deduction of Rs.32,998/- on account of preliminary expense.
22. The brief facts of the case are that the assessee claimed deduction of Rs.32,998/- on account of preliminary expenses. The AO disallowed the same on protective basis on the ground tat the assessee was not in appeal against the assessment order for the assessment year 1993-94. In appeal before the CIT(A), the assessee filed the order of the CIT(A) for the assessment year 1997-98 dated 22.1.2001 in Appeal No.CAS(1)/339/2000-01 dt. 22.01.2001 and in paragraph 3.1 of this order, the CIT(A) directed the AO to allow full claim of he assessee and rectify the assessment order on the basis of the order of the Tribunal in the appeal filed by the assessee.
Following the said order of the CIT(A), the ld. CIT(A) in the present year directed the AO to allow full claim of the assessee of deduction of the preliminary expenses.
23. The ld. Departmental Representative relied on the order of the AO whereas the ld. Authorized Representative for the assessee supported the order of the CIT(A).
24. Having heard the rival submissions, perused the orders of the lower Authorities and material on record, we find that the ld. CIT(A) had allowed the claim for deduction of preliminary expenses of Rs.32,998/- following the order of the CIT(A) for the assessment year 1997-98 wherein the appeal of the assessee was allowed following the order of the Tribunal in the assessee' own case. The ld. Departmental Representative could not bring any cogent and relevant material on record to controvert the finding of the ld. CIT(A). Hence we confirm the order of the ld. CIT(A) and dismissing this ground of appeal of the revenue."
7. We have heard the rival contentions and gone through the facts and circumstances of the case. We have noticed from the orders of the lower authorities that the facts are exactly identical, what was in assessment year 1998-99, which has been followed by the CIT(A) also. Respectfully following the Tribunal's decision in immediate preceding year, we dismiss the issue of Revenue's appeal.
8. The next issue in this appeal of Revenue is as regards to claim of deduction u/s.80HHC of the Act, whether miscellaneous receipts and sale of scrape are to be excluded while computing the deduction u/s. 80HHC of the Act from the total income of the assessee, amounting to Rs.25,26,946/- and Rs.43,91,859/-. The following miscellaneous receipts and sale of scrape are considered for deduction u/s.80HHC of the Act by the CIT(A):-
i) Sundry balance written off Rs.1,07,715/-, ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 5
ii) Sales rounding off Rs.7,295/-,
iii) Discount recd. From suppliers Rs.54,793/-,
iv) Amount received Rs.91,900/- his amount is already reduced by assessee while claiming 80HHC,
v) Income from wind power generation Rs.8,79,053/-. This amount I already excluded while claiming 80HHC,
vi) Sales tax refund Rs.1,58,032/- Direct nexus with business and manufacture,
vii) Amount recd. for termination of contract Rs.12,05,462/-,
viii) Insurance claim of Rs.22,673/-, recd. for damage to raw materials.
ix) Sale of scrape Rs.43,91,859/-
9. We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. As regards to sundry balances written off amounting to Rs.1,07,715/-, the sales rounding off of Rs.7,295/-, discount received fro suppliers amounting to Rs.54,7053/-, sales tax refund amounting to Rs.1,58,032/- and Insurance claim of Rs.22,673/- the Ld. counsel for the assessee stated that these are directly related to the business of the assessee and are emanating out of the business profits earned from manufacturing and export profits. Accordingly, the Ld. counsel for the assessee stated that these amounts are not to be excluded from the business profit u/s. clause (baa) of Sec. 80HHC of the Act while computing business profit. We find that the CIT(A) has included these items in the business profit as these are related to export profits of the assessee and in no way these can be excluded under Clause (baa) of Sec. 80HHC of the Act. We find merit in the argument of the Ld. counsel for the assessee and profit earned by the assessee on these items as a business profit eligible for deduction under Section 80HHC of the Act. Accordingly, the order of CIT(A) on these items is upheld.
10. As regards to the claim of deduction u/s.80HHC on account of income from wind power generation amounting to Rs.8,79,053/- and amount received of Rs.91,900/-, the Ld. counsel for the assessee clearly stated that the assessee while computing deduction u/s.80HHC has already excluded this amount and this cannot be excluded once more. We find force in the argument of the Ld. counsel for the assessee and for the limited purpose of verification, whether the assessee has already excluded this amount from the business profits for computation of deduction ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 6 u/s.80HHC of the Act or not, we send this to the file of the Assessing Officer, who will verify the same. This issue of the Revenue's appeal is allowed for statistical purposes.
11. As regards to the claim of deduction u/s.80HHC of the Act on the amount received from termination of contract i.e. contractual reimbursement of loss of profit received by assessee-company, the Revenue has came in appeal before us against the order of CIT(A). We find that the assessee-company has received compensation from M/s. AKZO Noble amounting to Rs.12,05,462/- for termination of contract as loss for business profit which the assessee-company has earned otherwise. We find that the foreign party has assured the assessee a return by way of assured profit. The purchaser has agreed that a fixed quantity of products will be purchased at a fixed price and assured profit will be provided to the assessee. The purchaser could not fulfill his commitment as per the agreement, as the above company was supposed some guaranteed minimum quantity and was also liable to pay reimburse equivalent profit to the assessee-company in case of failure to purchase the agreed minimum quantity. This is not a case of compensation of loss or non-competition payment. The assessee has received foreign exchange for this payment and this is a business profit. This fact has not been disputed by the lower authorities. For the purposes of working out the formula and in order to avoid distortion in arriving at the export profit clause (baa) stood inserted in Section 80HHC, to say that although incentive profits and independent income constituted part of a gross total income, but they had to be excluded from gross total income because such receipts had no nexus with the export turnover. But in the present case, the foreign exchange received by the assessee from the foreign purchaser on an agreed guaranteed minimum profit. This is a business profit eligible for deduction under Section 80HHC of the Act. This profit does not call for invocation of clause (baa) of Explanation to Section 80HHC of the Act. Accordingly, this issue of the Revenue's appeal is dismissed.
12. The next issue in this appeal of the Revenue is as regards to exclusion of the amount of Rs.43,91,859/- on account of sale of scrap while computing deduction u/s.80HHC of the Act. At the outset, the Ld. counsel for the assessee stated that this issue is squarely covered in favour of the assessee and against the Revenue by the ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 7 decision of this Tribunal in assessee's own case in ITA No.972/Ahd/2005 for the assessment year 1999-00 dated 17-07-2009. We find that even the CIT(A) has given a finding that scrap sale is directly relatable to business income of the assessee and the scrap is natural outcome of the manufacturing process. According to CIT(A), this scrap sale is directly relatable to business profit of the assessee of exports and accordingly allowable. We are in agreement with the finding of CIT(A) on this issue and we confirm the order of CIT(A). This issue of the Revenue's appeal is dismissed.
13. The next issue in this appeal of Revenue is against the order of CIT(A) in directing to exclude the excise duty and sales tax from the total turnover while computing u/s.80HHC of the Act.
14. At the outset, Ld. Counsel for the assessee argued that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Apex Court in the case of CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC), wherein the Hon'ble Apex Court has held as under:-
"In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the Assessing Officer [See : page No.24 of the paper book], if so, then excise duty and sales tax also cannot form part of the "total turnover"
under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc., It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. The view which we have taken is in the light of the amendments made to section 80HHC from time to time."
Respectfully following the Hon'ble Apex Court, we confirm the order of CIT(A) and this issue of the Revenue's appeals is dismissed.
15. The next issue in this appeal of Revenue is as regards to the order of CIT(A) in directing not to exclude the following for the claim of deduction u/s.80IA of the Act
i) Miscellaneous receipts amounting to Rs.25,26,946/-
ii) Scrap sales amounting to Rs.43,91,889/-
ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 8
16. At the outset, Ld. counsel for assessee referred that this issue is squarely covered in assessee's own case in ITA No.972/Ahd/2005 dated 17-07-2009 for assessment year 1999-00 in para-20 to 22, which read as under:-
"20. Ground No.5 of the appeal reads as under:-
5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the income from sale of scrap amounting to Rs.28,61,124/- and Export benefit receivables amounting to Rs.22,91,731/-
will be included while working out the profits eligible for deduction U/s. 80HHC & 80IA without considering the ratio laid down by the Hon'ble Apex Court in the case of CIT Vs. Sterling Foods 237 ITR 579 on the issue.
21. We have heard the rival submissions. We find that the CIT(A) has directed no to exclude the income from sale of scrap amounting to Rs.28,261,124/- and export benefit receivable amounting to Rs.22,91,731/- wile working out the profits eligible for deduction u/s.80IA of the Act. The CIT(A) has granted relief to the assessee relying upon the decision of the I.T.A.T. Ahmedabad Bench in the case of United Phosphorous v. Joint CIT (2002) 81 ITD 553 (Ahd.).
22. After hearing the ld. Representative of both the parties, we find that the assessee claimed deduction u/s.80IA of the Act in respect of the following income:
i) Income from sale of scrap Rs.28,61,124/-
ii) Export benefit receivable Rs.22,91,731/-
The issue regarding claim of deduction u/s.80IA of the Act on account of sale of scrap is squarely covered in favour of he assessee and against the Revenue by the decision of I.T.A.T. Ahmedabad Bench dated 01.02.2008 in the case of ACIT Vapi Circle v. Ploycom Associate, Daman in ITA No.3801/Ahd/2003 relating to Assessment Year 2005-06. The Tribunal vide para 6 and 7 of the order held as under:-
'6. The next ground in this appeal of the Revenue is as regards to claim of deduction u/.80IB allowed by the CIT on account of ale crap. Having heard rival contention and going through the case records it is noticed the issue of crap sale is squarely covered in favour of the assessee by the decision of Hon'ble Madras High Court in the case of CIT v. Madras Moors/M.M. Forgings (2002) 257 ITR 60 as under:-
"Once this situation is clear, there would be no scope for accepting the argument of the Revenue hat the total turnover of business would include even the turnover of goods which are outside the scope of clause (a) sub-section (2). Hence, we are of the clear opinion that the turnover from the business of sale of motorcycles motorcycle spare parts, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 9 be clearly going against the object of section 80HHC which is solely to encourage the exports."
Respectfully following the decision of Hon'ble Madras high Court, we decide this issue against the Revenue."
In view of the decision of the Tribunal (supra), we hold that the CIT(A) was justified in making deduction u/s.80IA in respect of income from sale of scrap amounting to Rs.28,61,124/-. We also hold that the CIT(A) was justified in holding that deduction u/.s 80IA is admissible in respect of export benefit receivable amounting to Rs.22,91,731/-. In view of the decision of I.T.A.T. Ahmedabad Bench in the case of United Phosphrous Ltd. v. Joint CIT (2002) 81 ITD 553 (Ahd.)."
17. We find that the issue of scrap sale and miscellaneous receipts for the claim of deduction u/s.80IA of the Act is covered in favour of the assessee, in assessee's own case as mentioned above. However, it is to be mentioned that the deduction u/s.80IA is subject to restrictions u/s.80IA(9) of the Act and this will be restricted and will not be out of the gross total income but after the claim of deduction u/s.80HHC of the Act. One more qualification to deduction under Section 80IA of the Act is in respect to amount received of Rs.91,900/- and income from Wind Power Generation amounting to Rs.8,79,053/-, the learned Counsel for the assessee fairly admitted that these amounts have already been reduced by the assessee and now the Assessing Officer need not to reduce again and he conceded these issues. We are of the view that these issues the Assessing Officer will verify whether the assessee has reduced from the accounts itself or not. In case the assessee has reduced itself, he need not to reduce again and will decide after verification. This issue of the Revenue is partly allowed as indicated above.
18. The next issue in this appeal of Revenue is against the order of CIT(A) in holding that SP unit is eligible for deduction u/s. 80IA of the Act. The learned Counsel for the assessee fairly stated that this ground raised by the Revenue does not arise from the order of the Assessing Officer or CIT(A), hence the same needs no adjudication. The learned Sr. DR also fairly agreed. We find from the records that these grounds raised by the Revenue is not arising out of the orders of the lower authorities, hence the same is dismissed as infructuous.
Now coming to assessee's appeal in ITA No. 1508/2004 ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 10
19. At the outset Ld. Counsel for the assessee has not pressed first two issues in this appeal of assessee, hence, we dismiss the same as not pressed.
20. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of Assessing Officer in disallowing contributions to the tune of Rs.16,15,647/- to PF/ESI.
21. We find that the issue of Employee's contribution has been considered by the Hon'ble Delhi High Court in the case of CIT v. P.M. Electronics Ltd. (2008) 220 CTR 635 (Del), wherein the Hon'ble Delhi High Court has discussed in para-4 as under:-
"4. On 27th Nov., 1998 the assessee had filed a return of income declaring a loss of Rs.8,92,888. On 11th May, 1999 the return was processed under s. 143(1)(a) of the Act. The case of the assessee was selected for scrutiny. Accordingly, a notice dt. 27th Sept., 1999 under s. 143(2) of the Act was issued to the assessee. In response to the notice and on examination of the details submitted by the assessee with respect to provident fund payments made both on account of employer's and employees' share revealed that payments in the sum of Rs.17,94,042 were late as per the provisions of s. 36(1)(va) r.w s. 2(24)(x) and s. 43B. Consequently, the AO disallowed the deduction and added a sum of Rs.17,94,042 towards EPF contribution."
And subsequently decide this issue in para-10 to 14 of Hon'ble Delhi High Court, which read as under:-
"10. In view of the above, it is quite evident that the special leave petition was dismissed by a speaking order and while doing so the Supreme Court had noticed the fact that the matter in appeal before it pertains to a period prior to the amendment brought about in s. 43B of the Act. The aforesaid position as regards the state of the law for a period prior to the amendment to s. 43B has been noticed by a Division Bench of this Court in Dharmendra Sharma (supra) . Applying the ratio of the decision of the Supreme Court in Vinay Cement (supra) a Division Bench of this Court dismissed the appeals of the Revenue. In the passing we may also note that a Division Bench of the Madras High Court in the case of CIT vs. Nexus Computer (P) Ltd. by a judgment dt. 19th Aug., 2008, passed in Tax Case (Appeal) No.1192/2008 [reported at (2008) 219 CTR (Mad.) 54 - Ed.] discussed the impact of both the dismissal of the special leave petition in the case of George Williamson (Assam) Ltd. (supra) and Vinay Cement (supra) as well as a contrary view of the Division Bench of its own Court in Synergy Financial Exchange (supra).
The Division Bench of the Madras High Court has explained the effect of the dismissal of a special leave petition by a speaking order by relying upon the judgment of the Supreme Court in the case of Kunhayammed & Ors.Vs. State of Kerala & Anr. (2000) 162 CTR (SC) 97: 119 STC 505 at p. 526 in para 40 and noted the following observations :
ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 11 "If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Art. 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court. Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court. Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties."
11. Upon noting the observations of the Supreme Court in Kunhayammed & Ors. (supra) the Division Bench of the Madras High Court in the case of Nexus Computer (P) Ltd. (supra) came to the conclusion that the view taken by the Supreme Court in Vinay Cement (supra) would bind the High Court as it was law declared by the Supreme Court under Art. 141 of the Constitution.
12. We are in respectful agreement with the reasoning of the Madras High Court in Nexus Computer (P) Ltd. (supra). Judicial discipline requires us to follow the view of the Supreme Court in Vinay Cement (supra) as also the view of the Division Bench of this Court in I Dharmendra Sharma (supra).
13. In these circumstances, we respectfully disagree with the approach adopted by a Division Bench of the Bombay High Court in Pamwi Tissues Ltd.
(supra).
14. In these circumstances indicated above, we are of the opinion that no substantial question of law arises for our consideration in the present appeal. The appeal is, thus, dismissed."
22. We find that the Hon'ble Delhi High Court in the case of P.M. Electronics Ltd. (supra) has decided this issue of payment of Employees contribution towards Provident Fund after considering the decision of Hon'ble Apex Court in the case of Vinay Cement (supra) and also distinguished the case law referred by the Ld. DR of Bombay High Court in Pamwi Tissues Ltd. (supra). Even now this issue has been considered by Hon'ble Apex Court in the case of CIT vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC) / (2009) 185 Taxman 416 (SC), wherein, it is held that "Contribution to provident fund, made before due date of filing of return allowable as deduction. The deletion of the second proviso to section 43B, and the amendment to the first proviso, by the Finance Act, 2003 was to overcome implementation problems. Consequently, the amendments, though made applicable by Parliament ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 12 only with effect from 1-4-2004, were curative in nature and would apply retrospectively w.e.f. 1-4-1988. Accordingly, following Apex Court in the case of Alom Extrusions Ltd. (supra) and Delhi High Court in P.M. Electronics Ltd. (supra), we allow the claim of the assessee.
23. The next issue in this appeal of assessee is against the order of CIT(A) in not considering the export benefits receivable for deduction u/s.80-IA of the Act.
24. At the outset Ld. counsel for assessee stated that this issue is covered in favour of the assessee by the order of ITAT in assessee's own case for Assessment Year 1999-2000 and 2001-2002 in ITA No. 972 and 973/Ahd/2005 dated 17-07- 2009. On the other hand the learned Sr. DR stated that this issue is now settled by Hon'ble Apex Court in the case of Liberty India v CIT ( 2009) 317 ITR 218 (SC) wherein the Hon'ble Apex Court has stated that Duty drawback receipts /Duty Entitlement pass Book benefits are on account of statutory provisions in Customs Act/Scheme(s) framed by Government, therefore profits so derived do not form part of net profits of eligible industrial undertaking for purposes of sections 80 IB, 80 I and 80 IA. Ld. Sr. DR in view of the decision of Liberty India (supra) stated that now the issue is settled in favour of the Revenue and against the assessee.
25. After hearing the rival contentions on this issue and going through the judgment of the Hon'ble Apex Court in the case of Liberty India (supra), we are of the view that the assessee is not entitled for deduction on export benefits receivable by the assessee. Accordingly, this issue of the assessee's appeal is dismissed.
26. The next common issues in this appeal of assessee is against the order of CIT(A) in confirming the action of Assessing Officer in not considering the interest income for deduction under Section 80IA and 80HHC of the Act amounting to Rs.11,52,074/-.
27. The learned Counsel for the assessee, stated that issue regarding interest income received from customers on delayed payments amounting to Rs.1,04,714/-, the Ld. Counsel stated that the issue is squarely covered by the judgment in the case of Nirma Industries Ltd Vs. DCIT (2006) 283 ITR 402 (Guj). On the other hand the learned Sr. DR stated that now the issue has become clear after the decision of ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 13 Hon'ble Bombay High Court in the case of CIT Vs. Dresser Rand India P. Ltd.[2010] 323 ITR 429 (Bom), wherein, Hon'ble Bombay High Court has clearly held that the recovery of freight, insurance, packaging receipts, sales tax refund and service income being miscellaneous income not forming part of export activity covered by section 80HHC, ninety per cent of such income should be excluded from computing the income of eligible business for purposes of section 80HHC, following the decision in the case of CIT Vs. K Ravindranathan Nair [2007] 295 ITR 228 (SC). In reply the learned Counsel for the assessee stated that when two High Courts differ on the same issue, the beneficial view should be taken in favour of the assessee. He stated that Hon'ble Delhi High Court in the case of CIT Vs. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi) has allowed the claim of the assessee as regard to netting of interest on the allowance of deduction under Section 80HHC of the Act.
28. As regards to interest from bank on margin money, the Ld. counsel for the assessee stated that only netting has to be granted in view of the decision of Hon'ble Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Del). On the other hand the learned Sr. DR stated that now the issue has become clear after the decision of Hon'ble Bombay High Court in the case of CIT v. Asian Star Co. Ltd. in ITA No.200 of 2009 (Bom), wherein, Hon'ble Bombay High Court observed that explanation (baa) to s. 80HHC requires that ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature have to be reduced from the profits. The reason why items like brokerage etc have to be excluded is because they do not possess any nexus with export turnover and their inclusion in profits would result in a distortion of the figure of export profits. However, as some expenditure might have been incurred in earning these incomes, an adhoc deduction of ten per cent from such income is allowed. It was further observed by the Hon'ble High Court that once Parliament has legislated both in regard to the nature of the exclusion and the extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 14 allowed. Hon'ble High Court further held that in CIT v. Shri Ram Honda Power Equip, (2007)289 ITR 475 (Del), the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed. As regards the judgement of the Special Bench in Lalsons Enterprises, Hon'ble High Court held that "We are affirmatively of the view that the Tribunal has transgressed the limitations on the exercise of judicial power and .... has in effect legislated by providing a deduction on the ground of expenses other than in the terms which have been allowed by Parliament. That is impermissible".
In reply the learned Counsel for the assessee stated that when two High Courts differ on the same issue, the beneficial view should be taken in favour of the assessee. He stated that Hon'ble Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi) has allowed the claim of the assessee as regard to netting of interest on the allowance of deduction under Section 80HHC of the Act.
29. We find that the Hon'ble Bombay High Court in the case of Asian Star Co. Ltd. (supra) has considered the Delhi High Court judgment in the case of Shri Ram Honda Power Equip (supra) as well the case of Special Bench of this Tribunal in Lalson Enterprises and held that 90% of receipts by way of interest have to be reduced from the business profits while computing deduction u/s.80HHC of the Act under Clause (baa). Respectfully following Hon'ble Bombay High Court in Asian Star Co. Ltd. (supra), we uphold the order of CIT(A) and this issue of the assessee's appeal is dismissed.
30. We further find that these issues are covered, as regards the interest received from customers on delayed payment Hon'ble Jurisdictional High Court in the case of Nirma Industries Ltd. (supra) has clearly held that while computing deduction under Section 80I interest received from trade debtors towards late payment of sale consideration is to be included in the profits of the industrial undertaking. We find that the Hon'ble High Court has allowed deduction under Section 80I on delayed payment of interest received from trade debtors, the assessee is entitled for deduction under Section 80IA also. This deduction under Section 80HHC and 80IA will be restricted in view of the provisions of section 80IA(9) and the decision of ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 15 Special Bench of this Tribunal in the case of ACIT Vs. Hindustan Mints & Agro Products Pvt. Ltd. (2009) 119 ITD 107 (SB) (Delhi) wherein it is held that Deduction to be allowed under any provision of Chapter VI-A with heading "C"(80H, 80HHC etc) is to be reduced by an amount of deduction already allowed under section 80IA/80IB of the Act. Accordingly, as regards to interest on delayed payment from trade debtors the assessee is entitled for deduction under Section 80IA as well as under
Section 80HHC, but subject to above restrictions.
31. We further find that as regards to interest on margin money, the assessee is not entitled to deduction under Section 80IA in view of the decision of ITAT, Ahmedabad 'D' Bench in assessee's own case in ITA No.651/Ahd/2003 for the Assessment Year 1998-1999 order dated 20/07/2007, in which the Tribunal has held in para nos. 17 and 18 as under:
"17. We have heard the rival submissions, perused the order of the lower authorities and material available on record. We find that the assessee had claimed before the CIT(A) that the interest income of Rs.8,70,050/- pertaining to Daman Unit and Rs.1,61,570/- pertaining to Vapi Unit should be set off against the interest expenditure incurred by the assessee for the purpose of business and the net amount of interest only should be deducted from the profits of the assessee in order to determine the eligible amount of profit for the purpose of deduction under section 80Ia of the Act. We find that the issue stands covered by the decision of the Hon'ble Delhi High Court in the case of CIT Vs Shri Ram Honda Power Equip, (2007) 289 ITR 475(Delhi) wherein it was held that the word "interest" in clause (baa) of the Explanation to Section 80HHC connotes "net interest" and not "gross interest" and, therefore, in deducting such interest, the AO will take I account the net interest i.e. gross interest as reduced by the expenditure incurred for earning such interest. Where as a result of the computation of profits and gains of business and profession, the AO treats the interest receipt as business income, then the deduction should be permissible in terms of Explanation (baa) of the net interest i.e. gross interest less the expenditure incurred for the purpose of earning such interest. The nexus between obtaining the loan and paying interest thereon for the purpose of earning interest on the fixed deposit, to draw an analogy from section 37 will require to be shown by the assessee for application of the netting principle. Following the said decision of the Hon'ble Delhi High Court, we set aside the orders of the lower authorities and remand the matter back to the file of the AO with the direction that while deducting the receipt by way of interest from the profits of the business for computing the receipt by way of interest from the profits of the business for computing eligible profit for the purpose of section 80IA, only net interest remaining after allowing the set off of interest paid which has a nexus with interest received, should be reduced and not the gross amount of interest. The AO is accordingly directed to recompute the deduction under section 80 IA of the ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 16 Act in the light of the above observations. These grounds of appeal of the assessee are allowed for statistical purposes.
18. The ground Nos. 9 and 10 of the appeal are directed against the order of the ld. CIT(A) confirming the order of the AO in not considering the interest income while computing the deduction under section 80HHC of the Act. The ld. Authorized Representative for the assessee submitted that in these grounds of appeal also, similarly as contended for the purpose of deduction under section 80IA, the assessee wants that net interest only should be deducted from the export profits of the assessee while computing the deduction under section 80HHC of the Act. While deciding the ground Nos. 7 and 8 of appeal, we have restored the issue back to the file of the AO for recomputing the deduction under section 80IA after deducting net interest income remaining after set off of interest paid which has a nexus with interest received. For the same reasons and with the same direction, the orders of the lower authorities are set aside and the issue is remanded to the file of the AO. The grounds of appeal of the assessee are allowed for statistical purposes."
The facts and circumstances are exactly identical in the present year, respectfully following the coordinate bench decision and taking a consistent view, we decide this issue against the assessee qua the interest income on margin money for deduction under Section 80IA of the Act.
32. The next issue in this appeal of assessee is against the order of CIT(A) not allowing the gifts given its employees as business expenditure amounting to Rs.49,90,496/-.
33. At the outset the learned counsel for the assessee stated that this issue has already been decided by ITAT in assessee's own case by Ahmedabad "B" Bench in ITA No. 2935/Ahd/2003 for the Assessment Year 2000-2001 vide order dated 07-03- 2005. The learned Senior DR stated that this issue is covered in favour of the revenue by the above decision of the Tribunal in assessee's own case. After going through the case law relied on by both the sides in assessee's own case, we find that the Tribunal has decided the issue as under:
"15. We have duly considered the rival contentions. We do not find any merit in the contentions of the assessee. The ld. Assessing Officer has rightly held that value of articles, distributed by the assessee to its employees comes within the ambit of 'perquisites' employed in Section 17(2) (iii) (c) of the IT Act which is covered under the definition of 'Salaries' as provided in Section 17(i)(iv) of the Act. Therefore, before distributing articles to the employees, the assessee ought to have deducted the tax at source on the value of such articles. Howe the definition of 'gift' employed in Transfer of Property Act has ITA No.1483 & 1508/Ahd/04 A.Y. 2000-01 ACIT Vapi Cir. V. Micro Inks Ltd. Page 17 any relevancy with the dispute raised by the Assessing Officer is not discernible from the written submissions? As far as the alternative contention is concerned, such prayer was not raised before the Assessing Officer nor has been shown to us that value of such assets have been shown by the assessee in its balance sheet or at any stage, these articles have taken back by the assessee from its employees. Hence we do not see any good reason to interfere in the orders of the Revenue Authorities below. The ld. Assessing Officer has rightly charged in interest u/s. 201(1A) of the Act.
34. After going through the above, we find that the Tribunal in assessee's own case has held the assessee in default while upholding the Assessing Officer charging interest u/s.201(1A) of the Act on the gift articles distributed by the assessee-company to its employees. The gift articles distributed was considered as perquisites in the employees' hand u/s.17(2)(iii)© of the Act. In view of the above, we are of the view that the assessee is entitled for deduction of this expenditure and we allow the claim of the assessee.
35. In the result, the appeal of the assessee as well as that of Revenue is partly allowed for the statistical purposes as indicated above.
Order pronounced on 30th day of June, 2010.
Sd/- Sd/-
(G.D.Agarwal) (Mahavir Singh)
(Vice President) (Judicial Member)
Ahmedabad,
Dated : 30/06/2010
*Dkp
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-VSL
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad