TMI Blog2014 (1) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... EME Court] - As per sub-section (1) of section 80HHC(3) a deduction can be permitted only if there is a positive profit in the exports of both self- manufactured goods as well as trading goods - If there is a loss in either, that loss has to be taken into account for the purpose of computing profits - Section 80AB has been given an overriding effect over all other sections contained in Chapter VIA, including Section 80HHC - If the income has to be computed in accordance with the provisions of the Act, not only profits but also losses have to be taken into account - The term 'profit' means a positive profit - The meaning of the word 'profit' will depend on the context in which it is used - For purposes of computation u/s 80HHC(3), both profits as well as losses have to be taken into account - The word 'profit' in Section 80HHC(3) will mean profit after taking into consideration losses, if any - The term 'profit' in Section 80HHC both in sub-section (1) and sub-section (3) means a positive profit worked out after taking into account the losses, if any - The word 'profit' has the same meaning in Sections 80HHC(1) and (3) – Decided against assessee. Taxability of exchange profit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SU bonds is for the purpose of modernization of the DMT division of the assessee company as claimed. Expenditure incurred on issue of Non Convertible Debenture (NCD)/ Secured Premium Notes (SPN) – Held that:- Following Mahindra & Mahindra Ltd. vs. JCIT [2009 (10) TMI 639 - ITAT MUMBAI] - The expenses in relation to the issue of debentures are allowable u/s 37(1) of the Act as revenue expenditure – Decided in favour of assessee. - ITA No.2139/Mum/2000, ITA No.2180/Mum/2000 - - - Dated:- 8-1-2014 - Shri P. M. Jagtap And Dr. S. T. M. Pavalan,JJ. For the Petitioner : Shri Mahdur Agarwal For the Respondent : Shri S. D. Agarwal ORDER Per Dr. S. T. M. Pavalan, JM: These cross appeals filed by the Assessee and the Revenue are directed against the order of the Ld.CIT(A), Central Circle, Mumbai dated 18.02.2000 for the Assessment Year 1994-95. Both the appeals are heard together and disposed off by this common order. Assessee's appeal ITA No. 2139/Mum/2000 2. Ground no. 1 relates to the decision of the Ld.CIT(A) in confirming the disallowance of deduction claimed by the assessee on account of boiler lease rent of Rs.8,10,212/-. The relevant facts are that a boiler ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved by the impugned decision, the assessee has raised this ground in the appeal before us. 3.1 Having noted that a similar issue has been considered by the Tribunal in the assessee's own case for the assessment years 1992-93 and 1993-94 and decided the issue against the assessee and in favour of the revenue, following the said decision of the Tribunal in the context of similar set of facts for the year under consideration, we decide this issue against the assessee and in favour of the revenue. Resultantly, the decision of the Ld.CIT(A) on this count is upheld. Ground No 2 is dismissed. 4. Ground no. 3 relates to the decision of the Ld.CIT(A) in confirming the addition made by the AO by treating the technical know how fees of Rs.64,12,875/- as income subject to tax. It is noted that the Tribunal in the assessee's own case for the assessment years 1990-91, the year in which the genesis of the dispute has arisen, while deciding a similar issue has observed that the impugned amount has been taxed in the year 1998-99 and the same cannot be taxed again in the year 1990-91. Hence the Tribunal has restored the issue to the file of the AO with a view to verify that the impugned tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the said issues in the similar manner as earlier decided by the Tribunal for the assessment year 1992-93 1993-94 aforementioned. On the issue of deduction claimed on account of sales tax set-off of Rs. 25.874 lakhs and insurance claim of Rs.5.83 lakhs, it is observed that there is no finding by the AO or the Ld.CIT(A) in the earlier years as well as for the year under consideration in the assessment/appellate orders. Therefore, it is just and proper to set aside the limited issue of allowability of deduction on these two counts to the file of the AO to decide the matters afresh after giving due opportunity of being heard to the assessee. We direct and order accordingly. Accordingly, Ground No. 4 is partly allowed. 6. Ground no. 5 pertains to the decision of the Ld.CIT(A) in confirming the disallowance made by the AO on account of notional interest paid to bank on over draft account amounting to Rs.5,548/-. It is observed that similar disallowance of notional interest paid to the bank on over draft amount has been deleted by the Tribunal in the assessee's own case for the assessment years 1992-93 1993-94. In the absence of any distinguishing facts during the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not be entitled to any deduction. Sub-section (3)(c) and Section 80 HHC deal with cases where the export is of both self-manufactured goods as well trading goods. As per sub-section (1) of section 80HHC(3) a deduction can be permitted only if there is a positive profit in the exports of both self- manufactured goods as well as trading goods. If there is a loss in either, that loss has to be taken into account for the purpose of computing profits. Section 80AB has been given an overriding effect over all other sections contained in Chapter VIA, including Section 80HHC. If the income has to be computed in accordance with the provisions of the Act, not only profits but also losses have to be taken into account. The term 'profit' means a positive profit. It is not necessary that the word 'profit' must have the same meaning. The meaning of the word 'profit' will depend on the context in which it is used. For purposes of computation u/s 80HHC(3), both profits as well as losses have to be taken into account. The word 'profit' in Section 80HHC(3) will mean profit after taking into consideration losses, if any. The term 'profit' in Section 80HHC both in sub-section (1) and sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery or for modernization/extension of industrial unit and therefore, the Ld.CIT(A) directed the AO to reduce cost of capital asset to the extent of gain arose to assessee company on repatriation of foreign currency and accordingly recalculate the depreciation allowance on the relevant blocks of assets as per law. 11.1 Having heard both the sides and perused the material on record, we agree with the findings of the Ld.CIT(A) that the gain which have arisen on account of conversion of foreign currency into Indian Rupees on repatriation of foreign currency held abroad is on account of capital account and as such the said amount is not taxable as revenue receipt for the reasons stated by the Ld.CIT(A) at para 14.5 of his order. Also, the gains cannot be brought to tax u/s 45 of the Act as the transaction does not come within the purview of the expression 'transfer' as defined u/s 2(47) of the Act. However, as regards the direction to reduce cost of capital asset to the extent of gain arose to assessee company on repatriation of foreign currency and accordingly recalculate the depreciation allowance on the relevant blocks of assets as per law, it is pertinent to mention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that connection still retains the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. Hence, the expenditure incurred by the assessee is capital expenditure. In view of the said ratio, the deduction of expenditure claimed by the assessee company u/s 37(1) of the Act is not legally tenable as the share capital of the assessee company had gone up consequent upon the issue of GDRs and the expenditure was incurred by the assessee company with increasing or addition to the existing share capital. Therefore, we do not find any infirmity in the decision of the authorities below in holding that the expenditure must be treated on capital account and the same is not allowable u/s 37(1) of the Act. 12.1.1 On the issue of alternate claim of the assessee that the deduction had to be allowed u/s 35D of the Act, the Ld.AR of the assessee has stated that in the net proceeds of GDR issue amounting to 149.22 crores, an amount of Rs.48.05 crores and Rs.16.76 crores have been incurred by the assessee in connection with re- payment of foreign currency loan and investing in PSU bonds. The said expenditure is related to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the decisions of the decision of the Tribunal in the case of Mahindra Mahindra Ltd. vs. JCIT (2010) 36 SOT 348 (Mum) and the Rajasthan High Court in the case of CIT vs. Secure Meters Ltd. (2010) 321 ITR 611 (Raj) which has been confirmed by the Hon'ble Apex Court wherein it has been held that the expenses in relation to the issue of debentures are allowable u/s 37(1) of the Act as revenue expenditure. Following the said ratio, we delete the impugned addition made/confirmed by the authorities below on this count. Ground No. 11 is allowed. Revenue's Appeal ITA No. 2180/Mum/2000 14. Apropos Ground no. 1, both the parties mentioned that this issue is connected to the issue raised in ground no 9 of the assessee's appeal and adjudicated by us in the paragraphs above of this order. On a similar issue, the Tribunal in the assessee's own case for the assessment years 1993-94, has held that the issue stands covered by the Special Bench decision in the case of Apollo Tyres Ltd (2004) 89 ITD 235 (Del) (SB) which is relevant for the proposition that the gains on cancellation forward foreign exchange falls under the capital gain therefore, these gains are capital receipts. 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