9911796707
TMI Blog2008 (10) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... 001-02 and 2002-03 in ITA Nos.426, 427, 468 and 469/Bang/2006 dated 30-5-2008 wherein the order of the learned CIT(A) disallowing the claim of the assessee was upheld. The Tribunal considered the same in paras.40 and 41 as under: "40 Grounds of appeal no. 23 and 24 are against the finding of the learned CIT(A) in not allowing deduction u/s 80IB on the receipts under the head 'AMC'. 40.1 This issue has been discussed while disposing off the ground of appeal of revenue in respect of deduction u/s 80IB. Following that discussion contained in those paras, it is held that the learned CIT(A) was justified in not allowing deduction u/s 80IB on AMC receipts." As the facts are similar in the present year, we uphold the order of the learned CIT(A). 3. The next issue relates to charging of interest u/s 234B and 134D of the Act. In the aforesaid order dated 30-5-2008 this issue fell for consideration as under: "42.1 The interest is mandatory. It cannot be charged on the returned income. It is to be charged as per the provisions of the Income Tax Act. The Assessing Officer will allow consequential relief on interest u/s 234B on account of reduction in income. 43. The last grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee enjoyed by way of refund not legally due to him. The only provision was to withdraw the interest granted, The Legislature, therefore, in its wisdom thought fit to levy interest as the assessee utilized the sum by way of refund not legally due to him. The amendment seeks to remedy defect in this regard, which earlier law did not provide. In a case where an assessee claims refund of a substantial portion of advance tax or TDS treated as paid by him on the basis of the total income, as declared in his return of income furnished u/s 139, such refund has to be granted to him at the time of processing of the return u/s 143(1). Subsequently, if the regular assessment is made on a total income much higher than the returned income, the refund earlier granted to the assessee or a substantial portion of it is treated as tax payable, But where the assessee pays interest for shortfall in payment of advance tax with effect from the 1st day of the assessment year, nothing is charged from the assessee for having utilized the refund amount till the due of regular assessment, Section 234D now provides to charge interest on excess refund granted at the time of summary assessment. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of this Bench in the case of Tata Elxsi Ltd. in ITA No.315/Bang/2006. The findings recorded in that order dated 16th October, 2007 are reproduced as under for ready reference:- '14. We have heard rival submissions and perused the records. Chapter 3 of the Exim Policy issued by the Ministry of Commerce and Industry defines "deemed export" as under: '8,1 'Deemed Exports' refers to those transactions in which goods supplied do not leave country and payment for such supplies is received either in Indian rupees or in free foreign exchange'. Under clause 8.3 benefit' for deemed exports are as under:- 8.3 Deemed exports shall he eligible for any/all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1. a) Supply of goods against advance Authorisation/Advance Authorisation for annual requirement/DF1A. b) Deemed Export Drawback. c) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given". A cursory perusal would indicate that sale of such software by one STP to another STP within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign taxes are to be remitted in the foreign country and the foreign exchange to that extent cannot be brought into India, Considering the definition of export turnover contained in section 10A, we feel that the Assessing Officer was justified in not including the foreign taxes in the export turnover. Once the sum is not included in export turnover, then the sum cannot be included in the total turnover. 38.2 If the consideration for export of software attributable is assumed as (a) and the foreign taxes is assumed as (x), then (x) is not to be included in the export turnover. Hence for the purpose of computing deduction u/s 10A, if the receipts are taken as (a) + (x), then expenditure of (x) will be allowable, If the receipts are taken at (a) in the accounts and (x) is separately treated as part of balance sheet, then no further adjustment is required. Hence, if if the accounts, the turnover has been included as (a) + (x), then expenditure will be allowed as deduction for the purpose of computing profit. Accordingly, this ground of appeal is disposed off." Facts are identical in this year also. Hence, in the same line, this ground is disposed of. 7. The next issue relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, the assessee is entitled to seek set off of operating loss as business loss of the year. 10.5 On the issue of transfer of stock purchased at Rs. 1,79,95,641/- to the Support 'Division at Rs. 25,00,000/- it seems that the assessee has followed this method of stock valuation regularly in the earlier years. The method followed is Cost or Net Realizable Value whichever is less is a universally accepted method and cannot be found fault with. That the valuation was substantially lower than cost cannot be reason for disallowing inventory loss. The reason given by the assessee that due to discontinuance of Product business and technological obsolescence and cannibalization of equipment to spare parts due to non supply from Apple Products appeals plausible in the realm of business and such occurrence is not rare. We have not been able to find any reason for the AO disallowing this loss except that he wanted certain details. Such a reason by the AO appears to be flimsy as the purchases from Apple Product has been allowed as an expenditure having found that they seem to be genuine. In the same Breath to say that for the valuation of inventory loss details not furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This issue is also covered by the decision of this Tribunal dated 30-5-2003 wherein in para. 4 to 6 it has been held as under: "4.11 Prior to asst year 2001-02, section 10A permitted that profit and gains derived from industrial undertaking is not to be included in the total income of the assesses. However, with effect from asst year 2001-02, section 10A has been amended and now the deduction is to be allowed from the total income. Section 14A mentions that expenditure is not to be allowed in relation to income which does not form part of the total income under the Act Now we have to consider as to whether the deduction allowed u/s 10A is part of the total income or not. 4.12 The learned Apex Court in the case of CIT v Williams and Financial Service reported in 297 ITR 17 had an occasion to consider the meaning of word 'income'. At page 30, the Apex Court observed that section 10 groups in place various income, which are exempt from tax. The incomes enumerated in section 10 are not only excluded from the taxable income of the assessee but also from its total income. The learned Apex Court further observed as under:- 'Exemptions granted under the Income-tax Act cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total income is to be classified under five heads of income mentioned in that section. Section 29 of the I.T Act says that income referred to in section 28 i.e. income chargeable under the head 'profits and gains of the business' is to be computed in accordance with the provisions contained in section 30 to 43D. As mentioned earlier, section 10A as amended from the asst. year 2001-02 has provided the deduction from the total income in respect of profit and gains of the undertaking from the export of computer software. Thus, the income from the undertaking, which is engaged in the business of export of computer software is an income to be assessed under the head 'profit ana gains of business or profession' and is to be reduced from the total income. Such income is chargeable to Income-tax Act bur no tax is payable in view of section 10A of the I.T Act. Since section 14A is applicable for disallowing the expenses in respect of income, which is not includible in total income, therefore, section 14A cannot be invoked when income is deductible u/s 10A. 5. Now, the next question arises is as to whether the income as shown by the assessee from such undertaking has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, is to be computed as per section 30 to 43A. Hence, all the expenses, which are necessary for earning income of the undertaking, are to be allowed as deduction for the purposes of computing income from that undertaking. 5.9 The jurisdictional High Court in the case of CTT v HMT Ltd. 203 ITR 811 had an occasion to consider the quantum of deduction admissible u/s 80J and 80HH. The learned High Court held that for the purpose of section 80J and 80HH, profit and gains of new undertakings are not commercial profits but only such profits as are computed in the manner laid down under the Act in pursuance of section 80AB, as if such undertaking was a separate assessee. From the above discussion, it is clear that we have to compute the profit of, the undertaking in accordance with the provisions of the Act and all the expenses to earn that income are to be considered. 5.10 The Assessing Officer in his order at page 27 has mentioned that the assessee has paid commission fixed at certain percentage of profit of the company 82% of the profit is attributable to Wipro Technologies, hence, the Assessing Officer has allocated 82% of commission of Wipro Technologies, whose income is exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to allocation of 20% of such expenditure and the same has been confirmed by the learned CIT(A). We, therefore, feel that allocation at the rate of 20% of common expenses is in order. Hence, direct expenditure disallowed by the Assessing Officer is confirmed and disallowance of 20% of common expenditure as confirmed by learned CIT(A) is upheld." In the present case also the facts are identical. Hence, applying the same, we confirm the order of the learned CIT(A). 12. The next issue relates to exclusion of scrap sales while granting deduction u/s .10A of the Act. This Tribunal, by order dated 30-5-2008 decided similar issue in favour of the assessee in para.7.3 as under: "7.3 The above referred issue stands covered by the decision of the Tribunal in the case of the assessee for the asst. years 1998-99 and 1999-2000. The Tribunal while disposing of the appeal vide order dated 21st June, 2005 in ITA No.881, 882, 895 and 896/Bang/2005 referred to the following observations made by the Tribunal while deciding the appeal of the assessee for the asst year 1998-99 and 1999-2000:- '4.5 We have gone through the records and the submissions made by both sides. We find that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the purpose of computing deduction u/s 10A.'' Applying the same, we confirm the order of the learned CIT(A). 13. The next issue relates to interest income. This issue is also covered by the decision of the Tribunal dated 30-5-2008 wherein it has been held as under: "10.2 On the above-referred issue, we have heard both the parties. We have also gone through the computation of income made by the Assessing Officer. The Assessing Officer in his order has not stated the interest income as income from other sources. The, treatment to be meted out to interest had been under dispute while computing profits of the business u/s 80HHC of the I.T Act, As per Explanation (baa) to section 80HHC, 90% of the interest is not to be included in the profits of the business. The issue as to whether the interest to be treated as business income or income from other sources has been considered by various High Courts. The Delhi High Court in the case of CIT v Shriram Honda Power Equipment 289 ITR 475 has discussed such an issue at length. However, it was observed by the Delhi High Court that in a given case if the Assessing Officer has held the interest income as business income and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital and if it is trading asset, then such profit is revenue. Thus, profit arising on account of exchange fluctuation is revenue as the remittance is not under capital field. Once it is profit of the business, the same is permissible as deduction in view of section 10A(4), 11.5 This Bench in the case of M/s Sasken Communication Technologies Ltd. vide order dated 27th February, 2007 in ITA No.244/Bang/2005 held that profit of the business of the undertaking is to be considered for computation of deduction u/s 10A in view of amendment in section 10A(4)'. Applying the same, we confirm the order of the learned CIT(A). 15. The next issue relates to receipt of rental income and other income. The learned CIT(A), when the issue travelled before him, after considering the facts, remanded the issue back to the AO. The revenue has taken the following grounds in their appeal: "24. The CIT(A) erred in remitting the issue regarding other income and rental income to the AO to evaluate the claim based on the findings given in the appellate order. 25. The CIT(A) ought to have appreciated that according to the amended provisions of section 251 the CIT has, no power to set aside. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alt with the issue as under: "2 3.5 We have heard both the parties. 80HHC(2), the deduction was admissible in case the sale proceeds were received in or brought into India in convertible foreign exchange within a period of six months from the end of the previous year or within such further period allowed by the Chief Commissioner or Commissioner. By Finance Act, 1999, the sub-section of 80HHC was amended and the sale proceeds were to be received or brought into India 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. Amended section 10A was inserted by the Finance Act, 2000 w.e.f. 1/4/2001, The language used in section 10A(3) is the same as used in 80HHC(2)(a). The Memo explaining the provisions in Finance Bill, 1999 in respect of such amendment stated as under:- 'Receipts of money in convertible foreign exchange to be considered for deduction when received beyond the period of six months with the approval of the Reserve Bank of India. Under the existing provisions of sections 80HHB, 80HHC, 80HHD, 80HHE, 80-0, 80R, 80RR and 80RRA, when the receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period within which and the manner of repatriation of foreign exchange u/s 8 of the Foreign Exchange Management Act, 1999. In exercise of power conferred u/s 47(2) of the Foreign Exchange Management Act, the Reserve Bank of India formulated regulations and the relevant regulation is titled as "the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 hereinafter referred to as RBI Regulations. As per Rule 9 of RBI Regulations, the proceeds were to be realized within six months from the date of export. It will be useful to reproduce Rule 9 of the RBI Regulations:- 'Period within which export value of goods/software to be realized-(1) The amount representing the full export value of goods or software exported shall be realized and repatriated to India within six months from the date of export'. [Provided that where the goods or software are exported by the units in Special Economic Zones, the stipulation of period of realization and repatriation to India of full export value of goods or software shall not apply:] Provided that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime has been granted. The decision is also squarely applicable. Keeping in view the above discussion and considering the insertion of section 155(11A), we hold that the learned CIT(A) was justified in directing the Assessing Officer to include in export turnover the collections made after the expiry of six months." Facts are similar in this year also. Hence, applying the same, we confirm the order of the learned CIT(A). 17. The next issue relates to reimbursement of communication links, incentives, rewards and tele-communication expenses. In Para. 24.2 in Tribunal's decision, it has been stated as under: "24.2 The learned CIT(A) has discussed this issue at pages 17 to 26 of his order. Before the. learned CIT(A), the assessee made submissions and the learned CIT(A) has summarized such submissions as under:- 1) Reimbursement for communication link etc. were additional consideration received on account of reimbursement of certain expenses and the same is also in the nature of export as the same was paid as per the contract of sale. 2) The foreign tax (VAT/GST) collected form an integral part of the sale proceeds of computer software realized in convertible foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on this is two fold. First, exclusion is required only if the said item is included in first place in the export turnover and second. exclusion should be restricted to that portion which is attributable to the delivery of computer software outside India. I agree with both the contentions of the appellant These submissions were made before the AO as well. However, the AO has not dealt with these objections. The amount of Rs. 8.96 crores for AY 2001-02 and Rs. 19.46 crores for AY 2002-03 sought to be excluded by the AO is an expenditure, which clearly cannot partake the nature of turnover. This amount can be deducted from export turnover provided the some was included in it in the first place Therefore, I am not in agreement with the action of the AO in this regard. However, I find from the details on record that an amount of Rs. 4.06 crores for AY 2001-02 and Rs. 10.30 crores for AY 2002-03 is included in the export turnover as communication link reimbursements. It may be necessary to identify out of the above sums, the amount which is attributable to the delivery of computer software outside India. I direct the AO to exclude only such portion of the total sum of Rs. 4.06 crores f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if export proceeds are from the export of articles or things or computer software. It means that such export proceeds must relate to the goods and not for the services. Computer software is developed by providing off site expenses and on site expenses. The amount receivable in respect of computer software does not include any reimbursement of on site expenses. Payments made to Engineers employed on site are for the development of software. By such development, the assessee has not rendered any technical services relevant to Clause (iv) of Explanation 2 of section 10A technical services have not been defined The CBDT vide Circular No.694 dated 23.11.1994 stated that computer programmes are rot physical goods out are developed as a result of an intellectual analysis of the system and method followed by the purchaser of the programme. It is often prepared on site with the software personnel going to the clients premises. Hence, when the expenditure is in respect of payments on site development, the sane cannot be excluded from the export turnover by holding it as technical services. When export of services only is not entitled to deduction u/s 10A then the legislature made clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the delivery of software." The facts are similar as in the earlier years. Therefore, applying the decision of the Tribunal in the case of the assessee, we direct the AO to give effect to the order in the line as in the earlier year. 18. The next issue relates to the claim of loss of 10A units. In the case of the assessee for assessment years 2001-01 and 2002-03 the Tribunal considered similar issue and modified the order of the learned CIT(A). In para. 12.5 of the order dated 30-5-2008 the Tribunal held as under: "...The Tribunal while deciding the appeal in M/s. Web Spectron P. Ltd. In ITA No.387/Bang/06 has also decided the issue in favour of the assessee vide order dated 26th June 2007. The decision of the jurisdictional High Court is to the effect that deduction allowed u/s 10A in respect of undertaking is to be allowed after setting off of brought forward loss of that undertaking. Income of each undertaking is to be computed independently as per the provisions of the Act. An assessee cannot be compelled to seek deduction u/s 10A in respect of an undertaking in which there is a loss. This is the basis of not setting off of losses of 10A units against the profits of 10A uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The assesses applied for the expansion of software technology park facility. The assessee has not applied for extension of the undertaking but has applied for the expansion of the STP facility. STPI while approving the STP facility observed that such STP facility can be availed subject to the standard terms and conditions as enclosed to the original approval letter and confirming to all custom formalities. Thus, STPI permitted the assessee to start producing computer software in the new premises. The new premises may be an additional floor of the existing building. It is not the requirement of law that new undertaking should start working from the new place. The undertaking so set up is not on account of reconstruction of the existing business. It is not the case of the revenue that existing plant and machinery and employees were utilized in the premises for which the expansion of STP facility was obtained. 13.9 The deduction u/s 10A is allowable in respect of profit and gains derived by an undertaking from the export of computer software. An undertaking is different from the business of the assesses. Business of the assessee may consist of a number of undertakings. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as the legal status of the unit or the fact that they are controlled or managed by common management or located in the same premises where existing units are located to derive certain advantages or are producing similar goods as the existing ones are hardly relevant to decide whether a unit is in the nature of undertaking. Likewise, the fact that procurement of raw materials is common or certain post-manufacturing activities are centrally carried out. or drawing certain facilities from a common source are not sufficient enough to hold that each unit is not engaged in manufacturing or producing the articles or things or is not independent or separate from others". Hence, we are not inclined to accept the contention of the revenue that deduction u/s 10A is not permissible because the assessee obtained expansion of the STP facilities on the basis of the license granted prior to April, 1994. On what basis, it cannot be said that the units or undertaking, which have started manufacturing computer software and exported the same after 1st April, 1994 will not be eligible for deduction u/s 10A. We confirm the finding of the learned CIT(A) that the assessee is entitled to deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income Tax Act of 1961", 13.12 Hence, considering the rule of consistency, we also held that the Assessing Officer was not justified in not allowing deduction u/s 10A. The Board vide Circular has explained the deduction will be permissible for ten years to the existing undertakings which were earlier allowed exemption u/s 10B for five years though the Circular is in respect of section 10B, but that will be equally applicable for section 10A because both the sections are similar. Hence, we confirm the finding of the learned CIT(A) that the assessee is entitled deduction u/s 10A." Since the facts are Similar in the present year, applying the same, we confirm the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the ITAT relied on by the CIT(A) has not become final and appeal before High Court is pending." This issue stands covered by the decisions of the Apex Court in the cases of CIT vs. Lakshmi Machine Works (290 ITR 667) and CIT vs. Catapharma (India) Ltd., (292 ITR 641). The Apex Court has held that excise duty and sales tax are not to be included in the total turnover. Therefore, the ground relised by the revenue is dismissed. 23. The next issue relates to computation of deduction u/s 80HHC. The learned CIT(A), following the order of this Tribunal in the assessee's own case for assessment years 1998-99 and 1999-00 directed the AO to consider for the purpose of computation of deduction u/s 80HHC, only total turnover from the business of the assessee, which are eligible to be claimed for deduction under that section. The assesses contended that the actual turnover and profits of business in respect of which the deduction is claimed should alone be considered. The assessee also relied on the decision of the Madras High Court reported in 257 ITR 60 before both the authorities. Before deciding the issue, the Tribunal discussed the facts as under: "21.2 Before the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation where the business could be relating to the goods which would fetch the foreign exchange but there could also be the business in relation to these goods which may not be exported or which may not fetch foreign exchange. However, the whole sub-section speaks only about the goods, which are exportable, exported and fetch foreign exchange. It is, therefore, clear that the thrust of the opening clause of clause (b) of sub-section (3) has a stress on the words 'does not consist exclusively of the export'. The sub section takes into consideration the situation of income out of the export of the goods vis-a-vis income out of those goods other than by way of exports. The words 'total turnover of the business' would then be controlled by and have to be read in the colour of the opening clause. The formula envisaged by the section would be 'export turnover F total turnover D profits and gains of business'. The business contemplated in the section would be restricted to only the goods to which the section applies and, therefore, by necessary implication even the total turnover the business would be the total turnover of the business of the goods to which the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In reply, Shri K R Pradeep submitted that the decision of Special Bench in 255 ITR 76(AT) and the decision of Kerala High Court in 257 ITR 41 relied on by the revenue are inapplicable to the facts and circumstances obtaining the issue. In the cases relied on by the revenue, the issue was that the assessee had both export turnover and domestic sales of products of the same business and consequently the question addressed by the above authorities was whether export profit could be determined in a manner other than provided by the Act by maintaining separate books of the accounts. The issue in this case is what is the total turnover for purpose of section 80HHE. Whether total turnover must mean turnover of the entire company which in this case includes turnover or hardware, soaps, detergents, fluid power systems, lighting etc. or total turnover of the business mentioned in section 80HHE of the I.T Act. The question in the present appeal on issue of turnover was not present or not considered in the decisions relied on by the revenue. Consequently, he submitted that the two decisions are not relevant for the purpose of deciding the issue on hand. 19.6......... 19.7 On the second a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) directed the Assessing Officer to consider only the total turnover and profits of the business of the assessee, which are eligible to claim deduction u/s 80HHC. In respect of exclusion of 90% of other income, the learned CIT(A) relied on the decision of the Bombay High Court in the case of CIT v Bombay Clothing Ltd. in 260 ITR 371. After discussing the decision of the Bombay High Court, the learned CIT(A) has recorded his finding in respect of each item at page 86 to 88 of the order. In respect of the items which the assessee himself has considered, there is no dispute and it is mentioned in sub-para (a) at page 86 of the CIT(A)'s order. In respect of export incentive of Rs. 99,83,492/-, it was submitted before the learned CIT(A) that the same has been reckoned in computing deduction u/s 10A. The same is not applicable to the business eligible for deduction u/s 80HHC. The learned CIT(A) directed the Assessing Officer to verify this and consider for exclusion only those items which relate to the eligible business and included in the profits of such business considered for computing the deduction u/s 80HHC. In respect of duty draw back, the learned CIT(A) stated that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal in the earlier years in the case of the assessee. Following the rule of consistency and rule of law that the interpretation which is Favourable to the assessee is to be adopted. We uphold the finding of the learned CIT(A) in respect of computation of turnover. In respect of export incentive, we agree with the direction of the learned CIT(A) vide which he has directed the Assessing Officer to verify as to whether export incentive related to the units for which deduction has been claimed u/s 10A. It is provided in section 10A read with section 80IA(9) that deduction which is claimed u/s 10A cannot be allowed under any other provisions of Chapter VIA. In respect of duty draw back, the learned CIT(A) has held that 90% of the said sum is to be deducted However, additional deduction ought to have been granted by applying the proviso under sub-section 3 of section 80HHC. Duty Draw back is covered by first proviso to section 80HHC(3). Hence, the direction of the learned CIT(A) in respect of duty draw back is confirmed. The direction of the learned CIT(A) in not excluding 90% of profit on sale of fixed assets, profit on sale of investment and dividend is also upheld, as thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues have been discussed and decided as under: "21.1 The assessee claimed deduction u/s 80HHC to the extent of Rs. 83,01,643/- in the computation of income filed along with the return. The same was revised to Rs. 66,41,314/- vide letter dated 7th February. 2002 by claiming 80% of the claim of Rs. 83,01,643/-. The claim was again revised vide letter dated 18th November, 2003 to Rs. 1,06,67,911/-. The Assessing Officer at page 168 of the order has mentioned that the revised claim is not admissible in view of the provisions of section 139(5). However, the Assessing Officer has also discussed the issue on merits also. The computation of deduction u/s 80HHC(revised) is available at page 166 of the order of the Assessing Officer. The Assessing Officer has computed deduction u/s 80HHC and the working is available at page 170 of the order. The following chart will show the comparison of deduction as claimed by the assessee and as allowed by the Assessing Officer:- As per assessee As per Assessing Officer Turnover considered for sec.10A related to STP/EHTP (Undertaking outside Bangalore) 18,08,94,08,110 438,38,58,851 Profits of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is again almost by way of abundant caution the use of the words "goods or merchandise to which their, section applies". Once we have this stage then the task of interpreting clause (b) of sub-section (3) becomes easier because even in clause (a) of sub-section (2) and clause (a) of subsection (3) the same terminology is used in respect of the goods and merchandise. When a plain meaning has to be given to the opening part of the section, it is clear that the word 'business' means the business relating to the goods to which the section applies and the thrust is on the word 'exclusively'. The sub-section considers a situation where the assessee's business is of exports and the assessee's business is not that of export alone. However, one thing is certain that the business has to be only in respect of the goods or merchandise to which the section applies. As has been stated earlier, the thrust is on the word 'exclusively'. The Legislature has lightly intended the situation where the business could be relating to the goods which would fetch the foreign exchange but there could also be the business in relation to these goods which may not be exported or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be unnaturally making the section applicable even to the goods which are outside the limits of clause (a) of sub-section (2) and that will not be permissible. Once this situation is clear, there would be no scope for accepting the argument of the revenue that the total turnover of business would include even the turnover of goods which are outside the scope of clause (a) of sub-section (2). Hence, we are of the clear opinion that the turnover from the business of sale of motorcycles, motorcycle spare par's, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would be clearly going against the object of section 80HHC which is solely to encourage the exports". After discussing the above judgement, the learned CIT(A) has reproduced the relevant portion from the order of the Tribunal in the case of the assessee for the asst. year 1998-99 and 1999-2000 in ITA No.895 and 896/Bang/03:- "19.5 In reply, Shri K R Pradeep submitted that the decision of Special Bench in 255 ITR 76(AT) ana the decision of Kerala High Court in 257 ITR 41 relied or by the revenue are inapplicable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on by the assessee that is the Madras High Court in 257 ITR 60 supports the decision of this bench in ITA No. 332 to 328/Bang/2000. These squarely address the issue in favour of the appellant. Whereas the decision of Madras High Court was rendered subsequent to the decision of the Special Bench in Delhi Tribunal in 255 ITR 76. Consequently, it is essential that the decision of High Court must be followed in preference to the decision of the Special Bench. (Though it is to be mentioned that the issue involved before the Special Bench ana before us are some what different). Such a course is correct in law as held in CIT v Smt Godavaridevi Saraf reported in 113 ITR 589 (Bom.) the relevant portion is extracted hereunder: "An authority like the Income Tax Appellate Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question". Accordingly, the learned CIT(A) directed the Assessing Officer to consider only the total turnover and profits of the business of the assessee, which are eligible to claim deduction u/s 80HHC. In respect of exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to PandL account during earlier years and therefore, exclusion of such reversals from eligible profits is not warranted. In respect of discount received and customs claims, the learned CIT(A) upheld the disallowance of 90% as made by the Assessing Officer. Similar finding was recorded for the asst. year 2002-03. 21.3 During the course of proceedings before us, the learned AR has relied on the order of the Tribunal made in the case of the assessee for the earlier year. 21.4 On the other hand, the learned DR supported the order of the Assessing Officer. 21.5 After hearing both the parties, we make it clear that the assessee is free to revise his claim for deduction u/s 80HHC during the course of assessment proceedings provided such claim is supported by necessary documents to be filed for the claim. Hence, it cannot be held that if revised claim is filed during the course of assessment proceedings, the same cannot he considered. 21.6 In respect of computation of turnover the issue has been decided by the Tribunal in the earlier years in the case of the assessee. Following the rule of consistency and rule of law that the interpretation which is favourable to the assessee is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discount received and customs claims. It is made clear the profit of the business as mentioned in Explanation (baa) to section 80HHC does not refer to commercial profit but the profit as computed under the provisions of the Act. Such profits of the business of the assessee is to be computed as per provisions of the Act in respect of that business, which is eligible to claim deduction u/s 80HHC. 27. Grounds of appeal no.80 to 83 for the asst. year 2001-02 are as under:- 80) The CIT(A) erred in directing the AO to verify the export incentive of Rs. 99,83,492/-and consider only those items which relate to the eligible business and included in the profit of such business considered for computing deduction u/s 80HHC. 81) The CIT(A) ought to have appreciated while computing the deduction u/s 80HHC total profit of the assessee's business has to be considered and not the profit of the eligible business. 82) The CIT(A) erred in directing the AO to verify the Duty Draw Back of Rs. 5,94,28,751/-and consider only those items which relate to the eligible business and included in the profit of such business considered for computing deduction u/s 80HHC and compute additional deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) is therefore modified. The profit is to be computed as per the provisions of the I.T Act. The Assessing Officer will recompute the profit in respect of issue of exclusion of profit on sale of fixed assets for the purpose of computing deduction u/s 80HHC. If in computation, such profit is reduced from the block, the it will be excluded. 29. Ground of appeal no.85 for the asst. year 2001-02 is that the learned CIT(A) has erred in directing the Assessing Officer not to consider the profit on sale of investment of Rs. 40 lakhs for exclusion while computing deduction u/s 80HHC. 29.1 Perusal of the assessment order shows that the Assessing Officer has treated short term capital gain in respect of sale of properties and sale of land The sale of investment has not been treated as capital gain. When profit from the sale of investment has been treated as profit from business, then it cannot be excluded for the purpose of deduction u/s 80HHC, The Delhi High Court in the case of CIT v Sriram Honda Power Equipment 289 ITR 475 held that if interest is taxed as business income, then deduction u/s 80HHC will be permissible in terms of Explanation (baa) to section 80HHC. Simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO has held that the said reversal is not income derived by the undertaking and excluded the same while computing deduction u/s 80-IB. When the matter traveled before the learned CIT(A) he held that it is not in dispute that the provision for warranty obligations has been considered as expenses in the earlier years in computing eligible profits for deduction u/s 80-IB, Therefore, he refrained from adopting a different rationale for incomes He also followed the decision of the ITAT in the assessee's case for assessment year 1997-98 in ITA No.651/Bang/1994 wherein it has been held as under: "22.2. We have considered the facts of the case. It is not in dispute that the very nature of expenses in the form of newspaper, diesel drum and, certain packing materials have formed part of the expenses incurred in the course of carrying on export oriented units. The expenses of such nature have reduced the eligible profit of the export oriented unit. When the same items of expenses are reduced while calculating the eligible profit the income which actually reduces such type of expenses should not be treated as other income not forming part of profit of eligible business. While calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year also, I direct the Assessing Officer to allow credit for foreign taxes paid and in doing so will follow the findings and directions of the ITAT given in para 20.7 of its order". 22.3 In respect of asst. year 2002-03, the Assessing Officer has allowed the claim for foreign tax credit for only those units in respect of which deduction u/s 10A was disallowed. 22.4 Before us, the learned AR relied on the decision of the Tribunal in the case of the assessee for the asst. year 2000-01. The learned AR drew our attention to para 21 of the order of this Tribunal dated 21st November, 2005 in ITA No.669/Bang/2004 and 804/Bang/2005. 22.5 On the other hand, the learned DR supported the order of the Assessing Officer. 22.6 We have gone through the order of the Assessing Officer for the asst.year 2002-03. The Assessing Officer has discussed this issue from pages 103 to 113 of the order. Though the learned CIT(A) has discussed the reasons as to why the Assessing Officer has not allowed the deduction, but he has not given finding as to how the order of Assessing Officer is not legally correct. The Assessing Officer has mentioned that assessee has made claim for tax relief against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax is not payable. 22.8 The learned Madras High Court in the case of CIT v K S Vaidyanathan 153 ITR 11 (FB) had an occasion to consider the allowability of deduction of debt u/s 2m of Wealth Tax Act. As per section 2m(ii) of the Wealth Tax Act, debts which are secured on or which have been incurred in relation to any property in respect of wealth tax not chargeable under this Act is not to be allowed as deduction. Section 5 of the Wealth Tax Act provided that on certain assets, wealth tax was not payable. If in respect of an asset on the entirety wealth tax is not chargeable then the debts secured on such assets has to be excluded from reckoning. In case where an asset is only partially exempt from changeability to wealth-tax then it must necessarily follow that the portion of the debt secured on such portion of the asset or incurred in acquiring such portion of the asset has to be excluded from reckoning Though the learned Madras High Court held that debt can be bifurcated and debt relatable to the portion of the asset on which wealth-tax is not payable u/s 5(1) of the Wealth Tax Act cannot be allowed as deduction u/s 2m(ii). Therefore, in view of above discussion, credit for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Computer factory Pondicherry-I Rs.88,21,679/- iii) Computer factory Pondicherry-II Rs.6,89,70,526/- The facts are identical as in the assessee's own case for assessment years 2001-02 and 2002-03 in the order dated 30-5-2008 cited supra. In paragraphs 33.5, 33.6 and 33.7, the Tribunal while dealing with the issues held as under: "33.5 We have heard both the parties. As per section 80IB(3), the deduction is available as a percentage of profit and gains derived from the industrial undertaking. The industrial undertaking has not been defined u/s 80IB of the I.T Act. Industrial Undertaking has been defined in Explanation 1 to section 10(15). However, the definition is only for the purpose of 10(15). As per this definition, industrial undertaking means any undertaking, which is engaged in the manufacture or processing of goods. There is no dispute that Pondicherry units are industrial undertakings. In respect of electronic goods, the sales can take place in two ways as mentioned by the AR; either the amount is included in the sales invoice and warranties provided or the item is sold and separate amount is charged for annual maintenance charges. The Assessing Officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocation. Without pointing out any error in the allocation the Assessing Officer was not justified in disturbing the allocation. Hence, the finding of the learned CIT(A) on this issue is confirmed." We, therefore, do not find any infirmity in the order of the earned CIT(A). It is ordered accordingly. 29. The next issue relates to credit for foreign taxes paid. Facts relating to payment are not in dispute. This issue is also covered by the decision of this Tribunal dated 30-5-2008 wherein paras.22.1 to 22.8 it has been held as under: "22.1 Before the Assessing Officer, the assessee vide letter dared 8th March, 2004 claimed credit for tax paid in foreign countries. The Assessing Officer observed that in view of the provisions of section 139(5), the claim is not admissible. The assessee has not filed any revised return for claim of tax credit with reference to income computed u/s 10A. The learned Assessing Officer further held that since income is being treated as exempt u/s 10A, therefore, tax credit can be given under the DTAA only to the extent to which the income has been taxed twice. The learned Assessing Officer relied on the decision of the Madras Bench in the case of Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deduction of such profit and gains as derived by undertaking. Such deduction is to be allowed from the total income. This Bench in the case of M/s Yokagawa India Ltd. in ITA No.802/Bang/2005 has held that w.e.f. 1.4.2001, section 10A allows the deduction and it is not an exempted income. For the asst. year under consideration, section 90(1)(a) as it existed at that time is as under:- "The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been said both income tax under this Act and income tax in that country" 22.7 The word 'paid' has been defined in section 43(2) of the I.T Act. Though the definition is for the purposes of section 28 to 41, but the meaning of the word can be imported for section 90(1)(a). As per section 43(2). paid means actually paid or incurred according to the method of accounting upon the basis of which the profit or gains are computed under the head 'profit and gains of business or profession'. In respect of the income of the unit qualifying for deduction u/s 10A, income tax is neither paid nor incurred. The Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one is required to go through the DTAA agreements. Though the Assessing Officer has discussed this issue in detail in his order but the learned CIT(A) has not considered the arguments advanced by the Assessing Officer in not allowing the tax credit. Hence we feel that this issue requires to be reconsidered by the learned CIT(A) in view of the facts and arguments considered by the Assessing Officer in his order. Hence, this issue is restored back on the file of the learned CIT(A). While granting relief as such, the learned CIT(A) has taken note of decision of this Tribunal in the case of Mindtree Consulting Pvt. Ltd., The learned CIT(A) in his order at para. 20.4 extracted the decision of the Tribunal as under: "I have perused the observations made by the AO and the submissions made by the appellant in this regard. I am of the considered view that from the amendment of section 10A(6)(ii) with effect from 1-4-2001, no inference as drawn by the AO is comprehensible. There is no doubt that with the amendment losses are allowed to be carried forward end set off even beyond the tax holiday period. However, the need to carry forward will arise only if it cannot be set off within the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: "6.4 The TPO has adopted interest rate at LIBOR+250 points. There is no discussion as to why the said rate has been adopted Further, there is also no identification of rate of interest charged in comparable instances under similar situations. TP adjustment is possible only in cases where comparable uncontrolled transactions entered into between two enterprises ate established. Unless such an uncontrolled transaction is identified, no ALP adjustment is possible. The question to my mind, the TPO and the AO ought to have asked is whether it is possible to charge interest where new companies are established and it requires support from the parent company." After going through the same, we do not find any infirmity in the order of the learned CIT(A). At the time of hearing, learned DR is not in a position to assail the finding reached by the learned CIT(A). We, therefore, confirm the order of the learned CIT(A). 31. The last issue relates to notice u/s 143(2) dated 4-8-2005. The assessee filed return of income on 27-11-2003. The notice u/s 143(2) was received by the assessee on 4-8-2005. The assessee contended that the assessment proceeding is barred by limitation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relevant details were submitted to the AO and after deliberations the AO had accepted the claim of the assessee that too after due verification of the Profit and Loss Account and Balance-sheet which ware filed along with letter dated 11-11-2005. Therefore, the order of the AO is not erroneous and prejudicial to the interests of revenue. On the other hand, learned DR fully supported the order of the learned CIT. 34. In para.9.1.1 and 9.1.2. of the assessment order, the relevant details are available. The learned CIT had occasion to deal with the entire facts. In the order dated 29-3-2007, the learned CIT(A) had an occasion to deal with another issue of similar nature. The relevant facts are extracted as under. "7.2 Brief facts are that Wipro Infotech division of the appellant company decided to discontinue its infrastructure based Internet Service Provider business (ISP) while continuing with the managed network and remote management services part of the business under total I.T solutions. On discontinuation of the ISP business, the customers were repositioned to an independent service provider for a consideration of Rs. 2.5 crores and the appellant incurred fresh commitments t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture and incurred routinely in carrying on of business. These sums are claimed as revenue expenditure on termination of agreement with BSNL etc as noted above. The details are ex-facie available and the approach is inconsistent in as much as while he allowed Rs. 18.15 Cr. he followed a different yardstick for the balance. Both being revenue in nature, the same must be allowed. It is also supported by the ITAT decision in appellant own case in AY 1998-99 more specifically found in para 10.4 of the appellate order. In the circumstances, it is prayed that the loss so claimed be allowed as a deduction." 7.4 The issue is rather simple. The appellant has discontinued a part of its business and while discontinuing the said business, incurred costs in respect of certain obligations and received a consideration for transitioning the customers in the business. These facts are explicitly stated in the submissions of the appellant before the AO and are also found in the assessment order. However, the AO has stated that the appellant has not produced any details with regard to the nature of liability and also whether the payment has been made or it is only a provision. He also stated that it ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
