Income Tax Appellate Tribunal - Pune
Serum Institute Of India Ltd.,, Pune vs Assessee on 4 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No.17/PN/2012
(Asst.Year: 2007-08)
ACIT, Central Circle-1(1), Pune .. Appellant
Vs.
Serum Institute of India Ltd.,
212/2, Pune Solapur Road,
Hadapsar, Pune-411028 .. Respondent
PAN No.AABCS4225M
ITA No.102/PN/2012
(Asst.Year: 2007-08)
Serum Institute of India Ltd.,
16-B/1, Ambedkar Road,
Pune-411001 .. Appellant
PAN No.AABCS4225M
Vs.
Addl.CIT, Range-6, Pune .. Respondent
ITA No.1575/PN/2012
(Asst.Year: 2006-07)
Serum Institute of India Ltd.,
16-B/1, Ambedkar Road,
Pune-411001 .. Appellant
PAN No.AABCS4225M
Vs.
Addl.CIT, Range-6, Pune .. Respondent
ITA No.1616/PN/2012
(Asst.Year: 2006-07)
ACIT, Central Circle-1(1), Pune .. Appellant
Vs.
Serum Institute of India Ltd.,
212/2, Pune Solapur Road,
Hadapsar, Pune-411028 .. Respondent
PAN No.AABCS4225M
Assessee by : Shri R.D. Onkar
Revenue by : Shri P.L. Pathade
Date of Hearing : 04-04-2014
Date of Pronouncement : 10-04-2014
2
ORDER
PER R.K.PANDA, AM :
ITA No.17/PN/2012 filed by the Revenue and ITA
No.102/PN/2012 filed by the assessee are cross appeals and are directed against the order dated 25-1-2011 of the CIT(A)-III, Pune relating to Assessment Year 2007-08.
2. ITA No.1575/PN/2012 filed by the assessee and ITA No.1616/PN/2012 filed by the Revenue are cross appeals and are directed against the order dated 30-12-2011 of the CIT(A)-III, Pune relating to Assessment Year 2006-07. For the sake of convenience, these appeals were heard together and are being disposed of by this common order.
ITA No.17/PN/2012 (By Revenue) (A.Y. 2007-08) :
3. Grounds of appeal No.1 to 4.2 by the Revenue read as under :
"01. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing relief to assessee when AO made disallowance on account of freight Rs.32,69,97,710/- and insurance Rs. 3,53,49,404/- which was excluded in total turnover by the assessee while calculating deduction u/s. 10B.
02. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in allowing relief to assessee, when Section 10B provides for excluding freight and insurance from the 'export turnover', however no such provision to exclude the same from 'total turnover'.
3.1 On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in relying on decision in case of Gems Plus Jewellery India Ltd., 330 ITR 175 (Bom.) when the decision was rendered by Hon'ble High Court in the context of provisions of section 10A, and the issue involved in the instant case is related to Section 10B.
3.2 Without prejudice to the above the decision of the High Court as referred in the case of Gems Plus Jewellery India Ltd. has not been accepted and SLP has been filed by the department.3
4.1 On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in relying on decision in case of Sak Soft Ltd. (121 TTJ 865) wherein the Hon'ble ITAT defined the total turnover interpreting section 80HHE and 80HHF, when issue involved in this case relates to sec.10B.
4.2 Without prejudice to the above the decision of the ITAT as referred in the case of M/s. Sak Soft Ltd. has not been accepted and appeal u/s.260A has been filed by the department." 3.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings observed that the assessee has deducted Freight charges amounting to Rs.32,69,97,710/- and Insurance charges amounting to Rs.3,53,49,404/- from the total turnover as well as export turnover. Rejecting the various explanations given by the assessee and observing that in view of Explanation 2 (iii) to section 10B Freight, Telecommunication charges or Insurance are to be excluded from the export turnover and not from the total turnover, the AO added both the items, i.e. Freight charges amounting to Rs.32,69,97,710/- and Insurance charges amounting to Rs.3,53,49,404/- to the total turnover for the purpose of working out deduction u/s.10B of the Income Tax Act.
3.2 In appeal the Ld.CIT(A) relying on various decisions including the decision of the Special Bench of the Tribunal in the case of Sak Soft Ltd. reported in 121 TTJ 865 and the decision of the Hon'ble Bombay High Court in the case of Gems Plus Jewellery India Ltd. reported in 330 ITR 175 directed the AO to exclude the Freight charges of Rs.32,69,97,710/- and Insurance charges of Rs.3,53,49,404/- from the total turnover for computing the deduction allowable u/s.10B of the I.T. Act. 4 3.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
4. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. We find the Ld.CIT(A) while directing the AO to exclude the Freight and Insurance charges from the total turnover for computing deduction allowable u/s.10B has observed as under :
"3.3 The submissions of the appellant are carefully examined with reference to the legal position as applicable to the year. The contention of the appellant is that receipts on account of 'Freight and insurance' are not towards the sale of goods but it is the mere reimbursement of expenses what the appellant had expended for delivery of goods. It is argued that once it is reimbursement of expenses, 'Freight & Insurance received' cannot be the part of Total Turnover' as intended by Sec. 10B for the purpose of working of deduction. The case of the Assessing Officer is that there is a specific provision to exclude freight and insurance from the export turnover under the explanation 2(iii) to sec. -10B but similar exclusion is not provided in the case of 'total turnover'. However, this issue is squarely covered in favour of the appellant by the decision of the Special Bench in the case of Sak Soft Ltd. ( 121 TTJ 865) wherein the Special Bench held that such expenses have to be excluded both from the export turnover and total turnover in the formula provided in sec.10B(4). This view was affirmed by Bombay High Court in the case of Gem Plus Jewellery India Ltd. reported in 330 ITR 175 wherein it is observed as under:
The contention of the revenue was that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided for in regard to total turnover. The submission of the revenue, however, missed the point that the expression 'total turnover' has not been defined at all by the Parliament for the purposes of section 10A. However, the expression 'export turnover' has been defined. The definition of 'export turnover' excludes freight and insurance. Since export turnover has been defined by the Parliament and there is a specific exclusion of freight and insurance charges, the expression 'export turnover' cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to the Parliament to make a provision to the contrary. However, no such provision having been made, the principle which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention of the revenue was to be accepted, the same expression, viz., 'export turnover' would have a different connotation in the application of the same formula. The 5 submission of the revenue would lead to a situation where freight and insurance, though they have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which leads to an absurdity must be avoided [Para 7] Moreover, a receipt such as freight and insurance charges, which do not have any element of profit, cannot be included in the total turnover. [Para 9] Freight and insurance do not have an element of turnover. For that reason in addition, these two items would have to be excluded from the total turnover, particularly in the absence of a legislative prescription to the contrary. Therefore, the Tribunal was justified in holding that the exemption under section 10A should be computed after excluding freight and insurance charges from the total turnover Though the above decision was rendered in the context of provisions of sec. 10A, the principle laid down by the jurisdictional High Court is equally applicable to the provisions of sec. 10B, where the definition of 'total turnover' is not provided as in the case of sec. 10A. The computation formula provided under sub- section (4) is similar in both the sections. In view of the decision of the Bombay High Court and the Special Bench on the issue, the Assessing Officer is directed to exclude the freight of Rs. 32,69,97,710/- and insurance of Rs. 3,53,49,404/- from the total turnover also and re-compute the deduction allowable under sec.10B.
4.1 Since the Ld.CIT(A) while directing the AO to exclude the Freight and Insurance charges from the total turnover has followed the decision of the Hon'ble jurisdictional High Court in the case of Gems Plus Jewellery India Ltd (Supra) and the decision of the Special Bench of the Tribunal in the case of Sak Soft Ltd. (Supra), therefore, respectfully following the above decisions and in absence of any contrary material brought to our notice, we find no infirmity in the order of the CIT(A). Merely because the Revenue has not accepted the above decision of the Hon'ble High Court and has filed appeal against the said decision will not be a ground to take a contrary view than the view taken by the Hon'ble High Court unless and until the same is reversed. In this view of the matter and in view of the detailed reasoning given by the Ld.CIT(A) directing the AO to exclude the Freight and Insurance charges from the total 6 turnover for computing deduction u/s.10B we find no infirmity in the same. Accordingly, the order of the CIT(A) on this issue is upheld and the grounds raised by the Revenue are dismissed.
5. Grounds of appeal No.5 and 6 by the Revenue are as under :
"05. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in directing the Assessing Officer to segregate the furniture into two categories, one falling under 'furniture' eligible for depreciation @ 10% and the other items which were used for carrying products from the laboratory to store under the head 'Plant and Machinery' eligible for depreciation @ 15%, and to allow depreciation accordingly.
06. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in not appreciating that the Assessing Officer had correctly classified the assets under the head 'furniture' and had allowed depreciation as per law @ 10% and in consonance with the decision of the Hon'ble Bombay High Court in the case of Siemens India Pvt. Ltd., 217 ITR 622 (Bom.)."
5.1 Facts of the case, in brief, are that the assessee had shown additions to plant & machinery to the tune of Rs.8,76,45,866/- in the depreciation chart as part of the Audit report furnished along with the return of income. During the assessment proceedings, it was clarified before the Assessing Officer that stainless stools and chairs used by the employees during the process of manufacturing were classified as plant & machinery and depreciation was claimed accordingly. The justification put forth by the assessee was that since wooden chairs/stools could not be used in the manufacturing process of vaccines for hygienic reason, stainless steel items were being used and by applying the functional test, the same has to be treated as plant and machinery and not furniture. However, the Assessing Officer was of the opinion that the said items were nothing but furniture as was revealed from the relevant 7 bills/vouchers and depreciation was allowable @ 10% as applicable to furniture and not at 15% applicable to plant & machinery as claimed by the assessee. On being asked to clarify in this regard, the assessee insisted on the aspect of functional test claiming that the items were specially used for the manufacturing process and therefore, the same fits into classification of plant & machinery. However, observing that the stools/chairs are used by the personnel for sitting and keeping the material on them, the Assessing Officer concluded that these are in the category of furniture and cannot be classified as plant & machinery. Accordingly, he recasted the depreciation allowance in respect of the DTA unit and disallowed the excess claim of depreciation amounting to Rs.10,67,069/-. 5.2 In appeal the Ld.CIT(A) following the order of his predecessor in assessee's own case and various other decisions directed the AO to allow depreciation @15% as against 10% determined by the AO.
5.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
6. After hearing both the sides, we find the above issue stands decided in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y. 2005-06 and 2006-07. We find the Tribunal in the consolidated order dated 22-02-2013 for A.Y. 2005- 06 and 2006-07 while deciding the issue for A.Y. 2005-06 at Para 5 of the order has observed as under :
8
"5. The next issue relates to disallowance of depreciation amounting to Rs.54,213/- by classifying certain items of fixed assets located in manufacturing unit as 'Furniture and Fixtures' and not as 'Plant and Machinery', as contended by the assessee. Similar issue came up for consideration before Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2001-02 vide ITA No.948/PN/2005 dated 18-1-2012. In this view of the matter, the Assessing Officer is directed to adjudicate the issue and grant the entitled relief to the assessee as per directions contained in the order of the Tribunal pertaining to A.Y. 2001-02 (supra). On this issue, the assessee succeeds".
6.1 Similarly, the Tribunal while deciding the issue for A.Y. 2006-07 at Para 27 of the order has observed as under :
"27. The next issue relates to partial disallowance of depreciation by classifying certain items of fixed assets costing Rs.8,82,555/- located in manufacturing unit as 'Furniture and Fixtures' and not as 'Plant and Machinery' as contended by the assessee. Similar issue came up for consideration before Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2001-02 vide ITA No.948/PN/2005 dated 18-1-2012. In this view of the matter, the Assessing Officer is directed to adjudicate the issue and grant the entitled relief to the assessee as per directions contained in the order of the Tribunal pertaining to A.Y. 2001-02 (supra). On this issue, the assessee succeeds".
6.2 Respectfully following the decision of the Tribunal in assessee's own case in the preceding years and in absence of any contrary material brought to our notice we find no infirmity in the order of the CIT(A) directing the AO to allow depreciation @15%. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.
ITA No.102/PN/2012 (By Assessee) (A.Y. 2007-08) :
7. Grounds of appeal No.1 by the Assessee reads as under :
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in confirming the disallowance of deduction u/s.10B with reference to export invoice of Rs.7,19,934/- for want of 'extension letter' in spite of subsequent realization of export proceeds."9
7.1 Facts of the case, in brief, are that the Assessing Officer, while computing the deduction allowable u/s.10B, has excluded export turnover of Rs.7,19,934/- from the total export turnover on the ground that the sale proceeds were not received in convertible foreign exchange within a period of six months from the end of the previous year. The A.O. observed that these sale proceeds were realized on 24.12.2007, which is beyond the time limit and also no extension was obtained from RBI. Before CIT(A) it was argued that the Assessing Officer has not considered the status of 'Export House' accorded to it by the Ministry of Commerce, which confers a privilege of normal repatriation period of 180 to 360 days. However, the Ld.CIT(A) observed that the arguments advanced by the assessee are not legally sustainable. He observed from the invoice that the impugned export was made on 09.05.2006 and proceeds were realized on 24.12,2007, which is beyond the period specified under the section. The assessee has also not furnished any approval from the Competent Authority granting extension of time for realization of export proceeds beyond the specified period i.e. after 30.09.2007. As the export proceeds in respect of the said invoice were realized beyond the prescribed time limit and no extension was granted by the competent authority, the realization in question does not qualify for deduction. In view of the above, the Ld.CIT(A) upheld the action of the AO on the ground that the assessee could not fulfil even the basic conditions for claiming such deduction and the export proceeds of Rs.7,19,934/- was realised beyond the prescribed time limit.
107.2 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
8. The Ld. Counsel for the assessee submitted that the assessee has set up an Export Oriented Undertaking (EOU) engaged in the business of production and exports of vaccines. Profits from the exports derived by the EOU are eligible for deduction u/s.10B. The export proceeds in respect of one export invoice raised by the EOU for Rs.7,19,934/- were received late viz. on 24th December, 2007, i.e. after 30-09-2007 for the impugned A.Y. He submitted that Reserve Bank of India (RBI) is the competent authority under FEMA, for extension of time for receipt of export proceeds beyond a period of six months from the end of the relevant previous year. FEMA under liberalised procedures allows self extension of time limit providing full flexibility to all the exporters. He submitted that the provisions of Section 10B(3) are in pari materia with 10A(3). Since RBI had neither rejected nor declined the request of the assessee and had taken the inward remittances on record, therefore, the extension was deemed to have been granted. He submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Morgan Stanley Advantage Services Pvt. Ltd. reported in 339 ITR 291 on identical facts and circumstances.
9. The Ld. Departmental Representative on the other hand heavily relied on the order of the AO and the CIT(A). 11
10. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the Paper Book filed on behalf of the assessee. From the various details furnished by the assessee, we find in respect of one export invoice raised by the EOU for Rs.7,19,934/- the export proceeds were received on 24-12-2007, i.e. after 30-09-2007. The submission of the Ld. Counsel for the assessee in the written submission that the company has been accorded the status of export house by the Ministry of Commerce from 01-04-2004 onwards and it has got the privilege in enhancement of normal repatriation period of 180 to 360 days in view of the EXIM policy of the Govt. of India could not be controverted by the Ld. Departmental Representative. 10.1 We find the Hon'ble Bombay High Court in the case of CIT Vs. Morgan Stanley Advantage Services Pvt. Ltd. reported in 339 ITR 291 has observed as under (Short notes) :
"Export proceeds amounting to Rs. 2.20 crores having not been received by the assessee within six months from the end of the assessment year 2004-05, the assessee submitted an application to the Reserve Bank of India on October 7, 2004, seeking extension of time for realization of the export proceeds. The Reserve Bank of India granted its approval in the context of the provisions of the Foreign Exchange Management Act, 1999, but did not grant any formal approval under section 10A of the Income-tax Act, 1961, even though an application had been made by the assessee in that behalf. The Assessing Officer denied the exemption under section 10A but the Tribunal allowed it.
On appeal to the High Court:
Held, dismissing the appeal, that the Reserve Bank of India is the competent authority under the 1999 Act. Thus, what section 10A(3) of the Act provides is that the benefits under section 10A(1) would be available if the export proceeds are realised within the time prescribed by the competent authority under the 1999 Act. The Reserve Bank of India had granted approval in respect of the export proceeds realised by the assessee till December, 2004. Therefore, the approval granted by it under the 1999 Act would meet the requirements of section 10A of the Act. Moreover, the Reserve Bank of India had neither declined nor rejected the application made by the assessee seeking extension of time under section IDA of the Act.12
Therefore, the decision of the Tribunal holding that the approval granted under the 1999 Act constituted deemed approval granted by the Reserve Bank of India under section 10A(3) could not be faulted. The assessee was entitled to exemption under section 10A"
10.2 Since the assessee in the instant case has applied for extension of time by the prescribed authority which has neither been rejected nor declined and the RBI has taken the inward remittances on record, therefore, we hold that the CIT(A) is not justified in curtailing the deduction u/s.10B by excluding the delayed receipt of export proceeds of Rs.7,19,934/- from the export turnover. We therefore set-aside the order of the CIT(A) on this issue and direct the AO to allow the claim of the assessee u/s.10B with respect to the export invoice of Rs.9,19,934/- . Ground raised by the assessee is accordingly allowed.
11. Grounds of appeal No.2 by the assessee reads as under :
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in refusing to treat 'PMS' fees paid of Rs.34,63,969/- as part of either of cost of acquisition/improvement or as 'Cost of transfer' for working Income from Capital Gain."
In any event, he ought to have accepted the alternate contention of the Appellant that there was, to that extent, transfer by overriding title of consideration/income arising on such sale". 11.1 Facts of the case, in brief, are that the Assessing Officer observed that the assessee has claimed deduction of Portfolio Management Scheme fees amounting to Rs.32,49,729/- out of the capital gains derived on sale of shares/securities. On being asked as to why such expenditure should not be disallowed while working out the resultant capital gains, the assessee submitted that the said expenditure having been incurred for managing the investment portfolio of the assessee by experts in the field was nothing but cost 13 associated with buying of good scrips and selling the same at right time and therefore, it constituted cost of investment. However, the Assessing Officer did not find any merit in the contention of the assessee. He observed that as per sec.48, only such expenses are deductible from the sale consideration of an asset which are wholly and exclusively incurred in connection with the transfer of the asset. According to the Assessing Officer, portfolio management consultants are service intermediaries who carry out the research and analysis about the profitability of the scrips of various companies and keep track on the market conditions and the fees paid by the assessee to such professional managers could not be said to have been incurred wholly and exclusively for the purpose of transfer of the asset. Holding so, the PMS fees claimed by the assessee at Rs.34,63,969/- from the cost of investment was disallowed by him while computing the capital gains. 11.2 In appeal the Ld.CIT(A) upheld the action of the AO by holding that the expenditure on account of 'PMS' fees is neither cost of acquisition of the shares in question nor cost of improvement there of nor incurred wholly and exclusively in connection with the transfer of assets and therefore the AO is justified in rejecting the claim of deduction of the fees of Rs.34,63,969/- while computing the capital gain. 11.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
12. After hearing both the sides we find an identical issue had come up before the coordinate Bench of the Tribunal in the case of 14 KRA Holding and Trading Investment Pvt. Ltd. Vs. DCIT. We find the Tribunal vide ITA No.703/PN/2012 order dated 19-09- 2013 for A.Y. 2008-09 while deciding an identical issue has observed as under :
"9. In the appeal of the assessee, the solitary issue is with regard to the action of the CIT(A) in confirming the stand of the Assessing Officer that fees paid to ENAM Asset Management Company Pvt. Ltd. was not an allowable expenditure in computing appellant's income whether under the head 'business' or under the head 'capital gains'.
10. In this regard, the Assessing Officer noticed that assessee had incurred expenditure of Rs.2,79,31,009/- representing payments to ENAM Asset Management Company Pvt. Ltd. as portfolio management fees in terms of an Investment Management Agreement dated 01.01.2005. Following his decision for the earlier assessment years i.e. assessment year 2004-05 to 2007-08, the Assessing Officer disallowed the expense against which assessee went in appeal before the CIT(A). The CIT(A) noted that similar issue for assessment years 2004-05 to 2006-07 was adjudicated by the Tribunal in the assessee's own case in favour of the assessee and against the Revenue vide order dated 31st May, 2011 (supra). However, the CIT(A) noticed that subsequently Mumbai Bench of the Tribunal in the case of one Shri Homi K. Bhabha vs. ITO in ITA No. 3287/Mum/2009 decided a similar issue against the assessee and therefore he held the issue against the assessee. In view of the aforesaid, assessee is in further appeal before us.
11. At the time of hearing, the learned counsel for the assessee submitted that similar stand of the CIT(A) in the assessee's own case for assessment year 2007-08 came up before the Tribunal in ITA No. 356 & 240/PN/2011 dated 25.07.2012 and after considering the divergent view of the Mumbai Bench of the Tribunal in the case of Shri Homi K. Bhabha (supra) which has been relied upon by the CIT(A), the issue has been decided in favour of the assessee. It was, therefore, contended that the issue is accordingly liable to be decided in favour of the assessee.
12. The learned CIT(DR) appearing for the Revenue has not controverted the factual matrix brought out by the learned counsel so however she has relied upon the order of the CIT(A) in support of the case of the Revenue.
13. We have carefully considered the rival submissions and also the precedent in the assessee's own case by way of the order of the Tribunal dated 25.07.2012 (supra). In the said case, the Tribunal considered the allowability of expenditure incurred by way of payment of fees of ENAM Asset Management Company Pvt. Ltd. in terms of the investment agreement dated 01.01.2005, which is precisely the issue before us also. The Tribunal referred to its earlier decision in the assessee's own case for assessment year 2004-05 vide order dated 31st May, 2011 (supra) and noticed that the issue has been decided in favour of the assessee. Thereafter, the Tribunal noted that against the decision of the Tribunal dated 31st May, 2011 (supra), Revenue preferred an appeal before the Hon'ble Supreme Court only on the issue treatment of income from the sale 15 of shares as 'capital gain' or 'business income' and that the Revenue had not preferred any appeal against the order of the Tribunal allowing the claim of deduction of expenditure by way of Portfolio Management Fee representing payments to ENAM Asset Management Company Pvt. Ltd. while computing the income under the head 'Capital Gains'. After noticing the aforesaid the Tribunal concluded as under in para 11 of its order dated 25.07.2012 :-
"11. The decision of the Mumbai Bench of the Tribunal in the case of Homi K. Bhabha vs. ITO was brought to our notice by the learned DR wherein it was held that Portfolio Management Scheme fees is not deductible against capital gains. The decision of the Pune Bench of the Tribunal in the case of KRA Holding & Trading was not followed by the Mumbai Bench in the above cited decision. The Mumbai Bench following other decisions of the coordinate Benches of the Tribunal declined to follow the decision in the case of KRA Holding & Trading (supra). It is the settled proposition of law that when two view are possible on the same issue the view which is favourable to the assessee has to be followed. [CIT vs. Vegetable Products 88 ITR 192 (SC)]. Further, in the instant case the Tribunal in assessee's own case has already taken a view in favour of the assessee. Since the AO & CIT(A) have followed the order for earlier year in the case of the assessee and since the order of CIT(A) for earlier year has been reversed by the Tribunal, therefore, unless and until the decision of the Tribunal is reversed by a higher court, the same in our opinion should be followed. In this view of the matter, we respectfully following the order of the Tribunal in assessee's own case for A.Y. 2004-05 allow the claim of the Portfolio Management fees as an allowable expenditure. The ground raised by the assessee is accordingly allowed."
14. Following the aforesaid precedent, which has considered the similar objections of the CIT(A), in our considered opinion, the order of the CIT(A) in the present case is untenable and we accordingly set-aside the same and direct the Assessing Officer to delete the impugned addition."
12.1 Respectfully following the decision of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (Supra) we hold that the 'PMS' fees paid by the assessee is an allowable deduction from the capital gains. Ground appeal No.2 by the assessee is accordingly allowed
13. Grounds of appeal No.3 by the assessee reads as under :
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in confirming the disallowance of the 'Provision for Leave Encashment' amounting to Rs.11,40,849/- pertaining to 'DTA' unit ascertained on the basis of actuarial valuation for the eligible employees of the said DTA unit of the Appellant Company.".16
13.1 The Ld. Counsel for the assessee fairly conceded that the above issue stands decided against the assessee by the decision of the Tribunal in assessee's own case for A.Y.2005-06 and 2006-07. In view of the above submission of the Ld. Counsel for the assessee and in absence of any objection from the Ld. Departmental Representative the above ground by the assessee is dismissed.
14. Grounds of appeal No.4 by the assessee reads as under :
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in confirming the disallowance, as capital expenditure, of foreign expenses of employees amounting to Rs.18,47,548/- who travelled abroad".
14.1 The Ld. Counsel for the assessee fairly conceded that the above ground is decided against the assessee by the decision of the Tribunal in assessee's now case for A.Y. 2006-07. In view of the above submission by the Ld. Counsel for the assessee and in absence of any objection by the Ld. Departmental Representative the above ground by the assessee is dismissed.
15. Grounds of appeal No.5(a) was not pressed by the assessee for which the Ld. Departmental Representative has no objection. Accordingly, ground of appeal No.5(a) is dismissed as 'not pressed'.
16. Grounds of appeal No.5(b) by the assessee reads as under :
"without prejudice to Ground 'a' above) not allowing depreciation at the rate of 80% on 'SMF Batteries' (assuming it is capital expenditure) as applicable to Machinery & Plant as per Section 32 of the Income Tax Act r.w. Rule 5 & Appendix-I of Income Tax Rules particularly Part-III (8)(B)(ix) being the rate applicable to Energy Saving Devices being instrumentation and monitoring system for monitoring energy flows instead of allowing the same @15%, i.e. the rate applicable to Plant and Machinery".17
16.1 Facts of the case, in brief, are that the Assessing Officer noted that the assessee had debited an amount of Rs.67,79,712/- (DTA Unit- Rs.21,03,205/-, EOU - Rs.45,05,534/- and SEZ Unit- Rs.1,70,972/-) as EDP (Electronic data processing expenses) under the head 'Miscellaneous Expenses', out of which an amount of Rs.1,92,000/- found to have been pertaining to DTA unit on account of purchase of sealed maintenance free (SMF) batteries. On being asked to explain as to why the said expenditure on account of purchase of SMF batteries should not be treated as capital expenditure, it was contended that the said SMF batteries have a limited life span. Though it is designed to be used for a maximum of 48 months, due to increased usage owing to constant power failures it has a short span of life. The assessee accordingly justified treating the expenditure as of revenue nature. Alternatively, it was claimed that the said batteries were in the nature of energy saving device and therefore, they are eligible for higher depreciation @ 80%. However, the Assessing Officer did not find the argument of the assessee acceptable. According to the AO, the fact that the said batteries could be used up to 48 months itself proved that the assessee derived benefit of enduring nature and therefore, these are capital assets in nature. Accordingly, the said items were treated as capital assets and depreciation @15% was allowed only treating the same as plant & machinery. 16.2 In appeal the Ld.CIT(A) upheld the action of the AO in allowing depreciation @15% in respect of SMF Batteries treating 18 the same as capital expenditure and then normal plant and machinery.
16.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
17. We have considered the rival arguments made by both the sides. We find merit in the submission of the Ld. Counsel for the assessee that SMF batteries are designed to offer reliable consistent and low maintenance power for UPS applications. The UPS segments call for the use of a reliable and power battery system such as SMF batteries. Therefore, functions of SMF batteries are integrated with UPS and used with it. We find the Mumbai Bench of the Tribunal in the case of Godfrey Phillips India Ltd. Vs. DCIT vide ITA No.7682/Mum/2010 for A.Y. 2006-07 and ITA No.8549/Mum/2010 for A.Y. 2007-08 order dated 22-10-2012 held that UPS is automatic Voltage Controller and covered under Energy Saving Device eligible for higher rate of depreciation @80%. The relevant observation of the tribunal reads as under :
"5. Ground no.1 of assessee's appeal for the Assessment Year 2006-07 and 2007- 08 is regarding depreciation on UPS being energy saving device. It is the case of the assessee that the UPS employed by it being an energy saving device is entitled for higher depreciation @ 80% as against the claim of the revenue that the same is not an energy saving device; but an energy supply device. The impact of this disallowance is the lesser depreciation of ` 5,74,579/- and for Assessment Year 2007- 08, the said amount is ` 4,72,596/-. It is the case of the ld AR that this issue is covered by the decision of the Tribunal in assessee's own case for the Assessment Year 2002-03 in ITA No. 2792/M/2006; for Assessment Year 2003-04 in ITA No.1071/M/2007; for Assessment Year 2004-05 in ITA No.5569/M/2007 and for Assessment Year 2005-06 in ITA No.6964/M/2008, copies of these orders are enclosed in the paper book at pages 1 to 22; 23 to 47 and 48 to 67 respectively. For the sake of convenience, the observations of the Tribunal in respect of the Assessment Year 2002-03 deciding the issue are reproduced below:19
"13. We have heard the rival contentions. Short question is whether UPS is a Automatic Voltage Controller' falling within the heading of energy saving device in the Appendix to the Income Tax Rules 1962 giving depredation rates. Legislature in its wisdom has chosen to show an Automatic Voltage Controller' as an electrical equipment eligible for 100% depreciation, falling under the broader head of energy saving devices. Once Legislature deemed that an 'Automatic Voltage Controller' is a specie falling within energy saving device, it is not for the Assessing Officer or Ld CIT(A) to further analyse whether such an Item would indeed an energy saving device. In fact it is beyond their powers. Hence the only question to answer, in our opinion is whether an UPS is an Automatic Voltage Controller'. It is mentioned in the product brochure (Paper Book Page 64) that the UPS automatically corrected low and high voltage conditions and stepped up low voltage to safe output levels. Thus in our opinion there cannot be a quarrel that UPS was doing the job of voltage controlling automatically. Even when it was supplying electricity at the time of power voltage, the outages remained controlled. Therefore in our opinion a UPS would definitely fall under the head of' Automatic Voltage Controller'. We are fortified in taking this view by the decision of Jodhpur Bench in the case of Surface Finishing Equipment (supra), As for the decision of Delhi Bench in the case of Nestle India Ltd. (supra) referred by the Ld DR, there the question was whether UPS could be considered as 'computer' for depreciation rate of 60%. There was no issue or question, whether ft could be considered as an Automatic Voltage Controller" and hence in our opinion that case would not help the Revenue here. Therefore we are of the opinion that assessee was eligible for claiming 100% depredation on UPS. Disallowance of Rs.6,82,443/- therefore stands deleted. Ground number 3 is allowed." For other years the above decision was followed by the Tribunal.
6. After hearing both the parties, respectfully following the above mentioned decisions of the Tribunal in assessee's own case, we decide this issue in favour of the assessee and allow the ground no.1 of both the appeals filed by the assessee."
17.1 Since SMF batteries are integrated with UPS and used with it, therefore, respectfully following the decision of the Mumbai Bench of the Tribunal in the case cited (Supra) and in absence of any contrary material brought to our notice we hold that the assessee is entitled to higher rate of depreciation on SMF Batteries. Ground raised by the assessee is accordingly allowed.
18. Grounds of appeal No.6(a) and 6(b) by the assessee read as under :
20
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in confirming the classification of items of fixed assets of Rs.9,86,959/- like stainless steel tables, stools, racks etc. located in manufacturing unit by considering them as 'Furniture and Fixtures' and not as 'Plant and Machinery'.
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in not applying correctly the functional test to the facts of the case while deciding whether certain items like Stainless steel table, stools, trolleys etc. constituted plant or not".
18.1 Facts of the case, in brief, are that the assessee had shown additions to plant & machinery to the tune of Rs.8,76,45,866/- in the depreciation chart as part of the Audit report furnished along with the return of income. During the assessment proceedings, it was clarified before the Assessing Officer that stainless stools and chairs used by the employees during the process of manufacturing were classified as plant & machinery and depreciation was claimed accordingly. The justification put forth by the assessee was that since wooden chairs/stools could not be used in the manufacturing process of vaccines for hygienic reason, stainless steel items were being used and by applying the functional test, the same has to be treated as plant and machinery and not furniture. However, the Assessing Officer was of the opinion that the said items were nothing but furniture revealed from the relevant bills/vouchers and depreciation was allowable @ 10% as applicable to furniture and not at 15% applicable to plant & machinery as claimed by the assessee. On being asked to clarify in this regard, the assessee insisted on the aspect of functional test claiming that the items were specially used for the manufacturing process and therefore, the same fits into classification of plant & machinery. However, observing that the stools/chairs are used by the personnel for sitting 21 and keeping the material on them, the Assessing Officer concluded that these are in the category of furniture and cannot be classified as plant & machinery. Accordingly, he rejected the depreciation allowance in respect of the DTA Unit, disallowing the excess claim of depreciation amounting to Rs.10,67,069/-.
18.2 In appeal the Ld.CIT(A) following the order of his predecessor in assessee's own case for earlier years directed the AO to segregate the assets into two categories, i.e. one falling under the head 'Furniture eligible for depreciation @10%, such as tools, tables, racks etc. and the other items which were being used for carrying out products of the assessee from laboratory to store and falling under the head 'Plant and Machinery' eligible for depreciation @15% like Trolleys etc. 18.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
19. We have considered the rival arguments made by both the sides. We find an identical issue had come up before the Tribunal in assessee's own case for A.Y. 2005-06 and 2006-07. We find the Tribunal at Para 10 and 11 has observed as under :
"10. The first issue relates to the action of the CIT(A) in directing the Assessing Officer to apply the functional test and to segregate the furniture into two categories one falling under furniture eligible for depreciation at 15% and the other which are used for carrying products from the laboratories to the store room eligible for depreciation @25% and to allow depreciation on furniture accordingly.
11. On this aspect, it was a common ground between the parties that the directions of the CIT(A) are in line with the decision of the Tribunal in the assessee's own case for assessment year 2001-02 vide ITA No.948/PN/2005 dated 18-01-2012. Since the facts and circumstances in this year are similar, following the precedent the order of the CIT(A) is approved and the Revenue fails."22
19.1 Respectfully following the decision of the Tribunal in assessee's own case in the preceding years the above grounds by the assessee are allowed.
ITA No.1616/PN/2012 (By Revenue) (A.Y. 2006-07) :
20. Grounds of appeal No.1 & 2 by the Revenue are as under :
"1. On the facts and in the circumstances of the case, the CIT(A) is not justified in excluding freight of Rs.39,15,34,252/- and insurance of Rs.3,14,16,456/- from the total turnover to compute the deduction u/s.10B of the Act.
2. The CIT(A) has erred in excluding freight and insurance claim of the assessee from the total turnover for computing deduction u/s.10B when there is no provision to exclude freight and insurance from the total turnover ignoring the fact that, unlike section 80HHC and 80HHE, the term total turnover is not defined in section 10B and hence total turnover as applicable to section 80HHC cannot be applied to section 10B".
20.1 After hearing both the sides, we find the above grounds are identical to the grounds of appeal by the Revenue in ITA No.17/PN/2012. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following the same ratio the above grounds by the Revenue are dismissed. ITA No.1575/PN/2012 (By Assessee) (A.Y. 2006-07) :
21. Grounds of appeal No.1 by the assessee relates to the validity of the reopening of the assessment u/s.147 of the Income Tax Act. The Ld. Counsel for the assessee did not press the above ground for which the Ld. Departmental Representative has no objection. Accordingly, the first ground by the assessee is dismissed as 'not pressed'.
23
22. Ground of appeal No.2 by the assessee reads as under :
"2. On the facts and circumstances of the case and in law the Ld.CIT(A) erred in confirming the action of the Assessing Officer of not treating export proceeds of Rs.7,89,434/- as part of 'Export Turnover' for deduction u/s.10B for the reason that the proceeds were realized beyond the prescribed time limit though before the date of passing of assessment order u/s.143(3)."
22.1 After hearing both the sides, we find the above ground is identical to Ground of appeal No.1 by the assessee for A.Y. 2007-
08. We have already decided the issue and the ground raised by the assessee has been allowed. Following the same ratio, the above ground by the assessee is allowed.
23. In the result, the appeals filed by the Revenue for both the years are dismissed and the appeals filed by the assessee for both the assessment years are partly allowed.
Pronounced in the open court on 10-04-2014.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
satish
Pune Dated : 10th April, 2014.
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-III, Pune
4. CIT-III, Pune
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary,
ITAT, Pune Benches, Pune