TMI Blog2002 (7) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a company, sub-cl. (c) of s. 140 requires the appeal to be signed by the managing director of the company and only for any unavoidable reason it can by any director of the company. Since the appeal memo in the present case has not been signed by the managing director nor any reason has been shown regarding his unavailability and since a director has not signed the same, the appeal is not maintainable. It was stated that in the present case, the appeal memo has been signed by a person authorised by the board of directors to sign the same. In the situation, the appeal cannot be entertained. He, thereafter, referred to the following decisions and vehemently argued that following the case laws cited, the appeal cannot be entertained : 1. Special Manager, Court of Wards, Naraindas Narsinghdas vs. CIT (1950) 18 ITR 204 (All) 2. Commr. of Agrl. IT vs. Sri Keshab Chandra Mandal (1950) 18 ITR 569 (SC) 3. New India Construction Co. vs. CIT (1979) 120 ITR 763 (Cal) 4. National Insurance Co. Ltd. vs. CIT (1995) 127 CTR (Cal) 238 : (1995) 213 ITR 862 (Cal) 5. CIT vs. Swastic Motors (1992) 195 ITR 368 (Raj) 6. CIT vs. Dr. Krishnan Lal Goyal (1984) 43 CTR (P H) 135 : (1984) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or defended on behalf of a public corporation, public interest should not be permitted to be defeated on a mere technicality. Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable. 10. It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under O. 6 r. 14 of the CPC, a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity, it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 r. 1 of the CPC, therefore, provides that in a suit by or against a corporation the secretary or any director or other principal officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading O. 6, r. 14 together with O. 29, r. 1 of the CPC it would appear that even in the absence of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue raised a plea that signature was proper when duly authorised, and absence of mark should not be considered as not properly signed. The Supreme Court by majority decision dismissed the plea of Revenue and held that since the signature as required under law is not found, no action can be taken against the assessee. The Department in that case sought to raise a plea that it was only a technical breach and signature should be presumed. The Court upheld the plea of the assessee and came to the conclusion that in prosecution proceedings there cannot be any presumption nor it was held that there is a defect in the signature. In view of this decision of the Supreme Court it was, therefore, urged before us that defect in signing the appeal memo as required by law invalidates the appeal and hence should not be entertained. The case before us is entirely on different facts than before the Supreme Court in the case of Shri Keshab Chandra Mandal (supra). The assessee, which was assessed under s. 143(3) has preferred an appeal based on the provisions of the IT Act. Though there is a provision in the Rules that only a person as mentioned in the Rules can sign the appeal, yet the company, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only provisions and not actual write off. He also held that in the absence of details of each and every account which has been written off, the amount cannot be allowed as deduction. It is also stated by the AO that in the absence of any subjective satisfaction by the assessee, the provision made is not allowable. The CIT(A) confirmed the order of the AO for the reason given in the assessment order. The CIT(A) also stated that the assessee is making the provision to suit its own requirement and not based upon the subjective satisfaction so that the assessee can claim maximum benefit under the IT Act. 3.4. Before us, the learned authorized representative of the asssessees, Mr. Pradeep, made detailed submissions. It was stated that the details were broadly filed though not pertaining to individual accounts. However, it was demonstrated that the segment-wise write off was filed with the AO as well as the CIT(A). In one year even the account-wise details were also filed. He argued that if the CIT(A) was not satisfied with the details, he could have asked for detailed accounts which was never denied. After having furnished segment-wise details of write-off, i.e., for Southern regio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the IT Act for deduction lies on the assessee and it should be amply demonstrated that the claim is genuine. He drew our attention to the retrospective amendment made to s. 36(1)(vii) by Finance Act, 2001, wherein an Explanation has been inserted w.e.f. 1st April, 1989, to the effect that any provision for bad and doubtful debts made in accounts is not eligible for deduction. Hence, as per amendment there has to be actual write off of the amount in respect of each party and a combined entry for all the doubtful debts is not sufficient. He, thereafter, sought to raise a plea that in any case, it has to be proved that the amount has really become bad. For this proposition, he relied upon the following decisions : (i) N. Annajee Rao Brother vs. CIT (1974) 97 ITR 265 (AP) (ii) CIT vs. Dunlop India Ltd. (1994) 122 CTR (Cal) 39 : (1994) 209 ITR 221 (Cal) (iii) CIT vs. Annapurani Veerappan (1992) 193 ITR 426 (Mad) (iv) CIT vs. Coates of India Ltd. (1998) 150 CTR (Cal) 311 : (1998) 232 ITR 324 (Cal) In all these abovereferred cases, it has been held that the condition that the amount has become bad is to be proved. 3.6. At this moment, the attention of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the same is not applicable to the facts of the case, as there is no provision but the amount has been actually written off as irrecoverable in the accounts of the assessee though not necessarily crediting the account of respective debtor or advances. It was argued that the decision cited in the case of Vittahal Das (supra) still holds for the proposition that the writing off in the accounts can be by way of debit to the P L a/c. 3.7. At this moment, an alternative claim was put up by the learned authorised representative to demonstrate the nature of incremental provision for bad debts and advances. It was stated that the same consists of various types of debits. Provision was required to be made for the following reasons : I. Short shipment'Short supply of some of the peripherals in large projects in domestic technological business. II. Incentive sales'Incentive to be given to the dealers for the targets achieved which are not properly communicated to the sales department. III. Contractual obligations for defective performance/delays'customer invoking contractual terms and refusing to pay full amount of debts. IV. Sales cancellation'Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 1989, wherein the words any debt or part thereof, which is established to have become a bad debt in the previous year are replaced by the words any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year . Thus, it is the objective satisfaction of the assessee while writing off any bad debt which is to be seen and the assessee is not required to prove that the debt has become bad in the relevant previous year. If the amended provision is read in the light of the above proposition, only then the intention of the amendment is truly given effect to. If the assessee is still required to prove the debt to be bad even though it has written off the same in the accounts then the controversy whether the debt has become bad or not in the relevant previous year will still continue and the effect of the amendment will be nullified. Our above view is fortified by the decision of the Gujarat High Court in the case of Dy. CIT vs. Patidar Ginning Pressing Co. (1999) 157 CTR (Guj) 177 : (2000) 108 Taxman 476 (Guj), where it was held that it was enough if the assessee wrote off the debt as bad and need not establish the same to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the assessee had claimed deduction only as revenue expenditure, the question referred was generally as to the allowability of the claim for deduction of the expenditure and did not speak of the provision under which the claim was made. Therefore, it was open to the High Court to entertain the claim for deduction with reference to s. 31 also, having regard to the wide nature of the question referred to it, notwithstanding the fact that no specific plea was made by the assessee before the Department or the Tribunal for deduction under s. 31 of the Act. Thus, it is amply clear that the deduction claimed under s. 36(1)(vii) if not allowable under the said section, is allowable under s. 37. The nature of deductions, claimed thereunder are of seven different types. Since the relevant material for allowing the claim was not before the lower authorities, we restore the matter back to the file of the AO to verify the claim in respect of the various natures in line with the view pronounced hereunder : (i) In respect of short shipments, the matter is restored back with a direction that the assessee will demonstrate the claim thereof and if the claim is found genuine, the same wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be made per trip and not per employee in the entire year. The CIT(A) confirmed the disallowance. 4.2. The learned authorised representative submitted that though it is agreeable that there has to be a trip-wise disallowance, however, since that exercise has not been done and an amount of ₹ 1 lakh has been disallowed as ad hoc the same should be reasonably estimated. It was also argued that the limit of ₹ 150 per day under r. 6D has been raised to ₹ 1,500 per day by amendment in the rules w.e.f. asst. yr. 1992-93. The learned Departmental Representative supported the orders of the authorities below. 4.3. On the basis of the material found on record, we hold that a sum of ₹ 50,000 be disallowed in asst. yr. 1991-92. However, since the limit for travelling expenses has been substantially raised from ₹ 150 per day to ₹ 1,500 per day, even considering the trip-wise disallowance, the same appears to be within the limits prescribed under r. 6D and, therefore, for asst. yrs. 1992-93 and 1993-94, we delete the entire addition of ₹ 1 lakh made. 5. The next issue in the appeals pertaining to asst. yrs. 1990-91, 1994-95, 1995-96 and 1996-97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It is also desirable that at such meetings, business of the company is also being discussed. The amount mentioned in tax audit report is a consolidated figure of the expenses in the nature of entertainment expenses. However, the auditor cannot certify as to what portion is attributable to employees and hence the entire expenses in the nature of entertainment expenses are mentioned in the audit report. Expln. 2 to s. 37(2)/37(2A) as prevailing at the relevant time specifically mentioned that expenditure on tea/coffee or beverages provided by the assessee to its employees is not part of entertainment expenditure. Since the AO himself has attributed 50 per cent of the expenses to the employees for asst. yrs. 1996-97 and 1997-98, we hold that similar treatment needs to be given to the expenses of such nature for asst. yrs. 1991-92 to 1995-96. We. therefore, direct that out of the amount referred in the tax audit report as entertainment expenditure. 50 per cent thereof be treated as attributable to the employees to which provisions of disallowance are not attracted. This view is also held in assessee's own case for asst. yr. 1988-89 in ITA No. 650/Bang/1994. Disallowance to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for the staff members. 8.1. The next issue under the head entertainment expenditure is in respect of conference expenses incurred by the assessee for the asst. yrs. 1993-94, 1995-96, 1996-97 and 1997-98. The AO treated the conferences expenses as entertainment expenses based on either as per past practice or as expenses though on guests for business promotion yet are within the definition of entertainment expenses. The CIT(A) has endorsed the view. It was upheld either because the full details were not furnished or it was held to be lavish in nature for highly paid employees of company. The facts which emanate from record pertaining to conference expenses are summarised below : (a) Wipro Ltd. Asst. yr. Total conference expenses (Rs.) Amount held as attributable to employees or not as entertainment expenses by AO (Rs.) Amount held as entertainment expenses (Rs.) 1993-94 6,64,057 1,66,014 (25%) 4,98,043 (75%) 1994-95 10,43,809 10,43,809 (100%) - 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not yield results. He, therefore, urged that the conference expenses being part and parcel of the business of the company should not be viewed as entertainment expenses and should be fully allowed. 8.3. The learned Departmental Representative supported the orders of the authorities below. It was urged that to claim expenses, full details have to come from the assessee. It cannot be denied that conference expenses have no element of entertainment in the same. If the assessee fails to furnish the details, the AO was well within his power to estimate the same as conference does not only mean table discussions but also have a character of entertaining participants which are both employees as well as guests. The definition of the term entertainment expenses is wide enough as given in the Explanation to s. 37(2) to cover all sorts of hospitality. It was lastly argued that the CIT(A) was right in concluding that even annual sales conference expenses would be covered by word entertainment as held in the case of H.M.M. Ltd. vs. CIT (1998) 144 CTR (P H) 371 : (1998) 231 ITR 726 (P H). 8.4. We have given our considered thought to the issue in appeal. It is not case of anybody t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein on similar issue, 50 per cent of expenses of such nature has been held not as entertainment expenses. The learned Departmental Representative supported the order of the CIT(A). 9.3. Following the decision relied upon by the CIT(A) in Mysodet's case (supra), it is held that expenses on foreigners' visit to leather division is not sales promotion expenses. However, we hold that such expenses also include expenses on employees and, as held in assessee's own case for asst. yr. 1988-89 in ITA No.650/Bang/1994, dt. 17th March, 1996, 50 per cent of expenses is held as outside the ambit of entertainment expenses and as such allowable under s. 37 of the Act. 10.1. The next ground of appeal is for Wipro Ltd. for the asst. yrs. 1994-95, 1995-96 and 1996-97. The issue relates to disallowance of excise duty paid of ₹ 35,90,637 for asst. yr. 1994-95, ₹ 2,46,98,096 for asst. yr. 1995-96 and ₹ 1,49,80,350 for asst. yr. 1996-97. The amounts relate to excise duty paid but held in personal ledger account (PLA) under excise rules maintained by the assessee. The amount of duty paid is shown as loans and advances in the balance sheet and not debited to the P L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) appreciated the facts and held that the excise duty is payable on manufacture of goods and removal of goods is not a taxable event for payment of excise duty as held in the case of Collector of Central Excise vs. Vazir Sultan Tobacco Co. (1996) 3 SCC 434-438. The CIT(A) negatived the claim on two counts. Firstly, he emphasised the wordings in s. 43B A deduction otherwise allowable under this Act . He held that since the amount shown in PLA is only advance and no liability to pay arose in the previous year and, hence, the amount paid and held in advance account cannot be held to be a deduction otherwise allowable under this Act. Secondly, he went on to observe as under : Assuming for the sake of argument that the closing credit in the PLA as on the closing date of the previous year is equal to or less than the excise duty on goods manufactured but not removed from the factory, then the position is that the assessee is entitled to claim the same as a deduction as an expenditure incurred and hence deduction otherwise allowable under the Act and allowable under s. 43B because the amount is actually paid in that previous year. But mercantile system of accounting followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t into operation to see that an assessee who, on one hand, incurs a liability and claims it as deductible expenses but, at the same time, disputes the same and does not pay is not allowed such type of deduction. He strongly relied upon the order of the CIT(A) and urged that the amount claimed is not allowable. 10.6 We have carefully considered the rival submissions and gone through the record. It is not in dispute that the amount of duty paid and held in the PLA under excise rules is less than the duty payable on the goods manufactured and held as closing stock of goods. It is also an accepted proposition that the liability to pay excise duty arises on manufacture of goods though the payment is postponed till the removal of goods. It is, therefore, a liability which is otherwise allowable under the Act. The assessee has also paid the excise duty during the previous year. As per the method of accounting regularly employed the amount paid is firstly debited to the PLA under excise rules. On removal of goods the amount is debited to P L a/c by crediting to the PLA. Sec. 43B is a non obstante clause and the payment of a nature referred therein, which also includes excise duty, is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be allowed by way of deduction while computing the income in the previous year in which such sum is actually paid by the assessee........Under the mercantile method of accounting as stated earlier, the moment liability is incurred, it would be an admissible deduction. What s. 43B of the Act states is that irrespective of the fact that the liability is already incurred, that would be an admissible deduction only when the actual amount in that regard is paid. Therefore, it is clear that in the year 1983, when the goods including the raw materials were imported and the finished goods lying at various depots were manufactured in the year 1983 (including the one under the closing stock), the liability to pay import duty and excise duty on the said goods was incurred by the petitioner-assessee. When that is so, it is also clear that the deduction of the said excise duty and import duty even on the closing stock was allowable in the accounting year 1983, but because of the specific language of s. 43B of the Act which has an overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and hence, in this case, it is not the case of the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able. 11.3. The learned Departmental Representative supported the orders of the authorities below. He referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Gujarat Polycrete (P) Ltd. (2001) 165 CTR (SC) 402 : (2000) 246 ITR 463 (SC) which relates to payment of sales-tax under Sales-tax Deferment Scheme of the State Government. It has been held therein that the assessee who is entitled to Sales-tax Deferment Scheme under an incentive scheme of the State Government, the amount cannot be treated as actually paid till the relevant sales-tax law of the State Government is amended treating the same as paid. . 11.4. We have carefully considered the submissions of both the parties. Though we find that the payment of customs duty, by way of advance, in the PLA is in substance pari materia with the payment of excise duty as discussed while dealing with the earlier issue, however, we find that the excise duty paid cannot form part of the cost of goods but the custom duty paid on raw materials imported definitely forms part of the cost of goods. If the assessee chooses to debit the customs duty paid in PLA, the value of imported raw materials held as stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome........... It is a well recognised principle of commercial accounting to enter in the P L a/c the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price whichever is the lower. 11.5. Since the valuation of closing stock of imported raw materials does not include the component of customs duty paid thereon the same is not a deduction under s. 43B of the Act. 12.1. The next ground relates to M/s Wipro Ltd., for asst. yrs. 1994-95, 1995-96 and 1996-97. The issue relates to claim for deduction of customs duty paid and which is included in the valuation of closing inventory. The amount claimed is as under : Assessment year Amount (Rs.) 1994-95 12,58,53,40 1995-96 12,21,67,724 1996-97 15,51,27,659 12.2. The learned counsel for the assessee contended that imported raw materials and stores are cleared by paying applicable customs duty or adjusting the same in PLA balance. Thus, the landed cost of purchase includes customs duty paid. The landed cost of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation of inventory. 13.2. For the reasons stated therein, we hold that the claim of the assessee is not tenable. This ground is accordingly dismissed and the order of the CIT(A) is upheld. 14.1. The next ground of appeal relates to Wipro Ltd. for asst. yrs. 1995-96, 1996-97 and 1997-98. The issue raised therein is regarding disallowance of claim under s. 35D in respect of amortisation of expenses incurred for increasing authorised share capital. 14.2. From the facts it is gathered that the assessee has raised its authorised share capital during the previous year relevant to the asst. yr. 1995-96. For increase in the authorised share capital the company paid ₹ 90,000 as fees to the Registrar of Companies. The same has been treated as capital expenditure. However, the assessee chose to claim 1/10th of the fee so paid as amortisation of expenditure under s. 35. Sec. 35D(1) reads as under : Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-s. (2),' (i) before the commencement of his business, or (ii) after the commencement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.2. The AO and the CIT(A) disallowed the same in view of the specific provision under s. 40(a)(ii). The assessee claimed before the authorities below that the taxes as defined in s. 2(43) alone can be disallowed under s. 40(a)(ii) and not the taxes paid which are not under the IT Act, 1961. The assessee tried to support its case by relying on certain Tribunal decisions but the copy of which were not made available to the CIT(A). Hence, he was unable to form an opinion based on such decisions. The CIT(A) held that s. 40 overrides all the other provisions contained in ss. 30 to 38 of the Act and hence any claim under s. 37(1) is not allowable if the provision of s. 40(a) is applicable. 15.3. Sec. 40(a)(ii) reads as under : any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of, any such profits or gains, Sec. 2(43) defines the word 'tax'. But s. 2 itself starts with the words unless the context otherwise requires . Hence, the word 'tax' cannot mean as per definition in s. 2(43) only. 15.4. Since the amount is paid by way of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the earlier assessment year. 16.3. We find from the records that no facts are put forward before us to show as to when the debentures were issued, what and how much is the premium payable thereon, in which year the redemption is to take place, etc. In the absence of any such details, it is not possible to allow or dismiss the ground of appeal raised before us. However, since the matter is now settled by the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC), we restore the matter back to the file of the AO to allow the claim of the assessee following the aforesaid decision of the Hon'ble Supreme Court. We may also make it clear that the issue in the Madras Industrial Co.'s case (supra) was with regard to discount on the debentures issue during the year, the issue before us is on the same lines as premium payable on the redemption of debentures. We, therefore, hold that the issue on hand is covered by the aforesaid decision of the Hon'ble Supreme Court and the AO is to allow the claim proportionately in each year from the year of issue of debentures till the deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following the aforesaid decision, the CIT(A) held that the provision of ₹ 3,07,47,000 relating to the relevant previous year is an accrued liability and not a contingent liability. He, therefore, allowed the claim of the assessee to that extent. However, he confirmed the disallowance of ₹ 5,17,17,000 being provision made towards leave benefit which related to earlier years preceding the relevant previous year. It was also held that the same is prior period expenditure and cannot be allowed. In the end, he concluded that since the assessee is following mercantile system of accounting and since the expenditure does not relate to the relevant previous year, the claim was not tenable. 17.4. Before us, Mr. Pradeep, the learned authorised representative, placed the relevant accounting standards prescribed by the Institute of Chartered Accountants of India. As per the preamble, the accounting standard is to be followed mandatorily by all the companies in respect of accounting period commencing on or after 1st April, 1995. The accounting standards also narrates various retirement benefits covered therein. Leave encashment benefit on retirement is one of the benefits covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of those costs to the periods in which the services were rendered. Accounting: 17. In respect of gratuity benefit and other defined benefit schemes, the accounting treatment depends on the type of arrangement which the employer has chosen to make, (i) If the employer has chosen to make payment for retirement benefits out of his own funds, the appropriate charge to the statement of profit and loss for the year is made through a provision for the accruing liability. The accruing liability is calculated according to actuarial valuation, however, many enterprises which employ only a few persons do not calculate the accrued liability by using actuarial methods. They calculate the accrued liability by reference to some other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year. Past Service and Review of Actuarial Assumptions : 22. Views differ as to how to account for this cost. One view is that this cost should be recognised as soon as it has been determined. Others believe that the entitlement giving rise to past service cost is in return for services to be rendered by employees in fut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tingent in nature, the entire provision of ₹ 8,24,64,000 is allowable. Since the CIT(A) has allowed ₹ 3,07,47,000, the balance provision is also now allowed. 17.9. One more aspect needs to be discussed when there is a change in the method of accounting. When in respect of a particular income the assessee was hitherto following cash system of accounting and has switched over to accrual method, then the entire income accrued till the end of the previous year will be taxable in the year of change in the method. It neither changes the year to past years or to future years when the income is so received. Similarly, when there is a change in the method of valuation of stock, the new method followed will be applicable only to the closing stock of goods and not to the opening stock of goods. This view is now settled by various decisions. Following the same principle, the accrued liability in respect of leave salary payable on retirement at the end of the year is allowable in its entirety and no part thereof which relates to services rendered in past can be said not to have accrued during the previous year. This ground is, therefore, allowed and the order of the CIT(A), to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles presented in the ordinary course of business, which has no advertisement value. No logo or emblem of the company is appearing on the gift articles presented. Articles distributed for sales promotion or cost of samples cannot be said to be in the nature of advertisement expenses and hence the same were not included in para 4(iv) of the tax audit report. However, by not including sales promotion expenses in the presentation articles, the expenses of presentation articles cannot be said to be not incurred for the purpose of business. Since the expenses were incurred in the course of business being gift articles presented to the business associates which is necessarily in the course of business, is fully allowable. 19.4. The learned Departmental Representative supported the order of the CIT(A). It was also argued that since no details were furnished as to whom the articles were presented, the AO was justified in disallowing the same. 19.5. In the rejoinder, it was argued that no details were ever called for. The gift articles were incurred on distribution of sweet packets and other articles to its agents, brokers, bankers, contractors and other business associates. It is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertained of capital expenditure, yet, since the cost of each item being less than ₹ 5,000 it was eligible for 100 per cent depreciation. In respect of another item of ₹ 8,480, the same was in the nature of replacement of a part of the machinery. The same was, therefore, allowable under s. 31. The CIT(A) upheld the disallowance on the ground that the assessee has not come out with any material to show that these are cases of replacement of existing items. However, he directed the AO to allow depreciation on these items treating the same as office equipment. 20.2. The authorised representative of the assessee did not press this issue. We, therefore, dismiss this ground for want of prosecution. 21.1. The next ground of appeal relates to Wipro Ltd. for asst. yr. 1994-95. The relevant ground is as under : The learned CIT(A) erred in setting aside the issue of disallowance of ₹ 1,48,57,579 being the lease rent paid by the appellant. The learned CIT(A) erred in holding that the assessee had not submitted the details while ignoring the details already available on record. The assessee has claimed deduction of ₹ 1,48,57,579 being lease rent for the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are identical to the decision of the HMT Ltd. (supra), the AO would allow the claim of the assessee. However, this direction was with a rider that the assessee should produce copy of the lease deed within four weeks from the date of receipt of the order or else the AO can consider the payment as only advance paid to take the premises on lease and not a case of advance payment of rent irretrievably. 21.4. Before us, the learned authorised representative of the assessee has produced a copy of the lease deed purported to be a true copy of the original lease deed. The learned Departmental Representative objected to the admission of such additional evidence. It was argued that no reason has been stated as to why the said evidence was not produced before the lower authorities. The learned authorised representative, in reply, stated that the CIT(A) himself has remanded the matter for verification of the lease deed but since the limit was not in accordance with the law, the assessee is required to place the document on record. We are inclined to admit the additional evidence in the form of the copy of the lease deed. Based on the lease deed, it was argued that the facts are identical wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable device to claim the maximum benefit. He also relied upon the decision of the apex Court in the case of Aditya Minerals (P) Ltd. vs. CIT (1999) 156 CTR (SC) 97 : (1999) 239 ITR 817 (SC). 21.8. We have carefully considered the rival submissions. At this point, we would like to make it clear that the ground of appeal raised by the assessee is only whether the issue can be set aside for further adjudication by the AO or not as directed by the CIT(A). The CIT(A) has found that the decision of the Karnataka High Court in the case of HMT Ltd. (supra) is to be applied provided the facts are identical. Hence, we are not inclined to go into the merits of the case as argued by the learned Departmental Representative. The decisions cited by the learned Departmental Representative as to the admissibility of the allowance are not considered because we are not dealing with the issue whether the payment of advance lease rent is allowable or not. It may also be noted that the Department has not preferred any appeal against the finding given by the CIT(A). The only issue is whether the matter is required to be disposed of based on the evidence produced before us. The CIT(A) has remanded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains of business, if the conditions of ss. 30 to 36 are complied the same is allowable. Secs. 30 to 36 do not recognize the concept of capital expenditure. The concept of capital expenditure arises only when a claim is made under s. 37 of the Act. 21.11. We, therefore, hold that what was paid by the assessee was rent for the entire period of lease which is not refundable to it even on early termination of the agreement. Facts being identical to the facts narrated in the case of HMT (supra), the claim of the assessee is allowed. The disallowance is, therefore, deleted. 22.1. The next ground of appeal relates to Wipro Ltd. for asst. yr. 1997-98. The issue relates to deduction of claim in respect of income derived from an export-oriented unit under s. 10A of the Act. The AO held that the income from sale of old newspaper, diesel drum, wooden racks, etc., aggregating to ₹ 21,144 is not in the nature of income derived from the eligible unit. The CIT(A) held that the assessee does not require the above items to manufacture or produce the electronics or software items the income on account of which is claimed to be exempt under s. 10A. The assessee has not explained how the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,961,375 5,70,316,625 3,55,250 Total 1,222,750 It was submitted that out of ₹ 7,67,500 on account of restatement of ECB liability ₹ 3,78,178 was capitalized and the balance of ₹ 3,89,322, was debited to the P L a/c as the proceeds of a part of the ECB loan was not used for acquiring capital assets. 23.3. The AO observed that the restatement was a fiction as no repayment of loan took place either on accrual (mercantile) or paid (cash) basis and, therefore, it was contingent liability and cannot be allowed as deduction. Even otherwise, the restatement was on capital account and the exchange fluctuation was a capital loss. On these reasoning, he disallowed the claim of ₹ 3,89,322. As regards the loss on account of restatement of foreign currency loan from the State Bank of India of ₹ 3,55,250, the AO observed that even though the loan is towards the working capital it remained a capital loss. 23.4. The CIT(A) held that though the loss in respect of working capital is an allowable loss, however, since the details pertaining to the utilisation of the loan, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading loss and if it is suffered on capital account it is a capital loss. The Court has also observed that the crucial thing is regarding the utilization of the loan. It was, therefore, argued that when the AO has given a finding that the loan has been utilized as working capital, the CIT(A) should have allowed the expenditure and should not have remitted the matter back. 23.6. The learned Departmental Representative justified the action of the CIT(A). It was stated that the ECB loans are allowed to be raised only after following strict guidelines of the Ministry. The purpose of borrowing is mentioned in the relevant application seeking the approval. When the details are not on record, the CIT(A) can very well presume the same against the assessee. He relied upon the following decisions for the proposition that when the relevant details are not furnished, the assessing authorities are entitled to presume against the assessee : (i) CIT vs. South India Viscose Ltd. (1979) 120 ITR 451 (Mad) (ii) CIT vs. Motor Industries Co. (supra) (iii) CIT vs. Renusagar Power Co. Ltd. (1999) 155 CTR (All) 576 : (1999) 236 ITR 177 (All.) (iv) Vazir Sultan Tobacco Co. vs. CIT (1989) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. We, therefore, hold that the loss arising out of the foreign exchange transaction loss is current loss and not a contingent loss. Since the finding given by the AO is that the loan was held as working capital, the loss arising on revenue account and hence, allowable. Our above proposition is supported by the decision of the Bombay High Court in the case of CIT vs. V.S. Dempo Co. (P) Ltd. (1993) 115 CTR (Bom) 163 : (1994) 206 ITR 291 (Bom), wherein the Court has laid down the principles governing the issue and held as under : In determining whether a loss is allowable as a business loss the principles applicable are : (i) A loss arising in the process of conversion of foreign currency which is part of the trading asset of the assessee is a trading loss as any other loss. (ii) The cause which occasions the loss is immaterial : what is material is whether the loss has occurred in the course of carrying on the business or is incidental to it. (iii) If there is loss in a trading asset, it would be a trading loss, whatever be its cause, because it would be a loss in the course of carrying on the business. (iv) Loss in respect of circulating capital is revenue loss wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted tax on the royalty payable and has not paid the same as specified in Chapter XVII-B, the amount is not allowable as deduction by virtue of s. 40(a)(i). He, however, directed that the year in which the tax is deducted or paid, the assessee can claim the deduction for royalty payable. 24.3. Before us, the learned authorized representative reiterated the arguments advanced before the CIT(A). It was stated that following the mercantile system, the liability to pay royalty has arisen during the relevant previous year. The embargo placed under s. 40(a)(i) does not apply since the sum payable by the assessee is not chargeable under this Act for the relevant previous year in the hands of the recipient. The amount becomes due to the recipient only after the end of the relevant calendar year, i.e., after 31st Dec., 1997, which is relevant to the asst. yr. 1998-99 and not for the year under appeal. Reliance was also placed on the decision of the Supreme Court in the case of CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (SC) for the proposition as to when the right to receive the income arises. The learned authorized representative relied upon the decision of the Hon'ble Karnataka H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payee and the provisions of the section shall apply accordingly. It is, therefore, clear that the provision made in the accounts of the assessee for the sum payable specified in s. 195 attracts the relevant provision of Chapter XVII-B. Sec. 40(a)(i) prohibits the deduction of any amount payable to a non-resident any sum chargeable under this Act, in respect of which tax has not been deducted in accordance with the provisions of Chapter XVII-B It is not the case of the assessee that the amount of royalty paid to a non-resident is not chargeable to tax under the provisions of this Act. The income is not in nature referred to in Chapter III or which is otherwise held to be exempt under the Act. To this extent, the decision of the Karnataka High Court in the case of Hyderabad Industries Ltd. (supra) is not applicable to the facts of the case and, hence, cannot be relied upon. Following the decision in the case of A. Ganapathy Naidu (supra), the income may be chargeable in the hands of the recipient in the subsequent year when the income accrues to the recipient. However, so far as the present assessee before us is concerned, it cannot claim the amount without complying with s. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of over ₹ 33 lakhs should not be disallowed merely on technicalities. In the interest of justice, we, therefore, remit the matter back to the file of the AO to verify the claim of the assessee and allow the claim of the assessee if the relevant provisions of s. 40(a)(i) r/w s. 195 are complied with. The ground is disposed of accordingly. 26.1. The next ground of appeal with regard to Wipro Ltd. pertains to asst. yr. 1997-98. The ground raised therein reads as under : The authorities below erred in excluding the income from sales of special import licence (SIL for short) amounting to ₹ 6,03,86,800 while computing the income under s. 10A of the Act. 26.2. The AO and the CIT(A) held that the income arising out of sale of SIL granted to the undertaking eligible for exemption under s. 10A is not income derived from the industrial undertaking. They, therefore, excluded the same from the profits of the eligible industrial undertaking and treated it as income chargeable to tax. In short, exemption under s. 10A was denied on the same amount while computing the income of the industrial undertaking eligible for exemption under s. 10A. The crux of their argument c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from sale of SIL should be treated as income derived from the eligible undertaking and hence, should be exempt under s. 10A of the Act. 26.3. Shri Amitabh Kumar. the learned Departmental Representative, supported the orders of the authorities below. It was argued that the provisions of ss. 80HH, 80HHA and 10A are not pari materia identical. The emphasis has always been on the words ''profits and gains derived from . Hence, the same meaning should be given to the identical expression held in various sections granting the benefit to the assessee. It was thereafter argued that an exemption provision granting benefit to the assessee should be applied strictly and the onus squarely lies on the assessee to prove that he is eligible for the exemption/deduction. For this proposition, reliance was placed on the following decisions : (i) CIT vs. U.S.M. Fernandez (1989) 79 CTR (Ker) 16 : (1989) 178 ITR 577 (Ker), (ii) Kota Co-operative Marketing Society Ltd. vs. CIT (1994) 207 ITR 608 (Raj), and (iii) Shri Ranganatha Enterprises .vs. CIT (1999) 152 CTR (Kar) 206 : (1998) 232 ITR 568 (Kar). Our attention was also drawn to Circular No. 308, dt. 28th June, 1981, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Said Exim policy reads as under : Units undertaking to export their entire production of goods and services may be set up under the Export Oriented Unit (EOU) Scheme, Export Processing Zone (EPZ) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme. Such units may be engaged in manufacture, services, trading, development to software, agriculture, including agro-processing, acquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granites, and may export all products except prohibited items of exports in ITC (HS). The condition as to the end minimum export performance and the legal undertaking to be complied under the said Exim policy reads as under : The unit shall be a net foreign exchange earner. The minimum net foreign exchange earning as a Percentage of Exports (NFEP) as per 9.29 and the minimum Export Performance (EP) shall be in Appendix 1 of the policy. Items of manufacture for specified in the Letter of Permission (LOP). Letter of Intent alone shall be taken into account for calculation of NFEP and EP. Legal undertaking 9.6. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking for eight initial assessment years 10 years in the case of a co-operative society), subject to certain conditions. 40. With a view to encouraging establishment of export-oriented industries in the free trade zone, the Bill seeks to provide for complete tax exemption in respect of the profits and gains derived from industrial undertakings set up in these zones for a period of five initial assessment years. This concession will also apply in relation to other free trade zones that may be set up in future. This tax concession will be available to all taxpayers. The proposed 'tax holiday' will be in lieu of all other tax concessions, e.g., investment allowance, the existing partial tax holiday, concessions available to industries set up in backward areas, etc. It is being provided that after the expiry of the tax holiday period, there will be not carry forward of any unabsorbed losses, depreciation, development rebate, investment allowance, tax holiday deficiency or any other deduction or allowance admissible under the IT Act. For the purposes of depreciation, the written down value of the assets used in the industrial undertakings for the assessment years subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. 26.10. In respect of a unit claiming exemption under s. 10A, as stated earlier, has to fulfil twin conditions, i.e., of setting up a unit in a specified area and to export the articles manufactured. It is an accepted fact that to withstand the competition in the international market the sale prices are fixed by taking into consideration the export incentives available. It was, therefore, rightly proposed to include the same nature of import entitlements as profit of the business as per s. 28(iiia), (iiib) and (iiic). 26.11. The root of the profit on sale of import entitlements can be said to be the export of goods and not the scheme of the Government. The scheme of s. 10A presupposes setting up of a unit in EHTP/HTP area. The units established in such an area are entitled to the export incentives because the very nature of the section requires them to export their goods. But for the export of goods the unit cannot be said to be an eligible unit under s. 10A. Hence, the root of the the income from sale of such import entitlements received lies in the industrial undertaking and not the scheme of the Government. The export benefits by way of import entitlements partake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of s. 10A of the Act. The condition to set up of EHTP/HTP as per the scheme of the Government which presupposes 100 per cent export of the goods manufactured is absent in the relevant provisions of s. 80HH. The income from the sale of import entitlements is, therefore, derived from the export of goods which is a precondition for setting up of a unit to claim exemption under s. 10A of the Act. 26.15. We have also considered some of the Tribunal decisions cited by the learned Departmental Representative. However, we find that the same are distinguishable on facts of the case or not applicable to the section required to be interpreted and hence, though we have considered the same, we are not expressing any opinion thereon. 26.16. 'Till asst. yr. 2000-01, the words 'profits derived from export of article or thing were not given statutory meaning. The opening words in s. 10A profits and gains derived by an assessee from an industrial undertaking to which this section applies' are repeated w.e.f. 1st April, 2001. The opening words now read as 'profits and gains as are derived by an undertaking from export of articles or things'. Sec. 10A(4) defines what is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure such as, salaries, rent, interest, etc., and allocation of such expenditure could not be on a uniform criteria such as turnover. The authorities below erred in treating the loss of the business division unallocated and overheads. Without prejudice to the above, no allocation of overhead should be made atleast insofar as software export division as the income is computed under s. 10A and in such a case only expenditures which are direct and incurred specifically by the industrial undertaking should be reckoned. 27.2. Before the AO, the assessee submitted that the company is engaged in diverse businesses carried on through its various divisions. The Wipro consumer care division is engaged in the manufacture and sales of fast moving consumer goods such as vanaspati/hydrogenated oils, toilet soaps and leather products. The Wipro lighting division is engaged in the manufacture of lighting products and providing lighting solutions. The Wipro fluidpower division is engaged in the manufacture of hydraulic and pneumatic equipment and tipping gear systems. The Wipro Biomed is engaged in the business of reagent kits and spares for analytical instruments. The Wipro Infote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect has been pointed out by the AO or the CIT(A). Even the cost audit report was obtained in respect of manufacturing units and the same was also attached with the return of income. Ever since the merger of Wipro Infotech group w.e.f. asst. yr. 1995-96 with the assessee-company, the said unit is working as a separate profit centre. Nowhere in the past, the profit or loss of such division was ever allocated over the units eligible for exemption/deduction. This Wipro corporate group is engaged in the strategic planning, setting long-term and short-term division evaluation in business opportunities and investments, human resources development quality, legal and treasury operations. Thus, the net result of Wipro corporate group has nothing to do with the manufacturing units claiming exemptions/deductions. It is rendering services as the head and brain of other divisions. It is also functioning like image building, strategic planning and brand building. The funds required for this purpose as well as for other units are raised from the market. Surplus of various divisions of this unit is deployed profitably. However, for own purpose, as a corporate entity by itself the company is also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) has done that exercise. It may also be noted that the assessee has not demonstrated that the cash surplus from s. 10A eligible units was invested elsewhere and offered the same for taxation. If the assessee argues that the amount is borrowed for the purpose of business and when the business is carried on by the specific unit of the assessee the interest should also be related to that unit only. However, from the details filed, it is not ascertainable as to which unit or which division has used the borrowed funds. He, therefore, justified the action of the CIT(A). The learned Departmental Representative also relied on the following decisions for the proposition that when the combined accounts are maintained or for the common objectives the same are required to be allocated on reasonable basis: (i) Makhanlal Ramswarup vs. CIT (1966) 61 ITR 214 (All) (ii) M.S.P. Raja Anr. vs. CIT (1976) 105 ITR 295 (Mad) (iii) H.K. (Investment) Co. (P) Ltd. vs. CIT (1994) 121 CTR (Guj) 470 : (1995) 211 ITR 511 (Guj) 27.6. In reply the learned authorized representative relied upon the following decisions : (i) CIT vs. Indian Bank Ltd. (1965) 56 ITR 77 (SC) (ii) CIT vs. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas in respect of administrative expenses there is excess recovery of ₹ 1,25,50,642, and in respect of interest borrowed and interest earned there is unallocated interest of ₹ 10,73,10,402. Thus, the net unallocated expenses are ₹ 9,47,59,760. To this, the CIT(A) has added ₹ 3,59,159 being the profit derived from s. 10A eligible units. It may also be noted that if a sum of ₹ 5,63,78,844 being premium realized on sale of import licences is not held as profit derived from s. 10A eligible unit, the unallocated expenditure will be ₹ 3,83,80,716 only. However, since we have held that the premium on sale of special import licences is income derived from units eligible for exemption under s. 10A, the net unallocated expenditure comes to ₹ 9,47,59,760. 27.8. Let us consider first the arguments of the learned authorized representative of the assessee that Wipro corporate group is a profit center by itself and hence the loss of such division should not be allocated for other units. From the record we find that Wipro corporate group is not carrying on any business activity by itself. It is either carrying on activities or supervising the activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same cannot be charged on a notional basis against the profits derived from the industrial undertaking eligible for exemption under s. 10A of the Act. At the first instance, we are tempted to agree with the above proposition. However, we are also required to consider the provisions of s. 14A of the Act inserted by the Finance Act, 2001, with retrospective effect from 1st April, 1962. Sec. 14A as introduced reads as under: For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. 27.10. Sec. 14A prohibits the expenditure incurred in relation to income which does not form part of total income under this Act. The income of units eligible for exemption under s. 10A is part of Chapter III of the Act. As per Chapter III, these incomes do not form part of the total income of the assessee. Thus, the nature of the expenditure is to be viewed as to whether the same relates to such income or not. If we were to interpret the words income relating to the industrial undertaking in this way, it may even be relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered under s. 67(3) and not under any other provision and when the claim for deduction under this provision is negatived, it is not possible to fall back on s. 36(1)(iii) for a consideration of the same claim as a deduction; and (vi) the assessee is, therefore, not entitled to the deduction claimed. In this case, the AO has given a specific finding that the interest so paid on the withdrawals from business was related to non-business purpose, i.e., for purchase of agricultural estates the income from which was exempt from the IT Act. In the case, before us, there is no finding that the amount of interest paid is relatable to the units claiming exemption under s. 10A of the Act. This case also does not lend any support to the contention of the learned Departmental Representative. (c) H.K. (Investment) Co. (supra) : the Gujarat High Court held as under : For the asst. yrs. 1974-75 and 1975-76, the assessee claimed before the ITO that the interest paid by it for its borrowings should be allowed fully against the business income and it should not be apportioned between the business income and the dividend income. The ITO rejected the contention. The Tribunal held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was exempt from tax. Profits and losses on the purchase and sale of such securities were duly taken into account in computing the business income of the respondent: Held. That interest paid by the respondent on moneys borrowed from its various depositors had to be allowed in its entirety under s. 10(2)(iii) of the Indian IT Act, 1922, and there was no warrant for disallowing a proportionate part of the interest referable to moneys borrowed for the purchase of securities whose interest was tax free . The Supreme Court was interpreting ss. 10(2)(iii) and (xv) of the IT Act, 1922, which is analogous to s. 36(1)(iii) and s. 37 of the 1961 Act. The Supreme Court held that once it is found that the amount is borrowed for the purpose of business it has to be allowed in its entirety and no part thereof should be disallowed on the ground that interest is relatable to moneys borrowed for the business the income of which is not chargeable to tax. It is not the case of either the assessee or the Revenue that the amount is not borrowed for the purpose of business and hence it is allowable. However, in the absence of any finding that the interest is relatable to the units claiming exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 1922 Act which is analogous to s. 37(1) of the 1961 Act. The Supreme Court also held that if the amount claimed is permissible under the Act, the same has to be deducted and if it is not permissible it has to be rejected. On the facts before us, we find that the interest is paid for the purpose of business and allowed under s. 36(1)(iii) of the Act. There is no finding by the AO that the amount is borrowed not for the purpose of business or it is relatable to units claiming exemptions under s. 10A of the Act. Following the decision of the Hon'ble Supreme Court, we are inclined to agree with the submissions of the learned authorised representative that no part of interest can be notionally attributed to the units claiming exemptions under s. 10(A). (c) United Collieries Ltd. (supra) : The Calcutta High Court was dealing with deduction under s. 80M of the Act and held as under : The special deduction under s. 80M of the IT Act, 1961, is allowable only on the net dividend which is arrived at after taking into account the expenditure, if any, incurred for the purpose of earning such dividend. Only the actual expenditure incurred by the assessee in earning the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below that the expenditure is incurred for the various units claiming exemption/deduction in an artificial way of allocating the expenses and that too on surmises is not justifiable. We are, therefore, of the opinion that the profits of the undertaking eligible for exemption under s. 10A are correctly worked out and no artificial working can be attributed thereto. The ground taken by the assessee is, therefore, allowed and the order of the CIT(A) is reversed on this aspect. 28.1. The next ground pertains to M/s Wipro Infotech for asst. yrs. 1992-93 and 1993-94, and M/s Wipro for asst. yrs. 1994-95 and 1996-97. The only issue relates to levy of additional tax under s. 143(1A) of the Act in respect of prima facie adjustments made in the intimations under s. 143(1)(a) of the Act. 28.2. The learned authorised representative of the, assessee fairly conceded that a separate appeal is pending against the levy of additional tax and hence the issue need not be considered in the present appeals. We, therefore, dismiss this ground as not seriously pressed by the assessee. 29.1. The next ground relates to M/s Wipro Infotech for the asst. yr. 1991-92. The issue relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old, we do not propose to send the matter back to the file of the AO but allow the claim of the assessee. The expenses of ₹ 2,93,230 being revenue in nature, should, therefore, be allowed while computing the income of the assessee for the asst. yr. 1991-92. 30.1. The next ground of appeal relates to asst. yr. 1991-92 in respect of M/s Wipro Infotech. The issue relates to allowability of dealer commission of ₹ 1,14,432. In the tax audit report in Form 3CDD for asst. yr. 1991-92, a sum of ₹ 14,39,992 including the aforesaid amount of dealer commission of ₹ 1,14,432 was shown as prior period expenses, i.e., expenses relating to asst. yr. 1990-91. Before the CIT(A) it was argued that the dealership commission is payable during the previous year relevant to asst. yr. 1991-92 only as per the terms of agreement with the respective dealers. Only because the sales were effected in an earlier year, it cannot be held to be a prior period expense. It is held to be prior period expense as per the view of the tax auditor but not on the basis of the method of accounting followed by the assessee. Since the liability to pay commission arose in the previous year relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt paid is not penalty. We. therefore, see no reason to interfere with the order of the CIT(A). This ground is, therefore, dismissed. 33.1. The next ground of appeal relates to M/s Wipro Infotech Ltd. for asst. yrs. 1991-92, 1992-93 and 1993-94. The issue relates to exclusion of interest income and miscellaneous income from the income computed under the head 'Profits and gains of business' while calculating the profits and gains derived from the industrial undertaking for the purpose of deduction under ss. 80HH and 80-I of the Act. From the facts narrated by the assessee, it is seen that incomed of certain nature, as detailed below, were included in the computation of income derived from the industrial undertaking for calculation of eligible profits for deduction under ss. 80HH and 80-I of the Act : Assessment year 1991-92 1992-93 1993-94 (in Rupees) 1. Interest on bank/company deposit 5,53,035 30,19,792 3,77,830 2. Interest on other ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt in the form of interest went to reduce the revenue expenditure of interest, because funds were borrowed for the purpose of business and funds were kept in fixed deposits for the purpose of business. It was one of the conditions laid down by the bank while granting credit facilities to the assessee. Therefore, interest income was inextricably linked with the business of the assessee and hence the adjustment. Since expenditure on interest is higher than the interest income, no interest income augmented the profits of the business which needed to be reduced as envisaged by cl. (baa). This very principle has been followed by us while dealing with the issue relating to labour charges in earlier paras and also in respect of interest income. In the present case before us it has been specifically noted by the CIT(A) that the assessee has not tendered any details and evidences to prove that it had to incur any expenses for earning the investment/interest income and that such expenses equalled or exceeded the income as such. No further material has been placed before us to show that the expenditure on earning interest income of the eligible undertaking was more than the interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estored back to the file of the AO. He also directed the assessee to submit the details within four weeks of the receipt of the appellate order. The CIT(A) further noted as under : I find the contentions of the assessee in respect of discount received from suppliers for earlier payment and amount written back in respect of sundry credit balance, as correct. At the time of hearing, Sri P.V. Srinivasan mentioned that the assessee has no objection to treating these items as not forming part of profit derived from the industrial undertaking. The AO should take note of these at the time of reworking the eligible profit and gains for the purpose of deduction under ss. 80HH and 80-I. 34.3. Before us, the learned counsel for the assessee challenged the very finding of the CIT(A). It was argued that the total break up of the other income was given as has been noted in para 17.1 by the AO. He further argued that similar issue arose in the asst. yrs. 1991-92, 1992-93 and 1993-94, as noted by the CIT(A) and, hence, the CIT(A) was not correct in remanding the matter back, as held in the earlier years, since there was no finding at all on the issue in the earlier years. He further argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see for the asst. yrs. 1991-92, 1992-93 and 1993-94. The AO shall examine the claim in relation to interest income of ₹ 59,935 as directed by us in the appeals relating to the asst. yrs. 1991-92, 1992-93 and 1993-94. 35.1. The next ground of appeal relating to M/s Wipro Ltd. for asst. yr. 1995-96 reads as under : 16. The authorities below erred in excluding the following income in computation of profit derived from Amalner Industrial undertaking : Miscellaneous income 84.333 Interest received 1,60,515 In his regard the cases relied on by CIT(A) are not applicable to the issue on hand. The authorities below erred in excluding the following income in computation of profit derived from Industrial undertaking : (a) Peenya Unit for the purpose of deduction under s. 80-IA Interest received 44,702 Miscellaneous income 15,788 Profit on sale of assets 2,12,504 (b) Peripheral units for the purpose of deduction under s. 80-IA Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Peripheral Unit at Mysore : Interest 2,23,633 Miscellaneous income 28,08,570 Total 30,32,203 36.1.1. As regards interest income of ₹ 2,23,633 in respect of peripheral unit at Mysore, the issue is set aside to the file of the AO. The AO is directed to follow our direction given in para 180 above in respect of the assessee (erstwhile Wipro Infotech) for asst. yrs. 1991-92, 1992-93 and 1993-94. 36.1.2. As regards the miscellaneous income in respect of Wipro Fluid Powder at Peenya unit and peripheral unit at Mysore, no details have been furnished either before the CIT(A) or before us. We are, therefore, unable to consider the claim of the assessee. Therefore, the said miscellaneous incomes cannot be said to have been derived from the industrial undertaking so as to claim deduction under s. 80-IA of the Act. 37.1. The next ground of appeal relates to M/s Wipro Ltd. for the asst. yrs. 1993-94, 1995-96, 1996-97 and 1997-98. The effective ground raised in this regard reads as under : The authorities below erred in reducing the relief under ss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgin of profit. The cost includes cost of octroi duty payable at Mumbai and Amalner which the assessee used to pay while processing the non-edible oil outside. 37.2.1. The AO noted that the working of the intermit transfer price of fatty acid was scrutinized for the preceding assessment year, i.e., asst. yr. 1992-93. It was found that the assessee-company was working out such transfer price by including, inter alia the Mumbai octroi, the Amalner octroi and the transportation of fatty acids from Mumbai to Amalner to the cost of raw material and conversion charges of raw material into fatty acids, etc. After examining the issue in detail it was held in the asst. yr. 1992-93 that the octori of Mumbai Municipality, freight from Mumbai to Amalner and Amalner octroi should be excluded for computing the transfer price of fatty acid from FAGP to the toilet soap unit. If the transfer price is worked out in this manner, it would reduce the total transfer price and the profits of the FAGP unit. Therefore, the deduction under ss. 80HH and 80-I which was worked out at certain percentage of the profits would stand reduced. The AO also noted that the working out of deduction under ss. 80HH and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35,479. The AO has followed the method adopted in the assessment order for the asst. yr. 1992-93 which was confirmed in the first appeal before the CIT(A). The Hon'ble CIT(A) upheld the order of the AO for asst. yr. 1992-93 even while acknowledging in the appellate order that an attempt should be made to determine the reasonable market value of fatty acid manufactured by the FAGP unit and treat the same as the price at which fatty acid should have been transferred to the toilet soap unit. It is respectfully submitted that while confirming the reduction in profit of the FAGP unit for the asst. yr. 1992-93, the Hon'ble CIT(A) failed to apply properly the provisions contained in sub-s. (8) of s. 80-I. The legislative intent has been brought in unambiguous terms by s. 80-I(8) that the transfers between two industrial undertakings should be at the market value of the goods transferred. Market value in the commercial parlance is understood as the price at which goods are ordinarily traded at a given location. Since there is no ready market for fatty acid and further the fact that it is not locally available at Amalner, the value at which it can be sourced from the nearest poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Departmental Representative supported the orders of the authorities below. We have given our considered thought to the issue on hand. The assessee is manufacturing fatty acids and glycerine at Amalner and the said unit is eligible for deduction under ss. 80HH and 80-I of the Act. The material produced is not sold outside but transported to its another unit manufacturing toilet soaps at Amalner itself. It is an accepted proposition that when the sale of material is taking place by way of intra-unit transfer, a reasonable sum of profit is required to be added to its cost. This view, as canvassed by the learned counsel for the assessee, is supported by the decision of the Gujarat High Court in the case of CIT vs. Ahmedabad Mfg. Calico Printing Co. Ltd. (1986) 57 CTR (Guj) 132 : (1986) 162 ITR 760 (Guj). The AO and the CIT(A) invoked the previsions of s. 80-I(8) and the Explanation thereto, the relevant provisions of which are reproduced below : Where any goods held for the purposes of the business of the industrial undertaking . ...... are transferred to any other business carried on by the assessee,....... the consideration, if any, for such transfer as recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,637 as this will be the cost to the person procuring the material at Amalner. It can, therefore, be substituted for the market price prevailing at Amalner. The market price prevailing at Mumbai cannot be equated with the market price prevailing at Amalner. In respect of the assessee itself the manufacturing at Amalner out of the said unit was to procure the material at Amalner, the price it would have paid will become the market price. 37.6. Sec. 80-I(8) of the Act requires that only if the consideration recorded in the accounts of the industrial undertaking does not correspond to the market value then only the profits of the undertaking has to be computed by replacing the market value of such goods. The onus is, therefore, on the AO to prove that the transfer by the industrial undertaking does not correspond with the market price. It is the AO who is required to find out the market price. On the contrary, the CIT(A) has requested the authorized representative of the assessee to produce the material to show what is the market value of the material transferred. Since the authorized representative of the assessee was not able to furnish any information, in the absence of any mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al activity as such. 38.2. Before us, the learned counsel for the assessee stated that the incentive from the sales-tax Department was granted as per letter No. IDF/DR/ST-115/1993-94, dt. 21st Feb., 1994. The unit has undertaken expansion/modernisation programme by installing additional plant and machinery and testing equipment for improving the productivity and quality with an additional investment of ₹ 300.90 crores and has already invested ₹ 242.99 lakhs in fixed assets under the above expansion/modernisation programme. The unit falls under the trust sector for category of electronics. Accordingly, the unit is eligible for 100 per cent sales-tax exemption (CST and KST) on sale of finished goods for a period of five years from 30th Sept., 1993, i.e., from the date of commencement of production under the expansion/modernisation programme in terms of Government Order No. C1/138/SPC/90(PX), dt. 27th Sept., 1990 and Finance Department Notification No. FD/239/CSL/90, dt. 19th June, 1991. As per this scheme a sum of ₹ 32,90,666 is given by the Government by way of exemption from sales-tax. It was submitted by the learned counsel for the assessee that the sales-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind the details whether the assessee has claimed any expenditure in respect of the sales-tax paid as revenue expenses which were considered in determination of the profits eligible for deduction under s. 80-IA of the Act or not. If the sales-tax incentive is in the form of rebate of the sales-tax paid on the various capital expenditure incurred by the assessee (as seen from the details submitted before us giving the bifurcation of ₹ 32,90,666), the same shall be treated as capital receipt to be reduced from the cost of respective assets and not to be treated as revenue income of the assessee. To this extent, the profit of the industrial undertaking itself will be reduced which is forming part of the gross total income and also from the cost of the assets on which depreciation has been claimed. 38.5.1. We. therefore, remit the matter back to the file of the AO, to verify the exact nature of the receipt and allow or refuse the claim of the assessee based on our following observations : (I) If the assessee has been granted the cash assistance by way of subsidy, though it may be treated as revenue income of the assessee, yet the assessee is not entitled to deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rival submissions and gone through the record. We have also perused the judgment of the apex Court in the case cited supra. The Hon'ble Supreme Court in the aforesaid decision noted that where the Tribunal is only required to consider the question of law arising from the facts on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. We find that whether the assessee is eligible for deduction under s. 80HHC or not is available as per the record of the AO. The assessee, in the first instance, might not have claimed the deduction under s. 80HHC of the Act. However, when the assessee realized its mistake and since the assessment was finalized, the CIT(A) should have entertained the additional around raised by the assessee. The CBDT, by its Circular No. 14(XL-35) of 1955, dt. 11th April, 1955, issued the following direction : Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wipro Ltd. for the asst. yr. 1994-95. By this ground, the assessee challenges the order of the CIT(A) in setting aside the issue of computation of deduction under s. 80HHC. 40.2. From the records, we find that while calculating the deduction under s. 80HHC, the AO has reduced 90 per cent of commission income and 90 per cent of interest income under Expln. (baa) to s. 80HHC. This amount has been arrived at as per computation of the assessee itself which was filed along with the return of income. The learned counsel for the assessee submitted that instead of deducting 90 per cent of the commission income and 90 per cent of the interest income, the assessee, by mistake, reduced the entire amount of commission and interest income. The grievance of the assessee is that instead of allowing the rebate directly, the CIT(A) should not have remitted the matter back. 40.3. From the details available including the orders of the authorities below, we find that if the assessee has any grievance in calculation of deduction under s. 80HHC which, in fact, has been allowed as per the computation of the assessee itself furnished along with the return of income, the assessee should have resorte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the assessee argued that the receipt in question is not by way of other income nor referred to in Expln. (baa) to s. 80HHC of the Act. It is not service charges as held by the AO but it is an amount received for export of services The amount received for export of services cannot be equated with service charges. The CIT(A) held that what is received for allowing somebody to use the software developed by the assessee for a specified period should go under the meaning of rent. The learned counsel for the assessee, therefore, argued that by any stretch of imagination, this cannot be equated with the word rent . He, therefore, urged that on a proper interpretation of Expln. (baa) to s. 80HHC the amount of software export cannot be reduced from the profits and gains of business. On the other hand, the learned Departmental Representative argued that s. 80HHC is intended to give benefit in respect of profits of the export of goods. In the present case, what has been exported by the assessee is the software which cannot be considered to be goods or merchandise. The assessee may claim the deduction under s. 80HHE of the Act in respect of export of software. When ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement of turnover which requires to be excluded. The assessee, in the present case, has exported software. The assessee is entitled to deduction under s. 80HHC in respect of such receipt also. Deduction under s. 80-O of the Act has also been allowed by the AO. The total receipts from export of software is ₹ 84.41 crores for asst. yr. 1995-96, ₹ 166.87 crores for asst. yr. 1996-97. One of the main businesses of the assessee is export of software. It cannot, therefore, be held that the receipts are of such a nature which cannot be considered to be part of the total turnover of the assessee. The receipts from the export of software cannot be said to be other receipts of a similar nature. The principle of ejusdem generis to be applied will indicate that the receipt should be of the nature of akin to brokerage, commission, interest, rent or charges. The receipt can also not be treated as rent. The word 'rent' is defined to mean a payment made usually on fixed interval to an owner of land or property in return for the right to occupy or use it. Applying the age-old principle of various nature of capital which will yield various receipts like investment capital will y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,59,99,949 Dividend from UTI 2,37,765 2,62,37,714 The assessee claimed deduction for the entire receipts without deducting any expenses. According to the AO deduction is available only in respect of income by way of dividends and not gross receipts by way of dividends. The assessee claimed that no expenses were incurred for earning the dividend. Without prejudice to the above, the assessee claimed that if at all only 1 per cent of the gross dividend was to be estimated as expenses and that too on account of managerial expenses. The AO did not accept the plea of the assessee. Relying on the decision in the case of CIT vs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), the AO held that proportionate managerial expenses are to be reduced from the gross dividend. In the absence of details, the AO estimated the expenses at 5 per cent of the gross dividend from companies of ₹ 2,59,99,949. However, the AO did not deduct any amount from UTI. The AO, accordingly, worked out the deduction under s. 80M as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shares are coming out of the borrowed funds only because the assessee chose to invest in shares, there cannot be any compulsion on the part of the assessee to liquidate its investments for reduction of borrowed funds to save interest. It may be true that the assessee has borrowed funds but there is no finding that borrowed funds have been used for investment in shares. On the contrary, there are also huge surplus funds in the form of reserves which should have been equally utilized for the purpose of investment. The learned counsel for the assessee, thereafter, relied upon the decision of the Calcutta High Court in the case of CIT vs. United Collieries Ltd. (supra) and also on the decision of the Bangalore Bench of the Tribunal in the case of M.N. Dastur Co. Ltd. vs. Dy. CIT (supra) for the proposition that there is no scope for estimating the expenditure and correspondingly reducing the deduction under s. 80M. 42.5. On the other hand, the learned Departmental Representative submitted that it cannot be denied that atleast some expenditure is required to be met to earn the dividend income. Either some funds should have been invested out of borrowals or also some managerial ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee should be found out so as to compute the net dividend income. In the present case, in the absence of any finding that any specific expenditure has been incurred to earn the dividend income, we are not inclined to agree with the submissions of the learned Departmental Representative that a reasonable sum should be estimated for arriving at the net dividend income. This view has also been recently held by the Hon'ble Bombay High Court in the case of CIT vs. General Insurance Corpn. of India (2002) 254 ITR 203 (Bom). 42.7. There is also no finding that for realizing the dividend income, any commission has been charged by the bankers as the dividend income has been received by way of cheques payable at par. We. therefore, hold that no estimation is required to be made towards expenditure incurred and hence, the gross dividend income is held as the net dividend income and, accordingly, deduction under s. 80M is allowable on such net dividend income, without deducting any estimated expenditure for earning such dividend income. 42.8. This ground of appeal is, accordingly, allowed. 43.1. The next ground of appeal relates to deduction under s. 80-O of the Act for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,56,93,993 4,28,46,997 4,17,01,707 7,75,716 1994-95 15,53,48,859 7,76,74,430 6,38,72,765 47,93,583 1995-96 82,99,92,919 41,49,96,460 35,42,83,601 3,34,85,209 1996-97 1,63,05,55,413 81,52,77,707 46,93,53,685 6,80,78,108 The AO allowed the claim of the assessee under s. 80-O being 50 per cent, after reducing direct expenses and estimated expenses out of the amount realized in convertible foreign exchange. The CIT(A), after considering the relevant provisions of the Act and also the decision of the Hon'ble Calcutta High Court in the case of M.N. Dastur Co. (supra) held that deduction under s. 80-O is to be allowed with reference to the income from the amount received in foreign exchange in India which is computed in accordance with the provisions of the Act. He, therefore, held that deduction under s. 80-O is allowable after reducing the direct and indirect e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 241 ITR 43 (Mumbai)(SB). It was further submitted that when any deduction is allowable under Chapter, VI-A, as per s. 80AB, any deduction under the said chapter is always presumed to be on the net income and not on gross income. This is more clear after the insertion of s. 80AB of the Act. It was further argued that even without the provisions of s. 80AB, it has been held by the Hon'ble Supreme Court in the case of Motilal Pesticides (P) Ltd. vs. CIT (2000) 160 CTR (SC) 389 : (2000) 243 ITR 26 (SC) that deduction under Chapter VI-A is always to be computed on the basis of net income and not on gross receipts. The learned Departmental Representative further relied upon the Full Bench decision of the Delhi High Court in the case of CIT vs. Chemical Metallurgical Design Co. Ltd. (2001) 165 CTR (Del)(FB) 201 : (2001) 247 ITR 749 (Del)(FB) for the proposition that in view of the stipulation contained in s. 80AB one thing which emerges clearly is that mode of computation as envisaged in s. 80AB has full application to the case relating to s. 80-O. Thus, the deduction under s. 80-O has to be allowed keeping in mind the overriding provision of s. 80AB which, according to s. 80AB, sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or having been convened into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee, in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, these shall be allowed. In accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into India, in computing the total income of the assessee . 43.8. Sec. 80AB was introduced w.e.f. 1st April, 1981. Sec. 80AB has also a non obstante clause and overrides the provision under any section included in Chapter VI-A under the head 'C''Deduction in respect of certain income. Sec. 80-O is one of the provisions contained in Chapter VI-A under the head 'C' and is a provision to which s. 80AB applies. Sec. 80AB, as observed by the Hon'ble Supreme Court in the case of Motilal Pesticides (supra) is merely declaratory, and has declared the law as it always stood in relation to deduction under the various provisions of Chapter VI-A excluding s. 80M from the time those sections were introduced. Sec. 80AB specifically provides that deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of that nature as computed in accordance with the provisions of this Act shall alone be deemed to be the amount of income of that nature. Such an interpretation is never intended by the legislature nor is flowing from a reading of the provisions of s. 80AB and s. 80-O. What forms part of the gross total income is only the net income and not the gross receipts. Deduction under s. 80-O is to be allowed only in respect of income which is forming part of gross total income. It is never the case of the assessee that what is forming part of gross total income is the gross receipts. It is also not the case of the assessee that for earning the receipts of the nature referred to in s. 80-O no expenditure has been incurred by it. The assessee has incurred direct expenses in respect of travelling and manpower cost. However, there is no finding that the assessee has also incurred certain expenditure in India for earning the income abroad. The AO has simply estimated certain expenditure out of the establishment expenses to have been incurred for earning the income. 43.9. The Bangalore Bench of the Tribunal in the case of M.N. Dastur Co. vs. Dy. CIT (supra) [since been approved by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, if such travelling expenses of spouse are not included in the travelling and manpower cost, the same is required to be reduced from the gross receipts for arriving at the income eligible for deduction under s. 80-O. 43.11. The assessee has raised a further ground that in granting deduction under s. 80-O the amount estimated subsequent to the time-limit prescribed under the Act should also be considered for granting deduction. The learned counsel for assessee has not pressed the ground before us and hence we dismiss this ground of appeal for non-prosecution thereof. 43.12. We have considered all the decisions cited before us and our finding above has been given after considering all the decisions which we do not think fit to discuss in detail. 43.13. This ground of appeal is accordingly disposed of. 44.1. The next issue pertains to the direction issued by the CIT(A) resulting in enhancement of the taxable income by restricting the eligible deductions under Chapter VI-A particularly deductions under ss. 80HH, 80-I, 80-IA and 80-O. This issue pertains to asst. yrs. 1995-96. 1996-97 and 1997-98. 44.2. The CIT(A) noted as under while dealing with the appeal for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deduction Eligible Profits Deduction 1 FAGP Unit Amalner 80HH 4,70,65,995 9,41,3,191 4,25,76,979 85,15,396 2 Soap unit Aalner 80HH 3,02,21,210 60,44,242 3,44,65,338 68,93,068 3 Microsales-Infotech Division 80HH 5,97,83,882 1,19,56,776 4,67,68,537 93,53,707 4 Peripherals Unit Infotech Division 80-IA 4,04,26,232 1,21,27,870 4,03,95,534 1,21,18,660 5 Peenya Unit-Fluid Power Division 80-IA 61,00,146 18,30,440 88,27,151 17,48,145 6 Software Exports 80-O 82,99,92,912 41,49,96,456 45,07,51,805 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. Rs. Income from other sources 46,04,44,729 Dividend income 4,19,23,055 Gross total income 50,23,67,784 Less : Deduction under Chapter VI-A : Sec. 80G 50,000 Sec. 80HH Amalner FAGP unit 63,94,624 Sec. 80HH Soap unit 20,46,674 Sec. 80HH Tumkur FAGP unit 38,31,206 Sec. 80HHC 48,77,421 Sec. 80-IA Peenya unit 54,17,169 Sec. 80-IA peripherals unit 1,59,74,005 Sec. 80-IA Amalner unit 79,93,280 Sec. 80-IA Amalner soap unit 25,58,342 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,23,620 54,65,61,810 Total 1,22,57,90,055 58,32,93,614 1,20,13,74,426 57,58,47,955 29.3. Deduction under s. 80HHC claimed in respect of FAGP unit, Amalner, soap unit, Amalner and FAGP unit, Tumkur, was ₹ 63,94,624, ₹ 25,58,342 and ₹ 38,31,206 respectively, based on the profit shown for the purpose of s. 80-I are not included in the above table to avoid duplication of profits derived from various units included in the above computation. If these are included, the deduction claimed by the assessee under ss. 80HH, 80-I, 80-IA and 80-O in respect of various units would increase to ₹ 59,60,77,786. 29.4. The AO appears to have overlooked the claim for deduction under ss. 80-I and 80HH in respect of soap unit, Amalner. He has worked out the profit from other units eligible for deduction at ₹ 1,20,13,74,436 and the deduction eligible at ₹ 57,58,47,955. Here also, if we include ₹ 52,23,677, the deduction under s. 80HH in respect of FAGP unit, Aamlner, which he considered as allowable, the total dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had filed a letter on 10th April, 2001 seeking time for filing reply to the letter dt. 26th March, 2001. The letter, though delivered to the company on 30th March, 2001, was delivered in the finance department only on 5th April, 2001, in view of the intervening holidays and weekend. Ever after 5th April, 2001, there were several holidays and on 10th April, 2001, the assessee had sought for time/adjournment for filing reply, since the CIT(A) has not disposed of the appeals, the request for time could be considered. However, the CIT(A) has explained reasons for refusal of adjournment in the appellate order for the asst. yr. 1997-98. It is necessary to note that the CIT(A)'s order for the asst. yrs. 1995-96 and 1996-97 has been dated as 10th April, 2001, but, however, has been received by the assessee only on 20th April, 2001. The reason for refusal of opportunity by the CIT(A), as mentioned in the order, is that the assessee was trying to delay the matter unnecessarily. Further, the CIT(A) even before the issue of letter of 26th March, 2001, had spent lot of time in going through the issues and it is only after he was convinced that appellate orders were prepared in March, 2001, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e letter was also served in the tappal section of the company who did not know the contents of the cover and unopened cover was delivered on 5th April, 2001, in view of the intervening holidays and weekend. On this basis, it was requested that the enhancement having been made without affording opportunity should be quashed. On merits, it was submitted that the citations relied on by the CIT(A) were inapplicable as the dealt with by the Supreme Court in the case of Kotagiri Industrial Co-op. Tea Factory (supra) was about the manner of allowability of deduction under s. 80T and whether unabsorbed loss of earlier years should be set off before allowing deduction under s. 80P. In the case of Motilal Pesticides (I) Pvt. Ltd. (supra), the Supreme Court dealt with whether deduction under s. 80HH is to be allowed on gross profit or net profit. The other case law relied on by the CIT(A) were also not applicable as the issues therein were different. The learned counsel submitted that the issue on hand, whether loss from non-priority business should be set off against the profits of the priority business has been dealt specifically by the Supreme Court in the case of CIT vs. Canara Workshop ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tunity of showing cause against such enhancement or reduction and contended that in view of the negative prescription it was incumbent for the CIT(A) to have provided sufficient opportunity before proceeding with enhancement. He further submitted that the subsequent decision of the Supreme Court did not alter the position of law as explained in the case of Canara Workshop (P) Ltd. (supra), which is in favour of the assessee. 44.9. We have perused the facts, records and other decisions, and the decisions cited before us. Elaborate arguments were advanced on both the sides placing reliance on plethora of decisions. We have referred to only the relevant and direct decisions. Firstly, the letter, dt. 26th March, 2001, served on the assessee did not specifically propose the enhancement. Further, the CIT(A), should not have been hasty in refusing the adjournment as it is a fact that several national holidays and weekends had intervened in between. It is also in the realm of possibility that the finance department of the company would have received the letter after lapse of several days as the assessee is a very large organization having manpower of more than 10,000 with offices locat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly explained the position of law and has held that the decision of the Supreme Court in the case of H.H. Sir Rama Varma (supra) and Motilal Pesticides (P) Ltd. (supra), relied on by the CIT(A), are inapplicable to given facts and circumstances, the relevant portion of which is extracted below : A perusal of ss. 80AB, 80B, 80HH and 80J of the IT Act, 1961, shows that s. 80AB refers to profits in respect of which deductions are available under various provisions referred to in Chapter VI-A of the Act. According to the said section, for the purpose of computing the deduction under the specified section, the amount of income, which was included in the gross total income as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A shall alone be considered. To the same effect is the definition of gross total income referred to under s. 80AB(5). Similarly, if we look into the provisions of ss. 80HH and 80-I of the Act, the benefit of deduction is referable only to the profits and gains derived from any industrial undertaking computed in accordance with the provisions of the Act, which was included in the gross total income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er ss. 80HH, 80HHA, 80-I, 80-IA and 80-O of the Act, we have decided as to how the deductions under various sections are to be allowed. These directions shall prevail and deduction under respective sections shall be allowed accordingly. Accordingly, the AO shall not act upon the direction of enhancement given by the CIT(A). The assessee is entitled to succeed on both the grounds for lack of opportunity as well as on merits. 44.12. This issue is accordingly decided in favour of the assessee. 45.1 We shall now deal with the Departmental appeals. 45.2. The first issue in the Departmental appeals is in relation to the asst. yrs. 1991-92, 1992-93 and 1993-94 in the case of M/s Wipro Infotech Ltd. This relates to deletion of disallowance of travelling expenses. The assessee, applying r. 6D of the IT Rules, disallowed some of the travelling expenses. However, in its calculation, the assessee has not included the conveyance expenses and telephone expenses incurred by the employees while on travel outside the headquarters. The AO observed that the disallowance under r. 6D was made by the assessee on the total expenses incurred for all the trips undertaken by an employee during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be in connection with travel. The decisions relied upon by the CIT(A) are directly covering the issue and there is no contrary decision cited by the learned Departmental Representative. In view of the above facts and the law declared by the Calcutta High Court in the case of Vidyut Mettalics Ltd. (supra), we are of the opinion that the expenses on conveyance and telephone, etc., are not covered under r. 6D of the IT Rules and, hence, cannot be disallowed resorting to the said rule. However, the CIT(A) has held that expenses permissible under r. 6D are to be calculated trip-wise per employee and not for the total expenditure incurred by an employee. The CIT(A) has, accordingly, correctly estimated the disallowable expenditure and no interference in his order is required. In the result, this ground for all the three years is dismissed. 46.1. The next ground of appeal is in relation to the assessee M/s Wipro Infotech. Ltd. for the asst. yrs. 1991-92, 1992-93 and 1993-94. The assessee claimed expenses of ₹ 2,60,974, ₹ 6,89,779 and ₹ 15,03,456, respectively for, the asst. yrs. 1991-92, 1992-93 and 1993-94 towards travelling expenses of spouses of employees deputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguishable on facts. In that case it was not found that the spouses have travelled for the purpose of business. In the instant case, the employees are required to remain abroad for a considerable length of time which, in many cases, exceeded an year and more. In such a situation, it is obligatory on the part of the assessee-employer to incur expenses for the spouses to join the employees abroad. The justification for such expenses has to be seen from the point of view of a businessman and not whether the expenses were required to be incurred or not. The propriety of the expenses is not the subject-matter of scrutiny by the AO. What is to be arrived at is whether the expenses are incurred wholly and exclusively for the purpose of business or not. In the present case, since the employees are required to work abroad for a considerable long period of time, it can be correctly held that it is the obligation of the assessee-employer to send the spouses also and incur expenses on their travel. The genuineness of the expenditure is not in doubt. The contractual obligation need not to be in writing so as to allow the expenses. The allowability of the expenses can still be inferred even in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48.3. Since we find that there is only one decision by the Bombay High Court in the case of Sudharshan Chemicals Industries (supra) and there is no other decision either by the jurisdictional High Court or by the Hon'ble Supreme Court, we are not inclined to take any other view than that taken by the CIT(A). We, therefore, hold that excise duty and sales-tax collected by the assessee cannot form part of the total turnover for the purpose of computation of deduction under s. 80HHC of the Act. This ground is, therefore, dismissed. 49.1. The next ground of appeal relating to M/s Wipro Infotech Ltd. for asst. yr. 1991-92 is against the order of the CIT(A) holding that interest under s. 234C of the Act has to be charged on the returned income and not on the assessed income. The learned Departmental Representative fairly conceded that there is no mention that interest is payable on the assessed income but what is mentioned is interest payable as per the tax due as per the returned income only. 49.2. Since the section is clear which requires no other interpretation, that interest under s. 234C is payable only on the returned income and not on the income ultimately assessed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50.4. We have considered the rival submissions and the relevant facts of the case. Since the issue before the CIT(A) was the allowability of the expenditure or otherwise in view of the provisions of s. 40(a)(i) only, we cannot go into the question whether the expenditure is capital in nature. What is held by the AO is that since the payment is towards royalty on which no TDS has been made under s. 195 of the Act in view of s. 40(a)(i), the expenditures cannot be allowed which are otherwise allowable as revenue expenditure under the Act. Hence, it can be inferred that the AO has himself treated the expenditure as revenue in nature which has been confirmed by the CIT(A). The issue dealt with by the CIT(A) is only that the provisions of s. 195 are not applicable and, hence, the amount cannot be disallowed resorting to s. 40(a)(i) of the Act. This ground raised before us, therefore, cannot be said to be arising out of the order of the CIT(A) and, hence, we are unable to entertain the same. This ground is, accordingly, dismissed. 51. In the result, the appeals of the assessee are to be treated as partly allowed while the appeals of the Revenue are dismissed. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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