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2010 (2) TMI 1292 - ITAT AHMEDABADDisallowance of component of weighted deduction u/s. 35(2AB) for professional fees - AO disallowed weighted deduction on R & D expenditure on the ground that the prescribed authority has not considered some items to be eligible for weighted deduction - CIT(A) following its order for AY 2001-02 granted relief of weighted deduction for municipal taxes, salary of Dr. C. Dutta and recurring expenditure on building but did not allow weighted deduction on professional fees observing that the same is not eligible to weighted deduction. HELD THAT:- Respectfully following the assessee’s own case in AY 2001-02, ACIT v/s Torrent Pharmaceuticals LTD.[2009 (11) TMI 819 - ITAT AHMEDABAD] held that; ''Accordingly, this expenditure are for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of environment and this is directly related to R & D facilities. As regards to salary paid to Dr. C. Dutt, he is in-charge of R & D Centre at Bhatt. He is the person through whom all coordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure and building repairs on which weighted deduction u/s.35(2AB) is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue’s appeal is dismissed and that of the assessee’s CO is allowed.” Facts being identical to the facts of the assessee in AY 2001-02 and in absence of any distinguishing features, pointed out by the revenue. we allow the ground of appeal of the assessee and dismiss the ground of appeal of the revenue. Deduction u/s. 80HHC - CIT(A) held that deduction u/s. 80HHC, sales tax was not to be treated as part of total turnover - CIT(A) further directed to exclude the component of excise duty from the total turnover for the purpose of computation of deduction u/s.80HHC - HELD THAT:- Both the parties before us agreed that the issue is now covered against the assessee by the decision of Hon'ble Supreme court in the case of CIT Vs. Laxmi Machine Works [2007 (4) TMI 202 - SUPREME COURT], wherein it was held that the excise duty and sales tax are not includible in “total turnover” in the formula contained in section 80HHC(3). Therefore, the ground of appeal of the assessee is allowed and the ground of appeal of the revenue is dismissed. Claim of disallowance u/s 80HHC in respect of income from DEBP was denied by the lower authorities to the assessee on the ground that the additional conditions envisaged in the third proviso to section 80HHC(3) was not satisfied in the instant case. HELD THAT:- We find that in the case of Topman Exports [2009 (8) TMI 827 - ITAT MUMBAI] it was held that income by way of receipt of DEBP and income by way of profit on sale of DEBP are two distinct and separate income. In our considered view, the lower authorities were justified in denying the claim in respect of profit on sale of DEBP covered by clause (iiid) of section 28. While income in respect of DEBP is the face value of the DEBP and the same is covered by clause (iiib) of section 28 whereas profit on sale of DEBP is only the element of profit i.e. sale price minus face value of DEBP and the same is covered by clause (iiid) of section 28 of the Act. But in the instant case, from the materials available on record, it is not clear whether the whole amount is covered by clause (iiid) of section 28 or it also includes the amount which is covered by clause (iiib) of section 28 also. In the circumstances, it shall be in the interest of the justice to restore the issue back to the file of the AO for proper verification. We order accordingly. Thus, the ground of appeal of the assessee is allowed for statistical purposes. Charging interest u/s. 234A, 234B and 234C - deduction claimed u/s 80HHC - restricted to a lesser amount on account of profit on sale of DEBP by applying the law which was retrospectively amended by the Taxation Laws (Amendment) Act, 2005 - demand was raised against the assessee - AO levied the interest u/s 234A, 234B and 234C - CIT(A) has not allowed the claim of the assessee. HELD THAT:- We find that the issue is squarely covered by the decision in the case of Eastman Industries Ltd. Vs. DCIT [2007 (7) TMI 338 - ITAT DELHI-B], wherein on the similar facts, the Tribunal by relying on the CBDT Circular No.2 of 2006 has held that AO was not justified in charging interest u/s 234B and 234D as a consequence of reduction in the claim of deduction u/s 80HHC in view of the retrospective amendment of law by the Taxation Laws (Amendment) Act, 2005 with effect from 1.04.1998. We therefore, allow these grounds of appeals of the assessee and direct the AO not to charge interest in respect of the income which relates to the lesser grant of deduction u/s 80HHC as a consequence to retrospective amendment brought by the Taxation Laws (Amendment) Act, 2005. Disallowance made by AO from out of expenditure on selling publicity and medical literature - Deleted by CIT(A) following the order of the Tribunal in assessee’s own case for A/Y's 1990-91 and 1991-92. HELD THAT:- The Ld DR merely relied upon the order of the AO. He could not point out why the order of the Tribunal for AY 1990-91 and 1991-92 should not be followed in the present year of appeal. Hence, we do not find any good and justifiable reason to interfere with the order of CIT(A) which is confirmed and the ground of appeal of the revenue is dismissed. Disallowance of Garden expenses - assessee is engaged in the business of manufacturing of pharmaceuticals items - In the production, the assessee uses various types of chemicals. In order to control the pollution arising out of chemical process - incurred expenditure for the purpose of maintaining garden in factory premises. This expenditure has been claimed deduction by the assessee - AO disallowed for the reason that it is not incurred for the process of production - CIT(A) allowed the deduction. HELD THAT:- In our considered opinion, the manufacturing process of the assessee being such that it involves use of hazardous chemicals which affect the health of the workers. Thus, it is the duty of the assessee to make good the loss caused to nature and to prevent the health of the workers engaged in production. Therefore, the assessee maintained the garden for maintaining better environment in the factory and the expenditure incurred in the process was therefore, for the purposes of the business of the assessee and was rightly allowed by CIT(A). We therefore, confirm the order of CIT(A) and dismiss the ground of appeal of the revenue. Addition made under transfer pricing u/s.92CA(3) - difference in the Arm’s length price as taken by the assessee and as applied by the AO was less than 5% of the price taken by the assessee is not in doubt or debate. Therefore, CIT(A) following CBDT Circular No.12/2001 has held that the Addition made by AO is not tenable HELD THAT:- As Ld DR could not point out any error in the order of the CIT(A) which was passed following the CBDT Circular. Thus, we do not find any merit in the ground of appeal of the revenue. Therefore, this ground of appeal of the revenue is dismissed. Claim of deduction u/s 80HHC - Interest income - head under which such interest income is assessable to tax? - The only contention of the assessee is that as business funds were deployed for earning interest income therefore, interest should be held as assessable under the head business income. As per AO the same is assessable under the head income from other sources - HELD THAT:- In the instant case, we find that the assessee has brought no material either before any of the lower authorities or before us to show that there was some business exigency necessitating the deployment of funds which resulted in the yield of interest to it. In our considered opinion, in view of the case of Topman Exports (Supra), the above contention of the assessee is not tenable and such interest income is assessable only under the head income from other sources. As a consequence of it, the assessee cannot claim any deduction u/s 80HHC in respect of such interest income which does not form the part of business income. Therefore, CIT(A) was not justified in allowing netting off of such interest income against interest expenditure and holding that only 90% of the net interest income is to be excluded for the purposes of computing deduction u/s 80HHC. We therefore, set aside the order of CIT (A) on this issue and restore that of the AO. Thus, this ground of appeal of the revenue is allowed.
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