AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (4) TMI 787
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....the ld. CIT(A), the assessee and Revenue both are in appeal before us. ITA 5514/Mum/07 (Assessee's appeal) 4. Ground No. 1 is against the sustenance of disallowance of 1% u/s 14A of the Act. 5. Ground No. 1 in Revenue's appeal in ITA No. 5527/M/2007 for the same A.Y. 2002-03 is against the relief allowed by the ld. CIT(A) out of disallowance made u/s 14A. 6. Since the issue involved is common, both these grounds are considered as common ground for the sake of convenience and disposed of accordingly. 7. Briefly stated facts of the case are that the A.O. observed that the assessee company has shown dividend income of Rs.4027520/- otherwise exempt u/s 10(33) of the Act. Besides, the A.O. also found that major investment of Rs.202.21 lacs has been made in acquisition of shares of three subsidiary and other companies namely M/s Technova Graphics Pvt. Ltd. Rs.167.59 lacs, M/s Sun Paper Ltd., Rs.5.00 lacs and M/s Technova Imaging Systems USA Rs.28.67 lacs. The A.O. further observed that the assessee company has claimed interest of Rs.563.99 lacs in the P and L a/c. The assessee was asked to explain as to why the interest as allocable to the investme....
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....ibunal. 10. On the other hand, the learned D.R. while relying on the order of the A.O. submits that in view of the provisions of section 14A, some reasonable disallowance is called for and the A.O. after considering the facts and circumstances of the case has rightly disallowed 5% of the amount earned as dividend, therefore, the same be restored and the relief allowed by the learned CIT(A) be reversed. 11. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that the facts are not in dispute. We further find that recently the Hon'ble jurisdictional High Court in Godrej and Boyce Mfg. Co. Ltd. vs. DCIT and Another (2010) 328 ITR 81 (Bom) has held (page 138): "...... (v) The provisions of Rule 8D of the Rule which have been notified w.e.f. 24.3.2008, shall apply with effect from Asst. Year 2008-09. (vi) Even prior to the Asst. Year 2008-09 when Rule 8D was not applicable, the A.O. has to enforce the provisions of sub-section (1) of section 14A. For that purpose, the A.O. is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total inc....
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....ritten back (Rs.804,591) "would not form part of any profit of the export business unless the same has been claimed against purchases related to export only." The appellant prays the direction of the CIT(A) based on erroneous interpretation of section 80HHC of the Act be set aside. (e) The learned CIT(A) erred in holding that the amount represented by insurance claim (Rs.652,405) had to be treated as "any other receipt and undergo the treatment envisaged in the Explanation (baa)." The appellant prays the direction of the CIT(A) be set aside insofar as it directs treatment of income under section 80HHC for exclusion of the amount to the extent of 90% from the profits and gains of business." 13. Brief facts of the above issue are that the assessee company has claimed that the receipt of the following items should not be reduced to the extent of 90% for the purpose of computing profits of the business in view of clause (baa) of Explanation to section 80HHC of the Act:- Amount Rs. Recovery of documentation charges 17,67,357 Sale of miscellaneous scrap. 12,513 Services and AMC for sale of equipments 1,55,23,367 Cash discount 74,21,521 Sun....
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....nbsp; (vi) As regards the insurance claim of Rs.6,52,405, the learned CIT(A) observed and held that the amount received from the damages of goods on transit cannot be taken as the turnover of the business. However, it would definitely come under 'any other receipts' and would suffer the treatment envisaged in clause (baa) of Explanation to section 80HHC of the Act. 15. At the time of hearing, the learned counsel for the assessee submits as under: (i) With regard to the documentation charges of Rs.17,67,357, he submits that the issue is covered against the assessee by the decision of Hon'ble Bombay High Court in the case of CIT vs. Dresser Rand India P. Ltd. (2010) 323 ITR 429 (Bom). (ii) With regard to sale of miscellaneous scrap of Rs.12,513, he submits that the issue is covered in favour of the assessee by the decision of Tribunal in the case of ACIT vs. Pan Glatt Pharma Technologies Pvt. Ltd. In ITA Nos.4816, 4820/Mum/08 and C.O. Nos.1 and 2/Mum/09 for A.Ys 2003-04 and 2004-05 order Dt.9.9.2009. He also placed on record the copy of the order of the Tribunal. (iii) With regard to the services and AMC for sale of equipments of Rs.1,55,23,367, he su....
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.... the category of any other receipts of similar nature, therefore, we respectfully following the decision of the Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. (supra) hold that 90% of the same has to be excluded for the purpose of computation of deduction u/s. 80HHC of the Act. (ii) With regard to the sale of scrap, we observe that the computation u/s. 80HHC is made on the basis of profit earned which has been defined under the head 'profit and gains of business and profession' as reduced by 90% of such income such as interest, rent, commission or other income of similar nature. The scrap generation is part of the manufacturing activity and therefore income arising from scrap sales is an operational income of the company. Therefore, in our view the scrap sales has to be treated as part of the business profits and 90% of the same is not required to be excluded as per clause (baa) of Explanation to section 80HHC. This view also finds support from the decision of the Tribunal in Pam Glatt Pharma Technologie Pvt. Ltd. (supra) wherein it has been held that that the income generated from sale of scrap is very much part of the business income of the assessee ....
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....g the same, we hold that the receipt of sundry credit balance has to be treated as part of the business profit and 90% of the same is not required to be excluded as per clause (baa) Explanation to section 80HHC. (vi). As regards insurance claim, we find merit in the plea of the learned counsel for the assessee that this issue is also covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of Pfizer Ltd. (supra) wherein it has been held that the claim on account of insurance for the stock in trade did not constitute a receipt of similar nature within the meaning of Explanation (baa), not liable to be reduced to the extent of 90%. Respectfully following the same, deduction u/s. 80HHC is allowed on this issue. We hold and order accordingly. The grounds taken by the assessee are, therefore, partly allowed. 18. Ground No.3 read as under: "The learned CIT(A) erred in holding that 90% of the following receipts though arising from the appellant's conduct of business both local and export, had to be reduced from the profits and gains of business to arrive at the profits of business defined in clause (baa) of section 80HHC of....
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....essee very fairly submits that the issue is covered against the assessee by the order of the Tribunal in assessee's own case for the Asst. Years 2000-01 and 2001-02 (supra). f) With regard to the sales tax set off of Rs.1,35,53,629, he submits that the issue is covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT vs. Alfa Laval India 295 ITR 451 (SC) and the order of the Tribunal in assessee's own case for the Asst. Year 2001-02 (supra). 20. On the other hand, the learned Departmental Representative supports the order of the Assessing Officer and ld. CIT(A). 21. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. After considering the facts and circumstances of the case and the decisions relied on by the parties, we decide the above issues as under: a) With regard to the interest income of Rs.29,87,762/- received on account of credit facilities to dealers and customers, we find merit in the plea of the learned counsel for the assessee that the above issue is covered in favour of the assessee in assessee's....
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....d Rs. 2500/- had to be excluded for the purpose of computation of special deduction u/s. 80HHC. We hold and order accordingly. (c to f) With regard to the issue in sub ground (c), rent/lease rent Rs.12,74,950 (d) sales tax refund of Rs.24,53,983 (e) Commission of Rs.2,20,606 and (f) sales tax set off of Rs.1,35,53,629, we are of the view that the above items are squarely covered against the assessee by the decision of Hon'ble Supreme Court in K. Ravindranathan Nair (supra) and the recent decision of Hon'ble jurisdictional High Court in the case of Dresser Rand India P. Ltd. (supra) wherein it has been held- "Held accordingly, that 90 per cent of recovery of freight, insurance and packing receipts amounting to Rs.49,14,076, sales tax set off/refund amounting to Rs.38,33,148 and service income of Rs.2,89,17,545 had to be excluded for the purpose of computation of special deduction under section 80HHC." Accordingly, ground No.3 taken by the assessee is partly allowed. 22. Ground No.4 is against the sustenance of disallowance of depreciation on software treated as capital expenditure. 23. At the time of hearing both parties have agreed that this issue ....
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....sing Officer to examine the facts of the case in the light of the criteria laid down in para-59 of the order supra, and if the Assessing Officer comes to the conclusion that the expenditure is capital expenditure then he should allow due depreciation. Respectfully following the above decision of the Special Bench of the Tribunal we set aside the order passed by the revenue authorities on this account and send back the matter to file of the Assessing Officer who shall decide the issue afresh in the light of the directions of the Tribunal (supra), and according to law after providing reasonable opportunity of being heard to the assessee. The ground taken by the assessee is, therefore, partly allowed for statistical purposes. ITA 5527/M/2007, A.Y. 2002-03 (Revenue's appeal) 24. Ground No. 1 is against the relief allowed by the ld. CIT(A) out of disallowance made u/s 14A. 25. This ground has already been adjudicated by us in para Nos. 5 to 11 of this order wherein in para 11 of this order, we uphold the disallowance sustained by the ld. CIT(A). Accordingly, the ground taken by the revenue is rejected. 26. Ground No. 2 and 3 read as under:- ....