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2008 (3) TMI 694 - AT - Income TaxComputing the book profit u/s 115JA - Addition u/s 201(1A) for delay in deposit of TDS - Disallowed amount received as duty drawback and profit on sale of REP license u/s 80-IA and u/s 115JA - Eligibility for deduction u/s 35 or u/s 37 - contribution made to Ranbaxy Science Foundation(RSF) and Ranbaxy Community Health Care Society(RCHCS) - Sale of scrap will form part of total turnover for computing deduction u/s 80HHC - provision for bad and doubtful debts - proportionate lease rent on oak wood barrels. Computing the book profit under s. 115JA made addition under s. 201(1A) for delay in deposit of TDS - HELD THAT:- In the case of Harshad Shantilal Mehta vs. Custodian & Ors.[1998 (5) TMI 25 - SUPREME COURT] observed that tax, penalty and interest are different concepts under the IT Act, 1961. It was held that the definition of 'tax' under s. 2(43) of the IT Act, 1961 does not include penalty or interest. According to the Hon'ble Court, neither penalty nor interest can be considered tax under s. 11(2)(a) of the IT Act [sic-Special Court (Trial of offences) Relating to Transactions in Securities Act, 1992]. It may be pointed out that the ld DR has not been able to show any contrary authority. Hence, following the above authorities, we hold that the learned CIT(A) was not justified in upholding the addition made by the AO in respect of payment of interest under s. 201(1A) while computing book profit under s. 115JA of the IT Act. The issue is, therefore, decided in favour of the assessee. In the result, ground is allowed. Disallowed amount received as duty drawback and profit on sale of REP license u/s 80-IA and u/s 115JA - On going through the order of the Tribunal rendered in AY 1996-97 in assessee's own case, it is found that the Tribunal has considered similar arguments and after following the decision of Hon'ble Delhi High Court in the case of Britannia Industries Ltd. [2005 (10) TMI 30 - SUPREME COURT] held that the assessee is not eligible for deduction in respect of duty drawback and profit on sale of REP licenses. In the case of CIT vs. Ritesh Industries Ltd.[2004 (9) TMI 36 - DELHI HIGH COURT], categorically held that amount of duty drawback cannot be regarded as income derived from industrial undertaking. Thus, the issue has to be decided against the assessee. Ground Nos. A2 and B3 are therefore rejected. Eligibility for deduction u/s 35 or u/s 37 - contribution made to Ranbaxy Science Foundation and Ranbaxy Community Health Care Society - establish community based scientific research for control of various endemic diseases - Assessee company, therefore, is directly concerned with the activities of these two organizations, although the organizations have a separate entity of their own. It is true that these organizations have been exempted under s. 11 or under s. 80G but the fact remains that the assessee company is incurring heavy expenditure in maintaining these institutions for its own business purposes and is being directly benefited by their activities. The provisions made by the assessee company cannot be said merely for carrying out philanthropic objects, rather the contributions are directly aimed for promoting business of the assessee company and also for advertising its name because various conferences and workshops are conducted under the banner of the Ranbaxy Laboratories (P) Ltd. Thus, on examination of the nexus between the activities of the foundation and society and those of the assessee company. The issue regarding contribution to various foundations and societies has been considered by various Courts in relation to allowability of deduction of expenditure. In the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT [1996 (10) TMI 2 - SUPREME COURT], after making reference to various decisions, allowed the claim of the assessee In the case of Mahindra & Mahindra Ltd. vs. CIT [2003 (1) TMI 71 - BOMBAY HIGH COURT], High Court allowed deduction of expenditure incurred by the assessee in making initial contribution to the approved superannuation fund to an educational society, which was running school for children of employees, as business expenditure under s. 37. It was held that the amount should be allowed as business expenditure because it was incurred predominantly for staff welfare. Therefore, it is clear that even if there is no statutory obligation on the part of the assessee to incur the expenditure, but the expenditure has been incurred to bring goodwill to the assessee or is for the purpose of promoting its business then such expenditure is to be allowed as business expenditure. In view of the above, we uphold the claim of the assessee and allow ground No. 5. Deduction u/s 80HH/80-IA - profits derived from goods manufactured on loan license basis - manufacture of drugs and pharmaceuticals - HELD THAT:- It was pointed out by the learned counsel for the assessee that in earlier year i.e. AY 1991-92 in assessee's own case the Tribunal has confirmed the order of the learned CIT(A) in setting aside the issue and in directing the AO to consider the claim of the assessee. Both the sides agreed before us that the same course should be adopted in this assessment year also. It could not be pointed out as to what happened to the directions of the Tribunal and what is the final outcome. Since position could not be ascertained and further since neither the AO nor the learned CIT(A) have considered the relevant facts nor carried out further examination or inquiry we consider it proper to restore the matter back to the file of AO to decide the issue afresh after examining all relevant aspects and as per law, of course, after providing opportunity of being heard to the assessee. Consequently, order of the learned CIT(A) is set aside and the ground is allowed for statistical purposes. Sale of scrap will form part of total turnover for computing deduction u/s 80HHC - we have gone through the order of the Tribunal rendered in assessee's own case for AY 1996-97, wherein after considering various authorities it has been held that sale of scrap is not to be included in total turnover for the purposes of computing deduction u/s 80HHC. The ld DR has not been able to point out any decision of jurisdictional High Court in favour of the Revenue. As the issue stands covered in favour of the assessee by the earlier decisions of the Tribunal in the case of the assessee itself, respectfully following the same, we uphold the claim of the assessee and allow the ground in assessee's favour. Ground is allowed. In the result, assessee's appeal stands partly allowed as indicated above. Computation of book profit under s. 115JA - provision for bad and doubtful debts - In the case of CIT vs. HCL Comnet Systems & Services[2007 (5) TMI 203 - DELHI HIGH COURT], the assessee had made provision for bad and doubtful debts in its P&L a/c for AY1997-98. The Hon'ble High Court while dismissing the appeal, held as under: ''there was no reason why a bad and doubtful debt claimed by the assessee could not be treated as an ascertained liability. If the debts that were bad and doubtful should have been written off, then cl. (c) of the Explanation to s. 115JA would become completely inoperative and otiose, which was not the intention of the legislature." Thus, the issue is decided in favour of the assessee. Ground fails. Exclude the proportionate lease rent on oak wood barrels leased to M/s Khodey Distillery Ltd. - On going through the order of the Tribunal in the case of Crosslands Research Lab Ltd. (supra), it is found that the order of the learned CIT(A) has been affirmed wherein the total cost of wooden barrel worked out. Consequently, the view taken by the learned CIT(A) in the present appeal for present assessment year which is based on the order of the learned CIT(A) in the case of Crosslands Research Lab Ltd. for AY 1995-96 is fully justified. Accordingly, order of the learned CIT(A) on the issue in question is upheld. Ground fails. In the result, assessee's appeal is partly allowed, in the manner as indicated above and the appeal filed by the Revenue is dismissed.
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