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2015 (4) TMI 466 - ITAT AHMEDABAD

2015 (4) TMI 466 - ITAT AHMEDABAD - TMI - Reduction of amount of profits eligible for deduction u/s. 80HHC from the book profits u/s. 115JA - MAT computation - Held that:- As decided in case of Ajanta Pharma Ltd [2010 (9) TMI 8 - SUPREME COURT ] if the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a selfcontained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HH .....

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as contended on behalf of the Department. Therefore, respectfully following the above precedents, we hereby hold that the AO is required to re-compute the taxable profit for the purpose of computation of book profit u/s.115JA of the Act in the light of the guide lines laid down by the Hon Courts as cited above. - Decided in favour of assessee.

Reduction of amount of profits derived by eligible industrial undertaking referred in s. 80IA from the book profits u/s. 115JA - Held that:- Th .....

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wed but for statistical purposes only. - Decided in favour of assessee for statistical purpose only.

Inclusion of Exchange Rate Fluctuation/Difference in respect of balances under the Exchange Earners Foreign Currency Account (EEFC Account) in total turnover for the purpose of deduction u/s. 80HHC - Held that:- This issue is directly covered in favour of the assessee by an order of Honble Gujarat High Court in the case of CIT vs, Alps Chemicals Pvt Ltd [2014 (10) TMI 251 - GUJARAT HI .....

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to receiving the sale consideration hence part of the export sales . The gain was not due to delayed realization of export proceeds. - Decided in favour of the assessee

Inclusion of Sale of scrap in total turnover for the purpose of deduction u/s. 80HHC - Held that:- For the purpose of availing deduction u/s.80HHC, income from sale proceeds of sale scrap was not included in the "total turnover" but it was shown separately as relying on Punjab Stainless Ltd. case [2014 (5) TMI 238 - S .....

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out of the said interest free fund is to be established. Certain basic information such as fund flow statement is not available before us. Side by side, A.O. has simply applied a formula which was only giving the figures of the total income verses exempted income, however, before applying the said formula it is also a requirement to establish that the interest bearing borrowed funds have actually been applied to earn the exempted income and then if such expenditure is not separately identifiable .....

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mpt income for the purpose of computation of book profits u/s. 115JA - Held that:- There is a latest decision CIT vs. Gujarat State Fertilizers and Chemicals (2013 (7) TMI 701 - GUJARAT HIGH COURT) wherein it was held that the A.O. had added the amount of estimated expenditure on earning of dividend income u/s 14A. So by referring sec. 115JB(2) it was held by the A.O. that it was required to be added in the profit shown in the P&L A/c. Commissioner of Appeals had deleted the addition in the norm .....

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Disallowance of expenses for increase in share capital - Held that:- There are few examples such as payment of stamp duty for issue of public subscription of debentures which was held as revenue expenditure U/s 37(1); even though after the insertion of Sec. 35D. Likewise other expenditure pertaining to issue of debenture is entitled U/s 37(1) and the provision of Sec. 35D are not going to effect such deduction. So the outcome of the above discussion is that the provision of amortisati .....

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ion on account of payment made to Synergy Research Centre Pvt. Ltd. - CIT(A) deleted the addition - Held that:- CIT(A) has held that the AOs conclusion that the payment of ₹ 40 lacs was made against the sale proceeds of shares and not against research was merely on presumption. There was no material on record to justify such presumption. Side by side, the assessee had brought on record the evidence about the payment of ₹ 40 lacs against scientific research were carried out by SRCL. .....

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ood network of committed dealers, who have managed the business. Both those entities were otherwise registered with Sales Tax Department as Registered Dealers. Even during the course of search, certain correspondences relating to installation of various systems at M/s.Dukan was seized and since the activities was not merely on paper, therefore it was held that the payment was reasonable and the addition was directed to be deleted. We hereby endorse the view taken by the First Appellate Authority .....

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in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A) - Decided against revenue.

Unaccounted sale of spent solvent - CIT(A) deleted the addition - Held that:- It was merely presumed by the A.O. that even for the post search period the Solvent might have been sold on the same rates. But the basic question is that when even for search period the impugned addition did not survive on account of .....

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and DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of deduction U/s 80I / 80IA / 80IB. It was commented by S.C. that Sec. 80IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words 'derived from' is narrower as compared to that of the words ' attributable to.' By using the expression ' derived from' Parliament intended to cover sources n .....

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of sales-tax & excise duty as part of total turnover for 80HHC purpose - CIT(A) deleted the addition - Held that:- As decided in Laxmi Machine Works [2007 (4) TMI 202 - SUPREME Court] for the legal proposition that Excise Duty & Sales Tax are indirect taxes so do not involve any element of 'Turnover'. Respectfully following this precedent we hereby affirm the findings of CIT(A) - Decided against revenue.

Gross interest,Gross lease rent & Operational charges for computing ' .....

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ion. - Decided against revenue.

Adjustment to trading export profit on account of export promotion expenses - Held that:- CIT(A) has given certain findings on facts which were not confronted to the AO. The ld.CIT(A) has noted that the assessee had maintained the details about export promotional expenses which were stated to be identifiable. It was also noted by him that those expenditure were attributable to different products. Further, he has noted that the assessee has furnished ac .....

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n to give opportunity to both the sides and then decide as per law. - Decided in favour of revenue for statistical purposes.

Reducing deduction under section 80-IA - Assessing Officer has disallowed depreciation and the profit on sale of DEPB - Held that:- while dealing ground No.6 of the Revenues appeal and held that the depreciation could not be foisted upon the assessee compulsorily. Therefore, the relief given by the ld.CIT(A) upto this extent is affirmed. Next is the question of .....

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the order of Ld. CIT(A)-IV, Ahmedabad, order dated 5th July, 2002. Since these are connected appeals; hence hereinbelow decided by this common order. A. Assessee s Appeal (ITA No. 3047/ Ahd/2002 ) 1. Ground No. 1 is reproduced below: Re: Reduction of amount of profits eligible for deduction u/s. 80HHC from the book profits u/s. 115JA. 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the learned CI .....

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Sec. 115JA (1), the profits eligible for deduction u/s. 80HHC ought to be computed on the basis of Book Profits and not taxable profits as claimed by the Assessing Officer. 1.1 An Assessment order has been passed by the A.O. u/s 143(3) dated 28.3.2002. The appellant company is a manufacturer of pharmaceuticals products. A return of income was filed declaring total income U/s 115JA at ₹ 3,63,23,970/-, whereas, the total income U/s 115JA was assessed at ₹ 17,00,06,767/. There was a co .....

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o different figures of 80HHC working, one normal business profit and another book profit. So he has held that for Sec. 115 JA only the profits eligible for deduction U/s 80HHC was to be considered. Since the ground of the assessee was dismissed hence further in appeal. 1.3 Having heard the submissions of both the sides and after reading the cited decisions viz. Ajanta Pharma Ltd. 327 ITR 305 (S.C.) and Bhari Information Tech.Sys.P.Ltd. 340 ITR 593 ( S.C.) in the background of the facts of this c .....

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nd gains of business. Further, an observation was made by the Hon ble Court that once the law itself declares that the adjusted book profit is amenable for further deductions on specified grounds in a case where section 80HHC/80HHE of the Act is operations, it becomes clear that computation for the deduction under those sections need to be worked out on the basis of adjusted book profit. In the case of Syncome Formulations (I) Ltd. (supra), the Special Bench of the Tribunal came to the conclusio .....

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318 ITR 252 (Bom.) was in favour of the Revenue Department, however, that decision of the Bombay High Court was, later on, reversed by the Hon ble Supreme Court cited as 327 ITR 305 , wherein the Department has argued that both the eligibility as well as deductibility of the profit have got to be considered together for working out the deduction as mentioned in clause-(iv) of the Explanation to section 115JB of the Act. The Hon ble Court has said that there was no merit in the said argument of t .....

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d by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department. 11. For the above reasons, we set aside the impugned judgment of the High Cour .....

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Re: Reduction of amount of profits derived by eligible industrial undertaking referred in s. 80IA from the book profits u/s. 115JA. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not deciding the ground of the Appellant relating to the deduction in the computation of Book Profits u/s. 115JA in respect of profits of the eligible industrial undertaking as defined u/s. 80IA. The learned CIT(A) ought to have appreciated that there is no change in the wor .....

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been informed that in the past for A.Y. 1998-99 this very issue was restored back to the file of Ld. CIT (A) in assessee s own case in ITA No. 363 & 692/Ahd/2002 vide order dated 7.1.2011.( ref. para 20 page 15 & para 22 page 16) Naturally, if the first Appellate Authority has not expressed a view how the Tribunal can comment on the correctness of the same, therefore, for this year as well this issue is restored back to be decided by Ld. CIT(A) as per law. This ground may be treated as .....

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EEFC Account is miscellaneous trading receipt forming part of 'total turnover' for the purpose of calculating the deduction u/s. 80HHC of the Act. 3.2 Without prejudice to the above, if the Exchange Rate Fluctuation/Difference in respect of balances under EEFC Account is treated as part of total turnover then the learned CIT(A) ought to have directed the Assessing Officer to treat the said receipts as part of export turnover as it is inextricably linked and forms part of the export sale .....

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hould be treated as part of the Total Turn Over and 90% should be reduced while working eligible profits of deduction U/s 80 HHC. He has concluded that there shall be no effect on the profits declared but working of the deductions of 80HHC & 80IA was required to be recalculated. Being aggrieved the matter was carried to the first appellate authority. 3.2. The explanation of the assessee was that the sales proceeds received from the customers were credited to Exchange Earners Foreign Currency .....

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f it was added in the Total Turn Over then it should have also been added to the Export Turn Over. Ld CIT(A) was not convinced and held that such receipt was not part of the business profit as defined in Sec 80HHC being not profit from export turn over. He has concluded that the gain from the foreign exchange kept in EEFC account was like interest on the deposit thus not eligible for deduction. For this view reliance was placed on few High Courts decisions viz. S.G. JhaveriConsultancyLtd.245ITR .....

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source of the income was the export and earned the said income merely on account of fluctuation in foreign exchange. Also cited a decision of Shah Originals 327 ITR 19 ( Bom.) wherein as well held that an exporter had an option to keep certain percentage of export receipts in EEFC a/c. The assessee received higher amount in Indian rupees on such amount due to fluctuation in the foreign exchange rate. Conscious of the fact that the assessee had received the proceeds of the export transaction and .....

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produced below: Re: Inclusion of Sale of scrap of ₹ 15,75,932/- in total turnover for the purpose of deduction u/s. 80HHC. 4.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that scrap sales of ₹ 15,75,932/- formed part of total turnover for computing the deduction u/s. 80HHC. 4.2 The CIT (A) ought to have appreciated that sale of scrap represented a recovery of process loss and cannot be regarded as trading receipts. 4.1. On perusa .....

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the submissions of both the sides and after considering the case law cited of Punjab Stainless Ltd. 364 ITR 144 (S.C.), wherein the assessee was claiming deduction u/s.80HHC of the Act and the issue was to decide the meaning of word total turnover . That assessee was a manufacturer and exporter of Stainless Steel Utensils. In the process of manufacturing, some portion of the Steel could not be used and it was treated as scrap. The assessee sold this scrap in the local market and income arising .....

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that the term turnover has not been defined in the Income Tax Act. According to the Hon ble Court, a meaning of this term was given by ICAI which denotes that in normal parlance the word turnover would be total sales, and according to the Hon ble Court said sales would not include scrap material. According to the Hon ble Court, intention behind enactment of section 80HHC of the Act is to encourage export to earn Foreign Exchange. It was finally concluded that the proceeds generated from the sale .....

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the learned CIT (A) erred in upholding the reduction of unrealised export turnover of ₹ 1,94,6 5,349/-out of total export turnover for computing the deduction u/s. 80HHC. 5.2 The CIT (A) ought to have appreciated the fact that the appellant had duly filed an application for extension of time with the prescribed authority being Reserve Bank of India and since the same was not rejected it ought to have been construed as approved. 5.3 In respect of export proceeds realised subsequently amount .....

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he trading export profits. 5.1. Ld Counsel appearing on behalf of the Assessee has stated at Bar not to press this ground, hence dismissed being not pressed. 6) Ground No. 6 is reproduced below: Re: Disallowance u/s. 14A 6.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of interest expense of ₹ 3,86,765/- on the ground that the interest was allocable for earning the share of profit from partnership firm being exempt inc .....

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under the provisions of Sec. 14A of the Act. Assessee had furnished a reply, only relevant portion is reproduced below:- The total amount invested by the assessee in M/s. Sun Pharma Exports amounted to ₹ 16.25 crores as at 1.4.1998. This capital balance represented the profits ploughed back. During the last 3 years the share of profit derived by the assessee from M/s. Sun Pharma Exports are as follows: 31.03.1998 102825644/- 31.03.1997 105112010/- 31.03.1996 102322321/- Total 310259975/- 6 .....

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he assessee firm u/s.14A of the Act. This amount is also added to book profits u/s.115JA as per explanation to said section. 6.3. According to Ld. CIT(A) if expenditure is incurred in order to earn exempted income, the same is not allowable. The action of the A.O. was upheld. 6.4. Argument of Ld. AR is that the assessee had sufficient non-interest bearing funds for making investment in the firm and not used the borrowed funds therefore no disallowance could be made. Case law relied upon is CIT v .....

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interest free funds can only be furnished by the assessee. Reply before the A.O. only suggested that the profit was ploughed back but the amount, stated to be ₹ 16.25 Crores invested in the firm, actually invested out of the said interest free fund is to be established. Certain basic information such as fund flow statement is not available before us. Side by side, A.O. has simply applied a formula which was only giving the figures of the total income verses exempted income, however, befor .....

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e A.O. and to accomplish it, we hereby restore this ground back to AO to decide as per law accordingly. This ground may therefore be treated as allowed for statistical purpose. 7) Ground No.7 is reproduced below: 7. Re: Addition of expenses attributable to earning exempt income for the purpose of computation of book profits u/s. 115JA 7.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not deciding the ground of the Appellant relating to the addition of .....

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added to book profit u/s 115JA . And when the matter was before the Ld. CIT(A) no finding was given by him, as is evident from the ground itself. The basic question is that whether such a disallowance is warranted at all or not. There is a latest decision CIT vs. Gujarat State Fertilizers and Chemicals 358 ITR 323 ( Guj.) wherein it was held that the A.O. had added the amount of estimated expenditure on earning of dividend income u/s 14A. So by referring sec. 115JB(2) it was held by the A.O. th .....

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. For that reason we hereby restore this issue back to the file of A.O. Therefore we hold that the issue as raised in this ground is consequential depending upon the outcome of the main issue as referred hereinabove. Likewise this ground may be treated as allowed but for statistical purpose only. 8. Ground No. 8 is reproduced below: 8. Re: Disallowance of deduction u/s. 80IA in respect of sale of import licenses of ₹ 3,72,797/-: 8.1 On the facts and in the circumstances of the case and in .....

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s ground hence hereby dismissed being not pressed. 9. Ground No. 9 is reproduced below: 9. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred not deciding on the ground of the Appellant relating to allocation of expenses to Silvassa unit eligible for deduction u/s. 80IA on account of exchange rate difference reduced from Miscellaneous Expenses. 9.1. The observation of the A.O. was that the assessee had claimed deduction u/s 80IA at ₹ 40,13,40,021/- pert .....

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77; 4,46,438/- which was to be reduced from the profit computed for 80IA deduction. This view of the A.O. was challenged. However Ld. CIT(A) had inadvertently not decided/ discussed in the impugned order. Therefore it was pleaded before us that the matter may go back to CIT(A). We hold accordingly. This ground may be treated as allowed but for statistical purpose. 10. Ground No. 10 is reproduced below: 10. Re: Disallowance of expenses for increase in share capital. 10.1 On the facts and in the c .....

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CIT (A) ought to have appreciate the fact that deduction should be allowed over a period of 3 years being the term of the redeemable preference shares. 10.1 An expenditure under the head share issue expenses of ₹ 22,70,000/- was debited to P&L A/c. This amount was added-back, but 1/5th only of ₹ 4,54,000/- was deducted as current year s claim of expenditure. It was informed to A.O. that in connection of preference share issue redeemable after 3 yrs of ₹ 5017.50 lacs to inc .....

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at the expenditure was not at all an allowable expenditure as held in the case of Brookebond India Ltd. 225 ITR 798 ( SC) and Mihir Textiles 225 ITR 327 (Guj.). Resultantly disallowance of ₹ 4,54,000/- was made. That action of the A.O. was challenged. 10.2 When the matter was carried before the First Appellate Authority, the action of the A.O. was confirmed. 10.3 Heard both the sides at some length. Sec. 35 D grants a deduction in respect of expenditure which may otherwise be disallowable .....

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the memorandum of association for enhancement of authorised capital is held to be covered by sec. 35D (2) (c) (iv) . But expenditure on registration of a company is not covered as per sec 35D(2)(c)(iii). The undisputed factual position is that the filing fees to ROC and stamp duty, etc. was paid in connection of preferential issue which were redeemable after three years. 10.4) As per the argument Ld CIT DR, this issue has been dealt with in the case cited as Brooke Bond India Ltd. 225 ITR 798 (S .....

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7 (Guj.) was dealing with issue in respect of the expenditure incurred by way of filing fees for increasing the authorised capital of the company, and it was held as capital expenditure. Both these decisions are not dealing the applicability of the provisions of Sec 35D. 10.5) As already mentioned above Sec. 35D would apply only in respect of expenditure which is otherwise not allowable under the law being a capital expenditure. This section subscribed or listed certain types of capital expendit .....

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hough after the insertion of Sec. 35D. Likewise other expenditure pertaining to issue of debenture is entitled U/s 37(1) and the provision of Sec. 35D are not going to effect such deduction. So the outcome of the above discussion is that the provision of amortisation is not intended to supersede any other provision of the income tax act under which such expenditure is otherwise admissible as a deduction . Under the fitness of circumstances it is therefore required to restore this issue back to A .....

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77; 50,00,000/- made on account of payment made to Synergy Research Centre Pvt. Ltd. 11.1. It was noted by the A.O. that a sum of ₹ 40,00,000/- was paid to Synergy Research Centre P.Ltd. On query the explanation of the assessee was as under, only relevant portion reproduced:- 1. It is once again repeated that Sun Pharmaceutical Industries Limited (SPIL) never acquired the shares of TDPL. The amalgamation of TDPL with SPIL was not a cover up for any acquisition of shares but an actual amalg .....

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SPIL was genuine and proper. In the light of our detailed submissions made earlier in this regard and the order of the CIT(A), it is grossly erroneous to continue to link genuine payments made to SRCL towards the alleged acquisition of TDPL shares. 2. As regards the payments for research work carried out by SRCL we have to submit that: 1. Synergy is an approved research center by the department of scientific and Industrial Research, Ministry of Science and Technology, Government of India for the .....

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ount paid to SRCL, the balance amount of ₹ 264.20 lakhs has been duly refunded by them. 4. The product namely Meloxicam in respect of which the research was successful has been manufactured and marketed during the years 1999-00 and subsequently. The total quantity produced of Meloxicam and the value of sale is a below: Year Quantity Produced Location Value (Rs. In Lacs) 1999-00 401.62 kg Panoli 61.90 5. During this period, various scientist and technical personnel from SPIL had visited SRC .....

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as to be paid officially whereas ₹ 200/- was to be paid as premium outside books of accounts. Further, if by any mechanism assessee company could transfer consideration to Dadhas by cheque but at same time the same is tax free Dadhas would give discount & 20%. It is her that role of SRCL comes into picture this entity not having any prior role is brought into existence and part of consideration is passed on to said concern in garb of purchasing / advance towards research and knowhow. T .....

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world class research facilities with advanced capabilities. Keeping in view this background, it is clear that the payment to SRCL was not for purpose of scientific research etc. but for a different purpose. Accordingly ₹ 40 lac paid is held for non-genuine purposes and is disallowed. Since assessee had claimed weighted deduction @ 125% on same. Accordingly ₹ 50,00,000/- is disallowed and added to total income. 11.3. First Appellate Authority has opined that once the Honble Madras Hi .....

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was also mentioned that a view had already been taken by his predecessor so there was no reason to take any different view. It was directed to delete the addition. Therefore now the Revenue is in appeal. 11.4. From the side of the Revenue. Ld. CIT-DR, Mr. Vimalendu Verma appeared and placed reliance on the order of A.O. According to him, it was a colourable device adopted by this assessee. The payment was nothing but towards acquisition of shares, rather than for scientific research. On one han .....

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oned that ITAT D Bench Ahmedabad in Sun Pharmaceuticals Industries IT(ss)A No.70/Ahd/2001 vide order dated 25/09/2009 has held that in view of the fact that the assessment framed after the service of notice u/s.143(2) of the Act after the expiry of 12 months was void ab initio and the said assessment order was quashed. Therefore, the ld.AR has pleaded that since the entire proceedings of block assessment have been quashed in assessee s own case, therefore the consequential addition made in the r .....

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igh Court, hence that process was not a colourable device. The ld.AR has placed reliance on the decision of ITAT B Bench Ahmedabad pronounced in the case of DCIT vs. Aditya Medisales Ltd. Bearing IT(SS) 95/AHD/2011 for the Block period AY 1988-89 to 7/12/1998, order dated 31/05/2007, wherein facts were narrated as under:- 16. The facts relating to ground No.2, and Ground No.3 are that Tamilnadu Dadha Pharmaceuticals Ltd. (TDPL) had amalgamated with Sun Pharmaceutical Industries Limited (SPIL). T .....

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ion was not carried out and TDPL amalgamated with SPIL. However, on the basis of certain papers seized both from the office of SPIL and Dadha s it was contended by the Department that the original agreement of purchase of shares was actually implemented though on paper the scheme of amalgamation was reflected. 11.6 With this background, we have noted that the ld.CIT(A) has referred an earlier order of his predecessor which was connected with the block assessment period. A finding was given that, .....

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yment was not for the acquisition of shares, but for the scientific research. The ld.CIT(A) has held that the AO s conclusion that the payment of ₹ 40 lacs was made against the sale proceeds of shares and not against research was merely on presumption. There was no material on record to justify such presumption. Side by side, the assessee had brought on record the evidence about the payment of ₹ 40 lacs against scientific research were carried out by SRCL. The ld.CIT(A) has, therefor .....

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s reproduced below: 2. The Ld. CIT(A) has erred in law and on facts in allowing discount paid to M/s. Antrish and M/s. Dukan for ₹ 13,88,590/-. 12.1. At the outset the observation of the A.O. was that the assessee had created various devices to transfer sale consideration and particularly the premium amount of ₹ 200/- per share to the promoters of M/s TDPL , the company which later on amalgamated with the assessee company. According to A.O. the modus operandi was as under:- During th .....

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ough creation of two entities namely M/s. Antriksh and Dukan. These two entities controlled by Dadha Group where an additional level of agency created for the territories of Tamilnadu and Karnataka. Instead of earlier movement of goods which was being followed for all the years, goods being sold by SPIL to Aditya Medisales and thereafter distributed. Through these fictitious entities another level was created thereby the goods were claimed to have been transferred from SPIL to AML through these .....

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these concerns were disallowed and addition was made upto 7.12.1998. In the present assessment assessee was asked to explain as to why the same logic should not be applied and for the remaining period commission paid should not be disallowed. 12.2. The assessee s explanation was that the appointment of M/s Antariksh Pharma and M/s Dukan as a distributor was a commercial decision because Dadhas had very good network of loyal dealers in the South. The assessee wanted to encash that net- work of de .....

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nder, only relevant portion reproduced :- (i) The sezied papers itself reveals that these entities were created for the sole purpose of somehow transferring the consideration from the assessee group to Dadhas. (ii) The assessee has unable to show whether the actual storage facility were utilsed from any primary records of material movement etc. (iii) The fact of these concerns, having drug license etc. is immaterial as mere possession of these document does not mean that these concerns did offer .....

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v) The assessee has no explanation as to why against normal commission rate of 2% these two concerns were paid 5%. In fact as an afterthought and to somehow coverup the issue as is clear from the above reply assessee had itself stated that they have reduced the rate from 5% to 2% in F.Y 99-2000. This is an indicator that there is no basis and logic for even paying the commission rate and it was for the sole purpose of transferring the consideration with no services being offered. In view of abov .....

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as placed reliance on the order of the A.O., while Ld AR has supported the view taken by Ld. CIT(A). Few decisions of the Tribunal have also been referred, namely; Aditya Medisales Ltd. (ITAT B Bench Ahmedabad) bearing IT(ss) 95/Ahd/2001, order dated 31/5/2007(supra), Shri S.Mahanchand Dadha (Indl.) [ITAT A Bench Chennai] bearing IT(ss)A No.180/Mds/2002, order dated 16/11/2007 and decision of Shri S.Mohanchand Dadha (HUF) [ITAT Bench A Chennai] bearing IT(ss)A No.178/Mds/2005 for the Block perio .....

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on of various systems at M/s.Dukan was seized and since the activities was not merely on paper, therefore it was held that the payment was reasonable and the addition was directed to be deleted. We hereby endorse the view taken by the First Appellate Authority primarily on the ground that in a situation when a search was conducted and no material was found, then according to us, the amount was rightly directed to be deleted. Further by placing reliance on the orders of the respected coordinate b .....

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under :- This fact is however very clear even in search proceedings evidences showed that assessee group had constantly being moving entries in books of various concerns so as to coverup the schedule but quantum of consideration was adhere to the schedule. Infact net effect of the payments and receipts can only be seen in consolidated account of each individual representing one branch of Dadha Family. Because the assessee group had used so many different pretexts of transferring funds and then .....

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for post search period. S. Mohanchand Dadha ₹ 9,64,841/- M. Mahendra Dadha ₹ 4,325/- M. Maherchand Dadha ₹ 6,68,074/- 13.2. When the matter was carried before the First Appellate Authority it was noted that there was no evidence which would indicate that Interest was to be paid to Dadhas for post search period. The addition was deleted as under: 22. The Assessing Officer has not been able to bring to light any evidence or support which would indicate that the interest was paid .....

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o have been paid during the post search period cannot stand in absence of any specific finding or material brought on record by the Assessing Officer. Accordingly, I direct that the addition on account of notional interest amounting to ₹ 16,37,248/- be deleted. 13.3. With this back ground we have heard both the sides. The issue is resolved vide a consolidated order for A.Y. 99-00,2000-2001, 01-02, 02-03 & 03-04 of Aditya Medisales bearing ITA No. 3272/Ahd/2002 , ITA 1623/Ahd/2003, ITA .....

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did not charge interest to the two parties. We find force in the contention of the Assessee that on account of amalgamation of TDPL with SPIL the Assessee would experience growth in its turnover and operations. Subsequent events and the figures of turnover of the Assessee vindicate this point in favour of the Assessee. On any such acquisition of business / amalgamation the acquirer would be keen to ensure that there is smooth integration of business across the entire line which include distribu .....

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sing Officer has also acknowledged that there was savings in turnover tax in the state of TamilNadu as a result of the appointment by the said firms. The Assessing Officer having accepted in part the business benefit of the appointment of the said firms, as distributors cannot in the same breadth question the other part Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee to the individual members of the Dadha family as advances in the ordinar .....

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ordingly we confirm the order of the CIT(A) on this ground. 13.4. Since in the past a consistent view had been taken that once the Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee s other decision taken in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A), hence this ground of the Revenue is dismissed. 14. Revenue s Gro .....

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y etc. It was informed that CIT(A) had deleted the addition. Relevant portion of assessee s reply was as under: 3. The Honourable CIT(A) while disposing off the block appeal has deleted the addition made on account of presumption by extrapolating the items based on the rate of ₹ 1.63. The CIT(A) has held that merely because some items are sold at the rate of ₹ 1.63 it cannot be presumed that the level of purity and the quality were same. In absence of any specific finding, the additi .....

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as also a reference of an order passed by his predecessor in the Block Assessment wherein such addition was deleted. He has, therefore, directed to delete the addition. 14.4 Heard both the sides. First point from the side of the assessee is that the said Block Assessment had already been quashed by the Tribunal D Bench in IT(SS) No.70/Ahd/2001 in assessee s own case vide order dated 25/09/2009 (supra) hence the impugned addition by that very reason did not survive. The second point of the assess .....

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ion did not survive on account of lack of evidence then how such presumption could be approved for the post search period. The reasoning appears to be convincing especially when no contrary material is available on record form the side of the Revenue. This ground of the Revenue is therefore dismissed. 15. Revenue s Ground No.5 reads as under:- 5. The Ld.CIT(A) has erred in law and on facts in deleting the addition made on account of DEPB sale for 80IA deduction. 15.1 It was noted by the A.O. tha .....

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Appellate Authority it was argued that the exports were made from the Silvasa Unit , against that export those licenses were received. Only the sales were managed from the Bombay office. So it was the profit derived from the business of an industrial undertaking. An alternate submission was that in Block assessment addition on account of sale of license amounting to ₹ 6,22,203/- was already made. Relying on the decision of N.R.Paper & Board 234 ITR 733 ( Guj.) it was held by Ld. CIT(A .....

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y India 317 ITR 218 wherein it was held that Duty Drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of deduction U/s 80I / 80IA / 80IB. It was commented by S.C. that Sec. 80IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words derived from is narrower as compared to that of the words attributable to. By using the expression derived from Par .....

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nce of ₹ 1,26,50,718/-. 16.1. On perusal of Depreciation chart, it was noted by the A.O. that the assessee had not claimed depreciation in respect of Plant & Machinery and Data Processing Equipments of Silvasa Unit. However in respect of other assets depreciation was claimed. So the A.O. had commented that the purpose was to retain higher WDV as long as the Silvasa Unit was enjoying tax holiday u/s 80-IA. Through this method on one hand a higher claim of deduction u/s 80IA was made and .....

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deducted from the business profit. 16.2. On this issue Ld. CIT(A) has held that the provision of compulsory allowance of depreciation is applicable w.e.f. 1.4.2002 by making it mandatory u/s 32 of the Act. Reliance was placed on Mahindra Mills 243 ITR 56 (SC) and held that the A.O. was not justified in compulsorily granting depreciation. 16.3. Heard both the sides. The assessment Year under consideration is A.Y. 1999-2000. On this issue that whether the depreciation can be compulsorily foisted u .....

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rder dated 23.12.2014) wherein for A.Y. 1995-96 it was held that the Tribunal was not right in law in holding that depreciation , whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to Sec. 32(1) of the Act. Respectfully following these decisions, we hereby affirm the findings of Ld. CIT(A). This ground of the Revenue is dismissed. 17. Revenue s Ground No.7 reads as under:- The ld.CIT(A) has erred in law and on facts in directing to exclude the sa .....

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. In the instant case, the assessment involved is for AY 1999-2000. 17.1 The observation of the A.O. was that in the Total Turnover the assessee has not included the amount of Sales Tax and Excise Duty collected during the year. According to A.O. it was part and parcel of the Turnover . When this was carried before CIT(A), a decision of Sudarshan Chemicals Industries Ltd. 245 ITR 769 ( Bom.) was followed and directed the A.O. to exclude Sales Tax & Excise Duty from the total turnover. 17.2. .....

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it of business for working of deduction under section 80HHC. Ground No.9:- The Ld.CIT(A) has erred in law and on facts in allowing consideration of gross lease rent for computing profit of business for working of deduction under section 80HHC. Ground No.10 :- The Ld.CIT(A) has erred in law and on facts in allowing consideration of gross operational charges covered for computing profit of the business for working of deduction under section 80HHC. 18.1. All these three grounds are inter-connected .....

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arrive at the figure of profits of the business for computing the deduction u/s.80HHC of the Act. In respect of lease rent as raised in ground No.9, the assessee has considered the net lease rent income, but the AO had considered gross lease rent income for reducing 90% of the same. When it was challenged before the ld.CIT(A), he has directed the AO that 90% of the net lease rent should be reduced for the purpose of computation of profits of the business u/s.80HHC of the Act. Likewise, ground N .....

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t interest or net rent which had been included in the profits of the business as computed under the head profits and gains of business or profession was to be deducted under clause(i) of Explanation(baa) to section 80HHC of the Act for determining the profits of the business. The Hon ble Court has followed Topman Exports 342 ITR 49 (SC) for the legal proposition that under the clause(i) of Explanation(baa) to section 80HHC, 90% of any receipts by way of brokerage, commission, interest, rent or a .....

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etc. of a similar nature is allowed as expenses u/s.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 , 90% of such quantum of receipts cannot be reduced from the profits of the business. We, therefore, hold that all three grounds now stood covered by these decisions of the Hon ble Supreme Court, hence the view taken by the ld.CIT(A) is hereby endorsed and the grounds raised by the Revenue are dismissed. 19. .....

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convinced and bifurcated the same by assigning the following reason:- (iii) Adjustments to trading export profits: Assessee company had incurred export promotion expenses both for its own products and that in which it has traded. In working of 80HHC it is seen that assessee had allocated an amount of ₹ 15.81 lac from other export promotional expenses. This has been done by the assessee on the basis of clear-cut identifiable expenses relating to trading which as per assessee was primarily .....

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of the nature entertainment of foreign guest, hotel bills, conference expenses and product expenses, general cartons and papers for export etc. assessee company cannot deny the fact that these expenses go on to further its market for trading export also. In the circumstances it is seen that these expenses are of approx.Rs.30 lac. Since trading export turnover is approx.58% of total export turnover. This amount is bifurcated and 58% of the same i.e. ₹ 17,40,000/- is allocated as direct exp .....

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trading activity. The ld.CIT(A) has held that the assessee has maintained the details which show that the export promotional expenses are directly identifiable and attributable to different products. Rather he has noted that the assessee had furnished précised details of direct expenses attributable to certain product s turnover including the overseas sales promotion expenses. He has directed the AO not to make such adjustment to trading export profit. 19.3. Having heard the submissions .....

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ding the overseas sales promotional expenses. Since those were new evidences, which were entertained by the ld.CIT(A), therefore it is demanded by the ld.CIT-DR to give an opportunity to examine those evidences which were entertained by the ld.CIT(A) at the back of the AO. Considering the said preliminary technical objection of the assessee, we hereby restore this ground to the file of ld.CIT(A) with the direction to give opportunity to both the sides and then decide as per law. In the result, t .....

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/s.80-IA and reduced the same to ₹ 38,23,04,924/-. The expenses which were allocated were R&D expenses of ₹ 50,17,034/-, depreciation of ₹ 1,26,50,718/- and DEPB sale of ₹ 9,95,000/-. 20.2. When the matter was carried before the first appellate authority, the assessee has not contested the allocation of expenses pertaining to R&D expenses. In respect of claim of depreciation, we have already discussed at length hereinabove while dealing ground No.6 of the Revenue .....

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ereby hold that the issue raised by the Revenue Department is partly allowed. 21. Revenue s Ground No.13 reads as under:- The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 27,04,047/- made out of interest payment on account of transactions with Virtous Finance Ltd. 21.1. The AO has noted that the assessee had charged interest @ 12% from associate-concerns, but paying more rate of interest on the borrowings. The allegation of the AO was that the assessee has char .....

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