TaxTMI 
TaxTMI 
2006 (4) TMI 346
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.... value of closing stock. 2. Deduction 2.1 The learned CIT(A) erred in holding that profit arising out of sale of steam does not constitute profit of the business. 2.2 The learned CIT(A) erred in upholding exclusion of insurance receipt and Misc. income (arising out of sale of ammonia sulphate) from profits of the business. 2.2A The learned CIT(A) erred in observing that there does not appear (to have) any direct nexus between the receipts under the head 'Insurance Claim and Misc. Income' and the appellant's business activity. 2.2B The learned CIT(A) erred in overlooking the fact that the learned CIT(A) - VI vide para 23 in assessee's Own Appeal for assessment year 1998-99 had held that receipt under the head 'Insurance Claim' was to be included in the profits of the business and that vide para 25 of the said appeal order had held that the ammonia sulphate has to be included in the profits of the business. 2.2C Your appellant submits that these receipts arise out of appellant's regular business activity and that they cannot be excluded from the profits of the business as defined in the Act. 2.3 Your appellant, therefore,....
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....d that till assessment year 1998-99, the decision of Hon'ble Bombay High Court in CIT v. Indo Nippon Chemicals Co. Ltd. [2000] 245 ITR 384 (which is affirmed by Hon'ble Supreme Court in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275, held the field and Modvat credit would not be considered anywhere in trading/ manufacturing account. But after amendment by F.A. (No. 2) 1998 w.e.f. 1-4-1999 and thereby introduction of section 145A, there has been a material change. He thus upheld the decision of the Assessing Officer. 3. Before us the learned counsel for the assessee submitted that the Assessing Officer is bound to account for Modvat credit in purchase, sale and inventory and not merely in closing stock. This will neutralize the addition, if any, made on account of Modvat. Learned AR further submitted that if Modvat credit is to be added to sale, purchase, and inventory, then same should be added in opening stock also. 4. Learned DR on the other hand submitted that irrespective of the fact whether any addition is called for or not, section 145A would be applicable w.e.f. assessment year 1999-2000. Further Assessing Officer has considered this aspect and addition of un....
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....provision was made applicable from April 1, 1999, i.e., assessment year 1999-2000." Same thing has been stated in the Circular No. 772 dated 23rd December, 1998 issued to explain the provision of section 145A. 6. Thus any tax cess, duty or fee paid or incurred by the assessee shall be included in the valuation of purchase sale and inventory. This leaves no doubt that Modvat credit available to the assessee shall have to be included while valuing the closing stock sales and purchases. However, it is not necessary that opening stock should also be disturbed. Opening stock being closing stock of previous year has been arrived on the basis of a method of accounting, in which excise duty/Modvat credit is not included while valuing the inventory, sale and purchase. They are separately accounted for, but in a changed method of accounting imposed by section 145A, such Modvat credit has to be included. Thus, opening stock will not be disturbed whereas purchases, sales and closing stock will have to be disturbed by including Modvat credit. For this proposition we derive support from the decision of Hon'ble Bombay High Court in Melmould Corpn.'s case (supra) relied upon by the learned D....
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.... view of the difference in the method of valuation of opening stock and closing stock. The Tribunal accepted the valuation of the closing stock at cost price excluding overhead expenses. It, however, directed the Income-tax Officer to redetermine the value of the opening stock at cost price after excluding all overheads. On a reference : Held, that the assessee could not be required to revalue the opening stock by excluding all overhead expenses when the assessee had been permitted to revise the method of valuing the closing stock for that year, as the assessee had decided to adopt this new method of valuation henceforth. CIT v. Carborandum Universal Ltd. [1984] 149 ITR 759 (Mad.); CIT v. Mopeds India Ltd. [1988] 173 ITR 347 (AP) and Triveni Engg. Works Ltd. v. CIT [1987] 167 ITR 742 (All.) followed." 7. It was submitted before the Assessing Officer that purchases have also been debited in the P/L Account. Before us also it was argued that if cess/excise duty/sales tax etc. are added into purchases, sales and closing stock then net result would be nil. We, therefore, restore this issue to the file of Assessing Officer to re-cast trading account after including ....
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....profits for the purposes of section 80HHC, the Legislature has excluded the above items from business profits in the formula. Therefore, the amendment was clearly intended to remove the defect in the formula for calculating export profits even before April 1, 1992. In fact, the Legislature has clarified that receipts like interest, commission, etc., have no nexus with the export activity and by including such receipts in the business profits the existing formula became unworkable. Hence, by the amendment, such receipts were excluded. A reading of clauses (b) and (ba) of the Explanation clearly indicates that the Legislature has brought on par the components of export turnover and sale turnover. Both the numerator and denominator show that they refer to sale proceeds. Any receipt which does not form part of sale proceeds cannot come within the ambit of the above ratio. This is also in view of the fact that proposition applies to business profits in order to work out the export profits. Therefore, the numerator and the denominator are required to have a common element which is the sale proceeds. In fact, by the proviso in clause (ba) to the Explanation, it is further provided that th....
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....owing directions to the Assessing Officer: (para 7.6 of A.O.'s order) "By implication, therefore, in the case of the appellant which has 8 units as well as involved in trading, the process of computation of both these deductions together should be as follows: (1) Unit-wise profit would have to be calculated in accordance with the profit and loss accounts maintained separately for each unit. In this exercise receipts as well as expenses directly attributable to that particular unit only should be included. (2) Consolidation of unit-wise profits would give the gross total income of the assessee. (3) From this figure to reach total income of the assessee, (a) unit-wise deduction under section 80-IA would have to be computed and allowed. (b) result obtained after step (a) above, profit for each unit would have to be consolidated for the purposes of calculating total business profit. (4) Adjustments to be made in accordance with provision of section 80HHC would then have to be made to arrive at export profit eligible for deduction under section 80HHC. (5) This deduction under section 80HHC would then be allowed agai....
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.... 14. Thus the learned counsel for the assessee submitted that the authorities below should be directed to work out deduction under section 80HHC unaffected by deduction granted under section 80-IA only. Capping is that total deduction under Chapter VI-A shall not exceed gross total income. 15. Against this Ld. DR submitted that language of section 80-IA is very clear. Any deduction under section 80-IA allowed shall not be allowed further, to this extent under any other provision to this Chapter (VI-A) under the heading 'C'. "Deduction in respect of certain income" and further that in no case exceed the profits and gains of such industrial undertaking/hotel. Thus there are two capping in this sub-section. One is that total deduction under section 80-IA would not exceed the profits and gains of industrial undertaking/hotel and second is that deduction allowed under this section shall not be allowed under any other section, sub chapter CIT(A) under Chapter VI-A. 16. We have considered the rival submissions and material on record. Sub-section (9A) of section 80-IA reads as under : "(9A) Where any amount of profits and gains of an industrial undertaking or of a hotel in....
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....'. Upper limit of the multiple deductions under different sections in heading 'CIT(A)' under chapter VI-A is the total profits and gains of the undertaking. Thus for example, where one industrial undertaking is also exporting, it is entitled to deductions both under section 80HHC as well as 80-IA and where deduction under section 80-IA is higher than deduction under section 80HHC, then total deduction under two sections will be limited to deduction under section 80-IA. On the other hand, where deduction under section 80HHC is higher then deduction under section 80-IA then total deductions under two sections will be limited to the deduction granted under section 80HHC. In other words, after allowing one of the two deductions under one section, the balance would be allowed in other section. If higher of the two is already allowed in one section, nothing further will be allowed in other section. But in no case the total deduction under two sections will exceed the profits and gains of the industrial undertaking." 17. One question arises for consideration is whether amount of deduction allowed under section 80-IA will be reduced from the business profit while working out deduction u....
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....y claiming multiple deduction. The object of insertion of section 80-IA(9A) was not to prevent the claim of deduction under more than one section under Chapter VI-A, where he satisfied the conditions of those sections, but only to ensure that the sum total of the deduction so claimed by the assessee does not exceed the profits and gains of the undertaking in respect of which deductions are allowable." From the above it also follows that deductions under section 80HHC will have to be calculated unit-wise and not for whole of the business. Now the last issue in this connection is the final capping on the deduction under Chapter VI-A. It is covered by section 80A which reads as under : "80A. Deductions to be made in computing total income.-(1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U. (2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. (3) Where, in computing the total income of an association of persons or ....