TMI Blog2012 (10) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... , no disallowance can be made u/s 14A because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of ₹ 38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many times more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of ₹ 929.57 crores. There is no finding given by the A.O. regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case - in favour of assessee. Allocation of directors’ remuneration fee and traveling allowance toward earning dividend and to make proportionate disallowance u/s 14A - Held that:- A.O. should make proportionate disallowance only in respect of dividend income from Indian subsidiaries. No merit in the submissions of the assessee that no disallowance is called for out of administrative expenditure because dividend income is exempt and hence, proportionate disallowance out of administrative e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the due date of filing of return of income, the amount so claimed cannot be disallowed - in favour of assessee. Reduction of conditional additional amount added in computation of income to cover any error, omission etc - Held that:- The additional declaration made by the assessee cannot be added to the total income because in the present case there is no iota of evidence which suggests that there is unaccounted or undisclosed income emerging out of incriminating documents impounded during the course of survey and the addition was made by the A.O. solely on the basis of the statement in the course of survey - in favour of assessee. Sett off of loss of Dhuneta unit against the profits of other eligible units - CIT(A) allowed the claim - Held that:- The amount of loss for which set off is in dispute is the same in assessment year 2005-06 and assessment year 2006-07. In assessment year 2005-06, this ground was not pressed and accordingly rejected as not pressed. Hence, the loss of Dhuneta unit stands set off against profit of other eligible units in that year and therefore, there is no question of further set off in the present year if the entire amount of loss is set off in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder and concluded that there is no evidence that the assessee company received inbound services and its claim of payment of commission is not justified, as no services were rendered by the agents. Hence, he A.O. disallowed the entire sales commission expenses of ₹ 9,77,76,800/- and added the same to the total income of the assessee. 2.2 Being aggrieved, assessee carried the matter in appeal before Ld. CIT(A) who has deleted the part disallowance to the extent of ₹ 9,54,95,200/- and confirmed the balance disallowance of ₹ 42,81,600/- and now, the revenue is in appeal for the amount of disallowance deleted by Ld. CIT(A) and the assessee is in appeal for the part disallowance confirmed by Ld. CIT(A). 2.3 Ld. A.R. supported the order of Ld. CIT(A) with regard to ground raised by the revenue and with regard to the part disallowance confirmed by Ld. CIT(A), in respect of six persons, it was submitted that even after initial introduction, the agent carries out many functions and, therefore, even if the sales is initiated by the customers as alleged by the revenue, remissiors also provided other business information as stated in the agreement so as to justify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and for providing information which resulted in maturity of sales. The payments were made as per the agreement. As per the agreement, the scope of services depending on type of customer required to be done by the agents were as under.- a) The Remissier based on their internal resources shall amongst its business associates identify the buyers who propose to/have intention to buy and have the capacity to buy the WTGs., b) The Remissier on identifying the buyers would suggest, inform, indicate, introduce, recommend and/or solicit them to the company so as to facilitate the company in carrying out the sales of WTG as per the requirements of the Buyer. Remissier would function as a silent professional to render inbound services to the company and depending upon the circumstances, looking at his reputation, status, financial Standing, the company Will not reveal the name of Remissier to the party referred by him but any referred source resulting into successful commercial transaction would make the Remissier entitled to the commission at the agreed rate referred to hereinafter. d) In majority of circumstances the buyer would prefer no intermediate with a view to control his c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 Shri Nirbhaya Krishna Agrawal Harsha Engineers Ltd. Shree Radhika Steel-chem -Ltd. 8,81,600 Shri Pareshkumar Labsankar Vyas Arnbuja Intermediates Ltd. PKM Industries 8,00,000 ShriNareshbhai Manchand Shah M/s. Sahastra Properties Pvt. Sonica Granite Pvt. Ltd. 8,00,000 42,81,600 In respect of the above six transactions, the company has not initiated any dialogue and not approached the customers on the basis of any information received from the agents. Therefore, it is held that the statements recorded from the six persons prove that the initiation of the transaction was from the side of the customers and it negates the claim of the appellant company of having received the so called inbound services. If the appellant had received any inbound services, then the initiation for the sales would have been made by the appellant company and not by the customers. Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case, we feel that the order of Ld. CIT(A) on this issue does not call for any interference from our side because part disallowance confirmed by him is on this basis of these 6 customers were not introduced by these agents whereas for the balance amount for which disallowance of commission is deleted by Ld. CIT(A), he has given a clear finding that these parties were introduced by the commission agents and evidence were filed regarding rendering of the services by them and these findings of Ld. CIT(A) could not be controverted by the Ld. D.R. Regarding the judgment of Hon ble Apex Court on which reliance has been placed by the Ld. D.R., we find that this judgment is not applicable in the present case because the facts are different. In that case, this finding was recorded by the tribunal that selling agency firm and the assessee has no genuine existence and such selling agency was found to be make believe document. The facts in the present case are not so. In the present case, a clear finding is given by Ld. CIT(A) that services were rendered by the commission agents and this finding of Ld. CIT(A) could not be controverted by the Ld. D.R. Hence, this judgement of Hon ble Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Amount Rs. in lakhs 1. Director's remuneration 163.1 2. Director's fees and traveling 67.45 3. Staff salary of Corporate office 73.9. 4. Audit fees 122.0 5. Building 50.12 6. Rent 278.76 7. Communication 210.00 Total 965.33 3.2 Out of this disallowance of ₹ 3,06,48,988/- made by the A.O. u/s 14A, Ld. CIT(A) has confirmed the part disallowance for which the assessee is in appeal and deleted the balance disallowance for which the revenue is in appeal before us. 3.3 It was submitted by the Ld. A.R. before us that while working out the disallowance u/s14A, the A.O. included the amount of investment in foreign subsidiaries also but income of dividend from investment in foreign subsidiaries is taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of ₹ 38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many times more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of ₹ 929.57 crores. There is no finding given by the A.O. regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground No.2 3 of the revenue s appeal are rejected. 3.6 Regarding ground No.2 of the assessee s appeal as per which, Ld. CIT(A) has directed the A.O. to allocate directors remuneration fee and traveling allowance toward earning dividend and to make proportionate disallowance u/s 14A of the Income tax Act, 1961, we are of the considered opinion that the A.O. should make proportionate disallowance only in respect of dividend income from Indian subsidiaries. We do not find any merit in the submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04-05 in I.T.A.No. 2009/Ahd/2006 dated 29.04.2009. He submitted a copy of this tribunal decision. Reliance was also placed on the decision of Hon ble Apex Court rendered in the case of ACG Capsules Associated Pvt. Ltd. vs ACIT as reported in 343 ITR 89 (S.C.) in support of this contention that netting of interest should be allowed. 4.4 Ld. D.R. supported the order of authorities below. 4.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgement cited by Ld. A.R. We find that interest income cannot be said to be an income derived from an industrial undertaking and, therefore, Section 80-IB deduction is not allowable in respect of interest income. Regarding netting of interest income, we find that his issue is now covered by the judgment of Hon ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. (supra). In that case, it was held by the Hon ble Court that only 90% of net interest included in the profits of business of the assessee has to be excluded under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of business. Although this judgment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is divided in favour of the appellant for this year also and the appellant is given relief on this point. 5.2 Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) who has decided this issue in favour of the assessee by following the order of his predecessor in assessee s own case for the assessment year 2003-04 and 2004-05 in which the judgment of Hon ble Gujarat High Court rendered in the case of India Gelatine Chemicals Ltd. as reported in 275 ITR 285 was followed. Now, revenue is in appeal before us. 5.3 It was submitted by the Ld. D.R. that this issue is now covered against the assessee by the judgement of Hon ble Apex Court rendered in the case of Liberty India Ltd. as reported in 317 ITR 218 (S.C.) 5.4 As against this, Ld. A.R. submitted brief note on eligibility of duty drawback while computing deduction u/s 80-IB of the Income tax Act, 1961. The same is reproduced below: A brief note on eligibility of income on account of Duty Drawback while computing deduction u/s 80IB of the Act. Scheme of Duty Drawback. The grant of duty drawback is governed by the Customs and Central Excise Duty Drawback Rules, 1995 (Drawback Rules) (copy at E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one but is given specific to the individual exporter having direct nexus with the actual amount of duty paid by him and is arithmetically equal to actual amount of duty incurred on export product The claim is available only if the input has been used in manufacture of product exported and has also suffered custom duty or central excise duty. It may be noted that we have not opted for AIR Duty Draw Back but have claimed refund of actually paid duty on input used in manufacture of product exported by us by making detailed application for each export submitting evidence/proof of input consumed in product exported and amount of custom duty and central excise duty paid by us on the same. A copy of one such sample application giving details of the duty paid is attached herewith as Exhibit 2. Scheme of DEPB is different from scheme of Duty Drawback: Even the scheme of DEPB i.e. Duty Entitlement Pass Book Scheme wherein the exporter is given pass book containing a credit on the FOB value at rates prescribed under Export Import Policy and Handbook is also different and as a matter of fact has no nexus with the actual amount of duty paid. The credit can be used for payment of impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . C Effect of decision in the case of Liberty India (317 ITR 218). The decision in the case of Liberty (supra) is not at all applicable to the facts of the present case since while rendering the said decision, Hon'ble the Supreme Court denied the benefit of 80IB in respect of duty drawback as it found that duty drawback was claimed under AIR and was not arithmetically equal to the actual amount of duty paid. The relevant Para 17 of the judgment Hon'ble Supreme Court is reproduced herein below for immediate reference: The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incur expenditure and therefore, while excluding such receipt, only the income portion, if any, embedded in such receipts can be excluded and not the gross receipts. This issue of DEPB or Duty Drawback having cost and the same has to be reduced to find out profit or income from the gross receipts has been accepted and explained by Hon'ble the Supreme Court in later decisions in the following cases: Topmann Exports V CIT (2012) 342 ITR 49(SC). the relevant extract is reproduced hereinbelow for ready reference: xxx... 15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that clause (iiia) of Section 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under clause (iiia) of Section 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under clause (iiia) of Section 28 of the Act. In taking the view that when the import license is sold the entire amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what can be excluded is the profit or income and not the gross receipt. Relevant extract of the said decision are reproduced hereinbelow for ready reference: ACG Associated Capsules (P.) Ltd, v. CIT [2O121 343 ITR 89 (SO XXX... 3. For appreciating the second issue, we may refer very briefly to the facts of the case. For the assessment year 2003-04, the assessee filed a return of income claiming a deduction of ₹ 34,44,24,827/- under Section 80HHC of the Act. The Assessing Officer passed the assessment order deducting ninety per cent of the gross interest and gross rent received from the profits of business while computing the deduction under Section 80HHC and accordingly restricted the deduction under Section 80HHC to ₹ 2,36,25,053/-. The assessee filed an appeal against the assessment order before the Commissioner of Income-Tax (Appeals), who confirmed the order of the Assessing Officer excluding ninety per cent of the gross interest and gross rent received by the assessee while computing the profits of the business for the purposes of Section 80HHC. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (for short 'the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head Profits and Gains of Business or Profession from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and Gains of Business or Profession . The expression included any such profits in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head Profits and Gains of Business or Profession . Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under Sections 30 to 44D of the Act and is not included in the profits of business as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... baa) to Section 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head Profits and Gains of Business or Profession , is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. xxx... 5. Lastly, if at all it emerges that the decision of Liberty India (supra) and decisions in the case of Topman (supra) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, feel that para 16, 17 and 18 of this judgement of Hon ble Apex Court should be reproduced below for ready reference: 16. DEPB is an incentive. It is given under the Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided of by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the DGFT for import of raw materials, components, etc., DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product s per basic customs duty and special additional duty payable on such deemed imports. Therefore, in our view, DEPB/Duty drawback are incentives which flow from the schemes framed by Central Government or form section 75 of the Customs Act, 1962, hence, incentives profits are not profits derived form the eligible business under section 80-IB. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant portion of Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 as per notification No.37/95 dated 26.05.1995. 5.9 In the beginning to the notification, it is stated that on exercise of powers conferred by Section 75 of the Customs Act 1962, Section 37 of the Central Excise Act 1944 and Section 93A read with section 75 of the Finance Act 1944 these rules are made by the Central government. Rule 6 is relevant and the same is reproduced below: Rule 6. Cases where amount or rate of drawback has not been determined.- (a) Where no amount or rate of drawback has been determined in respect of any goods, any manufacturers or exporter of such goods may, within sixty days form the date relevant for the applicability of the amount or rate of drawback in terms of sub-rule (3) of rule (5) apply in writing to the commissioner of Central Excise or the Commissioner of Customs and Central Excise, having jurisdiction over the manufacturing unit, of the manufacturer exporter or, of the supporting manufacturers, as the case may be, for determination of the amount or rate of drawback thereof stating all the relevant facts including the proportion in which the materials or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the duty paid by the assessee and duty drawback received by the assessee. These facts along with relevant provisions of the Customs Act 1962 and Custom and Central Excise Duty and Service Tax drawback Rules 1995 of which relevant portion is reproduced above, we find that the facts in the present case are distinguishable from the facts in the case of Liberty India (supra). In the case of Liberty India (supra), the issue was decided by the Hon ble Apex Court against the assessee on this basis that since the rule does not envisage refund of an amount arithmetically equal to customs duty paid by the individual exporter/manufacturer, the duty drawback and DEPB receipt of the assessee is on account of statutory policy and provisions in the Customs Act by the Government of India and hence, this profit derived by way of some incentive does not fall within the expression profits derived form industrial undertaking in section 80-IB. In the present case, duty drawback received by the assessee has a direct and arithmetic correlation with the custom duty paid by the assessee and, therefore, there is no income as such on account of duty drawback received by the assessee because whatever c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same is relatable to recoverable wastage. Under these facts, it is established by the assessee that the duty drawback received by the assessee is arithmetically equal to the duty paid by the assessee and, therefore, in the facts of the present case, we are of the considered opinion that duty drawback in the present case is nothing but refund of duty paid by the assessee and, therefore, respectfully following the Tribunal decision rendered in the case of J K Aluminium Co. (supra), we decide this issue in favour of the assessee and hold that in the facts of the present case, duty drawback received by the assessee is eligible for deduction u/s 80-IB. This ground of the assessee is allowed. 6. The next issue is regarding allowability of deduction in respect of employees contribution to PF ESI. This issue is raised by the revenue as per ground No.6 and also by the assessee as per ground No.7. It was submitted by the Ld. A.R. that this issue is now covered in favour of the assessee by the tribunal decision rendered in the case of Shri Om Singh Vs ITO in I.T.A.No. 1908/A/Ahd/2009 dated 18.09.2009. Respectfully following this tribunal decision, we decide this issue in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical to ground No.6 of the revenue s appeal in assessment year 2005-06. In that year, this issue was decided by us in favour of the assessee. Accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.3 of the revenue is also rejected. 14. The next issue is regarding the action of the A.O. in not reducing the conditional additional amount of ₹ 20 crores added in computation of income to cover any error, omission etc. The same is as per ground No.2 and 3 of the assessee s appeal whereas revenue has raised this issue as per ground No.4 because Ld. CIT(A) has directed the A.O. to allow deduction u/s 80-IB of the Income tax Act, 1961 of ₹ 19,16,20,416/- out of additional undisclosed income of ₹ 20 crores during the survey u/s 133A of the Income tax Act, 1961. 15. Regarding assessee s ground No.2 3, it was submitted by the Ld. A.R. that this issue is directly and squarely covered in favour of the assessee by the tribunal decision in group case in I.T.A.No. 3761-3762/Ahd/2008, I.T.A.No. 1368 and 1629/Ahd/2008 and he submitted copies of both these tribunal decisions. The relevant para 15 of this tribunal decision rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, the assessee has specifically retracted the voluntary disclosure during the course of assessment proceedings vide letter dated 29th February and 17th March, 2008. The Hon ble Apex Court in the case of Shelly Products (supra) has very categorically recorded a finding that similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted form payment of income tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is under and payable and the authority concerned on being satisfied, shall grant appropriate relief. In the present case also, the assessee has specifically required the A.O. and the CIT(A), during the course of proceedings before the respective authorities, that there is no unaccounted or undisclosed income found during the course of survey or from the impounded material and the surrender was subject to the condition that the disclosure is made to cover any erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the post survey proceedings u/s 133A of the Act. There is no iota of evidence, which suggest that there is unaccounted/undisclosed income emerging tout of the incriminating documents impounded during the course of survey. There is nothing on record which could co-relate such additional income/disclosure offered by the assessee company during the course of survey with any other discrepancy. On these facts and circumstances, we allow the claim of the assessee. 16. From the decision in the case of Suzlon infrastructure (supra), we find that in that case also, the issue was regarding the reducing of conditional additional amount of R.700 lacs added in the computation of income to cover any error, omission, discrepancy etc. made in reference to the All India Survey Action. Hence, it is seen that the facts in the present case are identical and, therefore, by respectfully following this tribunal decision, we hold that in the present case also, the additional declaration made by the assessee cannot be added to the total income because in the present case also, there is no iota of evidence which suggests that there is unaccounted or undisclosed income emerging out of incriminating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue s appeal is regarding set off of loss of ₹ 4,68,34,166/- of Dhuneta unit against the profits of other eligible units. It is submitted by the Ld. A.R. that this issue was raised by the assessee in assessment year 2005-06 also as per ground No.5 6 regarding set off of the same loss. It is submitted that in that year, this ground was not pressed by the assessee and, therefore, the loss was set off in that year and hence, there is no question of any further set off in the present year. 22. Ld. D.R. supported the orders of authorities below. 23. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the amount of loss for which set off is in dispute is the same in assessment year 2005-06 and assessment year 2006-07. In assessment year 2005-06, this ground was not pressed by the Ld. A.R. and accordingly rejected as not pressed. Hence, the loss of Dhuneta unit stands set off against profit of other eligible units in that year and therefore, there is no question of further set off in the present year if the entire amount of loss is set off in that year. This is not coming out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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