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2016 (9) TMI 404 - ITAT AHMEDABAD

2016 (9) TMI 404 - ITAT AHMEDABAD - TMI - Disallowance of previous years’ expenditure - Held that:- As decided in assessee’s own case for assessment year 2006-07 wherein held both the lower authorities have wrongly disallowed assessee's claim or prior period expenditure. The same stands deleted. - Disallowance for the alleged excessive shortage in the Sesame seeds account - Held that:- We find that the assessee has closed the business of trading in Sessame seeds during the year under conside .....

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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 - 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 .....

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r 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 deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business. – Decided in favor of assessee - Deduction u/s .....

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in this ground of appeal of the Revenue – Decided in favor of assessee - ITA. Nos: 3190 & 3277/AHD/2003, ITA. Nos: 3184 & 2837/AHD/2004 - Dated:- 25-7-2016 - SHRI S.K. YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri S.N. Soparkar & P.M. Mehta, A.R. For The Respondent : Shri Jagdish, CIT/DR PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA Nos. 3190 & 3277/Ahd/2003 are cross appeals by the Assessee and the Revenue preferred against the order of the .....

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o upholding of disallowance of ₹ 90.38 lacs from the business income of the year by holding it as previous years expenditure. 4. While scrutinizing the return of income and perusing the Tax Audit Reports, the A.O. found that the assessee has debited ₹ 90.38 lacs as expenses pertaining to previous year. The assessee was asked to justify its claim. Assessee filed a detailed reply along with the details of the prior period expenses. It was strongly contended that the details are exhaust .....

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ion 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 o .....

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nd that an identical issue was raised before the Co-ordinate Bench in the said appeal qua ground no. 1. Findings of the Tribunal read as under:- 5. We have heard rival contentions. Page 13 to 16 of the paper book comprise all details of assessee's prior period expenditure amounting to ₹ 67,88,591/- falling under major heads of C & F, misc. expenditure, outward freight and travelling etc. Its ledger accounts reveals that the same have been recognized on various dates from 01-04-2005 .....

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ed at uniform rate, year of raising an expenditure claim is of no consequence, more particularly, when the same is allowable. Next judgment (2010) 194 TAXMANN 158 (Del) CIT vs. Jagatjit Industries accepts consistent accounting practice claiming identical expenditure in mercantile system of accounting wherein the necessary expenditure vouchers have been received after 31st March of the relevant accounting period. Case law (2014) 221 TAXMANN 80 (Bom) CIT vs. Mahanagar Gas Ltd supports assessee' .....

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s (2013) 33 taxmann.com 92 (Bang) Bearing Point Business Solutions vs. DCIT and (2013) 35 taxmann.com (Hyd) now Bharat Ventures Ltd vs. CIT deciding the issue in Revenue's favour. We find that these tribunal's decisions do not confirm to different views of various hon'ble high courts hereinabove. 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 p .....

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te 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 cakes has already .....

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nnot be compared with the shortage of earlier year. At this juncture we beg to submit that the sesame seeds sales since from F.Y. 1995- 96 to 1999-2000 relevant to A.Y. 1996-97 to 2000-02 aggregating in quantity 5940 MT for the value of ₹ 29.48 crores. If the total shortage is considered it is hardly 0.86% of the entire five years' quantity. In view of the above, your honour is requested to consider sympathetically in respect of the aforesaid business loss." 12. After considering .....

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before the ld. CIT(A) but without much success. 14. Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities and the ld. D.R. supported the findings of the revenue authorities. 15. We have given a thoughtful consideration to the facts in issue and have carefully perused the orders of the authorities below. We find that the assessee has closed the business of trading in Sessame seeds during the year under consideration and accordingly wrote off the .....

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erial. 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 co .....

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2000-01 Revenue s appeal 20. The first grievance relates to the direction to consider profit on sale of DEPB license for computation u/s. 80HHC of the Act. 21. While scrutinizing the return of income, the A.O. found that the assessee has claimed deduction in respect of profit on sale of DEPB license u/s. 80HHC. The A.O. was of the firm belief that the claim of the assessee u/s. 28 (iiia) of the Act read with proviso to sub-section (3) of Section 80HHC does not appear to be correct and was of th .....

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licenses granted after the enactment of the 1992 Act. The ld. CIT(A) was convinced that provisions of other clauses i.e. (iiib) & (iiic) to Section 28 are vide enough to cover such incentives and accordingly directed the A.O. to grant deduction with reference to DEPB license. 24. Aggrieved by this, the revenue is before us. 25. The ld. D.R. strongly supported the findings of the A.O. Per contra, the ld. counsel for the assessee stated that this issue has been decided by the Hon ble Supreme C .....

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id) of the Income-tax Act, 1961 - Business income - Cash assistance - Assessment year 2002-03 - Whether DEPB is a 'cash assistance' receivable by assessee and is covered under clause (iiib) of section 28, whereas profit on transfer of DEPB takes place on a subsequent date when DEPB is sold by assessee and is covered under clause (iiid) of section 28 - Held, yes Section 80HHC, read with section 28(iiid) of the Income-tax Act, 1961 - Deductions -Exporters - Assessment year 2002-03 - Whethe .....

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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. .....

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years his predecessor has allowed the netting off of interest for the purposes of the computation of deduction u/s. 80HHC and following the findings of his predecessor directed the A.O. to consider only the net interest. 31. Aggrieved by this, the revenue is before us. 32. We find that this issue is no more res integra and is decided by the Hon ble Supreme Court in favour of the assessee in the case of ACG Associated Capsules Pvt. Ltd. 343 ITR 89. The Hon ble Supreme Court while deciding this is .....

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in these grounds that for the purpose of computing profits and gains. While computing the deduction under section 80HHC, the interest received by the assessee should be netted against the interest paid and only the net amount of interest shall be excluded by invoking Explanation (baa) below the section. It is contended that the orders of the income-tax authorities holding to the contrary are not correct, in the light of the order of the Special Bench of the Tribunal in the case of Lalsons Enter .....

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at 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 int .....

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d 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. In our considered opinion, an identical issue is decided qua ground no. 2 of this appeal wherein we have followed the decision of the Hon ble Supreme Court in 343 ITR 89. For our detailed discussion therein, ground no. 3 is also dismissed. 36. Ground no. 4 relates to the direction to allow deduction u/s. 80HHC for Marine .....

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ucted there from huge loss which it had incurred for the purpose of carrying out of business of Marine division. The A.O. accordingly recomputed the claim of deduction u/s. 80HHC by taking into consideration the huge loss incurred by the assessee from its Marine division. 38. Assessee agitated the matter before the ld. CIT(A) and reiterated its claim of deduction. The ld. CIT(A) found that his predecessor in A.Y. 1999-2000 has directed to give deduction ignoring the loss and allowing the claim o .....

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ier year and has decided the issue in favour of the assessee and against the revenue. 41. We have carefully considered the facts in issue and the decision of the Co-ordinate Bench relied upon by the assessee. We find force in the contention of the ld. counsel. An identical issue was considered by the Tribunal in A.Y. 1994-95 (supra) qua ground no. 4 of that appeal at para 28 and the relevant part of the decisions of the Co-ordinate Bench reads as under:- 28. Ground no. 4 of the appeal of the Rev .....

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rn 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, .....

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e deduction u/s 80HHC cannot be allowed even on the balance profit of ₹ 20,24,198/- (13,70,95,917 - 13,50,71,719). In view of the above finding, the Assessing Officer disallowed deduction u/s 80HHC in respect of marine division. 31. In appeal before the Ld. CIT(A), it was submitted that it has been held in various decision that filing of audit report with the return of income is procedural requirement and the Assessing Officer should consider the claim of the assessee even if such claim is .....

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iew of the above decisions, the Assessing Officer be directed to consider the Tax Audit Report in Form No. 10CCAC filed along with revised return of income while working out deduction u/s 80HHC admissible to the assessee regarding the marine division. 32. The Ld. CIT(A) after considering the submissions of the assessee held that in view of the above mentioned decisions relied on by the assessee, the Assessing Officer is directed to consider the audit report in Form No.10CCAC filed along with rev .....

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13,70,95,917/-. The Ld. CIT(A) observed that it was submitted that section 80HHC is an incentive provision 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 .....

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he 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 assessee cannot be denied the deduction. This is because under the main provisions of subsection (3) statutory profit of business is to be taken as 'NIL' there being no profit this should be incre .....

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993-94 in the case of AIA. Magottaux Limited. It was also submitted that similar view was also taken by the Ld. CIT(A)-IV, Baroda vide order dated 17.10.1995 in the case of Pratibha Processors Limited, Surat in appeal no. CAB/IV-II/95- 96 for Assessment Year 1992-93. Therefore, it was submitted that the Assessing Officer be directed to allow deduction u/s 80HHC for marine division equal to 90% of export incentives of ₹ 13,70,95,970/- subject to the condition that the deduction should not e .....

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otal income as reduced by deduction u/s 80HHC allowed for trading division. 34. The Ld. DR supported the order of the Assessing Officer. 35. The Ld. AR of the assessee submitted that the Delhi Bench of the Tribunal in the case of MMTC Limited Vs JCIT 112 TTJ 15 (Delhi) has held that when an export house surrenders part of its export turnover in favour of supporting manufacturer, it is required to issue a certificate as referred to in clause (b) of subsection (4A) in respect of the amount of turn .....

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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 .....

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ion u/s 80HHC by issuing certificate to the supporting manufacturer in respect of entire export turnover. The Assessing Officer disallowed the entire claim on the ground that there was loss on export of trading goods and on the ground that the required certificate of the auditor was not furnished along with return of income. 37. On appeal, the Ld. CIT(A) held that furnishing of auditor's certificate during the course of assessment proceedings was sufficient compliance. 38. Further, the Ld. C .....

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o any deduction u/s 80HHC in respect of marine division. 40. On the other hand, the Ld. AR of the assessee supported the order of the Ld. CIT and submitted that as the assessee issued a disclaimer certificate in respect of export turnover and therefore, the loss on export of trading goods is to be ignored and the Ld. CIT(A) was justified in granting deduction u/s 80HHC in respect of export incentive. He relied upon the decision of the Delhi Bench of the Tribunal in the case of MMTC Vs. JCIT (200 .....

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hen be taken into consideration for the purposes of computing profits under sub- section 3(c)( ii). In our view this is an argument which merely needs to be stated to be rejected. if such an argument is accepted it would lead to an absurd result. It would mean 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 dedu .....

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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 pass on or give credit of such non-existing .....

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atory Ltd.'s case (supra), it clearly emerges: no doubt, unless there is a positive 'profit', the benefit of section 80HHC would not be given. The Court interpreted it to mean that if there is a loss then no deduction would be available. However, how the test for determining the figure of positive profit is applied is stated as follows:- "In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive prof .....

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n export of trading goods which could not be passed on to supporting manufacturer by issuing disclaimer certificate in view of the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory (supra). In view of the above decision of the Hon'ble Delhi High Court, we find that after taking into consideration 90% of export incentive, there was a positive profit of ₹ 20,24,198/- in the instant case. Therefore, the assessee was entitled for deduction u/s 80HHC in respect of  .....

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e 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 .....

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xcess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is up to him to claim refund of the excess tax paid at the time of the assessment proceedings. He can certainly make such a claim also before the concerned authority for refund. Similarly, if he has by mistake or inadvertence or on account of ignorance included in his income any amount which is exempt from payment of income tax or is not income within the contemplation of law, he can .....

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be dismissed. 46. The Ld. DR submitted before us that the assessee has declared income of ₹ 28,00,000/- in its return of income. However, if effect of the order of the Ld. CIT(A) is given, then the assessed income will be lesser than the returned income. According to the Ld. DR, this is not permitted in view of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Shelly Products and others (supra). 47, However, Ld. DR could not produce any computation before us to show how .....

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n decided on merits. We are of the considered view that the income of the assessee is to be computed as per provisions of the law and simply because an assessee has suffered more amount on tax than what is legally due, then the Department can not assess the income at a higher figure but should assess the income at correct amount as per the provisions of law. We, therefore, do not find any merit in this ground of appeal of the Revenue and hence, the same is dismissed. 45. Respectfully following t .....

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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 .....

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