TMI Blog2007 (2) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... handise; whereas section 80HHE speaks of such business. 'Such business' only could mean the business of export of computer software. The scope of consideration has been narrowed down. In other words, whether the assessee derives income from any other business or not, is not a criteria and it is wholly extraneous while granting deduction u/s 80HHE, which is exclusively for computing deduction in respect of profit from export of computer software etc. Thus, we allow the claim of the assessee on this ground. Interest payable u/s 234B - intimation u/s 143(1)(a) - HELD THAT:- It is not disputed that the assessee received a huge refund as a result of processing of the return under section 143(1)(a). Subsequently, the tax component was enhanced as a result of the reassessment done under section 143(3) read with section 147. As such, the decision of the Hon'ble Delhi High Court in the case of K.K. Marketing is applicable on facts. there is no default on the part of the assessee in paying the advance tax. For the first time the dispute arose consequent to the reassessment done under section 143(3) read with section 147. The stand of the revenue is that charging of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) read with section 147, without providing the assessee with a copy of the recorded reasons for reopening the assessment, in total disregard of the decision of the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd (259 ITR 19), although the assessee prayed for a copy of the same after filing the return in due compliance of the notice under section 148. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) erred in directing the Assessing Officer to recompute the interest under section 234B as per his direction instead of deleting the interest charged in the Assessing Officer's order under section 143(3) read with section 147 dated 24-2-2003. Which, according to the learned counsel, does not call for any finding of new facts but purely a question of law and is admissible in the light of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383. 3. We heard the rival submissions. Since this ground goes to the root of the matter and challenges the very validity of the assessment order itself and there is no new fact to be brought on record, we are of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147. This issue we will take up in due course. 8. Now coming to the first ground of objection by the assessee, it is directed against the order of the CIT(A) in confirming the disallowance under section 80-O of the Income-tax Act, 1961, in respect of receipts earned by the assessee from rendering technical services outside India, for which consideration received in convertible foreign exchange, on the ground that as the assessee has claimed deduction under section 80HHE in respect of the same receipts by applying the provisions of sub-section (5) of section 80HHE. 9. In this case the assessee filed the original return on 30-12-1993 declaring income at Rs. 90,94,860. The return was accompanied by Tax Audit Report under section 44AB in Form Nos. 3CA and 3CD. Assessee filed the revised return on 1-2-1995 bringing down the income to Rs. 13,68,930, consequentially resulting refund of Rs. 68,06,075. The assessment was rectified under section 154 on 18-8-1995 determining income at Rs. 14,16,194. After giving effect to the CIT(A)'s order, revised income was determined at Rs. 13,68,930. 10. Subsequently, it was noticed, assessee has claimed deduction under section 80-O amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays. Only on finalisation of consolidated accounts, common set of Balance Sheet and Profit and Loss Account prepared. It was contended that in view of the decision of the Hon'ble Madras High Court in the case of Rathore Bros., assessee submitted a revised claim for deduction under section 80HHE by treating each unit as a separate and distinct business. It was further submitted, in the original return filed on 30-12-1993, deduction under section 80-O was claimed on 'net of direct expenses basis' at Rs. 81,72,372 and it was revised claiming deduction under section 80-O on 'gross basis' based on the decision of the Tribunal, Mumbai Bench, in the case of J.B. Boda Co. (P.) Ltd v. ITO [1992] 41 ITD 36. It was further submitted, since contrary view has been taken by the Special Bench of the Tribunal in the case of Petroleum India International v. Dy. CIT [2000] 241 ITR (AT) 43 (Mum.), deduction under section 80-O had not been claimed. But it was submitted, assessee intended to keep the issue alive since Special Bench decision of the Tribunal is before the Hon'ble High Court in appeal. It was further submitted, unlike section 80-IA(9), there is no bar in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion, Assessing Officer also relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. M.K. Raju Consultants (P.) Ltd. [1999] 239 ITR 232 and also the decision of the Hon'ble Delhi High Court in the case of CIT v. Chemical Metallurgical Design Co. Ltd. [2001] 247 ITR 749 (FB). 13. Coming to the deduction under section 80HHE, the claim of the assessee was also rejected by the Assessing Officer for the reasons stated herein, briefly, as under:- Assessee was carrying on business of export as well domestic and the turnover for the purpose of computation of deduction under section 80HHE should be worked out on the basis of total turnover and not export turnover alone. In support of the above, Assessing Officer relied upon the decision of the Special Bench of the Tribunal in the case of International Research Park Laboratories Ltd. v. Asstt. CIT[1994] 50 ITD 37 (Delhi); the decision of the Calcutta Bench of the Tribunal in the case of Dy. CIT v. Chloride Industries Ltd. [2000] 111 Taxman 81 (Mag.), and also the decision of the Hon'ble Kerala High Court in the case of CIT v. Parry Agro Industries Ltd. [2002] 257 ITR 41. Aggrieved by the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses and not on the gross receipt. 19. Since we have already held that assessee is not entitled for deduction under section 80-O, there is no reason to entertain this ground as well. Hence, this ground of the assessee also fails and dismissed. 20. The next ground of objection (Ground Nos. 4 and 5) by the assessee is directed against the order of the CIT(A), in considering total turnover of all the units and not of the unit in SEPZ for deduction under section 80HHE. 21. According to the assessee, CIT(A) is wrong in confirming the order of the Assessing Officer in considering total turnover of entire business instead of turnover of only the unit located at SEPZ for the purpose of deduction under section 80HHE. According to the assessee, CIT(A) failed to appreciate that where the two separate business of an assessee are properly demarcated in terms of location, operations and also where separate books of account are maintained for different units, it should be considered as separate entity and only turnover of SEPZ unit should have been considered while calculating deduction under section 80HHE. 22. The facts narrated by the Assessing Officer already been recorded herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account for software business conducted from within the said zone and the question of pro rata turnover for deduction in respect of the profit therefrom does not arise. The two other business units of the assessee-company were 100% domestic business units and located outside the Software Export Processing Zone and are not engaged in any software activities. There is no overlapping or commonality between the activities carried out from the three units and they are mutually exclusive. Hence, it was contended, Assessing Officer should have worked out the deduction under section 80HHE on the basis of total turnover of export business located in SEPZ only and with no reference to total turnover of the entire company. Assessee relied upon the decision of the Hon'ble Madras High Court in the case of Rathore Bros. 24. CIT(A) held, this plea of the assessee is devoid of much merit, particularly in view of the fact that the various judicial pronouncements have clearly held that since section 80HHE is similar to that of section 80HHC and sub-section (3) of both the sections provides for computation of eligible amounts allowable for deduction, the decisions rendered by variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble High Court have also held that if the total turnover is not taken with reference to the entire business, it would amount to re-writing the Legislation. Furthermore, the ITAT, Mumbai Bench in their order M/s. Ascho Industries Ltd. v. JCIT, No. 2447/Mum./2000, dated 14-1-2003, have upheld this legal position. 14. In view of the above referred discussion, it is clear that both the profits and gains of business and profession as well as the total turnover for the purpose of working out the deduction under section 80HHE of the Act are required to be taken as if whole business is one. It cannot be compartmentalized unit-wise as has been done in the return filed while making the claim. Therefore, the action of the Assessing Officer to carry out necessary adjustment in working out the eligible amount for deduction is legally correct and is hence sustained. The appeal in respect of this ground is dismissed. Aggrieved by the above order, assessee is in appeal before the Tribunal. 25. Recapitulating the events, learned counsel for the assessee submitted that initially the assessee claimed deduction under section 80-O, which was beneficial to the assessee, particularly as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in the case of International Research Park Laboratories Ltd.; Chloride Industries Ltd.'s case and the decision of the Hon'ble Kerala High Court in the case of Parry Agro Industries Ltd. CIT(A) also placed reliance on the decision of the jurisdictional High Court in the case of Shirke Construction Equipments Ltd. Learned counsel submitted, subsequently however some of the Courts have taken a different view than that expressed by the Tribunal in the case of International Research Park Laboratories Ltd. Learned counsel brought our attention to the decision of the Hon'ble Madras High Court in the case of Rathore Bros., particularly the following observation:- Where the assessee had maintained separate accounts and it had maintained its trading receipts and profit and loss accounts separately for export sales and domestic sales and there was sufficient material supported by all the necessary documents to show that the deduction claimed was entirely due to export there was no warrant for disallowing any portion of the export earnings pro rata by invoking clause (b) of sub-section (3) of section 80HHC of the Income-tax Act, 1961. The purpose of the clause was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC to the profits from export of software, as given in 190 ITR (St.) 111, relevant portion of which reads as under:- Our software industry has made considerable progress in recent years. However, there is still a vast unexploited potential for growth. It is time we make all-out efforts to capture the overseas software market. With this objective, I propose to extend the tax concession under section 80HHC of the Income-tax Act to export of software. With this concession the exports of this industry should register rapid growth. 29. Learned counsel submitted, it is significant that no such amendment was brought in section 80HHC with a view to extend its benefits to software exports was proposed in the Finance (No. 2) Bill of 1991. On the contrary, an entirely new section was introduced, i.e., section 80HHE, exclusively dealing with the deduction allowable to profits derived from the export of computer software [191 ITR (St.) 220]. The intention of the Legislature is clear. Had the Legislature intended to allow deduction to profit derived from export of computer software on the same footing as provided for export of other goods and merchandise within the meaning of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the export of which are not entitled to exemption under section 80HHE, need not be considered for computation of deduction allowable under this section in all cases. Learned counsel submitted, quite clearly, whether or not the assessee derives income from carrying on any other business is wholly extraneous to the scheme of granting deduction under section 80HHE. It necessarily follows that in cases where the assessee has been engaged solely in the business of export of computer software or providing technical services abroad in connection with development or production of computer software and has maintained distinct separate account for such business, subsection (3) of section 80HHC would have no application in working out the profit derived from such business. Learned counsel further submitted, where the assessee also having domestic software business, such profit, i.e., profit from eligible business would be computed as per the provisions of sub-section (3) of section 80HHE. Naturally, even if the assessee had derived profit from the business of any other goods or merchandise, turnover from that business would not be considered for the purpose of determining profit derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately for export sales and domestic sales and there was sufficient material supported by all the necessary documents to show that the deduction claimed was entirely due to export; there was no warrant for disallowing any portion of the export earnings pro rata by invoking clause (b) of sub-section (3) of section 80HHC of the Income-tax Act, 1961. The purpose of the clause was to disallow a part of the allowance under that section only when the entire deduction claimed could not be regarded as being relatable to exports . This decision of the Hon'ble Madras High Court supports the view canvassed by the assessee. The question referred to the Hon'ble High Court in the case cited supra was: whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that clause (b) of sub-section (3) of section 80HHC of the Income-tax Act, 1961, cannot be invoked in this case and the assessee is entitled to relief under section 80HHC of the Act in respect of the entire export net profits? . The decision of the Hon'ble Madras High Court in the case of Rathore Bros. was not accepted by the Assessing Officer on the ground that revenue had gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise whereas section 80HHE speaks of deduction to the extent of the profits, referred to in sub-section (1B), derived by the assessee from such business. Perusal of sub-section (2) of sections 80HHC and 80HHE brings out the difference, which read as under:- 80HHC 80HHE (2)(a) This section applies to (2) all goods or merchandise, other than those specified in clause (b), if the sale proceeds of such goods or merchandise exported out of India are received in, or brought into, India by the assessee other than the supporting manufacturer in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. (2) The deduction specified in sub- section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for delay. The delay was due to late submission of bills by the respective payees. The liability ascertained only during the year under consideration. Learned counsel submitted, there is no quarrel that the deduction is otherwise allowable in computing income from business. Learned counsel relied upon the decision of the Hon'ble Allahabad High Court in the case of CIT v. Apollo Textiles Agency [2006] 283 ITR 591. 40. The learned DR, on the other hand, supported the orders of the revenue authorities. 41. We heard the rival submissions. In the case of Apollo Textiles Agency, the Hon'ble Allahabad High Court held that the liability to pay an amount, which came into existence and accrued for the first time during the year under consideration is to be allowed though it pertains to earlier years. In view of the above, we are of the opinion that the appeal of the assessee on this ground is liable to be allowed. It is allowed. 42. Now coming to the second additional ground taken by the assessee, quoted hereinabove vide para 2 of our order, facts leading to the dispute, briefly, is as under:- The total tax payable by the assessee in accordance with intimation under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer ignored the fact that till the date of order under section 143(1)(a), i.e., 15-12-1996 the appellant had paid advance-tax in excess of the tax liability subsequently determined under section 143(1)(a) of the Act. In doing so, the Assessing Officer dearly has not determined the tax liability in terms of section 234B of the Act. As provided in the said section, the tax liability under the section has to be determined up to the date of order under section 143(1)(a) i.e., 15-12-1996 in terms of sub-section (1) of section 234B of the Act and hence, the advance-tax paid by the appellant is to be reduced from the tax determined in the order under appeal for working out the interest liability. For the remainder period i.e., from the date of order under section 143(1)(a), i.e., 15-12-1996 to the date of order under appeal interest chargeable is to be worked out in terms of sub-section (3) of section 234B of the Act based on the shortfall to be arrived at by reducing from the tax on income determined in the order under appeal the tax on the income determined in the order under section 143(1)(a) of the Act. The Assessing Officer is directed to re-work the interest under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the search action huge amount of cash was recovered and so, when the payment of advance tax became due in September 1993, the assessee requested the Department to adjust the cash seized towards advance tax. While passing the assessment order under section 143(1)(a), it was held that the assessee was entitled to a refund. Assessing Officer, however, charged interest from the assessee under sections 234B and 234C. The Hon'ble Delhi High Court held that there was no justification. 48. Coming to the instant case of the assessee, it is not disputed that the assessee received a huge refund as a result of processing of the return under section 143(1)(a). Subsequently, the tax component was enhanced as a result of the reassessment done under section 143(3) read with section 147. As such, the decision of the Hon'ble Delhi High Court in the case of K.K. Marketing is applicable on facts. 49. In the case of Balakrishna Breeding Farms (P.) Ltd v. Chief CIT [2005] 276 ITR 20, the Hon'ble Karnataka High Court, in the following circumstances, held that interest cannot be charged under section 234B:- Assessee, engaged in the business of hatchery, claimed deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. If the assessee takes due diligence and care and make the payment and if it is accepted by the revenue, such an assessee cannot be held as a defaulter only because subsequently the assessee's income has been enhanced. 51. In the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320, the Hon'ble Uttaranchal High Court held that where there exist a bona fide dispute, imposition of interest under section 234B was not justified without a hearing and without reasons. In other words, if there are conflicting views on a point, by virtue of decision of the Tribunal, High Court or Supreme Court, imposition of interest under section 234B could not be justified without affording a hearing. The finding of the Hon'ble High Court reads as under:- That at the relevant time there were conflicting decisions of the Tribunal as to the interpretation of contracts regarding on period and off period salary. A bona fide dispute was pending. The assessee had to estimate his current income. The words used under section 209(1)(a) made the assessee estimate his current income and since a bona fide dispute was pending which was clarified by the Legislature by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the reassessment or re-computation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re-computation exceeds the tax on the total income determined under subsection (1) of section 143 or on the basis of the regular assessment aforesaid. (4) 54. Perusal of Explanation 2 to section 234B(1) makes it clear that if an assessment is made under section 147 or under section 153A for the first time, then the assessment so made shall be regarded as a regular assessment for the purpose of section 234B. In other words, in case of an assessee where the assessment has already been completed and the refund has already been done as far as the excess payment concerned, the reassessment done subsequently under section 147 or 153A, interest cannot be charged for the first time if the assessee could not have anticipated the enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fly, as under:- The claim of the assessee was disallowed by the Assessing Officer on the ground that the same was not accounted for in the books of account of the assessee on accrual basis. Before the CIT(A), assessee submitted, assessee was appointed as Registrar and Transfer Agents by M/s. Finolex Pipes Ltd. Assessee was processing the Folios of shares of the said company and was also maintaining the same. For these, assessee was charging the client company Rs. 2,55,555 as monthly fixed Folio maintenance fees. During the year under consideration, the said company came with a Rights issue of Rs. 180.32 crores. This was the first year of new mode of payment being stock invest instruments. Instruments value received was Rs. 54,30,420. The instruments could not be encashed in time and became stale due to clerical errors etc. In fact, the bankers did not standardize the format of stock invest. There were procedural differences for deposing the stock invests in various banks. As a result, the concerned banks returned the instruments deposited after several weeks for resorting, preparation of fresh list, etc. This process continued several times resulting in lapse of time and the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 5,10,781 on account of doubtful advances given to the employees, which were written off. 65. This issue has been discussed by the Assessing Officer vide para 18 of his order, as under:- 18. As regards doubtful advances amounting to Rs. 5,10,781 written off, assessee's explanation that those employees to whom these advances were given have left the job is not acceptable. The assessee was in possession of the whereabouts of these employees. The assessee has neither proved that the advances were given to those employees nor furnished the details of the action taken by them to recover these advances. In view of the above, the claim of the assessee is disallowed and the amount of Rs. 5,10,781 is added to the total income. Aggrieved by the above order, the matter was carried before the first appellate authority. 66. Assessee contended before the CIT(A) that the claim of deduction is in respect of doubtful advances given to the employees who were sent abroad on company's project but left the company without informing. Such advances could not be recovered and the assessee was forced to write off. This is a loss incidental to the business and hence adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73. Before the CIT(A), assessee submitted that the commission paid to foreign parties was in respect of sales made to customers, introduced by such foreign parties. These payments were remitted through authorised banking channels, which could have been very well verified. Only after verifying the relevant documents and certifying that the payments were in terms of RBI regulations, commission payments were made. Hence, it was contended that the addition made should be deleted. 74. Considering the fact that the payments were made through banking channel, which at the relevant point of time could be only done after the bank satisfied themselves regarding the genuineness of the payments; and the assessee produced copy of bank vouchers/bank intimation, CIT(A) deleted the addition. Aggrieved by the above order, revenue is in appeal before the Tribunal. 75. Learned DR supported the order of the Assessing Officer. 76. Learned counsel for the assessee reiterated the submission made before the CIT(A) arid further submitted that the assessment was getting time-barred and the Assessing Officer was in a hurry and therefore he could not make proper enquiries. 77. We heard the rival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r instruction not to press this ground. Hence, the appeal of the assessee on this ground is dismissed as not pressed. 83. In the result, appeal of the assessee stands dismissed as indicated above. I.T.A. No. 1672/Mum./2005: 84. The only effective ground urged by the revenue reads as under:- On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to re-compute the interest chargeable under section 234B, without appreciating the facts of the case and without appreciating the provisions of subsection (3) of section 234B of the Income-tax Act, 1961, which explicitly provides 'where, as a result of an order of reassessment or re-computation under section 147 or section 143A, the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of month comprised in the period commencing on the day of following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular asses ..... 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