TMI Blog2015 (1) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... for entertainment or as a platform for social interaction, by the directors or officers of the company, so that the expenses attributed to such user would be, or could contended to be, a non-business purpose of the assessee-company. The expenditure on such user would qualify as a perquisite in the hands of the individual directors/employees, being only in pursuance of a benefit extended to them, in whole or in part, by it. No disallowance in the hands of the assessee-company would thus ensue even on a user of the club membership by the concerned person/s for their personal purposes. The same is accordingly deleted.- Decided in favour of assessee. Part disallowance of the remuneration paid to the Managing Director of the assessee-company - Held that:- Revenue has not impugned the commercial expediency or the assessee’s obligation under the terms and conditions of the payment. So, however, to the extent the same was required by law to be approved by the competent authority (Central Government), and which has subsequently been not, the payment to that extent cannot be said to in pursuance to a valid contract in-as-much as the law would prevail, being even otherwise against public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f raw material out of which the same is generated, can, therefore, be conceptually considered as toward a reduction in the raw material or production cost. The same, therefore, would not warrant being excluded in computing the profits of the business under Explanation (baa) to section 80-HHC. - Decided partly in favour of assessee and the Revenue. Computation of ‘profit of business’ u/s.80-HHC. - commission, interest, duty draw back and sales-tax set off - Held that:- Only the interest paid is to be excluded and no further limitation, in-as-much as the statute provides for exclusion @ 90%, deeming 10% as implied cost, would be made, even as observed by the Bench during hearing. The matter is accordingly restored back to the file of the A.O. for the purpose. No infirmity in the direction by the ld. CIT(A) to exclude 90% of the said receipts [commission and duty draw back] in computing the ‘profits of the business’ under Explanation (baa) to section 80-HHC. Sales tax refund forms part of the operational income and, therefore, liable to be assessed as part of the assessee’s business income u/s.28 and not as ‘income from other sources’ u/s.56. Admittedly, however, no income has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y. 2005-06, back to the file of the A.O. for enabling the assessee to present its case in the matter. Decided in favour of assessee for statistical purposes. - I.T.A. Nos. 3366/Mum/2010 & 6135/Mum/2007, I.T.A. No. 6699/Mum/2007 - - - Dated:- 14-1-2015 - SHRI JOGINDER SINGH AND SHRI SANJAY ARORA, JJ. For The Appellant : Shri Ronak G. Doshi For The Respnondent : Shri Pavan Kumar Beerla ORDER Per Sanjay Arora, A. M.: This is a set of three Appeals, being cross appeals by the Assessee and the Revenue for the assessment year (A.Y.) 2004-05, and the assessee s appeal for A.Y. 2005-06. The issues arising being common, these were posted for and heard together, and are being accordingly disposed of per a common order. We shall take up the several issues in seriatim, referring to the relevant ground numbers of the appeals under reference: Assessee s Appeal (6135/Mum/2007 for AY 2004-05) 2. Ground # 1 of the appeal relates to the part disallowance of depreciation on car/s, by allowing it at 20% of the written down value (WDV) of the relevant block of assets, as against the appellant s claim for the same at 40%. The basis of the Revenue s objection is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench during hearing, is only in the name of the assessee-company. We are, therefore, unable to see as to how the same can be considered as for or toward a personal benefit of the directors of the company, who would ostensibly be utilizing the membership for and on behalf of the company; the onus to exhibit the same though is only on the assessee. We are conscious that the club facilities could also, and may well be used for availing the different services, including for entertainment or as a platform for social interaction, by the directors or officers of the company, so that the expenses attributed to such user would be, or could contended to be, a non-business purpose of the assessee-company. The expenditure on such user would qualify as a perquisite in the hands of the individual directors/employees, being only in pursuance of a benefit extended to them, in whole or in part, by it. No disallowance in the hands of the assessee-company would thus ensue even on a user of the club membership by the concerned person/s for their personal purposes. The same is accordingly deleted. 4. Ground # 3 is in respect of part disallowance of the remuneration paid to the Managing Director of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at extent cannot be said to in pursuance to a valid contract in-as-much as the law would prevail, being even otherwise against public policy. The excess claim would have, therefore, to be allowed in the year of its claim/payment, on the basis of the provision, while the amount found in excess liable for inclusion as a part of the income on being so found. The same though thus does not fall strictly within the purview of section 41(1) inas- much as, as it appears, there has been no remission or cessation of liability, with we not observing any finding by the authorities below, would stand to be considered as income on general principles, i.e., as a provision for an expenditure written back on being found to have been made in excess. We are though, we may add, not in agreement with the assessee that not so doing would result in double taxation. Each assessment year is an independent unit of assessment, so that the taxing of an income in a year other than for which it is liable to be taxed, would not result in it being not taxed in the right year. We decide accordingly, and the assessee succeeds. 5. Ground # 4 challenges the computation of the profit on export of the trading goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of export turnover to the total turnover, and which terms are themselves defined under Explanation (b) and (ba) to the section. The Revenue s case is, accordingly, upheld in principle. So, however, without doubt, the indirect costs ought to have some nexus with the assessee s relevant activity, the export of traded goods in the instant case, which is the import of the several decisions by the tribunal relied upon. The assessee contends that no interest cost stands incurred as the export proceeds were received prior to the payment of the purchase cost (of the trading goods) (refer para 7.2 of the impugned order). There is though no finding to that effect by the authorities below. The A.O. shall, while giving appeal effect to our order, verify this aspect of the matter. If, where and to the extent so, interest cost, incurred at an aggregate of ₹ 61.37 lacs, shall stand to be excluded in computing the indirect costs. Further on, the apex court vide its decisions, as in the case of ACG Associated Capsules (P.) Ltd. vs. CIT [2012] 343 ITR 89 (SC) and Hero Exports vs. CIT [2007] 295 ITR 454 (SC), has since clarified that in-as-much as the export incentives and other inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the same. The exclusion of incomes in computing the profits of business stands specified in Explanation (baa) to the section, defining the said term. It provides for exclusion of receipts of incomes by way of export incentives, brokerage, commission, interest, rent, charges, etc., i.e., which are inoperational or incidental or independent, i.e., independent of the assessee s turnover/operations. The defining clause employs the word means . When the statute defines a word to mean such and such, the definition is prima facie restrictive and exhaustive (refer: Vanguard Fire General Insurance Co. Ltd. vs. Fraser Ros, AIR [1960] SC 971, p.975; CIT vs. Kajaria Ceramics Ltd. AIR [2005] SC 2968 (p.65,66). The law in the matter is in fact well settled, and for which we may refer to the decision in the case of ACG Associated Capsules (P.) Ltd. (supra); CIT vs. K. Ravindranathan Nair [2007] 295 ITR 228 (SC); and CIT vs. Lakshmi Machine Works [2007] 290 ITR 667 (SC). The receipt by way of sale of scrap is certainly not an income of such nature. On the contrary, it, generated in and through the manufacturing operations, arises directly out of the assessee s principal operations of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No improvement in its case stood made before us by the assessee, while the law in the matter is well settled. We accordingly find no infirmity in the direction by the ld. CIT(A) to exclude 90% of the said receipts in computing the profits of the business under Explanation (baa) to section 80-HHC. We decide accordingly. iv) Sales tax set off (Rs.24,03,579/-): The same, as explained to us, is on account of the claim for refund of sales tax, preferred during an earlier year. Sales tax was paid on the purchase of goods, utilized toward exports. No liability to sales tax arising on the said purchases; the same stood refunded. Placing reliance on the decision in the case of ACG Associated Capsules (P.) Ltd. (supra); Alfa Laval India Ltd. vs. Dy. CIT [2004] 266 ITR 418 (Bom), since confirmed by the apex court vide its decision reported at [2007] 295 ITR 457 (SC), it was contended that the same is not liable for exclusion while calculating the profits in business u/s. 80-HHC. The ld. Departmental Representative (DR), on the other hand, would submit that the claim is a prior period income inas- much as the same only represents receipt of a claim lodged during an earlier year. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 145A. The ld. AR would before us make a similar claim, i.e., that no variance to the profit as disclosed by the assessee s operating statement for the year, prepared on exclusive basis, would arise on a proper computation of the profits u/s.145A. The inclusion of the taxes, levies, etc. incident on the purchase and sale of goods would not only be on the closing stock, but on the opening stock, purchases and sales as well. The assessee s claim is unexceptional, so that we observe no dispute in principle, which could thus only be with regard to its application. No prima facie case, disputing the same, has however been made before us. We, nevertheless, in the interest of justice and in keeping with the decision by the tribunal in the assessee s case for the immediately preceding year, restore the matter back to the file of the A.O. The onus to exhibit that the profit, on a proper application of section 145A, works to the same amount as disclosed by the assessee s accounts, prepared on exclusive basis, is strictly on the assessee, who so contends. The A.O., on his part, where and to the extent in disagreement; the law in the matter being well settled, so that the non obstante clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee adopts the same basis for making the provision, i.e., that it did for the earlier years, if on account of technical or other factors, the warranty claims have declined considerably, it would be a sufficient ground to restrict or lower its charge to the operating statement by way of provision. The same, it is to be appreciated, only a provision, toward costs, in respect of sales for the year, which are likely to be incurred in future in complying with the terms and conditions of the sale and, therefore, provided for on an estimated basis. The same, therefore, would have to be determined on empirical basis. The assessee, it was explained by the ld. AR, is in fact making the provision only on the basis of the actual utilization (warranty claims received) to sales, as factually obtaining for the preceding three years. Further, it was explained that while the provision upto A.Y. 2004-05 was made on a single product, i.e., supply of equipment used in refinery, it has since increased to two items. Be that as it may, the claim for provision, to be admissible, has to be on a rational /scientific basis, so that its reasonability is of essence. The Revenue has also, on its part, disallowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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