TMI Blog2005 (6) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 for asst. yrs. 1998-99 and 1999-2000. 2.1 Before we proceed with the issues, preliminary objections were raised by the counsel for the Department, Sri E.R. Indrakumar, the relevant portion is extracted hereunder: "Memo filed by the respondent (Revenue) In relation to the aforesaid appeal, the appellant has filed the paper book with the following certificate. This is to certify that the above documents are the copies of the originals made available to the authorities below during the proceedings and only the relevant portion relating to the appeal before the Tribunal is enclosed. In this context, it is submitted that the following letters and papers, as detailed herein, have not been filed by the appellant at the time of assessment. Wipro Limited - Asst. yr. 1998-99 List of documents not filed at the time of assessment ------------------------------------------------------------- (Reply dt. 21st March, 2001) ------------------------------------------------------------- Sl. Page No. of Description No. paper book ------------------------------------------------------------- 1. 181 to 185 Letter No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri K.R. Pradeep, chartered accountant, appearing for the appellant, strongly resisted the objections filed by the Department. He argued that the documents mentioned in sl. Nos. 1 to 5 were filed before the AO along with its letter dt. 6th March, 2001, which is found in the paper book at pp. 160 and 161, consequently, the objection is contrary to facts on record. Further, it was pointed out that these documents were specifically mentioned in para 4.2 at p. 2 of the assessment order. All copies of licenses were supplied and numbered as Vol. 6 found mentioned in the assessment order and further details submitted have also been mentioned in para 5.2 at p. 3 of the assessment order. He also brought to our attention the order of the CIT(A), particularly the para 3 at pp. 2 and 3 of his order which is extracted hereunder: "3. Ground Nos. 1 to 3 are general grounds directed at the entire assessment order. Ground Nos. 4 to 8 relate to computation of profits under s. 10A. The assessee claimed profits of Rs. 1,02,32,78,192 as exempt under s. 10A. The AO recomputed the profits under s. 10A at Rs. 87,94,39,076 by holding certain receipts as not profits and gains derived from the individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground STPB/Wipro 7-2-1995 1995-96 1997-98 Road 1st Floor, Sys/95/2550 40/IA, Lavelle Road, Bangalore -6th Floor, STP/Wipro 4-7-1996 1997-98 1997-98 40/IA, /96/1275 Lavelle Road, Bangalore -3rd Floor, STPIB/Wipro 17-1-1998 -- -- 40/IA, /Gen/6017 Lavelle Road, Bangalore -5th Floor, STPIB/Wipro 21-10-1999 -- -- 40/IA, Systems/ Lavelle Expan/ Road, 99102101/ Bangalore 6939 M.G. 88, 3rd 15(45)92-SDA 30-04-1992 1994-95 1997-98 Road Floor, M.G. Road, Church, Street Side, Bangalore -88, 6th STPB/Wipro. 28-2-1994 1994-95 1997-98 Floor, Sys/94/1601 M.G.Road, Facing Church Street, Bangalore -88, IV STP/Wipro/96 4-7-1996 1997-98 1997-98 Floor, /1275 M.G. Road, Church Street Side, Bangalore -8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore -560 068 Elec- -Electronic STPIB/ 19-12-1998 1999-2000 1999-2000 tronic City, Block Wipro City I I VI, Plot Systems/ No. 72 73, Expan/ KEOICS 98071601 Electronic /2496 City, Bangalore -561 229 -Electronic STPIB/ 16-7-1998 1999-2000 1999-2000 City, Block Wipro/ 2, 3 4, Expan/ Plot No. 72 Gen/633 73, KEONICS Electronics City, Bangalore- 561 229 ITPL ITPL, 5th STPIB/Wipro 19-5-1998 1999-2000 1999-2000 6th Floors, Systems/ Information Expan/ Technology 98051901/ 876 M G -5th Floor, EHTP/PER 7-7-1993 1996-97 1997-98 Road M.G. Road, /62(93) Side 88, EOP11/93 M.G. Road, Bangalore- 560 001 -M.G.Road, EHTP/PER 7-7-1993 1996-97 1997-98 5th Floor, /62(93) Church EOP11/93 Street ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 180. We find that the documents found in page Nos. 181 to 265 are all licences issued by STPI along with certain annexures, etc. Many of these are found mentioned in Annex. 4. Further, we also find that the AO has examined several documents which can be broadly described as copies of licences and other documents issued by STPI, customs and other authorities. And most of these documents are dated prior to passing of assessment orders for asst. yrs. 1998-99 and 1999-2000. Hence, we rely on these licences, etc. as has been done by the AO and CIT(A) in framing the assessment orders. Only p. 266, as submitted by Mr. Pradeep, has been enclosed by mistake and it was produced in the assessment proceedings for the asst. yr. 2001-02 and prayed that the same be admitted as additional evidence. We find p. 266 is of no consequence for any claim made by the assessee or the Department. Hence, we rely on the paper book submitted by the appellant excepting p. 266 to decide the issues. Accordingly, we proceed with the appeal on merits. 3. Issue of allocation of corporate and group overheads: The assessee for asst. yr. 1998-99 has raised the following ground: "8. The learned CIT(A) erred in not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed as exempt in the tax return vide Annex. 111, referred supra. 5.5 The software exports narrated supra are in turn part and parcel of the turnover of 'Infotech group'. The assessee-company, M/s Wipro Ltd., comprises of five such groups and the final statements of accounts are consolidation of accounts of all these groups. Group-wise, division-wise and sub-division-wise P L a/c and expenditure details and income details were called for and examined. The softex forms filed with STPI authorities were also called for and were examined. The sales break-up was obtained country-wise as well as customer-wise. The details of other income as well as expenditure were obtained. On perusal of all such details, the exempted income under s. 10A is now assessed as under:" Similarly, facts are found by the CIT(A) while disposing of the appeal is narrated in pp. 2 and 3, para 3, in the appellate order for asst. yr. 1998-99 is extracted below: "3. Ground Nos. 1 to 3 are general grounds directed at the entire assessment order. Ground Nos. 4 to 8 relate to computation of profits under s. 10A. The assessee claimed profits of Rs. 1,02,32,78,192 as exempt under s. 10A. The AO recomputed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wipro Infotech Group Wipro Infotech Wipro (Infotech) Systems Software Services Services Group Peripherals Customer Services During the course of assessment proceedings, it was submitted that the assessee-company runs each business unit as an independent profit centre. Accordingly, separate accounts are maintained for each business unit. The separate accounts of the business units are later consolidated to arrive at the accounting statements of the company. 4.3 The three sub-divisions, i.e., ESD, TSD and ECD have disclosed total software expenditure claimed under s. 10A at Rs. 5,90,71,20,209. This turnover is inclusive of the miscellaneous income disclosed by ESD of Rs. 1,22,18,309, TSD of Rs. 1,26,90,564 and ECD of Rs. 3,60,884. Thus, the total miscellaneous income included in the software turnover aggregates to Rs. 2,52,69,757, On the analysis of the above, it is seen that on the turnover of Rs. 590.71 crores, a profit of Rs. 153.19 crores has been claimed as exempt in the computation of income. Thus, on the above turnover the expenditure of Rs. 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore -3rd Floor, STPIB/Wipro -- Yes -- 40/IA, /Gen/60 Lavelle 17, dt Road, 17-1-1998 Bangalore -177 5th STPIB/Wipro -- -- -- Floor, Systems/ 40/IA, Expan Lavelle /99102101 Road, /6939, dt. Bangalore 21-10-1999 2. MG. ROAD 1997-98 Yes 177 to 180 -88, 3rd 15(45)92-SDA, -- -- -- Floor, dt. 30-4-1992 M.G. Road, Church Street Side, Bangalore -88, 6th STPB/Wipro. -- -- -- Floor, M.G. Sys./94/1601, Road, Facing dt. 28-2-1994 Church Street, Bangalore -88, IV STP/Wipro -- -- -- Floor, /96/1275, M.G. Road, dt. 4-7-1996 Church Street Side, Bangalore - 88, 4th STPIB/Wipro -- -- -- Floor, M.G. Systems/ Road, (MG Expan Road Side), /9881201/ Bangalore 3009, dt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystems/ Nos. 72 73, Expan/ KEOICS 98071601/ Electronic 2496, City, dt. Bangalore 16-7-1998 -561 229 - Electronic STPIB/ City, Blocks Wipro/ 2, 3 4, Expan/Gen Plot Nos. 77 /6338, 73, KEONICS dt. Electronics 19-12-1998 City, Bangalore - 561 229 - ITPL, ITPL, STPIB/Wipro 5th 6th - Systems/ Floors, Expan/ Information 98051901/ Technology 876, dt. Park, White 19-5-1998 field Road, Bangalore- 560 066 7. M.G. ROAD, -- 1997-98 Yes 177 to 180 5th Floor, EHTP/PER/ M.G. Road 62(93) Side, 88, EOP11/93, M.G. Road, dt. Bangalore 7-7-1993 -560 001 - M.G.Road, EHTP/Pere/ 5th Floor, 62(93) Church Street EOP11/93, Side, 88, 7-7-1993 M.G. Road, Bangalore- 560 001 8. CASTLE STREET -- 1997-98 Yes 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by STPI authorities, some titled as expansion and others as new licences. However, each industrial undertaking bears a new licence as listed in col. No. 3 above. There have been many instances where the existing undertakings have undertaken organic expansion by adding certain equipments/manpower which have been shown as part of pre-existing unit and these have been treated as part of the existing unit by the AO. The assessee has maintained separate books of account for each of the undertaking which fact the AO has stated has been verified before quantifying the allowable relief under s. 10A. The claim in respect of each unit has been separately filed by the assessee, however, for the purpose of assessment total claim from all units under s. 10A has been dealt by the AO, perhaps for the sake of convenience. The turnover/gross revenue and P L for each of the undertaking for asst. yr. 1998-99 and asst. yr. 1999-2000 is compiled hereunder: --------------------------------------------------------------- Location Asst yr. 1998-99 Asst. yr. 1999-2000 of STP/EHTP Unit --------------------------------------------------------------- Turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,69,175) (8,27,10,805) 3. Expenses of corporate headquarters now allocated (10,85,11,984) (9,43,52,711) 4. Royalty on software exports (2,97,73,140) (4,07,85,926) 5. Provision for doubtful advances (11,05,607) (52,20,989) 6. Provision for Bad Debts -- (1,44,36,245) 7. SIL Premium no treated as part of software turnover (1,01,35,514) (1,30,00,404) Claim allowed by AO 87,94,39,076 1,37,70,96,890 ------------------------------------------------------------ The above factual matrix and the view of the AO on the CIT(A) as extracted will be helpful in dealing with each of confirmation of addition by authorities below. ------------------------------------------------------------ 1 2 3 ------------------------------------------------------------ Issues Disallowances Relief allowed by made by AO in CIT(A) on which the assessment Department is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------------- Liquidated 15,7,193 - damages recovered from suppliers Write back of retention moneys 1,36,162 - Sales-tax recoveries 4,80,892 - Exchange fluctuation gain 29,046 - Income not relating of s.10A units -- 4,04,467 Write back of credit balances in customers accounts 11,12,922 50,77,520 Reversal of sundry creditors/ stale cheques -- 49,37,397 Scrap sales of news papers, battery, etc. 62,797 9,42,643 Employees credit balances reversed 2,61,230 Others -- 7,53,366 Royalty income 47,35,446 Lease rental income -- 29,71,181 Provision for debtors/ advances no longer required -- 59,95,291 Expenses of Infotech Division now allocated -- -- Expenses of corporate head- quarters now allocated -- -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits exempt under s. 10A, the realization from sale of such scrap should be regarded as a recovery of the expenditure incurred. The argument of the Authorised Representative is not tenable. The amount received from sale of newspapers, etc. cannot be construed as profits derived from industrial undertaking eligible under s. 10A, since it is only a receipt of miscellaneous income. AO has rightly considered it as income not derived from 10A units." The findings on this issue in the order of CIT(A) for asst. yr. 1999-2000 as appearing in p. 4 at para 6.1 are extracted hereunder: "6.1 Issue of scrap sales is covered by the findings given in para 4.1 of the appellate order for asst. yr. 1998-99, dt. 21st March, 2003, passed by me. As the facts are identical the findings given in that order hold good. Action of the AO in excluding the scrap sales of Rs. 9,43,643 from the income of 10A units is confirmed." 4.4 Being aggrieved by the order of the CIT(A) on this issue, the assessee is in appeal before us for both the years. Sri. K.R. Pradeep reiterated his arguments made before the CIT(A) for asst. yr. 1998-99 and also submitted that a similar issue has been considered and decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the eligible business of a unit as prescribed under s. 10A will go up by an amount of Rs. 21,142. The ground is, therefore, accordingly allowed." Therefore, following the said decision, we reverse the orders of the authorities below on this issue and direct the AO to follow our decision in relation to sale of scrap in the income of s. 10A units as held in appeal for asst. yr. 1997-98. The appellant succeeds on this issue. 5.1 The next issue on which the assessee is in appeal before us is on the following issues and as all the issues are common and arising on account of exclusion made from profits of the s. 10A units, while computing the deduction under s. 10A by the AO, we are disposing them of together, though separate grounds have been taken by the assessee: Asst. yr. 1998-99 -------------------------------------------------- Sl.No. Issues Amount (Rs.) -------------------------------------------------- 1. Liquidated damages 1,57,193 2. Write back of retention money 1,36,162 3. Sales-tax recoveries 4,80,892 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the computation of eligible profits of undertakings claiming deduction under ss. 80HH, 80-I, etc., the Tribunal has considered similar exclusions made in the earlier years from the eligible profits of industrial undertakings claiming deduction under ss. 80HH and 80-I and has held as under in para 34.4, the relevant portion is extracted hereunder: "We have, therefore, no hesitation in holding that the miscellaneous income which is in the nature of trading receipt, like discount received from suppliers for early payment and the amount written back in respect of sundry credit balances would form part of the profit derived from the industrial undertaking eligible for deduction under ss. 80HH and 80-I of the Act. The AO is directed to include the sum of Rs. 11,41,949 being the miscellaneous income while computing the profit derived from industrial undertaking for the purpose of deduction under ss. 80HH and 80-I of the Act." In view of the above findings of the Tribunal, though the findings are in relation to similar issue under ss. 80HH and 80-I, the findings are applicable to the issue on hand as the provisions of s. 10A and ss. 80HH and 80-I are pari materia. He submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter it is found to have been used in the legislative enactments, it must be presumed that the legislature must have used that word or expression with the same meaning as judicially determined unless the context apparently requires any other meaning. As we have earlier seen, the assessee has an industrial undertaking mainly for the purpose of exporting sea-food. In that business assessee has earned import entitlements under scheme approved by the Government of India. The scheme was not as such connected with the export of sea-food. It was generally for encouraging exports. The assessee has sold those import licences and realized some profits. The question is whether that profit could be said to have been derived from the industrial undertaking of the assessee? Sec. 80HH was meant to give a tax rebate to certain categories of assessees and one who wants to claim such relief must strictly satisfy the requirements prescribed thereunder. He must establish that his profits and gains were derived from his industrial undertaking or the business of a hotel. It is just not sufficient if a commercial connection is established between the profits earned and the industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not direct but only incidental. The industrial undertaking exports processed sea-food. By reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking.' (2.3) The appellant has assailed the assessment order passed by the assessing authority as well as the appellate order passed thereto relating to the foregoing receipts and income. (2.4) Adverting to the plea so urged by the appellant, it is submitted that while concluding the assessment, the assessing authority has comprehensively dealt with the issue as to whether such amounts can be considered to be falling within the ambit of s. 10A of the IT Act. In relation to liquidated damages recovered from suppliers, write back of retention money and sales-tax recoveries, apart from the finding of the assessing authority, the appellate CIT has also pointed out that the appellant has failed to provide specific information and particulars. The assessing authority as well as the appellate CIT have assigned cogent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in confirming the addition and in giving a direction that the aggregate of miscellaneous, income disputed by the AO in determining the profits eligible for exemption under s. 10A is Rs. 2,56,74,224 and not Rs. 2,52,69,757. The learned CIT(A) ought to have noted that the AO was duly apprised of the fact that the difference of Rs. 4,04,467 did not relate to the units eligible for exemption of profits under s. 10A and the appellant had not claimed an exemption in respect of the said Rs. 4,04,467." 6.1 The appellant has made a claim for only Rs. 2,52.69,757 whereas the AO while addressing the claim has considered Rs. 2,56,74,224, thereby the disallowance to the extent of Rs. 4,04,467 has been made in excess. The mistake appears to be genuine. When the appellant has not even claimed relief under s. 10A to the extent of Rs. 4,04,467 the same could not be added by the AO. For these reasons we direct the AO to grant relief of Rs. 4,04,467 arising on account of casting error. Appellant succeeds on this issue. 7. The appellant has raised the following ground as No. 10 in the appeal for the asst. yr. 1999-2000 which is extracted hereunder: "The learned CIT(A) erred in confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nimation; (iv) Data processing; (v) Engineering and design; (vi) Geographic information system services; (vii) Human resources services; (viii) Insurance claim processing; (ix) Legal databases; (x) Medical transcription; (xi) Payroll; (xii) Remote maintenance; (xiii) Revenue accounting; (xiv) Support centres, and; (xv) Website services." includes income earned in the form of royalty which is exploitation of software developed by the assessee. He, therefore, prayed for reversal of the orders of the authorities below on this issue and for issuing directions to the AO to include the royalty income in the profits of business of computer software coming under s. 10A. 8.3 We have gone through the records and the submissions made by both sides. On perusal of the Expln. 2 to s. 10A which defines computer software, particularly sub s. (b) makes a reference to any product or service of similar nature to that of what is contended in sub s. (a). Further, Notification No. 890(E), dt. 26th Sept., 2000, issued also lists 15 different nature of products and services. From this, it is clear that rendering of any technical service, development of product, enabling the use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss thereof The assessee-company claimed total loss from discontinuance of Apple products business at Rs. 4,23,71,186 under the category of extraordinary items during the year. The assessee-company was distributor of computers and related products of M/s Apple Products, USA. In February, 1998, the assessee-company discontinued the distributorship. The loss on account of Apple Products business arose consequently. This claim is now examined." Aggrieved by the disallowance of Rs. 3,74,39,089, the appellant filed an appeal before CIT(A) who confirmed the disallowance by the AO after discussing the issue in para 13 extracted hereunder: "Ground No. 13 relates to deduction on account of loss arising out of discontinuance of a business segment during the year. The assessee claimed total loss from discontinuance of the business of Apple Products at Rs. 4,23,71,186. The assessee was a distributor of computers and related products of M/s Apple Products, USA. In the month of February, 1998, the assessee discontinued the distributorship. AO has observed that the stock worth Rs. 2,04,95,641 has been revalued at Rs. 25,00,000 which is lesser than 1/9th of the original cost. The stock has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 ----------- ----------- ------------ Operating loss (2,55,84,099) (1,65,60,602)(4,21,44,701) --------------------------------------------------------- First of all, the business of dealing in Apple Products was part of larger hardware and hardware component business carried on by the assessee. The dealing of the Apple Products, USA, was not an independent business. Secondly, the analysis of the loss claimed by the assessee as per the break-up given above indicates that the appellant has incurred an operational loss of Rs. 2,55,84,099 from Apple Products and Rs. 1,65,60,602 from the product support segment. The operational loss was incurred by the appellant during the previous year in the course of carrying on of regular business and such a incurring of loss was part of business and cannot be disallowed. It is nobody's case that expenditure incurred by assessee was not genuine. Once it is established that the expenditure is towards business of assessee, then the same should be allowed subject to the provisions of the Act. In this case, neither the AO nor CIT(A) has given any cogent reasons as to why loss should be disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that stock worth Rs. 2,04,95,641 is to be valued at Rs. 25,00,000 which is less than 1/9th of the original cost/worth. The assessing authority on noticing the position that stock valuation principles stipulate that stock has to be valued either at cost or market value and going by the assessee's contention, though the cost is at Rs. 2,04,95,651, the market value is claimed to be Rs. 25,00,000. In that behalf, the appellant was asked to furnish complete details like the break-up of stock, description of items, the dates of purchase, the cost of each item, invoice number, dates of import and copies of bills of entry. The appellant was also asked by the assessing authority to give the basis on which each of such items was valued so as to arrive at a closing stock of only Rs. 25,00,000. In that context, the assessing authority recorded the findings as under: '67. The assessee stated that the entire stock was valued a lump sum basis at Rs. 25 lakhs. Individual break-up and other details were not available/furnished. The assessee, as said earlier, was only a distributor for the computers and other products manufactured by the American company. The actual break-up of the stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for transfer of debtors as well. The assessee was also asked to furnish the copy of distribution agreement which was originally entered into and also an agreement executed at the time of exit from the dealership to examine whether these aspects were covered/discussed. These details could not be filed. 69. The assessee was also asked to furnish the details of debtors written of with complete names and addresses and account copies so as to check whether the write off was actually made in the accounts of the individual debtors or was only a provision on an estimate basis. The details of debtors were also not furnished. However, the assessee in course of discussion, stated that this item is in the nature of provision for debtors. Apart from the unanswered queries referred above, this aspect also has a bearing on the claim. In fact, like any other provision, this does not, therefore, represent the actual write off. Under the circumstances, the claim of loss on account of 'write off' of debtors for Apple products to the tune of Rs. 1,94,43,448 is also allowable.' The appellate CIT has confirmed the disallowance by observing that the assessing authority has comprehensively dealt wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business and such occurrence is not rare. We have not been able to find any reason for the AO disallowing this loss except that he wanted certain details. Such a reason by the AO appears to be flimsy as the purchases from Apple Products has been allowed as an expenditure having found that they seem to be genuine. In the same breath to say that for the valuation of inventory loss details not furnished by the assessee appears to be incorrect. Hence, the loss claimed by the assessee is allowable. 11. issue of claim of bad debts: 11.1 Adverting to the issue of claim of bad debts, the same is allowable in compliance of conditions prescribed in s. 36(1)(vii) of the IT Act. The assessee has also written off the same in books of account. What is claimed by the assessee is bad debts and not provision of debtors. Hence, the assessee is entitled to succeed on this issue also. Consequently, the entire loss claimed of Rs. 4,21,44,701 and the bad debts of Rs. 1,94,43,448 should be allowed. Accordingly, we direct the AO to allow the same. 12. The next issue raised by the appellant relates to correcting mistake apparent from record which ground is extracted hereunder: "Issue of correctin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, it is dismissed. The AO is directed to allow Rs. 12,50,000. 14. The next issue in dispute pertains to invoking s. 40(a)(i) by the AO to disallow payment of royalty for the asst. yr. 1998-99. This ground of the appellant is extracted hereunder: "Issue of invoking s. 40(a)(i) 12. The authorities below erred in incorrectly applying s. 40(a)(i) and disallowing royalty of Rs. 25,37,876 even though tax was deducted at source and remitted in accordance with Chapter XVII-B read with the IT Rules." 14.1 On the issue of allowing of royalty paid to Toshiba Lighting, Japan, Sri K.R. Pradeep submitted that since the claim has been allowed in the subsequent year, he would not press the issue, though legally he is entitled to seek allowance of payment made and accordingly, sought for withdrawal of the issue. In view of this, the ground is dismissed as withdrawn. 15. The next issue raised by the appellant for asst. yr. 1999-2000 is ground No. 15 which is extracted hereunder: "15. The learned CIT(A) failed to appreciate that even after the introduction of s. 145A w.e.f. 1st April, 1999, inclusion of Modvat credit in the cost of purchases, consumption and stock valuation do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reduction in the raw material cost of the company, ought to have allowed the claim of the appellant. 21. Without prejudice, the authorities below having held that contribution credit in the nature of supplier's discount of Rs. 85,00,000 is not to be considered for arriving at the profit derived from the eligible industrial undertaking should have also excluded the same for the determination of the total income of the appellant." 17.1 In the assessment, the AO has not considered the sum of Rs. 85,00,000 received by the appellant from Wipro Acer towards contribution credit which is in the nature of suppliers discount in arriving at the profit from eligible industrial undertaking under s. 80-IA for the reasons that no firm basis was furnished by the appellant for receipt of such huge amount from Wipro Acer. The CIT(A) in appeal has confirmed the action of the AO in not considering the contribution credit of Rs. 85 lakhs, in the eligible profits of the industrial undertakings, his findings as found at page Nos. 15 and 16 in para 23 are extracted hereunder: "Ground Nos. 49 to 52 are directed against enhancing the raw material cost in computing the deduction under s. 80-IA in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l undertaking and for allowing deduction under s. 80-IA as claimed. 17.3 Sri Indrakumar has submitted written submissions on the issue reiterating the stand of the authorities below and no fresh arguments have been advanced other than the findings of the authorities below. 17.4 We have considered the arguments of both sides and perused the records. We find that the assessee has received a sum of Rs. 85 lakhs as contribution credit from Wipro Acer Ltd. which is in the nature of supplier's discount and goes to reduce the total cost of raw materials of the industrial undertaking. Further, we find that a similar issue of supplier's discount for earlier year has been considered by the Tribunal in its order mentioned supra and, therefore, we follow the said decision in deciding the issue in favour of the appellant. Accordingly, we reverse the orders of the authorities below on this issue and direct the AO to consider the above sum of Rs. 85 lakhs as profits and gains derived from the industrial undertaking eligible for deduction under s. 80-IA. The appellant succeeds on this issue. 18. Issue of interest under s. 244A: The assessee has raised the following ground No. 16 for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which relief was granted by appellate authorities which resulted in refund have not attained finality inasmuch as the Department is in appeal before High Court. In the event the higher authorities were to reverse the decision, the Department is bound to withdraw the interest granted under s. 244A. Thus, his argument, based on the decision of the Supreme Court in Indian Molasses Co. Ltd. vs. CIT (1959) 37 ITR 66 (SC), is that until an irrevocable right to receive and retain the interest, no income can be said to have arisen to the appellant. Moreover, from the order, it is not clear when the interest was due and which assessment year the interest is liable to tax. No details have been mentioned by the AO and the assessee is handicapped in this regard. Consequently, he sought for deletion of the addition. He further submitted that inclusion of interest is premature inasmuch if it is taxed in this assessment year and subsequent withdrawal, if any, the same would not be allowed as a deduction in the absence of any specific provision in the IT Act. 18.3 Sri Indrakumar, appearing for the Department, has filed his written submissions on the issue which are extracted hereunder as found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese aspects are brought on record and considered appropriately, finding on merits is not possible. Hence, we remit the matter back to the AO for fresh consideration and to pass order in the light of the observations and directions given above. Accordingly, the issue is remitted to the AO and the assessee succeeds on this issue. We may add that when the issue has not become final the same shall not be brought to tax, as the receipt of interest is subject to outcome of pending legal process and cannot be brought to tax. 19. Issue of deduction under s. 80HHE 19.1 The appellant had made a claim for a deduction under s. 80HHE of Rs. 3,89,15,811 on the profits it earned from export of software from the business segment not covered by the exemption under s. 10A of the IT Act. The AO rejected the claim of the assessee and the same was confirmed by the CIT(A). The discussion on the issue as found in p. 46 of the assessment order is extracted hereunder: "20.2 Claim of deduction under s. 80HHE of the IT Act: In a written submission filed on 15th March, 2002, the assessee submitted Form No. 10CCAF certified by the accountant and made a claim of Rs. 3,89,15,811 under s. 80HHE of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (ii) Providing technical services outside India in connection with the development and production of computer software. (iii) Total export turnover 12,36,29,409 5. Total turnover of the business of the assessee 13,80,16,246 6. Total profits of the business of the assessee 4,34,44,470 7. Profits derived from business referred to in sub-s. (1) of s. 80HHE computed under the sub-s. (3) of the said section (3-4*5) 3,89,15,811 8. Export turnover, deduction in respect of which will be claimed by a supporting software developer in accordance with proviso to sub-s.(1) of s. 80 HHE. Nil 9. Profit from the export turnover mentioned in item 7 above calculated in accordance with proviso to sub-s. (1) of s. 80HHE Nil 10. Deduction under s. 80HHE to which the assessee is entitled (item 6-item 8) 3,89,15,811 11. Remarks a) The Expressions: "Export turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the business for these purposes as defined Expln. (d) reproduced above, is profits of business as computed under the head profit and gains of the business as reduced by 90 per cent of receipt by way of brokerage, commission, interest, charges or any other receipt of similar nature. In the above computation furnished by the assessee-company, the profit of business has not been computed in accordance with the provisions of this section. The assessee in the computation should have stated that the 'profit of business as computed in the head 'profit and gains of business or profession' amounting to Rs. 15,03,26,070 (as computed in the computation of income filed along with the return) and then proceeded to exclude 90 per cent of the items such as brokerage, commission, interest, rent, other charges and similar receipts.' 21. The assessee-company for the purpose of computation of deduction under s. 80HHE of the IT Act has disclosed the total turnover of the business at Rs. 13,80,16,246. On verification of the claim made by the assessee-company, it is seen that the total turnover of the business disclosed is the total turnover of the unit for which deduction under s. 80HHE is bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed deduction under s. 80HHE of the IT Act, it would amount to Rs. 23,87,909 and not Rs. 3,89,15,811 as claimed by the assessee. 21.4 As stated above, since no deduction under s. 80HHE is being allowed in view of the failure to make the claim along with the return of income, the above computation is only academic." 19.2 The assessee aggrieved by the order of the AO filed an appeal before the CIT(A) which was disposed by the CIT in the order dt. 21st March, 2003, in ITA No. 29/CC-1(3)/CIT(A)-V/2002-03. The relevant portion of his order is extracted hereunder: "Grounds Nos. 41 to 42 are preferred against denial of deduction under s. 80HHE on technical grounds. Assessee had not claimed deduction under s. 80HHE in its return of income. It was only in the course of assessment proceedings that the assessee made a claim under s. 80HHE of Rs. 3,89,15,811 and filed a report in Form No. 10CCAF on 15th March, 2002. The assessee contended before the AO that in respect of software exports not covered by s. 10A, it is entitled to deduction under s. 80HHE and that since the deduction under Chapter VI-A excluding the deduction under s. 80HHE, exceeded the gross total income, a claim was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the denominator in the formula for computing the deduction. (c) The determination of profits of business and adjustment of the same to the extent of 90 per cent as provided in the proviso (c) of Explanation to s. 80HHE. 19.3.1. Dealing of these three issues would address the issue before us. Accordingly, Sri K.R. Pradeep argued on the first issue that factually, the assessee had exported the software of Rs. 12,36,29,409 and also had realized and remitted into the country, required convertible foreign exchange. It had claimed a deduction of Rs. 3,89,15,811 computed in the manner provided under the Act. The eligibility for deduction under s. 80HHE cannot be in doubt as the appellant had met all the required conditions prescribed under s. 80HHE. No claim was made in the return only because the assessee had filed a "NIL" return of income. The gross total income as per the return filed on 31st Dec, 1999, was Rs. 2,79,32,991 and that the eligible deduction under Chapter VI-A under ss. 80-IA, 80HHC, etc. itself was far in excess of the gross total income leading to filing of Nil return. For this reason, the assessee could not make a claim for deduction under s. 80HHE in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order or the appellate order is passed, that should be treated as sufficient compliance with the law. Reliance in this connection is placed on the following decisions: (i) CIT vs. Shivanand Electronics (1994) 119 CTR (Bom) 94 : (1994) 209 ITR 63 (Bom); (ii) CIT vs. Gujarat Oil Allied Industries (1993) 109 CTR (Guj) 272 : (1993) 201 ITR 325 (Guj); (iii) CIT vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal); (iv) CIT vs. Ganga Engineering Works (1986) 52 CTR (MP) 277 : (1987) 165 ITR 795 (MP); 5. Respectfully following the ratio of these decisions, we hold that the CIT(A) is justified in law in directing the AO to allow the claim of the assessee, after taking into account the certificate No. 10CCAB filed subsequent to the filing of the return during the course of assessment proceedings." Though the above decision was rendered under s. 80HHC the requisites of filing audit report under the said section and that of s. 80HHE is similar and parametric. Hence, the decision of the Tribunal would equally apply to the present case also. Insofar as the issue of not claiming deduction under s. 80HHE is concerned, Sri K.R. Pradeep argued that the claim in return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and liabilities and as to the procedure to be adopted for claiming refunds and reliefs " Sri K.R. Pradeep further relied on the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC): "The main contention of the learned Solicitor-General is that the assessee failed to debit the liability in its books of account and, therefore, it was debarred from claiming the same as deduction either under s. 10(1) or under s. 10(2)(xv) of the Act. We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the ITO, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." Further, he relied on the decision of the Delhi High Court in Continental Construction Ltd. vs. Unio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o frustrate it." Based on the above rulings, he contended that since the assessee had filed an audit report during the course of assessment, the claim of the assessee must be reckoned and should not be rejected for alleged technical compliance. Sri K.R. Pradeep also mentioned about the prosecution by the Department in the appellant's case for the asst. yr. 1995-96 wherein it had made a claim in excess of the gross total income while at the same time disclosing that the allowability was limited to the gross total income. The said treatment by the appellant was met with prosecution proceedings and other penal consequences as found mentioned in ITA No. 699/B/2000. Thus, he submitted that when the claim was made in the earlier year, the assessee was found fault with and at the same time when the claim has not been made again, the Department has taken a negative view thus indicating a total lack of consistency or judiciousness in dealing with the eligible claim of the assessee. Based on these decisions and other arguments, Sri. Pradeep sought a direction that making a claim during the course of assessment and filing the audit report before completion of assessment should be declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains from software business 28,610,698 (excluding profits eligible under s. 10A of the IT Act) Add: Depreciation as per books 7,15,170 ------------ 2,93,65,868 Add: (a) Travelling expenses 3,465 Disallowed under r. 6D (b) Entertainment expenses 239 (Considered separately) (c) Gratuity provision 1,93,44 22,048 -------- ------------ 2,93,77,916 Less: Depreciation (s. 32) 7,63,861 Telephone/Telex deposit 8,202 under Tatkal Entertainment expenditure s. 37(2) 239 7,72,303 --------- ------------ 2,86,05,614 ------------ (B) 90 per cent of amounts specified in Expln. (d) to s. 80HHE Agency commission - Interest - Sale of advance licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and that is the reason why the deduction claimed by the assessee is highly distorted. According to him, this is not the intention of deduction under s. 80HHE of the Act. The learned counsel for the assessee relied upon the principle laid down by the Bombay High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. Ors. (2000) 163 CTR (Bom) 596 : (2000) 245 ITR 769 (Bom). He drew our attention to the provisions of s. 80HHC and also s. 80HHE of the Act to impress upon us that the provisions of s. 80HHC are concerned with deduction in respect of profits arising out of export business of goods and. merchandise whereas the deduction under s. 80HHE is in respect of profits from export of software. Under the very scheme of these provisions, what is to be included as total income should be those kinds of receipts which are specified under s. 80HHE, viz., computer software or its transmission and providing technical services in connection with development or production of computer software. The eligible profits of the business for the purpose of s. 80HHE have also not been computed by the authorities below properly, the learned counsel for the assessee pointed out. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which may be found in (1991) 96 CTR (St) 156 : (1991) 190 ITR (St) 246, which is reproduced below: 'The proposed section seeks to provide that where an assessee, being an Indian company or a person (other than a company), resident in India, is engaged in the business of export out of India of computer software or its transmission from India to a place outside India by any means or in providing technical services outside India in connection with the development of production of computer software, he shall be allowed a deduction in the computation of his total income of the profits derived by him in respect of such computer software is received in, or brought into, India in convertible foreign exchange within a period of six months from the end of the previous year or such extended period as the CIT may allow in this behalf. Profits derived from the aforesaid business shall be the amount which bears to the total turnover of the business carried on by the assessee.' Therefore, the total turnover under s. 80HHE can only mean the turnover of the software business alone and the same should not be treated as to include the turnover of the company totally unconnected with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f was granted by the AO adopting the same method. The dispute related to what should be held as the total turnover of the assessee. The AO took the total turnover to be the turnover from all the sources of business as the assessee was also doing the business of selling motorcycles, spare parts thereof and television sets. The contention of the assessee was that the total turnover must be confined to the turnover of the product which the assessee was exporting. However, even the CIT(A) confirmed the view taken by the AO and took the view that the turnover of the whole business including the business of sale of motorcycles, motorcycle spare parts and television sets. The Tribunal, however, accepted the claim of the assessee and proceeded to hold that it was only the total turnover of the forging business which was liable to be taken into consideration for arriving at a profit which was liable to be held as a proper deduction under s. 80HHC. Relying on the language of sub-s. (3) of s. 80HHC, the Tribunal interpreted the words therein to mean that in a formula to be used under that section which was Export turnover/Total turnover x Business profits = Available deduction under s. 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head 'Profits and gains of business or profession'; (b) in a case where the business carried on by the assessee does not consist exclusively of the export out of India of the goods or merchandise to which this section applies, the amount which bears to the profits of the business (as computed under the head 'Profits and gains of business or profession'), the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.' The controversy is about the last words of cl. (b) of sub-s. (3) of s. 80HHC, viz., total turnover of the business carried on by the assessee. There can be no doubt that the present case would be governed by cl. (b) of sub-s. (3) of s. 80HHC as admittedly, the business of the assessee is not exclusively of the export out of India of the forgings. The forgings manufactured by the assessee were sold in India also and' the assessee earned income from the local sales also. It is also an admitted position that the assessee sold motorcycles, motorcycle spare p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of the language of that sub-section but that sub-section will have to be read along with the other sub-sections like sub-ss. (1) and (2). In the first place, considering the language of the sub-section itself, it cannot be forgotten that the sub-section itself mentions the goods or merchandise to which this section applies. It would obviously mean that the sub-section itself refers to the whole s. 80HHC. It will be then beneficial to see as to what is the scheme of s. 80HHC of the Act insofar as the assessee like the present one is concerned. It cannot be forgotten that the assessee's business is not exclusively of export in the sense that it has income out of the local sales of forgings also and as such, it would be governed by cl. (b) of sub-s. (3). However, that is not the be all and end all of the matter as the whole section pertains to defined goods Sub-s. (1) very clearly provides a rider for the application of s. 80HHC in the opening words itself which are as follows: '80HHC. Deduction in respect of profits retained for export business- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se goods which may not be exported or which may not fetch foreign exchange. However, the whole sub-section speaks only about the goods, which are exportable, exported and fetch foreign exchange. It is, therefore, clear that the thrust of the opening clause of cl. (b) of sub-s. (3) has a stress on the words 'does not consist exclusively of the export'. The sub-section takes into consideration the situation of income out of the export of the goods vis-a-vis income out of those goods other than by way of exports. The words 'total turnover of the business' would then be controlled by and have to be read in the colour of the opening clause. The formula envisaged by the section would be 'export turnover, F total turnover, D profits and gains of business'. The business contemplated in the section would be restricted to only the goods to which the section applies and, therefore, by necessary implication, even the total turnover of the business would be the total turnover of the business of the goods to which the section applies. If we include the turnover of the goods to which the section does not apply, it would amount to doing violence to the language of the sub-section itself. The sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h should be the relevant figure.' In that case, the total turnover which is the denominator in the prescribed formula was tried to be inflated by including the sales-tax and the excise duty into the same. Though the Court was considering the amended section, its observations are apposite. The Bombay High Court in that case took into account the object of the section and observed as under: 'In the circumstances, we are of the view that in order to ascertain the export profits, the above two items cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which an assessee is entitled to. Ultimately, the object of s. 80HHC is required to be kept in mind in order to encourage exports.' We are in total agreement with the above observations. The Tribunal has chosen to go to the amended section in order to interpret the unamended section applicable to the case at hand. That is clearly impermissible though the Tribunal has reached a correct conclusion and has accordingly interpreted the term total turnover. It was not necessary to go to the amended provision to see the intention of the legislature unless the amendment was of clarificatory or expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business Total turnover i.e., 12,36,29,409 --------------- x 24,27,05,646 12,56,56,18,975 The resultant figure is Rs. 23,87,909. Thus, if the assessee were to be allowed deduction under s. 80HHE of the IT Act, it would be Rs. 23,87,909 and not Rs. 3,89,15,811 as claimed by the assessee." Sri K.R. Pradeep pointed out that the AO had erroneously adopted the profit of the company as profits eligible under s. 80HHE whereas in the case of the assessee that the profit from the activity of eligible business under s. 80HHE alone should be computed as made by the assessee in Form 10CCAF. The case law pertaining to the turnover aspect discussed above would equally apply to the issue of eligible profits also. Thus, he sought for a direction to the AO for allowing the claim made by the appellant. 19.4. Sri Indrakumar relied on the order of authorities below in support of his argument. He further filed written submissions, the relevant portion is extracted hereunder: "10. Issue of admitting the claim for deduction under s. 80HHE (vide item No. 10 of the summary chart of the grounds). It is urged by the appellant that the appellate CIT erred in confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. (3) is clearly not to identify the export profits. The object of cl. (a) of sub-s. (3) is to find out whether the business carried on by the assessee consisted exclusively of export of goods outside India. Carrying on an exclusive business out of India without domestic turnover will disclose only the profits in such exclusive export business. That does not mean that the purpose of cl. (a) is to find out whether the profits in export are easily identifiable even in a case where the business carried on does not consist exclusively of experts outside India of the goods or merchandise. If in addition to the export, there are dealings in India then cl. (b) will automatically takeover. With a view not to deny the benefit of exemption to persons having domestic turnover and with a view to avoid litigation, the legislature has provided a formula to arrive at the profits in such situations. So, the test for the purpose of sub-s. (3) of s. 80HHC is whether the assessee is carrying on business of exclusive export or exports and domestic business also. If it is the former, cl. (a) would apply and if it is the latter, cl. (b) would apply. If cl. (a) applies, the entire profits computed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section wholly and completely applies to s. 80HHC(1). What is mentioned in sub-s. (1) is 'where an assessee is engaged in the business of export out of India of any goods or merchandise to which the said section applies, there shall, in accordance with and subject to the provisions of the said section, be allowed, a deduction of the profits derived by the assessee from the export of such goods or merchandise.' This section disables the permutation of the profits irrespective of the fact whether the assessee maintains exclusively an account with respect to export business while he carries on business which is a mixture of export as also domestic trade. There is no category of persons who have separate export business even when trading in domestic business. If we are to understand the argument of Mr. Jayasanker and hold that cases where the profits derived by the assessee from the export carried on by him can be separately grouped and in such case one need not have recourse to either cl. (a) or (b) of sub-s. (3), then it would amount to redrawing the Act by adding certain words to sub-s. (3). Then sub-s. (1) will have to be rewritten as under: 'where an assessee is engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present appeal on issue of turnover was not present or not considered in the decisions relied on by the Revenue. Consequently, he submitted that the two decisions are not relevant for the purpose of deciding the issue on hand. 19.6 We have considered the arguments and perused the records available before us. Firstly, on the issue of making a claim during the course of assessment by the appellant, we find that failure to make claim in return would not defeat the otherwise allowable claim under the Act. When the assessee has complied with basic conditions such as export and realization of foreign exchange, etc. from an eligible activity, the claim must be examined from a substantive compliance angle. It has been held by the Supreme Court in (1971) 82 ITR 363 (SC) and score of other cases that the total income and taxable income should be arrived at by the provisions of the Act and not based on the books of account or the return of income filed by the assessee. In this case there is no denial of the fact that assessee was eligible for deduction under s. 80HHE in respect of export of software. The reason for not making the claim in the return of income that the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the second and third issues of eligible turnover and eligible profits, we find that the issue stands covered by decision of this Tribunal in Wipro GE Medical Systems Ltd. ITA Nos. 322 to 328/B/2000. Such a view has also been upheld by the Madras High Court in (2002) 257 ITR 69 (Mad) at pp. 69 to 70 extracted supra and supports the view that the total turnover of eligible business must be considered, and not the turnover of other business of the company. Here, we may notice that the Form 10CCAF filed by the assessee, wherein the total assessee has been taken at Rs. 13,80,16,246 and the export turnover at Rs. 12,36,29,409, thus, the domestic business of the assessee is Rs. 1,43,95,837. The assessee has reckoned the turnover of the entire business, that is, domestic and exports. Similarly, the total profit of the business is Rs. 4,34,44,470, whereas the profits derived in manner computed under sub-s. (3) of s. 80HHE is shown at Rs. 3,89,15,811. From these calculations what can be seen is that the assessee had already computed the profit in the manner of s. 80HHE(3) which in effect means it has computed the profits in the manner mentioned in the decision of the Kerala High Court re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d additional ground for asst. yr. 1998-99 claiming tax credit of Rs. 3,07,93.530. The ground filed by the assessee is extracted hereunder: "The assessee claimed tax credit of Rs. 3,07,93,530 paid in the United States of America on the income which is included in the P L a/c of the assessee. The tax credit has not been given by the AO. The issue is dealt by the Supreme Court in the case of Union of India Anr. vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) which decision was given on 7th Oct., 2003. Since this is a legal issue, the assessee is entitled to raise the issue though not raised before the CIT(A), as held by the Supreme Court in National Thermal Power Corporation Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC). Additional ground of appeal 1. Having regard to the facts and circumstances of the case and the law, the AO erred in not giving credit to the taxes paid by the assessee amounting to Rs. 3,07,93,530 as claimed in the return of income." A similar additional ground has also been filed for asst. yr. 1999-2000 claiming tax credit of Rs. 5,66,12,402. 20.1 Sri K.R. Pradeep appearing, for appellant, sought admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before us are extracted hereunder: "11.1 As regards the claim for preferring additional grounds of appeal, it is submitted, at the outset, that there are no valid and justifiable grounds whatsoever to allow the additional grounds of appeal. As mentioned earlier, it is now pointed by the appellant that the assessee claimed tax credit paid in the United States of America on the income which is not included in the P L a/c of the assessee and the tax credit has been given by the AO. 11.2 Adverting to the foregoing claim so made that the assessee claimed tax credit and that such credit has not been given by the AO, it is relevant to mention at this stage that no such claim was put forth requiring the assessing authority to give credit. A perusal of the return of income for the asst. yr. 1998-99 would show that at p. 4, the assessee has stated thus under the heading 'foreign tax paid'. Foreign Tax Paid (Set off eligible in case of double taxation of income) So also in relation to the asst. yr. 1999-2000, the same kind of narration is forthcoming. Thus, it is untenable on the part of the appellant to contend that the assessing authority failed to give credit for the tax am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground cannot be detrimental to either party. It has been repeatedly clarified by the apex Court that when technical considerations are pitted against dispensing substantive justice, the right course is to prefer substantive justice to technical consideration Accordingly, we are inclined to admit the additional grounds raised by the assessee for both the assessment years. 20.4 On merits, learned Authorised Representative submitted that the appellant had claimed tax credit of Rs. 3,07,93,530 for the asst. yr. 1998-99 and Rs. 5,66,12,402 for asst. yr. 1999-2000. The said claim had been shown in the statements of the income accompanying the returns filed. He submitted that the appellant is a multi-product and multi-location Indian multinational company. It has a business presence in the United States of America as well as in many other countries. The appellant-company is a resident Indian company and under s. 5 of the IT Act, it is liable for income-tax in India on the income earned/received anywhere in the world. Thus, the world income of the appellant is liable for tax in India on the basis of its Indian residential status. At the same time, the income earned outside India is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an exemption from income-tax in respect of any particular source of income, it is not correct to say that the taxable entity is not liable to taxation. Liability to taxation is not the same as payment of tax. Liability to tax is a legal situation : payment of tax is a fiscal fact. He also relied on the provision of the DTAA between India and United States of America, in particular art. 7.1 which is extracted hereunder: "Article 7-Business profits 7.1 The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of an enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment." Similarly, on the taxes paid by appellant-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes paid in the foreign country is not tenable. As can be noticed on a perusal of the additional grounds, it is submitted that the claim is based upon the position that the tax amount is paid in the foreign country on the income which is included in the P L a/c of the assessee. It is reiterated that none of the provisions of the IT Act enables any claim for tax relief to be put forth in respect of the tax amount paid by the appellant in the foreign country in respect of any income which is included in the P L a/c of the assessee. As such, the grounds urged by the appellant in this behalf are patently untenable and unsustainable in law. 11.5 It is also further submitted that the reliance placed by the appellant on the decision of the Supreme Court in the case of Union of India Anr. vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) is wholly misplaced and except citing this decision it is not at all elaborated or explained as to how and on what ground, the decision of supreme Court is applicable to the appellant's case. It is pointed out in the additional ground that the issue is dealt by the Supreme Court, but however, there is not elaboration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the Court.' The foregoing ruling is also approved by the Supreme Court in the case of Union of India Anr. vs. Azadi Bacho Andolan. It is, therefore, submitted that having regard to the correct legal position as regards any claim being made on the grounds of double taxation, the factual foundation as envisaged in s. 90 is to be laid out. Herein, the appellant has never made out any such case at all and such issue does not arise out of the assessment order. As such, the question of granting any relief hereunder does not arise at all. It is reiterated that a mere vague and bald claim is put forth herein which cannot be accepted in the eye of law. It may not be out of place herein to refer to a Division Bench decision of the Hon'ble High Court of Andhra Pradesh in the case of CIT vs. C.S. Murthy (1988) 69 CTR (AP) 26 : (1988) 169 ITR 686 (AP), wherein it is held that if any particular slice of foreign income is not subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific provision is made in the DTAA, that provision will prevail over the general provisions contained in the IT Act, 1961. In fact, the DTAAs which have been entered into by the Central Government under s. 90 of the IT Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the agreement.' Thus, where the DTAA provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions in the agreement; it is the basic law, i.e., the IT Act, that will govern the taxation of income." These findings are in fact in favour of the assessee. Insofar as the other decision relied on by Shri Indrakumar, i.e., CIT vs. C.S. Murthy (1988) 69 CTR (AP) 26 : (1988) 169 ITR 686 (AP), Sri Pradeep submitted that the said decision is inapplicable as it is a case law of s. 91 of the IT Act and not on s. 90. Sec. 91 deals with tax credit in cases of countries with which no agreement exists whereas in this case, applicable provision would be s. 90 and not s. 91. He further contended that absence of Foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 10A. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr, 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of the Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." Asst. yr.: 1999-2000 "The CIT(A) erred in holding that the premium on sale of special import license of Rs. 1,30,00,404 is to be considered as exempt under s. 10A. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of the Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." 22.2 Brief facts of the issue for both the assessment years are (that) the assessee-company had claimed a sum of Rs. 1,01,35,514 for asst. yr. 1998-99 and Rs. 1,30,00,404 for asst. yr. 1999-2000 representing premium received on sale of special import licence as income attributable to software export. The AO had disallowed the claim on the ground that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the Department as submitted by Sri Indrakumar in his written submissions are extracted hereunder: "(a) Asst. yr. 1998-99 : In relation to the asst. yr. 1998-99, while concluding the assessment, a sum of Rs. 4,20,69,175 which remained unallocated in the Infotech division books was allocated to the s. 10A units and consequently, reduced from the exemption income so computed. In doing so, the assessing authority assigned the reasons in paras 19, 20 and 21 of the assessment order as under: '19. The bifurcating of expenditure of Rs. 4.28 crores between the s. 10A and non 10A units by two methods as done by the assessee is now discussed. In the first method, the assessee bifurcated the expenditure of Rs. 4.20 crores in the same ratio in which the original bifurcation of Rs. 20.68 crores was made. This resulted on allocation of 2.04 crores to the software/s. 10A sub-division. In the second method, the assessee-company allocated the expenditure on the basis of sales turnover and arrived on an allocation of 1.66 crores. The second method is not acceptable because sales turnover was never the basis for booking expenditure. 20. The first method, namely, the allocation on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the allocation so made by the assessing authority to s. 10A units cannot be found to be untenable. (3.2)(b) Asst. yr. 1999-2000 : In relation to the asst. yr. 1999-2000, an amount of Rs. 8,27,10,805 has been allocated to the software sub-division and consequently exemption under s. 10A of the IT Act has been reduced by an identical amount. In the course of the assessment order, the assessing authority has pointed out that as per the system of accounting followed by the assessee-company each business unit division separately carries all its business as an independent profit centre, but, however, certain expenditure is incurred by infotech group and that this expenditure is allocated by the assessee-company for the purposes of taxation between various divisions and sub-divisions. It was noticed that the software exports from a sub-unit of the Wipro Infotech group, the assessee-company, was required by the assessing authority to furnish the details of expenditure directly relatable to units engaged in software exports and the expenditure which was allocated by the group towards the units eligible for exemption under s. 10A and other units, and was also asked to explain the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out and no artificial working can be attributed thereto. The ground taken by the assessee is, therefore, allowed and the order of the CIT(A) is reversed on this aspect." and that the CIT(A) has rightly decided the issue in favour of the assessee by following the order of the Tribunal and prayed for dismissing this ground of the Department and upholding the decision of the CIT(A). 23.4 We have gone through the arguments and submissions on the issue from both sides and find that the issue is covered by the decision of this Tribunal mentioned supra. No new facts or points have been brought to our notice by the Department other than reiterating that the allocation made by the assessing authority is just and that the decision of the Tribunal has not attained finality. We agree with Sri Pradeep that the issue is covered by the decision of the Tribunal and the CIT(A) has rightly decided the issue in favour of the assessee by following the decision of the Tribunal and accordingly, we uphold the order of the CIT(A) deleting the addition made by the AO and dismiss the grounds for both the assessment years. 25. Issue of allocation of expenditure incurred by corporate office to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument that the strategic planning and indeed about the software growth the profitability in that line, but none of the expenditure incurred on such strategic planning could be attributed to and debited to the software account. The arguments of the assessee are, therefore, rejected.' Thereupon, the assessing authority has distinctly and comprehensively analyzed the related facts in the course of paras 32 and 33 of the order. The analysis so made is based on cogent and relevant factors having a bearing upon the issue of allocation which is considered and dealt with by the assessing authority. Thus, keeping all such factors in view and particularly the software sector acquired for the company in terms of real profit, 50 per cent of the expenditure incurred by the corporate office totalling to Rs. 21,70,23,968 is allocated to the software unit entitled for exemption under s. 10A of the IT Act and consequently, an expenditure of Rs. 10,85,11,894 has been allocated to the s. 10A units and deducted in the computation of income exempted under s. 10A of the IT Act. (4.1) On appeal, the CIT(A), by following the decision of the Tribunal, has directed deletion of the expenses of the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --- CCD Rs. 46.5 lakhs Lighting division Rs. 3.59 Crs. Fluid power division Rs. 5.64 Crs. Bio med Rs. 1.01 Crs. Total Rs. 10.72 Crs. Infotech div. Rs. 14.85 Crs. Corporate Rs. 18.00 Crs. --------------------------------------------- Therefore, corporate division bore the maximum liability. It is also relevant to note that the question also arises as to whether the corporate needed to bear the expenditure of a huge sum of Rs. 21.7 cores out of which Rs. 18 crores were only interest expenditure. Also, the corporate account shows income of Rs. 10.8 crores being from sales and other income and rent recovery and expenditure of Rs. 14.3 crores against this, because of which an excess of expenditure over income resulting to loss of Rs. 3.4 crores was booked. It is pertinent to note that the provisions of s. 14A of the IT Act introduced by the Finance Act, 2001, with retrospective effect provide that- 'for the purposes of computing the total income under this chapter, no deductions will be allowed in respect of expenditure incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch group and as such recoveries of corporate expenditure are made from the Infotech group and since Wipro Corporate has already recovered its expenses from the various divisions for the use of its services, no further allocation was necessary. It was claimed that the item of expenditure totally related could not be adjusted against the profits of s. 10A units. (4.6) The assessing authority, for elaborate cogent reasons as adverted to in para 8.4(a)(b) has found such contention to be unacceptable. It is found that the non-allocation of net deficit of the Wipro Corporate to the s. 10A units automatically enhances the exemption under s. 10A of the IT Act. This enhancement is found to be artificial and arbitrary, in that, with non-allocation with the entire deficit is absorbed by the units that are not entitled for any exemption and taxable as per the normal provision of the IT Act. Consequently, along with the enhancement of the exempted income, the non-allocation results in the reduction of the taxable income. The assessing authority also found that the primary thrust of the assessee business is software and the business of the software section has multiplied substantially over the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A) on this issue for the asst. yrs. 1998-99 and 1999-2000 and the grounds of the Department are extracted hereunder: Asst. yr. 1998-99 "The CIT(A) erred in holding that the disallowance of the expenditure claimed on imported software amounting to Rs. 3,68,76,920 was not warranted. The CIT(A) has of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) should have appreciated the fact that the Tribunal had not decided about applicability of s. 40(a)(i) of the Act. The CIT(A) ought to have appreciated that the decision of Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka. Asst. yr. 1999-2000 The CIT(A) erred in holding that the disallowance of the expenditure claimed on imported software amounting to Rs. 3,68,76,920 was not warranted. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of Tribunal has not become final and an appeal under s. 260A has been fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that what is held by the AO is to the effect that since the payment being towards royalty and no TDS being made in terms of s. 195 of the Act, and by virtue of s. 40(a)(i) of the IT Act, expenditure cannot be allowed. The Tribunal observed that by virtue of recourse to s. 40(a)(i) of the Act, it can be inferred that the AO himself treated the expenditure as revenue in nature. On such view, the Tribunal negatived the ground put forth by the Revenue. (5.6) It is submitted that for the present assessment years, it is extremely relevant to note that while concluding the assessments and dealing with the legality of the claim regarding the expenditure claimed on imported software, the assessing authority has adverted to the position that the expenditure although capitalized in the books has been written off as revenue expenditure. Thus, the position emerges from the present assessment that the expenditure is of capital nature. As such, in this background, when the legal issue arising for consideration in the present appeal touches upon the legality or otherwise of the addition made by the assessing authority by disallowance of the claim of the expenditure on imported software and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowability of the expenditure or otherwise in view of the provisions of s. 40(a)(i) only, we cannot go into the question whether the expenditure is capital in nature. What is held by the AO is that since the payment is towards royalty on which no TDS has been made under s. 195 of the Act, in view of s. 40(a)(i), the expenditure cannot be allowed which is otherwise allowable as revenue expenditure under the Act. Hence, it can be inferred that the AO himself treated the expenditure as revenue in nature which has been confirmed by the CIT(A). The issue dealt with by the CIT(A) is only that the provisions of s. 195 are not applicable and hence, the amount cannot be disallowed resorting to s. 40(a)(i) of the Act. This ground raised before us, therefore, cannot be said to be arising out of the order of the CIT(A) and hence, we are unable to entertain the same. This ground is accordingly dismissed." Further, no new reasons or points have been brought by the Department other than stating that the decision of the Tribunal has not become final. And submitted that the order of the CIT(A) be upheld by dismissing the grounds of the Department on this issue. 26.5 We have considered the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, which are extracted hereunder: "(a) Asst. yr. 1998-99 : In relation to the present assessment year, while concluding the assessment the assessing authority has dealt with the claim made by the assessee regarding provision for bad and doubtful debts. It was noticed that the assessee had debited to the P L a/c a sum of Rs. 9,42,61,936 being in the nature of provision for bad debts. In the course of assessment order, the particulars of the claim are referred to and the same are reproduced below. ------------------------------------------------ Opening aggregate provision Rs. 9,69,63,239 as on 1.4.1997 Add: Provision created Rs. 9,42,61,936 during the year by debited P L Less: Bad debts adjusted against the provision Rs. 2,51,644 ------------------ Closing aggregate as at 31.3.1998 Rs. 19,14,76,819 ------------------------------------------------ The assessee, as regards its claim regarding provision referred to above submitted as under before the assessing authority. 'Without prejudice to our claim that the provision for doubtful debts aggregating to Rs. 9,42,61,936 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the year was allowed as deduction. As such, the net disallowance on account of provision for bad and doubt debts was to the tune of Rs. 8,63,64,539. (6.3) On appeal, the CIT(A) by following the directions as made by the Tribunal in the earlier order directed the assessing authority may verify the claim and decide afresh. (6.4) It is submitted that the Revenue has preferred appeals in respect of the order passed by the Tribunal regarding the aforesaid issue of provision of bad and doubtful debts and as such it has not attained finality. (6.5) It is, however, submitted that on the facts of the case pertaining to the aforesaid assessment years and having regard to the provisions of the IT Act as applicable, the question of allowing the provision regarding bad and doubtful debts does not arise. (6.6) The assessing authority has disallowed the provision made for bad and doubtful debts on the ground that the mere provision as made by the assessee cannot be allowed in terms of the provisions of s. 36(1)(vii) of the IT Act. It is submitted that the fundamental ingredient envisaged under the provisions of s. 36(1)(vii) of the IT Act for allowing the bad debt is to the effect tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there being only a provision made and the debts not being established to have become had irrecoverable, the assessing authority has rightly disallowed the said provision. 27.3 We have gone through the records and the submissions made on the above issue by both the sides. We find that the CIT(A) had allowed the issue by deleting the addition on comparison of the facts for the assessment year in question to that of facts of asst. yr. 1997-98 on a similar issue wherein the addition was deleted by the Tribunal. Since the CIT(A) had deleted the addition relying on the earlier order of the Tribunal, no objection can be taken. Further, even the AO for the asst. yr. 1999-2000 in para 7.5 of his order (the relevant portion is extracted hereunder): "7.5 Allocation of the entire unabsorbed expenditure of the Wipro Infotech group has been made wherein unallocated expenditure has been fully allocated to the s. 10A units. However, in the appellate order for asst. yr. 1997-98 which was passed subsequent to the assessment order for asst. yr. 1998-99, the learned CIT(A) has stated that reasonable method would be to allocate the unallocated expenditure of the Wipro Infotech group accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the balance amount. The CIT(A) ought to have appreciated that a provision cannot be allowed as deduction under s. 36 of the Act in the assessment case and, decided the issue instead of remitting the matter back to AO as per the provisions of s. 251(1)(a) of the Act. For asst. yr. 1999-2000 (a) The CIT(A) erred in directing the AO to verify the correctness of the claim made by the assessee in respect of provision for bad and doubtful advances aggregating to Rs. 3,98,95,026. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of the Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka. (b) The CIT(A) ought to have decided the issue instead of remitting the matter back to AO as per the provisions of s. 251(1)(a) of the Act." 28.2 Sri Indrakumar, apart from the oral submissions has submitted written arguments on the issue which are extracted hereunder: "Asst. yr. 1998-99 : In relation to this assessment year, the assessee had made provision for write ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant in the computation of profits and gains of the business as also profits under s. 10A of the IT Act. (7.2)(b) Asst. yr. 1999-2000 : In relation to the said assessment year of 1999-2000, the assessing authority had noticed that the assessee-company had debited to the P L a/c a sum of Rs. 3,98,95,026 being the provision for bad and doubtful debt advances. It was submitted by the assessee that the provision had been made following the principle of prudence and qualify as loss incurred in the ordinary course of business. On an analysis of the submissions so made by the assessee-company, the assessing authority held that the claim for deduction was on account of merely a provision and at best a contingent liability and does not represent the amount actually written off. Thus, the sum of Rs. 3,98,95,026 was added back to the total income of the assessee-company. (7.3) On appeal, the CIT(A) held that the direction given in the course of appellate order for the asst. yr. 1998-99 will hold good for the said assessment year also and the assessee was directed to furnish party-wise details and reasons for write off before the assessing authority who was directed to verify the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranty liabilities was to the tune of Rs. 2,41,24,278. The assessing authority noticed that the claim made in respect of such warranty expenditure was only in the nature of the provision and thereby it is a contingent liability and that it was a liability based on contractual obligation and it would arise only when such liability is ascertained or invoked by the customer or the buyer. Relying upon the decision of the High Court of Allahabad in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT (1980) 15 CTR (All) 334 : (1980) 125 ITR 33 (All), the assessing authority disallowed the claim. (8.1) On appeal, the CIT(A) following the decision of the Tribunal in the appellate order passed in the case of M/s Wipro GE Medical Systems Limited, for the asst. yrs. 1991-92 to 1997-98 deleted the disallowance of provision for warranty. (8.2)(b) Asst. yr. 1999-2000 : The assessee-company had debited an expenditure of Rs. 2,08,80,414 on account of provision for warranty. On the particulars and the details furnished by the assessee, it was held by the assessing authority that the expenditure claimed by the assessee was essentially in the nature of provision and thereby it partook the chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2004) 192 CTR (Ker) 216 : (2004) 270 ITR 259 (Ker) and the decision of the Madras High Court in the case of CIT vs. Beema Mfrs (P) Ltd. (2003) 130 Taxmann 400 (Mad), wherein the Department has conceded the issue before the Madras High Court. Hence, we dismiss this ground of the Department. 30. Issue of the claim under s. 43B of the IT Act in respect of excise duty : The grounds taken by the Department on the above issue are as follows : "(a) The CIT(A) erred in directing the AO to verify the claim of assessee under s. 43B in respect of excise duty and allow if the conditions are fulfilled in keeping with the order of Tribunal. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." 30.1 In the assessment, the AO had not given full effect in respect of excise duty paid under s. 43B of the Act. In appeal, the CIT(A) on finding that the issue is covered by the decision of the Tribunal in ITA No. 651/B/1994 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim was explained as under. 89. In the first stage, the Department had 'modified' the closing stock by including the accrued liabilities. Having done so, this amount would, therefore, get allowed next year as opening stock. However, by virtue of s. 43B, to the extent taxes get paid, deduction has to be allowed in the present year itself. Therefore, the closing stock adopted would now have to be re-determined to exclude the taxes paid as per s. 43B. Therefore' there would now be a reduction in the value of closing stock to this extent. 90. The above argument of the assessee is incorrect. The impact of s. 43B has already been considered and to the extent the taxes were paid, were reduced to arrive at a net impact of Rs. 44.97 lakhs. If one were to go by the assessee's claim, then the principle of balancing of accounts laid down by the Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC), cited by the assessee itself is disturbed as explained below: 91. The P L a/c of the assessee-company is getting debited on account of these modifications by an amount of Rs. 3.26 crores and the credit side of the P L a/c is getting credited by an equal amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We find that the issue stands covered in favour of the assessee in the above cited decision of this Tribunal and CIT(A) has correctly decided the issue in favour of the assessee by following the decision of the Tribunal and we have no hesitation in upholding the order of the CIT(A) on this issue and further the Department cannot be aggrieved as the CIT(A) has directed the AO to verify the claim of the assessee and then to allow if the conditions are fulfilled in keeping with the order of the Tribunal. Hence, we dismiss the ground of the Department on this issue. 31. Issue of the claim under s. 43B of the IT Act in respect of customs duty: The Department has raised this ground for the asst. yr. 1999-2000. "The CIT(A) erred in directing the AO to verify the claim of customs duty of Rs. 23,10,309 under s. 43B with reference to supporting annexures/documents. The CIT(A) ought to have decided the issue instead of remitting the matter back to the AO as per the provisions of s. 251(1)(a) of the Act." 31.1 The facts relating to the issue as found in the written submissions and the arguments of the Department are extracted hereunder for the sake of convenience. "Asst. yr. 1999- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find anything wrong with the direction given by the CIT(A) and the Department cannot have any grievance on the said directions, accordingly, dismiss this ground of the Department. 32. Issue relating to deduction under s. 80-IA relating to peripherals unit at Mysore: 32.1 The Department is in appeal on the above issue for both the assessment years and the ground taken by the Department is as under: Asst. yr. 1998-99 "The CIT(A) erred in directing the AO to delete the allocation of expenditure of Rs. 33,95,466 made to peripherals unit at Mysore for computing deduction under s. 80-IA, out of the expenditure of computers and peripherals divisions of which peripherals unit at Mysore is a part, without appreciating that the AO had worked out the allocation of various expenses on equitable basis. Asst. yr. 1999-2000 'The CIT(A) erred in directing the AO to delete the allocation of expenditure of Rs. 1,50,97,909 made to the peripherals unit at Mysore for computing deduction under s. 80-IA out of the expenditure of computers and peripherals division of which peripherals unit at Mysore is a part without appreciating that the AO had worked out the allocation of various expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is held by the CIT(A) that the findings given in that appellate order also holds good for the said assessment year of 1999-2000 and the AO is directed to follow the directions given in the appellate order pertaining to the asst. yr. 1998-99. (11.5) It is submitted that the CIT(A) erred in passing the appellate order as referred to above on the issue pertaining to deduction. In relation to the asst. yr. 1998-99, the CIT(A) has erroneously held that the assessing authority has not made out a strong case for disturbing method of allocation followed by the appellant. The CIT(A) has failed to appreciate and take cognizance of the position that, while concluding the assessment the assessing authority in the course of paras from 107 to 130, has extensively analysed and dealt with the issue pertaining to deduction under s. 80-IA of the IT Act relating to peripherals unit at Mysore. Having regard to such analysis, discussions and findings recorded thereto, it is submitted that the appellate CIT erred in passing the appellate order on the footings that the assessing authority has not made out a case. While assessing authority, on proper analysis has substantiated the claim as made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location is a part of method of accounting and has been accepted by the Department and the same cannot be changed except for just cause. Further, the rationale for allocation is reasonable and correct. Sri Indrakumar is not able to point out any inconsistency. In such circumstances, no interference is called, hence we refuse to interfere with the orders of the CIT(A) in the absence of valid reasons and, therefore, we dismiss the grounds of the Department on the above issue. 33. Issue relating to deduction under s. 80HH relating to Amalner unit. 33.1 The Department being aggrieved by the order of the CIT(A) deleting the allocation of expenditure made by the AO in the assessment order for the asst. yr. 1998-99 has come in appeal before us and has raised the following ground: "The CIT(A) erred in directing the AO to delete the expenses allocated to Amalner unit amounting to Rs. 1,89,00,000 from the consumer care division in which Amalner unit is a part, for the purpose of working out eligible profits under s. 80HH without appreciating that the AO had worked on the allocation of various items of expenses on equitable basis." 33.2 Sri Indrakumar has submitted written arguments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it which is in turn utilized for claiming deduction under Chapter VI-A of the IT Act. Thus, taking into consideration such factual position as substantiated therein, the assessing authority had rightly allocated the expenditure to Amalner unit. The CIT(A) ought to have confirmed such allocation and the reasoning of the CIT(A) is not justified on the facts as noticed by the assessing authority and the finding recorded thereto." 33.3 The above issue is with respect to allocation of expenditure. We have discussed and decided a similar issue of allocation of expenditure made to 80-IA unit supra. As the issue involved herein is identical and similar, we, therefore, following our decision given supra dismiss the grounds of the Department on this issue also. 34. Issue relating to deduction under s. 80-I relating to Tumkur unit: 34.1 The Department being aggrieved by the order of the CIT(A) deleting the allocation of expenditure made by the AO in the assessment order for the asst. yr. 1998-99 has come in appeal before us and has raised the following ground: "The CIT(A) erred in directing the AO to delete the expenses allocated to Tumkur unit amounting to Rs. 1,81,00,000 from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate CIT erred in directed such deletion " 34.3 The above issue is with respect to allocation of expenditure. We have discussed and decided a similar issue of allocation of expenditure made to s. 80-IA unit supra. As the issue involved herein is identical and similar, we, therefore, following our decision given supra we dismiss the grounds of the Department on this issue also. 35. Issue relating to deduction under s. 80-IA relating to Peenya unit: 35.1 The Department being aggrieved by the order of the CIT(A) deleting the allocation of expenditure made by the AO in the assessment orders for the both assessment years has come in appeal before us and has raised the following grounds: For Asst. yr. 1998-99 "The CIT(A) erred in directing the AO to restore the allowance of deduction under s. 80-IA as claimed by the assessee instead of Rs. 13,65,355 allowed by the AO in respect of Peenya unit without appreciating that the AO had worked out. the reallocation of various items of expenses on equitable basis." For Asst. yr. 1999-2000 "The CIT(A) erred in directing the AO to delete the expenses allocated to Peenya unit amounting to Rs. 1,05,23,323 for the purpose of work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng all the features pertaining this claim, the assessing authority has eventually recorded the finding as under vide para 149. '149. It is very uncanny that the company as a whole is making 'profits' inevitably and precisely from the units which are eligible for deduction under Chapter VI-A even on a same line of products to be it printers or now the hydraulic cylinders. It is too much of a coincidence as seen earlier from the discussion of various units, the indirect expenses were stated to have been allocated. The normal basis of allocation followed by the company was based on proportionate turnover. As already calculated in the earlier paragraphs, if turnover is to be made the basis, on expenditure of Rs. 5.98 crores should have been debited as against Rs. 3.68 crores. Thus, even as per the method of allocation normally followed by the company, there is a short allocation of Rs. 2.3 crores. Keeping all these factors in view, a further allocation of Rs. 1,00,00,000 is made to the Peenya unit. The eligible profits are recomputed as under: Rs. -------------------------------------------- Profits of the eligible unit as returned: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority, in doing so, held that the excise duty paid on the cost of material will be part of the cost and if some unutilized cost of the raw material is lying in the godown, its value should necessarily be taken into account for the purpose of valuation of the stock. In any event, in terms of s. 145A of the IT Act which has come into effect from the present assessment year which states that the valuation of stock should include the amount of any tax, duty actually paid or incurred to bring the goods to its present location and condition, the assessing authority made the said addition. (15.1) On appeal, the CIT(A) has however, directed the assessing authority to call for reworking of trading and manufacturing account or P L a/c incorporating the excise duty in opening stock, purchases, sales and closing stock and to verify the same, and if there is any unavailed modvat credit, the same has to be added back to the income. (15.2) It is submitted that the appellate CIT erred in directing the AO to cause verification to be made, although the assessing authority has recorded the categorical finding to the effect that the unavailed valued Modvat credit to the extent of Rs. 3,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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