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Asst. Commissioner of Income tax, Mumbai Versus M/s. Sulzer India Limited and vice-versa

2012 (9) TMI 1120 - ITAT MUMBAI

ITA No. 2871/Mum/2007, ITA No. 2944/Mum/2007 - Dated:- 7-9-2012 - SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER Assessee-Appellant by : Shri Ronak G. Doshi Revenue-Respondent by : Shri Jayakumar O R D E R PER VIVEK VARMA, JM: Cross appeals have been filed by the department and the assessee against the order of CIT (A) XXIX, Mumbai dated 19.01.2007. As the appeals have been filed against the same order, we, for the sake of convenience and brevity, are passing a common or .....

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ing stock as per provisions of section 145A. After calling the explanation, the AO added back ₹ 67,27,141 to the closing stock valuation, as per the provisions of section 145A, which prescribes the valuation to be done under inclusive method, as against the exclusive method, adopted by the assessee in the past. 4. The assessee not satisfied, approached the CIT(A), who, following his predecessor s view in assessment year 2000-01 in the case of the assessee itself, allowed the appeal and del .....

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vs Mahavir Aluminium Ltd. reported in 297 ITR 77. ....Ground no. 2 pertains to deletion of addition in respect of MODVAT credit pertaining to closing stock. The Assessing Officer made an addition of ₹ 62,73,582/- to the closing stock as MODVAT credit available. Considering that the assessee is following exclusive method of accounting the learned CIT(A) has deleted the addition stating that the method followed by the assessee is revenue neutral in nature and there is no impact on the profi .....

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idered the issue. Since this issue is already covered in favour of the assessee by the Hon ble Delhi High Court quoted above and also the fact that the assessee is following exclusive method of account which is revenue neutral, the ground is rejected, and other cases, i.e. Hawkins Workers Ltd. vs ITO, reported in 14 DTR 206 (TM) and CIT v/s Mahalaxmi Glass Works (P) Ltd., reported in 318 ITR 116 (Bom) . 8. The AR, thus, pleaded that the ground must be dismissed. 9. We have heard the arguments of .....

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t the AO was correct in enforcing the provisions, which we sustain, but to examine the correctness of the calculations and computation of closing stock, strictly in accordance with the provisions of section 145A and in accordance with the Guidance Note prescribed by the ICAI on this issue, we deem it fit to restore the issue to the file of the AO. 10. The order of the CIT(A), is therefore set aside on this issue, and the issue is restored to the file of the AO, who is directed to recompute the c .....

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by the department is against the deletion of provision of warranty, being a contingent liability. The AO disallowed the provision made, holding it to be contingent and unascertained liability and disallowed ₹ 43,97,184/-. 13. The assessee, aggrieved by the decision of the AO, approached the AO, who relying on the various case laws, as mentioned in the impugned order and following his predecessor s order for assessment year 1999-2000 in the assessee s own case allowed the appeal and deleted .....

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he decision of coordinate Bench at Mumbai in the case of Haden International Group India Pvt. Ltd., reported in 20 SOT 305 and also that a consistent view has been taken by the coordinate Benches at Mumbai in the assessee s own cases in assessment years 1998-99 to 2000-01 and assessment year 2006-07 in ITAs No. A.Y. ITA No. 1998-99 2790/Mum/2003 1999-00 5047/Mum/2003 2000-01 3677/Mum/2004 2001-01 8219/Mum/2004 2006-07 4050 & 4435/M/11 17. Respectfully following the decisions as rendered by t .....

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) erred in not upholding the action of the Assessing Officer of excluding 90% of scrap sales from profit of business while computing deduction u/s 80HHC of the Act. 20. The ground pertains to the exclusion of 90% of scrap sales from profit for computation of deduction u/s 80HHC. In the year under consideration appellant sold scrap to the tune of ₹ 26,74,969 and included the same in the Total Turnover . The AO reduced the figure of ₹ 26,74,969 from the total turnover, holding cost of .....

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uired to be considered as part of total turnover and not as other income . The CIT(A), therefore, allowed the assessee s claim and rejected the observations of the AO. 22. The department is now in appeal. 23. Before us, the DR relied on the decision taken by the AO and the AR, defended the decision of the CIT(A), and submitted that now the issue is covered in the assessee s own case in ITA No. 2326/Mum/2006, wherein the coordinate Bench for assessment year 2002-03 has allowed the inclusion of sc .....

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n of the Assessing officer. We have heard both the parties. In our view scrap is an integral part of the manufacturing process and therefore any income arising from sale of scrap has to be treated as part of manufacturing profit and 90% of the same is not required to be included as per explanation (baa). However, the same would not be excluded in the turnover. This view is supported by several decisions of the Tribunal such as the decision of Delhi Bench of Tribunal in case of Jagaran Exports (1 .....

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ed CIT(A) has given a finding that this is to be included as part of total turnover. Since the facts are not clear from the orders of the AO and CIT (A) we restore the matter back to the AO to examine whether scrap sale is excluded by the AO the order of the CIT(A) on this issue has to be reversed as it was already held in various orders of the Hon ble ITAT that scrap sale will come to reduce the cost of purchase/manufacturing cost, hence, not form part of total turnover. Accordingly, the matter .....

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the CIT(A) on this issue and direct the AO to recompute the deduction u/s 80HHC in accordance with law with specific view on sale of scrap. 26 The ground is treated as allowed for statistical purposes. 27 Ground no. 4 pertains to the issue of inclusion of Sales Tax and Excise Duty, amounting to ₹ 5,11,38,743 to the total turnover for the computation of deduction u/s 80HHC. 28 While computing the deduction u/s 80HHC, the AO added sales tax and excise duty aggregating to ₹ 5,11,38,743 .....

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e-tax Act, 1961, for computing the total turnover of exports out of India of trading goods, excise duty and sales tax are not to be included. The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference to export turnover. Just as commission received by an assessee is relatable to exports and yet it cannot from part of turnover , excise duty and sales tax also cannot form part of the turnover excise duty and sales tax also cannot form part of .....

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becomes unworkable . 31. Respectfully following the decision of the Supreme Court and the various other case laws cited by the CIT(A) in his order, we sustain the findings of the CIT(A) and reject the appeal of the department on this issue. 32. The ground is rejected. ITA no. 2944/Mum/2007 (Assessee s appeal) Ground no. 1 pertains to part disallowance of depreciation on motor car. 33. The facts are that the assessee had claimed depreciation at 40% on motor vehicle. The AO called for an explanati .....

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dingly depreciation of ₹ 62,288/- has been computed @ 40% on opening written down value of ₹ 1,55,719/- of Honda City (medium passenger motor vehicle) acquired on October 6, 1988 at a total cost of ₹ 9,22,584/- . 34. The AO considered the assessee reply and observed, that the motor car is a Honda City car, which is used by the director for office purposes. Depreciation on motor vehicle is allowable on commercial vehicle, used to carrying passengers and goods on hire. The car is .....

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the decision of the CIT(A) is now before the ITAT. 38. Before us, the AR pointed out that the CIT(A) accepts that motor cars can be allowed depreciation at 40% and also pointed out that since assessment year 1999-00, i.e. last four years the assessment was being framed u/s 143(3) and depreciation had not been restricted in either of the preceding four years, he therefore, pleaded that an inconsistent view should not be taken in the current year, specially in a circumstance, that the issue remain .....

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CIT vs. ARJ Security Printers 264 ITR 276 (Del) 08. CIT vs Neo Ply Pack (P) Ltd. 245 ITR 492 (Del) 39. The AO pleaded that in the case of Ashok Gangadhar Maratha (supra), Hon ble Supreme court held that a light motor vehicle cannot always mean light goods carriage and that light motor vehicle can be non-transport vehicle as well. 40. The AR also submitted that in the decision at sl. Nos. 5, 6, 7 & 8, the various High Courts and the Hon ble Apex Court has highlighted on the rule of consisten .....

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High Court is clearly distinguishable, hence cannot be relied upon. Besides the fact, that the courts of the land have always insisted and favoured the rule of consistency. On this basis, we are inclined to accept the plea of the assessee and following the consistent stand taken by the AO in the preceding year and that there being no change in the factual and legal circumstances, we in our considered opinion, allow the appeal. 43. We, therefore, set aside the order of the CIT(A) and direct the A .....

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expenses of the directors. 48. Aggrieved, the assessee approached the CIT(A), before whom, it was submitted that the company provides facility of club membership to its CEOs/Directors and is used by them to solicit business, and relied on various decisions: Otis Elevators (India) Ltd. vs. CIT 195 ITR 682 (Bom) CIT vs. Sundaram Industries Ltd. 240 ITR 335 (Mad) Goyal Gases Pvt. Ltd. vs. DCIT 42 ITD 135 (Del) CIT vs. Engineers India Limited 239 ITR 237 (Del) DCIT vs. RPG Enterprises Ltd. ITA No.4 .....

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is too spacious. The membership of club is taken for leisure entertainment and to unwind after a day s work. If in the club some business talk is done, it would not change the predominant reason of taking the membership of a club. The predominant reason of expenditure which would determine the allowability of that expenditure. This simply means that the expenditure has not been incurred wholly and exclusively for business purposes. Accordingly, this ground is dismissed . 50. The CIT(A), thus rej .....

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company, once it is accepted to be an expense of the company. The AR, therefore, pleaded that the expense is an allowable expense. 53. The DR relied on the decision of the revenue authorities. 54. We have heard the arguments of the either side and here we intend to accept the submissions made before the AR before us and also before the revenue authorities. If the expense is a legitimate expense, debited in the books of assessee company, it cannot be said that the same would be for non-business .....

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fice, it is for the revenue authorities to prove that the expense of the company has not been incurred wholly and exclusively for the business purposes. This has not been done by the either of the revenue authorities. 55. We, therefore, reverse the findings of the revenue authorities and set aside the order of the CIT (A) and direct the AO to allow the expense. 56. The ground is allowed. 57. Ground no. 3 is on pre payment of deferment of sale tax loan. 58. At the time of hearing, the AR pointed .....

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and Chemicals Ltd. reported in 306 ITR 392 (SC). 60. The DR, fairly conceded to the cited cases. 61. Respectfully following the above decisions, we reverse the findings of the revenue authorities and set aside the order of the CIT(A) and direct the AO to allow the figure of ₹ 4,14,87,985 as the capital reserve of the assessee as claimed. 62. The alternate argument, taken by the assessee becomes infructuous. 63. The ground is treated as allowed. 64. Ground no. 4 is on account of reduction .....

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sessee was asked to explain why the same should not be excluded from the total profit of the business/undertaking for the purpose of computation of deduction u/s 80HHC of the Act. The assessee filed the explanation in this regard and contended that the entire commission cannot be reduced from the profit of the business because they have an exclusive set up for earning commission in Mumbai and the expenditure incurred in Mumbai office are towards the earning of the commission. In this regard the .....

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ion as the assessee has its set up of the business in Mumbai as well as Pune. The commission is earned by the assessee which is in addition to the main business income and also not derived out of the export activity . 66. The AO, after considering all facts, held that commission earned cannot be held to be an income derived form the export activity. 67. The assessee approached the CIT(A) on the observations of the AO and reiterated the submissions made before the AO. The CIT(A), after taking int .....

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R 89 04. CIT vs. Sri Ram Honda Power Equip. 289 ITR 475 (Del) 05. CIT vs. Taj International 170 Taxman 490 (Del) 06. Lasons Enterprises vs. DCIT 89 ITD 25 (Del-SB) 07. Kantilal Chhotalal vs. DCIT 68 ITD 395 (Mum) 71. The AR pointed out that the decisions from sl. No. 3 to 7 are with regard to netting off and would be applicable in case the decision is not favour of the assessee and the assessee would be pleased to press for setting off of the commission. 72. The AR also conceded that in assessme .....

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considered and consistent view in the issue, in the case of the assessee, we deem it fit to restore the issue in the current year, as well to the AO. 74. In the result, the order of both the revenue authorities are set aside on the issue with a direction to the AO to decide the issue afresh in line with the decision taken in the preceding years in assessment years 2001-02 & 2002-03, after giving a fair opportunity to the assessee. 75. The ground is treated as allowed for statistical purposes .....

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he assessee, preferred an appeal before the CIT(A), who, held that according to termination letter dated 09.12.2003, copy of which has been filed, saying, appellant received ₹ 13,49,466 as compensation for termination of Textile Agency being 10% of Net Asset Value as on 01.01.2003. There is no other information regarding this transaction. Appellant has relied on the decisions of Hon ble Delhi Tribunal, Special Bench in the case of Lalsons Enterprises vs DCIT (89 ITD 25) and Hon ble Mumbai .....

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s also fully applicable on this issue and, therefore, this ground of appeal is dismissed . 80. The CIT(A), thus rejected this ground of appeal. 81. The assessee is now before the ITAT. 82. Before us, the assessee reiterated its submissions and placed reliance on various decisions and prayed that the income so received should be netted against other commission expenses and should not be given the treatment as per Explanation (baa) to section 80HHC. 83. The DR relied on the orders of the revenue a .....

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case of CIT (A) on this issue and direct the AO to consider the details, which the assessee wishes to rely upon and decide the issue afresh, which shall be consistent and reasonable, after giving opportunity to the assessee. 86. The ground is treated as allowed for statistical purposes. 87. Ground no. 7 is on account of reduction of 90% of gross interest from business income. 88. From the order of the CIT(A), we find that despite the fact that the addition was agitated before the CIT (A), which .....

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les tax to the total turnover. The issue came up in the department s appeal as well, where we have decided the issue against the revenue, where Hon ble Supreme Court held: While calculating the deduction under section 80HHC(3)(b) of the Income-tax Act, 1961, for computing the total turnover of exports out of India of trading goods, excise duty and sales tax are not to be included. The object of the Legislature in enacting section 80HHC was to confer a benefit on profits accruing with reference t .....

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