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TMI Blog2015 (1) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... of 'luxury cars', rather than 'commercial vehicles', on which the enhanced rate of 40%, as against the regular rate of 20%, is admissible. The car/s under reference is admittedly a passenger car/s, falling under the category of 'light motor vehicles', i.e., in terms of the Motor Vehicle Act, 1988. The assessee's claim, however, is that the relevant car/s stood purchased and first put to use for the purpose of its business during the period 01.10.1998 to 31.03.1999. Accordingly, the same is, by definition, commercial vehicle/s, vide third proviso to section 32(1)(ii) r/w Explanation thereto. Further, read with rule 5 of the Income Tax Rules, 1962 ('the Rules' hereinafter) and Old Appendix 1, applicable for the A.Ys. 2003-04 to 2005-06, to which our attention was drawn, by the ld. Authorized Representative (AR), the assessee's counsel, during hearing, it was submitted would leave one in no manner of any doubt about the correctness of the assessee's claim, further supporting his case with reference to the decision by the hon'ble jurisdictional high court in CIT vs. Birla Global Asset Finance Co. Ltd. (in ITA No. 828 of 2010 dated 08.08.2012/copy on record). We have perused the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the provisions of the company law; the assessee being a public company in which the public is substantially interested, so that the managerial remuneration was required to be approved by the Central Government. The same, though applied for, being pending as at the close of the year, or even at the time of framing the assessment, the excess, i.e., with reference to what was being paid to him as stood approved earlier, i.e., Rs. 6,84,609/-, stood disallowed, and confirmed by the ld. CIT(A) on the same basis, relying on the decision by the apex court in CIT vs. Amalgamation (P.) Ltd. [1997] 226 ITR 188 (SC). It was explained to us during hearing that the company's application has since been disposed of by the Department of company affairs in the concerned Ministry of the Government of India, rejecting the assessee's claim for enhanced compensation. The same being communicated during the previous year relevant to A.Y. 2008-09, the entire excess remuneration stood written back by the assessee in its accounts and, accordingly, assessed as income u/s.41(1) of the Act. A copy of the appellate order dated 01.10.2012 for that year was also placed on record to substantiate the same. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect cost thereof (Rs.87,81,904/-) are not in dispute, it is the indirect cost in relation to the said turnover which is the bone of the contention between the parties. While the assessee contends of nil indirect cost; the transaction/s being by way of high-sea sales, yielding low or meager profit of Rs. 1.36 lacs (or at 1.53% of the turnover), in the view of the Revenue the indirect costs would have to be necessarily imputed, working out the same on a proportionate basis, i.e., in the ratio of the relevant turnover to the assessee's total turnover for the year (Rs.6143.66 lacs), at Rs. 20.08 lacs, so that no deduction u/s.80HHC would in effect ensue. The ld. CIT(A) confirmed the view of the Assessing Officer (A.O.) in-as-much as it was inconceivable that there were no indirect costs associated with the transaction/s. It could be nobody's case that the same was executed without incurring any expenditure. The same is only a part of the assessee's normal business undertaking, and man power and other facilities of the company would definitely be utilized toward the same. The only course, therefore, left open to the A.O. in his view was to estimate the expenditure, and which stood done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90% of such income, 10% thereof stands imputed as their cost, so that the said cost, attributed to the export incentives and other income (i.e., at 10% thereof) would stand to be excluded in arriving at the indirect costs attributable to the assessee's exports, whether of trading or manufactured goods, for computing the deduction u/s.80- HHC. The same would also therefore require being given effect to. As, however, we have directed for the exclusion of the interest cost, which would also stand to be included in the statutorily imputed cost of 10%, the same would have to be proportionately reduced, i.e., in the ratio of the finance cost to the total indirect cost, which we observe at 4.4%, so as to eschew allowance of double benefit to the assessee. We decide accordingly, and the assessee gets partial relief. 7. Ground # 5 of the assessee's appeal as well as grounds # 3 & 4 of the Revenue's appeal, relate to the treatment of scrap sales (Rs.57,20,053/-) in computing the deduction u/s.80-HHC. While the A.O. reduces the same from the 'profits of the business' under Explanation (baa) (to the provision) as well as includes the same in the 'total turnover', the ld. CIT(A) directed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does to abate the cost of 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. We decide accordingly, and both the assessee and the Revenue get partial relief. 8. The sixth ground of the assessee's appeal, again, concerns the computation of 'profit of business' u/s.80-HHC. The bone of contention between the parties is in respect of four items, being commission, interest, duty draw back and sales-tax set off. We shall take up each of them separately: i) Interest income (Rs.62,43,250/-): The assessee's case is toward the exclusion of interest on net basis; there being interest payment/s as well, as against on gross basis by the A.O. The Revenue's case, on the other hand, is that the said income, being on FDRs with bank/s, assessed/assessable as 'income from other sources', and not as 'business income', is therefore liable for exclusion on gross basis. The dispute thus is not for the exclusion or otherwise of the interest income per se, on which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd the parties, and perused the decisions by the hon'ble jurisdictional high court as well as the apex court. The basis of the said decisions is that the 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 offered by the assessee for the year of lodging the claim for sales tax refund, being clarified during hearing by the ld. AR himself. The same, therefore, relates to the transactions of the purchase and sale (by way of exports) during earlier years. The same is thus for the current year only a prior period income and, accordingly, though assessable as business income, cannot be considered as relatable to the export income for the current year. The same, therefore, is liable for exclusion. Our decision, it may be clarified, is not inconsistent with the decisions, as in the case of Alfa Laval India Ltd. (supra), holding the said income as not an independent income, but as a part of the operational income of the assessee, so that the said decisions are distinguishable on facts and, accordingly, would be of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng account, viz. opening and the closing stock of the inventories as well as the purchase and sale of goods, shall do so by issuing a specific findings of fact by a speaking order. Reference for the purpose be made to the decision by the tribunal in the case of Hercules Pigment Industry vs. ITO [2014] 146 ITD 31 (Mum). We decide accordingly. 12. The second ground of the Revenue's appeal as well as ground # 1 of the assessee's appeal for A.Y. 2005-06 relates to the disallowance of the provision for warranty. Again, even as admitted by the parties before us, there is no dispute in principle, so that the assessee is entitled to its claim for provision, made on a scientific and reasonable basis, and toward which reference may be made to the decisions by the apex court in the case of Rotork Controls India (P) Ltd. vs. CIT [2009] 314 ITR 62 (SC) and Bharat Earth Movers vs. CIT [2000] 245 ITR 428 (SC). The provision made and utilized for the year under reference and the two earlier years is as under: A.Y. Provision made Provision utilized Excess provision Ratio 2003-04 48.23 4.26 43.97 91.16% 2004-05 57.29 19.98 37.31 65.12% 2005-06 68.65 14.98 53.67 78.18% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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