TMI Blog2009 (8) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... ,31,880/-. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted. 4 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO in disallowing contributions to the tune of ₹ 880/- to PF/ESI. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted. 5 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in upholding the action of the Learned AO in not considering the export benefit receivable to the tune of ₹ 3,95,05,367/- as income from business for the purpose of computing deduction u/s 80HHC. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted. 6 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO in not considering interest income to the tune of ₹ 6,04,462/- as income business for the purpose of computing deduction u/s 80HHC. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted. 7 On appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Misc. expenses amounting to ₹ 14,628/- without appreciating the fact that no complete set of details with the supporting evidences were filed by the assessee-company despite sufficient time given to it as also assessee-company failed to justify its claim that the expenses were incurred wholly for the business purposes. 7 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Advance written off amounting to ₹ 7,47,181/- without appreciating the fact that no complete set of details with the supporting evidences were filed by the assessee-company despite sufficient time given to it. The assessee-company failed to substantiate its claim with regard to purpose for giving the advances i.e. whether for business purpose or otherwise, actions taken for recovering the advances etc. 7.1 The learned CIT(A) has erred in granting relief to the assesseecompany relying upon the decision of Hon ble Gujarat High Court in the case of CIT v Girish Bhagwat Prasad [256 ITR 772], as the said judgment is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the fact that the sales-tax and excise duty is part of the total turnover as held by the learned CIT(A)-I, Surat in the case of sister concern of the assessee-company viz. M/s Bilag Industries P Ltd. AY 2000-01, relying upon the decision of the ITAT, Ahmedabad in the case of Gujarat Fluro Chemicals Ltd. [2006] 76 TTJ (Ahd) 313. 11 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the appeal of the assessee-company to include the following items while calculating the profits of the business for deduction u/s 80HH: 1) Exchange Gain ₹ 40,33,509/- 2) Cash discount ₹ 05,04,556/- 3) Misc. Income ₹ 00,51,676/- 11.1 The learned CIT(A) has granted relief to the assessee-company without appreciating the fact that where the item of income has no nexus to the exports made by the assessee, then same is to be excluded both from the total turnover as well as from the profits of the business as held by the following courts: 1) Tanna Exports [Mumbai Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore made an addition of ₹ 1,31,880/- on the ground that the expenditure is purely in the nature of gifts. When the matter went before the CIT(A), the CIT(A) confirmed the disallowance. 3.2 It was submitted by the learned AR that the assessee ha given incentive to the staff on auspicious occasion amounting to ₹ 1,31,880/- in the form of refrigerator to the main staff members to boost their productivity and secure their loyalty. This type of expenditure is normally incurred by almost all companies, so as to increase the productivity of their employees. A refrigerator is required to enable them to have an organized lifestyle with convenience, which will enhance their work efficiency. The learned DR, on the other hand, supported the order of the CIT(A). 3.3 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. In our opinion, the expenditure so incurred by the assessee cannot be regarded to be the staff welfare expenditure. The plea of the assessee is that the assessee has given the refrigerator to the staff on auspicious occasion. It is not the plea of the assessee that the refrige ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Delhi). The learned DR, on the other hand, relied on the order of the authorities below. 7 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. We have also gone through the decision of the Hon ble Delhi High Court in the case of CIT v Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi). This is an admitted fact that in this case the interest income amounting to ₹ 6,04,462/- has been assessed by the AO as business income, not the income from other sources. The Hon ble High Court in the case of CIT v Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi) has clearly laid down that the word interest in clause (baa) of the Explanation connotes net interest and not gross interest and, therefore, we accordingly direct the AO to exclude 90% of the net interest and not of the gross profit provided the assessee proves that the assessee has incurred the expenditure for the purpose of earning of such interest. We accordingly set aside the order of the CIT(A) and restore it to the file of the AO to re-compute the deduction u/s 80HHC by excluding 90% of the net interest provided the assessee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing exports processed sea foods by reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to export entitlements. 45. After considering the above finding in the case of Sterling Foods, it is amply clear that the export benefit receivable has no direct nexus with the profits and gains of the industrial undertaking and the nexus is only incidental. I do not agree with the learned counsel that deduction u/s 80IB is available on the export benefit receivable. The case of Pratibha Syntext Ltd. (supra) is entirely on different issue and the appellant can not derive support from that case. In the case of United Phosphorus Ltd. (supra), the finding has been re-produced by the learned counsel but he could not bring to my notice, the facts of the case on the basis on which the above decision was rendered by the Ahmedabad Tribunal. It could not be proved by him that the facts of case are identical to that of the case of the appellant and therefore, appellant can not derive support from the decision in the case of United Phosphorus Ltd. Relying on the decision of the Hon'ble Supreme Court in the case of CIT v Sterling Foods (supra), I have give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would be entitled for a special deduction u/s 80IB in respect of Custom Duty Drawback. Reliance was also placed on the decision of this Tribunal in the case of ACIT v Polycom Associates [ITA No.3801/Ahd/2003] which relates to DEPB, wherein it was held that the assessee will be entitled for the deduction u/s 80IB of the Act. 11 The learned DR, on the other hand, supported the order of the CIT(A) and relied on the decision of the Hon'ble Supreme Court in the case of Sterling Foods (supra). 12 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We have also gone through the case law as has been cited before us. The issue before us is whether the income from export incentive in the form of DEPB will be eligible for deduction u/s 80IB or not during the assessment year under consideration. 13 Section 80IA was inserted by the Finance Act (No.2), 1991 w.e.f. 1-4-2000 and later on amended by the Finance Act, 1992, 1993,1994, 1995, 1996, 1997, Income-tax (Amendment) Act, 1998 and Finance (No.2) Act, 1998. Later on section 80IA was substituted by the Finance Act, 1999 with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time reads as under:- Section 80HH. Deduction in respect of profits and gains from newly established industrial undertaking or hotel business in backward areas. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof. From the said language it is apparent that if the profits and gains is derived from the eligible industrial undertaking, only then it can be entitled for the deduction u/s 80HH. While interpreting the language of section 80HH, the Hon'ble Supreme Court has held as under:- We do not think that the source of the export entitlements can be said to be the industrial undertaking of the assessee. The source of the export entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export entitlements become available. There must be, for the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on imported materials used in the manufacture of goods which are exported. (1) Where it appears to the Central Government that in respect of goods of any class or description manufactured in India being goods which have been entered for export and in respect of which an order permitting the clearance and loading thereof for exportation has been made under section 61 by the proper officer, a drawback should be allowed for duties of customs chargeable under this Act on any imported material of a class or description used in the manufacture of such goods, the Central Government may, by notification in the Official Gazette direct that drawback shall be allowed in respect of such goods in accordance with, and subject to, the rules made under sub-section (2). Similar provisions are there in section 36 of the Central Excise Act, 1944. 18 The object of the duty drawback scheme is to reimburse exporters for 19 tariffs paid on the imported raw materials and intermediates and Central Excise duties paid on domestically produced inputs which enter into export production. Customs duties and excise duties on inputs raise the cost of production in industries and thereby affect the competitiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after ascertaining the true nature of DEPB received by the assessee. Thus, this ground is allowed. 19 Ground No.9 relates to the claim of the assessee on the interest income amounting to ₹ 13,37,366/- u/s 80IB of the Act. The facts relating to this ground are that the assessee has received the interest amounting to ₹ 13,37,366/- out of which ₹ 7,32,904/- was shown by the assessee under the head Income from other sources. It is only the balance amounting to ₹ 6,04,462/-was shown by the assessee as business income. The AO did not allow the deduction u/s 80IB. When the matter went before the CIT(A), the CIT(A) confirmed the order of the AO. 20 The learned AR before us contended that the interest was basically received from the bank on the margin money, FD which was kept for opening L/Cs, loan given to the employees and on a H/C but no break-up was given before us. In our opinion, this issue is no more res integra in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v CIT [2003] 262 ITR 278 (SC), in which the Hon'ble Supreme Court while interpreting the words derived from denied the deduction in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses. The claim of the expenditure can not be disallowed in such a summary manner. The expenditure was incurred for the customers and their representatives, which is allowable u/s 37 of the Act. For disallowances, the AO has to justify that it has not been incurred wholly and exclusively for the business purposes, which is absent in the order of the AO. Considering the appellate order of my predecessor and the above discussion, the disallowances are deleted. 23.2 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We noted that the expenditure has been incurred to build up and strengthen the contacts with the customers, which increased sales and profits and, therefore, in our opinion, the CIT(A) has rightly observed that the AO has to justify that it has not been incurred wholly and exclusively for the business purposes, which is absent in the order of the AO. We, therefore, do not find any infirmity in the order of the CIT(A) and accordingly we confirm the order of the CIT(A) in this regard. Thus, this ground taken by the Revenue stands dismissed. 24.1 Ground No.5 relates to the disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses incurred during the year. In these details there were certain expenses debited under the head miscellaneous expenses. The AO disallowed 1/5th of such expenses amounting to ₹ 14,628/-. When the matter went before the CIT(A), the CIT(A) deleted the disallowance by holding that the expenditure has been incurred for the business purpose and the AO has not examined the expenses and for the sake of convenience, disallowed 1/5th of ₹ 73,140/-. After carefully considering the rival submissions of both the parties, we agree with the view of the CIT(A) that the addition has been made by the AO on the basis of presumptions that such expenses were incurred for non-business purposes. We find that these expenses were posted in the books of accounts under the head miscellaneous expenses as is evident from the copy of accounts. We accordingly do not find any infirmity in the order of the CIT(A) in this regard and confirm the order of the CIT(A). Thus, this ground raised by the Revenue stands dismissed. 26.1 Ground No.7 relates to deletion of the addition on account of Advance written off amounting to ₹ 7,47,181/-. The facts are that the assessee has paid this sum as an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 I have carefully considered the above submission of the learned counsel and the facts of the case. I could notice that an amount of ₹ 25,000/- have been incurred for production registration charges and ₹ 10,000/- for consulting fees for transfer of registered office. The AO could not hold that how these expenses are capital in nature. No any asset of enduring nature have been came into existence on account of these expenses. The CIT(A)-I, Surat has also held registration expenses as revenue in nature in the appellant s case for the AY 200001 vide para-8 of his appellate order dtd. 23.4.2003. The expenditure of ₹ 10,000/- paid to the Company Secretary for complying with the procedure for transferring the registered office of the company from Selvass to Vapi, is certainly a part of revenue expenditure. Considering the appellate order of my predecessor and the above discussion, the addition of ₹ 35,000/- does not deserve to be upheld. The same is hereby deleted. 27.2 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We find that before us also the learned DR could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions have been deleted by the CIT(A) in the case of both the companies in earlier years. Thus, on the basis of additions made in other cases also cannot hold good. The addition was made by the AO just to create a new issue for raising heavy demand in the case of the appellant company because, now this issue will be repetitive and will be raised in further appeals to the ITAT or to the High Courts. The AO has made a separate basis for repetitive addition. 22 I would like to refer to the finding given by the CIT(A) in the case of Umedica Laboratories Pvt. Ltd. for the AY 2000-01 which is as under: Thus, in view of the past history of the case and after going through the appellate orders for the AYs 1996-97, 98-99 and also directions of the Tribunal as spelt out in the order dtd.9.11.2000 for the AY 1996-97, I see no reason as to why the claim of the appellant regarding nontaxability of refund on excise duty should not be accepted. The factual position for the AY 2000-01 in respect of this issue is the same as in the earlier years including the AY 1996-97 and AY 1998-99. For the reasons discussed in my appellate orders for the AY 199697 dtd. 20-10-2002, the addition made of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case are that the AO observed that as per clause (baa) of Explanation to section 80HHC 90% of the Export incentive as per section 28([iiia], [iiib] and [iiic] as well as any receipt by way of brokerage, commission, interest, rent, charges or any other receipts of similar nature is required to be excluded for arriving at Profit of the business. The AO held that in view of the detailed discussion held in earlier para in relation to exclusion of Other Income the following items are required to be excluded to the extent of 90% for the purpose of calculating the profit of business for deduction u/s 80HHC: [a] Interest received ₹ 13,37,366/- [b] Export benefit ₹ 3,05,05,367/- [c] Gain exchange rate diff. ₹ 40,33,509/- [d] Misc. Income Cash Discount (Income) ₹ 504556/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of ₹ 28,500/- and insurance claim of ₹ 51,676/- will be reduced from the business income for working out the business profit under Explanation (baa) given below section 80HHC(4B) of the Act. The calculation of deduction u/s 80HHC will be worked out as per the directions given as above. It may be mentioned that the sum of ₹ 5,04,556/- shown as Cash Discount consists of discount from suppliers amounting to ₹ 4,75,924/- and rental income of ₹ 28,500/- while the Misc. Income of ₹ 51,676/- represents the Insurance claim. 31 We have carefully considered the rival submissions and, perused the material on record. This issue, in our opinion, is no more res integra in view of the decision of the Jurisdictional High Court in the case of CIT v Amba Impex [2006] 282 ITR 144 (Guj), in which only Exchange Rate Difference of export realization is held to be the profit from the export business. The learned AR could not point out to us at the time of hearing whether this Exchange Rate Difference relates to the proceeds received within six months from the end of the Financial Year or within the permissible time u/s 80HHC(2). We, therefore, do not find a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be regarded to be the income as described under Explanation (baa), of which 90% has to be excluded while computing the profit of the business for the purpose of computation of deduction u/s 80HHC. We accordingly confirm the direction of the CIT(A) in respect of Misc. Income representing the Insurance claim. Thus, Ground No.11 is partly allowed. 34 Ground No.12 relates to the relief given by the CIT(A) in directing the AO to include the following items in the profit of the business eligible for deduction u/s 80IA:- Exchange Gain ₹ 40,33,509 Cash Discount ₹ 4,75,924 Rental Income ₹ 28,500 Misc. Income ₹ 51,676 The facts relating to this ground that the AO while computing the deduction u/s 80IB excluded these income from the eligible profit along with the other income. When the matter went before the CIT(A), the CIT(A) directed the AO to allow the deduction to the assessee u/s 80IB in respect of these items. 35 We have heard the rival submissions and carefully considered the same. So far ..... X X X X Extracts X X X X X X X X Extracts X X X X
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