TMI Blog2008 (5) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... rded against other grounds of appeal. 3. Grounds of appeal Nos. 2 and 3 for both the assessment years are the same. The grievance of the Revenue is that the learned CIT(A) has erred in vacating the allocation of the corporate expenses made by the AO to s. 10A units forming part of the Wipro Technologies Division in the ratio of turnover of various business units and directing the AO to consider only on such expenses for allocation as admitted by the assessee during the assessment proceedings. 4.1 The learned CIT(A) has followed the decision of the Tribunal for the earlier year and as per the Revenue, that decision has not become final and appeal before the High Court is pending. Before the AO it was contended that the company operates various business units, each of which runs as independent profit centers. Wipro Corporate units is one of such separate business units. Wipro Corporate is a set up which evolves the growth plans of the company and the manner in which the plans will be achieved. As per the assessee, the medium and long-term vision of the company is defined by the corporate and it evaluates various business opportunities and investment strategies. The ability to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional recovery of ₹ 4.2 crores from Wipro Technologies only. Needless to say WERT allotted shares to employees for their performance and the fact that employees of Wipro Technologies were identified for such incentives shows the focus of the company during the year. A perusal of the audited annual report shows that in each respect from investment to increase in manpower, sales and expense the primary focus has been of Global IT services. In the above context, it would be equally imperative for the corporate to provide vision, leadership to the Global IT division in the proportion and manner. (8) The company has gone for ADR issue in the month of October, 2000. The prospectus defines the company as a leading Indian based provider of IT service globally. It would not be out of place to state that the confidence to float an ADR issue was directly linked to the recognition acquired by the company in the global market on account of its Global division s performance being controlled by Wipro Technologies. 4.3 The AO also analysed the P L a/c of the corporate division and observed as under : (1) Out of sales income, an amount of ₹ 12.5 crores is shown as income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 per cent of such profit was attributable to Wipro Technologies, similar amount should have been booked to the account of Wipro Technologies. Except Shri Vivek Paul s commission, commission of other directors was not allocated by the assessee to Wipro Technologies on profit-sharing business. It is true that the entire commission of Vivek Paul is debited towards Wipro Technologies but according to the AO, 18 per cent of commission of Shri Vivek Paul should be booked to units of Wipro Infotech and the balance should be reduced from Wipro Technologies. Similarly, commission paid to other directors should also be allocated in the ratio of 82 to 18. (8) 57 per cent of the revenue is attributable to Wipro Technologies, therefore, the common expenses allocation should have been done on the basis of percentage of revenue from Wipro Technologies. The AO in his order at p. 29 has mentioned that the assessee has agreed for allocation on only a part of the expenditure (related to salary, wages and allowance and director s fee) at 20 per cent to Wipro Technologies. (9) The AO from pp. 30 to 32 of the order has discussed various expenses covered under the commission expenses and has given his f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tands covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 2000-01. The learned Authorised Representative drew our attention to para 16 of the order dt. 22nd March, 2006 in ITA Nos. 669 and 804/Bang/2005. 4.7 On the other hand, the learned Departmental Representative stated that the order of the Tribunal has not been accepted by the Revenue. The learned Departmental Representative further pointed out that the AO has discussed in detail the various expenses and has shown that how the exemption under s. 10A has been claimed on inflated figures. The learned Departmental Representative particularly drew our attention to the entry of ₹ 4.2 crores credited in corporate division and debited in Wipro Technologies but for computation of deduction under s. 10A, the same was not considered. Similar is the position in respect of rental recovery. 4.8 We have heard both the parties. For the asst. yr. 2000-01, the following grounds of appeal were raised in the appeal before the Tribunal : 1. The CIT(A) erred in directing the AO to delete 50 per cent of expenditure incurred by the corporate office to the s. 10A units amounting to ₹ 9,28,37,380. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure is incurred for earning dividend, then on estimate basis, expenditure cannot be deducted for the purpose of computing deduction under s. 80M. The learned jurisdictional High Court has referred to the decision of the Bombay High Court in the case of CIT vs. Central Bank of India (2003) 184 CTR (Bom) 225 : (2003) 264 ITR 522 (Bom). In this judgment, the Bombay High Court held that rate of proportionate interest and expenses was applicable to income from interest on securities and not income from dividend. Reference was made on s. 20(1) of the IT Act. Sec. 20(1) of the IT Act permitted the deduction of proportional expenses for interest on securities. In the instant case, s. 14A does not authorize for the assessment year under consideration to estimate proportionate expenditure in respect of indirect expenses. Thus, only direct expenses can be considered for the purpose of computing income eligible for deduction under s. 10A and such expenses should be in relation to earn such income. 4.11 Prior to asst. yr. 2001-02, s. 10A permitted that profits and gains derived from industrial undertaking is not to be included in the total income of the assessee. However, with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g claimed are to be considered for the purpose of computing deduction under s. 10A as such expenses are required to be considered for ascertaining the profits and gains of the undertaking. 4.14 Total income is defined in s. 2(45) of the IT Act. As per this definition, total income means the total amount of income referred to in s. 5 computed in the manner laid down in this Act. Sec. 5 of the IT Act says that total income of any previous year of a person will include the income, which is received or deemed to be received, accrues or arises or deemed to accrue or arise to him in India and accrues, or arises to him outside India. Such inclusion is in respect of a person, who is resident and in the instant case, we are concerned with an assessee, who is a resident. Sec. 14 of the IT Act says that all incomes for the purposes of charge of income-tax and computation of total income is to be classified under five heads of income mentioned in that section. Sec. 29 of the IT Act says that income referred to in s. 28, i.e., income chargeable under the head Profits and gains of the business is to be computed in accordance with the provisions contained in ss. 30 to 43D. As mentioned earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those expenses which have direct nexus with carrying on activity of undertaking is to be reduced for determining the quantum of deduction under s. 80-I and those expenses which have indirect or remote nexus should not be deducted. 5.7 The Chennai Bench in the case of Alstom Ltd. vs. Dy. CIT (2005) 95 TTJ (Chennai) 139 held that common expenses incurred by the assessee for marketing the industrial products should be proportionately distributed in respect of each industrial undertaking. This is to be done to reflect the correct profit derived from the industrial undertaking. 5.8 The apex Court in the case of Motilal Pesticides (I) (P) Ltd. vs. CIT (2000) 160 CTR (SC) 389 : (2000) 243 ITR 26 (SC) held that special deduction is to be allowed only on net income and not on gross income. Thus, amount of income, which is included in the total income, is to be considered for the purposes of deduction under s. 10A. The amount, which is to be included in the total income, is to be computed as per ss. 30 to 43A. Hence, all the expenses, which are necessary for earning income of the undertaking, are to be allowed as deduction for the purposes of computing income from that undertaking. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directly relatable to the profits, therefore, the AO has rightly allocated the commission expenditure in respect of undertaking whose income is deductible under s. 10A. 6. Another issue which arises before us is in respect of allocation of commonexpenditure. As per the AO, 57 per cent of revenue is generated by Wipro Technologies; therefore, he has allocated the common expenses in that ratio. It will be useful to reproduce the allocation of rates and taxes as made by the AO : Rates and taxes Of an amount of ₹ 4,65,72,898 an amount of ₹ 3.1 crores pertains to Wipro Infotech and has been wrongly accounted in the books. Only the balance amount is being taken as common expenditure. (Net allocation of ₹ 1,55,72,898) for allocation. From the above, it is clear that when direct expenses of rates and taxes were known in respect of the unit whose income is deductible under s. 10A then otherwise allocation cannot be made. The allocation of common expenditure cannot be made on the basis of revenue generated. The assessee himself has agreed to allocation of 20 per cent of such expenditure and the same has been confirmed by the learned CIT(A). We, therefore, feel that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e formed part of the expenses incurred in the course of carrying on export-oriented units. The expenses of such nature have reduced the eligible profit of the export-oriented unit. When the same items of expenses are reduced while calculating the eligible profit the income which actually reduces such type of expenses should not be treated as other income not forming part of profit of eligible business. While calculating the profit of the eligible business the expenses and the income of the same unit are required to be netted out. The expenses and the income are relatable to the same nature. We direct that the computation should be made after netting out the expenditure by reducing the income of the nature in dispute. In other words, though it cannot be held that the income of the nature in dispute is income arising out of the activity of an export-oriented unit, however, the expenses are to be calculated on net of income basis. In the result, the income of the eligible business of a unit as prescribed under s. 10A will go up by an amount of ₹ 21,142. The ground is, therefore, accordingly allowed . From the above, it is clear that the sale of scrap reduced the quantum of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier provision were substituted by the words profits of the business of the undertaking . In the Notes on Clauses to the Finance Bill, 2001, it has been mentioned that the amendment has been made to clarify that proportion is to be calculated with reference to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee. When the legislature has provided basis for ascertaining the profit derived from the export of articles or things or computer software then that basis is to be applied for the purpose of computing deduction permissible under s. 10A. Export incentives are chargeable to income-tax under the head Profits and gains of business or profession as per s. 28 of the IT Act. Export incentives are relatable to the undertaking, which is exporting the software and therefore, any incentive which is taxable under s. 28 of the IT Act will be taxable in respect of the undertaking engaged in export. 8.6 The Bangalore Bench had an occasion to consider the exemption under s. 10B on account of amendment of s. 10B(4). Amendment in s. 10B(4) is on similar lines as in s. 10A(4). After quoting ss. 10B(1) and 10B(4), this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its and gains should be derived from the industrial undertaking while s. 80-IB of the Act requires that profits and gains should be derived from any business of industrial undertaking. It was therefore held that there need not necessarily be direct nexus between the activity of an industrial undertaking and the profits and gains. Considering the language used in s. 10A(4), one is required to ascertain the profits and gains derived by the undertaking as profits and gains of the business of the undertaking. Accordingly, the export incentives, which are includible in profit of the business of the undertaking, will be entitled to deduction under s. 10A. 9. Ground Nos. 10 to 12 relevant for the asst. yr. 2001-02 relate to exclusion of rent from the receipts of the undertaking eligible for deduction under s. 10A for the purpose of computing deduction under that section. 9.1 Rent is not a profit from the business. Before us, the learned Authorised Representative submitted that the issue is covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 1997-98. 9.2 On the other hand, learned Departmental Representative supported the order of the AO. 9.3 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from other sources. The AO has also not discussed the nature of the interest income. It is not the case of the Revenue that interest income is not business income of the undertaking eligible for deduction under s. 10A. Under the circumstances, we hold that the learned CIT(A) was justified in directing for not excluding the interest for the purpose of computing deduction under s. 10A as the AO has not treated the interest income as income from other sources or has not held that such income does not belong to the undertaking to which s. 10A is applicable. 11. Ground Nos. 16 to 18 for the asst. yr. 2001-02 and ground Nos. 10 to 12 for the asst. yr. 2002-03 relate to exclusion of exchange fluctuation from the receipts for the purpose of computing deduction under s. 10A. 11.1 The AO has held that exchange fluctuation is not an income derived from the undertaking and therefore, not entitled for deduction under s. 10A. 11.2 The learned Authorised Representative submitted that the issue under reference stands covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 2000-01. 11.3 It is seen that the Tribunal for the asst. yr. 2000-01, following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to s. 10A(6)(ii) of the IT Act, according to which, no loss referred to in s. 72(1) or 74(1) or 74(3) insofar as such loss relates to the business of the undertaking shall be carried forward or set off where such loss relates to any of the relevant assessment years i.e., ending before 1st day of April, 2001. From the above subsection, the AO concluded that loss of any of the undertaking can be carried forward and hence, it cannot be adjusted against any income. The AO, therefore, concluded that the net profit of the undertakings is being considered for the allowability under s. 10A. 12.2 The learned CIT(A) has disposed of the above point of appeal vide his findings recorded at pp. 27 to 29 of the appellate order. Before the learned CIT(A), the assessee relied on the decision of the Bangalore Bench in the case of Mindtree Consulting (P) Ltd. s case ITA No. 606/Bang/2005, dt. 1st Dec., 2005. As per the learned CIT(A), the need to carry forward will arise only if it cannot be set off within the assessment year as per the provisions of s. 70 or 71 of the IT Act. Therefore, the losses of the STP units can be set off from other taxable business income. The learned CIT(A) accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee after observing as under : 18. Sec. 10A(4) has also been amended w.e.f. 1st April, 2001. Before amendment, the profits derived from export of articles or things was the amount which bears to the profit of the business, the same proportion as the export turnover in respect of such article or thing or computer software, bears to the total turnover of the business. With effect from 1st April, 2001, instead of profits of the business, the words profit of the business of the undertaking has been substituted. The word undertaking has not been defined under s. 10A. The words industrial undertaking has been defined in the book Law Lexicon by Venkataramiya at p. 1133 it has been defined as under : The expression industrial undertaking must have a technical and economic content. An industrial undertaking would normally be in its ordinary acceptation some industrial concern or enterprise for adventure which is undertaking to be done by the person concerned. The definition of industrial undertaking in s. 3(d) of the Industrial Development and Regulation Act, 1951, means any undertaking pertaining to a scheduled industry carried on in one or more factories by any pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee vide order dt. 26th June, 2007. The decision of the jurisdictional High Court is to the effect that deduction allowed under s. 10A in respect of undertaking is to be allowed after setting off of brought forward loss of that undertaking. Income of each undertaking is to be computed independently as per the provisions of the Act. An assessee cannot be compelled to seek deduction under s. 10A in respect of an undertaking in which there is a loss. This is the basis of not setting off of losses of s. 10A units against the profit of s. 10A units for computing deduction under s. 10A. This is in view of the decision of the Third Member in the case of Navin Bharat Industries Ltd. vs. Dy. CIT (2005) 92 TTJ (Mumbai)(TM) 1166 : (2004) 90 ITD 1 (Mumbai)(TM). In view of the judgment of the jurisdictional High Court in the case of Himatasingike Seide Ltd. (supra), the AO will set off brought forward losses of the units for which the assessee has disclosed positive income for the purpose of claiming deduction under s. 10A. To this extent, the finding of the learned CIT(A) is modified. 13. Grounds of appeal Nos. 37 to 52 for the asst. yr. 2001-02 and grounds of appeal Nos. 29 to 44 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (5) The assessee was asked to produce books of accounts as it was claimed that separate accounts have been maintained for each unit. A reply was furnished vide which it was submitted that there is no requirement for maintenance of cash book, ledger for each eligible STP undertaking. Hence, separate books of accounts were not produced on the ground that there is no such requirement as per the IT Act. 13.3 The AO obtained the details of the year of commencement with approval and these were filed. Perusal of these details shows that approval was granted in 33 phases as against 12 units reflected at Bangalore. The AO pointed out at p. 59 that the expansions for approval have been granted in phases for a particular premises. The assessee has treated the units situated in a single premises, as one undertaking by filing a single Form 56F. As per the AO, the assessee has taken the stand that expansions have been treated as independent undertakings. The AO has referred to the correspondence with the STPI, Bangalore to show that expansions were allowed. As per the AO, the following facts are highlighted from the correspondence with STPI : 14.4 In view of the above observations and corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld begin manufacture or produce article or things or computer software during the previous year relevant to the assessment year commencing on or after 1st day of April, 1994 in any electronic hardware technology park or, as the case may be, software technology park. There is no dispute that various units have been set up in software technology park under a valid approval granted by STPI authority. The learned CIT(A) further observed that it is not in dispute that units have been formed without splitting up or reconstruction of business already in existence and without transfer of old plant and machinery. The fact that some old units have been closed due to unviability does not lead to any inference contrary to the above. The learned CIT(A) therefore held that the undertakings satisfy the various conditions set by s. 10A(2). The fact that the approval for expansion was given under original license does not mean that undertakings set up under such approval are merely an extension of the original unit. The learned CIT(A) further held that the decisions of the Kerala High Court in (1986) 50 CTR (Ker) 51 : (1987) 164 ITR 134 (Ker) (supra) and Andhra Pradesh High Court in (1996) 220 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ten assessment years. The conditions for deduction are mentioned in s. 10A(2). The first condition is that the undertaking should commence manufacture or production of computer software during the previous year relevant to the assessment year commenced on or after 1st April, 1994. The AO has heavily relied on the fact that existing undertaking was allowed permission for expansion and therefore, such expanded units cannot be considered as new undertakings commencing production. The assessee applied for the expansion of software technology park facility. The assessee has not applied for extension of the undertaking but has applied for the expansion of the STP facility. STPI while approving the STP facility observed that such STP facility can be availed subject to the standard terms and conditions as enclosed to the original approval letter and conforming to all customs formalities. Thus, STPI permitted the assessee to start producing computer software in the new premises. The new premises may be an additional floor of the existing building. It is not the requirement of law that new undertaking should start working from the new place. The undertaking so set up is not on account of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... producing the same article, which are being earlier produced. The Bombay Tribunal in the case of Jt. CIT vs. Associated Capsules (P) Ltd. (2008) 117 TTJ (Mumbai) 399 : (2008) 9 DTR (Mumbai)(Trib) 95 : (2008) 21 SOT 420 (Mumbai) observed that deduction under s. 80-I cannot be denied on the ground that the unit has been producing the capsules on the ground that the assessee was engaged in the production of capsules. The Tribunal observed at p. 431 as under : Organisational features, such as the legal status of the unit or the fact that they are controlled or managed by common management or located in the same premises where existing units are located to derive certain advantages or are producing similar goods as the existing ones are hardly relevant to decide whether a unit is in the nature of undertaking. Likewise, the fact that procurement of raw materials is common or certain post-manufacturing activities are centrally carried out or drawing certain facilities from a common source are not sufficient enough to hold that each unit is not engaged in manufacturing or producing the articles or things or is not independent or separate from others . Hence, we are not inclined to accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the CIT in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under ss. 11 and 12 of the IT Act of 1961. 13.12 Hence, considering the rule of consistency, we also hold that the AO was not justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised Representative has submitted that the issue stands covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 200001. The learned Authorised Representative drew our attention to para 18 at p. 138 of the order of the Tribunal in ITA Nos. 699 and 804/Bang/2005. 14.4 On the other hand, learned Departmental Representative drew our attention to the observations made by the AO. It was submitted that the assessee is not selling the defective goods and in the case of the assessee, the provision for warranty is not admissible. The goods, if defective, are supplied, then the purchaser may claim damages. There is no occasion for the assessee to see that the goods were defective at the time of sale. 14.5 We have considered the submissions of both the parties. The Tribunal while deciding the appeal of the assessee for the asst. yr. 2000-01 vide order dt. 22nd March, 2006 observed at para 18.4 as under : We have heard the arguments and submissions made by both sides and also perused the records. We find that, as submitted by Sri Pradeep, the issue stands covered in favour of the appellant by the orders of this Tribunal for the earlier years in the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to its present location as on the date of valuation. The AO therefore, held that the unavailed Modvat credit to the extent of ₹ 7,11,43,455 is to be considered for addition to the value of the closing stock as raw materials. In the immediately preceding year, an addition of ₹ 2,63,71,738 was made to the closing stock and therefore, the addition to be made should be the difference between ₹ 7,11,43,455 and ₹ 5,78,92,690. 15.2 The learned CIT(A) has disposed of the above ground of appeal at p. 64 of his order. The finding as recorded by the learned CIT(A) is reproduced as under : I have perused the order of the AO, submissions made by the appellant in this regard and relevant appellate orders in the appellant s own case. Respectfully following the decision of the Tribunal and CIT(A) for the earlier years, I reverse the order of the AO in this regard. 15.3 During the course of proceedings before us, the learned Authorised Representative submitted that the issues stand covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 2000-01. The learned Authorised Representative drew our attention to para 4 of the order of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2000. In this appeal, we are concerned with the asst. yr. 1989-90. In the circumstances, we are not inclined to go into the provisions of s. 145A. We are also not examining, therefore, the subsequent guidance note issued by the ICAI which is based on s. 145A. The legislature clearly intended, therefore, that the computation made by assessees prior to the asst. yr. 1999-2000 should not be disturbed and, therefore, the legislature has brought the said s. 145A into force only from 1st April, 1999. 15.7 Before we proceed further, we will take a hypothetical example. The assessee has purchased raw material whose cost is ₹ 100 and ₹ 20 is charged as excise duty by the supplier. The assessee in order to avail the Modvat credit, will pass the entries as under : Cost of raw material ₹ 100 Modvat Excise duty charged by supplier ₹ 20 If raw material to the extent of ₹ 80 exclusive of excise duty is consumed, then entries in ledger account will be Modvat account By purchase-Rs. 100 By consumption ₹ 80 By closing stock ₹ 20 Let Modvat credit is availed to the extent of ₹ 10 then entries at the end of the year in Modvat account will be- Modv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or fee actually paid or incurred by the assessee to bring the goods to the place of its location. In respect of raw material left at the end of the year, the assessee has paid excise duty. 15.10 There is also an Explanation to s. 145A. As per this Explanation, it is made clear that for the purpose of s. 145A, any tax, duty, cess or fee under any law for the time being in force, shall include all such payments notwithstanding any right arising as a consequence to such payment. This Explanation is clearly applicable in respect of excise duty for which credit under Modvat is to be claimed. Hence, irrespective of right of credit, the same is to be treated as tax or duty paid. In the Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 1998, it was mentioned as under : The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which Modvat credit is available has been the matter of considerable litigation. In order to ensure that the value of opening and closing stock reflect the correct value, it is proposed to insert a new section to clarify that while computing the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in ITA No. 651/Bang/1994 at page Nos. 7 to 16 at paras 3.1 to 3.11 and accordingly, directed the AO to allow deduction for provision for advances for the asst. yr. 2001-02. 16.2 During the course of proceedings before us, the learned Authorised Representative submitted that the issue under reference stands covered by the decision of the Tribunal in the case of the assessee for the asst. yrs. 1998-99 and 1999-2000. The learned Authorised Representative drew our attention to p. 114 of the order. 16.3 On the above-referred issue, we have heard both the parties. We have gone through the order of this Bench for the asst. yrs. 1998-99 and 1999-2000. The Tribunal remitted the matter to the AO with the direction to verify the claim made by the assessee after going through the details of the advances. We have gone through the orders of the AO and that of the learned CIT(A). From these orders, we are not able to find any worthwhile facts to come to any conclusion. Hence, following the order of this Bench in the case of the assessee for the earlier assessment years, we remit this matter back on the file of the AO to consider the claim afresh after examining the issues. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO, it was submitted that the issue stands decided in favour of the assessee by the Tribunal. However, the AO was of the opinion that the decision of the Tribunal has not been accepted. Therefore, he followed the order of his predecessor on this issue. The learned AO further observed that the payments made on account of software imported for in-house utilization are in the nature of royalty. Since no tax has been deducted,therefore, the amounts paid are not allowable even if they have to be treated as revenue. 18.2 The learned CIT(A) deleted the addition made by the AO after observing that the issue stands covered by the order of the Tribunal for the earlier years. 18.3 Before us, the learned Authorised Representative submitted that the issue stands covered by the decision of the Tribunal in the case of the assessee for the asst. yr. 200001. The learned Authorised Representative drew our attention to para 17 of the order of the Tribunal appearing at p. 136 in ITA Nos. 669 and 804/Bang/2005. 18.4 On the other hand, the learned Departmental Representative drew our attention to the ground of appeal that the decision of the Tribunal for earlier years has not become final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s. 244A has been paid to the assessee during the financial year relevant to the asst. yr. 2001-02. The AO therefore taxed the same as income of the assessee. Similar observation has been made for the asst. yr. 2002-03. 19.2 The learned CIT(A) has referred to the following observations of the Tribunal from the order passed in the case of the assessee for the earlier assessment year : 18.4 We have gone through the issue and find that even basic details such as the details of the interest, when it was due, the number of years for which interest has been paid are not discernable from the records. Hence, it is not possible to give any finding on the liability to tax in a conclusive manner. Suffice to say that unless interest accrues to the assessee irrevocably in the sense, the same would not be withdrawn by the Department subsequently, the liability to include the interest in the income does not arise. The very concept of accrual supports this finding and also Supreme Court in Indian Molasses Co. Ltd. vs. CIT (1959) 37 ITR 66 (SC) though explained the term accrual in the context of expenditure, nevertheless applicable for recognition of income even more forcefully. The liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay Tribunal observed at p. 109 as under : The next issue arising in this appeal is whether interest received by the assessee on refund received from the IT Department for the year under consideration is chargeable to tax in this year or not. Learned counsel for the assessee has fairly stated that this issue is covered against him by the decision of the Special Bench in the case of Avada Trading Co. (P) Ltd. vs. Asstt. CIT in ITA No. 508/Mum/2001-unreported [since reported at (2006) 104 TTJ (Mumbai)(SB) 83-Ed.] unreported, wherein it has been held that interest accrues in the year in which interest on refund is received by the assessee. Therefore, following the said judgment, we decide the issue against the assessee. However, the AO is directed to delete the addition, if any, on the basis of income offered by the assessee in subsequent years . 19.8 The Special Bench in the case of Avada Trading Co. (P) Ltd. vs. Asstt. CIT (2006) 104 TTJ (Mumbai)(SB) 83 : (2006) 284 ITR 73 (Mumbai)(SB)(AT) has held that interest on refund is assessable in the year in which it is granted and not in the year in which proceedings under s. 143 (1)(a) attained finality. Keeping in view the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental income of ₹ 1,56,10,238 1,40,49,214 90% interest income of ₹ 31,04,56,663 27,94,10,997 60,50,54,611 90% Export incentive duty drawback ₹ 17,344 15,610 60,50,70,221 and also receipts considered by the assessee himself. 21.2 Before the learned CIT(A) it was submitted that the actual turnover of the products in respect of which deduction is claimed should only be considered. It was further contended that what should be considered is the profits of the business in respect of which deduction under s. 80HHC is claimed and not the entire profits of the company. The assessee relied on the decision of the Madras High Court in CIT vs. The Madras Motors Ltd. (2002) 174 CTR (Mad) 221 : (2002) 257 ITR 60 (Mad). The AO has relied on the decision of the Special Bench in the case of Pearl Polymers Ltd. vs. Dy. CIT (2002) 74 TTJ (Del)(SB) 1 : (2002) 80 ITD 1 (Del)(SB) and the decision of the Kerala High Court in the case of CIT vs. Parry Agro Industries Ltd. (2002) 177 CTR (Ker) 257 : (2002) 257 ITR 41 (Ker). The learned CIT(A) was of the view that the decision of the Madras High Court squarely covers the appellant s case. The learned CIT(A) has reproduced the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort turnover F total turnover D profits and gains of business . The business contemplated in the section would be restricted to only the goods to which the section applies and, therefore, by necessary implication even the total turnover the business would be the total turnover of the business of the goods to which the section applies. If we include the turnover of the goods to which the section does not apply, it would amount to doing violence to the language of the sub-section itself. The sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the profits earned out of export alone vis-a-vis the profits earned otherwise than by export. The total profits earned out of the business of such goods are not exemptible because those profits would include both profits out of exports and profits earned otherwise than by export but one thing is certain that the business contemplated in the sub-section would be in relation to those goods alone to which the section applies as per cl. (a) of sub-s. (2). Once we read sub-s. (1) of s. 80HHC, cl. (a) of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tergents, fluid power systems, lighting etc. or total turnover of the business mentioned in s. 80HHE of the IT Act. The question in the present appeal on issue of turnover was not present or not considered in the decisions relied on by the Revenue. Consequently, he submitted that the two decisions are not relevant for the purpose of deciding the issue on hand. 19.6 .......... 19.7 On the second and third issues of eligible turnover and eligible profits, we find that the issue stands covered by decision of this Tribunal in Wipro GE Medical Systems Ltd. vs. Dy. CIT in ITA Nos. 322 to 328/Bang/2000 [reported at (2003) 81 TTJ (Bang) 455-Ed.]. Such a view has also been upheld by the Madras High Court in 257 ITR at pp. 69 to 70 extracted supra and supports the view that the total turnover of eligible business must be considered and not the turnover of other business of the company. Here we may notice that the Form 10 CCAF filed by the assessee, wherein the total turnover of the business of the assessee has been taken at ₹ 13,80,16,246 and the export turnover at ₹ 12,36,29,409. Thus, the domestic business of the assessee is ₹ 1,43,95,837. The assessee has reckoned the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. In respect of export incentive of ₹ 99,83,492, it was submitted before the learned CIT(A) that the same has been reckoned in computing deduction under s. 10A. The same is not applicable to the business eligible for deduction under s. 80HHC. The learned CIT (A) directed the AO to verify this and consider for exclusion only those items which relate to the eligible business and included in the profits of such business considered for computing the deduction under s. 80HHC. In respect of duty drawback, the learned CIT(A) stated that there is no dispute in respect of exclusion of the said sum. In respect of profit on sale of fixed assets, profit on sale of investments and dividends, the learned CIT(A) observed that such items of income are either exempt from tax or liable to tax under a different head and these have already been reduced by the assessee in computing the profits of the business. Hence, no further exclusion is warranted. However, the above referred items have not been considered by the AO in his chart at p. 170 but as per the assessee, these are parts of other income of ₹ 69,29,15,000. In respect of the following items, the learned CIT(A) held that the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to s. 80HHC(3). Hence, the direction of the learned CIT(A) in respect of duty drawback is confirmed. The direction of the learned CIT(A) in not excluding 90 per cent of profit on sale of fixed assets, profit on sale of investment and dividend is also upheld, as these are either exempted or are not taxable under the head Business . The difference in exchange is taxable under the head Business income . Similarly, royalty has also been taxed under the head Business income . Under Expln. (baa) to s. 80HHC, receipts by way of brokerage, commission, interest, rent chargeable on any other receipts of a similar nature included in the profits. As per rule of ejusdem generis, the words of general nature following specific and particular words then such words of general nature should be construed as limited to things which are of the same nature as those specified. This has been held by the Allahabad High Court in respect of interpretation of r. 60 of IT Rules in the case of CIT vs. Shivalik Drug (Family Trust) (2008) 214 CTR (All) 450 : (2008) 300 ITR 339 (All). The learned CIT(A) has also referred to the decision of the Bombay High Court. Considering these facts, we confirm the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the AO to consider and allow the similar claim of the assessee for the said year. Since the issues are identical and similar in this year also, I direct the AO to allow credit for foreign taxes paid and in doing so will follow the findings and directions of the Tribunal given in para 20.7 of its order. 22.3 In respect of asst. yr. 2002-03, the AO has allowed the claim for foreign tax credit for only those units in respect of which deduction under s. 10A was disallowed. 22.4 Before us, the learned Authorised Representative relied on the decision of the Tribunal in the case of the assessee for the asst. yr. 2000-01. The learned Authorised Representative drew our attention to para 21 of the order of this Tribunal dt. 21st Nov., 2005 in ITA Nos. 669/Bang/2004 and 804/Bang/2005. 22.5 On the other hand, the learned Departmental Representative supported the order of the AO. 22.6 We have gone through the order of the AO for the asst. yr. 2002-03. The AO has discussed this issue from pp. 103 to 113 of the order. Though the learned CIT(A) has discussed the reasons as to why the AO has not allowed the deduction, but he has not given finding as to how the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, which is exempt from tax. Hence, the deduction, which is allowed under s. 10A is an item of income on which tax is not payable. 22.8 The learned Madras High Court in the case of CIT vs. K.S. Vaidyanathan (1985) 47 CTR (Mad) (FB) 101 : (1985) 153 ITR 11 (Mad)(FB) had an occasion to consider the allowability of deduction of debt under s. 2(m) of WT Act. As per s. 2(m)(ii) of the WT Act, debts which are secured on or which have been incurred in relation to any property in respect of wealth-tax not chargeable under this Act is not to be allowed as deduction. Sec. 5 of the WT Act provided that on certain assets, wealth-tax was not payable. If in respect of an asset on the entirety wealth-tax is not chargeable then the debts secured on such assets has to be excluded from reckoning. In case where an asset is only partially exempt from chargeability to wealth-tax then it must necessarily follow that the portion of the debt secured on such portion of the asset or incurred in acquiring such portion of the asset has to be excluded from reckoning. Though the learned Madras High Court held that debt can be bifurcated and debt relatable to the portion of the asset on which wealthtax is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 have been considered. 23.2 Before the learned CIT(A) it was submitted that application for seeking extension of time were filed with the prescribed authority and such request was not rejected. Hence, it is to be held that an application made and acceded to by default should be treated as disposed of in favour of the assessee granting extension of time. For this proposition, the learned Authorised Representative relied on the decision of Punjab Haryana High Court reported in CIT vs. Surinder Kumar Parmod Kumar Ors. (1991) 100 CTR (P H) 279 : (1992) 193 ITR 71 (P H) and the same is confirmed by the Supreme Court in (1993) 204 ITR (St) 9. The learned CIT(A) observed that requisite applications as required by the relevant regulations were filed by the appellant with the competent authority. These applications have not been rejected by the competent authority and realization made by the assessee have allowed to be duly credited to the bank accounts maintained by the assessee with the authorized dealers in India. Hence, it should be considered that the competent authority is deemed to have allowed delayed realizations made after the expiry of six months from the end of the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year, the approval of the Chief CIT or CIT is required to avail of the deduction. As obtaining such approval from the Chief CIT or CIT often results in delay, it is proposed to do away with such approval, as the RBI in any case monitors such remittances and accords approval in case of delay. As a result where remittances are brought after the period of six months, the approval of the RBI or any such authority authorized to deal with any law governing such receipts shall suffice. However, the requirement of a furnishing a certificate shall continue in the provisions. It is also proposed to amend s. 155 to enable the AO to amend the assessment order within a period of four years in such cases. These amendments will take effect from the 1st day of June, 1999. Sec. 155(13) provided that if such sale proceeds are brought into India after the period of six months then assessment can be modified under s. 154 of the IT Act. The obvious purpose is that in case the foreign exchange is brought into India, then the assessee will not be denied benefit of s. 80HHC. In respect of foreign exchange brought into India after six months in respect of the undertakings claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank in this behalf, the authorized dealer may, for a sufficient and reasonable cause shown, extend the said period of six months or fifteen months, as the case may be. 23.7 Rule 15 of RBI Regulations authorized the RBI to issue directions in case payments are received late. Rule 15 is reproduced as under : 15. Delay in receipt of payment- Where in relation to goods or software export of which is required to be declared on the specified form, the specified period has expired and the payment therefore, has not been made as aforesaid, the RBI may give to any person who has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such directions as appear to it to be expedient, for the purpose of securing, (a) the payment therefore if the goods or software has been sold and (b) the sale of goods and payment thereof, if goods or software has not been sold or re-import thereof into India as the circumstances permit, within such period as the RBI may specify in this behalf : Provided that omission of the RBI to give directions shall not have the effect of absolving the person committing the contravention from the consequences thereof. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travelling and allowances and these are available at p. 48 of his order. The AO further observed that despite specific enquiry for the expenditure incurred in foreign currency in providing technical services, the assessee has quoted expenses of such nature at only ₹ 54,63,173. According to the AO, the amount reflected is not reasonable. As per the AO, the assessee has not provided the correct and complete information. The AO mentioned that in respect of communication link expenses, the same is to be excluded. In respect of travelling, the AO allocated the expenditure in the ratio of export turnover to the units, which were exporting. The AO has given computation of income deductible under s. 10A in Annex. II of his order. The AO has reduced the difference of communication link expenses less reimbursement of such expenses from the export consideration in order to arrive at the export turnover. 24.2 The learned CIT(A) has discussed this issue at pp. 17 to 26 of his order. Before the learned CIT(A), the assessee made submissions and the learned CIT(A) has summarized such submissions as under : (1) Reimbursement for communication link etc. were additional consideration receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes are to be excluded both from export and total turnover. In respect of telecommunication expenses, the learned CIT(A) has recorded his finding as under : Export turnover is defined to exclude freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India . The appellant s contention on this is two fold. First, exclusion is required only if the said item is included in first place in the export turnover and second, exclusion should be restricted to that portion which is attributable to the delivery of computer software outside India. I agree with both the contentions of the appellant. These submissions were made before the AO as well. However, the AO has not dealt with these objections. The amount of ₹ 8.96 crores for asst. yr. 2001-02 and ₹ 19.46 crores for asst. yr. 2002-03 sought to be excluded by the AO is an expenditure, which clearly cannot partake the nature of turnover. This amount can be deducted from export turnover provided the same was included in it in the first place. Therefore, I am not in agreement with the action of the AO in this regard. However, I find from the detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnologies vide order dt. 31st March, 2005 in ITA No. 50/Bang/2001 held in that case that the assessee is involved in developing software. The assessee was not involved in rendering of technical services. Such softwares are provided through the computer programmes developed by them. Hence, expenses in foreign currency were not to be reduced for ascertaining the export turnover. This Bench in the case of Relq Software (P) Ltd. in ITA No. 767/Bang/2007 vide order dt. 16th May, 2008 [reported at (2009) 25 DTR (Bang) 353- Ed.] has also held that the on-site expenses for development of computer software is not in the nature of technical services. It will be useful to reproduce paras 14 and 15 from that order : 14. During the course of proceedings before us, the learned Authorised Representative submitted that the issue stands decided in favour of the assessee by the Tribunal in the case of : (1) Asstt. CIT vs. Infosys Ltd., ITA Nos. 653 and 969/Bang/2006;(2) Tata Elxsi Ltd. vs. Asstt. CIT, ITA No. 315/Bang/2006 order dt. 16th Oct., 2007 [reported at (2008) 115 TTJ (Bang) 423-Ed.]; (3) I Gate Global Solutions Ltd. vs. Asstt. CIT (2007) 112 TTJ (Bang) 1002. 15. We have heard both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-Ed.] wherin it has been held that expenses on salaries, travelling and other perquisites are to be included in the export turnover. Hence following the decision of this Bench and considering the decision of other Benches on this issue, the expenses on travelling etc. cannot be excluded from the export turnover. IT Act does not provide any bifurcation of the expenses incurred outside India. The AO has not brought on record any expenditure which may not be relevant for the purpose of export. Hence, the apportionment is not desirable. We confirm the finding, of the learned CIT(A) that such apportionment cannot be done. 24.7 In respect of telecommunication expenses, only those expenses which are relevant for the delivery of software are to be excluded. No effort has been made by the AO to ascertain the telecommunication expenses relating to the delivery of the software. This Bench in the case of I Gate Global Solutions Ltd. vs. Asstt. CIT (2007) 112 TTJ (Bang) 1002 held that 80 per cent of uplinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these have been classified under the head Prior period means that these relate to the period prior to the previous year under consideration. The onus is on the assessee to establish that liability to account for such expenditure was noticed in the year and therefore, the same should be considered for allowance. 25.4 On the other hand, the learned Authorised Representative supported the order of the learned CIT(A). 25.5 We have heard both the parties. It is true that the prior period expenses could be allowed if it can be shown that liability was quantified in the year under consideration. The assessee is following the mercantile system of accounting and has to account for all the expenses on that basis. In the absence of details, we are not in a position to consider the allowability of such expenditure. The issue is remitted back to the file of AO. The appellant will provide the details and will explain as to how such expenses are allowable in the year under reference. 26. Grounds of appeal Nos. 69 to 73 for the asst. yr. 2001-02 is in respect of finding of the learned CIT(A) that there is no transfer within the meaning of s. 45(2) of the IT Act and therefore, capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores. The surplus on account of this conversion was credited to the capital reserve account. It was stated that capital gains (amounting to ₹ 40.35 crores) would be offered to tax in view of the provisions of s. 45(2) in the year of sale/transfer of this converted asset. (b) Perusal of back records show that the company has revalued this stock-in-trade held at ₹ 45 crores in asst. yr. 1995-96 in various assessment years, thereby claiming huge losses arising out of such revaluation. Over the years, from asst. yr. 1995-96 to asst. yr. 2001-02, the assessee has brought down the value of the land from ₹ 45 crores to ₹ 12.5 crores as per the Table given below (the reason for this was stated to be the decrease in value of land). **In the asst. yr. 2001-02 the land was removed from the closing stock on account of sale at ₹ 12.5 crores. (f) The total decrease in the value of the stock from ₹ 45 crores to ₹ 12.5 crores has been claimed as a business loss by the company over the period. Total loss claimed is ₹ 32.5 crores and this loss was set off with other taxable income in the relevant assessment years. (g) In asst. yr. 2001-02, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain in asst. yrs. 200405 and 2005-06. There is no evasion of capital gains tax by the assessee. The learned CIT(A) therefore deleted the addition. 26.3 During the course of proceedings before us, the learned DepartmentalRepresentative supported the order of the AO. It was argued that the AO has duly considered the provisions of law. The sale as evidenced by the entries in the books of accounts of the assessee and the possession has been handed over to the purchaser. The sale in respect of stock-in-trade is complete and conveyance of the sale is only a formality. The entries in the books of accounts are relevant and are to be considered. 26.4 On the other hand, the learned Authorised Representative supported the order of the learned CIT(A). 26.5 We have heard both the parties. Before proceeding further, it will be useful to reproduce s. 45 (2) of the IT Act : Notwithstanding anything contained in sub-s. (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count the estate duty and power of attorney, it is clear that the assessee conferred right to the purchaser to develop that property for commercial use. The purchaser was entitled to go ahead with the plans etc. and was conferred the right of ownership till the sale deed is formally registered. Hence, we feel that the taxability of capital gain is to be considered in the year under reference. No income can be taxed twice. In case the assessee has general capital accounts in the subsequent year, then the same cannot be taxed in that year. 27. Ground of appeal Nos. 80 to 83 for the asst. yr. 2001-02 are as under : (80) The CIT(A) erred in directing the AO to verify the export incentive of ₹ 99,83,492 and consider only those items which relate to the eligible business and included in the profit of such business considered for computing deduction under s. 80HHC. (81) The CIT(A) ought to have appreciated while computing the deduction under s. 80HHC total profit of the assessee's business has to be considered and not the profit of the eligible business. (82) The CIT(A) erred in directing the AO to verify the duty drawback of ₹ 5,94,28,751 and consider only those it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such profit is to be taxed as short-term capital gain as per s. 50(2) of the IT Act. Once it is held to be a capital gain, then it cannot be a part of profit and gains of business as computed from ss. 28 to 43D. The direction of the learned CIT(A) is therefore modified. The profit is to be computed as per the provisions of the IT Act. The AO will recompute the profit in respect of issue of exclusion of profit on sale of fixed assets for the purpose of computing deduction under s. 80HHC. If in computation, such profit is reduced from the block, then it will be excluded. 29. Ground of appeal No. 85 for the asst. yr. 2001-02 is that the learned CIT(A) has erred in directing the AO not to consider the profit on sale of investment of ₹ 40 lakhs for exclusion while computing deduction under s. 80HHC. 29.1 Perusal of the assessment order shows that the AO has treated short-term capital gain in respect of sale of properties and sale of land. The sale of investment has not been treated as capital gain. When profit from the sale of investment has been treated as profit from business, then it cannot be excluded for the purpose of deduction under s. 80HHC. The Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 93 to 94 for the asst. yrs. 2001-02 and 66 to 67 for the asst. yr. 200203 are against the direction of the learned CIT(A) vide which he has directed to delete the allocation of selling and general administrative expenses of Wipro Infotech division to the undertakings in Pondicherry for the purpose of computing deduction under s. 80-IB. 33.1 The above-referred issue has been discussed by the AO at pp. 171 to 179 of the assessment order. The assessee has claimed deduction under s. 80-IB for two industrial undertakings situated in Pondicherry. The assessee has included AMC income for the purpose of computing deduction under s. 80-IB. The learned AO was of the view that the AMC income is not derived from the industrial undertakings and therefore, such income will not qualify for deduction under s. 80-IB. As per the assessee, the Pondicherry units are manufacturing units with 5 per cent trading. The computer products are supplied from these undertakings to various parts of the country and are sold by regional offices and branch offices which are managed by the business unit Wipro Infotech. The entire control and management of post-sales and services is rendered by Wipro Infotech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the allocation as made by the AO is not correct and upheld the allocation made by the assessee. 33.3 During the course of proceedings before us, the learned Authorised Representative submitted that AMC income has not been understood in the proper context by the lower authorities. When electronic goods are sold, the customer expects an assurance on quality. The seller may include the probable expenses on warranty in the invoice and the sale price may be mentioned including the estimated expenditure and warranty is provided. The other way of selling such goods is to charge the selling price only and to provide warranty on the basis of AMC. It was therefore submitted that annual maintenance charges is an income derived from the industrial undertaking and will be eligible for deduction under s. 80-IB. In respect of sale of monitors along with the computer, the learned Authorised Representative submitted that both are sold together and the monitor is an essential part of the computer. It was therefore argued that deduction under s. 80-IB should be allowed. In respect of allocation of expenditure, the learned Authorised Representative supported the order of the learned CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(A) was justified in holding that profit from AMC cannot be included for the purpose of computing deduction under s. 80-IB. 33.6 In respect of monitors, it was submitted before the learned CIT(A) that the monitors are sold along with the computer manufactured by the undertaking. It may be an integrated component of the computer. If there is no value addition without any change in name, character or/and use, then such an activity cannot constitute manufacture or production. If the monitors have been sold as part of the computer without making any value addition by the industrial undertaking, then the profit derived from sale of such monitors cannot be considered as profit derived from the industrial undertaking. Therefore, the learned CIT(A) was justified in holding that profit from sale of monitors is not includible for computation of deduction under s. 80-IB. 33.7 In respect of allocation of expenditure, we have perused the order of the learned CIT(A). The assessee himself has allocated the overheads and such allocation has been made on the basis of sales turnover. Once such an allocation has been made by the assessee, then it was the duty of the AO to poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee shall be made at the market value of such goods or services. As is apparent, the appellant has merely applied these provisions in respect of transactions between its STP units and its Wipro Infotech division. There is no dispute that the Wipro Infotech division has provided its services to the STP units under Wipro Technologies division at its normal market price. Hence, nothing wrong can be found when an express provision of law is applied. I therefore reverse the order of the AO in this regard . 34.3 On the above-referred issue, we have heard both the parties. According to the learned CIT (A), the assessee has invoked the provisions of sub-s. (8) of s. 80-IA as these become applicable on account of s. 10A(7). As per s. 80-IA(8), the goods or services transferred from eligible business to any other business is to be made on the basis of the market value of such goods or services. If such transfer is not on the market value of goods or services, then the AO has to compute the profits of eligible business as if the transfer has been made at the market value of such goods or services. The AO during the course of assessment proceedings required the assessee to file the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1. (a) Supply of goods against advance authorization/advance authorisation for annual requirement/DFIA. (b) Deemed export drawback. (c) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given . A cursory perusal would indicate that sale of such software by one STP to another STP within the country would be treated as deemed export only for the purpose of duty drawback and exempt from terminal excise duty. As rightly contended by the learned Departmental Representative, s. 10A, with relevant proviso, stood during the relevant time itself provides that when domestic sales of STP unit do not exceed 25 per cent, such sales should be deemed to be the profits and gains derived from the export of such articles or things or computer software. Thus, the provisions of s. 10A as it stood specifically provide how much benefit is to be given to the assessee if sales to another STP when not exceeded 25 per cent of the total products. The Exim Policy, 2002-07 (Chapter VI, cl. 6.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be allowable. If the receipts are taken at (a) in the accounts and (x) is separately treated as part of balance sheet, then no further adjustment is required. Hence, if in the accounts, the turnover has been included as (a) + (x), then expenditure will be allowed as deduction for the purpose of computing profit. Accordingly, this ground of appeal is disposed of. 39. Grounds of appeal Nos. 9 to 22 are against the finding of the learned CIT(A) in rejecting the claim for long-term capital loss on account of sale of shares in WFL amounting to ₹ 93,22,91,221. 39.1 The AO during the course of assessment proceedings required the assessee to file the details of long-term and short-term capital loss. Details of investment as filed before the AO and reproduced by him at p. 130 of his order are as under : Types of shares Number of Cost of Year of Indexed cost shares acquisition acquisition Equity shares convertible (a) 1,20,00,000 12,00,00,000 2000-01 20,00,00,000 preference shares (b) 8,00,000 8,00,00,000 Sale value 15,000 Short-term capital loss 19,99,85,000 Equity shares (a) 33,04,901 10,98,05,000 1998-99 12,70,10,912 (b) 4,50,00,000 45,00,00,000 1999-2000 46,96,65,810 Cumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company was holding 30,00,000 redeemable preference shares. 39.3 Twenty lakhs convertible preference shares were acquired on 31st Dec., 1999, on 12th June, 2000, 12,00,000 preference shares were converted into 120 lakhs equity shares. These shares were sold on 10th Sept., 2000 to Shri B.S. Shankarnarayanan. On 21st Aug., 2000, 8,00,000 convertible preference shares were sold to Shri B.S. Shankarnarayanan. On 24th March, 2001, the company sold 4,83,04,901 equity shares of Wipro Finance out of which 79,08,150 were sold to Shri B.S. Shankarnarayanan and the balance were sold to Shri K. Vijay Kumar. 25,00,000 preference shares were acquired from ICICI on 25th Jan., 2000 out of which 20,90,717 preference shares were sold to Shri K. Vijay Kumar and the balance i.e. 4,09,283 were sold to Shri B.S. Shankarnarayanan. No basis of valuation of shares has been given by the assessee. It was submitted before the AO that the sale price was mutually agreed. No specific resolution for sale of shares was passed by Wipro Ltd. Shri Azim Premji, chairman and managing director of Wipro Ltd. provided collateral security for the loan availed by WFL by creating a pledge against the shares in Wipro Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other hand, the learned Departmental Representative submitted that the assessee company has infused capital in WFL despite the fact that such shares were sold at a loss in the immediately preceding year. The learned Departmental Representative submitted that a device has been used to avoid the payment of tax. 39.7 We have heard both the parties. Shares of WFL were also sold at a loss in the immediately preceding year. This issue has been discussed by the AO in the earlier assessment year in detail. This issue has been discussed from pp. 44 to 138 of the assessment order for the asst. yr. 200001. The learned AO during the assessment year under reference, has basically relied on the facts as given by his predecessor for the asst. yr. 2000-01. It is not the case of the Revenue that the shares sold during the year were not comparable to the sale price in the immediately preceding year. The Tribunal while deciding the appeal for the asst. yr. 2000-01 has discussed this issue at pp. 57 to 127. The conclusion of the Tribunal is available from para 7.14 to para 8 of the order for the asst. yr. 2000-01. Since the learned CIT(A) and the AO have given the findings on the basis of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o say that the name of the transferor, transferee, number of shares, date of transfer are all accurately mentioned. Further on going through the share certificates and members register, there is no doubt that it is the appellant who has transferred the shares. The distinctive numbers of the share certificate leaves no doubt on the underlying transaction. Further in the table of shareholding mentioned by the AO in page Nos. 48 and 49 of the assessment order extracted above, even the AO says that these shares are owned by the appellant. The minor omission of details here and there cannot go to the root of the matter. The question involves transfer of a movable asset being share. As held in various cases, it is settled law that in case of transfer of shares when the transferor signs the transfer form accompanies with the relevant share certificate and delivers the same to transferee, the transfer is complete. If after receiving the share certificate along with duly signed transfer form, if transferee does not take any further action or the concerned company does not register the transfer the same, it is in consequential. So far as transferor is concerned, he is not required to take an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Its corporate governance practices are recognized. It has few lakh shareholders in India and in foreign countries. Such a company cannot be accused of holding certain assets secretly or in benami names. Even there is no enquiry under the Prohibition of Benami Transactions Act. Further as per Companies Act, per s. 187C, no notice of trust can be taken unless requisite declaration is filed. In this case, there is no evidence for the new shareholders having filed the declaration in favour of the appellant company disclosing the beneficial holding. Consequently, there is no case to say that the transaction for transfer of share was not as per law. On the contrary, there is even evidence to show the transfer of shares. Even the Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC) has held that once the annual accounts is accepted by RoC and shareholders, it is not open for the Department to take a position to contrary to the accounts unless there is substantial evidences. Perhaps, the AO was very much aware of this legal position though not explicitly mentioned in the order. We are unable to understand the shifting stands take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year 1998 in pp. 663 and 664 the rationale for fixed deposit programme prepared by the credit rating agency offers a testimony to the financial obligation undertaken by the appellant company to meet the losses of WFL. Further the investment in WFL and losses in WFL have happened in a period between 1994 and 1999, whereas the ownership of Wipro Net Ltd. was acquired during the year and partly sold at a substantially higher profit also during the year. The huge profit on sale of shares in Wipro Net Ltd. was as a result of dotcom boom during that period, whereas the loss in WFL was due to failing business and regulatory requirements. Run-up or events leading into the. sale of shares in Wipro Net Ltd. and WFL have happened at different times in the past. It was not possible to conjure up a plan of action for avoidance of tax in this case having regard to the facts. Even the AO agrees that the profit earned by the appellant company on sale of shares in Wipro Net Ltd. was a windfall and such a profit could not have been imagined even a few months earlier. It is a common knowledge that during the software and dotcom boom, share prices skyrocketed 500 per cent to 1000 per cent in a short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not proper to suspect or conjure a devious scheme of avoidance of tax. The facts of this case are compelling to hold that both the transactions are real in form and substance. Just because the assessee chooses to sell a loss making asset in a given point of time even if it is with an intention to set off against the profit, it is a legally available discretion which cannot be faulted with. There is no law as per which the assessee should sell only profit making assets in one year and in another year the assessee should sell only loss making assets. In fact the set off provision under s. 70 to s. 74 recognises the situation where loss is set off against profits. It is not strange if both profit and loss transactions occur in the' same period. There is no evidence here to show that there was an arrangement to reduce the tax. In the absence of arrangement, even if one transaction leads to profit and loss from other transaction, it cannot be held that there is a scheme to avoid tax. The transaction with CDC, UK, investment of additional funds, transaction with ICICI are all well explained by sufficient evidence and backed up by agreements. These events cannot be assailed on a mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above case has not affected the freedom of the citizen to act in a manner according to his requirements, his wishes in the manner of doing any trade, activity or planning his affairs with circumspection, within the framework of law, unless the same falls in the category of colourable device . The above judgment has been approved by Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). Further the Supreme Court in a recent decision in the case of Union of India vs. Azadi Bachao Andolan (supra) has dealt with the issue of allegations of tax planning, sham transaction, real income etc. in pages which is extracted in the appellant's written submission above and finally concluded- Though the words 'sham' and 'device' were loosely used in connection with the incorporation under the Mauritius law, we deem it fit to enter a caveat here. These words are not intended to be used as magic Mantras or catch-all phrases to defeat or nullify the effect of a legal situation. As Lord Atkin pointed out in Duke of Westminster's case (1936) AC 1 (HL) : (1935) 19 Tax Cases 490, 511 : I do not use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c detriment or prejudice to the national interests, as perceived by the respondents. The principle in Duke of Westminster is very much alive and kicking in the country of its birth . The legal position as explained in Azadi Bachao Andolan case (supra) and other cases discussed above holds the field and are applicable to this case. On the basis of this ruling, we find that this transaction of transfer of shares resulting in capital loss is a legal transaction, not tainted by any ulterior motive or dubious method to reduce the tax. Accordingly, capital loss claimed by the assessee is allowed and is directed to be set off against the short-term gains earned from the other transactions. The appellant succeeds on this issue. 7.18 Adverting to the last question, whether it is open for the Department to argue differently than what is stated in affidavits stating that they were submitted for different proceedings and different purposes. The real question is whether it is open for the Department to contend in this case that the transfer is not legal while submitting in other proceedings that the transfer is perfectly legal. We find it too hard even to believe that the Department can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang). This Tribunal held that s. 234B is a machinery provision and will therefore apply from the date when they are brought in this statute book. Levy of interest under s. 234D is chargeable when the regular assessment is made on or after 1st June, 2003 irrespective of the assessment year. It will be useful to reproduce as what has been held in that case : Sec. 234D provides that where the assessee receives the refund at the time of processing of return under s. 143(1) and ultimately in the regular assessment, i.e. the assessment made either under s. 143(3) or under s. 144 (including the assessment made for the first time under s. 147), if no refund is due to the assessee, the assessee has to pay simple interest on the whole or excess amount so refunded from the date of grant of refund to the date of such regular assessment. The provision of s. 234D is with regard to provision for recovery and collection of tax and not with regard to declaration of liability. It is settled law that a distinction has to be made by the Courts while interpreting the provisions of a taxing statute between charging provisions, which impose the charge to tax, and machinery provisions, which provide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective of the assessment year or irrespective of the date when the refund was granted. Interest under s. 234D is not levied for any default on the part of the assessee. It is levied merely because the assessee claimed refund which was granted, though not legally due to him. Thus, it is neither for non/delayed filing of return nor non/short demand of taxes, etc., but merely to compensate the utilization of any sum during the period which the assessee was not legally entitled to use. If the interest is found chargeable when the regular assessment is made on or after 1st June, 2003 the period has to be seen from the date of granting refund till the date of regular assessment. The simple reason is that interest is chargeable for enjoying the refund which the assessee was not legally entitled to. Interest is compensatory in character and is mandatory in nature. Accordingly, interest was rightly levied under the provisions of s. 234D, as the regular assessment was made on or after 1st June, 2003. Accordingly, the appeal was to be dismissed . Accordingly, the charging of interest under s. 234D is upheld. ITA No. 427/Bang/2006 1. Grounds of appeal Nos. 1 and 2 are general in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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