TMI Blog2010 (11) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2000-01 the restrictions imposed by the provisions of sub-section (9A) cannot be over looked - Decided against of assessee. whether the service charges amounting to Rs.20,17,524 are to be excluded from the "profits of the Business" for computing deduction u/s.80-HHC of the Act - As per the Hon'ble Supreme Court in the case of CIT vs. K. Ravindranathan Nair (2007 -TMI - 2378 - Supreme Court of India) ,held that any income which is independent of exports business, even if it falls under the head "Profits and gains of business or profession" will not per se become eligible for deduction under section 80HHC - the claim of the assessee cannot be decided without finding out the nature of the service charges, which has not been spelt out either in the order of the AO or the CIT(A). In this circumstances we set aside the order of CIT(A) and remand the issue to the AO for fresh consideration in the light of the principles laid down by the Apex Court. Method of accounting - vlauation of stock - section 145 - addition to closing stock on account of excise duty - Held that:- The Assessing Officer has given a finding that the assessee follows exclusive method of valuation. It is clear fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of excluding net exchange gain of Rs.17,68,642/- from business profits without appreciating the fact that income from net exchange gain does not arise from the business of the assessee." 3. "On the facts and circumstances of the case and in llaw, the ld. CIT(A) has erred in deleting the addition made by directing to treat the miscellaneous receipts of Rs.1,89,491/- as part of business income, without appreciating the fact that there is no nexus between miscellaneous receipts and business income of the assessee." 7. While computing deduction under section 80 HHC of the Act the Assessing Officer excluded net exchange gain of Rs.17,68,642/- and miscellaneous receipts of Rs.18,90,491/- from the profits of the business on the ground that these receipts are not related to business activity and, therefore, cannot be considered as "profits of the business". 8. On appeal by the assessee, the CIT(A) following the decision of the ITAT Delhi Bench in the case of Smt. Sujatha Grover vs. DCIT, 74 TTJ 347 (Del) held that foreign exchange gain forms part of the sale proceeds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r fresh consideration. 13. The ld. Counsel for the assessee submitted that the entire details were furnished by the assessee and the Assessing Officer has duly considered all the aspects and, therefore, at this stage the issue should not be sent back to the Assessing Officer for fresh consideration. He, further placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Pfizer Ltd., (2010) 42 DTR (Bom) 32. The Hon'ble Bombay High Court in the aforesaid case has held that receipt of insurance claim on account of stock in trade should be considered as part of the profits of the business for computing deduction under section 80 HHC of the Act. 14. We have considered the rival submissions. As far as the foreign exchange gain is concerned we find that the assessee in Schedule -II forming part of the PandL Account for the year ended 31/3/2000 has clearly mentioned regarding the gain of exchange fluctuation. In the P and L Account the assessee has duly shown the exchange gain as profits of the business. It was further brought to our notice that the claim of the assessee u/s. 80 HHC is duly supported by a certificate of a Chartered Accountant, which is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained that it had placed Inter Corporate Deposits (ICD) with M/s. Vitara Chemicals Ltd. amounting to Rs.50 lacs during the assessment year 1999-2000. The interest accrued from the said ICD was offered to tax in A.Y 1999-2000 as business income. The ICD given to M/s. Vitara Chemicals Ltd. could not be recovered fully due the precarious financial condition of the said party. Hence, the assessee wrote off Rs.48.00 lacs as bad debts. The Assessing Officer however, did not allow the claim of the assessee for deduction on the ground that the loss in question had nothing to do with the business of the assessee which was manufacture and sale of machine tools. He held that the loss in question was a capital loss and cannot be allowed as a deduction. 19. On appeal by the assessee, the CIT(A) held as follows: "8.2 I have considered the submissions and also the order of the A.O. The assessee has been carrying on the business of placing surplus funds at the disposal for various companies i.e. lending money on short term basis. The assessee has been carrying on this activity for several years which has been approved by the memorandum of the assessee company. While the interest receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Poysha Oxygen Pvt. Ltd. vs. ACIT (2008) 19 SOT 711(Del) moneys lent by way of ICDs was a loan transaction and represents money lent in the ordinary course of business of money lending and, therefore, allowable as deduction u/s. 36(1)(vii) r.w.s. 36(2)(a) of the Act. In view of the above we confirm the order of the CIT(A) and dismiss ground No.4 raised by the revenue. 22. Ground No.5 and 6 raised by the revenue read as follows: "5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition on account of capital expenditure on software without appreciating the fact that the nature of expenses is in the nature of plant and machinery." "6. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.1,53,760/- on account of capital expenses of software by admitting invoices which were not produced before the Assessing Officer as an additional evidence, without appreciating the fact that opportunity to verify the additional evidence was not granted to the AOs." 23. The A.O was of the view that the assessee by acquiring the aforesaid software were getting a licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Erp customization charges 100000 PC SOFT, Pune Erp customization charges 10000 PC SOFT, Pune Supply of INT E VIEW ERP Software 100000 467285" It was the contention of the ld. D.R that the Special Bench of the ITAT in the case of Amway Enterprises 114 TTJ 476 (SB)(Del) has laid down principles for deciding when an expenditure on computer software would be said to be capital or revenue and the AO should be directed to examine the issue in the light of the said judgment. On the action of the CIT(A) in deleting the addition of Rs.1,53,760/- of software expenses for which assessee did not produce invoices before AO, it was argued that the CIT(A) admitted the additional evidence without confronting the same to the AO. Thus, it was submitted that the issue raised in Ground No.5 and 6 should be examined afresh by the AO. 26. The ld. counsel for the assessee on the other hand submitted that the Madras and Punjab and Haryana High Courts in the case reported in 304 ITR 84 (Mad) and 309 ITR 272 (PandH) have held that computer software expenses are revenue expenses to be allowed as deduction. It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me up for consideration in assessee's own case in A.Y 1998-99 and the claim of the assessee had been rejected. Following the same AO did not allow deduction under section 80 I/80IA and computed on the profits of Nashik Unit only under section 80 HHC of the Act. 31. On appeal by the assessee the CIT(A) confirmed the order of the AO giving rise to Ground No.1 by the assessee before the Tribunal. 32. Before we deal with the rival contentions it would be necessary to see the reasons assigned by the revenue authorities for rejection of the claim of the assessee for deduction in respect of the profits of the Nashik Unit both under section 80 HHC and section 80I/80IA of the Act. The same are contained in the CIT(A) order for assessment year 1998-99 in assessee's own case. The assessee did not file an appeal against the order of the CIT(A) because of the smallness of the tax effect as stated by the ld. counsel for the assessee before us. The same reads as follows: "6. The fourth ground of appeal relates to the deduction u/s. 80 I. In the asstt. Order, the AO has observed that the assessee has claimed 100% deduction u/s. 80 HHC in an export unit and has also claimed deduction u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of the industrial undertaking or of a hotel in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading 'C- Deductions in respect of certain income' and shall in no case exceed the profits and gains of the undertaking or the hotel, as the case may be." He submitted that the assessee has been claiming deduction in respect of the profits of the Nashik Unit u/s. 80I right from A.Y 1991-92 and assessment year 2000-01 is last of the 10 years for which deduction u/s. 80I was claimed by the assessee. It was his submission that the Mumbai Bench of the Tribunal in the case of Regency Export Pvt. Ltd. vs. JCIT (2006) 8 SOT 116 (Mum) has considered the above provisions and had held that the amendment operates only prospectively. It was further submitted that law prior to the introduction of sub-section (9A) referred to above was that deduction under one section of Chapter VIA of the Act cannot be reduced while computing deduction under another section of Chapter VIA. In this regard reliance was placed by the ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income-tax (Appeals) has erred in law and on facts in upholding the Assessing Officer's contention that service charges amounting to Rs.20,17,524/- should be excluded from profits of the business while computing the deduction under section 80 HHC of the Act." 37. The issue raised in ground No.2 is as to whether the service charges amounting to Rs.20,17,524 are to be excluded from the "profits of the Business" for computing deduction u/s.80-HHC of the Act. The revenue authorities rejected the claim of the Assessee for such inclusion. In order to compute "profits of the business" we have to firstly determine the profit under the head "Profits and gains of business or profession". If any item of income does not fall under this head or in other words it falls under other head, say "Income from other sources", that will stand excluded at the very outset and hence will not be reckoned for computation of profits derived from export and will be automatically shunted out for the purposes of deduction under section 80HHC. It is on the basis of the definition of "profits of the business" as referred to in Explanation (baa) with the starting point of profits as computed under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulting into the reduction of the export income. 38. In view of the above decision we are of the view that the claim of the assessee cannot be decided without finding out the nature of the service charges, which has not been spelt out either in the order of the AO or the CIT(A). In this circumstances we set aside the order of CIT(A) and remand the issue to the AO for fresh consideration in the light of the principles laid down by the Apex Court, referred above. 39. Ground No.3.1 and 3.2 raised by the assessee read as follows: "Ground. 3.1: The learned Commissioner of Income-tax (Appeals) ought to have deleted addition made by the Assessing Officer of Rs.39,26,699/- to the closing stock on account of excise duty payable on the closing stock of finished goods. "Ground No. 3.2: The ld. Commissioner of Income-tax (Appeals) has erred in law and on the facts in not directing the Assessing Officer for making corresponding adjustment to the opening stock in respect of excise duty of Rs.51,40,752/- in the event addition to closing stock on account of excise duty is to be upheld." The above ground 3.2 was modified by the Assessee as follows vide letter dated 11.11.2010: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the Balance Sheet. iii) Excise duty payable on good lying in bonded warehouse on the balance sheet date but actually paid by the due date for filing the return of income. This amount is allowable as deduction u/s. 43B if necessary evidence for payment is furnished with the return of income." The assessee in this application u/s. 154 of the Act submitted that to the extent of the amount actually paid as mentioned above deduction u/s. 43B should be allowed and the addition made on account of closing stock will thereby get neutralized. 41. The assessee filed appeal against the order of the Assessing Officer challenging the aforesaid addition of Rs.39,26,699 made by the Assessing Officer. The CIT(A) however, directed the Assessing Officer to decide the issue in the application filed by the assessee under section 154 of the Act. Aggrieved by the aforesaid order of the CIT(A) the assessee has raised Ground No.3.1 and 3.2 before the Tribunal. 42. We have heard the rival submission. In note No.18 to the Financial Statement filed alongwith return of income the assessee has stated as follows: "In the earlier years, the excise duty liability in respect og goods in bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as asked by the AO to submit its explanation as to why this amount being provision should not be added back to its income. The assessee vide letter dt. 20/1/2003 had replied as under:- "The aforesaid excise duty of Rs.64,94,948/- relates to the duty borne by the company, which has been charged off to the P and L Account. The company maintain a PLA A/cc. whereby advance payment of excise duty made to the excise department is credited, and the related excise duty liability is debited. The said excise duty of Rs.64,96,948/- has been discharging during the year, by way of appropriate debit to the PLA." 46.1 The AO however held that the assessee has not discharged onus on it to prove as to how this liability accrued to it. Further, he held that the submission made by assessee are incomplete to draw any conclusion regarding the actual payment of excise duty. In view of this, excise duty of Rs.64,96,948 being provision/write-off was disallowed. However, assessee was given liberty to file necessary details of actual payment and on such proof it was held that the Assessee would get deduction. u/s. 43-B. 47. On appeal by the assessee, the CIT(A) noticed that the assessee had file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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