9911796707
TMI Blog2013 (11) TMI 1577X X X X Extracts X X X X X X X X Extracts X X X X ..... efundable to the Assessee Company. This refund was adjusted against the outstanding demand of the Assessee Company for the assessment year 1998-99 on 30.08.2001. 3. The Assessee is engaged in the business of software exports, computer peripherals, IT enabled services, manufacture and sale of vegetable oils, soaps, leather products, lighting products, hydraulic cylinders and tippers, and manufacture of reagents as well as marketing and support of medical equipments. The business of the company is carried on through the various business units or divisions of the company. It is the case of the assessee that it runs each business unit as an independent profit centre. Accordingly, separate accounts are maintained for each business unit. The accounts of the assessee are compiled on the basis of consolidation of all accounts maintained at the business unit levels. The case was selected for scrutiny and notice under Section 143(2) of the I.T. Act was issued on 01.08.2001. Thereafter, notice under section 142(1) of the I.T. Act along with a detailed questionnaire was issued on 15.11.2002. Further, notices also came to be issued on several dates and further questionnaires were also issued. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome to an observation that reopening under Section 148 of the Act pertaining to eligibility of deduction under Section 10A of the Act, was a change of opinion"? 19. Whether the Tribunal was correct in reversing the finding of the Assessing Officer that miscellaneous income from exchange rate fluctuation, sale of scrap and newspaper, reversal of customers balance and debit notes, miscellaneous income and miscellaneous income of non STP units cannot be held as derived from export, of article or thing under Section 10A units?" 20. Whether the Tribunal was correct in holding that the liability to tax interest does not arise unless it accrues to the assessee irrevocably and not when the refund is actually granted in the relevant assessment year in the case of MODVAT Credit? 21. Whether the Tribunal was correct in holding that the liability to tax interest does not arise unless it accrues to the assessee irrevocably and not when the refund is actually granted in the relevant assessment year in the case of interest under section 244A of the Act" 22. Whether the Tribunal was correct in holding that the provision for advances made by the assessee of Rs. 3,22,35,059/- should be allowed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment years. 30. Whether the Tribunal was correct in holding that the provision for warranty expenses of a sum of Rs. 6,67,06,328/- is an allowable expenditure despite the same has not been written off and the same was treated as the contingent liability. 31. Whether the Tribunal was correct in holding that sales tax and excise duty should be excluded from the turnover for the purpose of computation of deduction under Section 80HHE of the Act. 32. Whether the Tribunal was correct in holding that the total turnover of software business should be taken into account for the purpose of obtaining deduction under Section 80HHE of the Act by following the case of M/s. Wipro GE Medicals. 33. Whether the Appellate Authorities were correct in holding that the foreign tax credit of Rs. 17,75,35,671/- is an allowable deduction based on the conclusion arrived at by it in the case of loss from 10A units. 34. Whether the Tribunal was correct in holding that the order of the Appellate Commissioner remitting the controversy regarding un-availed MODVAT credit of Rs. 2,03,71,738/- added to the closing stock which has been considered and decided by the Assessing Officer." 5. Subsequently, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered at the time of hearing of the concerned appeal and at that juncture, the court shall address to the issue whether a substantial question of law as sought to be introduced by way of amendments could have been incorporated in the appeal which has been preferred by the revenue and pending before the High Court without assailing the other judgment of the Income Tax Appellate Tribunal. We also clarify that as Mr. Maninder Singh has apprehended that once an amendment is allowed by way of an interim measure, his opposition that no appeal has been preferred against both the judgments of Income Tax Appellate Tribunal, would become frustrated. Hence, we have modified the order passed by the High Court. 5. With the aforesaid modification and clarification, the appeals stand disposed of with no order as to costs. New Delhi, September 20, 2013' 7. As could be seen from the order of the Apex Court, the contention urged by the assessee was that, the additional substantial question of law which is now sought to be raised arise in ITA No. 669/2005. As no appeal is preferred against the said order, this substantial question of law also would not arise in the pending appeals. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te tax planning. Section 70 of the Income Tax Act provides for set. off incurred in sale of capital asset towards short term capital gains. The revenue has not. disputed the transfer of shares of Wipro Finance Limited (WFL) and the consideration received for such transfer. It is also not disputed that WFL has sustained huge loss over a period of time. The WFL being a subsidiary of the assessee would have created serious problems for the assessee because of its financial conditions. Therefore, the assessee wanted to desubsidiarize by selling of its shares and bringing it less than 50% so that the interest of the assessee is not affected. The net worth of the WFL as per the approved valuer is Rs. 63,19,679/- and which was sold to three persons for a sum of Rs. 75,000/- and consequently the loss sustained in the said transaction of the subsidiary company was set off against the capital gains payable by the assessee which is permitted under law. Therefore, merely because the transaction in which the capital gains accrued and the transaction in which capital loss is incurred happens to be proximate would not lead to an inference that it is a device to avoid tax liability. Similarly, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Full consideration for sale 994,218,675 Less: Cost of acquisition - Section 48(i) 17,913,850 Sub-total 976,304,825 Less: Expenses incurred - Section 48(ii) 5,000,000 Capital Gains (B) '971,304,825 C Total short term Capital Gains (A-B) 1,095,448,503 As against the aforementioned short term capital, gain arising from the sale of shares of M/s, Wipro Net Ltd., assessee-company had also claimed long term capital loss from the sale of 4,83,14,144 Equity Shares of the face value of Rs. 10/- each and 25,00,000 Cumulative Preference shares of face value of Rs. 100/- of M/s. Wipro Finance Ltd., (for short WFL) for a total consideration of Rs. 75,000/-. The total capital loss so claimed as per Annexure-7 of the computation is in the sum of Rs. 107,97,55,991/-. The computation of the said loss so furnished by the assessee along with the return of income is as under: Financial year of acquisition Number of shares Cum holding Cost of investment Index Indexed Cost Capital Gain/ (Loss) 1. Capital Loss on sale of shares in equity shares A. Equity Shares 1991-92 750,000 750,000 7,500,000 199 14,660,804 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 1142857 1142857 1142857 P.G. Karania 16104715 28604715 286047 B.S. Shoukur Narayan 16104715 60605695 606056 Other Share Holder (S) 300000 300000 1442837 1442857 1442857 48614144 166919045 166910 % of Bolding 0.00% 0.00% 0.00% 1.74% 1.16% 5.36% 5.36% 2.76% 60.16% 100.00% 100.00% Total number of equity shares A-B 75000 5000000 8333340 17204760 25776188 26919045 26919045 51919045 96919045 166919045 166919 The above table disclose, 4,83,14,144 Equity shares and 25.00,000 Cumulative Preference Shares, both of M/s. WFL with total indexed cost of acquisition in the sum of Rs. 107,98,30,991/- (A+B) has been sold by the assessee-company for the consideration of Rs. 75,000/- on 31-12-1999 and such shares of M/s. WFL have been sold to 3 persons namely Sri P.G. Karania, Sri S.R. Gopalan and Sri B.S. Shankar Narayanan for the aggregate c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se by RBI followed by public notification. It also triggers the immediate repayment of all fixed deposits and failure to do so will result in the RBI notifying the NBFC as a defaulter. The consequences usually result in the winding up of the company. Thus there is no discretion in the infusion of capital as it is enforced by mandatory guidelines issued by the RBI. The assessee took a view on the total funds requirements of Wipro Finance Limited and infused additional equity and preference capital. Therefore the specific case pleaded by the assessee was the Preferential Norms of RBI governing the functioning of NBFC compelled the assessee company to infuse the capital of Rs. 95 crores on the same date on which it divested. (d) Yet another factor which requires to be noticed is the valuation of the shares of Wipro Finance Limited was made on 31st December 1999. The proforma accounts has reported loss of Rs. 1,64,986,000/- for the nine months period. As per the said valuation, after conversion of preferential shares to equity shares, the total number of equity shares was Rs. 166,91,9045/-. The effective net worth per share is Rs. 0.086. Equity shares numbering 4,83,14,144 and 25 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under its own management. On the contrary, fresh infusion of capital was done, ostensibly to meet the Prudential norms. The real purpose of infusion of capital was not the prudential norms for the following two reasons: (1) Infusion of Rs. 95 crores was received back by the assessee company on the same date on account of refund intercorporate advances made to WFL. Thus, the capital infusion was not utilized by WFL for any other cause, except for repaying the advances of the assessee. (2) The fresh equity was sold in the next financial year at nominal price to generate further long term capital loss. (3) None of the investors purchasing the shares of WFL invested even one rupee in WFL following the change of management. The investors had not imposed any condition on Wipro Limited to invest Rs. 95 crores for the acquisition of controlling stake of WFL. (4) Even for the fresh infusion of Rs. 95 crores, approval of the Board was taken post facto. 16. Shares allotted to three ex-employees found in the premises of WFL adds weight to the position that transfer is just an eye wash. One of the investor is P.G. Karania, who became one of the Directors of WFL. The only meeting of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of claim on long term capital loss of Rs. 107,97,55,591/- as done by the Assessing Officer was upheld. 20. However, the Tribunal interfered with the said concurrent finding of fact. The Tribunal held that transaction of transfer of shares is legal in nature. Run up events leading into the sale of shares in Wipro Net Ltd. have happened at different times in the past. It was not possible to conjure up a plan of action for avoidance of tax in this case having regard to the facts. The sale of shares in WFL was timed to set off against the windfall profits of Wipro Net Ltd., no evidence is brought out that it was done with an intention to avoid tax. The profit earned from sale of shares in Wipro Net Ltd is real and loss incurred and the continued erosion of networth of WFL is also real. There is no evidence to suggest anything more from the sale of shares in WFL. Even if the appellant has sold the shares at a throwaway price, there was no bar against it. It is not unusual for a businessman to act sometimes in due hurry and haste or even without rationale. But when it comes to taxation, what is to be seen is whether the assessee has made any profit or loss and what is the liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a device to avoid short term capital gain or is it a case of legitimate tax plan? Therefore, it is necessary to keep in mind the clear distinction between a legitimate tax planning and a device to avoid tax. In order to appreciate this point, the judgments of the English Courts are quite helpful. 23. In IRC v. Fisher's Executors [1926] AC 395 at Page 412 (HL) it is opined as follows; "My Lords, the highest authorities have always recognised that the subject is entitled so to arrange his affairs as not to attract taxes imposed by the Crown, so far as he can do so within the law, and that he may legitimately claim the advantage of any expressed terms or of any expressed terms or of any omissions that he can find in his favour in taxing Acts. In so doing, he neither comes under liability nor incurs blame." 24. As Lord Atkin pointed out in IRC v. Duke of Westminster's [1935] 19 TC 490, 511. "I do not use the words device in any sinister sense: for it has to be recognised that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of his capital and income as to attract upon himself the least amount of tax. The only function of a court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion. It is also relevant to take into account, if it be the case, that one or more of the steps was introduced into the series with no business purpose other than the avoidance of tax. The principle does not involve, in my opinion, that it is part of the judicial function to treat as nugatory any step whatever which a taxpayer may take with a view to the avoidance or mitigation of tax, It remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision such as section 460 of the Income and Corporation Taxes Act, 1970. Lord Oliver says: "It is equally important to bear in mind what the case did not decide. It did not decide that a transaction entered into with the motive of minimising the subject's burden of tax is, for that reason, to be ignored or struck down. Lord Wilberforce was at pains to stress that the fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which preceded it which causes me to suppose that that was what this House was seeking to do."' 28. While referring to the case of Duke of Westminster in Macniven (Inspector of Taxes) v. Westmoreland Investments Ltd. [2001] 1 ALL ER 865, Lord Hoffman observed as follows:- "In the Ramsay case both Lord Wilberforce and Lord Fraser of Tullybelton, who gave the other principle speech, were careful to stress that the House was not departing from the principle in IRC v. Duke of Westminster (1936) AC I, (1935) All ER Rep 259. There has nevertheless been a good deal of discussion about how the two cases are to be reconciled. How, if the various juristically discrete acquisitions and disposals which made up the scheme were genuine, could the House collapse them into a composite self-cancelling transaction without being guilty of ignoring the legal position and looking at the substance of the matter ? My Lords, I venture to suggest that some of the difficulty which may have been felt in reconciling the Ramsay case with the Duke of Westminster's case arises out of an ambiguity in Lord Tomlin's statement that the Courts cannot ignore 'the legal position' and have regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory concepts of 'disposal' and 'loss' as properly interpreted. The contrast here is with a commercial meaning of these concepts. And in saying that the income-tax legislation was intended to operate 'in the real world', one is again referring to the commercial context which should influence the construction of the concepts used by Parliament" 29. Similar is the view expressed by the Courts in America which is as under: American Jurisprudence The situation in the United States is reflected in the following passage from American Jurisprudence (American Jurisprudence [1973] second edition, volume 71): "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them, by means which the law permits, cannot be doubted. A tax-saving motivation does not justify the taxing authorities or the courts in nullifying or disregarding a taxpayer's otherwise proper and bona fide choice among courses of action, and the State cannot complain, when a taxpayer resorts to a legal method available to him to compute his tax liability, that the result is more beneficial to the taxpayer than was intended. It has even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the similar circumstances held that: Where a trader transfers his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. 34. In India, the Courts have made a clear distinction between Tax evasion and Tax Avoidance. In the case of tax evasion, the Apex Court has held that the Courts would have to pierce the corporate veil and to find out the economic realities behind the legal facade. A corporate entity can be disregarded if it is used for tax evasion or to circumvent tax obligation vide CIT v. Sri Meenakshi Mills Ltd. [1967] 63 ITR 609 (SC). 35. However, significant important observations in this regard are to be found in case of CIT v. A. Raman & Co. AIR 1968 SC 49, wherein, it has been held as under:- The plea raised by the Income-tax Officer is that income which could have been earned by the assessees was not earned, and a part of that income was earned by the Hindu undivided families. That according to the income-tax Officer was brought about by "a subterfuge or contrivanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is the serious disturbance caused to the economy of the Country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Wheatcraft in 18 Modern Law Review 2009) by some of the best brains in the Country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then again there is the "sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it". Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the "artful godgers". It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr Justice Holmes, who said: "Taxes are what we pay for civilized society. I like to pay taxes. With them 1 buy civilization". But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster [1936] A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the observations of Lord Simonds in Russell v. Scott". "154. It thus appears to us that not only is the principle in duke of Westminster alive and kicking in England, but it also seems to have acquired judicial benediction of the Constitutional Bench in India, notwithstanding the temporary turbulence created in the wake of Mc Dowell." "We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents". Though the words : "sham" and "device" were loosely used in connection with the incorporation under the Mauritius law, we deem it fit to enter a caveat here. These words are not intended to be used as magic mantras or catch-all phrases to defeat or nullify the effect of a legal situation.' 39. After referring to the aforesaid judgments, this Court had an occasion to consider the said question in the State of Karnataka v. Videocon International Ltd. vide STRP No 4/2000 in its judgment dated 14.07.2010 wherein it has been observed as under: "33. From the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may not, except on peril of penalty, be violated, but it may lawfully be circumvented. Tax planning may be legitimate provided it is within the framework of law. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language". 40. Subsequently, the Apex Court considering the aforesaid judgments of the Apex Court in the case of Vodafone International Holdings B.V. v. Union of India [2012] 341 ITR 1. After referring to the aforesaid two judgments of the Apex Court at Paragraph No.64, it has been held as under: '64. The majority judgment in Mc. Dowell held that "Tax planning may be legitimate provided it is within the framework of law" (paragraph 45). In the latter part of paragraph 45, it held that "colourable devices cannot be a part of tax planning and it is wrong to encourage or entrain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y citizen to pay the taxes without resorting to subterfuges. Therefore, though all tax planning is illegal/ illegitimate/impermissible, the revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. A Citizen may legitimately claim the advantage of any express terms or of any omissions that he can find in his favour in taxing statutes. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized. The legal right of tax payer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them by means which the law permits, cannot be doubted. If the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in Liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision. The fact that the motive for a transaction may be to avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of tax. then such a transaction would not have any legitimacy. Therefore, it is clear as the law as it stands today in India, tax planning is legitimate, provided it is within the frame work of law. The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxation statute, it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. The question whether a transaction is sham or colorable and entered into with the sole intention of evading payment of tax is purely a question of fact. On appreciation of the material on record and thereafter keeping in mind the statutory provisions in particular, the charging section and the section under which the tax is exempted, the Court has to record the finding of fact. Unless the statutory provisions provide for exemption from payment of tax, the question of an assessee trying to take advantage of the said provision would not arise. Therefore, in each case, the question is, the way the assessee has avoided to pay tax relying on the statutory provisions is le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same head of income (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains", is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset Section 70 foot note : for any assessment year in respect of the any source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the repayment of outstanding public deposits and other liabilities of the company. One more scrutiny of the books of account was undertaken on 04.03.2002. The company in its reply letter dated 06.03.2002, to the observations made by the Inspecting Officer, submitted (i) an action plan to repay public deposits and other liabilities (ii) projected cash flow statement and (iii) a certified copy of the board resolution for non-acceptance of public deposits. It also submitted documentary proof for having deposited the outstanding public deposit amount in a term deposit (with State Bank of India, St. Mark's Road Branch, Bangalore) designated as an "Escrow Account". In the meanwhile, the assessee by its letter dated 31.03.2002, requested the Bank to allow it to withdraw its application for Certificate of Registration. Accordingly, by an order dated 25.05.2002, the request to withdraw the application of the company was allowed and it was rejected as withdrawn. It is in this background, when we look at the statement of accounts filed on behalf of Wipro Finance Limited which shows that the assessee held Rs. 51,91,90,000 equity shares, Rs. 25,00,00,000 fully convertible cumulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid towards ICICI Limited and balance of Rs. 31,21,000/- was pay as prepayment premium on account of early exercise by bank. The said figures evidences the fact that these shares were bought by the assessee on premium when it shows to divest from Wipro Finance Limited at nominal price. In other words, the assessee purchased the shares at premium, at a price of Rs. 17.25 per share on 23.12.1999 and thereafter, sold the shares acquired earlier at a price of Rs. 0.086 per share. 49. In addition to that, it made a fresh infusion of capital on 30.12.1999 in equity shares aggregating to Rs. 45 crores at face value of Rs. 10/- each, and the assessee company also made fresh infusion of share capital on 31.09.1999 and aggregating to Rs. 20 crores. Further it again infused capital on 30.12.1999 in redeemable preference shares crediting to Rs. 30 crores. 50. The explanation offered by the assessee is prudential norms on income recognition, asset classification and provision applicable to NBFC are mandatory in nature and are applicable irrespective of the fact that they have public deposits or not. The certificate of registration was pending and it would be considered only, on Wipro Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewarding association with the assessee group for a long period of time, cast a shadow on the genuineness of the transaction as the shares were sold at a throw away price, when earlier to the sale, the assessee had purchased the shares of Wipro Finance Limited at a premium. Despite disinvesting the shares on such a throw away price under the guise of complying with the legal requirements as directed by RBI, the assessee chose to infuse fresh capital to the extent of Rs. 95 crores at par on the same day and took back the amount on the same day under different head. In the end, they did not comply with the procedures of the law. On the contrary, application filed to the RBI was withdrawn. These undisputed facts borne out from the record clearly establishes the real intention underlying this scheme which they have propounded. 53. In the facts and circumstances of the case, we are satisfied that it is not a real scheme. It is not a legitimate tax planning. It is a devise adopted to evade payment of tax on the capital gains earned by the assessee company. Though the proximity of the date between the sale of shares and purchase of shares and disinvestment alone cannot be a criteria to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly they have infused Rs. 95 crores for purchasing the shares, which also had no value, if the assessee is able to establish the said fact, then it would be a case of business loss. Though the Assessing Officer as well as the first appellate authority did not accept the case of the assessee on the ground that, once the transaction is held to be a sham transaction, the assessee is also not entitled to the benefit of set-off against the business loss. They had challenged the said finding before the Tribunal. However, the Tribunal did not go into the said question on the ground that they are holding the transaction as a real transaction and granting the benefit. in that view of the matter, the said question, whether the assessee incurred any business loss while purchasing the shares, which had no value, which is in terms of the contract entered into between the parties, it is a matter to be gone into by the Tribunal. Therefore, he submits on that point the matter requires to be remitted back to the Tribunal. 55. We find force in the said submission. It is only when we held that the purchase of shares at a premium is a genuine transaction and infusion of capital of Rs. 95 crores is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or thing under Section 10A units?" Question No.27 IN ITA 1394/2006: "27. Whether the fluctuation gain in the exchange rate of Rs. 11.81 crores is not liable to tax as held in the earlier assessment years 1998-99 and 1999-2000?" 59. The Tribunal while dealing with the said question has held that, the facts in the present appeal being similar and identical to that of assessment years 1998-99 and 1999-2000 and the issues are covered by the orders for those years, they decided the issue in favour of the assessee and accordingly, they reversed the orders of the authorities on the said issue. Further, they directed the Assessing Authority to consider the said receipts/income as eligible profits of undertakings under Section 10A of the Act. In fact, this Court had an occasion to consider the said question in the assessee's case in I.T.A.No.507/2002, which is decided on 25.8.2010 where it is held as under: "36. This question of law arises in the context of the assessing officer holding that income earned from the sale of old newspapers, diesel drum, wooden racks, etc., aggregating to Rs. 21,144/- is not in the nature of income derived from the eligible unit. The Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act" 60. The Tribunal, in fact, did not go into these questions on the ground that, they have already granted assessee for the earlier years, but they remitted the matter back to the Assessing Authority to follow the directions given by them for the assessment year 1999-2000. This question came up for consideration before this Court in the assessee's case in IT.A.No.3204/2005 decided on 28th February 2012 where this Court held as under: "6. It is settled law that interest paid is compensatory in nature under the Income Tax Act. If an amount is due on a particular date and if that amount is not paid on that date and if it is paid on a subsequent date the recipient of that amount is deprived of the amount which was legally due till it was actually paid. It is to compensate the denial of the benefit of the said amount that interest is levied paid under various provisions wider the Income-Tax Act It is not dependent on the claim in any legal proceedings when admittedly the assessee has received the money by way of interest on refund and the said amount ought to have been shown in the returns as an income and was liable to pay tax. The offering of the said amount for tax is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made by the Tribunal and in the light of the judgments of the Apex Court in the case of Vijaya Bank v. Commissioner of Income Tax [2010] 323 ITR 166 and T.R.F.Ltd. v. Commissioner of Income Tax [2010] 230 CTR (SC) 14." 62. Therefore, we do not see any justification to interfere with the order passed by the Tribunal. Accordingly, the said substantial question of law has been answered in favour of the assessee and against the Revenue. Question No.23: "23. Whether the Tribunal was correct in reversing the finding of the Assessing Officer and the Appellate Commissioner regarding claim of the bad debts of Rs. 8,07,42,140/- and revised enhanced claim of Rs. 24.91 crores towards bad and doubtful debts and the revised enhanced claim of Rs. 33.05 crores towards write off of debts bad and that too the apportionment of the said write off claim towards 10A income to the extent of Rs. 5.28 crores which was never claimed in the return as per the time prescribed under Section 135(5) of the Act?" 63. This question of law does not arise for consideration in the facts of this case because the Tribunal has held that the dispute is restricted to reconciliation of the amount claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of certain items. He did not allow such write off in respect of 5 items. The assessee contended that the twin conditions viz., existence of debts and write off in the books having been met, the claim ought to have been allowed without any further enquiry. The amounts were also well beyond the period of limitation. The revenue's case was, the assessee claiming the deduction has to furnish the details required thereof. In the absence of such particulars write off cannot be allowed. On considering the rival contentions the Tribunal held that, the assessee has substantiated the write off by explaining the business expediency and circumstances except in respect of two items, in respect of which the assessee had pleaded irretrievability of the details. The Tribunal held that liquidated damages clearly arises out of contractual obligations and being in the nature of a business loss is deductible. In respect of write off against Department of Atomic Energy account, the assessee has brought to the notice of the assessing authority that the debt is very old pertaining to the year 1994-95 and to a discontinued division. As the debt is barred by limitation, the write off of debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite the corporate office not being involved in any activity other than earning income mainly on account of interest and dividend." 70. The Tribunal has granted the relief to the assessee, following the judgment rendered in the earlier cases. This question arose for consideration by this Court in the assessee's case itself in I.T.A.NO.507/2002 decided on 25th August 2010 wherein at para-28 it is held as under: "28. It is this amount which they were claiming as deduction. In the light of the aforesaid facts, it does not represent the expenditure incurred by the Corporate Office in respect of its subdivisions. In those circumstances, the Assessing Officer and the First Appellate Authority were not justified in allocating the substantial portion of the amount as the expenses incurred in respect of Section 10A and disallowing the deduction. That is precisely what the Tribunal has held on proper appreciation of the material on record. In that view of the matte we do not find any justification to interfere with the well considered order of the Tribunal Accordingly, this question of law is answered in favour of the assessee and against the Revenue." 71. Therefore, the assessee is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; (b) it makes a provision for warranty only when the customer makes a claim; and (c) it provides for warranty at 2 per cent of turnover of the company based on past experience (historical trend). The first option is unsustainable since it would tantamount to accounting for warranty expenses on cash basis, which is prohibited both under the Companies Act as well as by the Accounting Standards which require accrual concept to be followed. In the present case, the Department is insisting on the first option which, as stated above, is erroneous as it rules out the accrual concept The second option is also inappropriate since it does not reflect the expected warranty costs in respect of revenue already recognized (accrued). In other words, it is not based on matching concept. Under the matching concept, if revenue is recognized the cost incurred to earn that revenue including warranty costs have to be fully provided for. When valve actuators are sold and the warranty costs are an integral part of that sale price then the appellant has to provide for such warranty costs in its account for the relevant year, otherwise the matching concept fails. In such a case the second option is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olves outflow of resources and lastly it involves reliable estimation of obligation. Keeping in mind all the four aspects, we are of the view that the High Court should not to have interfered with the decision of the Tribunal in this case." Question No.31: "31. Whether the Tribunal was correct in holding that sales tax and excise duty should be excluded from the turnover for the purpose of computation of deduction under Section 80HHE of the Act." 74. This question has been answered by the Apex Court in the case of CIT v. Laxmi Machine Works [2007] 290 ITR 667, wherein it has been held that, the sales tax and excise duty has to be excluded from the turnover for the purpose of computation of deduction under Section 80HHE of the Act. The said substantial question of law is accordingly answered in favour of the assessee and against the Revenue. Question No.32: "32. Whether the Tribunal was correct in holding that the total turnover of software business should be taken into account for the purpose of obtaining deduction under Section 80HHE of the Act by following the case of M/s. Wipro GB Medicals." 75. This question has already been decided by this Court in the assessee's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the Section is claimed and allowed in respect of the profits of the business referred to in sub-section (1) for any assessment year no deduction shall be allowed in respect of such profits under any other provision of this Act for the same or any other assessment year. Therefore these provisions have to be understood with reference to such business referred to in sub-section (l). Therefore in computing the profits from export of computer software what has to be taken into consideration is only the profits from the business of computer software and export turnover which is to be divided by the total turnover of the business of computer software. The business of computer software may include export as well as domestic sales. Both have to be taken into consideration in arriving at the total turnover. There is no difficulty in so far as the export turnover is concerned. The only limitation is that the factors mentioned therein has to be excluded in. arriving at export turnover. Then we have to look into the profits of the computer software business which may include profits from export as well as domestic sales. As sub-section (1) is very clear that what is to be taken is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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