TMI Blog2021 (7) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... in a general manner that assessee has reimbursed expenses which were the responsibility of associated concern, therefore, the transaction was not at arms length. CIT(A) has not given specific reason in support of his decision and also not disproved the submission of the assessee pertaining to nature of reimbursement of expenses and the relevant material demonstrating that such expenses were not incurred for any benefit of the subsidiary company. No merit in the decision of the ld. CIT(A). Therefore, this ground of appeal of the assessee is allowed. Addition of prior period expenses - HELD THAT:- AO found that there was no such prior period income and the same was the amount on account of reversal on discount and sales promotion expenses claimed and allowed in the earlier years. On query, the assessee company vide letter dated 22nd Nov, 2010 admitted that the amount of ₹ 30,80,966/- was actually the liability for expenses claimed and allowed in the earlier years by way of discount and rate difference etc. and agreed for adding the same u/s. 41(1) - on verification of the material on record, the Assessing Officer has brought to the notice of the assessee that such amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the revised computation filed on form no. 56G after required verification. Once an income forms part of business of 100 per cent export oriented undertaking (EOU) of the assessee same cannot be excluded from eligible profit for purpose of computing deduction u/s. 10B of the Act. Since the revised claim of deduction u/s. 10B is required verification, therefore, we restore this issue raised in the ground of appeal no. 5 of the assessee to the file of the Assessing Officer for deciding de-novo as per the directions laid down in the above referred judicial pronouncements. Accordingly, this ground of appeal of the assessee also allowed for statistical purposes. Addition on account of additional depreciation - HELD THAT:- As decided in own case [ 2014 (10) TMI 1042 - ITAT AHMEDABAD] addition of machinery was after 31st of March 2005. Appellant was already in the business of manufacturing articles for things. The machine purchased is not covered by any clause of proviso to this section. The same was not used by any person before installation. It is not installed in office or residential premises. This is not office appliance or road transport vehicle. Further these machines ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in these appeals are interconnected therefore for the sake convenience all these appeals are adjudicated together as follows:- ITA No. 2626/Ahd/2021 for A.Y. 2007-08 filed by the assessee 2. The fact in brief is that return of income declaring total income of ₹ 21,76,12,564/- was filed on 31st October, 2017. The return of income was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 22nd July, 2008. Assessment order u/s. 143(3) r.w.s. 144C of the Act was finalized on 21st February, 2011. The remaining facts of the case are discussed while adjudicating the various grounds of appeal of the assessee as under:- Ground No. 1 (Confirming addition of ₹ 19,86,525/- by way of upward adjustment in respect of reimbursement expenses on the basis of order u/s. 92C(3) of the Act) 3. During the course of assessment, a reference u/s. 92CA of the Act for the computation of arms length price in relation to international transactions was made to the transfer pricing officer, Ahmedabad. The Assessing Officer stated that according to the order of TPO u/s. 92CA(3) of the Act total addition of ₹ 19,86,525/- of international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppines were pertained to the expenses incurred by the assessee company in respect of its employees on their visits for sales promotion activities in Philippines. The funds were given by the company to its employees and upon submission of their travelling bills, the expenses were accounted in the books of account of the company by adjusting advances given to the employees. The expenses have been accounted in the books of account of the assessee incurred for the purpose of business of the assessee company. The associated concern has also reflected such expenses in their books of account and shown as expenses reimbursed by the assessee company. All the details and material facts were disclosed before the lower authorities by the assessee company and submitted that no international transaction has taken place between the assessee company and its associated concern in respect of amount shown as reimbursement of expenses, therefore, no question of arms length price determination was arised in its case. It is observed that ld. CIT(A) has not categorically disproved the material facts and explanation of the assessee company in support of its contention that it has made only reimbursement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entry dated 3rd Nov, 2020 wherein the assessee has agreed to the addition of prior period income of ₹ 42,48,547/-. Accordingly, the Assessing Officer has added an amount of ₹ 42,48,547/- to the total income of the assessee company. 8. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has dismissed this ground of appeal of the assessee. 9. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer noticed that assessee has debited net prior period expenses of ₹ 84,87,329/- to the Profit and Loss Account. On further verification and examination of the information filed, the Assessing Officer observed that assessee has shown netting of prior period income of ₹ 42,48,547/-. On further investigation, the Assessing Officer found that there was no such prior period income and the same was the amount on account of reversal on discount and sales promotion expenses claimed and allowed in the earlier years. On query, the assessee company vide letter dated 22nd Nov, 2010 admitted that the amount of ₹ 30,80,966/- was actually the liability for expenses claimed and allowed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,52,933/- for taxation in the computation of income, therefore, the difference amount of ₹ 35,87,463/- was added to the total income of the assessee. 11. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) has dismissed this ground of appeal of the assessee holding that TDS liability in respect of each provision is to be separately considered and excess payment in one provision is not adjustable against the short payment in other provisions. 12. Heard both the sides and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has placed reliance on the decision of Hon ble Jurisdictional High Court of Gujarat in the case of CIT vs. Prayas Engineering Tax Appeal No. 1237 of 2014 dated 17.11.2014. The relevant part of the decision is discussed as under:- 3. Heard the learned advocate appearing for the appellant-Revenue and considered the submissions. Learned advocate appearing for the appellant has contended that the circular issued by CBDT is very clear and the issue is governed by section 194J. The learned ITAT, while considering the question has observed in para-17 as under: 17. After hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. K. Tekriwal (supra) . In this case also the difference in shortfall was due to the applicability of provisions. The assessee has deducted tax at source u/s. 194C whereas according to the Assessing Officer provisions of section 1941 are applicable. Thus the assessee' s case is covered by the decisions of the Tribunal referred to about. No doubt assessee is in default as per provisions of sec. 201 but disallowance of tie expenditure is not permissible u/s. 40(a)(ia), respectfully following the precedents it is held that disallowance of ₹ 20,24,455/- is not justified. The Assessing Officer is directed to delete the addition. In view of the above, the order passed by Ld. CIT(A) deleting the additions of ₹ 60,60,960/- and ₹ 8,86,940/- is hereby upheld. Both these grounds of revenue are dismissed. 4. In that view of the matter, the same view is confirmed by the Tribunal in its order, and therefore, we are in complete agreement with the order passed by the Tribunal. No substantial question of law is made out and the appeal is devoid of any merits and deserves to be dismissed. Hence, this appeal is dismissed. With the assistance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income offered without filing a revised return of income as held in the decision of Hon ble Supreme Court in the case of Supreme Court in the case of Goetze (India) Ltd. 284 IRR 323 (SC). The Assessing Officer has further observed that in its original claim of deduction made u/s. 10B of ₹ 4,99,25,987/-, the assessee company has not excluded the following amount credited to P L Account:- Miscellaneous Income 34852178 Export Incentive Income 40222703 Foreign Exchange Rate Difference 24182727 Share Issue A Preliminary expenses 4712108 Interest received 11269904 The Assessing Officer was of the view that various items like service contract income, insurance claim, receipt premium of forward contract, development and license fee, sundry income cannot be said to be derived from the export of article, therefore, same were not eligible for exemption u/s. 10B of the Act. Except amount earned on sale of scrap the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form no. 56G and made revised claim of deduction to the amount of ₹ 7,37,91,346/-. The Assessing Officer has rejected the revised claim of deduction u/s. 10B of ₹ 7,37,91,346/- stating that assessee has not filed revised return of income in view of the decision of Hon ble Supreme Court in the case of M/s. Goetze (India) Ltd. 284 ITR 323 (SC). The Assessing Officer also stated that assessee has not filed any additional evidence to substantiate its enhanced claim of deduction. In respect of original claim of deduction made u/s. 10B of ₹ 4,99,25,987/-, the Assessing Officer has excluded an amount of ₹ 9,56,24,788/- pertaining to miscellaneous income, export incentive income, foreign exchange difference, interest income and share issue and preliminary expenses stating that these were not earned because of export of goods therefore Assessing Officer has restricted the deduction u/s. 10B of the act to the amount of ₹ 3,90,76,233/- and disallowed a sum of ₹ 1,08,49,754/-. During the course of appellate proceedings before us, in respect of revised claim of assessee, the ld. counsel has placed reliance on the decision of Amarpali Capital and Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 61. We take notice that the Karnataka High Court in CIT v. Motorola India Electronics (P.) Ltd. [2014]46 taxman.com 167/225 Taxman 11 (Mag.) makes a reference to the decision of the Supreme Court of Liberty India Electronics (P.) Ltd. 's case (supra). We would like to look into Liberty India Electronics (P.) Ltd. 's (supra) in details. In Liberty India Electronics (P.) Ltd. 's (supra), the assessee had the outstanding borrowings by way of External Commercial Borrowings. The borrowings were for the business of STP undertaking. The Government had formulated a policy on pre-payment and the policy stated that the approval of pre-payment would be granted only to the extent of 10% of the outstanding loan. In such circumstances, it was required to temporarily park the funds, until the date of repayment, and also keep paying the interest on the loans. The assessee took a business decision to place these funds with its various sister concerns as inter-corporate deposits. The assessee claimed that the interest income as derived from the business of export of articles or things or computer software was eligible for exemption under Section 10A of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'income from Profits and Gains' incorporated in Sub-section (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. In taking the aforesaid view, the Karnataka High Court distinguished the following decisions relied upon by the Revenue authorities: (1) Pandian Chemicals Ltd case (supra) (2) Liberty India's case (supra) (3) Sterling Foods (supra) (4) CIT v. Menon Impex (P.) Ltd. [2003] 28 Taxman 11/259 ITR 403(Mad.) (5) Anil Dang v. ITO [2012] 24 taxmann.cnm 135/209 Taxman 22 (Kar.) (Mag.) (6) CIT v. Shah Originals flQmiJ9rraxrnaa81/327 ITR 19 of Bom.) 62. In view of the aforesaid discussion, we hold that the dividend income, profit on sale of fixed assets, profit on sale of investments, excess provision return back, duty drawback and interest income could be said to have direct nexus with the income of the business of the undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, vis-d-vis the total turnover. Suppose total turnover is ₹ 100/- and total export turnover is for ₹ 10/-, then the export turnover is 10 per cent of the total turnover. Then one has to find out the total profit of the business of the undertaking. Suppose the total profit of the business of the undertaking is ₹ 100, in that case, deduction available to the assessee under section 10 of subsection (1) of section 10B shall be 10 per cent of ₹ 100, i.e. to say ₹ 10/-. This is the formula which has been provided by sub-section (4) for the purpose of working out the benefit or deduction under sub-section (1). Total turnover shall naturally include receipt on account u/s interest. The legislature does not appear to have provided for excluding the amount of interest from the total turnover as has been done in the case of section 80HHC by explanation (baa) of sub-section (4C) thereof. In that case, 90 per cent of the same arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under section SOHHC. But an identical provision is not there. Therefore, that provision cannot be imported by impli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round or a legal contention. A ground would have a reference to an argument touching a question of fact or a question of law or mixed question of law or facts. A legal contention would ordinarily be a pure question of law without raising any dispute about the facts. Not only such additional ground or contention, the Courts have also, as noted above, recognized the powers of the Appellate Commissioner and the Tribunal to entertain a new claim for the first time though not made before the assessing officer Income-tax proceedings are not strictly speaking adversarial in nature and the intention of the Revenue would be to tax real income. 39. This is primarily on the premise that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to, come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the assessing officer. 40. Therefore, any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against -which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law. such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer -Ward 5(1) v. Keval Construction [2013] 33 taxmann.com 277 (Guj.) Commissioner of Income-tax-IV, Nagpur v. Sunil Vishwambharnath Tiwari [2016] 63 taxmann.com 241 (Bom.) (ii) If deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer on account of not filing of revised return by referring the decision of Goetze India Ltd. In the light of the above judicial findings as discussed supra in this order, we direct the Assessing Officer to consider the claim of the assessee for claim of deduction of ₹ 7,37,91,346/- u/s. 10B as per the revised computation filed on form no. 56G after required verification. On the issue of excluding of miscellaneous income, export incentive income and interest income to be not eligible for expenses u/s. 10B of the Act as referred in the ground no. 5 of the assessee, we have perused the decision of Hon ble Jurisdictional High Court in cases of Mitesh Impax 270 CTR 66 (Guj) and PCIT vs. Dishman Pharmaceutical Chemical (2019) 112 taxmann.com 91 (Guj) wherein it is held that once an income forms part of business of 100 per cent export oriented undertaking (EOU) of the assessee same cannot be excluded from eligible profit for purpose of computing deduction u/s. 10B of the Act. Since the revised claim of deduction u/s. 10B is required verification, therefore, we restore this issue raised in the ground of appeal no. 5 of the assessee to the file of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative is fair enough not to controvert these undisputed fact that issue is covered in favour of the assessee by the decision of ITAT Ahmedabad as referred by the ld. counsel. 21. Heard both the sides and perused the material on record. The Assessing Officer has disallowed the claim of additional depreciation on the plant producing electricity stating that product produced was not of the nature of moveable article. The ld. CIT(A) has allowed the claim of the assessee after following the decision of his predecessor on the same issue on identical facts for assessment year 2006-07 and the Co-ordinate Bench of the ITAT Ahmedabad vide ITA No. 947/Ahd/2011 has adjudicated the similar issue on identical facts in favour of the assessee and sustained the finding of ld. CIT(A). The relevant part of the decision of ITAT Ahmedabad as referred above is reproduced as under:- 8. The AO has disallowed the assessee s claim of additional depreciation in respect of such machinery which were generating electricity on the ground that those machineries were not producing any article or thing hence not eligible for additional depreciation as prescribed u/s.32(1)(iia). When the matter wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition of machinery was after 31st of March 2005. Appellant was already in the business of manufacturing articles for things. The machine purchased is not covered by any clause of proviso to this section. The same was not used by any person before installation. It is not installed in office or residential premises. This is not office appliance or road transport vehicle. Further these machines are also not eligible for 100 percent depreciation in one year. Considering this appellant fulfils all the conditions required for claim of additional depreciation. Respectfully following the decisions of Madras High Court relied upon by the appellant, assessing officer is directed to allow additional depreciation on new plant and machinery purchased. 9. After considering the submissions of both the sides, we hereby affirm the legal as well as factual finding of learned CIT(A) and dismiss this ground of the Revenue. Following the decision of Co-ordinate Bench as referred above on identical issue and facts, we do not find any reason to interfere in the decision of ld. CIT(A). Therefore, this ground of the appeal of the revenue is dismissed. Ground No. 2 (Deleting addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tood covered by a decision of ITAT A Bench Ahmedabad pronounced in the case of Cadila Health Care Ltd. (ITA No.3140/Ahd/2010, A.Y. 2006-07) order dated 05.03.2012 wherein it was finally held as under: 3.12. We hereby hold that the payments in question are inextricably linked with the working of the assessee's business. By incurring those expenditure the assessee has not acquired any new right of permanent character. The licenses or the registrations are required to be renewed and therefore part of the day to day running expenditure of the business. [ACIT versus Vodafone Essar Gujarat 38 SOT 51 (Ahd.) l. If an expenditure can give a benefit which is said to be endured for one year or even annually year after year then it is unreasonable to hold that any enduring benefit taken place to the assessee. [Cosmat Max Ltd.29 SOT 436 (Del.)]. An expenditure incurred in the existing line of business in order to run the business smoothly then though the business may run smoothly in future in the years to come but in the absence of creation of any new asset we hereby held that such an enduring benefit may not tantamount to rendering of capital expenditure. [DCIT versus Core health ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 160 crores in financial year 2005-06 an increase of more than 600 per cent. Accordingly, these expenses are rightly allowed by learned CIT(A) and we confirm the same. 6. Considering the submission of both the sides in the light of the case law cited and the reason given by the AO for such disallowance, we hereby hold that in a situation when the genuineness of the expenditure was not doubted by the AO but only on a technical point the impugned disallowance was made we hereby hold that the issue being directly covered by the precedents as cited above in favour of the assessee; hence, this ground of the Revenue has no force, therefore, dismissed. After taking into consideration the findings of the Co-ordinate Bench in the case of the assessee itself as discussed above, we do not find any error in the decision of ld. CIT(A). Therefore, this ground of appeal of the Revenue is dismissed. Ground No.3 (Directing Assessing Officer to allow deduction u/s 10B of the act on exchange rate gain of ₹ 2,41,82,727/- on revenue account) 26. During the course of assessment, the Assessing Officer noticed that assessee has claimed foreign exchange rate difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supra in this order, this ground of appeal of the revenue is dismissed. Ground No. 2 (Deleting disallowance u/s. 14A of ₹ 63,259/-) 30. During the course of assessment the assessee has made investment in the shares but has not disallowed any expenditure u/s. 14A incurred for earning exempt income. On query, the assessee explained that assessee company has not earned any exempt income therefore there was no question of making any disallowance u/s. 14A of the Act. The Assessing Officer has not accepted the submission of the assessee and computed the disallowance u/s. 14A r.w.r. 8D of the I.T. Rules, 1962 to the amount of ₹ 63,259 and added to the total income of the assessee company. 31. Aggrieved assessee has filed appeal before ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. 32. Heard both the sides and perused the material on record. It is undisputed fact that during the year under consideration the assessee has not earned any exempt income. In this regard, the Hon ble Jurisdictional High Court in the case of CIT vs. Corrtech Energy Ltd. (Tax Appeal No. l 239 of 2013) is held that in the absence of any claim for exempted inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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