TMI Blog2016 (9) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... smallness of the overall percentage which is 0.86%, the balance of convenience is tilted in favour of the assessee. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the disallowance Profit on sale of DEPB license for computation u/s. 80HHC - Held that:- As decided in Topman Exports [2012 (2) TMI 100 - SUPREME COURT OF INDIA] DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB and while the face value of the DEPB will fall under clause (iiib) of Section 28, difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 Decided in favor of assessee. Taking net interest as part of indirect cost for the purpose of computation of deduction - Held that:- As decided in ACG Associated Capsules Pvt. Ltd [2012 (2) TMI 101 - SUPREME COURT OF INDIA] Ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads PGBP is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration. Similarly, the income pertaining to previous year was made known to the company in the current year. Necessary details division-wise were filed. The submissions and the details field by the assessee did not find any favour with the A.O. who was of the opinion that since the assessee company is maintaining its books of accounts on mercantile system of accounting and accordingly disallowed ₹ 90.38 lacs and added to the return of income. 5. Assessee carried the matter before the ld. CIT(A) but without any success. 6. Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities and in support of his contention, the ld. counsel drew our attention to the decision of the Co-ordinate Bench in assessee s own case in ITA No. 1859/Ahd/2011 for assessment year 2006-07. It is the say of the ld. counsel that on identical facts, the Tribunal has deleted the disallowances made on account of the alleged prior period expenses. 7. Per contra, the ld. D.R. strongly supported the findings of the revenue authorities. 8. We have carefully perused the orders of the authorities below. We have also given a thoughtful consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nabove. Next case law (2013) 42 taxmann.com 142 (Guj) CIT vs. Gujarat Mineral Development Corporation is an admission order after framing substantial question of law wherein the main case is still pending for final disposal. We observe that this latter order does not settle a ratio. We take into account above stated discussions, relevant facts and case law to conclude that both the lower authorities have wrongly disallowed assessee's claim or prior period expenditure. The same stands deleted. This first substantive ground is treated as allowed. 9. Respectfully following the findings of the Co-ordinate Bench (supra), we set aside the findings of the ld. CIT(A) and direct the A.O to delete the addition of ₹ 90.38 lacs. Ground no. 1 is accordingly allowed. 10. Ground no. 2 relates to upholding the disallowance for the alleged excessive shortage in the Sesame seeds account. 11. While scrutinizing the financial statements of the assessee, the A.O. found certain shortage of Sesame seeds. The assessee was asked to explain the shortage. Assessee filed a detailed reply which reads as under:- Comparable details in respect of shortage of Sesame seeds and De-oiled ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the First Appellate Authority is that the assessee has failed to quantify the shortage/loss due to substandards material. There may be some force in the findings of the First Appellate Authority. Considering the smallness of the overall percentage which is 0.86%, the balance of convenience is tilted in favour of the assessee. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the disallowance of ₹ 15,19,800/-. Ground no. 2 is accordingly allowed. 16. Ground no. 3 is an alternative claim in respect of deduction u/s. 80HHC for the disallowances made by the A.O. and confirmed by the ld. CIT(A). 17. Since, we have deleted the disallowances so made this claim of the assessee becomes infructuous. 18. The next grievance of the assessee relates to the levy of interest u/s. 234B of the Act. The charging of interest is mandatory though consequential in this case, we, accordingly, direct the A.O. to levy interest u/s. 234B of the Act as per the provisions of the law. 19. In the result, the appeal filed by the Assessee is partly allowed. ITA No. 3277/Ahd/2003 for A.Y. 2000-01 Revenue s appeal 20. The first grievance relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 - Deductions -Exporters - Assessment year 2002-03 - Whether when DEPB accrues to assessee in first previous year and assessee transfers DEPB certificate in second previous year, it is only ninety per cent of profit on transfer of DEPB covered under clause (iiid) of section 28 and not ninety per cent of entire sale value including face value of DEPB gets excluded from 'profits of business' in terms of Explanation (baa) under section 80HHC and, as a result, assessee gets a bigger figure of 'profits of business' which becomes multiplier in formula under section 80HHC(3)(a) for arriving at figure of profits derived from exports - Held, yes [In favour of assessee] 27. Respectfully following the decision of the Hon ble Supreme court (supra), we decline to interfere with the findings of the ld. CIT(A). Ground no. 1 is dismissed. 28. Ground no. 2 relates to the direction to consider only the net interest as part of indirect cost for the purpose of computation of deduction. 29. During the course of the assessment proceedings, the A.O. found that the assessee company has taken net interest in working of the total indirect cost of general division. The A.O. was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is factually a nexus between the Special Bench Order. The assessee shall be given adequate opportunity of being before, decision is taken. These grounds are decided accordingly. Although the Tribunal has followed Lalsons and 'held that netting should be allowed, it has remitted the matter to the Assessing Officer to enable him to examine the assessee's claim that there is factually a nexus between the interest paid and received and take a fresh decision. We find no reason to interfere with the directions given by the Income-tax Appellate Tribunal, which is consistent with the decision rendered by us today in the batch of the appeals of which the present appeal forms part. Needless to add, the Assessing Officer will proceed in accordance with our judgment. 33. Respectfully following the findings of the Hon ble Supreme Court (supra), we do not find any reason to interfere with the findings of the First Appellate Authority. Ground no. 2 is accordingly dismissed. 34. Ground no. 3 relates to the direction to reduce interest expenses by 10% of total export incentives and to recalculate the deduction u/s. 80HHC in respect of both the divisions. 35. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow deduction u/s 80HHC in respect of income of marine division. 29. The brief facts of the case are that the assessee is a recognized export house. The export turnover (FOB) in the marine division during the year was ₹ 3,07,51,05,859/- in the Assessment Year. The Assessing Officer stated that in the original return of income filed, no deduction u/s 80HHC was claimed in respect of exports in this division. Subsequently, the revised return of income was filed by the assessee and deduction u/s 80HHC was quantified by tax auditors in the report in Form No. 10CCAC filed along with return of income. The Assessing Officer held that since the Tax Audit Report in Form No. 10CCAC was not filed along with the original return of income as provided in subsection (4) of section 80HHC, deduction u/s 80HHC in respect of marine division was not admissible. 30. Further, the Assessing Officer held that since there is a loss of ₹ 13,50,71,719/- in the marine division question of increasing the export profit by 90% of export incentive of ₹ 15,23,28,797/- i.e. ₹ 13,70,45,917 in the proportion of export turnover to the total turnover does not arise as the increment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision and it should be interpreted in a liberal way. The words 'further increase' clearly show that the benefit as per proviso is over and above the benefit as per clause (a) of subsection (3) of section 80HHC in the case of a negative balance as per clause (a) of subsection (3), benefit of proviso cannot be adjusted or reduced. The Ld. CIT(A) further observed that it was submitted that further increase contemplated as per proviso cannot be reduced and adjusted against the loss arrived at the stage of computation. The assessee filed copy of the decision dated 14.09.1995 of the Cochin Bench of the Tribunal in the case of A.M. Moosa Vs. ACIT (1996) 54 TTJ 193 and submitted that in this decision, it has been held that construing the proviso to subsection (3) of section 80HHC as an independent provision, the assessee could be entitled to the deduction in an amount equal to 90% of the sums referred to any clause (iiia) (iiib) and clause (iiic) of section 28, same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. From another point of view, even if the proviso to subsection 3 of section 80HHC is viewed only, still the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom export of trading goods, same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. Thus, in respect of the income which the assessee did not disclaim in favour of the supporting manufacturer which pertains to and is attributable to the export incentive, there is no reason to reduce the export incentive relatable to the disclaimed turnover in terms of proviso to section 80HHC (1) of the Act. He also submitted that this is the only decision of the Tribunal in favour of the assessee. He also submitted that no appeal has been filed against this order by the Department meaning thereby that they have accepted the decision. He therefore submitted that the order of the Ld. CIT(A) should be upheld and the ground of appeal of the Revenue be dismissed. 36. We have heard the rival submissions, perused the orders of lower authorities and the material available on record. The undisputed facts are that the assessee in its marine division suffered loss of ₹ 13,50,71,719/- on export of trading goods and earned export incentives of ₹ 13,70,45,917/-. The assessee claimed deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an when if there was no disclaimer the export house would not be entitled to any deduction in cases where there is a loss but because disclaimer has been made both the export house and the supporting manufacturer would become entitled to deductions. The proviso to subsection (3) of section 80HHC enables a disclaimer only to enable the export house to pass on deductions. It in no way reduces the turnover of the export house. In computing total income, the entire turnover is taken into account even though there is a disclaimer. Thus even though the disclaimer is made the taxable income of ₹ 4.39 crores has been arrived at by the Appellants after taking into account the entire turnover from export of trading goods. In arriving at the figure of ₹ 4.39 crores admittedly the loss of ₹ 6.86 crores has been taken into account. Even after disclaimer the turnover has remained the turnover of the Export House, i.e., the Appellants. The disclaimer is only for purposes of enabling the export house to pass on the deduction which it would have got to the supporting manufacturer. It follows that if no deduction is available, because there is a loss, then the export house cannot p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of gross total income without restricting the total income derived from export of goods. 44. We find that an identical issue was considered by the Tribunal in assessee s own case in A.Y. 1994-95 in ITA No. 3403/Ahd/1997 qua ground no. 5 of that appeal at para 44 and the same reads as under:- 44. The ground no. 5 of the appeal of the Revenue is directed against the order of the Ld. CIT(A) directing to allow deduction u/s 80HHC as mentioned in the grounds thereby resulting in computation of income lower than shown by the assessee in revised return of income. 45. The Ld. AR of the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Shelly Products and others (2003) 261 ITR 367 (SC) and submitted that at page 382 of the order in placetum C, D E, Hon'ble Supreme Court has observed that the failure of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of independent action advance tax or as self assessment tax which is in excess of his liability on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of appeal of the Revenue and hence, the same is dismissed. 45. Respectfully following the findings of the Co-ordinate Bench, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 5 is accordingly dismissed. ITA No. 3184/Ahd/2004 for A.Y. 2001-02 Revenue s appeal 46. The first grievance of the revenue relates to the deletion of the disallowance of previous year expenses of ₹ 4,62,11,501/-. 47. An identical issue has been considered and decided by us in ITA No. 3190/Ahd/2003 qua ground no. 1 of that appeal. For our detailed discussion therein, this ground of the revenue is dismissed. 48. Ground no. 2 relates to the direction to allow deduction u/s. 80HHC on General division of ₹ 55,89,38,610/- and Marine division at ₹ 10,28,41,704/-. 49. An identical issue has been considered and decided by us in ITA No. 3277/Ahd/2003 (supra) qua ground no. 4 of that appeal. For our detailed discussion therein, this ground of the revenue is partly allowed. 50. Ground no. 3 relates to the directing the A.O. not to reduce deduction u/s. 80IA while computing deduction u/s. 80HHC. 51. A perusal of the assessment order shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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