TMI Blog2010 (11) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.07.1999 and hence there could not have been filed any claim for bad debt in the books of account for the year ending on 31.03.1999. He made addition of ₹ 29.49 lakhs. In the first appeal the learned CIT(A) deleted the addition except for a sum of ₹ 10,064 which was outstanding from M/s Abishek Textile Enterprise. 3. After considering the rival submissions and perusing the relevant material on record it is seen that the assessee s accounts were finalized on 14.07.1999 and on the same day resolution was passed by the Board for writing off the bad debt amounting to ₹ 29.49 lakhs. From the annual accounts it is seen that the assessee wrote off a sum of ₹ 0.54 lakh by reducing provision made in earlier years amounting to ₹ 28.95 lakhs from bad debt written off amounting to ₹ 29.49 lakhs. Thus it is the amount of bad debt for the year at ₹ 29.49 lacs, which has been written off in the books of account and was added by the Assessing Officer. Recently the Hon ble Supreme Court in the case of T.R.F. Ltd. Vs. CIT [(2010) 323 ITR 397 (SC)] has held that after 1.4.1989 any amount written off as bad debt in the books of account is deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the learned A.R. if the said amount of ₹ 10,064 was not realized then it should have been written off as business loss. However in the absence of any documentation to support this claim, we set aside the impugned order and restore the matter to the file of the A.O. for verifying the veracity of assessee s claim and then decide as per law. 4. Ground no.2 of the assessee s appeal is against the re-computation of deduction u/s.80-IA. The facts apropos this ground are that the assessee claimed deduction u/s.80-IA at ₹ 59,95,468. This claim was in respect of LABSA plant at Roha. The A.O. noted that for the purpose of this deduction, the assessee had taken sales and processing income at ₹ 6.49 croree, which was correct but total cost of goods sold taken at ₹ 4.49 crores, was not inclusive of indirect labour cost. It was seen that the assessee had debited total employment cost at ₹ 794.82 lakhs. The assessee admitted that indirect employment cost was not considered for determination of total cost for the purpose of deduction u/s.80-IA. The assessee also informed that only direct labour in respect of Roha plant was included for this purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additional evidence filed by the assessee in support of its contention. In our considered opinion if the amount claimed by the assessee as representing indirect labour cost was already included in the sum of ₹ 4.49 crores, there was no logic in including the same amount once again which stood embedded in the total figure of ₹ 31.79 lakhs. Similarly as regards R D and Sales commission for which the A.O. had made addition of ₹ 1.89 lakhs, the assessee filed certain evidence before the learned CIT(A) in support of its claim that the same did not relate to LBASA unit. In our considered opinion the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of A.O. We order accordingly and direct him to verify the claim of the assessee qua the inclusion of indirect labour cost in the Miscellaneous factory expenses and Miscellaneous factory overheads. If the same is not found to be correct, then deduction be allowed accordingly from Indirect employee cost worked out by the AO. Similarly as regards R D and sales commission, the A.O. need to verify the relation of such amount with LABSA unit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the computation of deduction u/s.80HHC. The first part of the same is towards commission of ₹ 64,55,917. From the audit report in Form 10CCAC in which deduction u/s.80HHC was claimed, the A.O. noted that the assessee had reduced a sum of ₹ 64,55,917 against the head Commission while computing the profits of business. On being called upon to explain as to why the said amount was reduced, the assessee stated that the correct amount in respect of commission income was ₹ 4.43 lakhs but it was due to oversight that the auditor mentioned a sum of ₹ 64.55 lakhs. As the said amount was not offered for taxation, the Assessing Officer held that it was liable to be added. He, therefore, made addition for the said sum. However while computing deduction u/s.80HHC, the Assessing Officer held that indenting commission of ₹ 4.43 lakhs along with interest income of ₹ 20.71 lakhs and miscellaneous income of ₹ 37.02 lakhs were to be reduced on gross basis at 90%. As a result of that deduction u/s.80HHC was computed at ₹ 42,23,158. The assessee could not convince the learned CIT(A) on this point of view in the matter of computation of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest income of ₹ 20,71,241. The assessee earned interest of ₹ 71.73 lakhs which was netted against the interest expenditure of ₹ 71.26 lakhs and 90% of the net amount was reduced for calculating profits of the business under Explanation (baa) to section 80HHC. The Assessing Officer opined that 90% of the gross sum was liable to be reduced for computing profits of the business and not 90% of the net sum. When the matter came up before the learned CIT(A), he noted that out of interest income of ₹ 71.73 lakhs, a sum of ₹ 51.02 lakhs was interest on tax free bonds which was exempt. He, therefore, held that this amount could not be taken into consideration again by the A.O. for the purposes of exclusion while computing the profits of the business. There is no appeal of the Revenue on this point. As regards the remaining amount of ₹ 20,71,241, the learned CIT(A) upheld the view point of the Assessing Officer. 13. The learned Counsel for the assessee contended that the interest income of ₹ 20.71 lakhs included a sum of ₹ 9,31,000, being interest on delayed payments. It was contended that the same amount should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer for computing `profits of the business . First item is sale of miscellaneous scrap at ₹ 6,39,722 and second item is sale of gunny bags of ₹ 2,29,590. The learned Counsel for the assessee contended that the Tribunal has decided this issue in assessee s favour in the earlier years and hence the same view be taken. In the opposition the learned Departmental Representative relied on the impugned order. 16. Having heard both sides and perused the relevant material on record, we find that the contention raised by the assessee cannot be accepted in view of the judgement of the Hon ble Supreme Court in CIT Vs. K.Ravindranathan Nair [(2007) 295 ITR 228 (SC)]. In this case it has been held by the Hon ble Supreme Court that in terms of clause (baa), 90% of the independent income had to be deducted from the gross total income to arrive at the business profits to which the fraction has to be applied. In this case the dispute was about the reduction of 90% of processing charges. The Hon ble Supreme Court held that such processing charges were independent income and 90% thereof had to be reduced from the gross total income. Adverting to the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee has reduced ₹ 20 lakhs under item (k) from the said profits of ₹ 12.06 crores and reached the business income at ₹ 9,34,82,696. From the assessment order it can be seen that the Assessing Officer has started with this figure for calculating income under the head `Profits and gains of business or profession , to which certain additions etc. have been made. Though the Assessing Officer has referred to in para 5 about the amount of deduction u/s.80HHC at ₹ 4,22,158, but it is not coming up from para 5 whether it was the figure of profits after reduction of ₹ 20 lakhs which was considered by the A.O. or not. Under such circumstances we set aside the impugned order on this issue and direct the Assessing Officer to verify this aspect. If the said sum of ₹ 20 lakhs already stands excluded from the figure for computing profits of the business then 90% of the same should not be once again reduced. In the converse situation, the view point of the ld. CIT(A) is to be upheld. 19. Next items are write back of liability received from customers at ₹ 1,58,852 and write back of A W share applicable money due to exchange difference at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the value of purchases, sales, opening and closing stock. It is not appropriate to include the closing Modvat in the figure of closing stock without modifying the figures of purchases, sales and opening stock. The Hon ble jurisdictional High Court in CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. [(2009) 318 ITR 116 (Bom.)] and the Hon ble Delhi High Court in CIT Vs. Mahavir Alluminium [(2008) 297 ITR 77 (Del.)] have held to this extent. As the authorities below have not adjusted other figures with the amount of tax, duty, cess etc., we set aside the impugned order and restore the matter to the file of A.O. for deciding it afresh in accordance with the afore-noted judgements and the provisions of section 145A. 23. Ground no.6 is against the confirmation of disallowance of capital expenditure incurred for scientific research expenditure of ₹ 22,34,617. The assessee claimed capital expenditure on scientific search at ₹ 22.34 lakhs. On being called upon to justify the deduction, the assessee furnished a list of capital assets purchased for scientific research. The A.O. noted that there was only one person who had Ph.D qualification and others were only Science gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard to the assessee. 27. Ground no.9 is against the confirmation of disallowance of non-compete amount paid to ex-managing director. The assessee paid a sum of ₹ 20 lakhs to Shri I.P.Khandelwal, Ex-Managing Director of the company towards non-compete compensation. On being called upon to justify the deduction the assessee replied vide its letter dated 13.03.2002 that Shri Khandelwal served the company for nearly twenty five years and retired as Managing Director. He was in possession of company s trade secrets and had access to confidential information pertaining to company s business and activities. In order to avoid any competition from him and to protect the business interest of the company the said sum was paid as noncompete fees. Not convinced with the assessee s claim of such amount as deductible in full, the Assessing Officer made addition, which came to be approved in the first appeal. 28. After considering the rival submissions and perusing the relevant material on record it is noticed that the assessee paid the above said sum of ₹ 20 lakhs to its Managing Director on his retirement in order to avoid competition from him as he had the knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be held as capital expenditure, has therefore, become academic. The same is dismissed as infructuous. 31. Ground no.2 of the Revenue s appeal is against the direction of the Assessing Officer for excluding the amount of sales tax and excise duty from total turnover while computing deduction u/s.80HHC. 32. Having heard both sides and perused the relevant material on record we find that this issue is no more res integra in view of the judgement of the Hon ble Supreme Court in CIT Vs. Lakshmi Machine Works [(2007) 290 ITR 667 (SC)] in which it has been held that excise duty and sales tax are not includible in the total turnover. Respectfully following the precedent we uphold the impugned order on this issue. 33. Last ground of the Revenue s appeal is against the deletion of disallowance of interest of ₹ 14,05,858 on borrowed capital used for the purchase of machinery. The Assessing Officer noted that the assessee acquired capital asset and interest was paid in such acquisition. In the opinion of the A.O. the interest on borrowed funds utilized for acquisition of these assets should have been capitalized. By applying interest rate of 12% on the amount of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
