TMI Blog2013 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that this issue is held against assessee in the earlier years consistently from assessment year 1988-89 onwards. Taxability of advance licence benefit - Whether the advance licence and the DEPB receivable by the assessee are liable to be assessed to tax in the year in which the licence is granted to the licensee or liable to be taxed in the year in which the benefits actually accrue after the imports are effected - Held that:- said amounts are liable to be taxed in the year in which the benefits actually accrue to the assessee and not in the year in which the licence is granted - AO is directed to do the needful in accordance with the orders on the issue in the earlier year and make necessary adjustment, if any required in the computation of income under the head business and also u/s 80HHC - Following decision of Jamshri Rajitsinghji Spinning And Weaving Mills Limited. Versus Inspecting Assistant Commissioner [1991 (12) TMI 83 - ITAT BOMBAY-A] - Decided in favour of assessee. Deduction of interest on DPEA liability - contingent liability or accrued expense - Held that:- DPEA liability will be allowable, in the year in which such liability accrues - this liability is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine the indirect cost. Accordingly, we set aside the order of the learned CIT(A) on this aspect of the issue and remit the matter to the file of assessing officer for fresh deduction for both the years. The assessee would be at liberty to furnish all the details regarding this aspect of the issue. Disallowance u/s 14A - O invoked section 14A to disallow 5% of the expenditure - Held that:-assessee has own surplus funds from the sale of Family Products Undertakings as a going concern on 1.10.1994 and these securities were purchased out of the funds and there is not interest cost. Moreover since only three interest warrants were received, no expenditure can be attributed to the same. Decided partly in favor of assessee and partly in favor of revenue. - ITA No.6159/Mum/2003, ITA No.7026/Mum/2003, C.O. No.274/Mum/2004, ITA No.7207/Mum/2003 - - - Dated:- 12-6-2013 - Shri B. Ramakotaiah And Shri Amit Shukla,JJ. For the Petitioner : Shri P. J. Pardiwala Shri Niraj Sheth For the Respondent : Shri Girija Dayal, CIT(DR) ORDER Per Bench. These are cross appeals by assessee and Revenue and cross objection by assessee for assessment year 1999-2000 arising out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 28/37(1) of the Act. Aggrieved by this, assessee carried the matter before the learned CIT (A) who also confirmed the action of AO by holding that such deposits could not be considered as debts or loss incurred in respect of business. Aggrieved by this assessee is in appeal before us. 4.2 We considered the rival submissions and the material on record. Admittedly such write off is related to various small amount deposits as EMD. The submission of tenders floated by the prospective buyers of assessee products and such deposit is the pre condition to get the business hence such deposits cannot be treated in isolation of business. The genuineness of such deposits is not in dispute, nor its write off. Similar issue was considered by the Coordinate Bench in the case of M/s Burroughs Wellcome (I) Ltd in ITA No.5335/Mum/2002 dated 27.03.2008 wherein on similar facts it was held that the loss was incidental to business and was allowable under section 28 r.w.s. 37(1) of the Act. Respectfully following the principles laid down therein, we direct AO to allow the amount. Ground is allowed. 5. Ground No.3 is as under: (a) The CIT (A) erred in upholding the action of the JCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice Buildings" in respect of property at Chennai leased to M/s Concorde Motors Pvt. Ltd. 5.4 The CIT (A) had not specifically discussed the issue in the order. It was fairly admitted that this issue was covered by the orders of the ITAT in assessee's own case in assessment years 1994-95, 1995-96 and 1996-97, 97-98. Following the orders of earlier years, keeping in view of the above findings of the ITAT in assessee's own cases in earlier years, on the reason that assessee had leased part of the building and the same was not used for the purpose of business, no depreciation can be allowed. The ground is accordingly rejected. 6. Ground No.4 is as under: "4. The CIT (A) erred in upholding the stand of the ACIT of making an addition of Rs.47,10,024 on account of closing stock of diesel and coal". 6.1 AO disallowed the claim made by assessee holding that since the said items have not been consumed in the year, the value of diesel oil/coal unutilized are to be considered as closing stock and added to the income of the current year. The CIT (A) following his earlier orders in assessment years 1994-95 to 1996-97 confirmed the same. 6.2 After hearing both the parties and on perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of business is to be assessed under the head "income from other sources". The decision of Punjab Haryana High Court in the case of Rani Paliwal is not relevant as the High Court was concerned with only applicability of clause (baa) of the Explanation under section 8OHHC. In the case of Pandian Chemicals Ltd. (supra) the Madras High Court held that interest on deposits with Electricity Board made out of statutory compulsion was not profit derived from industrial undertaking. This judgment has since been confirmed by the Supreme Court (262 ITR 278). In the case of Autokast Ltd., the assessee company borrowed money for purchase of plant and machinery and earned interest income by placing it in short- term deposits with Banks till payment was made for plant and machinery. These deposits were used in bill discounting. The Supreme Court held that the interest income earned was taxable as income from other sources. In our view, the present issue has to be considered n the light of the aforesaid judgments. The relevant part of the order of the CIT (A) for the assessment year 1989-90 has been reproduced (supra). For the assessment years 1990-91 and 1991-92 also the facts are similar. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived on product 11.62 Commission on consignment sales 17.38 Sample rebates 29.49 Profit on sale of assets 24.75 Cash discounts received 10.07 Unclaimed credit balances 38.85 Miscellaneous income 8.28 Total 754.48 (ii) Without prejudice to the above, the reduction should be taken on a 'net basis' and not on a 'gross basis'. (iii) The appellants submit that they have already reduced profit on sale of assets (Rs.24.75 lakhs) from the business income. (c) Having decided the ground of appeal regarding the action of the JCIT in excluding the closing balance of advance licence benefit while computing the business profit for the purpose of deduction under section 80HHC in favour of the appellants, the CIT (A) erred in directing the JCIT to recomputed the deduction under section 80HHC after excluding the advance licence benefit from business profit. 8(a) The CIT (A) erred in upholding the stand of the ACIT in holding that Rs.4,66,77,440 being the advance licence benefit accounted for in the appellant's books of account had accrued to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the principles laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P) Ltd. vs. CIT 343 ITR 89. It was the contention of the learned Counsel that the other amounts are certainly business income. With reference to the claim recoveries, the learned Counsel also relied on the jurisdictional High Court in the case of Pfizer Ltd, 330 ITR 62. Further, it was submitted that assessee itself excluded the profit on sale of assets of Rs. 24.25 lakhs, therefore disallowing the same again does not arise. 8.4 We have considered the issue. Prima facie the above amounts represents the recoveries in the course of business which under the company law has been shown as other income. However, the nature of amounts are not examined by AO in detail and requires re- examination. Therefore, issue is restored to the file of AO to examine afresh in the light of the principles laid down by the jurisdictional High Court relied upon by assessee and also other decision of the jurisdictional High Court or Supreme Court to decide each of the amount. In case it is part of the business receipts, not coming under the items under Explanation (baa) they should not be excluded at 90% fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness profit. 13.7e. In this regard it is seen that this sub-ground of appeal is decided in favour of the appellant vide CIT (A) order dated 30.01.2002 against the order under section 143(3) r.w.s. 147 for AY 1997-98. Respectfully following the same, AO is directed to re-compute deduction undersection 80HHC after excluding the advance licence benefit aggregating Rs.4,66,77,440 from business profit. This sub-ground of appeal is therefore, allowed". 8.7 Assessee is aggrieved on the above direction. It was submitted that in the case of Excel Industries, the ITAT consistently taken a view that on the issue of the taxability of the advance licence benefits, no income accrues until imports are made and are materialized. The learned Counsel referred to the series of the orders on the issue in the case of Excel Industries and for AY 1998- 99 and 1999-2000 in ITA No.3868/Mum/2003 dated 4.5.2012 and submitted that the working as provided by assessee is correct. 8.8 We have considered the issue. In the case of DCIT vs. Excel Industries (supra) this issue was discussed at Ground No.1 and 2 as under: '3.1. Ground No.1 2 : Taxability of advance licence benefit receivable Rs.52,84,674/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench has been duly explained on behalf of the assessee. In fact the Tribunal took the view that there was no distinction between the facts of the assessee's case and the facts of the case before the Ahmedabad Bench of the Tribunal in the case of United Phosphorus Limited (supra) and that it was in order for the Ahmedabad Bench to have referred the issue to a Larger Bench for the sake of consistency, having regard to the orders of the Mumbai Benches of the Tribunal in Jamshri Rajitsinghji Spg. Wvg. Mills Ltd. (supra). In this view of the matter and finding no difference in the facts relating to the assessment year 1995-96 and the facts for the earlier assessment years, the Tribunal held that there was no reason to take a different view of the matter on the basis of the order in the case of United Phosphorus Limited, Ahmedabad Bench. After this order of the Tribunal, the Tribunal disposed of the appeals relating to the assessee for the assessment years 1996-97 and 1997-98 by order dated 12th January 2009, in which the Tribunal followed its own order for the assessment year 1995-96 passed on 7th March 2005, to hold that the advance licence benefit was not taxable unless the goods h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples laid down by the Coordinate Benches in assessee's own case and also submitted that the issue in Topman Exports was with reference to the taxability and bifurcation of the DEPB proceeds while computing deduction under section 80HHC and nowhere concerned with the issue before us which itself was upheld by the Hon'ble Bombay High Court in assessee's own case. 3.6. We have considered the issue and perused the record. As already stated above, the issues in assessee's own appeal is consistently held in favour of the assessee following the decision of the Mumbai Bench of the Tribunal in Jamshri Rajitsinghji Spg. Wvg. Mills Ltd. vs. IAC (1992) 41 ITD (Bom) 142. As already stated, the issue was confirmed by the Hon'ble jurisdictional High Court which dismissed the Revenue's appeal vide orders ITA.1183/Mum/2011 dated 25-11-2011. In that, the question referred specifically is as under : "Whether the advance licence and the DEPB receivable by the assessee are liable to be assessed to tax in the year in which the licence is granted to the licensee or liable to be taxed in the year in which the benefits actually accrue after the imports are effected, is the question raised in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary adjustment, if any required in the computation of income under the head business and also u/s 80HHC. With these directions the grounds are considered allowed for statistical purpose. 9. Ground No.7 is as under: "7. The learned CIT (A) erred in upholding the stand of the ACIT of not allowing the appellant's claim for deduction of interest on DPEA liability for the period 1st April, 1997 to 31st March, 1999 on the ground that it constitutes a contingent liability". 9.1 Ground No.7 pertains to interest liability with respect to DPEA liability. It was fairly admitted that this issue is to be held in favour of the Revenue and against assessee in view of the orders of the ITAT in earlier years. We find from the order from assessment year 1996-97 that the ITAT originally in assessment year 1986-87 considered that: a) DPEA liability will be allowable, in the year in which such liability accrues. The orders of the ld. CIT (A) with regard to Ground Nos. 4, 5 and 5 of the Department, respectively fur the assessment years 1986.87, 1987-88 and 1988-89 are confirmed. b) Regarding applicability of section 43B, we agree with the finding of the learned CIT (A) for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a penalty. As per appellant's submission made before AO as well as before me the said sum represents payment made under Kar Vivas Samadhan Scheme in the Central Excise Department. Copy of certificate issued by the Commissioner of Central Excise, Aurangabad has also been placed before me. A perusal of the scheme shows that this amount represents tax arrears which were in dispute consisting of Rs.66,573 being penalty and Rs.4908 being interest. It is the submission of the appellant that the sum in question is therefore, not been paid in for infraction of law and therefore, be allowed as a deduction. 3.2 It would be seen from the facts stated above that the amount in question consists of Rs.66,573 which is penalty. Therefore, the appellant's submission in respect of this amount is incorrect. Even regarding the amount of Rs.4,908 the same cannot be a business expense deductible from taxable income as it represents interest on taxes paid under the Central Excise Act. Both these amounts therefore, represent amounts which are not tax deductible. The addition made by AO is therefore, held to be correct. This ground of appeal is dismissed". 10.2 After perusing the certificate issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CP. The DCP, subsequently by an order dated 17/18.5.2004, revised upwards the interest demand to Rs. 1,63,70,915/- (Total demand:Rs.2,84, 13,228/-). Assessee has filed a Special Leave Petition (CIVIL) No. 6518 of 2004 in the Supreme Court with prayer for interim relief challenging the order of the Division Bench of the Bombay High court. The same is pending before the Hon'ble Supreme Court for disposal. 11.2 Assessee is of the view that the liability pertaining to the above demand was allowable in each of the years to which the demand pertains. The year-wise break-up of the total demand of Rs.2,84,13,228/- (inclusive of interest) is given below: Assessment Year Demand Product Betnelan (Rs) Interest demand (Rs.) 1995-96 14,59,674 47,891 1996-97 1,05,82,638 18,06,887 1997-98 - 18,06,887 1998-99 - 18,06,887 1999-2000 18,06,887 2000-01 18,06,887 2001-02 18,06,887 2002-03 18,06,887 2003-04 18,06,887 2004-05 18,06,887 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars, we set aside the impugned order passed by the Commissioner (Appeals) and restore the issue to the file of Assessing Officer. The Assessing Officer is directed to consider assessee's claim consistent with the orders in earlier year as per law and principle laid down on the issue. This ground is, thus, allowed for statistical purposes. 13. Ground No.2 is as under: "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of a sum of Rs.2,30,000 being the expenditure incurred on Glaxo Sports Club activities under section 40A(9) relying upon the CIT (A)'s order for the AY 1997-98 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT. 13.1. Ground No.2 pertains to disallowances under section 40A(9) on payment of Rs.2,30,000/-. Before us, both the parties agree that this issue was earlier decided by the Tribunal in assessee's own case for assessment years 1989-90 to 1991- 92, 1992-93 to 1993- 94, 1994-95, 1995-96 , 1996-97, 1997-98 respectively, wherein the Tribunal allowed the deduction in respect of payment made to M/s. Glaxo Sports Club. Consistent with the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot see any reason to interfere with the order as the learned CIT (A) order is consistent with the principles laid down on the issue including the decision of Hon'ble Supreme Court in the case of TRF Ltd vs. CIT, 323 ITR 397 (SC). The same was also considered in AY 98-99 in revenue appeal against Ground No. 4 and was rejected. Since the amounts were already written off, Revenue ground is rejected. 15. Ground No.4 is as under: "4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the AO to add proportionate disallowances to eligible profits for the purpose of computation of deduction u/s.80-I 80-IA, relying upon the CIT(A)'s order for the AY. 1997-98 in the assessee's own case which has not been accepted by the department and contested by way of filing appeal to the ITAT. 15.1 Ground No.4 pertains to the claim under section 80I and 80IA on the disallowances to be considered as profit of eligible unit on proportionate basis. After hearing both the parties and on perusal of the records available before us, we find that this issue was not contested by revenue in AY 97-98 on the basis of which the CIT(A) gave relief. Even other wise we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the CIT (A)'s order for the AY 1997-98 in assessee's own case which has not been accepted by the Department and contested by way of filing appeal to the ITAT. 17.1 After hearing both the parties and on a perusal of the records available before us, we find that the head office administrative expenses, etc., have been allocated to arrive at the indirect cost in the case of export of trading goods. These issues have been decided by this Tribunal in assessee's own case in ITAs No.3464 3465/Mum./1996, etc., for assessment years 1992-93 and 1993- 94, etc., order dated 29th March 2007, wherein the Tribunal, vide Para-11, held as follows:- "11. After hearing both the parties, we find that this aspect of the issue was never adjudicated by the assessing officer. No doubt, the assessee had given a note regarding deduction u/s 80HHC vis- -vis indirect cost in respect of trading goods for export but the assessing officer did not record any finding in this regard as he was of the view that the assessee was not eligible for deduction u/s 80HHC as there was huge loss in trading ground which was much more than profits of export of manufactured goods. On appeal, the learned CIT(A) has held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deduction under section 80HHC without reducing 90% of various items forming part of miscellaneous income in accordance with Explanation (baa) to section 80HHC holding that these items have no direct nexus with the business of the assessee company without appreciating that the items of miscellaneous income are not in the nature of income as specified in clauses (iiia) (iiib) (iiic) of section 28 of the Act and therefore, AO rightly reduced 90% of various items of miscellaneous income for computation of deduction under section 80HHC". 18.1 Consequent to the conflicting order of the CIT (A), both assessee and the Revenue are in appeal. This issue was considered in assessee's appeal against Ground No. 6(b)(i) above wherein the matter was restored to the file of AO for fresh examination. Accordingly, this ground is treated as allowed for statistical purposes. 19. Ground No.9 10 are as under: "9. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the A.O. to include closing balance of advance licence benefit aggregating to Rs 466.77 lakhs in the profits of business for the purpose of computation of deduction u/s.80HHC, relying upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m in this AY irrespective of the utilization of the benefit as envisaged in the proviso to section 80HHC(3)". 21.1 These grounds correspond to Ground Nos. 7 and 9 of the Revenue appeal. Since the issues are restored to the file of AO, AO is directed to keep in mind the above contentions while deciding the issues and decide accordingly in accordance with facts and law. The grounds are considered allowed for statistical purposes. ITA No.7207/Mum/2003 - Revenue Appeal 22. These grounds are raised by the Revenue against the order of the CIT (A) passed under section 154 to the appellate order dated 22.03.2003 as some of the grounds were left undecided. The CIT (A) passed the order allowing the issues in favour of assessee following the orders of the predecessor on the same issues. These issues are covered by earlier orders and charts are placed on record by the Counsel. There are four grounds for consideration, which are as under: "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing AO to allocate only 75% of the staff cost of Rs.362.56 lakhs for the purpose of computation of the eligible profits under section 80-I/80IA in respect of Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1989-90 and 1991-92 in ITA Nos.10002/Bom/92, 8341/Bom/93, and 7742/Bom/94 vide Para 31 to 35 and ITA Nos.4433 and ITA No.4434/Bom/96 for assessment year 1992-93 and1993-94 in Revenue appeals vide Para 24. Since the facts of the case under consideration are same to that of the aforesaid decisions, respectfully following the decisions (Supra) we direct AO to allow deduction under section 80I and 80IA as claimed by assessee, following the directions in earlier years. It was submitted that section 80IA claim involves various assessment years so, AO is directed to determine the year of claim while allowing the deduction so that no deduction is claimed beyond the allowable period. Grounds allowed". 22.3 Considering the above, there is no merit in Revenue grounds as the CIT (A) followed the order in earlier year. The grounds are rejected. 22.4 With regard to Ground No.4, AO invoked section 14A to disallow 5% of the expenditure. The CIT (A) considered the same as under: "3.1 It has been stated that there is no expenditure debited to the Profit Loss A/c for earning the interest income. AO in fact on page 28 has stated that assessee has not maintained list of any expenses and t ..... 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