TMI Blog2008 (12) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... is right in levying the interest under section 234D of the Income-tax Act amounting to Rs. 3.67 lakhs for the assessment year 2001-02, when the section itself came into force only from 1-6-2003. 2. Whether the Assessing Officer is right in levying the interest under section 234D of the Income-tax Act amounting to Rs. 3.67 lakhs when the intimation order under section 143(1) has been passed on 28-2-2003, but the section itself came into force only from 1-6-2003. 4. First of all, we would like to take up the additional ground. 5. After hearing both the parties, the additional grounds have been admitted by us for adjudication in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 because the same involves legal issue. 6. After considering the rival submissions we find that identical issue has been decided recently by the Delhi Special Bench of the Tribunal in the case of ITO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719. The Special Bench vide para 71 of the above order has held that:- "71. In view of the above discussion our answer to question referred to us is that interest under section 234D is charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultancy fee for redesigning the entire supply chain management. The Assessing Officer held that this expenditure was in the nature of capital expenditure. He further noticed that only a sum of Rs. 11,46,432 was claimed in the books of account and the balance was treated as deferred expenditure. Accordingly, he disallowed a sum of Rs. 62,63,889 being in the nature of capital expenditure. This addition has been confirmed by CIT (Appeals). 11. Before us, the learned Counsel for the assessee submitted that expenditure incurred for consultancy for obtaining some management reports cannot be regarded as capital expenditure and in this regard he relied on the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Crompton Engg. Co. Ltd. [2000] 242 ITR 317 (Mad.). He submitted that it does not make a difference whether the assessee had treated the same as deferred expenditure in its own books of account. In this regard he relied on the decision of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. 12. The ld. Departmental Representative, on the other hand, submitted that consultancy expenditure was not incurred for the curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lakshmi Machine Works are only for the purpose of deduction under section 80HHC and the same could not be applied here. He submitted that the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542, has clearly held that Sales Tax is part of the trading receipts. He further submitted that the language of section 10B is clear and deduction can be allowed only if the assessee was owning 100 per cent export oriented unit. Once this condition is not fulfilled then no deduction can be allowed for even export turnover. He argued that though in this year there was a provision showing that even if the assessee has some domestic turnover, deduction has to be given under section 10B of the Act, but the second proviso prescribes the limit for domestic sales at 25 per cent and, therefore, the assessee is not entitled to deduction under section 10B of the Act. 17. In the rejoinder, the learned Counsel for the assessee submitted that in this year the second proviso as well as sub-section (4) were both on the Statute Book, therefore, the assessee becomes entitled to deduction under section 10B of the Act, if not at 100 per cent, on proportionate basis i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were less than 25 per cent then 100 per cent deduction was allowable, i.e., even if the assessee was selling some of the goods in domestic area, still he was eligible for 100 per cent deduction. 19. Sub-section (4) of section 10B of the Income-tax Act which was substituted by Finance Act, 2001 with effect from 1-4-2001. This means that during the assessment year 2001-02 the assessee was entitled to the benefit under sub-section (4) on proportionate sales. Perhaps, Government, realised that this was double benefit and that is why the second proviso was omitted by Finance Act, 2001, with effect from 1-4-2002. In this year, therefore, both the possibilities are there. At this stage, we would like to observe the general rule of interpretation in respect of the Statute where there are conflicting provisions which is known as Doctrine of Harmonious Construction is inapplicable. This rule clearly states that a Statute has to be interpreted in such a way that effect is given to all the provisions of the Act and no provision should be rendered redundant. Following this principle, we are of the view that during this year if an assessee was having domestic sales of less than 25 per cent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The difficulty arises because the formula is based on the hybrid system of profits, namely, actual and statutory profits. Therefore, this judgment should be read in the context of the above parameters. Our reasoning in this judgment is confined to the workability of the formula in section 80HHC(3) of the Act as it stood at the material time." From the above it is clear that this decision was rendered only for the purpose of finding out the proportionate profit under section 80HHC(3) of the Act. Otherwise, the law is very clear that Excise Duty and Sales Tax are part of the trading turnover and this view has already been confirmed by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. In view of this decision we are of the view that Excise Duty has to be included in the domestic sales to find out the value of domestic sales. After inclusion of such Excise Duty in the domestic sales the proportion comes to 28.8 per cent and, therefore, the second proviso of section 10B of the Act is not applicable to the assessee's case. 21. Further, we find force in the submission of the learned Counsel for the assessee that the assessee should have been allowed propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Works, wherein it was held that:- "The principal reason for enacting a formula in section 80HHC of the Income-tax Act, 1961, is to disallow a part of the concession thereunder when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words "total turnover" in the formula in section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3): Otherwise, the formula becomes unworkable." Same view has been taken by the Hon'ble Madras High Court in the case of CIT v. Sundaram Clayton Ltd. [2006] 281 ITR 425. Respectfully following the above decisions, we decide this issue against the revenue. Third Issue 26. After hearing both the parties we find that the assessee has claimed 100 per cent depreciation on concrete road in TPI Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in these cross appeals except for issue No. 4 in assessee's appeal. In the assessee's appeal in ITA No. 12/06 I do not agree with the reasons and conclusion of my learned brother regarding the issue whether in the facts and circumstances of the case the assessee is entitled for the claim of exemption under section 10B of Income-tax Act. The relevant brief facts have already been narrated in the proposed order of the learned Accountant Member. Therefore the same need not be repeated herein. However, I would refer the relevant facts wherever necessary at appropriate stage/place in my order. 32. The entire dispute regarding this issue revolves and pertains to the meaning and interpretation of section 10B(1); 2nd proviso to section 10B(1) and sub-section (4) to section 10B as existed in the relevant assessment year 2001-02. The assessee is a 100 per cent export oriented undertaking ('EOU' for short). During the period relevant to the assessment year the EOU of the assessee had a domestic sale to the extent of 28.8 per cent as computed by the Assessing Officer. Though the assessee has claimed that while computing the domestic sale the excise duty should have been excluded and alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n profits and gains derived from domestic sale to the extent of 25 per cent of total sale shall be deemed to be the profits and gains derived from export of such goods only for one year during which the deeming provision in the shape of second proviso remained on the statute. There is no provision which allows the domestic sale by the EOU and thereby in case of any sale by the EOU of more than 25 per cent of the total sale for the assessment year 2001-02 and any domestic sale for the other assessment year will disentitle the EOU for relief under section 10B. As far as sub-section (4) of section 10B is concerned in my view the same is only a machinery provision which facilitates the computation of profits and gains from export of goods in proportion to export turnover in respect of such goods and total turnover of the business carried on by the undertaking. From sub-section (4) it cannot be inferred that the words export turnover and total turnover refer to and mean the total sale (including domestic sale) to export sale. If sub-section (4) is interpreted in such a way to give scope of domestic sale by the EOU to avail the benefit of exemption under section 10B then the same would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion statute it is not permitted to stretch or strain its language in order to apply to a particular case. 36. In view of the above discussion, I am of the considered opinion that when the assessee (EOU) had domestic sale of more than 25 per cent of the total sale during the period relevant to the assessment year 2001-02 the assessee is not entitled for exemption under section 10B of the Act. The second proviso to sub-section (1) prescribes the limit for domestic sale if any and the same will be deemed as export sales and the profits and gains of the domestic sale shall be deemed as profits and gains of the export sale. Apart from this proviso, there is no other provision to enable the assessee for claiming the exemption if the total sale of the assessee (EOU) includes the domestic sale. Sub-section (4) to section 10B talks about the export turnover and total turnover which does not mean that the total turnover includes the domestic sale. When clause (iii) of Explanation 2 makes it very much clear what is the export turnover then the total turnover would be the turnover of the EOU or only for export activity and includes the expenses which are not part of the export turnover as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to sell 25 per cent of the entire products in the domestic market. In the facts of the present case I find that the export-oriented unit of the assessee had domestic sale to the extent of 28.8 per cent as computed by the Assessing Officer. As such claim of deduction on domestic sales amounting to Rs. 68,83,343 was denied to the assessee. On that there is no difference of opinion. 3. The difference crept on the question that once the domestic sales exceed the limit of 25 per cent whether the assessee can be allowed proportionate deduction on export turnover as per the provisions of sub-section (4) of section 10B of the Act. 4. The eligibility criteria is contained in section 10B(1) by which deduction can be claimed on such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things .... The words 'hundred per cent export-oriented undertaking' is defined under Explanation 2 (iv) to section 10B. It means an undertaking which is approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2). No interdict is laid down in the statute to withdraw the total benefit of section 10B in the eventuality of domestic sales being exceeded the 25 per cent limit. There is absolutely no ambiguity in the language of the statute. As such purposive theory should not be resorted to. 7. Interpretation postulates the search for the true meaning of the words used in the statute. If the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the mens legis, i.e., the intention of the law, as evinced in the statute. The freedom for the search of the "Spirit of the Act" or the mischief at which it is aimed opens the possibility of liberal interpretation. This finer aspect cannot be narrowly watched. It is that delicate and important branch of judicial power, the concession of which is dangerous but the denial is disastrous. At one stream stands Lord Denning who said: "We do not sit here to pull the language of the Parliament to pieces and make nonsense of it. That is an easy thing to do. We sit here to find out the intention of Parliament and carry it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the provisions of sub-section (4) of section 10B of the Income- tax Act, 1961. 10. I have perused with due care both the conflicting orders on this point. I concur with the decision of the learned Accountant Member. 11. The matter will now go before the Regular Bench for deciding the appeal in accordance with the opinion of majority. Per Dr. O.K. Narayanan, Accountant Member.-The appeal in ITA No. 12/Mad./2006 is filed by the assessee. The relevant assessment year is 2001-02. The appeal is directed against the order of the Commissioner of Income-tax (Appeals)-XI at Chennai, dated 21-11-2005. 2. The assessee is a company engaged in the business of cycle, cycle accessories, steel tubes, strips, etc. The assessee has filed the return of income for the impugned assessment year 2001-02 on a total income of Rs. 36,63,00,895. Additions were made by the Assessing Authority. In first appeal, modifications were granted by the CIT (Appeals) but, all the grounds were not successful before him. He confirmed the following additions made by the Assessing Officer:- (1) Interest on capital work in progress Rs. 17.99 lakhs (2) Expenses of ERP implementation Rs. 316.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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