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2016 (5) TMI 952 - ITAT PUNE

2016 (5) TMI 952 - ITAT PUNE - TMI - Disallowance of expenditure on computer software - Held that:- The assessee during the year also claims to have purchased similar computer software i.e. application software for upgrading its systems, hence the same is to be allowed as revenue expenditure in the hands of assessee, in line with order of Tribunal in assessment year 2002-03 in appeal filed by the Revenue. We also find support from ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Raych .....

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ved in respect of units of UTI were eligible for deduction under section 80L of the Act. Thus, the dividend 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 .....

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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 company was on 01.01.2001 i.e. during the financial year ending 31.03.2001 and after amalgamation, profits and losses of the said company gets merged with the prof .....

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out the deduction under section 80HHC of the Act, such reduced profits after set off of unabsorbed depreciation of Titex India Pvt. Ltd. are to be considered for computing deduction under section 80HHC of the Act. Admittedly, the said losses relate to amalgamated company. However, unabsorbed depreciation becomes part of current depreciation of the assessee company after amalgamation and hence, the profits are to be re-computed and the profits as computed under the provisions of sections 28 and 2 .....

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section 80HHC - Held that:- We find that the issue is squarely covered in favour of the assessee. While computing deduction under section 80HHC of the Act since the assessee has not shown export of scrap as such, scrap sales would not form part of total turnover, while computing deduction under section 80HHC of the Act. Hence, the scrap sale is excludable from both the export and total turnover for calculating deduction under section 80HHC of the Act.

Setting off of loss from export .....

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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 .....

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amounts shall be included in the business income for the purpose of relief under section 80HHC of the Act. Where there was no nexus between income earned and business 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 sectio .....

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t turnover bears to the total turnover of business. Otherwise, it would tantamount to allow deduction under section 80HHC of the Act more than the profits derived by the assessee from export of said goods or merchandise. Therefore, the claim of the assessee was rejected by CIT(A). Accordingly, we hold that ground of appeal No.3 raised is mis-placed and hence, the same is dismissed.

Exclusion of sales tax and Excise duty collected from the total turnover for the purpose of computing de .....

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iquidated damages by treating them as payment for infraction of law - Held that:- The assessee has furnished one set of documents. However, the assessee has failed to furnish majority of evidences justifying his claim. Though the assessee has stated that it is difficult for him to dig out the details for earlier years, however, following the principles of natural justice, we deem it fit to restore the issue to the file of Assessing Officer and direct the assessee to furnish requisite details bef .....

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-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 .....

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9;). The assessee has also filed two appeals against separate orders of CIT(A)-III, Pune dated 28.10.2005 and 28.11.2005 relating to assessment years 2000-01 and 2001-02 against respective orders passed under section 143(3) of the Act. 2. This bunch of appeals relate to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The learned Authorized Representative for the assessee at the outset pointed out that majorly the issues r .....

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f appeal:- 1 Deduction Under section 37(1) of the Income-tax Act, 1961 ("the Act") in respect of expenditure on computer software 1.1 The learned Commissioner of Income-tax (Appeals)-Ill, Pune ["the CIT(A)"] erred in upholding the disallowance in respect of expenditure on computer software aggregating to ₹ 1,900,060 incurred in the previous year. 1.2 As the said expenditure did not result in any enduring benefit for Sandvik Asia Ltd ("the Appellant"), the CITC .....

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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, .....

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its under section 115JA of the Act, the profits eligible for deduction under section 80HHC of the Act (which are to be reduced from the net profit as per the profit and loss account) should be computed based on the book profits and not on the deduction allowable under section 80HHCof the Act. 3.2 Without prejudice to Ground No. 3.1 above, the CIT(A) erred in holding that the gross commission and interest income should be excluded in computing the profits eligible for deduction under section 80HH .....

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14,842 (comprising interest on income-tax refund of ₹ 12,046,639, NSC interest of ₹ 336,249, bank interest of ₹ 235,759 and other interest of ₹ 96,195) be included in computing the profits eligible for deduction under section 80HHC of the Act, which, in turn, are to be reduced in computing the book profits under section 115JA of the Act. The Appellant prays that the aforesaid interest be included in computing the profits eligible for deduction under section 80HHC of the A .....

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in clauses (iiia), (iiib) and (iiic) of section 28 of the Act. The Appellant prays that 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, only the profits derived in respect of the sums referred to in clauses (iiia), (iiib) and (iiic) of section 28 of the Act, should be considered, without netting off therefrom any losses computed under clauses (a), (b) and (c) of sub section (3) o .....

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nder 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 35A .....

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77; 51,72,000/- 6. The claim of the learned Authorized Representative for the assessee before us was that the additional grounds of appeal raised were consequential to the earlier order passed by the Tribunal and hence, were admissible. 7. The learned Departmental Representative for the Revenue on the other hand, admitted that similar issue arose before the Tribunal in earlier years. 8. We admit the additional grounds of appeal raised by the assessee being consequential and proceed to decide the .....

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assessed the loss at ₹ 16,72,660/- under the normal provisions of the Act and determined the income of ₹ 89,41,258/- under section 115JA of the Act. 10. The CIT(A) allowed certain relief to the assessee, against which the Revenue is in appeal and the issues which have been sustained by the CIT(A), against which the assessee is in appeal. 11. The first issue raised by the assessee vide ground of appeal No.1 is against the disallowance of expenditure on computer software of ₹ 19, .....

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onsidered the nature of expenditure in detail and held that the 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 appea .....

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diture 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 decision of the Hon'ble Bombay High Court in the case of CIT Vs. Lubrizol India Ltd. reported in 37 Taxmann.com 294 (Bom.) where it has been held that expenses incurred to obtain the application software which has to be upgraded .....

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ited period would have to be renewed from time to time. In the aforesaid circumstances, the Tribunal held that considering the nature of the software licence i.e. application software, the same has to be allowed as a revenue expenditure. In view of the finding of fact arrived at further by the Tribunal that the expenses have been incurred on application software which is for a limited time frame and has to be renewed from time to time, we see no reason to entertain question B as framed by the re .....

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led by the Revenue. We also find support from ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom). The Assessing Officer is directed to allow the expenditure in totality and depreciation already allowed should be withdrawn. The ground of appeal No.1 is thus, allowed. 17. The issue in ground of appeal No.2 is against the order of CIT(A) in not allowing deduction under section 10(33) of the Act on dividend income of ₹ 12,68,541/- earned o .....

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nal 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 As .....

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d against the assessee by the order of Tribunal in assessment year 1997-98 in respect of first three items and fourth item of receipts was similar in nature. 21. We find that the issue of deduction under section 80HHC of the Act on similar nature of receipts was considered by Tribunal in ITA No.525/PN/2003 relating to assessment year 1997-98, order dated 10.04.2015. The Tribunal held as under: "35. The issue in ground of appeal No.2.1 raised by the assessee is against the computation of ded .....

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see pointed out that the above said issue of exclusion of items of income enlisted in ground of appeal No.2.1 was decided against the assessee by the Tribunal in assessee's own case in ITA No.580/PN/2000, relating to assessment year 1996 -97, order dated 02.02.2001. The Tribunal vide para 29 on page 20 had considered the said receipts and vide para 31 had held that the interest earned on deposits with MIDC, MSEB as well as interest on outstanding amount from the customers are assessable unde .....

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NSC interest and interest received on income-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 raise .....

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ch 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 No.525/PN/2003, relating to assessment year 1997 - 98 vide order dated 10.04.2015 held that the assessee is entitled to claim of deduction under section 35AB of the Act on lump sum know-how fees paid. The Tribunal vide paras 13 to 34 held as under:- " .....

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utting tools system for metal working. M/s. Sandvik was in possession of extensive know-how regarding the manufacture, marketing and sale of such products as well as of patent and trade marks relating thereto. On the other hand, the assessee was supplying different types of products to Sandvik for sale through its international sales organization. It is further provided in the said Preamble Whereas, SAL, has expressed an interest in obtaining long term access to Sandvik know-how as well as paten .....

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L hereunder. The present group of such tools and systems are identified in Appendix A:1 hereto, and any further groups of such tools and systems are to be identified in Appendix A:2, A:3 etc., such further appendix or appendices to form an integral part of this Agreement." 14. Further, Sandvik know-how is defined as under:- "1.7 "Sandvik know-how" shall mean all specifications, drawings, procedures, processes, performance and procurement standards, and all other related infor .....

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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 packagin .....

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d services provided by the Sandvik does not shoulder any responsibility upon Sandvik for the way and the manner in which Sandvik know-how and advice are applied by the assessee. Clause 3 of the agreement talks about license. Clause 3.1 of the agreement reads as under:- "3.1 SAL is hereby granted the right and license to use the Sandvik Patent Rights and the Sandvik know-how for the manufacture in India of the productions, and for the marketing and sale of the products in India and elsewhere .....

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and grants sublicenses under it. However, Sandvik had final say as to the sale of products manufactured by the assessee in Europe and North America, but no such control was in respect of sale of products in India and elsewhere through Sandvik sales organization. Under clause 3.2 of the agreement, the assessee had the right, subject to Sandvik approval to apply for or maintain such patent/s in the name of Sandvik or the relevant subsidiaries. A secrecy clause vis-à-vis use of Sandvik know .....

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isclose the same and SAL shall take all reasonable measures to prevent such employees from disclosing the same, to others. The foregoing shall not relate to any information which SAL can show by written record to have been in its possession at the time of its disclosure 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 .....

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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 Agreement, SAL shall have the right, subject to t .....

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the Agreement shall always, save as stated in the last paragraph, be payable as stated herein with regard to all Products manufactured during a period of seven years from the commencement of commercial production of the Products. After the expiration of said period SAL shall have the right to use the Sandvik know-how in all countries free of charge and to use in India also free of charge any invention under the Sandvik Patent Rights (Indian), As to the sale by SAL outside India or for use outsi .....

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ment year in question as the Agreement has been valid and be made within two months from the date of expiry of this Agreement. SAL's rights according to Article 2 and Article 3 shall then terminate with immediate effect. 8.4 The termination of this Agreement shall not effect SAL's secrecy obligations according to Article 5 above or its obligation under this Article U, which obligations shall continue to apply as set out in those articles." 18. Even after the termination of the agree .....

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nnovations 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 a .....

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the assessee while filing the return of income had claimed said expenditure to be allowable under the provisions of section 35AB of the Act. 19. The provisions of said section 35AB read as under:- "35AB. (1) Subject to the provisions of sub-section (2), where the assessee has paid in any previous year 44[relevant to the assessment year commencing on or before the 1st day of April, 1998] any lump sum consideration for acquiring45 any know-how for use for the purposes of his business, one-si .....

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ted in computing the profits and gains of the business for that year, and the balance amount shall be deducted in equal instalments for each of the two immediately succeeding previous years. 46[(3) Where there is a transfer of an undertaking under a scheme of amalgamation or demerger and the amalgamating or the demerged company is entitled to a deduction under this section, then, the amalgamated company or the resulting company, as the case may be, shall be entitled to claim deduction under this .....

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s (including the searching for, discovery or testing of deposits or the winning of access thereto).] [Expenditure for obtaining licence to operate telecommunication services.]" 20. The section provides that within the stipulated period, where any lump sum consideration is paid for acquiring any know-how for use or for the purpose of business, then 1/6th of the amount so paid shall be deducted in computing profits and gains of the business for that year. The year under appeal, in which the a .....

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urred 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 d .....

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deemed to derive benefits and manufacture the product in the factory. The issue was whether the entire payment made could be held as revenue expenditure, the Hon'ble High court had disallowed 25% of the sum paid as royalty as capital expenditure not allowable as revenue expenditure, which was upheld by the Hon'ble Supreme Court. 22. Further, the learned Authorized Representative for the assessee relied on the ratio laid down by Hon'ble Madras High Court in CIT Vs. Simpson and Co. Ltd .....

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distinction drawn was between capital and revenue expenditure and if revenue in nature, then its allowability under section 37(1) of the Act. 23. Another reliance was placed upon by the learned Authorized Representative for the assessee was on the decision of Chandigarh Bench of the Tribunal in DCIT Vs. Metalman Auto (P.) Ltd. (2001) 78 ITD 327 (Chd.) for the proposition that where the expenditure resulted in improving existing products already manufactured by the assessee and did not relate to .....

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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), .....

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N 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 is able to run his business effectively with the aid of know-how obtained by him pursuant to an agreement on payment of consideration, then the provisions of section 35AB of the Act gets attracted and it was further held that the said provisions are also attracted even in those cases where right is not .....

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utside the purview of section 37(1) of the Act. It was thus, held that where the assessee had acquired a benefit of enduring nature and the expenditure in connection thereof being capital in nature, was not deductible under section 37(1) of the Act. The learned Departmental Representative for the Revenue further pointed out that the ratio laid down by the Hon'ble Supreme Court in Alembic Chemical Works Co Ltd Vs CIT (supra) related to pre-introduction of section 35AB of the Act. 25. The lear .....

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ee that the facts of the case of the assessee were distinguishable and in respect of the decision of Ahmedabad Bench of the Tribunal in APS-Star Industries Ltd. Vs. DCIT (supra), the issue was whether it fell within the realm of capital or revenue expenditure. 26. The Hon'ble Supreme Court in Alembic Chemical Works Co Ltd Vs CIT (supra) while deciding the issue of allowability of expenditure on acquisition of know-how, for which lump sum payment was made held that idea of once for all paymen .....

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ring 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 adv .....

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Finance Act, 1985, w.e.f. 01.04.1986. 27. In the facts of case before the Hon'ble Supreme Court in Drilcos (India) (P.) Ltd. Vs. CIT (supra), the assessee had acquired technical know-how under an agreement for consideration, which was to be paid in installments. The question for determination was whether the expenditure could be claimed as deduction under section 37 of the Act. The Hon'ble Apex court held as under:- "5. The contention of the assessee is that Section 35AB of the Act .....

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ately succeeding previous years. Explanation to the said section says that the word 'know-how' means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine. If one carefully analyzes Section 35AB of the Act, it is clear that prior to 1st April, I986 there was some doubt as to whether such expenditure could fall under section 37 of the Act. To remove that doubt Section 35AB of the Act stood inserted. In subsection (1) .....

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or the purposes of the business of the assessee. In the present case, the Technical Assistance Agreement was entered into between the assessee and the American company for acquiring 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 ins .....

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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 does not speak of the nature of expenditure i.e. whether capital or revenue, but talks of consideration paid f .....

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ference between revenue and capital expenditure. 30. Another aspect of the issue is whether such expenditure is allowable under section 37 of the Act. The Ahmedabad Bench of the Tribunal in APS - Star Industries Ltd. Vs. DCIT (supra) on the said issue held as under:- "19. Regarding the applicability of section 37(1) we have held above that the lump sum consideration paid by the assesses would fall within the purview of section 35AB and therefore would be excluded from the ambit of section 3 .....

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n agreement for the return of documentation, drawings and designs on expiration of the agreement alter 10 years to the German Company and there is no bar on the assesses in continuing with the manufacture of the contract products by utilisation of the technical knowhow even after the period of 10 years. The assesses has thus acquired a benefit of enduring nature and the expenditure in connection thereof is capital in nature. In support of the view taken by us reliance is placed on the decision o .....

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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 .....

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sion of the profit-earning apparatus of the assessee company. Such expenses which are inextricably connected with the capital structure of the company would clearly be of capital nature and therefore outside the purview of section 37(1). It has been held by the Hon'ble Supreme Court in Empire Jute Co. Ltd v. CIT [1980] 124 ITR 1 and Alembic Chemical Works Co. Ltd v. CIT [1989] 177 ITR 377 that if the expenses incurred by the assessee are in the capital field and are inextricably connected wi .....

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sly form the tools by using which the business of manufacturing the textile machinery spare parts was to be done by the assessee and for acquiring such technical knowhow through these documents, a lump sum payment was made. This expenditure was incurred by the assessee as and by way of purchase price of such documentation and was of a capital nature inasmuch as the documentation provided id the assessee was a tool of his trade with which he carried on his business. The capital asset acquired by .....

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5 w.e.f. 01.04.1986, we are of the view that in cases of payment of lump sum consideration for acquiring technical know-how, the provisions of section 35AB of the Act are attracted and the expenditure is not allowable under section 37(1) of the Act, which is general provision and specifically excludes expenditure covered under sections 30 to 36 of the Act. Consequently, the said expenditure is to be amortized under section 35AB of the Act and cannot be allowed as a deduction in the year in which .....

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ied 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 .....

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tion of technical know-how and hence not covered under section 35AB of the Act. The section itself provides that any lump sum consideration paid for acquiring any know-how, for use, for the purpose of his business is to be deducted in six installments. Under the agreement, the technical know-how received by the assessee was in relation to production of new type of cemented carbide products, and acquisition gave rise to coming into existence of asset and advantage of enduring benefit and the same .....

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11 of appellate order had held that the liability for payment of technical know-how accrued in assessment year 1997-98 itself and the deduction under section 35AB of the Act had to be allowed on full amount. The Revenue is not in appeal against the said observations of the CIT(A). Accordingly, we uphold the order of CIT(A) in this regard and we hold that the assessee is entitled to the deduction under section 35AB of the Act on the full amount i.e. ₹ 8.82 crores. The Ahmedabad Bench of th .....

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allments, 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 .....

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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 has referred to two journal entries in this regard and on that basis directed the Assessing Officer to allow the claim, subject to the verification that the liability crystalised in this year or not. Ostensibly, if the aforesaid factual matrix noted by the Commissioner of Income-tax (Appeals) and whi .....

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ctions to consider the true nature of the claim in the light of the observations of the Commissioner of Income-tax (Appeals) in para 6.3 of his order dated 28.11.1997 and not be guided by merely the nomenclature of the head under which the claim has been made. Needless to say, in carrying out the aforesaid exercise, the Assessing Officer shall provide reasonable opportunity of being heard to the assessee. Thus, on this issue assessee succeeds for statistical purposes. 19. In the result, appeal o .....

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CIT(A) erred in deleting the addition of ₹ 1,99,43,610/- made by the AO on account of excise duty payment on finished goods which is not included in the value of closing stock. (2) On the facts and in the circumstances of the case, the ld CIT(A) erred in taxing the net of interest and thus giving relief for interest paid by the assessee to the I.T department." 22. The first Ground relates to an addition of ₹ 1,99,43,610/- made by the Assessing Officer on account of valuation of .....

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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 .....

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ssessee's own case for the assessment year 1992-93 in ITA No 119/PN/96 (supra) wherein the issue has been decided against the assessee and in favour of the Revenue, by way of a majority decision vide order dated 13.9.2011 (supra). It has been held that the assessee is assessable in respect of the gross interest received from the Income-tax Department and not merely on the net interest remaining after set off of interest paid to the Department. The interest payment has also not been held to b .....

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liability of ₹ 8.82 crores and 1/6th on said amount is to be allowed as deduction in the hands of the assessee. The ground of appeal No.1 raised by the assessee is thus, partly allowed." 24. The issue arising before us is identical and following the same parity of reasoning, we hold and direct the Assessing Officer to allow the deduction under section 35AB of the Act @ 1/6 th of the total know-how fees paid of ₹ 8.82 crores. The additional ground of appeal No.1 raised by the as .....

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12.2015 had adjudicated identical claim of deduction on account of exchange fluctuation loss of ₹ 51,72,003/-. The assessee before us has also claimed identical 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 .....

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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 case of Commissioner of Income Tax Vs. Woodward Governor India P. Ltd. reported as 312 ITR 254 (SC). The relevant table on which the ld. AR has placed reliance is .....

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3,668 1,47,07,778 - 1,47,07,778 2002-03 9,34,83,668 1,47,07,778 - 1,47,07,778 2003-04 9,34,83,668 1,47,07,778 - Total 8,82,46,668 51,72,000 9,34,18,668 8.2 On the other hand the ld. DR objected to the same and submitted that there is no infirmity in the findings of the authorities below on this issue. 8.3 We have heard the submissions made by the representatives of rival sides and have perused the orders of authorities below. We are of the view that if the exchange fluctuation loss has been wron .....

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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 re .....

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e of Pandian Chemicals Ltd. 262 ITR 278 (SC) wherein it was held that such income cannot be treated as derived from export business. 2.4 The Ld. CIT(A) ought to have appreciated the fact that the first appellate authorities have all the power of Assessing Officer in determination of the income of the assessee as held in CIT Vs. Kanpur Coal Syndicate 53 ITR 225 (SC) and in Jute Company of India Ltd. Vs. CIT 187 ITR 688 (SC). 3.1 On the facts and in the circumstances of the case, the Ld. CIT(A) ha .....

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loss from export business, no deduction is to be allowed U/s. 80HHC. 04. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing to exclude Sales-tax and Excise duty collected from the total turnover for the purpose of calculating deduction u/s 80HHC. 05. The order of the Ld. CIT(A) may be vacated and that of the Assessing Officer be restored. 06. The appellant craves leave to add, amend or alter any of the above grounds of appeal. 29. The ground of appeal No.1 r .....

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did not close any part of its business operations and hence, the expenses incurred were wholly and exclusively for the efficient running of business. The Assessing Officer took note of the Preamble of the Scheme, under which the purpose of scheme was to reduce the manpower to enable the company to manage its affairs in a more economic and efficient manner. The assessee claimed that by virtue of this scheme, the assessee had incurred expenditure which in turn, would reduce its manpower and would .....

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ence 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 th .....

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further held that the benefits could not be held to be in capital field even though could be enduring in some sense. The CIT(A) thus, held that the expenditure was incurred wholly and exclusively for the purpose of business and was revenue expenditure. 32. The Revenue is in appeal against the order of CIT(A) in this regard. 33. The learned Departmental Representative for the Revenue pointed out that where the expenditure was of enduring benefit, then the said expenditure is a capital expenditure .....

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er had approved the scheme of VRS under section 10(10C) of the Act 35. We have heard the rival contentions and perused the record. The assessee for the year under consideration had floated a VRS Scheme and the object of the said Scheme was to reduce the workforce of assessee company. Under the said scheme, the employees of the assessee company were offered retirement benefits and the assessee had debited sum of ₹ 4,00,39,000/-. The object of the said Scheme by way of reducing number of wor .....

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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 sub .....

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he 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 the assessee had written it off in its books over a period of years. 37. The Hon'ble High Court of Madras in CIT Vs. Simpson & Co. Ltd. (supra), in turn, relied on the ratio laid down in CIT Vs. George Oakes Ltd. (1992) 197 ITR 288 (Mad) also held that the matter of amount paid to employees under VRS Scheme pertains to business considerat .....

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CIT Vs. Simpson & Co. Ltd. (supra). 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. Upholding the order of CIT(A), we dismiss the ground of appeal No.1 raised b .....

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in ITA No.580/PN/2000, relating to assessment year 1996-97, order dated 02.02.2001. 41. We find that the Tribunal in assessment year 1996-97 vide para 30 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 Gains of Business". Accordingly, these amounts shall be included in the business income for the purpose of relief under section 80HHC of the Act. Where .....

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. 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 l .....

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loss, the effect of proviso to section 80HHC(3) of the Act would be to allow set off of loss by 90% of sum referred to in clauses (iiia), (iiib) & (iiic) in the same proportion as the export turnover bears to the total turnover of business. Otherwise, it would tantamount to allow deduction under section 80HHC of the Act more than the profits derived by the assessee from export of said goods or merchandise. Therefore, the claim of the assessee was rejected by CIT(A). Accordingly, we hold tha .....

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g deduction under section 80HHC of the Act and while computing total turnover, both sales tax and Excise duty cannot form part of turnover and such taxes have to be excluded from total turnover under section 80HHC(3) of the Act. Following the same directive, we find no error in the order of CIT(A) and accordingly, we dismiss the ground of appeal No.4 raised by the Revenue. 48. The grounds of appeal No.5 and 6 raised by the Revenue are general in nature and are dismissed. 49. The assessee in ITA .....

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in respect of land constitutes a capital receipt, not taxable under the Act. 2. Disallowance of software expenses 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 de .....

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o ₹ 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 per cent of gross receipts The learned CIT(A) has erred in confirming that ninety per cent of gross receipts in relation to interest, rent and commission should be reduced from the profits of the business in computing .....

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tion 35AB of the Act. 50. The assessee has raised additional grounds of appeal 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 ₹ 1,47,07,778/- in respect of lump sum know how fees u/s 35AB of the IT Act. Additional Ground 2: Assessee entitled to deduction of Exchange Fluctuation loss. .....

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the facts relating to the issue, the assessee had credited sum of ₹ 91,45,400/- on account of sale of development and other rights in respect of land. The claim of the assessee was that the same was capital receipt and hence excluded while computing the total income. The said amount was received by assessee from M/s. Dadhe Constructions Pvt. Ltd., as consideration for assignment of development and other rights and since there was no actual transfer of land, there was no scope of computing .....

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ted 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 1 .....

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considered for assessment for the assessment years 1991-92 & 1995-96 respectively, he assessed only the balance amount of ₹ 30,30,000/- (it should have been ₹ 30,50,000/-) for the present assessment year under the head "Long Term Capital gains". 54. Before the CIT(A), the assessee made new plea as under:- "8.2.1 During the course of the appeal proceedings, the appellant and its learned Authorized Representative filed copies of the agreements entered into the earlie .....

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greements were relevant to the assessment year 1995-96. In the assessment for the said assessment year, the cumulative considerations of ₹ 18,20,000/- were brought to tax under the head "Long Term Capital gains". The appellant also filed copy of a letter dated 5.5.1992 addressed to Shri Vijay Narayan Dadhe, Managing Director of M/s. Dadhe Construction Pvt. Ltd. whereby the former was given authorisation to make constructions to the extent 49,239.49 sq.ft. from out of the total ar .....

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h assignation was stipulated at ₹ 24 lakhs. The appellant filed yet another letter dated 12.7.1993 addressed to Shri Vijay Narayan Dadhe whereby the latter was required to pay ₹ 5 lakhs to the appellant as security deposits / additional amount in connection with 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 c .....

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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, the Assessing Officer i .....

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0/-, had been raised during the course of the assessment proceedings for this assessment year, the appellant's Authorized Representative had not raised any objection whatsoever. It was accordingly submitted that the addition made on this score be confirmed." 56. The CIT(A) was of the view that submissions made by the assessee need scrutiny and after analyzing various aspects of the issue in paras 8.4.1 and 8.4.2 at pages 11 to 14 of appellate order, had set -aside the issue to Assessing .....

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issue. 59. The issue raised vide ground of appeal No.2 against disallowance of software expenses is similar to ground of appeal No.1 in assessment year 1999-2000 and following our decision in paras hereinabove, we allow this ground of appeal No.2 raised by the assessee. 60. The next ground of appeal No.3 is against disallowance of liquidated damages of ₹ 11,01,173/- by treating them as payment for infraction of law. 61. Briefly, the facts relating to the issue are that, the Assessing Offi .....

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f 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 Employee .....

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ad to be considered that the damages actually related to supply of goods which had been accounted for as income and whether the liability in respect of damages were contractual in nature and whether the contractual liabilities got crystallized during the year. The assessee in response, filed list of parties who had made the deductions. However, evidence was filed only in respect of one case of deduction of ₹ 13,527/-, other details / evidences called for were not furnished. During the subs .....

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d before him and also noted his power of enhancement and reiterated the issue involved is one of the facts and unless the facts involved in two assessment years were identical on all fours, the decision taken in respect of any one year could not be applied. The CIT(A) was of the view that where the assessee has failed to establish its case as to when the liability in respect of payments towards damages got crystallized, and in the absence of any evidence filed, there was no merit in the claim of .....

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of laws, whereas the cutting tools were supplied to government agencies and where the supplies were not made in time, then 1% was to be deducted. Our attention was drawn to the purchase order placed at page 109 of Paper Book and further at page 112 of the Paper Book, where the copy of invoice is attached and the copy of credit notes at page 114 of the Paper Book. The learned Authorized Representative for the assessee stressed that the similar amount was allowed in assessment year 1999-2000 and a .....

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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. Admittedl .....

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assessee that it had paid the aforesaid liquidated damages for not delivering the goods in time and which was in accordance with purchase orders placed by the respective government agencies, is allowable in case the assessee furnishes evidence in respect thereof. During the course of appellate proceedings, the assessee furnished only one evidence to expenditure claimed of ₹ 13,527/-, which was allowed by the CIT(A). However, the assessee before the CIT(A), aggressively stated that the deta .....

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failed to furnish majority of evidences justifying his claim. Though the assessee has stated that it is difficult for him to dig out the details for earlier years, however, following the principles of natural justice, we deem 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. The ground .....

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d Representative for the assessee fairly pointed 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 asses .....

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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 under Clause (1) of Explanation (baa) to section 80HHC of the Act. The Hon'ble Supreme Court held as under:- "10. Under clause (1) of Explanation (baa) to section 80HHC of the Act, ninety per cent. of any receipts by way of brokerage, commission, intere .....

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profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and gains of business or profession", ninety per cent. of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) from the profits of the business. In other words, .....

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on, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and gains of business or profession" referred to in the first part of Explanation (baa). 12. Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of .....

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₹ 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 se .....

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5/PN/2003 relating to assessment year 1997-98. The Assessing Officer has been directed to compute the deduction @ 1/6th of ₹ 8.82 crores. The Tribunal has further applied the said ratio in assessment year 1998-99 (supra). In the paras hereinabove while deciding the additional ground of appeal No.1 raised by assessee in assessment year 1999-2000 also similar directions have been given. 74. Further, we find the assessee in the present appeal has also raised additional ground of appeal No.1 o .....

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deduction claimed of appropriate part of exchange fluctuation loss. The issue raised is same as in assessment year 1999-2000 and following the same reasoning, this issue is also remitted back to Assessing Officer. The additional ground of appeal No.2 raised by the assessee is thus, allowed. 76. The assessee in ITA No.113/PN/2006 relating to assessment year 2001-02 has raised the following grounds of appeal:- 1. Disallowance of software expenses The learned CIT(A) erred in confirming the disallow .....

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fraction of law. The appellant prays that the deduction towards liquidated damages amounting to ₹ 583,000 was contractual in nature and should be allowed as a deduction under section 37(1) of the Act. 3. Disallowance of car expenses The learned CIT(A) erred 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 ex .....

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clusively 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 deduction under section 80HHC of the Act. The appel .....

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,420,000 should be excluded from the "total turnover" while computing the deduction under section 80HHC of the Act. 7. Set off of losses of trading activity against manufacturing activity The learned CIT(A) has erred in confirming the set off of loss from export of trading goods against profits from export of manufactured goods while computing deduction under section 80HHC of the Act. The appellant prays that loss from export of trading goods should not be set off against profit from e .....

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n relation to rent and service charges, interest and commission should be excluded from the profits of the business for the financial year ended 31 March 2001. 9. Set off of interest paid under section 220 against interest received under section 244A The learned CIT(A) erred in confirming the disallowance of set-off of interest paid under section 220 of the Act amounting to ₹ 82,180 against interest received under section 244A of the Act. The appellant prays that the deduction of ₹ 8 .....

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ate 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 - .....

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n of ₹ 1,47,07,778/- in respect of lump sum know how fees u/s.35AB of the IT Act. Additional Ground 2: Assessee entitled to deduction of Exchange Fluctuation loss. The learned CIT(A) ought to have held that the assessee is entitled to deduction of appropriate part of exchange fluctuation loss of ₹ 51,72,000/- Additional Ground 3: Advances written off: The CIT(A) erred in not disposing off ground of appeal no.2 field before CIT(A) for ₹ 21,00,000/- in respect of advances written .....

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hus, allowed, 79. The issue in ground of appeal No.2 raised by the assessee is identical to the issue raised vide ground of appeal No.3 in ITA No.112/PN/2006 relating to assessment year 2000-01. Following the same parity of reasoning, we remit the issue to the file of Assessing Officer. Th e ground of appeal raised by the assessee is allowed for statistical purposes. 80. The issue in grounds of appeal No.3 and 4 raised by the assessee is against disallowance of car and communication expenses amo .....

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er to delete addition of ₹ 50,000/- each towards car and communication expenses. The grounds of appeal No.3 and 4 are thus, allowed. 82. Now, coming to ground of appeal No.5 i.e. with regard to claim of deduction under section 80HHC and as to whether unabsorbed depreciation of Titex India Pvt. Ltd. is to be adjusted or not. 83. The Assessing Officer while perusing computation filed by the assessee with regard to deduction under section 80HHC of the Act noted that while computing business p .....

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HC 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 sec .....

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80HHC of the Act. 84. The CIT(A) held as under:- "14.1 In this appeal, the appellant has argued that the Assessing Officer erred in taking the unabsorbed depreciation of Titex India Pvt. Ltd. [merged with the appellant with effect from 1-1-2001] for computing the deduction admissible to it under section 80HHC. 14.2. I have carefully considered the reasons cited by the Assessing Officer as well as the ground raised by the appellant. The adjustment made by the Assessing Officer has to be conf .....

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e (baa) of the Explanation to section 80HHC [appearing below sub-section 4(c)], "profits of the business' means the profits of the business as computed under the head 'profits and gains of business or profession' ........". Therefore, there can be no dispute over the fact that profits of the business under section 80HHC will have to be computed in the manner of computation provided under the head 'profits and gains of business or profession'. Section 28 deals with & .....

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ar, "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 presc .....

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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 hands of said entity relating to earlier years. The learned Authorized Representative for the assessee referred to the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Shirke Construction Equipment Ltd. (2007) 291 ITR 380 (SC), wherein it was held that for claiming the dedu .....

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esentative for the Revenue placed reliance on the orders of authorities below. 88. We have heard the rival contentions and perused the record. The issue arising vide ground of appeal No.5 is also connected with the computation of deduction under section 80HHC of the Act. The assessee is aggrieved by the order of Assessing Officer in computing profits of business which are eligible for claiming deduction under section 80HHC of the Act after setting off of unabsorbed depreciation of earlier years .....

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rbed losses of Titex India Pvt. Ltd., against its own business profits. Once such a claim is allowable in the hands of assessee, then the profits of assessee stand reduced on account of claim of unabsorbed depreciation. In order to work out the deduction under section 80HHC of the Act, such reduced profits after set off of unabsorbed depreciation of Titex India Pvt. Ltd. are to be considered for computing deduction under section 80HHC of the Act. Admittedly, the said losses relate to amalgamated .....

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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 wh .....

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h Court of Madras in CIT Vs. Ashok Leyland Ltd. (2008) 297 ITR 107 (Mad) for the proposition that scrap sale is not to be included in the total turnover for the purpose of calculating deduction under section 80HHC of the Act. 92. We find that the issue is squarely covered in favour of the assessee. While computing deduction under section 80HHC of the Act since the assessee has not shown export of scrap as such, scrap sales would not form part of total turnover, while computing deduction under se .....

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ee by the ratio laid down by the Hon'ble Supreme Court in IPCA Laboratories Ltd. Vs. DCIT reported in 266 ITR 521 (SC), 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. We hold so and ground of appeal No.7 is thus, dismissed. 95. The issue in ground of appeal No.8 .....

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is thus, allowed for statistical purposes. 97. The issue in ground of appeal No.9 i.e. disallowance of set off of interest paid against interest received is also similar to the ground 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 learn .....

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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 section 234D of the Act on excess refund granted to it. Applying the said ratio, we uphold the order of CIT(A) in this regard, .....

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hat in case pursuant to assessment completed under section 143(3) of the Act, the interest under section 244A of the Act is reduced, then only the reduced amount would form part of income of that year. The CIT(A) vide para 21.2 notes that the refund to which the impugned interest pertains had been determined on processing the assessee's return of income for the assessment year 1999-2000 under section 143(3) of the Act on 26.06.2000 after adjusting the said refund including interest under sec .....

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not received the said interest. Hence, the addition made on this count was upheld by CIT(A). The Assessing Officer had noted that pursuant to intimation under section 143(1) of the Act, the assessee had received interest under section 244A of the Act at ₹ 4,02,663/- in respect of assessment year 1999- 2000. Since the assessment proceedings for the said year were in progress and the assessee had not offered the said income for taxation, the Assessing Officer while completing assessment pro .....

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