TMI Blog2011 (1) TMI 1558X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses. For this, assessee has raised the following ground No.1:- ITA No.333/Ahd/2006 in A.Y.2002-03. 1. The ld. CIT(A) has erred in law and on facts in deleting selling, publicity expenses and medical expenses amounting to ₹ 18,58,17,166/-. ITA No.4356/Ahd/2007 in A.Y.2004-05. 1. The ld. Commissioner of Income-tax(A)-XIV, Ahmedabad has erred in law and on facts in deleting the disallowance made out of selling, publicity and medical literature expenses amounting to ₹ 23,76,75,964/- The issue being identical on facts in both the years, we will decide the issue after taking the facts from assessment year 2002-03. 3. The brief facts leading to the above issue are that Assessing Officer made disallowance of selling publicity and medical literature expenditure. The assesseecompany has incurred expenditure of ₹ 33,05,49,237/- on selling publicity expenses along with includes presentation articles of ₹ 5,18,23,488/-. The assessee-company has incurred expense on printing on packing i.e. brief literature of medicines, medical representative training expenses, sales promotion expenses etc. The AO noted that similar issue was involved in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned CIT(A), following his own orders for the assessment years 1998-99 and 1999-2000 and the decision of the ITAT for the AY 199-93, allowed the claim of the assessee. 9. Both the parties agreed that issue is covered in favour of the assessee by the decision dated 9-6-2007 of the ITAT in assessee s own case for the assessment year 1998-99 in ITA No.446/Ahd/2002. 10. We find that the Tribunal while adjudicating a similar claim in the assessee s own case in the AY 1998-99, concluded in their order dated 26-6-2007 as under: 10. During the course of hearing, both the parties agreed that this issue is covered in favour of the assessee by the decision of ITAT, Ahmedabad Bench in assessee s own case for the AY 1997-98 in ITA No.1044/Ahd/2002. wherein the ITAT has upheld the order of the CIT(A) and dismiss the ground raised by the Revenue by observing in its order in paragraph 3-series, which is reproduced as under: 3.1 Ground no.2 is in respect of deletion of Disallowance on account of selling publicity and medical literature expenses ₹ 7,83,87,87/- 3.2 Facts of the issue are that the Assessing Officer following earlier years allowed only 1/3rd expenditure. The CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee following the decision of the jurisdictional. High Court in the case of Navsari Cotton Silk Mills supra After considering the submission of the parties to the disputes, we are of the opinion that the order of CIT(A) requires no interference as it is based on the principles laid down by the jurisdictional High Court in the case of Navsari Cotton Silk Mills supra. Accordingly this ground of appeal is also dismissed. 15. After hearing both the parties, respectfully following the afore cited decision, we find no merits in this ground and the same is dismissed. The order of the ld. CIT(A) in this regard is upheld. 3.4 Thus, respectfully following the above order of the Tribunal as the revenue did no dispute that facts were not identical, we uphold the order of the CIT(A), deleting the disallowance made by the Assessing Officer. Respectfully following the said order of the ITAT, as the Revenue did not dispute that facts were not identical, we uphold the impugned order of the CIT(A) in disallowance made by the Assessing Officer. 11. In the light of the aforesaid decision of the Tribunal for the AY 1998-99, following their decision for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complete bills vouchers for verification before Assessing Officer as argued by Ld. counsel for the assessee and the AO could not point out, which bills pertains to next year. Accordingly, we feel that this issue is squarely covered in favour of the assessee by Tribunal s decision in assessee s own case (supra). Respectfully following the co-ordinate Bench decision, we allow the claim of the assessee and confirm the order of CIT(A). This common issue of Revenue s appeal, in both years, is dismissed. 7. The next common issue in these cross appeals of Revenue as well as assessee is as regards to the order of CIT(A) in restricting the disallowance u/s.14A of the Act to ₹ 1 lac out of ₹ 30,54,041/- made by Assessing Officer. For this, assessee has raised the following ground No.2:- ITA No.333/Ahd/2006 by Revenue (for A.Y.2002-03) 2. The ld. CIT has erred in law and on facts in directing to restrict the disallowance u/s.14A to ₹ 1 lac out of ₹ 30,54,041/- made by the A.O. And against the deletion of addition by CIT(A), Revenue raised the following ground No.1:- ITA No.346/Ahd/2006 by assessee (for A.Y.2002-03) 1. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning of such dividend. Hence it should be apportioned by estimate. The A.O has allocated expenses of ₹ 30.54 lacs for earning dividend income of ₹ 55.83 lacs which is not reasonable. I hold that on estimate basis the disallowance of ₹ 1,00,000 would be sufficient to cover such expenses as referable to earning of dividend. The addition is therefore, confirmed at ₹ 1,00,000/.- and the balance amount is deleted . Aggrieved, both came in appeal before Tribunal. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has not incurred any specific expenditure for the purpose of earning exempted income i.e. dividend income of ₹ 55.83 lakhs. A proportionate management expenses are required to be disallowed in proportion to dividend income or not, this aspect has been examined by Hon ble Pubjab Haryana High Court in the case of CIT v. Winsome Textiles Industries Ltd. (2009) 319 ITR 204 (P H) and CIT v. Abhishek Industries Ltd. (2006) 286 ITR 1 (P H). Further we find that the Hon ble Bombay High Court In the case of Godrej Boyce Mfg. Co. Ltd. Mumbai v. DCIT in Tax Appeal No.626 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in these cross-appeals of Revenue as well as assessee is against the order of CIT(A) in allowing deduction u/s.35(AB) of the Act on security expenses, municipal tax and salary paid to Mr. Dutt and building expenses. For this, both have raised the following grounds:- ITA No.333/Ahd/2006 (for the A.Y. 2002-03 by Revenue) 3. The ld. CIT(A) has erred in law and on facts in directing to give weighted deducted u/s.35(AB) on security expenses, Municipal Tax and Salary paid to Mr. Dutt and Building expenses. ITA No.346/Ahd./2006 for A.Y. 2002-03 (by assessee) 2. On the facts and in the circumstances of the case, CIT(A) has grossly erred in holding while disposing of the ground regarding the disallowance of ₹ 1,67,62,039 as inadmissible weighted deduction u/s.35(AB) that the expenditure of ₹ 1,75,28,000 being professional fees and ₹ 11.21,000 being garden expenses are not of the nature envisaged in Sec. 35(2AB) and, therefore, the appellant would not be entitled to a further deduction of 50% thereon u/s.35(2AB) of the I.T. Act when he ought to have held that the appellant is entitled to such further deduction even on the aforesaid expenses. This Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) R D equipments ₹ 1,51,17,985/- iii) Furniture fixture ₹ 20,47,573/- iv) Appliances ₹ 474665 ₹ 2,01,64,345/- B) Revenue expenditure: ₹ 2,04,74,340/- C) Total ( A + B) ₹ 22,48,38,685/- D) Weighted deduction @ 150% ₹ 33,72,58,028/ - Deduction u/s.35(1)(ii) Contribution to U.N. Mehta Charitable Institute of Cardiology ₹ 5,00,000/- Eligible Deduction @ 125% ₹ 6,25,000/- The Assessing Officer noted that the amount of ₹ 20,46,74,340/- debited to the profit loss account has not been written back in the return of income and the deduction has been claimed at le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 2.14 lakh Profession fees ₹ 175.28 lakh Salary to CD ₹ 60.36 lakh ₹ 305.86 lakh 13. The CIT(A) allowed the claim of assessee vide para-5.3 of his appellate order as under:- 5.3 I have carefully considered the facts of the case and the above submissions. Exactly similar issue was raised in appellant s case for A.Y 2001-02 wherein vide para-5.3 it was held as under:- I have considered the above submissions and the assessment order. On perusal of the nature of expenditure it is seen that none of the expenditure is on market research, sales promotion, quality control, testing, commercial production, style change or routine data collection. Therefore, he disallowance of the above expenditure made by the assessing office only on the basis of the report of the prescribed authority was not justified. What is to be seen by the A.O is the nature of expenditure. Therefore, I consider this ground for disposal on merits. On perusal of the nature of expenditure it is seen that except for professional fees of ₹ 48 lacs and gard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2AB) grants weighted deduction for any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research development facility as approved by the prescribed authority. What is excluded is cost of land building and not the recurring expenditure related to building that is repairs and renovation of buildings, therefore, assessee is entitled to weighted deduction for repairs of ₹ 37.55 lacs related to buildings. Similarly, Municipal Tax paid of ₹ 6.93 lacs is entirely related to Buildings wherein in-house research activity is carried on. It is only municipal tax of R D Centre, Bhatt, hence like current repairs, it is eligible for weighted deduction u/s.35(2AB). So far as security expenses of ₹ 11.01 lacs is concerned, it is submitted that in-house research activity requires proper tight security to avoid leakage through visitors, and only in-house staff will have access to the said Building and no others, and to preserve research which is completed but its clinical trial is pending. Considering all these factors, security expenses of ₹ 11.01 lacs is eligible for weighted deduction u/s.35(2AB). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire expenditure claimed by the assessee is allowable. Thus there was no justification in harping upon the figure contained in Form No.3CL as is done by the Assessing Officer. The provisions of the Act it does not contain any specific conditions for the allowance of expenditure to the effect that it will be restricted that contained in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of ₹ 51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of ₹ 133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final. The A.O. or anybody else has no authority to consider any of such disallowable expenditure as specify by prescribed authority. If appellant has any dispute then he should represent case before prescribed authority. It is, therefore, repair and renovation expenditure of land and building, other revenue expenditure, even clinical trial expenditure which were disallowed by prescribed authority has to be disallowed by the A.O. (b) Further, in reference to disallowance of expenditure on clinical trial. An Explanation to section 35(2AB) has been inserted by the Finance Act 2001 w.e.f. 01-04-2002 which reads as follows. [Explanation.-For the purposes of this clause, expenditure on scientific research , in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] The Explanation is only with respect to the expenditure incurred in relation to drugs and pharmaceuticals. The device of inserting an explanation is found to be a convenient method of elucidating several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtaining prior permission from regulatory authorities. Therefore the entire clause is to be read together and cannot be read in isolation. 16. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the issue in respect of deduction u/s.35(AB) of the Act on security expenses, municipal taxes, salary paid to Mr. Dutt, building expenses, professional fees and gardening expenses are covered by the decision of this Tribunal and the facts being identical, taking a consisting view, we allow the cross appeals of the assessee and that of Revenue s cross-appeals are dismissed. 17. The next issue in ITA No.333/Ahd/2006 for assessment year 2002-03 of Revenue s appeal is against the order of CIT(A) in deleting the disallowance of long term capital loss on account of assignment of unsecured loan given to Torrent Gujarat Byotech Ltd. in favour of M/s. Focus Corporate Restructuring Pvt. Ltd. For this, Revenue has raised the following ground No.4:- 4. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of long term capital loss of ₹ 17,30,67,016/- on account of assignment of unsecured loan given to Torrent G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g submissions before CIT(A):- (a) Torrent Gujarat Bio Tech Ltd. was incorporated in March 1991 as a public company. The assessee being one of the promoter group company, was interest in development of the business of the said company. As a promoter group, it had made investment in said company. Torrent Pharmaceuticals Ltd. is the flagship company of the promoter group. (b) Torent Gujarat Bio Tech Ltd. was in need of funds and had approached the financial institutes for financial assistance. IFCI of India had agreed to grant loan of ₹ 1,875/- lacs loan/. However, while granting such facility they had put certain conditions. The terms of conditions include the following:- 1. Before availing itself of any assistance from IFCL, TGBL shall: a) deploy share capital to the extent of ₹ 1250/- lakh out of the rights issue of equity shares and 50% of the envisaged internal accruals of ₹ 613 lakh i.e. ₹ 307 lakh from the promoters for financing the down stream project. b) Finance the cashs loss of ₹ 671 lakh incurred during the yar ended 31st March, 1996 through subordinated interest free unsecured loans from the promoters, which shall not be repaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right (and hence property) subject to the rights (hence property) of the mortgagee. Refer CIT v. Daksha Ramanlal (1992) 197 ITR 123 (Guj). Supreme Court in Rustom Cavasjee Cooper v. Union of India AIR (1970) Supreme Court 564 and also in Ahmed G.H. Ariff v. CWT (1970) 76 ITR 471 (SC) has held that property means highest right a man can have to anything, being that right which one has to lands or tenements, goods or chattels which does not depend on another s courtesy: it includes ownership estates and interests in corporeal things and also rights such a trade marks, copy rights patents and even rights in personam capable of transferor transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to transfer or succession, and to their capacity of being injured. iv) So, on first principles it can be said that a creditor s right in a debt given (to another person) is a property and hence can be treated as capital asset. In support of this proposition we need take notice of the following two decisions: 1) CIT v. Minor Bababhaia alias Lavkumar Kantilal (1981) 128 ITR 1 (Guj). Therein the assessee had ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was followed. But as already mentioned that decision of the SC has been subsequently disapproved by a larger Bench of the Supreme Court in CIT Vs. Mrs. Grace Collis (212001) 248 ITR 323 (SC). Be it as it may, the point is that the fixed deposits made with public sector companies were regarded as capital asset. f) So, even as a proposition of law it can be reasonably said at a creditor s right in along giver, to another persons is a capital asset. g) On the aspect of transfer again even purely as a legal a proposition an assignment of a debt for a smaller sum should be considered as transfer even on first principles. h) Further, regarding benefit of indexation we may a note that the second proviso to section 48 envisages indexation and the third proviso excludes the applicability of the proceeding proviso (i.e. from indexation) any bond or debenture other than capital indexed bonds issued by the Government . So even on first principles, it appears that ordinarily benefit of indexation may be available to the capital asset which is a creditor s right in a loss given or deposit made. The CIT(A) keeping in view the above explanation and submissions held that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is firstly an asset and secondly a capital asset and thirdly a permitted capital asset under special law relating to assessment of Charitable Trust (Page 153 of CTD). The Hon. Gujarat High Court had considered and decided the similar question in the case of CIT Vs. Bababhai alias Lav Kumar Kantila 128 ITR 1 (Guj). The facts of that case were that assessee advanced ₹ 25,000 to a company on promissory note. Company would up scheme, assessee realized only ₹ 13,323 and equity share of ₹ 50 and claimed balance as short term capital loss. The Hon ble Gujarat High Court confirmed the ITAT s finding that assessee was entitled to short term capital loss of ₹ 11,617 on the ground that extinguishment of rights there in as contemplated u/s.45 read with sec. 2(47) need not be form any extraneous source and that such extinguishment nay be brought about by the assessee s own account. Accordingly, assessee s loss in his deposits with the company was allowed as short term capital loss. In view of the facts as discussed above and the case law mentioned above, the assessing officer is accordingly directed to allow long term capital loss claimed by the appellant. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business loss. 21. After going through the arguments of Ld. CIT-DR and by Ld. Sr-Counsel, Shri Soparkar that the assessee had given a loan of ₹ 12.84 crores to TGBTL in the year 1996-97 and during the year 2001-02 i.e. the relevant year under consideration, this loan was assigned to Focus Corporate Restructuring Pvt. Ltd. as per agreement dated 07-02-2005 for a sum of ₹ 64 lakh. The assessee claimed the differential amount as long term capital loss amounting to ₹ 12,21,28,000/-. The brief facts are that TGBL was incorporated in March 91 as a Public Company and assessee being one of the promoters Group-Company was interesting in developing the business of the said company. The assessee as a promoter company had made investment in the said company. TGBL was in need of fund and had approached IFCI to grant loan and IFCI in turn has agreed to grant loan of ₹ 1875 lakhs on the following terms:- 1. Before availing itself of any assistance from IFCL, TGBL shall:- a) deploy share capital to the extent of ₹ 1250/- lakh out of the rights issue of equity shares and 50% of the envisaged internal accruals of ₹ 613 lakh i.e. ₹ 307 lakh from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r succession, and to their capacity of being injured. So on first principles it can be said that a creditor s right in a debt given is a property and hence can be treated as capital asset. We find that Hon ble jurisdictional High Court in the case of CIT v. Minor Bababhai alias Lavkumar Kantilal 1981) 128 ITR 1 (Guj) held on the facts that the assessee had advanced a sum of ₹ 25,000 to a company on a promissory note and could realize only ₹ 13,323/- and a share of ₹ 50 and hence claimed the balance of ₹ 11,617/- as capital loss. The High Court naturally considered both the aspects viz. existence (i) of capital asset and (ii) of transfer of the same. On the fist aspect of the existence of capital asset, with the following sentence:- Mr. Raval, learned advocate appearing for the revenue, did not contest the proposition that the assessee was holding a capital asset in the form of a promissory note of ₹ 25,000/- under which he was an unsecured creditor of the milling companyin the winding-up proceedings ... 22. Further, we find from the decision of Hon ble Calcutta High Court in the case of CIT v. East India Charitable Trust (1994) 206 ITR 152 (Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, CIT(A) has erred while considering deduction u/s.80HHC of the I.T. Act, in reducing the export trading loss of ₹ 36,82,721 from the export manufacturing profit by relying on the judgement of the Supreme Court in the case of Ipca Laboratories Ltd. (266 ITR) (SC) 6. On the facts and in the circumstances of the case, CIT(A) has erred while considering deduction u/s 80HHC of the I.T. Act, in not treating as business income the following items of operating income. Particulars Rs in lacs Scrap Disposal 29.60 Insurance Receipt 22.67 Lab testing fees 1.27 Bad Debt recovered 3.59 Notice Pay 0.95 Kasar / write off 4.52 Total 62.6 This Hon ble Tribunal may, therefore, be pleased to so hold and direct the Assessing Officer to quantify deduction u/s.80HHC of the I.T. Act by treating the aforesaid items of operating income as business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Scrap disposal; iv) Insurance receives; v) Labour testing fees; vii) Bad debt recover; vii) Notice pay; viii) Kasar/write off ix) Excise duty sales tax; x) Interest income; xi) processing charges; xii) Job working charges; xiii) Balance written off xiv) Foreign exchange gains 25 The Ld. CIT-DR argued that Hon ble Supreme Court in its land mark judgment in the case of CIT v. Lakshmi Machine Works (2007) 290 ITR 667 (SC) and CIT v. K. Ravindranath Nair (2007) 295 ITR 228 (SC) has made categorical observation that on account of frequent amendment in section 80HHC of the Act, it is no more a code in itself and the judgment in the case of LMW is related to the law applicable for that particular A.Y. 1993-94. Further, in the case of Laxmi Machine Works, (supra) it was argued that unpaid Central Excise duty and unpaid sales-tax has to be treated as revenue following the Hon ble Supreme Court judgment in the case of Chowringhee Sales Bureau (P) Ltd. v. CIT and this clearly reflects that appellant was having a separate account where duties collected in the form of sales-tax and Central Excise are paid, which was prescribed at that particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnover which is the position even in the case of rent, commission, interest etc., It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. The view which we have taken is in the light of the amendments made to section 80HHC from time to time. 27. We find that this issue is squarely covered by the decision of Hon ble apex court in the case of Lakshmi Machine Works (supra) and even the argument of Ld. CIT-DR that after the introduction of Section 145A, the excise duty and sales tax will be included in the total turnover for the purpose of computation of deduction u/s.80HHC of the Act, the co-ordinate Bench in the case of DCIC v. Mazda Ltd. in ITA No.793/Ahd/2007 for assessment year 2003-04 vide order dated 06-08-2010 has decided this issue after considering the amendment of Section 145A of the Act. and held that there is no change in the formula of Section 80HHC(3) of the Act and still excise duty and sales tax is to be excluded from the total turnover. Respectfully following the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue to raise such a controversy. The Legislature in its wisdom has taken into consideration the fact that in the case of exports made, sale proceeds are not necessarily realizable immediately within the accounting period in which exports have been made. As a corollary, by the time such sale proceeds are received within the prescribed time, by virtue of exchange rate difference, there might be a situation where a larger amount is received than the amount as reflected in the shipping bill. Hence, merely because an amount is received in a year subsequent to the year of export by way of exchange rate difference, it does not necessarily always follow that the same is not relatable to the exports made. As can be seen from the impugned order of the Tribunal as well as the orders of the Commissioner (Appeals) and the Assessing officer, none of the authorities have approached the issue in the light of the provisions of subssection (2) of section 80HHC of the Act. No evidence is available on record to establish fulfillment or otherwise, of the conditions stipulated by subs-section (2) of section 80HHC of the Act. In these circumstances, it would not be fair and just for either side to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to re-decide these issues after finding out whether these have nexus with the exports or not and in case, there is nexus with the exports with these receipts, the Assessing Officer will allow the claim of assessee and no exclusion under clause (baa) will be made to the extent of 90%. Accordingly, these issues are set aside to the file of Assessing Officer with the above directions. 31. The next issue is regarding profit on sale of DEPB, whether eligible for deduction u/s.80HHC of the Act or not and whether 90% is to be excluded for the computation of deduction u/s.80HHC of the Act under clause (baa). 32. At the outset, it is admitted by both the sides that the issue needs to be set aside to the file of the Assessing officer to decide afresh in the light of insertion of clause (iiid) to Section 28 by the Taxation Laws (Amendment) Act, 2005, w.r.e.f. 1-41998 and also insertion of Second, third and fourth proviso by this Amendment. Neither of the authorities below have examined the amendment. The Ld. Counsel for the assessee have also referred to the case law of Mumbai Bench of this Tribunal in the case of Glenmark Laboratories Ltd. vs. DCIT (2008) 1 DTR (Mum)(Trib) 460, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and appears. A plain reading of sub-section (3)(c) shows that profits from such exports has to be profits of exports of self manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in sub-sections (3)(c)(i) and (ii). The opening words profit derived from such exports together with the word and clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is a positive profit in the exports of both self manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits. Under section 80HHC(1), the deduction is to be given in computing the total income of the assessee. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration. Section 80AB is relevant. It reads as follows: 80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading C, - Deductions in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest, rent, charges or any other receipt of a similar nature have to be reduced from the profits. The reason why items like brokerage etc have to be excluded is because they do not possess any nexus with export turnover and their inclusion in profits would result in a distortion of the figure of export profits. However, as some expenditure might have been incurred in earning these incomes, an ad hoc deduction of ten per cent from such income is allowed. It was further observed by the Hon ble High Court that once Parliament has legislated both in regard to the nature of the exclusion and the extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. Hon ble High Court further held that in CIT v. Shri Ram Honda Power Equip, (2007)289 ITR 475 (Del), the Delhi High Court has not adequately emphasized the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any relation with export activity or not, in view of the decision of Hon ble apex court in the case of K. Ravindranathan Nair (supra). The CIT DR also stated that this issue can be set aside to the file of Assessing Officer for verification, whether there is nexus with the export profit or not with these processing charges and job work charges. Accordingly, we are of the view that this aspect needs verification at the level of Assessing Officer and accordingly set aside to the file of the Assessing Officer and allowed for statistical purposes. 40. The next issue in this appeal of assessee in ITA No.346/Ahd/2006 is as regards to the order of CIT(A) in upholding the disallowance in respect of RD equipment advance to weighted deduction. For this, assessee has raised the following ground No.3:- 3. On the facts and in the circumstances of the case, the CIT(A) has grossly erred in not upholding the assessee s objection to the Assessing Officer s finding that in respect of R.D. equipment advance made in the earlier year in a sum of ₹ 2,74,748 (being excess of ₹ 1,50,88,115 over ₹ 1,48,13,367 vide page 6 of the assessment order) was not entitled to weighted deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards to salary paid to Dr. C.Dutt amounting to ₹ 58.54 lakhs, he is in-charge of R D Centre at Bhatt. He is the person through whom all co-ordination of technical scientists and other technical persons are carried out. The entire reporting of the research activity to the management has been taken to the Board of Directors through him only and for this the salary is paid. Accordingly, the assessee has rightly paid the entire expenditure of ₹ 133.92 lakhs and building repairs ₹ 37.55 lakhas on which weighted deduction u/s.35(2AB) of the Act is allowable. In view of the above discussion, we allow the claim of the assessee and this issue of the Revenue s appeal is dismissed and that of the assessee s CO is allowed. Respectfully following the same, we allow the claim of assessee and this issue of assessee s appeal is allowed. 42. The next common issue in these appeals of assessee in ITA No.346/Ahd/2006 ITA No.4343/Ahd/2007 is as regards to the order of CIT(A) in upholding the interest u/s.234B and 234C of the Act. For this, assessee has raised the following grounds No.7:- 7 On the facts and in the circumstances of the case, the CIT(A) has grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase (supra), this common issue in these appeals of assessee are allowed for statistical purposes. 44. The next issue in this appeal of assessee in ITA No.4343/Ahd/2007 is as regards to the order of CIT(A) in deleting the disallowance of software development expenditure. For this assessee has raised the following ground No.1:- 1. On the facts and in the circumstances of the case, the CIT(A) erred in confirming the disallowance of ₹ 77,000,000 which was claimed by the assessee on revenue account. 45. The brief facts leading to the above issue are that assessee is a public limited company engaged in the business of manufacturing and marketing of pharmaceutical produced and regarding Enterprise Resource Planning System (ERPS for short) the details was asked and the assessee replied vide letter dated 19-12-2006. The assessee appointed IBM to implement SAP a enterprise resource planning package which primarily aims at stream ling the various operations and make available the data which would help run the organization efficiently and ERP is a business management system that integrates all facets of the business including planning, manufacturing, sales and marketing. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the capital field. If the expenditure results merely in acquisition or creation of asset without the assessee becoming the owner thereof, it cannot be said that the expenditure is a capital expenditure. The coming into existence of an asset as a result of incurring expenditure alone thus is not sufficient to treat the said expenditure as of capital nature unless the asset coming into existence is also owned by the assessee. Expenditure can be treated as capital expenditure only when it results in accrual of an advantage of enduring nature to the assessee in the capital field. The relevant tests applied to determine the nature of expenditure in such a situation are the functional test and the test of enduring benefit. An advantage is to be considered as of enduring benefit if the benefit accruing is not of a transient nature but is of such durability as to justify it being treated as a capital asset. On the question whether computer software was goods, the Supreme Court in Tata Consultancy Services [20041 271 1TR 401 took into account the view of American courts on the issue as well as its own decision rendered in the case of Associated Cement Co. [2001] 124 ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant; Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on software as capital in nature and the functional test as discussed above also needs to be satisfied. The period of advantage in the context of computer software should not be viewed from the point of view of different assets or advantage like tenancy or use of know-how because software is a business too enabling a businessman's ability to run his business. The nature of the advantage which the assesses derives has to be seen in a commercial sense. Software normally functions as a too enabling business to be carried on more efficiently. The scope, power, longevity of such a tool and its centrality to the functions of the business will all bear on its treatment. Where the assessee-company is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the reason that computer and computer software are two different items of assets. If the Legislature wanted to allow depreciation at 60 per cent, with effect from April 1, 1999, on computer software, it would have said so specifically by making the provisions retrospective. Depreciation can be allowed at 25 per cent, under section 32W(i) read with Appendix I, Part A, Division 111(1) to the Income-tax Rules, 1962 and with effect from April 1, 2003, computer software having been classified as a tangible asset under the heading Plant in Appendix Ito the Rules, is entitled to depreciation at 60 per cent. 47. We find that the Revenue has relied on the decision of this Tribunal Delhi Bench in the case of Escorts Ltd. v. ACIT (2007) 104 ITD 427 (Del), wherein the expenditure on software is considered as capital in nature by holding that where the assessee acquires ERP business software with unlimited users of licence and expenditure incurred on acquisition of software by way of outright purchase is to be considered as capital in nature. But in the present case, the facts are entirely different and it is not the allegation of the Revenue from the Assessing Officer s stage till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure for the purpose of maintaining garden in factory premises. This expenditure has been claimed deduction by the assessee has been disallowed by the Learned Assessing Officer and allowed by the CIT(A) on appeal by the assessee. The Learned Assessing Officer made the disallowance for the reason that it is not incurred for the process of production. The Learned Commissioner of Income Tax(Appeals) allowed the deduction to the assessee following the decision of Madhya Pradesh High Court in the case of Steel Tubs Pvt. Ltd. (supra) for the reasons that garden expenses improves the working conditions of the workers in the factory and hence, it was an expenditure incurred for the business of the assessee. In the above circumstances, in our considered opinion, the manufacturing process of the assessee being such that it involves use of hazardous chemicals which affect the health of the workers. Thus, it is the duty of the assessee to make good the loss caused to nature and to prevent the health of thee workers engaged in production. Therefore, the assessee maintained the garden for maintaining better environment in the factory and the expenditure incurred in the process was therefore, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance out of club expenses of ₹ 58,50,000/-. 53. The brief facts leading to the above issue are that the Assessing Officer has observed that the assessee had paid ₹ 58.50 lakh being club fees which includes ₹ 8.50 lakh being corporate membership fees and ₹ 50 lakh towards fees of different specified employees. The AO has held that the club membership fee paid by the assessee is not bringing any benefit to the business of the assessee and that it was incurred for the benefit of employees. He held that it is not revenue expenditure. The assessee submitted that the payment was mad to facilitate the business contracts to be maintained by the employees which would in long run help the business relationship in company s interest. Accordingly, it was an expenditure incurred for the business and the A.O was not justified in holding that it does not bring any benefit to the business of the assessee and claim was therefore admissible in the hands of the assessee. We are of the view that the expenditure was incurred with the intention to establish and maintain business contact which is in the long term interest of the company s business. This expenditure was incur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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