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2016 (9) TMI 593 - ITAT KOLKATA

2016 (9) TMI 593 - ITAT KOLKATA - TMI - Deduction u/s 80HHC - violation of provisions of Rule 46A by allowing the claim of the assessee without due verification of the facts & figures required to arrive at the correct amount of allowance - DR was of the view that even the action of CIT(A) in coming to the conclusion that it is only the profit arising out of sale for transfer of DEPB which is covered u/s 28(iii) of the Act - Held that:- We are of the view that even if the contention of the DR is .....

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in support of the same are re-considered by the AO. In view of the above, we set aside the order of CIT(A) in so far as it relates to the computation of the quantum of deduction u/s 80HHC of the Act in the light of the decision of the Hon’ble Supreme Court in the case of Topman Exports (supra). For statistical purposes the appeal of the revenue is treated as allowed. - Depreciation claim at 100% on pollution control equipment - Held that:- Test of emission after installation of pollution con .....

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had purchased. In the given circumstances we are of the view that the equipments in question on which the depreciation at 100% was claimed was pollution control equipments and the assessee was entitled to the claim of depreciation at 100% as claimed by it. We do not find any ground to interfere with the order of CIT(A) on this issue. - Disallowance u/s 14A - Held that:- As far as the disallowance on interest expenses is concerned the available funds available with the assessee were much mor .....

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-09 Rule 8D was not applicable and disallowance u/s 14A of the Act had to be made on a reasonable basis. The Tribunal in several cases has applied 1% of the tax free income has amount which can be disallowed under the head “Other Expenses” This view of this tribunal has also been approved by the Hon’ble Calcutta High Court. We therefore confirm the order of the CIT(A) on this issue also. - Addition made on account Bad Debt - Held that:- As rightly held by CIT(A) the deduction on account of b .....

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rence drawn by the AO is not correct and in the light of the decision of the Hon’ble Supreme Court in the case of T.R.F. Limited vs CIT (2010 (2) TMI 211 - SUPREME COURT ) it is not necessary after the amendment to the law w.e.f. 01.04.1989 provision of section 36(1)(vii) of the Act that the assessee is no longer required to establish that the debt in question which is written off as bad has in fact become bad and irrecoverable - ITA Nos.973& 974 /Kol/2013, C.O.No.70/Kol/2013 - Dated:- 3-8-2016 .....

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see against the order of CIT(A)-XX, Kolkata dated 04.01.2013 relating to AY 2006-07. ITA No. 973/Kol/2013 (A.Y.2003-04): 2. Grounds of appeal raised by the revenue read as follows :- 1. Ld. CIT(A) is erred in law and on the facts and in circumstances of the case by allowing deduction u/s 80HHC for ₹ 1,33,92,449/- by violating the provisions of Rule 46A and allowing the claim of the assessee without due verification of the facts & figures required to arrive at the correct amount of allo .....

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aws (Amendment) Act , 2005 with retrospective effect from 01.04.1998, the assessee s claim for deduction u/s 80HHC(3) of the Act that was allowed in original assessment proceedings was excessive. Therefore reassessment proceedings were initiated against the assessee u/s 147 of the Act. The issue that was considered by the AO in the re-assessment proceedings was as to the manner in which profit on sale of DEPB licence had to be computed. The AO noticed that the total value of export incentive in .....

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.85,84,324/- Penalty u/s 271(1)(c) is initiated separately., Hence, income of the assessee is assessed u/s 147/143(3) of the Act as follows: Income assessee u/s 143(3) Rs.2,95,59,195/- Less: Deduction u/s 80HHC ₹ 85,84,324/- Total Income Rs.2,09,74,871/- Rounded off Rs.2,09,74,870/- The deduction u/s 80HHC which was originally allowed was a sum of ₹ 1,45,45,505/-. In the reassessment proceedings the sum stood reduced to ₹ 85,84,324/-. 3. Aggrieved by the order of AO the assesse .....

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cond, third, and fourth proviso to sec 80HHC (3) would not apply to the assessee. The benefit u/s 80HHC(3) for the assessee would thus be calculated as under: a) Profit of the business X Export Turnover Total Turnover b) The amount in. (a) above. shall be increased by 90% of amount in clause (iiia), (iiib) and (iiic) of section 28 X Export Turnover Total Turnover. c) "Profit of business" means the profit of the business as computed under the head "Profit and gains of business or p .....

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uld be applicable. Clause(iiid) of section 28 dealing with DEPB reads as under: ( iiid) any profit on the transfer of the Duly Entitlement Pass Book Scheme, being the Duty. Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) It was submitted that in clause (iiid) the word mentioned is "any profit on transfer of ........... " It is thus only the profit arising on sale or tra .....

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her import the goods and use this entitlement for payment of customs duty or transfer the same to any other importer who gets the same benefit. The exporter thus buys goods in local market paying duties and offset the duty element by transferring his entitlement. This is a vital element for calculation of cost when the exporter calculates his sales price in a competitive environment. The profit on transfer of DEPB entitlement is the premium that the exporter gets over and above the credit value .....

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aterial and reduce his cost by availing the credit of Rs.-10/- against his liability of customs duty or buy the raw material indigenously by paying a higher price and transfer DEPB, which may be at a bit premium or discount depending on 'market condition. iv) In the -first option of making import, there is no transfer of DEPB while in the second option he transfers his entitlement of Rs:I0/- for say ₹ 11/. v) The entitlement value of Rs.l0/-, which could be used for availing tax credit .....

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Topman Exports Vs. ITO 318 ITR 87 (Mum) (SB)(AT) and the same was also confirmed by the Hon ble Supreme Court. It was argued that the AO has taken entire amount recd on DEPB sale as profit u/s 28(iiid) which needs to be bifurcated into cost, the entitlement portion, and the profit, the difference between sale price and entitlement portion. The profit can only be ignored while calculating deduction u/s·80HHC and not the entire sale proceed. 6. The CIT(A) found force in the contention of th .....

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he grounds of appeal filed by the revenue that the revenue does not dispute the correctness of the action of CIT(A) in holding that the it is only the profit arising of sale of transfer of DEPB that is covered u/s 28(iii) of the Act and not the entire realisation of transfer of DEPB. The ld. DR however was of the view that even the action of CIT(A) in coming to the conclusion that it is only the profit arising out of sale for transfer of DEPB which is covered u/s 28(iii) of the Act is also chall .....

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ce. 8. As far as violation of the provision of Rule 46A of the IT Rules as raised by the revenue is concerned, the ld. Counsel for the asessee had no objection if the figures which have been considered by CIT(A) and the statement in support of the same are re-considered by the AO. In view of the above, we set aside the order of CIT(A) in so far as it relates to the computation of the quantum of deduction u/s 80HHC of the Act in the light of the decision of the Hon ble Supreme Court in the case o .....

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rtificate from any technical person / authority certifying that the assets in question are pollution control equipment. 10. The facts as far as ground no.1 raised by the revenue is concerned are that the assessee claimed depreciation at 100% on pollution control equipments. The AO called upon the assessee to furnish the details on which the depreciation has been claimed. The asseseee furnished copies of the bills before the AO. The AO on perusal of the bills noticed that the assessee had purchas .....

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ils submitted by the assessee did not justify the assessee's claim of depreciation on such pollution control equipments. The claim of tile assessee appears to be with an intention to suppress the profits. It is held that the claim of depreciation by the assessee @l00% on pollution control equipment is not genuine. The assessee has not been able conclusively to establish the justification of the claim. However, the assessee is allowed the claim depreciation ,on the equipment, considering the .....

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is released. The assessee gave a list of pollution control equipments it had installed to reduce the air pollution. This list is given in para 5.1. of the CIT(A) s order. The assessee further pointed out that it was not possible for the assessee to carry on its manufacturing activity without such pollution control equipments as these are statutory requirements and inspected by the pollution control authorities. The assessee also pointed out that the AO has not doubted the claim of the assessee .....

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set claiming as Pollution Control equipment, However, the A.O treated the same as Plant and Machinery and accordingly allowed depreciation @15% as against' 100% claimed by the appellant. However; .the A.O could not bring any material on record to establish that same was not pollution control Equipment whereas the appellant proved the requirement and established the same being pollution control equipment. After' careful consideration of the Submission, I find from the facts that the so cl .....

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e of raw materials. The ld. Counsel for the assessee relied on the order of CIT(A). 13. After considering the rival submissions we find that the AO in the order of assessment, the AO has not disputed the claim of the assessee that raw materials and parts which are purchased had been used for manufacture of pollution control equipment. In a letter dated 26.11.2008 filed before the AO the assessee clearly brought to the notice of the AO that the assessee did not buy any pollution control equipment .....

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e facts. The reasons assigned by the AO for rejecting the claim of 100% depreciation by the Assessee was, a mere observation that the assessee did not justify the claim for depreciation on pollution control equipments. There is no finding of the AO that the assessee did not manufacture pollution control equipments by utilising the raw materials which it had purchased. In the given circumstances we are of the view that the equipments in question on which the depreciation at 100% was claimed was p .....

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isdictional High Court in the case of Dhanuka & Sons Vs. CIT (Central)-I, Kolkata (2011) 12 Taxman. Corn 227 (Cal) dated 19.04.2011, where the Hon 'ble Court held that it is to the assessee to show by flow of fund that no amount of expenditures has been incurred in relation to exempt income and assessee company failed to discharge the burden. 15. The assessee earns dividend income of ₹ 7,69,946/- which did not form part of the total income under the Act. In view of the provision of .....

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s were invested to make investments. The Assessee had authorized the bank to make investments and no expenditure whatsoever was incurred to earn the tax free income and therefore no disallowance of expenses u/s.14A of the Act is necessary. 16. The AO however in the order of assessment did not make any reference to the aforesaid contention of the assessee and proceeded to determine the disallowance u/s 14A of the Act by applying the formula given in Rule 8D of Rules. The following was the computa .....

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d above. Therefore, this figure is adopted at Rs. Nil. Disallowance of Interest = A x B/C Where A = Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year : B = The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; C = The average of total assets as appearing in .....

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lue of investment : The average value of investment income from which does not or shall not form part of total income in assessee s case is ₹ 1,80,72,310/-. Therefore, this component of disallowance would be ₹ 90,362/-. Therefore, total disallowance u/r. 8D read with sec. 14A = (i) + (ii) = (iii) = ₹ 3,88,731/-. 17. Before the CIT(A) the assessee reiterated its stand, as was taken before the AO. No interest expenses whatsoever were incurred for making the investments which yiel .....

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s in the units of mutual fund which yielded the tax free income. Therefore the disallowance of interest expenses of ₹ 2,98,370/- made by the AO was deleted by the CIT(A). As far as the disallowance of other expenses is concerned the CIT(A) held that disallowance of 1% of the tax free income would be just and proper. In this regard the CIT(A) found that for A.Y. prior to A.Y.2008-09 Rule 8D was not applicable and therefore disallowance had to be made on a reasonable basis. In coming to the .....

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for any interference. As far as the disallowance on interest expenses is concerned the available funds available with the assessee were much more than the investments made by the assessee. The following chart would demonstrate the same. A. Dividend Earned 7,69,946.27 B. B. Investment as on 31/03/2005 2,28,41,863.34 C. Investment as on 31/03/2006 1,33,02,756.00 D. Own Capital (Equity + Reserves) as òn 31/03/2005 11,22,47,485.07 E. Own Capital (Equity + Reserves) as on 31/03/2006 11,63,18,7 .....

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lowance u/s 14A of the Act had to be made on a reasonable basis. The Tribunal in several cases has applied 1% of the tax free income has amount which can be disallowed under the head Other Expenses This view of this tribunal has also been approved by the Hon ble Calcutta High Court. We therefore confirm the order of the CIT(A) on this issue also. 21. Ground No.3 raised by the revenue reads as follows :- 3. Ld. CIT(A) is erred in law and on the facts and in circumstances of the case by deleting o .....

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nce 60% was written off as bad debt in the books of accounts. The A.O differed on the estimation and disallowed 50% of the claim of bad debts on the reasoning that the assessee has to establish that the debt has become bad. 23. Before CIT(A), the Assessee submitted that the deduction on a/c of bad debt as allowed u/s 36(l)(vii) read with section 36(2), after amendment by the Direct Tax Laws (Amendment) Act 1987, envisage merely wiring off the debt as irrecoverable in the accounts of the assessee .....

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o claim deduction u/s 36(1)(vii) of the Act. Further Hon'ble supreme court in the case of T.R.F. Limited vs C.I.T reported in 323 ITR 397(SC) has clearly observed that after 01.04.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Hence it was claimed that in view of the above circular of CBDT and the above judgment of Hon'ble Supreme Court, .....

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er of CIT(A). After considering the rival submissions we are of the view that order of the CIT(A) on this issue does not call for any interference. As rightly held by CIT(A) the deduction on account of bad debts had to be allowed if the debt in question or part thereof is written off as bad in the books of accounts of the assessee. There are other conditions for allowing the claim for deduction on account of bad debts but the existence of those conditions in the case of the assessee has not been .....

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