TMI Blog2011 (4) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... r receipts of similar nature, therefore, respectfully following the decision of the Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. (supra) hold that 90% of the same has to be excluded for the purpose of computation of deduction u/s. 80HHC of the Act. Regarding to sale of scrap - The scrap generation is part of the manufacturing activity and therefore income arising from scrap sales is an operational income of the company - Therefore, in our view the scrap sales has to be treated as part of the business profits and 90% of the same is not required to be excluded as per clause (baa) of Explanation to section 80HHC. Regarding the AMC charges - This issue is admittedly covered against the assessee as per the decision of the Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. , therefore, this issue is decided against the assessee. Regarding the cash discount - The same is covered in favour of the assessee by the decision of the Tribunal in the case of Pam Glatt Pharma Technologies Pvt. Ltd. - In the absence of any distinguishable features brought on record by the revenue, direct the Assessing Officer to treat the cash discount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of computation of special deduction u/s. 80HHC. Regarding to rent/lease rent, sales tax refund , Commission and sales tax set off - the above items are squarely covered against the assessee by the decision of Hon'ble Supreme Court in K. Ravindranathan Nair (supra) and the recent decision of Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. (supra) -"Held accordingly, that 90 per cent of recovery of freight, insurance and packing receipts amounting to Rs.49,14,076, sales tax set off/refund amounting to Rs.38,33,148 and service income of Rs.2,89,17,545 had to be excluded for the purpose of computation of special deduction under section 80HHC. - Accordingly, ground No.3 taken by the assessee is partly allowed. Disallowance - Depreciation on software treated as capital expenditure - the plea of the parties that the issue stands covered by the decision of the Special Bench of the Tribunal in Amway India Enterprises vs. Dy. CIT [2008 -TMI - 64346 - ITAT DELHI-C] - Following the above decision of the Special Bench of the Tribunal we set aside the order passed by the revenue authorities on this account and send back the matter to file of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment should not be disallowed. The assessee company was also asked to prove the nexus of funds utilised for making investment. In reply, the assessee filed its written submissions which has been summarised by the A.O. at page No. 10 of the assessment order as under: (i) Investments were not made out of borrowed funds (ii) No expenditure was incurred to earn dividend (iii) Alternatively the interest amount proportionate to dividend income should have been considered rather than the total value of investments. (iv) The investments yielded benefits by way of various services and quotas. The income by way of dividend was therefore business income; (v) The direct nexus of payments with regard to investments made was established with bank entries and balance as on that particular day of investment. However, the A.O. after considering the assessee's submissions and the appellate order for the Asst. Years 2000-01 and 2001-02 in assessee's own case, restricted the disallowance to Rs.1,87,660/- i.e being 5% of Rs.37,53,211/- of the amount earned as dividend excluding dividend received from Technova Graphics Private Limited, Saraswat Co-Op. Bank and interest rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt a reasonable basis or method consistent with all the relevant facts and circumstances...." Respectfully following the ratio of the above decision, we are of the view that some disallowance is called for under section 14A and the decision of the Tribunal (supra) relied on by the learned counsel for the assessee is not applicable in view of the decision of the Hon'ble jurisdictional High Court (supra). Considering the totality of the facts and circumstances of the case, we are of the view that the learned CIT(A) was fully justified in restricting the disallowance at 1% of such income so earned. We hold and order accordingly. The grounds taken by the assessee and revenue are, therefore, rejected. 12. Ground Nos.2(a) to 2(e) read as under: 2(a) The learned CIT(A) erred in holding that the documentation charges reimbursed by the dealer bore the stamp of receipt referred to in clause (baa) in the Explanation to section 80HHC of the Act. The appellant contends the reimbursals do not represent income or receipt within the mischief of clause (baa) of Explanation to section 80HHC of the Act and the direction of the CIT(A) be set aside. (b) The learned CIT(A) erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff 8,04,591 Insurance Claim 6,52,405 Total: 2,61,81,754 However, the A.O. while computing the deduction under section 80HHC has added the above receipts to the total turnover of the assessee for the purpose of computing deduction u/s 80HHC of the Act. 14. On appeal, the learned CIT(A) has discussed the above issues as under: (i) As regards to the recovery of documentation charges of Rs.17,67,357, he observed and held that in the above item, there is no sale element to give it a colour of turnover. However, the amount shall be taken as 'any other receipts' unless it is explicitly and categorically established by the appellant that the same had direct nexus with the export activity. Once it is found that it is any other receipt, then the natural consequences of reduction as given in the clause (baa) of Explanation to section 80HHC would follow. (ii) As regards the issue of sale of miscellaneous scrap of Rs.12,513, he held that sale of miscellaneous scrap of Rs.12,513 would not be included in the profits of the business. (iii) As regards services and AMC for sale of equipments of Rs.1,55,23,367, he held that the same logic ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s covered against the assessee by the decision of Hon'ble jurisdictional High Court in Dresser Rand India P. Ltd. (supra). (iv) With regard to cash discount of Rs.74,21,521, he submits that the above issue is covered in favour of the assessee by the order of the Tribunal in Pam Glatt Pharma Tehcnologies Pvt. Ltd. (supra). (v) With regard to sundry balances of Rs.8,04,591, he submits that the said issue is covered in favour of the assessee by the following decisions: i) CIT vs. Abdul Rehman Industries (293 ITR 475) (Mad) ii) ACIT vs. M/s. Diamond Dye Chem Ltd. (ITA No.3342/Mum/2006) (Page 2 Para7) iii) Extrusion Process (P) Ltd. vs. ITO (106 ITD 336) (Bom) iv) Eastern International Hotels Ltd. vs. DCIT (93 ITD 233) (Mum) (vi) With regard to the insurance claim of Rs.6,52,405, the learned counsel for the assessee submits that this issue is also covered in favour of the assessee by the following decisions: i) CIT vs. Pfizer Ltd. (2011) 330 ITR 62 (Bom) ii) Gujarat Alkalies vs. DCIT (82 ITD 135) (Ahd) iii) Eastern International Hotels Ltd. vs. DCIT (93 ITD 233) (Mum) 16. On the other hand, the learned Departmental Representative while relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (baa) to section 80HHC of the Act. As regards the decision relied on by the learned Departmental Representative in the case of K. Ravindranathan Nair (supra), the said decision is on the issue of processing charges and not on the issue of sale of scrap. Therefore, the same is distinguishable and not applicable to the facts of the present case. We hold and order accordingly. (iii) As regards, the AMC charges, we are of the view that this issue is admittedly covered against the assessee as per the decision of the Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. (supra), therefore, this issue is decided against the assessee. (iv). As regards, the issue of cash discount, we find merit in the plea of the learned counsel for the assessee that the same is covered in favour of the assessee by the decision of the Tribunal in the case of Pam Glatt Pharma Technologies Pvt. Ltd. (supra) wherein it has been held (para 18):- ".........that cash discount which the assessee received from its suppliers will go to reduce its cost of sale and thus intimately connected with the business of the assessee. It cannot be equated with the receipts in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.2,500 c) Rent/Lease rent Rs.12,74,950 d) S. Tax Refund Rs.24,53,983 e) Commission Rs.2,20,606 f) Sales Tax Set Off Rs.1,35,53,629 Rs.2,11,60,312 The appellant prays that the decision which contemplates dedicated organization for export activity alone does violence to section 80HHC(3) of the Act be set aside." 19. At the time of hearing, the learned counsel for the assessee submits as under: a) With regard to the interest received on credit facilities to dealers and customers Rs.29,87,762 and interest on loan from staff Rs.6,66,882 aggregating to Rs.36,54,644 to be reduced @ 90% in view of clause (baa) of Explanation to section 80HHC, he submits that this issue is covered in favour of the assessee by the following decisions: i) CIT vs. Alfa Laval India 295 ITR 451 (SC) ii) ITAT Order for A.Y. 2001-02 in assessee's own case in ITA No.1413-2416/Mum/05) (Para 6 Pg No.5-6) iii) CIT vs. Sociedade de Fomento Industrial Ltd. (ITA 20 of 2003)(Bombay). b) With regard to the interest on loan from staff of Rs.2,500/- he submits that the issue is covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) wherein it has been held vide para 6.5 of the order Dt.19.3.2009 as under: "6.5 After hearing both the sides, we find there is no dispute to the fact that the assessee has received an amount of Rs.34,45,239 as interest from the customers and dealers. According to the Revenue above interest from customers and dealers falls within the clause (baa) and therefore, 90% of the same should be excluded from the profits of the business. However, we find the Hon'ble Bombay High Court in the case of Alfa Laval (India) Ltd. vs. DCIT reported in 266 ITR 418 has held that interest from customers and sales tax set off received by the assessee being assessed as part of the business profits; under the head "profits and gains of business or profession" the same could not be excluded while calculating deduction u/s. 80HHC of the Act. We find when the Revenue challenged the above decision of the Hon'ble Bombay High Court, the Hon'ble Supreme Court has dismissed the appeal filed by the Revenue which is reported in 295 ITR 451. We, therefore, set aside the order of the CIT(A) on this issue and the ground raised by the assessee is allowed." In the absence of any distinguishable features brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in Amway India Enterprises vs. Dy. CIT (2008) 111 ITD 112 (Del.) (SB), therefore the issue may be set aside to the file of the Assessing Officer. 24. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the parties that the issue stands covered by the decision of the Special Bench of the Tribunal in Amway India Enterprises vs. Dy. CIT (2008) 111 ITD 112 (Del.) (SB) wherein it has been held vide para-59 appearing at page 170 of 111 ITD as under: "59. Our conclusions on the issue under consideration thus can be summarized as under:- (i) When the assessee acquires a computer software or for that matter licence to use such software, he acquires a tangible asset and becomes owner thereof as held above relying on the decision of Hon'ble Supreme Court in the case of TCS(supra). (ii) Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of total turnover without appreciating the fact that sale of scrap has direct link with the turnover. 3. On the facts and circumstances of the case and in law, the CIT(A) erred in holding that Services and AMC (Annual Maintenance Charges) for sale of equipments amounting to Rs. 1,55,23,367/- would not form part of total turnover without giving any specific findings." 27. These two grounds have already been adjudicated by us as ground No. 2(b) in assessee's appeal in para Nos. 12 to 17 of this order. For the reasons as stated in para 17(ii) and 17(iii) of this order, the ground No. 2 taken by the Revenue is, therefore, rejected and the ground No. 3 is allowed. C.O. No. 292/M/2007 (By assessee). 28. Ground No. 1 is against the sustenance of disallowance out of disallowance made u/s 14A. 29. This ground has already been adjudicated by us in para Nos. 5 to 11 of this order in upholding the disallowance sustained by the ld. CIT(A). Accordingly, the ground taken by the assessee does not call for any fresh adjudication and hence rejected. 30. Ground No. 2 and 3 read as under:- "2. The Respondent submits the learned CIT(A) on a consideration of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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