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TMI Blog2012 (9) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that the onus was entirely on the assessee to prove that all the borrowed funds were used for business. In terms of section106 of the Evidence Act, the assessee was under obligation to prove that interest bearing fund was not used for investment yielding exempt income. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing to reduce the amount of sales tax and excise duty while computing the total turnover for the purpose of deduction u/s. 80HHC of the Act relying on the decision of Lakshmi Machine Works 290 ITR 167 (SC) without taking note of insertion of the provisions of section 145A(b) with effect from 1-4-1999." 4. Brief facts of the case are that the assessee is engaged in the business of manufacturing of automotive gaskets, radiators and CFJS at its unit at Bhaili and Anakhi. Assessee-company supplies its products to various OEM customers as well as to the replacement market. The company also exports its products to various foreign countries. The assessee filed its return on 30-10-2004 declaring net taxable income at Rs.12,91,19,018/-. The case was taken up for scrutiny and the total income was determined at Rs.14,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect, no disallowance u/s. 14A can be made. For this proposition, the Ld. A.R. relied on the decision of Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT 247 CTR 162 (Del.). 10. We have heard the rival contentions, perused the material on record. The A.O. had made the disallowance for interest and other expenses pertaining to the investments on an estimate basis at 10% of the dividend income. The A.O. has not given any finding with respect to incurring of expenses for earning tax free income. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (supra) has held as under the expression "expenditure incurred" refers to actual expenditure and not to some imagined expenditure. The "actual" expenditure that is in contemplation u/s. 14A(1) of the Act is the "actual" expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made u/s. 14A of the Act, for making disallowance u/s. 14A. The A.O. has to first reject the claim of the assessee with regard to the claim of expenditure and such rejection must be for disclosed cogen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the issue is covered in assessee's favour by the decision of the Apex Court and that of ITAT in the assessee's own case. 16. We have heard the rival contentions, perused the material on record. The co-ordinate Bench in ITA No.1450/Ahd/2006 dated 30-6-2010 following the decision of Apex Court in the case of Lakshmi Machine Works, has dismissed the Revenue's appeal by holding as under:- "8. At the outset, Ld. Counsel for the assessee argued that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Apex Court in the case of CIT vs. Lakshmi Machine Works (2007) 290 ITR 667(SC), wherein the Hon'ble Apex Court has held as under:- "In fact, in Civil Appeal No.4409 of 2005, the above proposition has been accepted by the Assessing Officer (See: page No.24 of the paper book), if so, then excise duty and sales tax also cannot form part of the "total turnover" under section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of "turnover" which is the position even in the case of rent, commission, interest etc., It is important to bear in mind that excise duty and sales tax are indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax and excise duty from total turnover is in favour of the appellant by virtue of the decision of the apex court in the case of Laxmi Machine Works 290 ITR 667. The interest on margin money and ICD, calibration income has been decided against the appellant by Hon ITAT for A.Y. 2002-03 and following that the action of the A.O. is confirmed. Similarly car requisition charges are not profit of the business. In the case of CIT vs. Ashok Leyland Ltd. 215 ITR 187 (Mad.) it is held that scrap sales would not be included in the total turnover for purposes of calculation of deduction under section 80HHC. Further in the case of Income tax Officer vs. Fashion Sports (I) Pvt. Ltd., 78 ITR 41(Mumbai) it is held that the nature of the insurance monies being compensation for the loss, under a contract of indemnity, does not resemble turnover. To maintain structural integrity of the formula for calculating 80HHC deduction, these incomes also cannot be treated as profits of business. The sundry balances written-off, recovery from suppliers and sale of sample radiators are incomes having direct bearing with the business and thus would form part of business income. The brokerage on investment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue in the assessee's case, the Hon'ble ITAT has decided the matter in favour of assessee. He pointed out to page No.3 of ITAT order ITA No.1450/Ahd/2006 dated 30-6-10:- "3. After hearing the rival contentions and going through the facts of the case, we find that the assessee has contended that there is no profit element involved in insurance receipts, as the insurance claim is purely for the recovery of loss of material and asset of the company due to damage to the material and assets. We are of the view that the expenditure incurred by the assessee on material and assets lost due to damage is more than the insurance claim and there was no income to the assessee in the nature of insurance claim. This view has also taken by Special Bench of this Tribunal of Ahmedabad in the case of Nirma Industries vs. ACIT (2005) 95 TTJ 867(Ahd.). This receipt of insurance claim is not an income, the same will not be included either in the total turnover nor in the business profits of the assessee for the purpose of computation of deduction u/s. 80HHC of the Act. Accordingly, A.O. is directed to reduce this insurance claim from the total turnover as well as from the business income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. Hon'ble High Court further held that in CIT v. Shri Ram Honda Power Equip (2007) 289 ITR 475 (Del), the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed. As regards the judgment of the Special Bench in Lalsons Enterprises, Hon'ble High Court held that "we are affirmatively of the view that the Tribunal has transgressed the limitations on the exercise of judicial power and... has in effect legislated by providing a deduction on the ground iof expenses other than in the terms which have been allowed by Parliament. That is impermissible". In reply the Ld. Counsel for the assessee stated that when two High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in Assessee's own case in earlier year in ITA No.89/Ahd/2007 by holding as under:- "29. The next issue in this appeal of the assessee in ITA No.89/Ahd/2007 is as regards to exclusion of calibration income amounting to Rs.98,084/- from the business profit while computing deduction u/s. 80HHC of the Act. 30. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has claimed before lower Authorities that the manufacture of goods quality products and to maintain quality the assessee-company is having number of sophisticated instruments for the use of these sophisticated calibration instruments company is undertaking the company under the regular course of business and income earned on this account is business income. The Assessing Officer as well as CIT (A) has excluded 90% of such business income for the purpose of computation of deduction u/s. 80HHC of the Act as this income does not have any nexus with the exports. We find that the CIT (A) has rightly confirmed the action of A.O. in excluding 90% of such business income under clause (baa) to Section 80HHC of the Act. We confirm the same and this issue of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04) we following the decision of co-ordinate Bench, direct the A.O. to reduce the receipt of insurance claim from total turnover as well as business income and compute deduction u/s.80HHC of the Act. 34. With respect to brokerage on interest, we find that identical issue has been decided by co-ordinate Bench in assessee's case in earlier year ITA No.1450/Ahd/2006 & 89/Ahd/2007 for the assessment year 2003-04 by holding as under:- "9. The next common issue in this appeal of Revenue in ITA No.1450/Ahd/2006 as well as assessee's appeal in ITA No.89/Ahd/2007 is against the order of CIT (A) in reducing the net amount of brokerage of investment while computing business profit for the claim of deduction u/s. 80HHC of the Act. 10. After hearing the rival contentions and going through the facts of the case, we find that the Assessing Officer has noted this amount is on account of share in brokerage receipts from the brokerage for investment made by the assessee-company during the year under consideration amounting to Rs.422,958/-. Therefore, Assessing Officer while computing the deduction u/s. 80HHC reduced 90% of brokerage on investment under clause (baa) while computing business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on identical facts in earlier year, the Hon'ble ITAT has decided the matter against the assessee. (ITA No.1418/A/2006, 89./A/2007 & CO No.80A/09 dt.30-6-2010). On the other hand, the Ld. D.R. supported the order of A.O. 40. We have heard the rival submissions and perused the material on record. We find that the co-ordinate Bench on identical matter, in assessee's own case, in earlier year has decided the matter by holding as under:- "26. After hearing the rival contentions and going through the facts of the case, we find that the assessee-company has debited Rs.71,89,666/- as sales promotion expenses. Assessing Officer found during the course of scrutiny of these expenses that the same include exhibition expenses, sample expenses, meeting expenses, dealers' conference at various places and gift coupons etc. nature of all these expenses reveals that there are many expenses which are not subject to verification and not properly vouched also. According to A.O., these expenses are not verifiable, and in totality of all these facts and circumstances. In view of the assessee's past records, we consider it reasonable to confirm disallowance made by the A.O. Accordingly, this common is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of the assessee is rejected. 46. The next ground pertains to interest on loan treated as for nonbusiness purpose - Rs.4,33,333/-. 47. A.O. observed that assessee had made investments during the year in mutual funds and assessee had also taken loan of Rs.2 crore in February, 2004. Assessee was asked to prove that the investments were for business purpose. In the absence of fund-flow statement and also on account of failure on the part of assessee to prove that borrowed fund was utilized for business purpose, A.O. held that entire Rs.2 crore was utilized for purchase of investments. He accordingly calculated interest for 2 months ( Feb & March) on Rs.2 crore @ 13% (bank rate) and disallowed Rs.4,33,333/- u/s. 36(10(iii). CIT (A) upheld the action of the A.O by holding that there was direct nexus between loan raised and investments. Against the order of CIT (A) the assessee is now in appeal before us. 48. Before us, the Ld. A.R. submitted that investments were made prior to the receipt of loan from bank. The investments were made out of internal accruals. He further submitted that increase in Investment as compared to earlier years is of Rs.6.07 crore and the realizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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