TMI Blog2012 (12) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... w and on facts while directing not to include 90% of Rs,64.49 Lacs representing Excess Provisions Written Back in the profits of business while calculating deduction u/s 80HHC of Income Tax Act. 3. That the Ld. CIT(A) has erred in law and on facts while directing not to include 90% of ₹ 83.65 Lacs representing Miscellaneous Income in the profits of business while calculating deduction u/s 80HHC of Income Tax Act. 4. That the Ld. CIT(A) has erred in law and on facts while excluding 90% of ₹ 18.09 Lacs representing Rent Received from profits of business while calculating deduction u/ s 80HHC of Income Tax Act. 5. That the Ld. CIT(A) has erred in law and on facts while excluding 90% of Interest Received from customers and suppliers amounting to ₹ 341.39 Lacs from profits of business while calculating deduction u/s 80HHC of Income Tax Act. 6. That the Ld. CIT(A) has erred in law and on facts while not allowing deduction under proviso to section 80HHC on profit on sale of DEPB amounting to ₹ 14.12 Lacs. 7. The Ld. CIT (A) has erred in law and on facts while excluding export turnover amounting to ₹ 33,62,00,502/- in respect of export oriented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One lac u/s 14A of the Income Tax Act to exempt dividend income earned by the appellant while ignoring the fact that no such expenditure was incurred for earning dividend income. 4. The Revenue has raised the following ground of appeal : 1. That the Ld. CIT(A)-II has erred in law in not reducing 90% of rent received, misc. income, excess provision written back from the profits of business for the purposes of calculating deduction u/s 80HHC. 2. That the Ld. CIT(A) has erred in law by directing the A.O. for fresh adjudication/ verification of direct and indirect cost attributable to trading of export goods as per provisions of section 80HHC of I.T. Act, 1961, whereas the same was calculated as per data supplied by the assessee. 3. That the Ld. CIT(A) has erred in law in allowing the deduction u/s 10B on provision written back and misc. income which have no nexus with the profits derived from the undertaking claiming exemption u/s 10B. 4. That the Ld. CIT(A) has erred in law in allowing deduction u/s 80IB on the profits derived from the dyeing unit when the same is not treated as manufacturing unit. 5. That the Ld. CIT(A} has erred in law in allowing deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the CIT (Appeals). However, the Assessing Officer was directed not to include 90% of claims received, excess provisions written back and misc. income of ₹ 0.12 lac, ₹ 64.49 lac and ₹ 83.65 lac respectively in the profits of the business for computing deduction u/s 80HHC. We are of the view that the word not is superfluous and the same is directed to be excluded while reading the order of the CIT (Appeals) in respect of the said ground of appeal raised by the assessee. The conclusion is that the Assessing Officer is directed to include 90% of claims received, excess provisions written back and misc. income of ₹ 0.12 lac, ₹ 64.49 lac and ₹ 83.65 lac respectively in the profits of the business for computing deduction u/s 80HHC. We shall address the issue raised by the Revenue against the inclusion of the said receipts in the profits of business for computing deduction under section 80HHC of the Act, at the relevant time i.e. while deciding the appeal of the Revenue. The ground Nos.1 to 3 raised by the assessee are allowed. 9. Ground Nos. 4 to 7 raised by the assessee are against computation of eligible profits of business for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the order of the CIT (Appeals). 13. We have heard the rival contentions and perused the record. The Hon'ble Supreme Court in M/s ACG Associated Capsules (P) Ltd. Vs. CIT (supra) as under: Explanation (baa) to section 80HHC states that 'profits of the business' means the profits of the business as computed under the head 'Profits and Gains of Business or Profession' as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head 'Profits and Gains of Business or Profession' in accordance with provisions of sections 28 to 44D. In the computation of such profits of business, all receipts of income, which are chargeable as profits and gains of business under section 28, will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head 'Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC. Therefore, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under section 28, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with sections 30 to 44D and is not to be included in the profits of the business of the assessee as computed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head 'Profits and Gains of Business or Profession', is to be deducted under clause (I) o/Explanation (baa) to section 80HHC for determining the profits of the business. In the result, the appeal is allowed and the impugned order of the High Court is to be set aside. The matter is remanded to the Assessing Officer to work out the deductions from rent an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aya Silk House (Bangalore) Ltd. Vs. UOI in Writ Petition No.2446 of 2010 had held the amendment to section 80HHC of the Act by way of adding 3rd and 4th proviso was ultra virus Article-14 of the Constitution. However, the Hon'ble Courts observed that the impugned amendment was to be quashed only to the extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years of assessees whose export turnover was above ₹ 10 crores. Consequently, retrospective application of the said amendment was cancelled. The Hon'ble Bombay High Court while considering issue noted that similar matters were filed before the various High Courts wherein the respondent moved a Transfer Petition for transfer of the Writ Petition before the Hon'ble Supreme Court. The Hon'ble Bombay High Court further observed that by an order dated 4.4.2011, the Hon'ble Supreme Court allowed the Transfer Petition. However, since there were large number of matters pending in various High Courts, the Hon'ble Supreme Court directed that all the matters which had been filed/transferred to the Supreme Court be sent to the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No.7 is in relation to exclusion of export turnover in respect of EOU unit from the export turnover of the assessee, for computing the deduction under section 80HHC of the Act. The assessee had claimed deduction under section 10B of the Act on the profits of its wholly owned export oriented unit. The Assessing Officer and the CIT (Appeals) had excluded the export turnover amounting to ₹ 33.62 crores in respect of EOUs both from the export turnover and total turnover of the assessee while computing deduction under section 80HHC of the Act. The learned A.R. for the assessee fairly conceded that the said issue was decided by the Tribunal against the assessee as reported in ACIT Vs. Mahavir Spg. Mills Ltd. [110 ITD 211](Chd). However, the present issue has now been decided in favour of the assessee by the Hon'ble Madras High Court in CIT, Chennai Vs. Ambatture Clothing Ltd. (2010) [194 Taxman 79 (Mad)]. 19. The learned D.R. for the Revenue placed reliance on the ratio laid down in ACIT Vs. Rogini Garments [111 TTJ (Chennai)(SB) 274 and also in Friends Casting P. Ltd. Vs. CIT [340 ITR 304 (P H)]. 20. We have heard the rival contentions and perused the record. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sister concern of the assessee in Mahavir Spinning Mills Ltd. reported in 110 ITD 211 (Chd), against which appeal is pending before Hon'ble Punjab Haryana High Court. The issue otherwise stands covered against the assessee by the Hon'ble Madras High Court in M/s Ambatture Clothing Ltd. 194 Taxman 79 (Mad). In view of the admission of the ld. AR for the assessee, the issue being covered against the assessee by the judgement of Hon'ble Madras High Court (supra) and the decision of the Chandigarh Bench of Tribunal (supra), we dismiss ground No.4 raised by the assessee. 24. Following the above, we find no merit in the ground of appeal No.7 raised by the assessee and the same is dismissed. 25. The ground No.8 is in relation to the computation of deduction under section 80HHC of the Act on the profits of undertaking i.e. AuroV on which deduction under section 80IB of the Act was claimed. The learned A.R. for the assessee placed reliance on the ratio laid down by the Hon'ble Karnataka High Court in CIT Vs. Millipore India (P) Ltd. [341 ITR 219 (Kar) and series of other decisions. The learned D.R. for the Revenue, however, placed reliance on the ratio laid down b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o export of trading goods was to be calculated by allocating the total indirect cost in the ratio of export turnover in respect of the trading goods to the total turnover as laid down in Explanation clause e to Section 80HHC(3). The CIT (Appeals) vide para 18 at page 6 of the appellate order held as under: I have carefully considered the contention of the Ld. Counsel for the appellant and perused the relevant record. I am inclined to agree with the findings of the A.O. that the expenses out of the expenses claimed under the head personnel expenses, administrative expenses and financial expenses etc. which have been considered by the appellant directly attributable to the export of the trading goods could not be considered as such. In my opinion only the cost of trading goods and the expenses incurred for inward transportation etc. of the same and which expenses are normally taken in the trading account could be taken to be the cost directly attributable to trading goods exported out of India. All the other expenses which are generally debited in the profits and loss account are to be taken as indirect cost. However, for computing the indirect cost the A.O. is directed to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in turn are exported by the assessee. Admittedly, the items of expenditure which are purely relatable to the manufacturing activities, carried on by the assessee, are to be excluded from the list of expenses being attributable to such manufacturing activities. However, the balance expenditure is to be attributed both to the manufacturing activity and trading activity, in order to compute the deduction available to the assessee. The first item of expenditure to be considered is the personnel expenses. The assessee had attributed 33,56,010/- being common expenses both for manufacturing and trading activities. The AO adopted said personnel expenses at ₹ 1,18,88,142/-. As per the assessee, the AO had excluded only proportionate expenses related to export while assessee had excluded all the expenses related to manufacturing i.e. domestic as well as exports and allocated only expenses which were common for trading as well as manufacturing. 19. The next item of expenditure considered is administration and other expenses at ₹ 1.44 crores, both by the AO and the assessee and there is a petty difference between the two figures, which is to be ignored. 20. The third item of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in manufacturing activities are to be excluded from the cost of expenditure which is attributable to trading goods. However, the depreciation on assets installed in the office of the assessee which is common for both manufacturing and trading activities are to be included as part of indirect cost for trading goods. Accordingly, AO shall re-compute the depreciation and assets attributable to the indirect cost of trading goods. 23. Next item of expenditure is selling expenses and only such selling expenses which are common for manufacturing and trading activities, are to be so included and that part of the selling expenses, which is exclusively attributable to the manufactured goods, are not to be considered as part of indirect cost of trading goods. The assessee, in this regard shall furnish the necessary evidence to prove its claim that only such expenses could be allocated being common for trading and manufacturing activities. The AO, on consideration of such evidence, shall determine the cost of selling expenses to be attributed to the trading items. 24. The last item of expenditure is Miscellaneous Expenses amounting to the tune of ₹ 4207/-, which is very petty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the order passed by the Tribunal in assessee s own case relating to assessment year 2003-04 we find that the issue of allowance of deduction under section 10B of the Act in respect of interest received on delayed payments was addressed by the Tribunal vide paras 7 and 8 of the order dated 13.7.2012, which reads as under: 7. The first item of income is regarding interest from customers on delayed payments totaling ₹ 23,10,475/-. The plea of the ld. AR for the assessee was that the said interest which was realizable from its customers, was connected with the sales and consequently, the same was derived from the business of undertaking and was eligible for exemption u/s 10B of the Act. 8. The deduction u/s 10B of the Act is allowable from such profits and gains, which are derived by 100% export oriented undertaking from the export of articles or thing or computer software, as per the provisions of the said Section. The assessee before us had established 100% export oriented undertaking at Baddi for the manufacture and export of yarn and was found eligible for the claim of exemption u/s 10B of the Act. The issue arising before us is in relation to the other income re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in respect of its EOU unit i.e. VSGM (EOU) and had further claimed deduction under section 80IA of the Act in respect of Auro Weaving Mills Unit-I and also claimed deduction under section 80IB of the Act in respect of Auro-III, Auro-V. The assessee had debited administration and personnel expenses totaling ₹ 6,21,57,190/- to the head office. The total turnover of the assessee was ₹ 563.51 crores and taking into consideration the turnover of each unit, profits of which were claimed to be exempt under section 10A/80IA/80IB of the Act, the Assessing Officer allocated the head office expenses in the ratio of turnover of each unit to total turnover as computed under Para 14.2 at page 23 of the assessment order. Consequently the excess deduction claimed under section 10B, 80IA and 80IB of the Act was recomputed by the Assessing Officer, which was upheld by the CIT (Appeals). 38. On perusal of the record we find that during the year under consideration the assessee had debited sum of ₹ 6.21 crores to the head office on account of administration and personnel expenses, which was as follows: Personnel expenses 1,64,97,771 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls the conditions laid out in sub-section (2) to section 10B of the Act. Under subsection (4) to section 10B of the Act for computing the deduction under section, the profits derived from export of articles or things or computer software shall the amount which bears to the profits of business of the undertaking the same proportion as the export turn over in respect of such articles or things or computer software bears to the total turn over of the business carried on by the undertaking. Under section 10B(5) of the Act, the requirement is to furnish Audit Report in the prescribed form alongwith return of income. Under section 10B (7) of the Act it is provided that the provisions of sub-sections (8) and (10) of section 80IA of the Act shall apply. Section 80IA(8) of the Act talks of recomputation of deduction where any goods or services held for the purpose of eligible business are transfered to any other business carried on by the assessee and the consideration for such transfer does not correspond to the market value of the goods or the services so transferred. Section 80IA(10) of the Act refers to close connection between the assessee carrying on eligible business with any other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture relatable to such units are to be deducted for computing the eligible profits. The remuneration paid to the Managing Director being common expenditure between the eligible units and the non-eligible unit run by the assessee company need to be allocated in order to determine the eligible profits of business under section 10B of the Act. We are in conformity with the orders of the authorities below in this regard and upholding the same we dismiss ground No.2 raised by the assessee. 41. Following the above said parity of reasoning we are in conformity with the findings of the CIT (Appeals). We dismiss ground Nos.11 to 13 raised by the assessee. We find no merit in the reliance placed by the assessee on ratio laid down in CIT Vs. Punjab Concast Steels Ltd. [217 ITR 206 (P H)] as the facts and ratio decided by the Hon'ble Punjab Haryana High Court is at variance to the issue raised vide ground Nos.11 to 13 by the assessee. 42. The issue in ground Nos.14 and 15 raised by the assessee is against the exclusion of rent receipts from employees from eligible profits of the undertaking while claiming deduction under section 80IA/80IB of the Act. We find that the present iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction under section 80HHC of the Act. Explanation (baa) to section 80HHC(4A) of the Act provides that while computing the profits of business 90% of the sums referred to in clauses (iiia) and (iiib) of section 28 or any receipts by way of brokerage, commission, interest rent charges or any other receipt of similar nature included in such profits would be reduced from the profits and gains of the business. Further profits of any branch office and warehouse situated outside India would also to be reducted from the profits of business in order to compute the profits of business eligible for deduction under section 80HHC of the Act. 46. In the facts of the present case the Assessing Officer had excluded 90% of ₹ 695.96 lacs representing other income from profits of business while computing deduction under section 80HHC of the Act. The other income considered in the sum of ₹ 695.96 lacs was as under: Rent ₹ 45.18 lacs Insurance Claim ₹ 0.12 lacs Misc. Income ₹ 87.65 lalcs Provision written back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ground No.9 raised by the assessee. We have remitted the said issue back to the file of the Assessing Officer to decide the same in line with our direction in assessment year 2003-04 and thus ground No.2 raised by the Revenue is allowed for statistical purposes. 50. The issue in ground No.3 is against the allowance of deduction under section 10B of the Act on provision written back and misc. income. The first aspect to be considered is whether the assessee has claimed both the deduction under section 10B of the Act and also deduction under section 80HHC of the Act on the said receipts. Similar issue had arisen in assessment year 2003-04 and the assessee after making a claim for deduction under section 10B of the Act on the said receipts had withdrawn its claim of deduction under section 80HHC of the Act. In line with our directions in assessment year 2003-04 we direct the Assessing Officer to verify the claim of the assessee whether the said receipts had been considered both for claiming exemption under section 10B of the Act and also deduction under section 80HHC of the Act and in case it is so then the assessee is entitled to only one deduction, in case the same is allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act are being claimed then the deduction being allowable under the Statute is to be allowed under one provision of the Act and the claim made under the other provision is to be denied. The matter is remitted back to the file of the Assessing Officer for necessary verification and also for adjudicating the issue after considering the nature of the receipts on which the assessee has claimed deduction under section 80IA/80IB and 10B of the Act. 53. The ground of appeal No.6 raised by the Revenue is against allocation of expenses for earning exempt income had been adjudicated alongwith ground No.17 of the assessee and the same is partly allowed. 54. The ground No.7 raised by the Revenue is against the computation of book profits under section 115JB of the Act. The learned A.R. for the assessee placed reliance on the undermentioned decisions: i) CIT Vs. Bhari Information Technology System 340 ITR 593(SC) ii) Al-Kabeer Exports Limited Vs. CIT SLP 32274/2010 iii) CIT Vs. CPS Textiles P. Ltd. (2012) 340 ITR 590 (Mad) 55. The learned D.R. for the Revenue fairly admitted that the issue stands covered against the assessee by the ratio laid down by the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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