TMI Blog2022 (9) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... o the incorrectness of the claim of the respondent-assessee that the respondent-assessee incurred expenditure to earn the exempt income - suo-moto addition made by assessee - HELD THAT:- Admittedly, the respondent-assessee company made investments, which yielded the dividend income. The respondent-assessee company itself offered suo motu disallowance - The provisions of sub-section (2) of section 14A provides that resort to disallowance u/s 14A can be made only if the AO is not satisfied with the correctness of the claim of assessee in respect of expenditure incurred to earn the exempt income. Therefore, it is incumbent upon the Assessing Officer to record satisfaction, as to the correctness or otherwise of the assessee company that only an expenditure was incurred to earn the exempt income. In the preset case AO has not recorded satisfaction regarding the correctness of suo motu disallowance offered by the assessee u/s 14A and mere rejection of the explanation of the assessee per se, cannot be said to be a satisfaction as envisaged u/s 14A(2). Decided against revenue. Disallowance of foreign travel expenses by holding to be personal expenditure - CIT-A deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighted deduction u/s 35(2AB) of the Act. The mere fact that the absence of approval of prescribed authority u/s 35(2AB) is not a bar for allowance of claim within the ambit of provision of section 35(1)(iv) or u/s 37(1) of the Act, inasmuch as, the expenditure is incurred is revenue in nature for running business. The treatment given in the books of account is not determinative of the allowability or otherwise the expenditure under the provisions of the Act as held in the case of (i) Kedarnath Jute Mfg. Co. Ltd. [ 1971 (8) TMI 10 - SUPREME COURT] and CIT vs. Smifs Securities Ltd. [ 2012 (8) TMI 713 - SUPREME COURT] - The Tribunal had rendered the decision following ratio rendered in those judgment and, therefore, we do not see any reason to interfere with the findings of the ld. CIT(A), inasmuch as, he only followed the decision of the Tribunal in assessee s own case for the assessment year 2008-09 [ 2016 (8) TMI 1047 - ITAT PUNE] . Therefore, we do not find any merits in the ground of appeal no.6 filed by the Revenue and hence, dismissed. Deduction u/s 10AA in respect of sales made to United Nations International Children s Emergency Fund (UNICEF) - HELD THAT:- The provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Ethics) Regulation Act, 2002. Therefore, the question of applicability of Explanation 1 to section 37 does not arise and the ratio of the Hon ble Supreme Court in the case of Apex Laboratories (P.) Ltd. [ 2022 (2) TMI 1114 - SUPREME COURT] have no application. Accordingly, we do not find any reason to interfere with the order of the ld. CIT(A). Thus, the ground of appeal no.9 filed by the Revenue stands dismissed. MAT computation u/s 115JB - provisions for wealth tax paid required to be added back to book profit for the purpose of computing the tax under the provisions of section 115JB or not? - CIT-A deleted the addition - HELD THAT:- Since the ld. CIT(A) only followed the decision of the Tribunal in assessee s own case for the assessment year 2009-10 [ 2018 (6) TMI 509 - ITAT HYDERABAD] and no contrary position of law was brought to our notice, we find no reason to interfere with the order of the ld. CIT(A). Accordingly, the ground of appeal no.10 filed by the Revenue stands dismissed. - ITA No.323/PUN/2021 - - - Dated:- 15-9-2022 - Shri Inturi Rama Rao, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member For the Revenue : Shri J. P. Chadrake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the same tools are specifically designed and integrated with the plant, therefore, same should have been claimed @10% instead of 15%. 5. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made by the Assessing Officer amounting of Rs.100355672/- on account of Product development Expenditure i.e. Deduction u/s 35(2AB) of the Income-tax Act, 1961 as the same was not approved by the DSIR and certified in form 3CL. As per provisions of the Section 35(2AB)(3) and Section 35(2AB)(4) of the Income-tax Act, 1961 clearly mandates that in order to eligible for weighted deduction, the expenditure incurred by the assessee should be approved by the DSIR and certified in Form 3CL. 6. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance made by the Assessing Officer amounting of Rs.143706712/- on account of Product development Expenditure i.e. deduction u/s 35(1)/37(1) of the Act, Since the expenditure was in nature of capital and the same is not allowable expenditure under the said provisions. 7. On the facts and circumstances of the case and in law, the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of Rs.307,56,44,960/- and the same was revised on 30.03.2015 at total income of Rs.306,36,31,370/-. Against the said return of income, the assessment was completed by the Dy. Commissioner of Income Tax, Circle-1(1), Pune (hereinafter called as the Assessing Officer ) vide order dated 12.01.2017 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 ( the Act ) at total income of Rs.390,30,53,064/- after making the following disallowances to the returned income :- (a) Disallowance u/s 14A of Rs.6,46,83,703/-. (b) Disallowance of EDP (Electronic Data Processing) expenses of Rs.42,49,840/-. (c) Disallowance on Foreign Travelling Expenses Employees of Rs.22,31,668/-. (d) Disallowance on Foreign Travelling Expenses Others of Rs.2,13,379/-. (e) Disallowance of depreciation on certain items of stainless steel tables, stools, trollies used in the laboratory as Plant Machinery of Rs.1,38,153/-. (f) Disallowance of Product Development Expenditure u/s 35(1)/37 of Rs.14,37,06,712/-. (g) Disallowance of donation u/s 37(1) of Rs.5,50,000/-. (h) Disallowance of repairs to building, plant and machinery of Rs.1,16,36,450/-. (i) Disallowance of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vi) As regards, the disallowance of claim for exemption of income u/s 10AA of the Act in respect of deemed exports to UNICEF, the ld. CIT(A) allowed the benefit of exemption u/s 10AA considering the fact that the deemed exports are also eligible for exemption u/s 10AA following the decision of the Hon ble Supreme Court in the case of DCIT vs. Metal Closure (P) Ltd., 102 taxmann.com 72 (SC). (viii) As regards, the disallowance of donation of Rs.5,50,000/- u/s 37(1), the ld. CIT(A) confirmed the disallowance of donation of Rs.5,50,000/- made to Sakal Social Foundation. (ix) With regard to claim for allowance of depreciation on windmill of Rs.56,11,914/-, the ld. CIT(A) held that civil construction and electrical work were undertaken for operation of windmills and are not separable, therefore, allowed the depreciation at the rate applicable to plant and machinery following the decision of this Tribunal in assessee s own case for assessment years 2011-12 and 2012-13. (x) With regard to the disallowance of expenditure on account of Freebies/Incentives to doctors amounting to Rs.2,90,94,637/-, the ld. CIT(A) considering the fact that this expenditure is only discount and inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e finding of the ld. CIT(A). 7. The ld. CIT-DR submits that the transaction of corporate guarantee is international transaction within the meaning of provisions of section 92B of the Act. Therefore, ld. CIT(A) ought to have sustained the TP adjustment suggested by the TPO keeping in view of the Safe Harbour Rules. 8. On the other hand, ld. Sr. Counsel submits that the decision of the ld. CIT(A) restricting the TP adjustment on account of corporate guarantee to 0.5% is in consonance with the law laid down by the Hon ble Jurisdictional High Court in the case of Everest Kanto Cylinders Ltd. (supra). Therefore, no interference in the order of the ld. CIT(A) is called for by this Tribunal. 9. We heard the rival submissions and perused the record. The issue in the present ground of appeal no.1 relates to the benchmarking of international transaction of furnishing corporate guarantee. There cannot be any dispute that the transaction of furnishing bank guarantee to subsidiary constitutes international transactions in view of retrospective amendment to the provisions of section 92B of the Act by the Finance Act, 2012 by inserting Explanation (1)(c) to section 92B w.e.f. 1/4/2002. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that there is no direct expenditure incurred to earn the exempt income. The contentions raised by the assessee company before the AO are extracted para 3 at page 8 of the assessment order. Without prejudice to the above contentions, the respondent-assessee offered a suo moto disallowance of Rs.1,35,00,000/-. However, the Assessing Officer had proceeded to make a disallowance u/s 14A invoking Rule 8D of the Income Tax Rule, 1962 ( the Rules ) by observing that the assessee had failed to prepare separate books of account for the expenditure to earn the exempt income or non-exempt income rejected the contention of the assessee company that no expenditure was incurred to earn the exempt income and proceeded to make a disallowance u/s 14A r.w. Rule 8D placing reliance on the CBDT Circular No.5/2014 dated 11.02.2014 and made disallowance of Rs.7,81,83,703/- as against suo moto disallowance offered by the respondent-assessee company of Rs.1,35,00,000/-. On appeal before the CIT(A), it is held that when the respondent-assessee offered a suo moto disallowance of Rs.1,35,00,000/-, the Assessing Officer cannot make a recourse to the provisions of Rule 8D for the purpose of computing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred to earn the exempt income. Therefore, it is incumbent upon the Assessing Officer to record satisfaction, as to the correctness or otherwise of the assessee company that only an expenditure of Rs.1,35,00,000/- was incurred to earn the exempt income. The Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT (supra) held as follows: 41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer. Even the Hon ble Bombay High Court in the case of Pr.CIT vs. Reliance Capital Asset Manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal no.3 challenges the correctness of the decision of the ld. CIT(A) deleting the addition made by the Assessing Officer on account of foreign travel expenses of Rs.24,45,047/- by holding to be personal expenditure. During the course of assessment proceedings, the Assessing Officer found that the employees of the respondent-assessee company have travelled abroad for the purpose of acquisition of machinery incurred of expenditure of Rs.22,31,668/-. The Assessing Officer was of the opinion that the expenditure incurred on travelling by the employees of the respondent-assessee company should be treated as capital expenditure, as same was incurred in relation to acquisition of plant and machinery. He accordingly treated the travelling expenditure as capital expenditure and disallowed the same as revenue expenditure. Secondly, the Assessing Officer also found that the respondent-assessee company incurred expenditure on foreign travelling of two members of Poonawall family, namely, Mrs. Natasha Poonawalla and Mrs. B.Z. Poonawalla. It is contended that Mrs. B.Z Poonawalla is a director of the respondent-assessee company and Mrs. Natasha Poonawalla had also been made director in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that she was also a director of the respondent-assessee company and wife of another director of the respondent-assessee company, namely, Mr. Zavaray Poonawalla. He submits that the spouse of a director of company, accompanies the director on foreign trip, it cannot be said to be not for the purpose of business placing reliance on the decision of the Hon ble Bombay High Court in the case of CIT vs. Alfa Laval (I) Ltd., 282 ITR 445 (Bom.) and CIT vs. Zuari Finance Ltd., 271 ITR 538 (Bom.). 18. We heard the rival submissions and perused the material on record. The issue in the present ground of appeal no.3 relates to the allowability of foreign travel expenditure incurred by employees of the assessee company. During the previous year relevant to the assessment year under consideration, the assessee company had incurred expenditure of Rs.22,31,668/- on foreign trips of employees, undertaken for the purpose of procurement of machinery. The Assessing Officer was of the opinion that this expenditure is capital in nature and cannot be allowed as revenue expenditure. Admittedly, the foreign travel was undertaken by the employees for running business purposes and there is no material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also matter of record that the impugned addition was made on the basis of similar addition made for assessment year 2012-13, since this basis was removed in the remand order passed pursuant to order of remand by ITAT, the present addition cannot be sustained on the principle that once the foundation is removed superstructure falls based on latin maxim (sublato fundamento cedit opus). Therefore, in the light of above discussion, we do not find any illegality or perversity in the finding of the ld. CIT(A) holding that the expenditure incurred on foreign trips of the employees is revenue in nature. As regards to the foreign travel expenses of Mrs. B.Z. Poonawala, who is a wife of another director, namely, Mr. Zavaray Poonawalla, it is settled position of law as held by the Hon ble Bombay High Court in the case of Alfa Laval (I) Ltd. (supra) that the expenditure was incurred for business purpose or not can be judged from the point of view of normal, prudent businessman. Similarly, the expenditure incurred by an assessee on foreign tour of wife of the director, who accompanied the director of the assessee company cannot be said to be not for the purpose of the business of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, trollies used in the laboratory treating as Plant Machinery as against the treatment of these items as furniture items. During the course of assessment proceedings, the Assessing Officer found that the respondent-assessee company treated the stainless steel tables, stools trollies amounting to Rs.39,07,934/- used in the laboratory as Plant Machinery and claimed depreciation at the rate applicable for Plant Machinery. However, the Assessing Officer was of the opinion that the same formed part of the furniture and allowed the depreciation at 10% as against 15% claimed by the respondent-assessee. On appeal before the ld. CIT(A), the ld. CIT(A) following the decision of ITAT for the assessment year 2001-02 till assessment year 2012-13 held them as forming part of Plant Machinery, accordingly, allowed the appeal. Being aggrieved, the Revenue is in appeal before us challenging the correctness of the findings of the ld. CIT(A). 20. The ld. CIT-DR submits that the items of stainless steel table, stools, trollies used in the laboratory cannot be classified as the Plant Machinery for the purpose of allowance of depreciation. He submits that the assets such as stainl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 35(2AB) in respect of product development expenditure. However, the prescribed authority i.e. DSIR had only certified that only a sum of Rs.80,48,24,167/- was eligible for weighted deduction u/s 35(2AB) and the DSIR had not certified the expenditure claimed on clinical trial expenses amounting to Rs.4,19,75,171/- and payments made to certain parties amounting to Rs.1,64,05,330/- is not eligible for weighted deduction u/s 35(2AB) of the Act. During the previous year relevant to the assessment year under consideration, the respondent-assessee had incurred a total product development expenditure of Rs.50,34,55,690/-. Out of which, the respondent-assessee made a claim for weighted deduction of expenditure of Rs.35,97,48,978/- u/s 35(1)/37(1) of the Act. On appeal before the ld. CIT(A), considering the fact that for the assessment year 2011-12 and 2012-13 pursuant to the remand made by the ITAT, the Assessing Officer had allowed the clinical trial expenses for weighted deduction u/s 35(2AB) following the decision of the Hon ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd., 31 taxmann.com 300 (Gujarat), had allowed the weighted deduction on clinical trial ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation thus provides that for the purpose of said clause, i.e. clause (1) of section 35(2AB), 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 the Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970. 16. The whole idea thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could be put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of the drug and so on. Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prescribed authority segregated the expenditure into two parts, namely, those incurred within the in-house facility and those can were incurred outside, in our opinion, by itself would not be sufficient to deny the benefit to the assessee under section 35(2AB) of the Act. It is not as if that the said authority was addressing the issue for deduction under section 35(2AB) of the Act in relation to the question on hand. The certificate issued was only for the purpose of listing the total expenditure under the Rules. Therefore, no question of law arises. No contrary decision had been brought to our notice warranting a different opinion. In the light of law laid down by the Hon ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra), we do not find any reason to interfere with the order of ld. CIT(A), as same is in consonance with the law laid down by the Hon ble Gujarat High Court in the case of Cadila Healthcare Ltd. (supra). Therefore, the ground of appeal no.5 filed by the Revenue stands dismissed. 27. Ground of appeal no.6 challenges the decision of the ld. CIT(A) allowing the capital expenditure incurred on product development as revenue expenditure u/s 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and perused the material on record. The issue in the present ground of appeal relates to the allowability of the expenditure incurred on the development of new products in the case of running business. Admittedly, the expenditure was incurred in the process of development of new product of drugs or vaccine which was not qualified for weighted deduction u/s 35(2AB) of the Act. The mere fact that the absence of approval of prescribed authority u/s 35(2AB) is not a bar for allowance of claim within the ambit of provision of section 35(1)(iv) or u/s 37(1) of the Act, inasmuch as, the expenditure is incurred is revenue in nature for running business. The treatment given in the books of account is not determinative of the allowability or otherwise the expenditure under the provisions of the Act as held by the Hon ble Supreme Court in the case of (i) Kedarnath Jute Mfg. Co. Ltd. vs. CIT, 82 ITR 363 (SC) and (ii) Kedarnath Jute Mfg. Co. Ltd. vs. CIT, 116 ITR 1 (SC) and (iii) CIT vs. Smifs Securities Ltd., 348 ITR 302 (SC). The Tribunal had rendered the decision following ratio rendered in those judgment and, therefore, we do not see any reason to interfere with the findings of the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom UNICEF. Primary intention of the legislature in granting deductions/exemptions u/s 10A, 10B, 10AA and 80HHC was to promote earnings in foreign exchange and export activity. C. As per EXIM Policy and Rule 53 of SEZ rules, 2006, supply to projects funded by UN agencies is treated as Deemed Exports . D. While UNICEF directs to deliver the goods to Consignees' in India; there is no direct communication between the assessee and the Indian consignees in respect of sale of vaccines. The privity of the contract for sales under consideration is between the assessee and an international institution, non-resident based out of India (UNICEF). E. In order to comply with the condition of physical delivery of goods out of India as emphasized by the learned AO, UNICEF should first import the goods from India and re-export them back to India. This will be an unfeasible proposition particularly with cold chain logistics system required for transportation of vaccines and impractical exercise with additional cost and therefore direct delivery in India was only a matter of convenience for UNICEF and this part always formed part of the long term export order placed by UNICEF on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be adopted. In this regard, he placed reliance on the decision of the Hon ble Supreme Court in the case of K.P. Varghese vs. ITO, 131 ITR 597 (SC). Without prejudice to the above, he submits that the agreement entered into with UNICEF by the respondent-assessee satisfied the requirement of export outside India, inasmuch as, the supplies of goods made to UN Agency are regarded as Deemed Exports under the Foreign Trade Policy. In this regard, he also took us through the clause 8.2 of EXIM Policy, which provide supplies of goods to projects funded by UN agencies is treated as Deemed Exports . He further submits that the Rules framed under Special Economic Zone Act, 2005 stipulates that the supplies made to the project funded by United Nation are to be considered as Deemed Exports . Finally, he submits that the provisions of section 10AA were introduced by the Income Tax Act, 1961 for the purpose of implementation of the EXIM policy and the provisions of section 10AA cannot be construed in the manner to be inconsistent with EXIM policy. Finally, he submits that a two way traffic cannot be read into the provisions of section 10AA placing reliance on the decision of Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears and thereafter; (ii) for the next five consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Reserve Account ) to be created and utilized for the purposes of the business of the assessee in the manner laid down in subsection (2). Explanation.-For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee. (2) The deduction under clause (ii) of sub-section (1) shall be allowed only if the following conditions are fulfilled, namely :- (a) the amount credited to the Special Economic Zone Reinvestment Reserve Account is to be utilised- (i) for the purposes of acquiring machinery or plant which is first put to use before the expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone, the period of ten consecutive assessment years referred to above shall be reckoned from the assessment year relevant to the previous year in which the Unit began to manufacture, or produce or process such articles or things or services in such free trade zone or export processing zone : Provided also that where a Unit initially located in any free trade zone or export processing zone is subsequently located in a Special Economic Zone by reason of conversion of such free trade zone or export processing zone into a Special Economic Zone and has completed the period of ten consecutive assessment years referred to above, it shall not be eligible for deduction from income as provided in clause (ii) of sub-section (1) with effect from the 1st day of April, 2006. (4) This section applies to any undertaking, being the Unit, which fulfils all the following conditions, namely:- (i) it has begun or begins to manufacture or produce articles or things or provide services during the previous year releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 and subsequent assessment years. (8) The provisions of sub-sections (5)62 and (6) of section 10A shall apply to the articles or things or services referred to in sub-section (1) as if- (a) for the figures, letters and word 1st April, 2001 , the figures, letters and word 1st April, 2006 had been substituted; (b) for the word undertaking , the words undertaking, being the Unit had been substituted. (9) The provisions of sub-section (8) and sub-section (10) of section 80- IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (10) Where a deduction under this section is claimed and allowed in respect of profits of any of the specified business, referred to in clause (c) of sub-section (8) of section 35AD, for any assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such specified business for the same or any other assessment year. Explanation 1.-For the purposes of this section,- (i) export turnover means the consideration in respect of export by the undertaking, being the Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or otherwise out of India by - land, - sea, - air, or - any other mode, - whether - physical or - otherwise In the backdrop of the above provisions of the Act, we are required to examine the eligibility of the profits earned in respect of sales made to UNICEF for its projects in India, for exemption u/s 10AA of the Act. On mere perusal of sub-section (1) of section 10AA, it would reveal that the export of goods, manufactured from the unit situated in the Special Economic Zone, is not a condition precedent for availing the benefit of deduction u/s 10AA of the Act. The language of the provision does not support any construction. It is significant to note that the provisions of section 10AA were introduced in the Income Tax Act, 1961 by Special Economic Zone Act, 2005 w.e.f. 10.11.2006. The Special Economic Zone Act, 2005 was enacted to provide for concessions which, apart from Central Excise Customs and other laws allied and as provided for deduction of Income Tax in respect of profits derived by an entrepreneur within the meaning of clause (j) of section 2 of Special Economic Zone Act, 2005. Clause 27 of Special Economic Zone Act, 2005 provides for mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implementation of EXIM policy of Government of India and, therefore, the definition contained in EXIM policy are very much relevant for the purpose of construing the term exports under the provisions of 10AA of the Act. Therefore, we are of the considered opinion that on due consideration of background of introduction of the provisions of section 10AA in the Income Tax Act, 1961, we do not see any reason to adopt a different meaning of word Exports other than meaning assigned to the term Exports under SEZ Act, 2005 or EXIM policy. Further, if we are to hold that in view of the provisions of subsection (7) of section 10AA, the respondent-assessee is not entitled for deduction in respect of goods supply to UNICEF, it would be contrary to the plain meaning of provisions of sub-section (1) of section 10AA and militates against the very object for which the provisions of section 10AA were enacted. From the above discussion, it is clear that Literal Interpretation of provisions of sub-section (7) of section 10AA produces a clear absurdity which could never have intended by the Parliament. It is well settled principle of construction that if a Literal Interpretation provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of strong necessity as held in Union of India vs. Dharmendra Textiles Processors and Others, 306 ITR 277 at 278 (SC). The Constitutional Bench of Hon ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. Dilip Kumar Company, 95 tamann.com 327 (SC) after referring to its earlier judicial precedents concurred with the view expressed by its earlier Constitutional Bench s decision in the case of CCE vs. Hari Chand Shri Gopal, (2011) 1 SCC 236 that it is not open to the courts to extend or widen the ambit and scope of the exemption provisions at the stage of applicability, but, once that hurdle is crossed, the provisions of exemption should be construed liberally. Applying the ratio of this decision to the facts of the present case, on plain reading of the provisions of sub-section (1) of section 10AA, it would clear that the case of the respondent-assessee company clearly falls within the provisions of sub-section (1) of section 10AA of the Act, which prescribes the applicability conditions for deduction u/s 10AA of the Act. Therefore, other provisions such as sub-section (7) of section 10AA should be construed liberally in favour of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange. If these two conditions are fulfilled, the assessee is entitled to the benefit conferred under section 80HHC. 14.Explanation (2) to sub-section (2), when a deemed export in India takes place, is explained. Where any goods or merchandise are transferred by an assessee to a branch office, warehouse, or any other establishment of the assessee situated outside India, and such goods or the merchandise are sold from such branch office, warehouse or establishment, then such transfer shall be deemed to be export out of India of such goods and merchandise, and the value of such goods or merchandise declared in the shipping bill or bill of export as referred to in sub-section (1) of section 50 of the Customs Act shall be deemed to be the sale proceeds thereof. This explanation is an explanation to sub-section (2). In sub-section (2)(a ), it is made clear that all goods or merchandise other than those specified in clause (b ), which are exported out of India, the sale proceeds in convertible foreign exchange is to be received or brought into India within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is to be taxed. Explanation (aa ) means is that it will not be an export out of India if two conditions are satisfied: (i ) it should be a transaction by way of sale otherwise in a shop, emporium or an establishment situate in India; (ii) it should not involve clearance in the customs as defined in the Customs Act. Both these conditions must be satisfied if the transaction is to be held to be not an export out of India. Hence, if either of these two conditions is not satisfied, it is an expert out of India. Hence, if the transaction involves clearance at customs, it will be an export out of India within the meaning of Explanation (aa ). 16. This judgment was considered by the Apex Court in the case of CIT v. Silver Arts Palace [2003] 259 ITR 684/ 129 Taxman 56 the Apex Court has held as under: ...The Allahabad High Court specifically considered the effect of introduction of Explanation (aa ) to section 80HHC(4A) of the Act and had taken the view in Ram Babu Sons v. Union of India [1996] 222 ITR 606 that this Explanation means that for the purpose of this section, there will be no export out of India if two conditions are cumulatively fulfilled, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant value addition is achieved when a mineral is processed or when a stone is cut and polished, it is desirable to encourage their export. The benefit of deduction under section 80HHC has, therefore, been extended to exporters of processed minerals. The list of processed minerals, in respect of which this concession is being extended, is being provided in a new Twelfth Schedule to the Income-tax Act. 31.2 This amendment taken effect from the 1st day of April, 1991 and will, accordingly, apply, in relation to the assessment year 1991-92 and subsequent years. 18. The Apex Court in the case of J.B. Boda Co. (P.) Ltd. v. CBDT [1997] 223 ITR 271/[1996] 89 Taxman 311 , while interpreting the section 80-O of the Act considered. The question whether the commission retained out of the gross premium payable in foreign exchange would be eligible for deduction under section 80-C. In that context, the Apex Court has held as under: .. The appellant instead of remitting the entire amount to the foreign reinsurers and then receiving remittance from the said reinsurers the commission due to it, entered into an agreement with the foreign reinsurers, that while remitting the reins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such goods, services or facilities, held that the Tribunal's reading of the Section that the export should be ex-India is not supported by the language of the provision or any authority. The High Court has, therefore. rightly concluded that to avail of the benefit of deduction, the provision does not require that the export should be ex-India is not supported by any of the provision or any authority. The High Court has therefore, rightly concluded that to avail the benefit of deduction the provision does not claim that the export should be ex-India. 20. The Apex Court in the case of CIT v. B. Suresh [2009] 313 ITR 149/ 178 Taxman 457 , dealing with section 80HHC, has held as under:- The basic requirement of section 80HHC is earning in foreign exchange and retention of profits for export business: Profits are embedded in the income earned. Earning of income depends on sale of goods and services. Today the difference between the two is getting blurred with globalisation and cross-examination border transaction. Today with technological advancement one has to change our thinking regarding concepts like goods, merchandise and articles. 21. In fact, the Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt here wants to achieve dual object. First, they want to earn foreign exchange by export out of India and secondly, what is to be exported out of India namely, computer software or its transmission should be from India so that the software industry in the country grows. Such an intention is conspicuously missing while drafting section 80HHC. There the stress is only on earning foreign exchange, not the goods and merchandise to be exported out of India, they do not necessarily have to be from. India. Therefore, the law does not require the goods to be physically exported out of India. The provision does not require that the export should be from India. There need not be a two-way traffic of bringing the goods from a foreign country into the Indian shores and thereafter exporting that goods from Indian shores to the off-shore, because it is a mere empty formality and meaningless ritual in which the country gains nothing, because, if the goods have to be brought into the country, precious foreign exchange is wasted and when it is sold, though the assessees gets foreign exchange, it is only to compensate what he has already parted in purchasing and what really is the gain is the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,477/- claimed the depreciation at rates applicable to the windmill. The Assessing Officer was of the opinion that the respondent-assessee company is not entitled for additional depreciation on entire civil works and electrical works only depreciation at the rate of 10% should be allowed. On appeal before the ld. CIT(A), the ld. CIT(A) considering the fact that in the earlier years for the assessment years 2010-11, 2011-12 and 2012-13, the ld. CIT(A) had allowed the higher depreciation in respect of civil works and electrical works associated with windmill following the certain judicial precedents, allowed the claim of the assessee. Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present ground of appeal no.8. 36. It is contended that the civil works and electrical works carried out along with the windmill are not eligible for additional depreciation or depreciation at the rate applicable to the windmill but are entitled only rate of depreciation as applicable to buildings and electrical works. 37. On the other hand, ld. Sr. Counsel submits that all the expenditure incurred to bring the assets to existence should be capitali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bies given to the doctors, as incentives are given in the form of discount linked to the sales made by them and target achieved by doctors. It was contended that the Explanation 1 to section 37 has no application, inasmuch as, it does not involve to the distribution of freebies to doctors in consideration of promoting their products. However, the Assessing Officer was of the opinion that the discounts were offered in the sales campaign programme. The terms of the scheme read as under :- In above context, in order to facilitate the mass vaccination, Serum runs a sales promotion campaign wherein private doctors are involved and encouraged to carry out the vaccination. Detail nature of scheme is attached as Annexure no. - 6. On the basis of number of Vaccines purchased by such doctors, they are given scheme benefits under the sales promotion campaign in the form of gift vouchers. Under the sales promotion campaign, the private doctors are required to purchase the required amount of vaccine products from Serum s authorized dealers. These dealers are one of the important links in the supply chain of Serum. All over India Serum has appointed 'Stockists' who purchase vacci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would reveal that the respondent-assessee company had not indulged in distribution of any freebies, gifts to medical professionals, which amounts to misconduct under the provisions of the provisions of Medical Council (Professional Conducts, Etiquettes and Ethics) Regulation Act, 2002. Therefore, the question of applicability of Explanation 1 to section 37 does not arise and the ratio of the Hon ble Supreme Court in the case of Apex Laboratories (P.) Ltd. (supra) have no application. Accordingly, we do not find any reason to interfere with the order of the ld. CIT(A). Thus, the ground of appeal no.9 filed by the Revenue stands dismissed. 43. Ground of appeal no.10 challenges the correctness of the decision of the ld. CIT(A) that the provisions for wealth tax paid of Rs.31,06,820/- is not required to be added back to book profit for the purpose of computing the tax under the provisions of section 115JB of the Act. The brief factual matrix of the issue is as under :- During the previous year relevant to the assessment year under consideration, the respondent-assessee paid a wealth tax of Rs.31,06,820/- which was included under the head of current tax and debited to Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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