TMI Blog2012 (3) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004, ITA No.8554/Mum/2004, ITA No.2662/Mum/2006, ITA No. 3334/Mum/2006, - - - Dated:- 30-3-2012 - PRESIDENT SHRI G.E.VEERABHADRAPPA AND SHRI D.K.AGARWAL (JM) For the Appellant: Shri Rajan R. Vora and Ms. Sheetal Shah For the Respondent: Dr. B. Senthilkumar O R D E R PER D.K.AGARWAL (JM) These two cross-appeals filed by the assessee and Revenue are directed against the separate orders dated 24.9.2004 and 16.2.2006 passed by the ld.CIT(A) for the assessment years 2001-02 and 2002 03 respectively. Since facts are identical and issues involved are common, all these four appeals are disposed of by this common order for the sake of convenience. 2. Briefly stated facts of the case are that the assessee company is engaged in the manufacturing and trading of dyes, intermediate organic and inorganic chemicals, filed return for the assessment year 2001-02 disclosing the total income at ₹ 2,86,87,904/- under the normal provisions of Act and book profit u/s 115JB at ₹ 14,94,68,054/-. However, the assessment was completed after making various disallowances and additions at ₹ 9,60,28,040/- under normal provisions of the Act vide order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the issue is covered in favour of the assessee by the order of the Tribunal in the assessee s own case in Aarti Industries Limited V/s ACIT and vice-versa in ITA No.6036/Mum/2004, ITA No.6067/Mum/2004 (AY:1999-2000), ITA No.6037/Mum/2004, and ITA No.6068/Mum/2004, for the assessment year 2000-01, dated 25.1.2008 wherein the Tribunal vide paragraph 27 of its order after considering the fund flow statement to show that the interest free funds actually available for making investment in shares, restricted the disallowance attributable towards earning of the dividend at 2% of dividend received. He therefore, submits that following the said order of the Tribunal, the due relief to the assessee be allowed. 7. On the other hand, the ld. DR supports the order of the AO. 8. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that the issue is covered in the assessee own case by the order of the Tribunal (supra) wherein the Tribunal after considering the fund flow statement to show that interest free funds were actually available for making investment in shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional High Court in Associated Capsules (P) Ltd. (supra) wherein it has been held (Headnote): Held, accordingly, that the Tribunal was not right in holding that section 80-IA(9) of the Act, mandates that the amount of profits allowed as deduction under section 80-IA(1) of the Act have to be reduced from the profits of the business of the undertaking while computing deduction under any other provisions under heading C in Chapter VI-A of the Act. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the decision of the Hon ble Jurisdictional High Court direct the AO to allow the same as per aforesaid decision. The ground taken by the assessee is, therefore, allowed. 14. Ground No.3 taken by the assessee reads as under : 3.1 In the facts and circumstances of the case, the learned CIT(A) has grossly erred in confirming the disallowance of the contribution made to PF and ESIC of ₹ 11,647/- 15. Brief facts of the above issue are that the AO made disallowance of PF and ESIC amounting to ₹ 11,647/- on the ground that there was a delay in making the payment as against due date. The ld. CIT(A) following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 21. At the time of hearing, the ld. Counsel for the assessee submits that this issue is covered against the assessee by the retrospective amendment reported in 280 ITR (St) 25 which was not objected to by the ld. DR. 22. That being so and keeping in view the retrospective amendment made under the relevant provisions of the Act (supra), the issue is decided against the assessee. The ground taken by the assessee is, therefore, rejected. 23. Ground No.5 taken by the assessee reads as under : 5.1 In the facts and circumstances of the case, the learned CIT(A) has grossly erred in confirming the disallowance of depreciation of ₹ 2,43,002/- on the assets purchased from M/s. Pravin Metal Corporation. 24. The brief facts of the above issue are that during the course of block assessment proceedings, it was found that the assessee has failed to establish the purchase of fixed assets from M/s Pravin Metal Corporation, hence the AO keeping in view the finding recorded in the preceding years disallowed the claim of depreciation on such assets. 25. On appeal, the ld. CIT(A) while agreeing with the views of the AO confirmed the disallowance made by the AO. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the AO noted that the assessee has claimed expenses on interest and processing charges ₹ 63,04,031/- on term loan taken for expansion of Jhagadia Unit. On being asked, it was interalia stated by the assessee that such claim is allowable as the capital borrowed was utilized for the expansion of the existing business. However, the AO in view of the fact that the interest and processing charges of ₹ 63,04,031/- incurred prior to the commencement of production added to the cost of assets on the same line on which the assessee has capitalized in the books of account and allowed the depreciation thereon. On appeal, the ld. CIT(A), keeping in view the amendment in the Act by the Finance Act, 2003 wherein the legislature has inserted new proviso to section 36(1)(iii) of the Act with prospective effect from 1.4.2004 and following the decision of the Hon ble Gujarat High Court in DCIT V/s Core Healthcare Ltd. (2001) 251 ITR 61(Guj) and other decisions directed the AO to allow the deduction of entire interest of ₹ 63,04,031/- under section 36(1)(iii) of the Act and withdraw the depreciation. 34. At the time of hearing, the ld. DR supports the order of the AO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping in view of our finding recorded in paragraph 8 of this order we direct the AO to follow the same. We hold and order accordingly. The ground taken by the Revenue is, therefore, decided as indicated above. 41. Ground No.3 taken by the Revenue reads as under : 3. On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred in directing the Assessing Officer to allow weighted deduction under section 35(2AB) on the amount of ₹ 3,57,67,089/- @ 150% inspite of the fact that the conditions laid down in the section were not fulfilled. 42. The brief facts of the above issue are that on perusal of the computation of income, the AO noted that the assessee has claimed deduction u/s 35(2AB) at ₹ 5,36,50,634/- and in the revised return the assessee has claimed the same deduction u/s 35(1)(i) and 35(1) (iv) of the Act. On being asked, it was interalia submitted by the assessee that the assessee is eligible for the weighted deduction of one and one half times of expenditure incurred in the R D facility and the company had already complied with the procedure and has been granted recognition certificate from the Department of Scien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute that recognition certificate to the assessee in respect of in-house R D Units of Turbhe and Vapi was granted by the Ministry of Science and Technology, Department of Scientific and Industrial Research, New Delhi up to 31.3.2003 vide letter dated 6.7.2001. This being so and keeping in view the ratio of the decision of the Hon ble Gujarat High Court in Claris Lifesciences Ltd. (supra), wherein it has been held that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was indulging in R D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued that would be sufficient to hold that the assessee fulfills the conditions laid down in the aforesaid provisions. The said decision has been followed by the Hon ble Delhi High Court in Sandan Vikas (India) Ltd. (supra). 46. In the absence of any distinguishing feature brought on record by the ld.DR, we respectfully following the above decisions hold that the assessee is entitled to deduction u/s 35(2AB) of the Act and the ld. CIT(A) was fully justified in allowing the same. The ground taken by the Revenue is, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocation of these expenses and these findings of the ld. CIT(A) have remain un-controverted. We also find ourselves in agreement with the findings of the ld. CIT(A) that turnover cannot be the only criteria for allocating these types of expenses particularly when the assessee has installed a reasonable accounting system for identification of costs relating to each division. In this view of the matter, we hold that the order of the ld. CIT(A) is correct in law. Accordingly, we confirm the same. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal (supra) decline to interfere with the order passed by the ld. CIT(A) and accordingly, the ground taken by the Revenue is rejected. 52. Grounds of appeal No.5(A) taken by the Revenue reads as under : On the facts and in the circumstances of the case as well as in law, the learned CIT(A) has erred in directing the Assessing Officer to treat the profit on sale of DEPB license as export incentive and allow the deduction under section 80HHC under proviso to section 80HH(3) of the IT. Act. 53. Brief facts of the above issue are that the AO noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef facts of the above issue are that the AO while computing the total turnover has added the Sales tax, Excise duty and Duty Drawback as part of the total turnover for the purpose of computation of deduction u/s 80HHC of the Act. 58. On appeal the CIT(A) following the decision of the Hon ble Jurisdictional High Court in CIT V/s M/s Sudarshan Chemicals Ltd.(2000)(245 ITR 769) (Bom) wherein it has been held that total turnover should reflect only those receipts, which have profit element in them, directed the AO to exclude the sales tax, excise duty and duty draw back from the total turnover for the purposes of computation of deduction u/s 80HHC of the Act. 59. At the time of hearing both the parties agreed that the issue is covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of CIT V/s Lakshmi Machine Works (2007) 290 ITR 667 (SC). The ld. Counsel for the assessee has also relied on certain other decisions including the decision of the Tribunal in assessee s own case for the assessment years 1999-2000 and 2000-01 (supra). 60. We have carefully considered the submissions of the rival parties and perused the material available on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is order, reiterates that the issue is covered in favour of the assessee by the decision of the Hon ble Jurisdictional High Court in Associated Capsules (P) Ltd. (supra). 65. After hearing the rival parties and perusing the material available on record, we find that there is no dispute that the facts of the above issue are similar to the facts as mentioned in paragraph 10 of this order, therefore, we direct the AO to follow our findings recorded in paragraph 13 of this order. We hold and order accordingly. The ground taken by the Revenue is, therefore, rejected. 66. Ground No.6 taken by the Revenue reads as under : On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) has erred in holding that deduction u/s 115JB on account of profits eligible for deduction u/s.80HHC should be with reference to the book profits and not the taxable profits determined for the purpose of Income Tax Act, 1961. 67. Brief facts of the above issue are that the assessee in computation of income has claimed deduction under Explanation (iv) to Section 115JB(1) on account of profits eligible for deduction u/s 80HHC amounting to ₹ 5,70,69,195/-. The deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iterated by the Hon ble Apex Court in M/s Bhari Information Tech. Sys. P.Ltd.(supra). 72. Respectfully following the above authoritative pronouncements of the Hon ble Apex Court, we are not inclined to interfere with the order passed by the ld. CIT(A) on this account. Accordingly, the ground taken by the Revenue is rejected. ITA No. 3334/Mum/2006 (AY:2002-03) (by assessee) 73. Ground No.1.1 taken by the assessee reads as under : 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) (hereinafter referred to as the learned CIT(A)) has erred in confirming the disallowance of depreciation of ₹ 1,82,251/- on the assets purchased from M/s Pravin Metal Corporation which were already taxed in the block assessment u/s. 158BC at full value thereof. 74. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground No.5 raised in the appeal for the assessment year 2001-02, therefore, plea taken by them in that appeal may be considered while deciding the above ground taken by the assessee. 75. After hearing the rival parties and perusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part the disallowance made by the Assessing Officer relating to expenses treating them as prior period expenses without appreciating that the said expenses crystallized in the current year only. 83. Brief facts relating to the above issue are that during the course of assessment proceedings the AO observed that assessee had claimed deduction in respect of expenses pertaining to prior period in all amounting to ₹ 2,83,339/-. On perusal of details according to the AO, all such expenses were related to preceding previous year and consequently he disallowed the assessee s claim in this regard. On appeal, the ld.CIT(A) while directing the AO to verify the appellant s claim in this regard allow the expenses which relates to short provision of expenses on account of estimation of expenses whereas in case of non provisions he confirmed the disallowance. 84. At the time of hearing, the ld. Counsel for the assessee submits that the issue is covered in favour of the assessee by the order of the Tribunal in assessee s own case for the assessment years 1999 2000 and 2000-01 (supra) and also by the order of the Tribunal in the assessee s own case in Aarti Industries Ltd. V/s Add.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein. We hold and order accordingly. The ground taken by the assessee is, therefore, allowed. 90. Ground No.6 taken by the assessee reads as under : 6.1 On the Facts and in the circumstances of the case and in law, the learned CIT (A) has erred in upholding the action of the Assessing Officer in reducing the unrealized export turnover of ₹ 29,35,437/-out of total export turnover for computing the deduction u/s. 80HHC. 6.2 The learned CIT (A) ought to have considered that the Appellant had duly filed an application for extension of time with the Reserve Bank of India as required u/s. 80HHC and the same was not rejected by the RBI and hence ought to have been considered as accepted. In the circumstances the Appellant had discharged its onus. 91. The brief facts of the above issue are that the AO observed that the assessee has treated unrealized export proceeds of ₹ 29,35,437/- as export turnover even though convertible foreign currency was not brought in India within six months. However, the AO did not allow deduction u/s 80HHC in respect of sale proceeds which were not received in foreign currency within the time allowed under the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (2011) 339 ITR 291(Bom), it has been held (head note): Held, dismissing the appeal, that the Reserve Bank of India is the competent authority under the 1999 Act. Thus, what section 10A(3) of the Act provides is that the benefits under section 10A(1) would be available if the export proceeds are realised within the time prescribed by the competent authority under the 1999 Act. The Reserve Bank of India had granted approval in respect of the export proceeds realised by the assessee till December,2004. Therefore, the approval granted by it under the 1999 Act would meet the requirements of section 10A of the Act. Moreover, the Reserve Bank of India had neither declined nor rejected the application made by the assessee seeking extension of time under section 10A of the Act. Therefore, the decision of the Tribunal holding that the approval granted under the 1999 Act constituted deemed approval granted by the Reserve Bank of India under section 10A(3) could not be faulted. The assessee was entitled to exemption under section 10A In the absence of any distinguishing feature brought on record by the Revenue and keeping in view that the assessee has applied for extension of ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (SB) ( Delhi), (b) CIT V/s Shri Ram Honda Power Equip (2007) 289 ITR 475 (Del), (c) CIT V/s Anand Kumar (2007) 164 Taxman 330(Del), and CIT V/s Tax V/s. Punjab Stainless Steel Ind. [2007] 162 Taxman 9 (Delhi). 100. On the other hand, the ld. DR supports the order of the AO and ld. CIT(A) 101. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the Tribunal in paragraph 32 of its order dated 25.1.2008 for the assessment years 1999-2000 and 2000-01 (supra) while relying on the order of the Tribunal in the assessee s own case for the assessment year 1997-98 (supra), wherein the Tribunal has followed the decision of the Special Bench of Tribunal in Lalsons Enterprises (supra), has restored back the issue to the file of the AO to examine the nexus between the commission received and commission paid and decide the same on similar lines. We further find that the Tribunal on the issue of consultancy charges and lease rent following the decision of the Special Bench of the Tribunal in Lalsons Enterprises (supra), has set aside the issue to the file of the AO vide paragraph 36 of its order dated 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed depreciation and business loss of ₹ 6,17,81,271/- claimed u/s 72A of the Act. In the letter dated 4.3.2005, the assessee, however, revised the figure of carried forward depreciation and business loss at ₹ 5,95,12,446/- due to effect given to the order of the ld. CIT(A) in the case of amalgamated company. The AO on perusal of the records of the amalgamated company found that the carried forward business loss and depreciation was available for set off of ₹ 5,89,34,686/-. The AO after considering the provisions of section 80AB and the decision of the Hon ble Supreme Court in the case of IPCA Laboratory Ltd. V/s DCIT (2004) 266 ITR 521 (SC) and other decisions held that carried forward loss could not be set off for computing the profits for the purpose of section 80HHC and accordingly rejected the claim of the assessee. On appeal, the ld. CIT(A) while relying on the decision in IPCA Laboratories Limited (supra) rejected the claim of the assessee. 105. At the time of hearing, the ld. Counsel for the assessee submits that in view of the decision of the Hon ble Delhi High Court in CIT V/s Sona Koyo Steering Systems Ltd. (2010) 321 ITR 463 (Del) the claim made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer by restricting the deduction u/s. 80HHC by invoking sec. 80IB(13). The learned CIT(A) ought to have appreciated that the provisions of S. 80IB(13) r.w.s. 80IA(9) are applicable only where the overall deductions under various provisions of part C of Chapter VI-A exceed the profits of the new industrial undertaking. 110. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground No.2 in assessee s appeal for the assessment year 2001-02, therefore, the plea taken by them in that appeal may be considered while deciding the ground taken by the assessee. 111. After hearing the rival parties and perusing the material available on record and in the absence of any distinguishing feature brought on record by the Revenue we keeping in view of our findings recorded in the assessee s appeal for the assessment year 2001-02 in the paragraph 13 of this order direct the AO to allow the same. The ground taken by the assessee is, therefore, allowed. 112. The additional ground No.1 taken by the assessee reads as under : 1.1 The action of the Hon ble CIT(A) in setting aside the hereinafter mentioned iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite of the fact that the conditions laid down in the said section were not fulfilled by the assessee company. 122. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground No.3 raised in the Revenue s appeal for the assessment year 2001-02, therefore, plea taken by them in that appeal may be considered while deciding the ground taken by the Revenue. 123. After hearing the rival parties and perusing the material available on record and keeping in view of our findings recorded in the Revenue s appeal for the assessment year 2001-02 in the paragraphs 45 and 46 of this order, we are of the view that the assessee is entitled to deduction u/s 35(2AB) of the Act and the ld. CIT(A) was fully justified in allowing the same. The ground taken by the Revenue is, therefore, rejected. 124. Ground No.2 taken by the Revenue reads as under : 2. On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A), has erred in directing the A.O., to allow the depreciation on Effluent Treatment Plant at 100% as it is used for water pollution control relying on the case of M/s. Alchemie Organics L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer to allow the entire interest on term loan paid to ICICI amounting to ₹ 10,46,055/- u/s. 36(1)(iii) of the I.T. Act, 1961. 130. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground No.1 raised in the Revenue s appeal for the assessment year 2001-02, therefore, plea taken by them in that appeal may be considered while deciding the ground taken by the Revenue. 131. After hearing the rival parties and perusing the material available on record and keeping in view of our findings recorded in the Revenue s appeal for the assessment year 2001-02 in the paragraph 36 of this order, the ground taken by the Revenue is, therefore, rejected. 132. Ground No.4 taken by the Revenue reads as under : 4. On the facts and in the circumstances of the case as well as in law, the learned CIT(A), has erred in deleting the disallowance of software expenses amounting to ₹ 41,44,000/-, treated by the A.O., as capital expenditure relying on the case of Alembic Glass (177 ITR 377) stating that the said expenditure on software expenses are revenue in nature without appreciating the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Mum), (h) Varinder Agro Chemicals 309 ITR 272 (P H), (i) Raychem RPG Ltd. in ITA No.4176 of 2009, dated 4.7.2011 (Bom), (j) CIT V/s United Breweries Ltd 321 ITR 546(Kar), (k) CIT V/s Escorts Auto Components Ltd 323 ITR 11 (P H), (l) Indo Rama Synthetics India Ltd. V/s CIT 228 CTR 278(Del), (m) CIT V/s Anjani Kumar Co.Ltd. 259 ITR 114 (Raj), (n) ACIT V/s Sutlej Industries Ltd. 94 TTJ 108 (Del), and (o) Standard Refinery and Distillery Ltd. V/s CIT 79 ITR 589 (SC). 136. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee has incurred expenditure on computer software on account of SAP accounting package, which the assessee was planning to introduce in place of its current Tally package and since the SAP package did not work, the assessee has scrapped the said package and continued with the Tally package and claimed the expenses as revenue expenditure in the alternative as business loss. In the absence of any material placed on record by the Revenue that no such accounting pack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO to follow our findings recorded therein. We hold and order accordingly. The ground taken by the Revenue is, therefore, rejected. 142. Ground No.6 taken by the Revenue reads as under : 6. On the facts and in the circumstances of the case as well as in law, the Ld.CIT(A) has erred in directing the AO, to exclude sales tax and excise duty from the total turnover for the purpose of computation of deduction u/s 80HHC of the I.T. Act, relying on the decision in the case of Sudarshan Chemicals (245 ITR 769). 143. At the time of hearing, both the parties have agreed that the facts of the present issue are similar to the facts of the ground No.5(B) raised by the Revenue in appeal for the assessment year 2001-02, therefore, plea taken by them in that appeal may be considered while deciding the ground taken by the Revenue. 144. After hearing the rival parties and perusing the material available on record and keeping in view of our findings recorded in the Revenue s appeal for the assessment year 2001-02 in the paragraph 60 of this order, we are not inclined to interfere with the order passed by the ld. CIT(A) on this account. The ground taken by the Revenue is, therefore ..... 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