AI Drafter 
TaxTMI 
TaxTMI 
2009 (12) TMI 666
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....sary to segregate the profit/loss for computing the deduction available under section 80-IB. The lower authorities have adopted a blanket view that exact bifurcation of income/loss is not possible in this case for the reason that separate books of account are not maintained by the assessee-company. But the important point overlooked by the lower authorities is that if the details and nature of transactions entered in the common books of account and supporting subsidiary registers are identifiable with reference to the manufacturing activities and trading activities, it is not impossible to work out almost the exact amount attributable to the above two different activities. Therefore, in cases where separate books of account are not technically maintained, the division of income/expenditure on an estimate basis is not a fait accompli. Even in such cases, it is possible to decipher a proper division on the basis of the details reflected in the books of account. Therefore, we find that the lower authorities have erred to the above extent while appreciating the merit of the submissions made by the assessee-company. 4. The ITAT, Ahmedabad 'A' Bench has considered the very same issue ....
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....rned income" and cannot be treated as income derived from the unit eligible for deduction under section 80-IB. "Derived of income" connotes "an intimate nexus" which is genetic as well as functional. The Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 has discussed the law on the subject and has held that similar interest income cannot be considered as income derived from the eligible industrial unit. In view of the above, we uphold the decision of lower authorities on this point and hold that the bank interest of Rs. 1,55,000 is not eligible to be considered for the purpose of section 80-IB. (ii)Next item is Duty Drawback amounting to Rs. 26,43,000. This amount also cannot be considered for quantifying the deduction under section 80-IB in view of the recent judgment of the Hon'ble Supreme Court in the case of Liberty India v. CIT [2009] 317 ITR 218 . The lower authorities have rightly excluded the said amount from the ambit of section 80-IB. (iii)The next item in the list is the income earned by the assessee on sale of scrap. Scrap is essentially a remainder portion of the raw-materials/finished goods. Scrap generates out of the inventor....
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.... late payment of sale consideration. After examining the nature of the said interest, the Court held that the amount was in fact derived from the business carried on by the assessee and accordingly held that these amounts are includible for the purpose of section 80-I. The above ratio squarely applies to the present case as well. Accordingly, we direct the Assessing Officer to treat the amount of Rs. 5,11,688 as part of 80-IB profits. (vii)The seventh ground is penal charges on deposits. For the reasons stated above, this amount of Rs. 10,970 is entitled to be considered as part of 80-IB profits. (viii)The last item in the list is other income amounting to Rs. 2,24,273. No details are available regarding the nature of the composition of the above amount. Therefore, it is not possible for us to hold that the said amount must be treated as part of section 80-IB profits. The lower authorities are justified in excluding the said amount of Rs. 2,24,273 while computing the profits eligible for deduction under section 80-I. 9. After considering the issue raised by the assessee in respect of computation of deduction under section 80-IB, we may proceed to the disputes raised in the....
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.... on this amount are rejected. 10. We have adjudicated all the relevant issues in this appeal filed by the assessee. The assessing authority is directed to revise the computation of deductions available to the assessee under sections 80-IB and 80HHC in the light of our directions contained in the above paragraphs. It is to be further seen that while granting the deductions both under sections 80HHC and 80-IB, no simultaneous and independent deductions would be allowed. The deductions shall first be allowed under section 80-IB and deduction under section 80HHC shall be allowed on the remainder profits. This direction is in the light of the Special Bench decision of Appellate Tribunal in the case of Asstt. CIT v. Hindustan Mint & Agro Products (P.) Ltd. [2009] 119 ITD 107 (Delhi). 11. The above appeal filed by the assessee is partly successful. 12. Next we will consider the appeal filed by the revenue. 13. The only ground raised by the revenue in its appeal is that the CIT(A) has erred in directing the Assessing Officer to allow royalty expenses of Rs. 49,77,894 as revenue expenditure. 14. The assessee-company has paid a royalty amount of Rs. 1,99,11,576 to M/s. Wrangle....
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.... the assessee has to return all the technical materials provided by the H.D. Lee Co. Inc., knowledge and expertise acquired by the assessee-company in the course of utilizing these technical materials are in the nature of an intangible asset having value of endurance and in such circumstances, a partial disallowance made by the assessing authority was only legitimate. 18. The learned counsel for the assessee, on the other hand, relied on the judgment of the Gujarat High Court in the case of Jyoti Electric Motors Ltd. v. CIT [1999] 237 ITR 280. The learned counsel pointed out that in the said case, the payment was made as a percentage of the sales turnover of the assessee-company and in such circumstances, the Court held that the payment was in the nature of revenue expenditure and therefore entitled to be deducted in computing the taxable income. The learned counsel explained that in the present case also the assessee was paying royalty as a percentage of the sales turnover. The learned counsel further explained that the technical agreement executed in the present case was only for a short period of four years out of which the assessee had no occasion to procure any technical ex....
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....the assessee to run its business in a more competent manner. Therefore, it is to be seen that the royalty paid by the assessee was in the nature of expenditure incurred for running an existing business in a better way. 21. In the above facts and circumstances, it is not possible to agree with the view of the Revenue that by virtue of utilizing the facility as per the technical agreement for a period of four years, the assessee-company has acquired a benefit of enduring nature. The assessee has not built up any technical base or acquired any intangible asset of perpetual use. Therefore, we agree with the CIT(A) that there was no justification for treating 1/4th of the royalty payment as capital expenditure. The CIT(A) is justified in deleting the said partial disallowance. 22. Another aspect to be considered in this context is that the Assessing Officer has not taken seriously the arguments of the assessee that the nature of royalty payment made by the assessee was examined by the assessing authority for the earlier assessment year 1995-96 in a detailed manner and accepted the contention of the assessee that the payment was in the nature of revenue expenditure. This finding ar....