TMI Blog2010 (8) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of the business for the purpose of computing deduction u/s. 80HHC of the Act on the ground that they do not constitute business income: a) Interest from hank on Margin Money 11,61,870 b) Interest on ICD given at the same rate at which the monies are borrowed by the company 9,64,740 c) Insurance Claim 3,42.628 Total Interest Income 24,69.438 The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to he excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income, 2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 80IA of the Act on the ground that these incomes are not derived from industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of ₹ 10,540 being prior period expenses. 6. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s, 234B and 234D of the Act. 7. The ld. Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(1)(c) of the Act. 3. The assessee is engaged in the business of manufacturing of Vacuum Insulated Tanks, Cold Converter System, Atmospheric Vaporisers and Cryo Containers etc. 4. The first issue relates to reduction of 90% of the amounts such as interest from bank on margin money, interest from ICD, insurance claim from the profits of business for the purposes of computation of deduction under section 80 HHC. 5. We have heard the parties and carefully perused the material on record. It was submitted by the ld. AR that this issue has been set aside by the Tribunal in Asst. Year 1999-00 in ITA No.1063/Ahd/2003 for Asst. Year 1999-00 and ITA No.823/Ahd/2003 Asst. Year 1999-00 pronounced on 23/01/2009 following the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. 243 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year as per para 10 of their order as under :- 10. After careful consideration of the rival submissions, facts and circumstances of the case and various decisions, we are of the opinion that so far as income from operations and liability bal. written back are concerned, the same being related to business transactions are to be considered as derived from industrial undertaking and, therefore, are entitled to deduction u/s 80-IA of the Act. Accordingly, this part of the assessee s ground is allowed. 11. Lease rent on lease of assets manufactured by the assessee has been set aside to the file of ld. CIT(A) for fresh consideration in the previous year by the Tribunal as per para 10.2 of their order as under:- 10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions. Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes. 12. Ground No.3 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Asst. Year 2000-01 by virtue of provisions as existing prior to its amendment by Finance Act, 2000 then such undertaking would be entitled to exemption consecutively for next nine unexpired period. In other words, according to the ld. AR if assessee satisfies the conditions of section 10B(1) in Asst. Year 2001-02 then notwithstanding whether it satisfies further conditions in subsequent years, the assessee would be entitled to exemption. Further, in other words, the onus on the assessee that it satisfies the conditions as laid down in section 10B as stood for Asst. Year 2001-02 is discharged in that year then assessee would be entitled to such exemption in all subsequent unexpired years notwithstanding that it satisfies the conditions in those subsequent years, or not. Thus if AO allows exemption to the assessee in one initial year year then assessee will be continued to be granted such exemption for next unexpired period without looking into whether it satisfies such conditions in such subsequent years. The ld. DR on the other hand opposed this contention put forward by the ld. AR and supported the order of CIT(A). 16. We have heard the rival submissions and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question as to what condition assessee has to satisfy, in subsequent years. We note that sub-section (3) of section 10B as amended by Finance Act, 2000 has brought in following new conditions:- (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in or brought into India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. Explanation -1 For the purposes of this sub-section the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation -2 The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. Thus it has to be seen that assessee is bringing foreign exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exclude excise duty of ₹ 2,58,77,511/- and sales tax of ₹ 74,81,908/- from the total turnover for the purpose of computing deduction u/s.80HHC, without appreciating the ratio laid down by the Supreme Court in the case of Chowringhee Sales Bureau P. Ltd vs CIT 67 ITR 542 (SC) and Sinclair Murray Co P. Ltd. vs CIT 97 ITR 615 (SC) holding that the collection of taxes forms part of trading receipts and hence total turnover. 1(b) The CJT(A) also failed to take note of the definition of total turnover in clause (ba) of the Explanation below section 80HHC, excluding only freight insurance up to the customs station, leaving the concept of total turnover to be understood as in common commercial parlance. 1(c) The CIT{A) failed to take note of the mandate of section 145A(b), inserted w.e.f, 1.4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover. 2(a) On the facts and In the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of ₹ 1,07,74,556/- from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udible under the Explanation (baa) that was enacted in order to remove distortion In the working of profits derived from the export by apportionment of the profits of the business in the ratio of export Turnover to total turnover, which envisages entire profits as arising from turnover. 21. The first ground of this appeal of Revenue is regarding exclusion of sales-tax and excise duty from the total turnover while computing deduction under section 80 HHC. 22. This issue is now directly covered in favour of the assessee by the decision of Hon. Apex Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667(SC). Accordingly this ground of Revenue is rejected. 23. Ground No.2 is relates to exclusion of lease rent from the profits of the business in the computation of deduction under section 80 HHC. 24. This issue in assessee s appeal has been restored to the file of ld. CIT(A) and accordingly entire issue has to be examined by him afresh including the point raised by the Revenue. Accordingly, this ground of Revenue is allowed for statistical purposes. 25. Ground No.3 relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant 1,07,10,082 It is submitted that all the above incomes including of repairing activity and installation and lease is business activity form an integral part of the manufacturing activity and hence has to be treated as income derived from industrial undertaking and therefore eligible for deduction u/s.80IA of the Act. 3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in excluding various incomes from the profits and gains from business or profession and from profits derived from industrial undertaking for computing the deduction u/s. 80HHC and 80IA respectively on the basis of gross receipts thereof and in not allowing any expenditure incurred for earning the respective income. 4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in applying the amended provision of section 10B of the Act, despite the fact that the appellant was entitled to exemption u/s. 10B for AY 2000-01 being the assessment year immediately prior to AY 2001-02, the assessment year in which the amended provisions were made effective. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground of assessee is partly allowed and partly allowed for statistical purposes. 33. Ground No.3 relates to reduction of gross amount of various income instead of net amount. 34. Similar issue had arisen before us in Asst. Year 2000-01. Following the same we confirm the order of ld. CIT(A), wherein we have held that 90% of gross amount has to be reduced from the profits of the business instead of net. Following the same we confirm the order of ld. CIT(A). This ground of assessee is rejected. 35. Ground No.4 relates to claim of 100% EOU exemption u/s 10B. Similar issue had arisen before us in assessee s appeal for Asst. Year 2000-01. We have rejected the claim of assessee after discussing the issue in detail for that year. As the facts are the same, following our above order, we reject the claim of assessee this year also. This ground of assessee is dismissed. 36. Ground No.5 relates to disallowance of prior period expenses. Following our order for Asst. Year 2000-01 we confirm the order of ld. CIT(A) and dismiss the ground of appeal filed by the assessee. 37. Ground No.6 is regarding charging of interest under section 234D. This issue is decided in favour of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80HHC, besides the decisions in the case of CIT vs. K.K. Doshi Co. 245 ITR 849 (Bom) and CIT vs Kantilal Chhotala 246 ITR 439 (Bom). 3(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of income of ₹ 59,45,878/- from repairs and other service charges shown under the head 'operations', from the profits of the business in the computation of deduction u/s 80HHC, on the sole ground that the same was assessable as business income, without appreciating that Explanation (baa)(l) below section 80HHC provides for exclusion of 90% of charges and any other receipt of a similar nature , only when the same were assessable as business income, i,e. under the head Profits and gains of business or profession , as is clear from the words included in such profits in this Explanation and, m case such receipt was assessable under the head income from other sources , there was no question at all of any portion thereof entering into the computation of deduction U/s 80HHC. 3(b) CIT(A) failed to take note of the jurisdictional High Court decision In the case of Alembic chemical Works Ltd. vs. CIT 266 ITR 47 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Commissioner of Income Tax (Appeals) erred in fact and in law in holding that gross amount of interest and other income is required to be excluded from the profits for the purpose of computing deduction u/s. 80HHC and no deduction should be granted for expenses incurred for earning the said income. 2. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in reducing the following amounts from income eligible for deduction u/s. 801A of the Act on the ground that those incomes are not derived from industrial undertaking: Amount (Rs.) a) Interest from hank on Margin Money 22,63,124 b) Interest on ICD given at the same rate at which the monies are borrowed by the company 6,00,000 c) Interest on Income Tax Refund 1,00,470 d) Income from Operations 81,84,014 e) Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in fact and in law in observing that the claim of the appellant is not allowable on the ground the said sum represents penalty for breach of law. it may be mentioned that there is no breach of law. The said sum represents amount not received on account of breach of agreement and not on account of breach of law. 8. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s, 234B and 234D of the Act, 9. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(l)(c) of the Act. 45. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee s appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra). 46. The issue regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or period expenses. 57. A similar issue had arisen before us in assessee s own case for Asst. Year 2000-01 vide ground No.5. We notice that this ground is not seriously contested as amount involved is petty. Considering the totality of facts and circumstances of the case, this ground of assessee is rejected. 58. Ground No.7 relates to disallowance of bad debts. According to the assessee it has raised bill of ₹ 2,61,73,095/- on APLDA during 2001-02. This amount was included in the sales for that year and accordingly tax was offered on income generated from it. The assessee received a sum of ₹ 1,88,25,213/-. Balance of the sum remained in dispute between the parties. APLDA stopped making payment to the assessee on the ground that assessee did not comply with the conditions mentioned in the agreement for supply of material. It accordingly chose to write off the amount from its books. Once the amount is written off it is allowable as bad debt u/s 36(1)(vii). Following the decision of Hon. Supreme Court in the case of T. R. F. Ltd. Vs CIT 323 ITR 397 (SC) in which it was held as under:- This position in law is well-settled. After 1st April, 1989, it is not neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1999, governing the computation of profits having inescapable bearing on the computation of deduction u/s.80HHC, which is made by apportioning the same profits in the ratio of export turnover to total turnover. 2(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in negating the exclusion of lease rent of ₹ 34,5l,958/- from the profits of the business in the computation of deduction u/s 80 HHC, on the sole ground that the lease rent was assessable as business income, without appreciating that Explanation (baa)(l) below section 80 HHC provides for exclusion of 90%, inter alia, of rent, only when the same was assessable as business income, i.e, under the head Profits and gains of business or profession , as is clear from the words included in such profits in this Explanation and, in case such rent was assessable as income from house property or other sources, there was no question at all of any portion of the same entering into the computation of deduction u/s 80HHC. 2(b) The CIT(A) failed to take note of the ratio of the jurisdictional High Court decision in the case of Alembic Chemical Works Ltd. vs CIT 266 ITR 47 (Guj) specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HHC. 64. The issue of lease rent on lease of assets manufactured by the assessee has been set aside to the file of ld. CIT(A) for fresh consideration in the previous year by the Tribunal as per para 10.2 of their order as under:- 10.2 Coming to lease rent income, we as per our observations against ground No.4 (supra), restore the issue back to the file of CIT(A) with the same directions. Accordingly, we also restore the issue to the file of ld. CIT(A) for fresh adjudication and also keeping in view the Hon. Apex Courts decision in CIT vs. K. Ravindran Iyer 295 ITR 228 (SC). Thus ground No.2 is partly allowed and partly allowed for statistical purposes. 65. Ground No.3 relates to exclusion of income from rapairs and other service charges shown under the head operations , from the profits of the business in the computation of deduction u/s 80 HHC. 66. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee s own case in earlier year. Accordingly this ground of Revenue is rejected. 67. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes. ITA No.284/Ahd/2007 Asst. Year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. 3. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the disallowance of ₹ 16,623 being prior period expenses. 4. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in charging interest u/s. 234B and 234D of the Act. 5. The learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of the AO in initiating penalty proceedings u/s. 271(l)(c) of the Act. 69. Ground No.1 of this appeal relates to deduction of 90% of interest and other income from the profits of the business for computation of deduction u/s 80 HHC. The issues involved in this ground are the same as ground No.1 in the appeal for Asst. Year 2000-01 of assessee s appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra). 70. The issue regarding interest on corporate deposit and insurance claim is confirmed. 71. Ground No.2 relates to claim of exemption u/s 10B. Similar issue had arisen bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessee by the decision of Hon. Apex Court in the case of CIT vs. Laxmi Machine Works 290 ITR 667(SC). Accordingly this ground of Revenue is rejected. 78. Ground No.2 is relating to exclusion of lease rent from the profits of the business in the computation of deduction under section 80 HHC. 79. This issue in assessee s appeal has been restored to the file of ld. CIT(A) and accordingly entire issue has to be examined by him afresh including the point raised by the Revenue. Accordingly, this ground of Revenue is allowed for statistical purposes. 80. Ground No.3 relates to exclusion of income from profits of the business while computing deduction u/s 80 HHC. This issue has been decided in favour of the assessee by following the decision of the Tribunal in assessee s own case in earlier year. Accordingly this ground of Revenue is rejected. 81. As a result, the appeal filed by the Revenue is partly allowed for statistical purposes. ITA No.147/Ahd/2008 Asst. Year 2004-05 (Assessee s appeal) 82. The assessee has raised following grounds in this appeal:- 1. The learned Commissioner of Income Tax (A) -I, Baroda [the CIT(A)] erred in fact and in law in confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as ground No.1 in the appeal for Asst. Year 2000-01 of assessee s appeal. Following the same we restore the issue regarding interest from bank on margin money to the file of AO for reconsideration in view of the decision of Hon. Supreme Court in the case of Karnal Co-op. Sugar Mills Ltd. (supra). 84. The issue regarding interest on income-tax refund cannot be considered at par as interest from business and therefore, this will not come into computation of deduction u/s 80 HHC at all. This part of the ground is rejected. 85. This ground of assessee is partly allowed for statistical purposes. 86. Ground No.2 relates to claim of exemption u/s 10B. This issue came up for consideration before us in assessee s own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also. 87. Ground No.3 relates to charging of interest u/s 234D of the Act. Similar issue came up for adjudication before us in assessee s own appeal for Asst. Year 2000-01 wherein we have decided the same in favour of the assessee. This issue is decided in favour of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 HHC. 91. Ground No.1 of this appeal relates to deletion of addition on account of expenditure incurred on ceiling renovation, construction of road and boundary wall, concrete flooring etc. 92. During the course of assessment proceedings the AO found that assessee has claimed current repairs at ₹ 9,42,322/-. On verification of bills and vouchers it was further found that a sum of ₹ 6,72,190/- has been incurred in respect of repairing of roads, boundary wall, concrete flooring and renovation of factory toilets in the factory building etc. The AO treated them as Revenue expenditure but the ld. CIT(A) allowed the claim as capital by holding that nature of expenditure is civil work carried out by the assessee and is in the nature of current repairs in connection with renovation of factory and its premises and facilities including that of the road leading to the factory. No new addition to the asset of any enduring nature is made, therefore, there was no case of any disallowance. 93. We have heard the parties and carefully perused the material on record. In our considered view there is no case for interference in the order of ld. CIT(A). The expenditure was incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange, 2 . The learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in disallowing claim of excise duty of ₹ 5,71,534/- Without prejudice to above the learned AO erred in fact and in law in not allowing the deduction u/s 43B despite the fact that the said claim is clearly allowable as per the provisions of section 43B of the Income Tax Act, 1961. 3. The ld. CIT(A) erred in fact and in law in confirming the action of the AO in making disallowance of ₹ 22,750/- on the ground that the said expenses are prior period expenses 4. The Learned Commissioner of Income Tax (A) erred in fact and in law in confirming the action of the AO in initiating the penalty proceedings u/s 271(l)(c) of the Income Tax Act, 1961. 98. Ground N o.1 of this appeal relates to claim of exemption u/s 10B.This issue came up for consideration before us in assessee s own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to interfere with the order of the AO on this point. The disallowance made by the AO of 5,71,534/- is confirmed. 102. We have heard the parties. In our considered view the issue requires reconsideration on the part of the AO. He has to give opportunity to the assessee to show what would be the effect on profit and loss account if this excise duty is also considered on exclusive method. If the result is the same at the end of the accounting period the claim has to be allowed. Accordingly, this ground is allowed but for statistical purposes. 103. Ground No.3 relates to disallowance of prior period expenses. Similar issue came up before us for consideration in Asst. Year 2000-01 (ground no.5 in that year). We have decided the same confirming the order of ld. CIT(A) on this issue. Following our order for Asst. Year 2000-01 we dismiss the ground of appeal filed by the assessee. 104. Ground No.4 relates to initiation of penalty proceedings u/s 271(1)(c).. 105. This issue is pre-mature at this stage and hence it is rejected. ITA NO.2964/Ahd/2009 Asst. Year 2006-07 (Assessee s appeal) 106. The assessee has raised following grounds in this appeal:- 1. The learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 106! despite the fact that the appellant was entitled to exemption u/s 10B for A.Y. 2000-01 being the A,Y. immediately preceding to A.Y. 2001-02, the A.Y. in which the amended provisions were made effective. 2. The Learned AO erred in fact and in law in rejecting the claim of 100% EOU u/s 10B of the Income Tax Act, 1961 on a mistaken ground that no exemption u/s 10B is available to the appellant as the entire sates are in domestic market and also the appellant has not received any sale proceeds in convertible foreign exchange. 3. The learned Commissioner of Income Tax (A) erred in fact and in law in charging penalty u/s 271(1)(c) of the Income-Tax Act, 1961. 4. The learned Commissioner of Income Tax (A) erred in fad and in law in charging interest u/s 234C. 234D, 244 of the Income-Tax Act, 1961. 114. Ground Nos. 1 2 relate to claim of exemption u/s 10B. This issue came up for consideration before us in assessee s own appeal for Asst. Year 2000-01. We have decided the same against the assessee in that Asst. Year. Following the above order of the Tribunal, this issue is decided against this assessee this year also. 115. Ground No.3. relates to ..... 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