TMI Blog2014 (3) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 and, hence, was entitled to claim depreciation in respect of additions made to the trucks, which were leased out. That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term purposes of business , used in the second proviso to section 32(1) of the Act would not be any different from that ascribed to it under section 32(1) - Therefore, the assessee fulfilled even the requirements for a claim of a higher rate of depreciation and was entitled thereto. We find that the order of the CIT(A) is supported by the order of the Hon'ble Supreme Court in the case of ICDS Ltd. [ 2013 (1) TMI 344 - SUPREME COURT] . We, therefore, do not find any good reason to interfere with the order of the CIT(A) on this issue. Deduction u/s 80HHC for marine division - HELD THAT:- It is not in dispute that the assessee has incurred loss from export of trading goods in marine division and received export incentive, 90%. AO is disallowed deduction u/s. 80HHC in its entirety on the ground that there is no profit from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce in the argument of the learned AR that amendment in section 69C to the effect that deduction in respect of unexplained business expenditure will not be allowed, has been brought into force by the Finance (No. 2) Act, 1998 w.e.f. 1.4.1999. In the instant case the assessment year involved is 1995-96. In the instant case, it is not in dispute that ₹ 26,50,744/- relates to payment of service charges for import of goods. Therefore, the assessee is entitled for deduction of ₹ 26,50,744/- when the said amount is treated as unexplained business expenditure of the assessee - Decided in favour of assessee. Levy of interest under section 234A 234B of the IT Act is consequential. Business loss could be adjusted against 90% export incentives for working out the deduction u/s. 80HHC - ITA Nos. 1856 and 2011/Ahd/1999 - - - Dated:- 19-3-2014 - N.S. Saini, Member (A) and Kul Bharat, Member (J) For Appellant: Shri S.N. Soparkar and Shri P.M. Mehta For Respondents: Shri O.P. Vaishnav, CIT-DR ORDER N.S. Saini, 1. These are cross appeals filed by the Revenue and assessee against the order of the CIT(A)-V, Ahmedabad dated 12.7.1999. Both these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired by the assessee in lieu of the payment in question and the assessee has not become the owner of any site in consideration of the said payment. Therefore, we do not find any merit in this ground of appeal of the Revenue. 15. Further, we find that there was no basis on which the Ld. CIT(A) could have held that the benefit of payment in question will be available for 10 years only and consequential deduction is to be allowed over a period of 10 years. It is observed that the benefit was not for any fixed period. We agree with the Ld. CIT(A) that the expenditure in question is revenue in nature and no capital asset of enduring nature was acquired by the assessee by making the payment in question and therefore, the entire payment is allowable as deduction to the assessee in the year on incurring of the expenditure. We, therefore, modify the order of the Ld. CIT(A) and direct the Assessing Officer to allow deduction for entire ₹ 7,00,000/- during the year under consideration. Thus, relevant ground of appeal of the Revenue is dismissed and relevant ground of cross-objection of the assessee is allowed. Respectfully following the same, we modify the order of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant for the purpose of the section. (ii) That a scrutiny of the material facts at hand raised a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. The fact that at the end of the lease period, the ownership of the vehicle was transferred to the lessee at a nominal value did not make the assessee in effect a financier. No inference could be drawn from the registration certificate as to ownership of the legal title of the vehicle. If the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Tribunal, was not the case. (iii) That the entire lease rent received by the assessee was assessed as business income in its hands and the entire lease rent paid by the lessee had been treated as deductible revenue expenditure in the hands of the lessee. This reaffirmed the position that the assessee was in fact the owner of the vehicle, in so far as section 32 of the Act is concerned. (iv) That, therefore, the assessee was the owner of the vehicles. As the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that furnishing of auditor's certificate during the course of assessment proceedings was sufficient compliance. 38. Further, the Ld. CIT(A) held that while computing export profit, the loss is to be ignored and after ignoring the loss as the assessee had export incentives of ₹ 13,70,95,917/-, the assessee was eligible for deduction u/s. 80HHC subject to the condition that such deduction should not exceed the gross total income as reduced by deduction u/s. 80HHC allowed for trading division. 39. Before us, the Ld. DR contended that as there was loss on export of trading goods u/s. 80HHC(3)(b), the assessee was not entitled to any deduction u/s. 80HHC in respect of marine division. 40. On the other hand, the Ld. AR of the assessee supported the order of the Ld. CIT and submitted that as the assessee issued a disclaimer certificate in respect of export turnover and therefore, the loss on export of trading goods is to be ignored and the Ld. CIT(A) was justified in granting deduction u/s. 80HHC in respect of export incentive. He relied upon the decision of the Delhi Bench of the Tribunal in the case of MMTC Vs. JCIT (2007) 112 TTJ 15 (Delhi). 41. We find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Supreme Court in IPCA Laboratory Ltd.'s case (supra), it clearly emerges: no doubt, unless there is a positive 'profit', the benefit of section 80HHC would not be given. The Court interpreted it to mean that if there is a loss then no deduction would be available. However, how the test for determining the figure of positive profit is applied is stated as follows:-- In arriving at the figure of positive profit, both the profits and the losses will have to be considered. If the net figure is a positive profit then the assessee will be entitled to a deduction. If the net figure is a loss then the assessee will not be entitled to a deduction. It is clear from the above that while computing export profit the result of two activities is to be netted. While doing so, export incentives are also to be taken into consideration. 43. We find that the decision of the Delhi Tribunal in the case of MMTC (supra) is not applicable in the instant case in as much as in the instant case, there is loss in export of trading goods which could not be passed on to supporting manufacturer by issuing disclaimer certificate in view of the decision of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that there was no nexus between interest expenditure and interest income earned by the assessee from various sources. The contentions of the assessee was that the net interest expenditure after reducing the interest income earned by the assessee should be taken as indirect cost of the trading goods for computing the deduction under section 80HHC. This contention of the assessee was accepted by the CIT(A), following the decision of the Mumbai Bench of the Tribunal in the case of Kantilal Chhotalal Vs. ACIT (supra). We find that the decision of the learned CIT(A) is supported by the decision of the Hon'ble Supreme Court in the case of ACG Associates Capsules Vs. CIT (supra) wherein it has been held that not the gross interest but only the net interest, 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 (1) of Explanation (baa) to section 80HHC for determining the profits of the business. In the instant case, the interest income was treated by the as part of income from profits and gains of business or profession. Therefore, we do not find any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates to payment of service charges for import of goods. Therefore, the assessee is entitled for deduction of ₹ 26,50,744/- when the said amount is treated as unexplained business expenditure of the assessee. We, therefore, set aside the orders of the lower authorities on this issue and allow the ground of the appeal of the assessee. Following the same, the ground of the appeal of the assessee is allowed. 18. The ground No. 5 of the appeal of the assessee is directed against the order of the CIT(A) setting aside the addition of ₹ 80,50,000/- on account of provision of section 69C of the Act. 19. At the time of hearing, learned counsel for the assessee has not pressed this ground of appeal, hence, the same is dismissed as not pressed. 20. The ground No. 6 is directed against the order of the CIT(A) in upholding the disallowance of ₹ 12,949/- by invoking the provisions of section 43B of the IT Act. 21. At the time of hearing, learned counsel for the assessee has not pressed this ground of appeal, hence, the same is dismissed as not pressed. 22. The ground No. 7 is against the order of the CIT(A) in upholding the disallowance of ₹ 70,000/- bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other sum of ₹ 14,86,64,238 (the amount outstanding under the head 'reserve and surplus' the details of which have already been reproduced above) as part of issued share capital and has concluded that 2.5 per cent of such capital employed was within the amount of total expenditure incurred by assessee on public issue and thus the assessee was entitled to claim full deduction of ₹ 4,71,244. Here the submission of ld. Counsel of the assessee is that in any case, share premium has to be considered as issued share capital . There is a force in such contention that the amount outstanding on account of share premium has to be treated as issued share capital. Section 78 of the Companies Act, 1956 deals with the subject application of premiums received on issue of shares . Said section reads as under: (1) Where a company issues share at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the share premium account , and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On a winding up the surplus monies in the share premium account will be returned to the shareholders as capital and so long as the company is a going concern, the same monies can never be returned to the shareholders except through the medium of reduction petition or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholder's hand. However, the same analogy will not apply to the other amounts stand credited under the head Reserve and Surplus i.e., (i) Investment Allowance (utilized) Reserve ₹ 8,21,849, (ii) General Reserve ₹ 6,43,25,301 and the sum (iii) Transferred from Profit and Loss a/c ₹ 1,46,00,000 (total = ₹ 7,97,46,150 all other sums standing to the credit of 'Reserve and Surplus' a/c). Therefore, we hold that CIT(A) was wrong in concluding that entire sum of ₹ 18,87,35,238 (₹ 4,00,71,000 as share capital and amount of ₹ 14,86,64,238 as reserve and surplus) was issued share capital within the meaning of Explanation (b) to section 35D(3). Therefore, we modify his order and hold that a sum of ₹ 7,97,46,150 as computed above, was not iss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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