TMI Blog2015 (5) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... HC/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) came to the conclusion that deduction claimed by the assessee u/s.80HHC has to be worked out on the basis of adjusted book profit u/s.115JA and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. The view taken by the Special Bench was accordingly affirmed and the Special Leave Petition filed by the Revenue Department was dismissed. If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a self-contained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t forward or unabsorbed depreciation as "Nil". The Assessee has not controverted this fact as noted by the AO that after the amalgamation there was "Nil" amount of brought forward loss and unabsorbed depreciation. Due to this reason, we are of the view that the Assessee has made a wrong claim which was rightly rejected by the AO. Resultantly, we find no force in this ground of the Assessee, hence dismissed. - Decided against assessee. Inclusion of Exchange Rate Fluctuation in total amount for the purpose of deduction u/s.80HHC - Held that:- This issue is directly covered in favour of the assessee by an order of CIT vs, Alps Chemicals Pvt Ltd [2014 (10) TMI 251 - GUJARAT HIGH COURT ] wherein discussed decisions namely Sterling Foods (1999 (4) TMI 1 - SUPREME Court ) wherein the legal proposition was that the 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 (2010 (4) TMI 216 - BOMBAY HIGH COURT ) 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 du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in respect of profits and gains derived from the eligible business we hereby dismiss this ground of the assessee - Decided against assessee. Reduction of Exchange rate difference in computing the profits of the new industrial undertaking u/s.80IB - Held that:- As informed that the learned CIT(A) has mistakenly not adjudicated this ground pertaining to exchange rate itself. In a situation when the First Appellate Authority has not given an opinion on this issue it is not possible for us to decide that issue because the order in Appeal before us is the order of First Appellate Authority. Therefore in the interest of natural justice, we hereby restore this ground back to him to be decided as per law, needless to say, after providing an adequate opportunity of hearing to both the sides - Decided in favour of assessee for statistical purposes. Disallowance of expenses for increase in share capital - Held that:- 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 expenditure which can be amortised. But if those are not capital expenditure then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration, which is before the amendment took place, the depreciation cannot be foisted upon the assessee. Therefore, this ground of the Revenue is hereby dismissed - Decided against revenue. Inclusion of sales tax and excise duty in the total turnover for the purpose of deduction under section 80HHC - Held that:- As relying on an order of 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) and dismiss this ground of the Revenue. - Decided against revenue. Include scrap sales in the total turnover for the purpose of deduction under section 80HHC - Held that:- In the past where the Assessee was in Appeal we have taken a view following Punjab Stainless Steel, (2014 (5) TMI 238 - SUPREME COURT) that the profit generated from the sale of scrap would not be included in the "total turnover". On the same lines, we hereby uphold the view taken by learned CIT(A) and reject this ground of the Revenue. - Decided against revenue. Gross interest for computing 'Profit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Appellate Authority, learned CIT(A) has held that there was no change in the circumstances of the case as held in the past years; therefore, applying the same ratio the action of the AO was upheld. Being aggrieved now the Assessee is further in Appeal. 1.2 In the past for A.Ys. 1999-00 in assessee's own case (ITA Nos.3047/Ahd/2002 3273/Ahd/2002) it was held as under: 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 case we are of the view that the decision of Syncome Formulations (I) Ltd. 292 ITR 144 (AT)(Mum.)(SB) has been approved by the Hon'ble Supreme Court in the case of Bhari Information Tech.Sys.P.Ltd.(supra). Therein it was held that the deduction u/s.80HHE of the Act in the case of Export of Computer Software has got to be worked out on the basis of adjusted book profits u/s.115JA of the Act and not on the basis computed under the regular provisions of law applicable to the computation of profits and gains of business. Further, an observation was made by the Hon'ble Court tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order as to costs. 1.4. 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. Thus, ground raised by the assessee is, therefore, allowed. 1.3 Even in A.Y.2000-01 (ITA No.1400 1622/Ahd/2003) order dated 13.3.2015 the same view was taken by us. Since the reason as well as the circumstances under which the Revenue Authorities have revised the calculation of the book profit u/s.115JB in the past in identical manner; hence on the same lines for this year as well we follow the past history and refer the issue back to the file of the AO to be decided accordingly as per law. This ground of the Assessee on the same lines is hereby allowed. 2. Ground No.2 is reproduced below: 2. Re: Addition of expenses of ₹ 7,73,732/- to the book profits calculated u/s.115JB 2.1 The addition of ₹ 7,73,732/- in respect of certain expenses, in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed those submissions before learned CIT(A) however he has affirmed the action of the AO. Being aggrieved now the Assessee is in Appeal. 2.4 Heard both the sides. The Explanation of the Assessee was that the impugned amount represented the undisclosed expenditure which was withdrawn from regular books of accounts. It was claimed that the said amount was part of cash in hand. According to Assessee, the expenditure was considered in block assessment hence in the regular assessment it was not claimed, therefore, added back to the total income in the return filed for A.Y.2001-02. The other argument of the Assessee is that if an amount is added back in the normal computation of income then it is not compulsory to add back the said amount while computing the book profit u/s.115JB. After considering the facts of the case, we are of the view that the Revenue Authorities were first of all required to ascertain the nature of expenditure and thereupon decide whether required to be added back in the calculation of book profit u/s.115JB or not. Although, it is a settled position of law that for the purpose of the calculation of book profit the same is required to be increased by certain amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to him there was no question of any reduction of unabsorbed loss and unabsorbed depreciation from the books profit. Therefore, the AO has held that there was no question of any reduction of brought forward loss or unabsorbed depreciation of PDCL from the Book Profit of SPIL. Finally, the amount of ₹ 3,39,12,399/- was not allowed to be reduced from the working of the Book Profit . When the matter was carried before the First Appellate Authority, the action of the AO was confirmed. 3.2 We have heard both the sides. At the outset, we have been informed that this issue has not been raised in the past in A.Y.1999- 00 and 2000-01. We have also been informed that the Assessee has moved an application u/s.154 of IT Act. However that too was decided against the Assessee. We have examined the facts as narrated above. One of the important finding of the AO is that after the merger was completed there was no amount of brought forward loss and unabsorbed depreciation remained for adjustment. This finding of the AO has not been controverted by the Assessee. It appears that due to the substantial reserves available at the time of merger it was decided by the amalgamating company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT vs, Alps Chemicals Pvt Ltd 367 ITR 594. The Hon'ble Court has discussed decisions namely Sterling Foods 237 ITR 579 (S.C.), wherein the legal proposition was that the 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 gained due to fluctuation the court held that such gain cannot only be said to have been 'derived' from export business but the fluctuation gain arose subsequent to receiving the sale consideration hence part of the export sales. The gain was not due to delayed realization of export proceeds. The issue was decided in favour of the assessee. Respectfully following the above cited precedents we hereby hold that the assessee is entitled to the claimed deduction. Ground allowed. 4.3 Following the above de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of scrap would not be included in the total turnover . 4.3. Respectfully following the aforesaid view expressed by the Hon'ble Supreme Court, we hereby direct to re-compute the turnover after excluding the sale amount of scrap. Resultantly, this ground is allowed. 5.3 Respectfully, following the above decision, we hereby direct to recompute the turnover after excluding the sale amount of scarp. This ground of the assessee is allowed. 5.2 Since a view has already been taken on identical facts, therefore, we hereby direct to recompute the turnover after excluding the sale amount of scrap. Resultantly, this ground of the Assessee is hereby allowed. 6. Ground No.6 is reproduced below: 6. Re: Reduction of unrealised export proceeds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the sale proceeds received or to be received within six months. If not received within six months from the end of the Financial Year; then the benefit is to be granted subsequently in the year the same is realized. According to AO, the provisions of Section 80HHC(2)(a) prescribes that the sale proceeds of goods exported out of India are to be received in or brought into India by the Assessee in convertible foreign exchange within the period of six months from the end of the previous year or within such further period as allowed by the competent authority. The AO has thereafter prepared a chart to demonstrate that certain invoice numbers were approved by the RBI to brought in the foreign exchange totaling ₹ 1,61,71,484/-. Out of the said approved amount the assessee has received ₹ 54,86,829/-. The AO has also mentioned that later on the Assessee had also enclosed a letter dated 27th February, 2003 of an another approval from Reserve Bank of India amounting to ₹ 10,04,47,000/-; the remittance received. 6.2 Before learned CIT(A), those very facts were reiterated however he has mentioned that in earlier years that issue was decided against the Assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. CIT(A), primarily because of the reason that now this issue is well settled by the Hon'ble S.C. in the case of Liberty 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' Parliament intended to cover sources not beyond the first degree. Further Ld CIT(A) has also held that only the balance amount available after the amount taxed in the Block Assessment is to be to be taken into account. This finding is not required to be disturbed being covered by the decision of the jurisdictional high court. In the result this ground of the Revenue is allowed. 8.2 Respectfully following the decision of Liberty India (supra), we hereby dismiss this ground of the assessee. Ground dismissed. 7.2 On the same lines foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,174/-. 8.3 At the outset, we have been informed that the learned CIT(A) has mistakenly not adjudicated this ground pertaining to exchange rate itself. In a situation when the First Appellate Authority has not given an opinion on this issue it is not possible for us to decide that issue because the order in Appeal before us is the order of First Appellate Authority. Therefore in the interest of natural justice, we hereby restore this ground back to him to be decided as per law, needless to say, after providing an adequate opportunity of hearing to both the sides. Since this ground is restored back hence may be treated as allowed for statistical purpose. 9. Ground No.9 is reproduced below: 9. Re: Disallowance of expenses for increase in share capital of ₹ 4,54,000/- 10.1 The expenses for increase in share capital on account of redeemable preference shares should be allowed as a deductible expenditure and without prejudice to the above on a pro rata basis over 3 years being the term of the preference shares.. 9.1 During the year under consideration, the Assessee has claimed amortization of share issue expenses of ₹ 4,54,000/- u/s.35D of IT Act. We have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 expenditure which can be amortised. But if those are not capital expenditure then the view is that after examining the nature and genuineness of the expenditure the same can be considered as Revenue Expenditure. To elaborate it further it can be said that after the insertion of Sec. 35D; the Act has not denied the allowability of Revenue Expenditure. 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 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.O. to examine both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue's appeal for Assessment Year 1999-2000 (ITA No.3273/Ahd/2002), wherein we have followed the decisions of the Tribunal as under:- 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 1353 2180/Ahd/2005 ITA no. 08/Ahd/2007 dated 30/09/2010. In that order there was a reference of an another order of the Tribunal pertaining to Block Assessment of Aditya Medisales bearing IT(SS)A No.95/Ahd/2001 dated 31/05/2007 wherein vide paragraph no 28 (reproduced by the Tribunal) it was held as under: 28. We have carefully considered the rival submissions. We find that the main reason for disallowance is that while interest was paid by the Assessee to its suppliers, the Assessee 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istory, this Ground of the Revenue is hereby dismissed. 12. Ground No.2 is reproduced below: 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,01,340/- made on account of unaccounted sale of solvents. 12.1 It was mentioned by the AO that although learned CIT(A) had deleted the addition but a second appeal had been preferred before ITAT by the Revenue Department; hence, to keep the issue alive the addition on account of unaccounted sale of solvent was made in the hands of the Assessee. 12.2 This issue had been decided in favour of the Assessee in A.Y.1999-00 and 2000-01 in the past. For ready reference paragraph 14.2 from A.Y.2000-01 is hereby reproduced below: 14.2 The issue of alleged unaccounted sale of spent solvents was discussed by us for Revenue's appeal for Assessment Year 1999-2000 and vide ground No.4, it was decided in the following manner:- 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 addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounced in Assessee's own case bearing Tax Appeal No. 93 of 2000 dated 17.12.2014 titled as Dy.CIT vs Sun Pharmaceuticals Ind. Ltd. is cited wherein it was held that the Tribunal was right in law in holding that depreciation not claimed by the assessee could be deducted despite the introduction of the blockassets concept. One more order of Hon Guj. High Court is referred as Sakun Polymers Ltd. (Tax Appeal No. 41 of 2007 with others order 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. 15.3 On the same lines, we hereby hold that for the year under consideration, which is before the amendment took place, the depreciation cannot be foisted upon the assessee. Therefore, this ground of the Revenue is hereby dismissed. 13.2 Respectfully following the above decision, we hereby affirm the finding of learned CIT(A) and hold that the depreciation under these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is in Appeal. 15.3 However we have noted that in the past where the Assessee was in Appeal we have taken a view following Punjab Stainless Steel, 341 ITR 144 that the profit generated from the sale of scrap would not be included in the total turnover . On the same lines, we hereby uphold the view taken by learned CIT(A) and reject this ground of the Revenue. Revenue's Ground is dismissed. 16. Ground No.6 is reproduced below: 6. The Ld. CIT(A) has erred in law and on facts in directing to consider the gross interest for computing 'Profit of the Business' for the purpose of deduction under section 80HHC. 16.1 The AO has considered the gross interest for the purpose of computing profit of the business for the purpose of calculating the deduction u/s.80HHC of IT Act. 16.2 This issue was dealt with us in A.Y.2000-01 in Revenue's Appeal vide paragraph 18.1, 18.2 and 18.3, we have held as under: 18.1 The Assessing Officer has raised a question during the assessment proceedings that why the whole amount of interest receipt should not be reduced while working the eligible profits for the purpose of claim of deduction. The assessee has received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and allowed the claim. 19.3 With this brief factual background, we have noted that while deciding ground No.9 of the Revenue Department, we have followed the decisions of ACG Associated Capsules Pvt. Ltd. (supra) and Topman Exports (supra) and held that net amount was to be taken into account for the purpose of claim of deduction u/s 80HHC. Following the above decision in assessee's own case for Assessment Year 1999-2000, the ground raised by the Revenue Department is hereby dismissed. 17.2 Respectfully following the past history; for this year as well, this Ground of the Revenue is hereby dismissed. 18. Ground No.8 is reproduced below: 8. The Ld. CIT(A) has erred in law and on facts in deleting the reduction / deduction u/s.80IB (old section 80IA) of the Income Tax Act,1961. 18.1 It appears that this Ground has inadvertently been raised by the Revenue, however the issue on sale of DEPB license is in favour the Revenue following Liberty India, 317 ITR 218 hence the issue raised by the Revenue is decided against the Assessee. 19. In the result, this Ground of the Revenue is hereby allowed. 20. Finally, the Appeal of the Assessee as well as the Appeal of ..... 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