Income Tax Appellate Tribunal - Hyderabad
Samrakshana Electricals Limited, ... vs Assessee on 24 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 253/HYD/2010
Assessment Year: 2004-05
Samrakshana Electricals Ltd., ... Appellant
Hyderabad
(PAN - AAECS4268D/SA-008)
Vs.
Dy. Commissioner of Income-tax, ...Respondent
Circle 3(1), Hyderabad.
Appellant by : Shri V. Sivakumar
Respondent by : Smt. Amisha S. Gupt
Date of Hearing : 24/07/2012
Date of Pronouncement : 21/09/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
This appeal is filed by the assessee directed against the order of the CIT(A), Tirupati, dated 27/11/2009 for the assessment year 2004-05.
2. Briefly, the facts of the case are that the assessee is a limited Company engaged in the business of manufacturing and selling circuit breakers, electrical transformers etc., It filed return of income for asst. year 2004-05 on 1.11.2004 declaring total income of Rs. 1,81,37,200/- Regular assessment was completed u/s 14393) on 20.11.2006 on total income of Rs 1,81,75,077/- while computing total income the assessing officer recomputed depreciation allowable on printers scanners etc holding that these do not 2 ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
form part of computers but were to be treated as office equipment. He also recomputed deduction claimed by assessee u/s 80HHC by including excise duty and sales tax as part of turnover and also by treating an amount of Rs., 16,68,459/- as other income and excluding 90% thereof under clause (baa) of explanation below Sec 80HHC, In appeal the CIT(A) upheld the assessment.
3. Aggrieved, the assessee is in appeal before us.
4. Ground No. 1 is general in nature.
5. Ground No. 2 is directed against the action of the CIT(A) in confirming the action of the AO in not excluding Excise Duty and Sales Tax from total turnover for the purpose of computing deduction u/s 80 HHC.
6. We have heard the arguments of the parties and perused the record. We find that the issue is no-longer res- integra. The Hon'ble Supreme Court in the cases of CIT Vs. Lakshmi Machine Works, [2007] 290 ITR 667 and CIT Vs. Catapharma (India) P. Ltd., [2007] 292 ITR 641 (SC) held that the sales tax and excise duty are to be excluded from the total turnover for the purpose of computing deduction u/s 80 HHC of the Act.
7. Moreover, the issue is squarely covered in favour of the assessee by the decision of ITAT "B" Bench, Hyderabad in assessee's own case for assessment years 1997-98 & 1998-99 in ITA Nos. 824 & 825/Hyd/2002 vide order dated 29 th January, 2003. We therefore direct the AO to exclude the sales tax and Excise Duty from the Total Turnover while computing the relief u/s 80HHC.Thus, the ground no. 2 of the Assessee's appeal is allowed.
3ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
8. Ground No. 3 is as follows:-
"CIT(A) erred in law in confirming the action of the AO in considering Rs. 16,68,459/- as other income within the meaning of clause (baa) to Explanation to section 80 HHC of the Act and not as income from business for the purpose of allowing deduction u/s 80 HHC of the Act."
9. Briefly the facts relating to raise this ground are that while computing deduction under sec 80HHC, the assessing officer excluded 90% of the under mentioned items from the profits of the business.
i) Interest earned Rs 5,58,689
ii) Sundry balances written off Rs 1,61,661
iii) Other misc. receipts Rs 750
iv) Foreign exchange fluctuation Rs 9,47,359
Total Rs.16,68,459/-
=========
10. On appeal, the CIT(A) confirmed the action of the AO.
11. Aggrieved, the assessee is in appeal before us.
12. As regards Interest earned of Rs 5,58,689/-, the learned counsel for the assessee submitted that this amount represents interest earned on margin money deposit made with banks for opening letters of credit and on deposit with A.P. State Electricity Board etc., in the course of our business. The said deposits were made by withdrawing money from each credit account with the bank and against this drawal of amount from the cash credit account the assessee had paid interest @ 11.75% on CC accounts which is much more than the interest earned whereas the assessee has earned only 7% on term deposit and 3% of interest on consumption deposits. Therefore, the learned counsel for 4 ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
the assessee submitted that interest earned on these deposits should be set off against the interest paid to the bank and thus as interest incurred being more than interest earned considering 90% of such interest as other income as per explanation(baa) to section 80HHC of the act is not justified.
13. In this connection the learned counsel for the assessee submitted that the Hon'ble ITAT 'B' bench has directed that interest income has to be netted against the interest payment and it is only the net receipt if any that has to be excluded for consideration vide order in ITA 824 & 825/H/2002 dated 29.1.2003 in the assessee's own case. Since such net interest is a negative figure for the asst. year in question, the learned counsel for the assessee submitted that no amount remains to be excluded under clause (baa) it is also submitted that the Hon'ble Supreme Court has upheld the principle of netting in its decision in the case of ACG Associated Capsules 343 ITR 89 SC.
14. The Apex court in the case of ACG Associated Capsules have held that what is to be excluded under Explanation (baa) is only 90% of income and not the receipts. Therefore 90% of interest income and not 90% of gross interest receipts should be excluded. From the interest receipts, expenditure incurred for earning that interest should be deducted. For determining this the issue is remitted back to the files of the AO. The Assessee shall provide the necessary proof to the AO for having incurred expenditure in earning the interest income. We direct the AO to re-compute the relief u/s 80 HHC in the light of the above observations.
5ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
15. In respect of the sundry balances written off of Rs 1,61,661/-, and the same consist the following:
a. Credit balances in suppliers' account Rs 1,46,408/- This amount was not paid to the suppliers due to rejection of materials hence written back since the suppliers have not claimed the balances. b. Other miscellaneous balances in parties' accounts Ras 15,253/- this amount was not claimed by suppliers since long. Hence written back.
16. The learned counsel for the assessee submitted that these balances were part of the liability for expenses for the earlier years which were debited the P & L account and thus was reduced from the profits and only on such reduced amount deduction u/s 80HHC was allowed. Therefore, it is submitted that the above mentioned amounts representing the reversal of the expenses claimed in the earlier years should be held to be part of the business profits of the Assessee and will not be a receipt in the nature referred to in Explanation (baa). The learned counsel for the assessee assessee relied on the decision in the case of CIT vs Abdul Rahman Industries 293 ITR 475 Mad, wherein it was held as under:-
"that there were credits appearing in the books on the basis of purchase of items from various suppliers and these suppliers were not paid. These unclaimed credit balances were brought to the profit and loss account and had emanated from trading transactions only. There was a finding given by the Tribunal that the transactions were connected or closely linked with the assessee's business activities. The receipts had arisen only out of ordinary trading transactions and hence were rightly assessed under the head 'business'. The Tribunal was right in holding that the income should be assessed under the head 'business and that on this 6 ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
basis, the assessee was entitled to the benefit u/s 80HHC of the Act".
In view of the above we direct the AO not to exclude the sum of Rs. 1,46,408/- being the credit balances written back, while computing relief u/s 80HHC.
17. We find that the sundry balances written off of Rs. 1,61,661/- have to be reduced under clause (baa) to Explanation to section 80 HHC of the Act.
18. As regards Miscellaneous receipts of Rs 750, the learned counsel for the assessee submitted that this amount was received towards cost of spares and labour charges from the parties for conducting repairs to their electrical motors. Hence the receipt constitutes part of the business income and should not be excluded under explanation (baa) while computing the relief u/s 80HHC.
19. As regards Foreign exchange fluctuation of Rs 9,47,359/-, the details are as under:-
Gains On account of import of raw materials Rs 8,11,470 On account of export of goods Rs 2,66,186 On account of packing credit in foreign Currency (PCFC) provided by SBI Rs 78,650
-------------------
Rs.11,56,306 Loss:
On account of import of raw material Rs. 27,477 On account of export of goods Rs 1,81,470 2,08,947 Rs 9,47,359 ========== 7 ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
20. The learned counsel for the assessee Shri Sivakumar submitted that the assessee earned the said amount of Rs 9,47,359/- due to fluctuations in foreign exchange an account of sale proceeds receivable from export sales import of raw materials etc. Therefore, the learned counsel for the assessee submitted that since the said amount was earned on account of sales and import of raw materials the same cannot be considered as other income as per clause (baa) of explanation to sec 80HHC. The learned counsel for the assessee relies on the decision in the case of Renaissance Jewellery P. Ltd vs ITO 101 ITD 380 Mum wherein it was held as under:-
"We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that this issue is covered by the decision of the Tribunal rendered in the case of K. Uttamlal Exports Ltd. v. DCIT in ITA Nos. 38 & 39/Mum./1996, dated 9-7-2003. In this case it was held that exchange gain arising on account of change in exchange rate after the end of accounting year constitute part of export turnover eligible for deduction. No contrary decision was brought before us. We, therefore, respectfully following the precedent, decide this issue in favour of the assessee and against the revenue".
21. We find that the exchange fluctuations is in respect of import of raw materials, export of goods and packing credit. The loss or gain on account of foreign exchange fluctuations really form part of the purchase cost or export realization but have been merely shown separately. These are all in the revenue field. Hence these amounts cannot be excluded while computing relief u/s 80HHC. In view of the above , we direct the AO to include the amount of Rs. 9,47,359/- towards foreign exchange fluctuation, while computing the relief under section 80 HHC.
8ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
22. Ground No. 4 reads as under:-
"The CIT(A) erred in law in confirming the action of the AO in disallowing Rs. 9,714/- out of the depreciation on printers, scanners etc., holding that such assets do not form part of computers and therefore not eligible for depreciation at 60% but form part of machinery and plant eligible for depreciation at 25% only."
23. The assessee claimed depreciation at 60% on additions of Rs 89,370/- to computers. Assessing officer held that the inkjet printers, dot matrix printers scanner, etc are in the nature of office equipment and allowed depreciation at 25%. Thus, he reduced the depreciation allowable by Rs. 9714/- . On appeal, the CIT(A) upheld the action of the AO.
24. Before us, the learned counsel for the assessee Shri Sivakumar submitted that the Hon'ble ITAT Calcutta Bench in the case of ITO vzs Samiran Majumdar 98 ITD 119 Cal held that printers and scanners were integral part of computer system and are to be treated as computer. The decision of the Delhi Bench of the Hon'ble ITAT in the case of Asst. CIT vs Amadaus India (O) Ltd 79 ITD 407 Del is also in favour of the assessee. In the case of DCIT vs Datacraft India Ltd 009 ITR (Trib) 712 Mum the Hon'ble ITAT took the view that router and switches can be classified as a computer hardware when they are used along with a computer and when their functions are integrated with a "Computer".In other words when a device is used as part of the computer in its functions then it would be termed a computer.
25. In view of the above said decisions, we direct the AO to allow depreciation at 60% on Rs. 89,370/- being cost of 9 ITA NO. 253/Hyd/10 Samrakshana Electricals Ltd.
Printers attached to computers etc as claimed by the assessee.
26. In the result, subject to our directions for recomputation relief u/s 80HHC based on verification of facts, the appeal of the assessee is partly allowed.
Pronounced in the open court on 21/09/2012.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 21 st September, 2012. kv Copy to:-
1) Samrakshna Electricals Ltd., 127, Hydernagar, Kukatpally, Hyderabad
2) DCIT, Circle 3(1), Hyderabad
3) The CIT (A),Tirupathi
4) The CIT-3, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.