TMI Blog2018 (2) TMI 1806X X X X Extracts X X X X X X X X Extracts X X X X ..... find that though the Hon’ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India [2007 (6) TMI 175 - CALCUTTA HIGH COURT] had struck down the provisions of section 43B(f) of the Act as unconstitutional. The revenue had carried the matter further to the Hon’ble Supreme Court in [2008 (9) TMI 921 - SUPREME COURT] it could be inferred that the Hon’ble Supreme Court had not stayed the judgement of the Hon’ble Calcutta High Court during Leave proceedings. But the Hon’ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon’ble Supreme Court as stated supra. Accordingly, the Ground No. 2 of assessee appeal for Asst Year 2010-11 is allowed for statistical purposes. Addition towards provision for mark to market loss - Held that:- CIT(A) has applied this decision of the Tribunal in the assessee’s own case and granted relief. We find no infirmity in the same and dismiss this ground of the revenue.” Accordingly, we find that the assessee would be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or underlying liability is incurred on trading account. In the appellant’s case, it had entered into foreign exchange forward contracts for hedging exchange fluctuation risks in respect of export orders. As such the underlying transaction in relation to forward contract entered into by the assessee was trading transaction and therefore any loss connected with such trading transaction and was in the revenue field and therefore to be allowed in view of the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India (P) Ltd. (2006 (1) TMI 68 - GUJARAT HIGH COURT ) and O.N.G.C. vs. CIT (2010 (3) TMI 81 - SUPREME COURT ). - I.T.A No. 1410/Kol/2016, I.T.A No. 1601 /Kol/2016 - - - Dated:- 14-2-2018 - Shri M.Balaganesh, AM Shri S.S.Viswanethra Ravi, JM For the Appellant : Shri J.P. Khaitan, Sr. Advocate, Shri Vinod Sharma, CA For the Respondent : Shri Sallong Yaden, Addl. CIT ORDER Per M.Balaganesh, AM 1. These cross appeals by the Assessee as well as Revenue arise out of the common order of the Learned Commissioner of Income Tax(Appeals)-4, Kolkata [in short the ld CIT(A)] in Appeal No.189/CIT(A)-4/Cir-12/Kol/14-15 dated 23.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given here. Further, it would be seen from Schedule 5 to the assessee's accounts (internal page 17 of the accounts) that no fresh investment was made in any shares during the relevant previous year. The aggregate amount which stood invested in shares was ₹ 43,80,732/- both as on March 31, 2009 and as on March 31, 2010. Even as on March 31, 2004 to March 31, 2008, the aggregate amount which stood invested in shares was ₹ 43,80, 732/-. Therefore, it is evident that the shares were acquired by the assessee a long time ago out of its own funds without resorting to any borrowings. The current investment as on March 31, 2009 was ₹ 705.16 lacs invested in units of Debt schemes of Mutual Funds. During the previous year ended March 31, 2010, the assessee sold the units of Debt schemes of Mutual Funds held by it as on 31.03.2009. Besides, during the year under reference, the company purchased and sold units of Debt schemes of various mutual fund. In respect of such Debt schemes of Mutual Funds, only the dividend was exempt because of payment of dividend distribution tax by the Mutual Funds but in any case, tax was payable on the gain, if any, made upon disposal/red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t having any corroborating document to warrant such deletion. 2.1. We have heard the rival submissions. We find that the assessee had derived dividend income in the following manner: Birla Corporation Ltd. Shares ₹ 18,90,100/- Mutual Debt Schemes Rs. 57,24,672/- Total Rs. 76,14,772/- The assessee had sold the entire mutual funds debt schemes amounting to ₹ 705.16 lacs. during the year under appeal. The assessee had sufficient own funds which is quite evident from the perusal of the balance sheet and accordingly it could be safely concluded that all the investments were made only out of own funds of the assessee by placing reliance on the following decisions of various High Courts: i) Hon ble Bombay High Court in the case of Reliance Power Utilities and Power Ltd. reported in 313 ITR 340 (Bom); ii) HDFC Bank reported in 366 ITR 505 (Bom); We find that own funds available in the form of capital and reserves and surplus were ₹ 15769.49 lacs and whereas the investments in mutual funds were only ₹ 43.81 lacs as on 31.03.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Special Leave to Appeal (Civil) No(s). CC 22889 / 2008 dated 8.5.2009 had held as under:- The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Leave granted. Pending hearing and final disposal of the Civil appeal, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the department to recover that amount in case Civil Appeal of the department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal , pay tax as if Section 43B(f) is on the statute book but at the same time it would be entitled to make a claim in its returns. Hence from the aforesaid Supreme Court judgement, it could be inferred that the Hon ble Supreme Court had not stayed the judgement of the Hon ble Calcutta High Court during Leave proceedings. But the Hon ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2010-11 to the assessee then it would amount to double deduction being given to the assessee. This has been rightly observed by the Ld. CIT(A). We also find that against the relief granted to the assessee on the said provision in assessment year 2009-10, the revenue had preferred an appeal before this Tribunal which was disposed off in I.T.A. No. 1798 2161/Kol/ 2014 dated 25.10.2017 wherein it has held as under: 17. The ld. CIT(A) has applied this decision of the Tribunal in the assessee s own case and granted relief. We find no infirmity in the same and dismiss this ground of the revenue. Accordingly, we find that the assessee would be given double deduction if relief is granted in assessment year 2010-11 for the very same provision of ₹ 2,12,48,372/-, Hence, we hold that the Ld. CIT(A) had rightly dismissed the plea of the assessee. Accordingly, ground no.3 raised by the assessee is dismissed. 6. Disallowance of other income while computing the deduction u/s 10B of the Act. Ground nos. 1 and 2 of revenue appeal The brief facts of this issue is that the assessee is having a 100% EOU at Viramgram. The assessee company claimed deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the ld AO was not derived from export of articles as per section 10B of the Act :- Rent from staff quarters 5,712 Insurance claims realized 36,390 Excess liabilities no longer required 8 Miscellaneous income receipts (including Duty Drawback of ₹ 20,64,901) 20,69,044 Interest received (net) (-) 2,91,053 ------------------ 18,20,101 The ld AO held that the aforesaid incomes were not derived from the export of articles or things and accordingly denied the exemption u/s 10B of the Act on the same. In support of his contention, he placed reliance on various decisions. The ld CITA granted the exemption u/s 10B of the Act and gave relief to the assessee by following the coordinate bench decision of this tribunal in assessee s own case for the Asst Years 2003- 04 and 2004-05 vide order dated 28.12.2007 in ITA No.s 150 and 277 (Kol) of 2007 and ITA Nos. 5678 and 580/Kol/2009 respectively. Aggrieved, the revenue is in appeal before us on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its of the business of the undertaking and hence is eligible for exemption u/s 10B in terms of section 10B(4) of the Act. He further stated that the decision of Hon ble Apex Court in Liberty India case supra and other decisions relied upon by the ld AO were all rendered in the context of deductions under sections 80HH / 80HHC / 80IA / 80IB etc and hence the same cannot be used for section 10B where the language of the statute is covered and exemption is to be reckoned as per computation mechanism provided in section 10B(4) of the Act. He placed reliance on the decision of the Hon ble Calcutta High Court in assessee s own case in ITA 666 of 2008 with GA No. 3269 of 2014 ITAT 159 of 2014 dated 30.6.2016 where the similar issue was held in favour of the assessee by following the provisions of section 10B(4) of the Act. He accordingly prayed for non-interference of the order of the ld CITA. 5.3. We have heard the rival submissions and perused the materials available on record. The details of other income to the tune of ₹ 18,20,101/- as detailed hereinabove pertains to 100% EOU as could be evident from the segmental profit and loss account of 100% EOU furnished by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case the Income Tax Appellate Tribunal erred in law in directing the Assessing Officer to treat the interest income of ₹ 28,74,473/- as part of the profits of business of the 100% E. O. U. eligible for deduction under Section 10B of the Income Tax Act, 1961 and compute deduction accordingly without appreciating the fact that the said interest income was not profit from the business but accrued on fixed deposit kept by the assessee in bank? A bare reading of sub-section (1) suggests that 100 % export oriented undertakings are entitled to a deduction of profits and gains derived from the export of articles for a period of 10 years. The aforesaid entitlement is, however, subject to the provisions of Section 10B. In other words, subject to the provisions contained in the other parts of the Section 10B, the benefit is available to an assessee. It was not disputed that the only relevant provision to be taken into account is subsection (4) which we already have quoted. Subsection (4) provides the quantum of deduction which can be availed by an assessee. The quantum of deduction is dependent upon the total turnover of the business of the undertaking and the export tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port entitlement, which is permissible in law. Now the question is whether the interest 6 received and the consideration received by sale of import entitlement is to be construed as income of the business of the undertaking. There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profits and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of income from Profits and Gains incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. Therefore, the first substantial question of law raised in ITA No. 428/2007 is answered in favour of the revenue and against the assessee and the first substantial question of law in ITA No. 447/2007 is answered in favour of the assessee and against the revenue. In the light of the aforesaid findings, the second question of law in both the appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Keeping in view the above decision and the decision of the Tribunal, we are of the considered opinion that the assessee has to succeed. The Assessing Officer is directed to treat the interest of ₹ 28,74,473/- as part of the profits of the business of the 100% EOU eligible for deduction under section 10B and compute the deduction accordingly. The Assessing Officer should deduct the sum of ₹ 8,01,30,294/- (Rs. 7,72,54,821/- + ₹ 28,74,473/-) and not only ₹ 7,72,54,821/- from the profit as per profit and loss account for the purpose of separate consideration under section 10B Ground Nos. 3,4 and 5 of the assessee s appeal are thus allowed. We are of the opinion that the Tribunal was right in the view they took for the reasons discussed by us. In that view of the matter, the question no. 1 is 9 answered in the negative and in favour of the assessee. The appeal is, therefore, dismissed. 5.3.1. We also agree with the argument of the ld AR that the decisions relied upon by the ld AO and ld DR were rendered in the context of deductions u/s 80HH / 80HHC / 80IA / 80IB of the Act and the words used thereon cannot be imported into section 10B of the Act when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) erred in allowing additional depreciation for a period not referred in the statute. 7.2. We have heard the rival submissions. We find that this issue is covered by this order of this Tribunal in assessee s own case for assessment year 2008-09 in I.T.A. No. 462 and 752/Kol/2014 dated 08.03.2017 wherein it was held that: 6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under :- 4. Ground no. 1 relating to depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006-07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to the extent of ₹ 20,97,495/- under second proviso to Sec. 32(1)(iia) of the Act. The AO denied the same on the ground that the Act does not have option where assessee can claim remaining depreciation in subsequent year. The CIT(A) confirmed the order of the AO, however, directed the AO to recalculate the amount of depreciation on writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. 8. Heard both parties and perused the relevant material on record. By reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to those who engaged in the business of manufacture or production of any article or thing. Therefore, the assessee is entitled to claim 20% of depreciation equal to the actual cost of plant and machinery, but, where as the 2nd proviso to section 32(1) of the Act restrains the authority to allow depreciation to 50% of such 20% if the subjected plant and machinery acquired during the previous year and is put to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of such loss. The issue with regard to allowability of mark-to-market loss arising out of re-statement of foreign exchange liabilities has been decided by the Apex Court in the case of CIT vs. Woodward Governor India (P) Ltd. (312 ITR 154) and O.N.G.C Vs. CIT (322 ITR 180). In these decisions the Apex Court has held that the loss incurred on restatement of foreign currency liabilities in conformity with exchange rate prevailing on the balance sheet date is not a contingent liability but defined and ascertained liability and therefore the loss incurred on restatement is liable to be allowed in the case of an assessee who follows mercantile system of accounting. Further such loss is allowable if the underlying asset or underlying liability is incurred on trading account. In the appellant s case, it had entered into foreign exchange forward contracts for hedging exchange fluctuation risks in respect of export orders. As such the underlying transaction in relation to forward contract entered into by the assessee was trading transaction and therefore any loss connected with such trading transaction and was in the revenue field and therefore to be allowed in view of the ratio l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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