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2018 (4) TMI 691

n account of depreciation and other expenses of Kavesar Factory was deleted by the Tribunal accepting the alternative contention of the assessee that the expenses incurred to protect the business assets should be allowed as deduction as held by Hon’ble Bombay High Court in the case of Hindustan Chemical Works Ltd.[1979 (2) TMI 16 - BOMBAY High Court] - also held by the Tribunal that the assets of Kavesar Unit having already entered the block of assets of the assessee, depreciation thereon could not be disallowed on the ground of non-user as the use of block of assets was to be considered and not the use of individual assets. - Decided in favour of assessee - Disallowing the expenditure on purchase of application software - revenue or capital expenditure - Held that:- the expenditure incurred by the assessee towards the purchase of application software is revenue in nature. See Amway India Enterprises case [2011 (11) TMI 4 - DELHI HIGH COURT]. - Non grating deduction claimed u/s 35D - Held that:- As decided in assessee's own case for AY 2003-04 direct the AO to allow the deduction claimed by the assessee under section 35D for the year under consideration keeping in view the .....

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otal income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income-tax Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are recovered by the taxpayers for and on behalf of the Government, shall not be included in the total turnover in the above formula - See CIT v. Ravindranathan Nair [2007 (11) TMI 10 - Supreme Court of India] - Disallowance on account of bad debts - Held that:- As decided in TRF Ltd [2010 (2) TMI 211 - SUPREME COURT ] 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad deb .....

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007) has followed the following order of the Tribunal for AY 2002-03: It is observed that a similar issue has been decided by the Tribunal in assessee s own case for the earlier years i.e. assessment year 2000-01 and 2001-02 by its order dated 22nd December, 2010 and 28th March, 2012 passed in ITA No. 6491/Mum/2004 and 2519/Mum/2005 respectively whereby a similar disallowance sustained by the Ld. CIT(Appeals) on account of depreciation and other expenses of Kavesar Factory was deleted by the Tribunal accepting the alternative contention of the assessee that the expenses incurred to protect the business assets should be allowed as deduction as held by Hon ble Bombay High Court in the case of Hindustan Chemical Works Ltd. 124 ITR 561. It was also held by the Tribunal that the assets of Kavesar Unit having already entered the block of assets of the assessee, depreciation thereon could not be disallowed on the ground of non-user as the use of block of assets was to be considered and not the use of individual assets. Respectfully following the orders of the coordinate bench of this Tribunal on a similar issue in assessee s own case for assessment year 2000-01 and 2001-02, we delete the .....

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by the AO. 4.3 Before us, the Ld. counsel of the assessee submits that the above issue has been decided in favour of the assessee by the order of the Tribunal for the AY 2003-04. 4.4 On the other hand, the Ld. DR relies on the order passed by the Ld. CIT(A). 4.5 We have heard the rival submissions and perused the relevant materials on record. We find that the ITAT K Bench Mumbai, in assessee s own case for the AY 2003-04 (ITA No. 1525/Mum/2007) held: We have heard the arguments of both the sides on this issue and also perused the relevant material on record. It is observed that the issue relating to assessee's claim for deduction under section 35D came up for consideration before the Tribunal in assessment year 1999-2000 and the same was decided, by the Tribunal in favour of the assesses by its order dated 21-09-20O6 passed in ITA No. 1330/Mum/2003 holding that the assessee was entitled to deduction under section. 35D. The issue, however, was restored by the Tribunal to the file of the AO for the purpose of quantifying the amount of deduction. As submitted by the Ld. counsel for the assessee, the AO has already quantified the amount eligible for deduction under section 35D in a .....

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ard the rival submissions and perused the relevant materials on record. We are concerned here with the assessment year 2004-05. In M/s Godrej Agrovet Ltd. v. ACIT (ITA No. 1629/Mum/2009) for the assessment year 2005-06, the ITAT G Bench Mumbai restricted the disallowance u/s 14A to 2% of the total exempt income on the reason that Rule 8D of the Income Tax Rules 1962 is applicable only prospectively from AY 2008-09 as held by the Hon ble Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. DCIT (2010) 194 Taxman 203 (Bom). The above decision of the ITAT has been confirmed by the Hon ble Bombay High Court vide order dated 08.01.2013 in CIT v. M/s Godrej Agrovet Ltd. (ITA No. 934 of 2011). As we are dealing with the assessment year 2004-05, following the above decisions, we direct the AO to restrict the disallowance u/s 14A to 2% of the total exempt income of the assessee, in place of the disallowance made by the AO and the enhancement done by the Ld. CIT(A). Thus the 4th & 5th grounds of appeal are partly allowed. 6. The 6th ground of appeal The Ld. CIT(A) erred in a. sustaining the additions for unutilised Modvat Credit of ₹ 3,93,57,123/- to the closing stock. b. disrega .....

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the manufacturing of excisable goods. The assessee was adopting the exclusive method i.e. valuing the raw-materials on the purchase price minus (-) the Modvat credit. The same would be permissible. The Apex Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) while affirming the order of High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw-material. Merely because the Modvat credit was irreversible credit offered to manufacturers upon purchase of duty paid raw-materials, that would not amount to income which was liable to be taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same. 6. Considering the above, the amount of the un-utilized Cenvat credit could not have been directly added to the closing stock. 6.5.1 Facts being identical, we follow the above decision of the Hon ble Bombay High Court and delete the addition of ₹ 3,93,57,123/- made by the AO. Thus the 6th ground of appeal is allowed. 7. The 7th ground of appeal The CIT(A) erred in disallowing lease rentals to the extent of ₹ 13,53,519/- not debited to Profit & Loss Account. Alternativ .....

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e reason that these were capital expenditure. 8.3 Before us, the Ld. counsel of the assessee submits that the said expenditures include (i) ₹ 1,35,000/- as consultancy fee to interior designer for changing flooring changing illuminating system and altering existing seating arrangement, (ii) ₹ 1,05,600/- as consultancy fee for redesigning of Skimmer Pit (one of the part of ETP system) to restore its performance, (iii) ₹ 3,88,403/- as Security Fees paid to Urban Development Head - Gurgaon in connection with reviewing of plans for setting up manufacturing plants. 8.4 On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 8.5 We have heard the rival submissions and perused the relevant materials on record. We find that the aforesaid expenses do not create any new fixed asset or enhance the production capacity of the business. These expenses are for repairs and renovation of existing assets, hence should be allowed as deduction. Considering the nature of expenses, we delete the disallowance of ₹ 6,29,003/- made by the AO. Thus the 8th ground of appeal is allowed. 9. The 9th ground of appeal The CIT(A) erred in conforming (a) the inclusion of r .....

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eightage. The substitution of section 80HHC(3) secures profits derived from the exports of eligible goods. Therefore, if all the four variables are kept in mind, it becomes clear that every receipt is not income and every income would not necessarily include element of export turnover. This aspect needs to be kept in mind while interpreting clause (baa) to the said Explanation. The said clause stated that 90 per cent of incentive profits or receipts by way of brokerage, commission, interest, rent, charges or any other receipt of like nature included in Business Profits, had to be deducted from Business Profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being Business Profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and &quo .....

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itself. The AO also noted that the assessee failed to file the supporting documents/confirmations. On the above reasons, the AO disallowed a sum of ₹ 29,65,202/-. 12.2 In appeal, the Ld. CIT(A) agreed with the reasons given by the AO and confirmed the above disallowance. 12.3 Before us, the Ld. counsel of the assessee relies on the decision in TRF Ltd. v. CIT 323 ITR 397 (SC). 12.4 On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). 12.5 We have heard the rival submissions and perused the relevant materials on record. We find that the assessee had filed before the AO the relevant details on account of bad debts written off. We refer here to para 9.1 and 9.2 of the assessment order dated 31.12.2008 passed by the AO. In TRF Ltd. (supra), the Hon ble Supreme Court has held at para 4: This position in is well-settled. 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. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of t .....

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