TMI Blog2016 (5) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... dend income was not taxable. Computation of deduction under section 80HHC - Held that:- The issue arising before us is identical and we hold that receipts of income i.e. Interest on IT Refund, NSC Interest, Bank Interest and Other interest are not eligible for claim of deduction under section 80HHC of the Act. It may be clarified here that the assessee had raised issue of computation of book profits under section 115JA of the Act consequent to reworking of deduction under section 80HHC of the Act. Entitlement to claim of deduction under section 35AB @ 1/6 th of the total know-how fees paid allowed Disallowance of deduction claimed of appropriate part of exchange fluctuation loss - Held that:- The claim of the assessee before us is identical as claimed in assessment year 1998-99. Following the same parity of reasoning, we remit this issue also back to Assessing Officer, who shall determine the amount, which is to be allowed in the hands of assessee in the present year on account of exchange fluctuation loss Claim of deduction under section 80HHC - whether unabsorbed depreciation of Titex India Pvt. Ltd. is to be adjusted or not? - Held that:- The amalgamation of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. Vs. DCIT reported in (2004 (3) TMI 9 - SUPREME Court ), wherein it has been held that before computing deduction under section 80HHC of the Act, losses from trading activity are to be adjusted against profits, if any, of the manufactured goods and then balance profits are eligible for claiming deduction under section 80HHC of the Act. Allowance of claim of VRS expenditure - Held that:- The assessee had incurred the aforesaid expenditure on VRS Scheme floated by it in order to reduce number of its workforce for smooth and efficient running of its business operations and hence, the said expenditure had business expediency and where the expenditure was incurred wholly and exclusively for the purpose of running business, the same is allowable as revenue expenditure. Eligible profits while computing deduction under section 80HHC - whether interest on customers and hundies, interest on MSEB/MIDC were part of business income ? - Held that:- We find that the Tribunal in assessment year 1996-97 had held that the interest received on deposits with MIDC/MSEB customers and Inter-corporate deposits part take the nature of business and hence, assessable under the head Profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it fit to restore the issue to the file of Assessing Officer and direct the assessee to furnish requisite details before the Assessing Officer in order to establish its claim. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee Disallowance of set off of interest paid against interest received - Held that:- The interest paid under sections 220, 234B and 234C of the Act cannot be set off against interest received under section 244 of the Act. Whether interest under section 244A received for assessment year 1999-2000 is to be assessed in assessment year 1999-2000 itself as the assessment proceedings for the year were in progress? Held that:- The interest was computed by the Assessing Officer on 30.06.2000 and consequently, the same is includable in the hands of assessee in the year ending 31.03.2001, which has been so included by the authorities below. Further, there is no merit in the plea raised by the assessee that only interest as finally determined could be assessed in the hands of assessee - ITA No. 1439/PN/2004, ITA No. 1468/PN/2004 , ITA No. 112/PN/2006, ITA No. 113/PN/2006 - - - Dated:- 30-3-2016 - Ms. Sushma Chowla, JM And Shri Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim that dividend income of ₹ 1,268,541 on Master shares and other units of UTI is exempt under section 10(33) of the Act, The learned CIT(A) ought to have treated the said dividend as exempt and excluded the same from the total income of the Appellant. 2.2 The Appellant prays that the aforesaid dividend should be considered as exempt and excluded from the total income of the Appellant. 3 Computation of book profits Under Section 80HHC of the Act 3.1 For the purposes of computing book profits under section 115JA of the Act, the CIT(A) erred in reducing the profit eligible for deduction under section 80HHC of the Act based on the deduction allowable under the said section. In computing the book profits for the purposes of section 115JA of the Act, the CIT(A) ought to have reduced the profits eligible for deduction under section 80HHC, based on the book profits as per the profit and loss account, as adjusted by the amounts referred to in section 115JA. The Appellant prays that for the purposes of computing book profits under section 115JA of the Act, the profits eligible for deduction under section 80HHC of the Act (which are to be reduced from the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80HHC of the Act. 3.5 Without prejudice to Ground No.3.1 above, in computing the profits eligible for deduction under section 80HHC of the Act, which are to be reduced in computing the book profits under section 115JA of the Act, the CIT(A) erred in rejecting the Appellant's claim that income distributed on Master shares and other units of UTI should be included in profits eligible for deduction under section 80HHC of the Act, which are to be reduced in computing the book profits under section 115JA of the Act. The Appellant prays that without prejudice to Ground No.2 and 3.1 above, the aforesaid dividend income should be considered as Profits of Business while computing the profits eligible for deduction under section 80HHC of the Act, which have to be reduced in computing the book profits under section 115JA of the Act. 5. Further, the assessee further raised additional grounds of appeal, which read as under:- Additional Ground 1: Deduction under section 35AB of the Income Tax Act, 1961 ( the Act ) in respect of lump sum know how fees of ₹ 1,47,07,778/- The learned CIT(A) ought to have held that the assessee is entitled to deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure of ₹ 10,08,998/- paid to M/s. Softcell and ₹ 8,04,000/- also paid to M/s. Softcell and sum of ₹ 87,062/- spent on software were capital expenditure, on which the assessee was entitled to depreciation and balance sum of expenditure being for maintenance of SOPIC systems, Sweden of ₹ 8,74,000/- and other expenditure were revenue in nature. 13. The assessee by way of ground of appeal No.1 is in appeal against the order of CIT(A). 14. The learned Authorized Representative for the assessee pointed out that similar issue arose before the Tribunal in assessee's own case in ITA No s. 1841 1842/PN/2012 and ITA Nos.2053 2054/PN/2012, relating to assessment years 2002-03 2003-04, order dated 31.12.2014 and the issue was decided in favour of the assessee by allowing claim of the assessee. 15. We find that similar issue of allowance of computer software expenses as revenue expenditure arose before the Tribunal in assessee's own case in assessment year 2002-03, wherein it was held as under:- 22. We have considered the rival arguments made by both the sides. We find the issue stands squarely decided in favour of the assessee by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by the Tribunal in ITA No.339/PN/2004 relating to assessment year 1998-99, order dated 11.12.2015. The Tribunal (supra) had taken note of the fact that up to assessment year 1999-2000, income received in respect of units of UTI were eligible for deduction under section 80L of the Act. Thus, the dividend income was not taxable. The Tribunal in assessment year 1998-99 in turn relied on the ratio laid down in assessee's own case in ITA No. 579/PN/2000 relating to assessment year 1995-96, order dated 04.11.2010. The issue arising in the present year i.e. assessment year 1999-2000 is squarely covered by the order of Tribunal and hence following the same, ground of appeal No.2 raised by the assessee is dismissed. 19. The issue in ground of appeal No.3 is against the computation of deduction under section 80HHC of the Act. The Assessing Officer had partiallyallowed the deduction claimed under section 80HHC of the Act and in respect of following receipts held that the same are not includible in eligible profits of business while computing deduction under section 80HHC of the Act:- i. Interest on IT Refund - Rs.1,20,46,639/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax refunds are the items to be excluded while computing profits eligible for deduction under section 80HHC of the Act. The ground of appeal No.2.1 is thus, dismissed. 22. The issue arising before us is identical and we hold that receipts of income i.e. Interest on IT Refund, NSC Interest, Bank Interest and Other interest are not eligible for claim of deduction under section 80HHC of the Act. It may be clarified here that the assessee had raised issue of computation of book profits under section 115JA of the Act consequent to reworking of deduction under section 80HHC of the Act. However, the learned Authorized Representative for the assessee only stressed and referred to issue in ground of appeal No.3.3 and no other issue in 3.1, 3.2, 3.4 and 3.5 was stressed. Hence, we dismiss ground of appeal No.3 to 3.5. The ground of appeal No.3 raised by the assessee is dismissed. 23. The assessee has raised additional ground of appeal No.1, which is consequential to the said issue decided in assessment years 1997-98 and 1998-99. The assessee had entered into an Agreement with AB Sandvik Coromant, Sweden and had made payment for acquisition of technical know- how. The Tribunal in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement, Sandvik shall make available to the assessee the Sandvik know-how and the advice and assistance of its experts also. Further, as per clause 2.2 of the agreement, the assessee shall have the right to use the Sandvik know-how and advice provided for the purpose of designing and or manufacturing the products in India. Further, as per clause 2.3 of the agreement, it was agreed upon that Sandvik know-how and the advice and assistance to be provided by the Sandvik shall be given to the extent required by the assessee to be able to manufacture the products with quality corresponding to the quality reached in Sandvik own production of the products. Under clause 2.4 of the agreement, it is enlisted the nature of advice and assistance to be provided by Sandvik to assessee in the field of manufacturing, raw material and packaging. Further, under clause 2.6 of the agreement, it was agreed that Sandvik shall make provision for training of individual members of technical staff of assessee. Under clause 2.7 of the agreement, Sandvik was to make available the assessee marketing and sales experts for the purpose of advising and assisting the assessee in relation to marketing and sales of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re by Sandvik or which is or becomes public knowledge through no fault of SAL's part. The Sandvik know-how may be used by SAL for the purpose of the design, manufacturing, marketing and sale of the Products only. 17. Under clause 6.1 of the agreement, it was agreed that the assessee shall pay Sandvik the lump sum as stated in Article 6.5 and also royalty. As per clause 6.2, royalty was fixed at 5% of NPS for sales by the assessee of products within India and 8% of NPS for sales by the assessee outside India. As per clause 6.5, it is provided that the assessee has to pay to Sandvik in Sweden a lump sum corresponding to US$ 2 million. The said lump sum was to be paid in three installments i.e. 1/3rd at the date of approval by the authorities, 1/3rd at the delivery of Sandvik know-how and 1/3rd at the commencement of production, but not later than four years from the receipt of Sandvik know-how. The validity of the said agreement was for a period of 7 years as per clause 7.2 of the agreement. The effects of termination are enlisted in clause 8 of the agreement, which reads as under:- 8. Effects of Termination 8.1 Notwithstanding the expiration of this Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursuant to Article 7.2 i.e. the term of agreement for a period of 7 years, the assessee shall further have the right to continue to use the Sandvik know-how and the innovations being the object of Sandvik patent rights. Notwithstanding the termination of the agreement, the royalty shall be payable with regard to all products manufactured during the period of 7 years from the commencement of commercial production of the products. After the expiry of said period, the assessee shall have the right to use Sandvik know-how in all the countries free of charge and to use in India also free of charge. Further, the termination of agreement also could not affect the assessee's secrecy obligation to Sandvik. The claim of the assessee before us is that the expenditure incurred on the acquisition of technical know-how was for the right to use the technology and under the said agreement, no right was assigned to the assessee in the technical know-how. Since the assessee had only acquired the right to use the technology, the said expenditure incurred by the assessee was claimed to be revenue expenditure. However, as pointed out by us in the paras hereinabove, the assessee while filing the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and gains of the business for that year. The year under appeal, in which the assessee has claimed the said deduction falls within the stipulated period as provided under section 35AB of the Act. 21. The first issue which has to be addressed is whether the assessee is entitled to the claim of deduction in entirety, for which reliance was placed by the learned Authorized Representative for the assessee on the ratio laid down by the Hon'ble Supreme Court in Alembic Chemical Works Co Ltd Vs CIT (supra). The plea of the assessee in this regard, was that the expenditure incurred by the assessee over a period of seven years even if was an expenditure of enduring benefit and applying the ratio laid down by the Hon'ble Supreme Court in Empire Jute Co Ltd Vs CIT (supra) and also Alembic Chemical Works Co Ltd Vs CIT (supra), such expenditure is to be allowed as deduction under section 37(1) of the Act and the provisions of section 35AB of the Act were not applicable. Further, the learned Authorized Representative for the assessee placed reliance on the ratio laid down by the Hon'ble Apex Court in Jonas Woodhead and Sons (India) Ltd. Vs. CIT (1997) 224 ITR 342 (SC) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta Bench of the Tribunal in Wellman Incandescent India Ltd. Vs. DCIT (1995) 55 ITD 338. However, the facts of present case are different, where the assessee had acquired the technical know-how for production of new items and hence the ratio of above decision was not applicable. 24. The learned Departmental Representative for the Revenue in reply had pointed out that the issue has now been settled by the Hon'ble Supreme Court in Drilcos (India) (P.) Ltd. Vs. CIT (2012) 25 taxmann.com 228 (SC), wherein it has been held that where the assessee had entered into an agreement for acquiring know-how, which in turn was to be used in the business of the assessee, section 35AB of the Act would come into play and section 37(1) of the Act would have no application. The learned Departmental Representative for the Revenue further placed reliance on the decision of Hon'ble Madhya Pradesh High Court - Indore Bench of the Tribunal in CIT Vs. Bright Automotives Plastics Ltd. (2004) 141 TAXMAN 582 (MP), wherein it was held that in order to attract the provisions of section 35AB, it may not be necessary for the assessee to actually become absolute owner of know-how. Where the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the notions of capital or revenue, a judicial fetish. It was further held that there was no single definitive criterion which by itself is determinative whether a particular outlay is capital or revenue. Another reliance was placed by the learned Authorized Representative for the assessee on the ratio laid down by Hon'ble Apex Court in Empire Jute Co Ltd Vs CIT (supra) for the proposition of test of enduring benefit. The Hon'ble Apex Court while applying the test for determining whether the expenditure was capital or revenue in nature, observed that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. The Hon'ble Apex Court further propounded that what was material to be considered was the nature of advantage in commercial strengths and only when the advantage was in the capital field, then that expenditure would be disallowed on that account. The plea of the assessee while placing reliance on the ratios laid down by Hon'ble Supreme Court was that the payment for technical know-how even for enduring benefit was on revenue account a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know- how which was, in turn, to be used in the business of the assessee. Once Section 35AB of the Act comes into play, then Section 37 of the Act has no application. 28. A bare reading of section 35AB of the Act brings out the intent of the legislature in inserting the said section. Section 35AB of the Act inserted by Finance Act, 1985 lays down that where the assessee has paid in any previous year 'any lump sum consideration for acquiring any know-how for use for the purpose of its business' 1/6 th of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year and the balance amount shall be deducted in equal installments for each of the five immediately succeeding previous years. Explanation, appended below the section, defines know-how and reads as under:- For the purpose of this section, know-how means any industrial information of technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto). 29. Section 35AB of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture for the purposes of bringing into existence an asset or advantage of an enduring nature. A similar test based on the fact whether the Technical knowhow could be used after the termination of the agreement has been approved by the Hon'ble Supreme Court in the case of CIT v. IAEC (Pumps) Ltd [1998] 232 ITR 316 for determining whether the expenditure is capital or revenue in nature. Applying the ratio of the aforementioned decisions of the Apex Court in the instant case, since the assessee is entitled to use the technical information for the manufacture of the products even after the termination of the agreement and the documentation, drawings are not to be returned back on expiry of the agreement after 10 years, the expenditure is dearly capital in nature and outside the purview of section 37(1). 20. There is no disputing the facts that acquisition of the technical knowhow by the assessee company for manufacture of new textile machinery components as specified in the agreement without any limitation with regard to utilisation period thereof has resulted in an enduring benefit to the assessee which lies in the capital field. The expenses have essentially resulted in au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is to be amortized under section 35AB of the Act and cannot be allowed as a deduction in the year in which the liability to pay the said amount accrues. The Hon'ble Supreme Court in Drilcos (India) (P.) Ltd. Vs. CIT (supra) had held that after insertion of section 35AB of the Act, where the expenditure is to be used in business of assessee, section 35AB of the Act would come into play and the provisions of section 37(1) of the Act are not applicable for units established prior to 01.04.1998. Following the same parity of reasoning, we hold that provisions of section 35AB of the Act are to be applied to the lump sum consideration paid for acquisition of technical know-how by the assessee. 32. Another plea raised by the assessee was that the assessee had only acquired the right to use the technical know-how. The reading of clauses of agreement with special reference to clause 8 i.e. effect of termination of agreement reflects that the assessee had acquired the said technical know- how in perpetuity. Even after the termination of period of agreement i.e. 7 years, the assessee had the right to use the said technical know-how and continue to manufacture the items using both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two installments, which were paid in the succeeding assessment years, in view of the provisions of section 40(a)(i) of the Act. Admittedly, the assessee had deducted tax at source on the installment paid during the financial year and has paid tax at source on the balance installments in the succeeding years. In this regard, we find merit in the plea of learned Authorized Representative for the assessee that this was at best of the case of short deduction of tax and not non-deduction of tax at source and there was no merit in invoking the provisions of section 40(a)(i) of the Act. 33. The Pune Bench of the Tribunal in ITA No.758/PN/1999 CO No.58/PN/2005 and another, in assessee's own case had held as under:- 18. We have carefully considered the rival submissions. Looking at the conspectuous of facts as emerging from the orders of the authorities below, it appears that though the claim of the assessee is under head provision for doubtful debts , in actuality the claim is based on certain deductions claimed to be made by the Government buyers as liquidated damages for late supply of goods, etc. The Commissioner of Income-tax (Appeals) in his order dated 28.11.1997 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals) has deleted the addition by observing that similar issue was considered in assessee's own case for the assessment years 1992-93 and 1993-94 in favour of the assessee. 23. Before us, it was a common ground between the parties that for the assessment year 1992-93, similar issue has been adjudicated by the Tribunal vide its order in ITA No 119/PN/96 dated 13.9.2011 in favour of the assessee. In view of the precedent, copy of which has been placed on record, the decision of the Commissioner of Income-tax (Appeals) deleting the addition of ₹ 1,99,43,610/- on account of Excise Duty payable on finished goods not included in the valuation of closing stock is hereby affirmed. Thus, Revenue fails on this Ground. 24. The facts in relating to second Ground are that during the year, the assessee received interest of ₹ 25,63,992/- from the Income-tax Department and also paid interest of ₹ 10 lakhs to the Department. The claim of the assessee was that only the net interest should be charged to tax. This plea was rejected by the Assessing Officer whereas the Commissioner of Income-tax (Appeals) allowed the plea of the assessee in view of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical amount of loss. The Tribunal had set-aside the issue to Assessing Officer to re-compute the loss in respective years, holding as under:- 8. Ground No. 6 of the appeal and findings thereon are as under: 6. Deduction under Section 37(1) of the Act on account of exchange fluctuation loss of ₹ 51,72,003. 6.1 The learned CIT(A) erred in rejecting the Appellant's claim that exchange fluctuation loss of ₹ 51,72,003 is deductible under section 37( 1) of the Act. The above loss was incurred by the Appellant on actual payment of technical know-how fees paid during the year and on restatement of outstanding liability at the exchange rate prevailing on 3 1 March 1998. The Appellant prays that the above loss be allowed under section 37(1) of the Act. 8.1 The ld. AR submitted that the exchange fluctuation loss was suffered by the assessee on actual payment of technical know-how fee paid during the year. The ld. AR referred to Table 5 in the list of the table placed before us and submitted that deduction allowable u/s. 35AB and exchange differences have been worked out in accordance with the decision of Hon'ble Supreme Court of India in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. The claim of the assessee before us is identical as claimed in assessment year 1998-99. Following the same parity of reasoning, we remit this issue also back to Assessing Officer, who shall determine the amount, which is to be allowed in the hands of assessee in the present year on account of exchange fluctuation loss. The additional ground of appeal No.2 raised by the assessee is thus, allowed. 28. The Revenue in ITA No.1468/PN/2004, relating to assessment year 1999-2000 has raised the following grounds of appeal:- 01. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of VRS expenditure treating it as revenue in nature. 2.1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that interest on customers and hundies, interest on MSEB/MIDC are held as part of business income. 2.2 The Ld. CIT(A) ought to have held that interest on customers and hundies, interest on MSEB/MIDC as 'Income from Other Sources' and to keep out or purview of clause (baa) to Sec. 80HHC. 2.3 The Ld. CIT(A) ought to have followed the ratio of the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed that by virtue of this scheme, the assessee had incurred expenditure which in turn, would reduce its manpower and would draw benefit of enduring nature. The Assessing Officer in turn, show caused the assessee to explain as to why the entire expenditure should not be treated as capital expenditure, in turn, the assessee placed reliance on different decisions of Hon'ble Supreme Court and submitted that the said expenditure could not be treated as capital expenditure. The Assessing Officer in this regard observed that what had to be seen was whether or not such benefits of enduring nature had brought into existence the capital asset. The Assessing Officer was of the view that while reducing the manpower, the assessee had been able to restructure its human resources, thereby increasing its profitability, productivity, competitiveness and further induction of technology and had derived benefit of enduring nature. The amount paid under the VRS scheme was held to be compensatory in nature payable to the concerned employees whose cases were approved for voluntary retirement scheme. The Assessing Officer thus, held that the assessee was not entitled to the claim of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VRS expenses arose before the Hon'ble Bombay High Court in CIT Vs. Bhor Industries Ltd. (supra) and it was held that the expenditure was of revenue in nature and allowable as deduction in computing profits of the assessee company. In turn, reliance was placed on the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Ashok Leyland Ltd. (1972) 86 ITR 549 (SC), wherein it was held that compensation paid for termination of services of managing agents in order to save business expenditure in the accounting period as well as during subsequent years, the Hon'ble Supreme Court held that by avoiding certain expenditure, the company did not acquire any income yielding asset and the same was allowable as deduction. Applying the said ratio, the Hon'ble Bombay High Court in CIT Vs. Bhor Industries Ltd. (supra) held that the VRS expenses were incurred by the company to save on the expenditure and since the expenditure was not relatable to any income yielding asset, the revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in its entirety in the year in which it is incurred and it could not be spread over number of years even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of the assessee, the said amounts were held to be assessable as income from other sources. We find that the issue arising before us is in respect of interest on customers and hundies, interest on MSEB/MIDC and the same are to be included as profits and gains of business and are eligible for claiming deduction under section 80HHC of the Act. Upholding the order of CIT(A), we dismiss the ground of appeal No.2 raised by the Revenue. 42. The issue in ground of appeal No.3 by the Revenue is against the order of CIT(A) in holding that loss, if any, would be allowed to be set off against 90% of sum referred in clause (iiia), (iiib) and (iiic) in the same proportion as the export turnover as bears to the total turnover of the business. 43. The Revenue is aggrieved by the order of CIT(A) in allowing the deduction under section 80HHC of the Act on the loss from export business. Further, the Revenue has placed reliance on the ratio laid down by the Hon'ble Supreme Court in IPCA Laboratories Ltd. Vs. DCIT reported in 266 ITR 521 (SC) 44. The learned Authorized Representative for the assessee drew our attention to page 17 at para 8 and pointed out that the ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(A) erred in confirming the disallowance of the deduction in respect of software expenses of ₹ 2,320,000 by treating the same as capital expenditure. The appellant prays that the impugned be treated revenue expenditure and allowed accordingly. 3. Disallowance of deduction towards liquidated damages The learned CIT(A) erred in confirming the disallowance of the deduction towards damages aggregating to ₹ 1,101,473 by treating the same as payment for infraction of law. The appellant prays that the impugned damages, being contractual in nature, should be allowed as a deduction under section 37(1) of the Act. 4. Set off of interest paid under section 220, 234B and 234C against interest received under section 244A The learned CIT(A) erred in confirming the disallowance of set-off of interest paid under section 220, 234B and 234C of the Act aggregating to ₹ 6,592,331 against interest received under section 244A of the Act. The appellant prays that the impugned interest paid under section 220, 234B and 234C of the Act should be allowed to set off against interest received under section 244A of the Act. 5. Reduction of ninety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant had handed over physical possession of the land to the developers and had also granted irrevocable power of attorney to the developers who on the strength of the said power of attorney could develop the land in the manner and to the extent they deemed fit and could also sell the land to the prospective buyers subject to certain terms and conditions stipulated in the exemption order issued by the Government of Maharashtra under the Urban Land Ceiling Act. Thus, what was pending was mere formal conveyancing of the land. It was reasoned out by the Assessing Officer that the transaction thus resorted to amounted to part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act and would thus come within the ambit of section 2(47)(v) of the Income-tax Act, 1961, which came into effect from the assessment year 1988-89. In this context, he also placed reliance on the decision of the Hon'ble Supreme Court in the case of Mysore Minerals Ltd. Vs. CIT, 239 ITR 775, wherein depreciation had been held as admissible to the assessee who was in possession of a building on part payment of price. Accordingly, the Ass essing Officer came to the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the allotment of development rights in respect of land ad measuring 11161 sq.mtrs. Apart from submitting the above agreements/letters etc., the appellant also furnished details of the payments received from time to time and comprised in the total amount of ₹ 91,45,400/-. In the details thus furnished, a sum of ₹ 1,50,000/- stated to have been received on December 31, 1999, was shown additionally. It was argued by the appellant that the entire receipts were capital in nature and, therefore, could not be taxed. 55. The CIT(A) forwarded the submissions of assessee to Assessing Officer and who reported as under:- 8.3 The various submissions thus made were put across to the Assessing Officer since it appeared that the same had not been filed at the time of the assessment. The Assessing Officer was specifically asked as to how the sum of ₹ 30,30,000/- was brought to tax for the present assessment year when as per the appellant the transactions had taken placed during the earlier years and an aggregate sum of ₹ 60,95,400/- had also been already brought to tax in the assessments for the assessment years 1991-92 1995-96. In his reply dated 16.8.2004, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of any law. The Assessing Officer rejecting the contention of assessee noted that the same was held as non-deductible in the case of Rohtak Textile Mills Vs. CIT (1997) 226 ITR 485 (Del) to be in the nature of penalty, hence, deduction of ₹ 11,15,000/- claimed by the assessee was disallowed. 62. Before the CIT(A), the claim of the assessee was that the said payments were not penal in nature and were deductible under section 37(1) of the Act. It was also pointed out that the decision in Rohtak Textiles Mills Vs. CIT (supra) was not relevant since the said decision related to infraction under section 14B of the Employees Provident Fund Act, 1952 and not contractual payments made on account of late deliveries. Another plea raised by the assessee was that identical issue was involved in the appeal for assessment year 1999-2000 and the CIT(A) had already allowed the claim of assessee holding that the customers had deducted the amounts in the normal instance of business and hence, were allowable as business expenditure. The CIT(A) informed the assessee that since the issue is one of the facts, the relevant facts had to be considered that the damages actually related to supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed in assessment year 1999-2000 and as against the return of income filed of ₹ 7.26 crores, deduction claimed was very meager. 64. The learned Departmental Representative for the Revenue pointed out that the principles of res judicata are not applicable and where the assessee has failed to produce any evidence, how it could be said that the claim is allowable in the hands of assessee for the year under consideration. 65. We have heard the rival contentions and perused the record. The assessee has claimed deduction on account of liquidated damages paid being the amount charged by the company, for not delivering the goods in time. The case of the assessee before us is that in the purchase order itself it was mentioned that in case the supplies were not made within time, then the liquidated damages for the same were leviable @ 1% per month subject to maximum limits. Our attention was drawn to the purchase order of one concern which is placed at page 109 of Paper Book and accompanying documents in this regard. Admittedly, the assessee has further placed on record Annexure -4 detailing the list of liquidated damages date-wise paid by the assessee. The perusal of liquidate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the issue has been decided against the assessee by the Tribunal in assessee's own case by Third Member in ITA No.119/PN/1996 relating to assessment year 1992 -93, order of Third Member dated 02.06.2011. Following the same parity of reasoning, we hold that the interest paid under sections 220, 234B and 234C of the Act cannot be set off against interest received under section 244 of the Act. The ground of appeal No.4 raised by the assessee is thus, dismissed. 68. The issue in ground of appeal No.5 is against the computation of deduction under section 80HHC of the Act. 69. The plea of the assessee was that 90% of net receipts of interest, rent and commission should be reduced under section clause (1) of Explanation (baa) to section 80HHC of the Act for computing deduction under section 80HHC of the Act. The issue is settled by Apex Court in ACG Associate Capsules Pvt. Ltd. Vs. CIT (2012) 343 ITR 89 (SC). It has been held by the Apex Court that only 90% of net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of business for determining profits of the business unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHC. 70. The case of the assessee before authorities below was that on netting, there would not be any interest or rent to be considered under clause (baa) since the interest and rent payments were far in excess of interest and rent receipts. The commission on netting would work to ₹ 20,48,883/-. The Assessing Officer is directed to verify the claim of assessee and allow the claim as per ratio laid down by the Apex Court in ACG Associate Capsules Pvt. Ltd. Vs. CIT (supra). The ground of appeal No.5 is thus, allowed. 71. The issue in ground of appeal No.6 is against disallowance of deduction under section 35AB for ₹ 53,22,114/-. 72. During the appellate proceedings, notice of enhancement was issued to the assessee. The issue was the deduction allowable under section 35AB of the Act. The assessee had claimed and deduction under section 35AB of the Act, which was allowed at ₹ 1,56,56,000/-. However, the CIT(A) noted that in assessment years 1997-98 and 1998-99, deduction was allowed to the extent of ₹ 1,55,80,611/- only. Hence, differential of ₹ 53,22,114/ - was added as income of assessee. 73. The issue of allowability of deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in confirming the ad-hoc disallowance to the extent of ₹ 50,000 towards car expenses by treating the same as incurred for personal / non-business purposes. The appellant prays that the disallowance of ₹ 50,000 towards car expenses should be deleted as the same has been incurred wholly and exclusively for the purpose of businesses. 4. Disallowance of communication expenses The learned CIT(A) erred in confirming the ad-hoc disallowance to the extent of ₹ 50,000 towards communication expenses by treating the same as incurred for personal / non-business purposes. The appellant prays that the disallowance of ₹ 50,000 towards communication expenses should be deleted as the same has been incurred wholly and exclusively for the purpose of businesses 5. Set off of unabsorbed depreciation of Titex India Private Limited The learned CIT(A) erred in confirming set off of un absorbed depreciation of Titex India Private Limited (amalgamated with the appellant in the financial year ended 31 March 2001) relating to assessment year ('AY') 1999-2000 and AY 2000 -2001, while calculating profits of the business for the purpose of computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant prays that the interest under section 234D of the Act is not leviable on the refund issued in June 2002, as section 234D of the Act has been inserted after the date on which the impugned refund was issued. 11. Addition of interest for AY 1999 -2000 under section 244A as 'income from other sources' The CIT(A) erred in confirming the addition of ₹ 402,663 with reference to the interest received under section 244A in respect of AY 1999-2000 by treating the same as 'income from other sources' for the financial year ended 31 March 2001. The appellant prays that the interest received under section 244A of the Act in respect of AY 1999 - 2000 should not be treated as 'income from other sources' for the financial year ended 31 March 2001 as the assessment proceedings for AY 1999 -2000 were still in progress. 77. The assessee also filed additional grounds of appeal, which read as under:- Additional Ground 1: Deduction under section 35AB of the Income Tax Act, 1961 ( the Act ) in respect of lump sum know how fees of ₹ 1,47,07,778 The learned CIT(A) ought to have held that the assessee is entitled to deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation filed by the assessee with regard to deduction under section 80HHC of the Act noted that while computing business profit, the income from business had been taken at ₹ 17,50,47,080/- before setting off of brought forward unabsorbed depreciation of losses of Titex India Pvt. Ltd. of ₹ 5,83,35,102/- for assessment years 1999-2000 and 2000-01. The case of the assessee before the Assessing Officer was that the unabsorbed depreciation should not be reduced from income from business while computing deduction under section 80HHC of the Act. The Assessing Officer noted from the bare reading of section 80HHC of the Act along with clause b(a) or bb(aa) indicates that the profits of business were required to be computed under the head Profits and Gains of business . Further, section 28 and 29 of the Act clearly lays down different types of criteria chargeable to income tax under the above head. The Assessing Officer was of the view that unabsorbed depreciation of earlier year is deemed to be the current year's depreciation in view of the provisions of section 32(2) of the Act and section 29 of the Act states that income referred to in section 28 of the Act shall be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years . It is thus evident that unabsorbed depreciation becomes part of the current year's depreciation and accordingly comes into the computation of profits and gains of business or profession as prescribed in section 29. In the circumstances, the Assessing Officer was perfectly justified in computing the profits of the business of the appellant, for the purpose of arriving at the admissible deduction under section 80HHC, after setting off the unabsorbed depreciation of the merged entity. The recomputation thus made is accordingly confirmed; and the ground raised by the appellant is hereby dismissed. 85. The assessee is in appeal against the order of CIT(A). 86. The learned Authorized Representative for the assessee pointed out that Titex India Pvt. Ltd. got amalgamated with the assessee company w.e.f. 01.01.2001 and the issue was in respect of unabsorbed depreciation available in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamation and hence, the profits are to be re-computed and the profits as computed under the provisions of sections 28 and 29 of the Act are the eligible profits to be considered while computing deduction under section 80HHC of the Act. The Hon'ble Supreme Court in CIT Vs. Shirke Construction Equipment Ltd. (supra) had held that while determining the business profits for deduction under section 80HHC of the Act, unabsorbed business losses of earlier years under section 72 of the Act should be set off. Accordingly, we hold so and the ground of appeal No.5 raised by the assessee is thus, dismissed. 89. The issue in ground of appeal No.6 is treatment of scrap sales in the total turnover while computing deduction under section 80HHC of the Act. 90. The claim of the assessee before us was that the said scrap sale was not includable in the export turnover and total turnover while computing deduction under section 80HHC of the Act. Both the authorities below were of the view that the proceeds realized on the sale of scrap were received and were not levies as was case with sales tax and Excise duties. Accordingly, inclusion of scrap sale of ₹ 1,44,20,000/- in total turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of appeal No.4 raised by the assessee in ITA No.112/PN/2006 and following the same, we hold that this issue is against the assessee and ground of appeal No.9 raised by the assessee is dismissed. 98. Now, coming to the issue in ground of appeal No.10 i.e. levy of interest under section 234D of the Act. 99. The learned Authorized Representative for the assessee fairly pointed out that the issue raised vide ground of appeal No.10 is against the assessee in view of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Indian Oil Corporation Ltd. (2012) 254 CTR 113 (Bom). 100. We find that the Hon'ble Bombay High Court in CIT Vs. Indian Oil Corporation Ltd. (supra) had held that consequent to addition of Explanation 2 to section 234D by the Finance Act, 2012 with retrospective effect from 01.06.2003, section 234D of the Act was applicable even to period prior to assessment year 2004-05. Where the Assessing Officer had granted refund to the assessee under section 143(1) of the Act and subsequently regular assessment order was passed under section 143(3) of the Act and tax demand was raised upon the assessee, then the assessee was liable to pay interest under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. The interest was computed by the Assessing Officer on 30.06.2000 and consequently, the same is includable in the hands of assessee in the year ending 31.03.2001, which has been so included by the authorities below. Further, there is no merit in the plea raised by the assessee that only interest as finally determined could be assessed in the hands of assessee. The ground of appeal No.11 is thus, dismissed. 104. Now, coming to additional grounds of appeal raised by the assessee, which are admitted being legal issues as admitted in the earlier years. 105. The additional grounds of appeal No.1 and 2 raised by the assessee are identical to the additional grounds of appeal No.1 and 2 raised in assessment year 1999-2000 and 2000-01 and following our decision in the paras hereinabove, we allow the additional grounds of appeal No.1 and 2 raised by the assessee. 106. The assessee in the present appeal has raised another additional ground of appeal No.3 with regard to advances written off at ₹ 21 lakhs and the assessee is aggrieved by the order of CIT(A) in not disposing off the said ground of appeal No.2. 107. We hold that since some of issues are sent back to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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