TaxTMI 
TaxTMI 
2012 (10) TMI 609
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 of the Income tax Act, 1961 and the grievance of the assessee is regarding confirmation of part disallowance on this account to the extent of Rs. 42,81,600/-. 2.1 Brief facts of this issue till the assessment stage are noted by Ld. CIT(A) in para 2.1 of his order and for the sake of ready reference, the same is reproduced below: "The first ground is with regard to the disallowance of sales commission expenditure of Rs. 9,77,76,800/-. The appellant company is engaged in the business of manufacturing wind turbine generators (WTGs) at Daman & Pondicherry. During the year, under consideration, the appellant claimed sales commission expense in the sum of Rs. 9,77,76,800/- on total sales of Rs. 1917.50 crores. The appellant has paid commission to 27 parties on 137 transactions of sales out of total 451 wind mills sales. The A.O. called six customer for personal verification by issuing summons u/s 131 of the act, who were examined and their statements were recoded. The A.O. has discussed these facts in details in the assessment order and concluded that there is no evidence that the assessee company received inbound services and its claim of payment of commission is not justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s submitted by the Ld. D.R. that only customers had approached the assessee and not otherwise that the assessee has approached the customers and, therefore, it did not come out from the record that the customers were introduced to the assessee by some other person. He also submitted that no evidence has been produced regarding rendering of any services by these persons and hence, commission was rightly disallowed by the A.O. Reliance was placed on the judgement of Hon'ble Apex Court rendered in the case of Laxmi Sugar Mills & Oil Mills Vs CIT as reported in 84 ITR 439 (S.C.). 2.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that this issue was decided by Ld. CIT(A) as per para 3.2 of his order which is reproduced below: "3.2 I have considered the facts of the case and the submissions as advanced by the appellant along with the case laws as relied upon. The facts emerged that agreements have been entered into for payment of commission in respect of Work done by the agents and for providing information which resulted in maturity of sales. The payments were made as per the agreement.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les to be matured and realised, the payment of commission is justified. However, at the same time, it is also observed that the entire expenditure of commission cannot be allowed, in view of the specific finding brought on record by the AO after enquiry in certain cases, wherein he examined the six customers and brought on record that in respect of these customers, the agents played no role in achieving the sales and these customers directly approached the assessee for the transaction:- Name of person called u/s. 131 Name of party to whom sales made. Commission Agent Commission paid Shri Somchand Laljibhai Savia. Savia Twisters Pvt. Ltd. India Wind power Ltd. 8,00,000 Shri Dhanjibhai Anandbhai Makvana Makson Pharmaceuticals Ltd. Vishal Corporation 8,00,000 Shri Amrutlal Jethalal Kalaria Intricast Pvt.. Ltd. t rikaya Metalic Ltd. 2,00,000 Shri Nirbhaya Krishna Agrawal Harsha Engineers Ltd. Shree Radhika Steel-chem -Ltd. 8,81,600 Shri Pareshkumar Labsankar Vyas Arnbuja Intermediates Ltd. PKM Industries 8,00,000 ShriNareshbhai Manchand Shah M/s. Sahastra Properties Pvt. Sonica Granite Pvt. Ltd. 8,00,00....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contention of the assessee is supported by facts on record that there is no motive to save taxes by paying commission since the units of the assessee are eligible for deduction @ 100% u/s 80-IB. In respect of 6 parties which were not introduced by the commission agent, it was the submission of the Ld. A.R. that the agents had furnished other information such as report about reputation, status, financial standings etc. Regarding these 6 parties, he also submitted that they have also helped in realization. The Ld. A.R. was asked to file letters of these agents but the same are not filed by the Ld. A.R. and hence, in the facts of the present case, we feel that the order of Ld. CIT(A) on this issue does not call for any interference from our side because part disallowance confirmed by him is on this basis of these 6 customers were not introduced by these agents whereas for the balance amount for which disallowance of commission is deleted by Ld. CIT(A), he has given a clear finding that these parties were introduced by the commission agents and evidence were filed regarding rendering of the services by them and these findings of Ld. CIT(A) could not be controverted by the Ld. D.R. Reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,516/- and against this exempt income, the appellant has not shown any expenditure incurred for earning this exempt income. The AO has taken the following expenses as related to earning the exempt income and held that these are common expenses incurred for earning dividend income as well as taxable income, and hence, he apportioned on the ratio of .turnover of the assessee company and allocated @ 5.2% of these amounts and calculated an amount of Rs. 50,19,716/-as incurred relating to earning dividend income and disallowed the same. Thus, total disallowance made u/s. 14A was Rs. 3,06,48,988/-. Sr.No. Particulars Amount Rs. in lakhs 1. Director's remuneration 163.1 2. Director's fees and traveling 67.45 3. Staff salary of Corporate office 73.9. 4. Audit fees 122.0 5. Building 50.12 6. Rent 278.76 7. Communication 210.00 Total 965.33 3.2 Out of this disallowance of Rs. 3,06,48,988/- made by the A.O. u/s 14A, Ld. CIT(A) has confirmed the part disallowance for which the assessee is in appeal and deleted the balance disallowance for which the revenue is in appeal before us. 3.3 It was su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is called for in the order of Ld. CIT(A). We hold so because we find that with regard to the investment of Rs. 5907.18 lacs in foreign subsidiaries, no disallowance can be made u/s14A because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of Rs. 38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many times more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of Rs. 929.57 crores. There is no finding given by the A.O. regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case. Accordingly, ground No.2 & 3 of the revenue's appeal are rejected. 3.6 Regarding ground No.2 of the assessee's appeal as per which, Ld. CIT(A) has directed the A.O. to allocate directors' remuneration fee and traveling allowance toward earning dividend and to make proportionate disallowance u/s 14A of the Income tax Act, 1961, we are of the consid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing deduction u/s 80-IB of the Income tax Act, 1961. In support of this contention, reliance is placed on the Tribunal decision in assessee's own case for the assessment year 2004-05 in I.T.A.No. 2009/Ahd/2006 dated 29.04.2009. He submitted a copy of this tribunal decision. Reliance was also placed on the decision of Hon'ble Apex Court rendered in the case of ACG Capsules Associated Pvt. Ltd. vs ACIT as reported in 343 ITR 89 (S.C.) in support of this contention that netting of interest should be allowed. 4.4 Ld. D.R. supported the order of authorities below. 4.5 We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below and the judgement cited by Ld. A.R. We find that interest income cannot be said to be an income derived from an industrial undertaking and, therefore, Section 80-IB deduction is not allowable in respect of interest income. Regarding netting of interest income, we find that his issue is now covered by the judgment of Hon'ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. (supra). In that case, it was held by the Hon'ble Court that only 90% of net interest included in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der dt: 29-3-2006 & 19-06-2006 by following the decision of Hon. Gujarat High court in the -case of India Gelatine & Chemicals Ltd., 275 ITR 284. As the issue is similar, it is divided in favour of the appellant for this year also and the appellant is given relief on this point." 5.2 Being aggrieved, the assessee carried the matter in appeal before ld. CIT(A) who has decided this issue in favour of the assessee by following the order of his predecessor in assessee's own case for the assessment year 2003-04 and 2004-05 in which the judgment of Hon'ble Gujarat High Court rendered in the case of India Gelatine & Chemicals Ltd. as reported in 275 ITR 285 was followed. Now, revenue is in appeal before us. 5.3 It was submitted by the Ld. D.R. that this issue is now covered against the assessee by the judgement of Hon'ble Apex Court rendered in the case of Liberty India Ltd. as reported in 317 ITR 218 (S.C.) 5.4 As against this, Ld. A.R. submitted brief note on eligibility of duty drawback while computing deduction u/s 80-IB of the Income tax Act, 1961. The same is reproduced below: "A brief note on eligibility of income on account of Duty Drawback while computing deduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....awback under this scheme. A perusal of the said rules reveal the following distinct features: * Though it is called Brand Rate but in fact it is a refund of actual amount of duty paid on the inputs used in export of product. * It is not general one but is given specific to the individual exporter having direct nexus with the actual amount of duty paid by him and is arithmetically equal to actual amount of duty incurred on export product * The claim is available only if the input has been used in manufacture of product exported and has also suffered custom duty or central excise duty. It may be noted that we have not opted for AIR Duty Draw Back but have claimed refund of actually paid duty on input used in manufacture of product exported by us by making detailed application for each export submitting evidence/proof of input consumed in product exported and amount of custom duty and central excise duty paid by us on the same. A copy of one such sample application giving details of the duty paid is attached herewith as Exhibit 2. Scheme of DEPB is different from scheme of Duty Drawback: Even the scheme of DEPB i.e. Duty Entitlement Pass Bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., therefore, while excluding Duty Drawback from the eligible income, only income component, if any, can be excluded. However, as stated hereinabove, there is no income component embedded in the Duty Drawback in the facts of the present case as Assessee has opted for refund of duty actually paid on input used in manufacture of product. C Effect of decision in the case of Liberty India (317 ITR 218). The decision in the case of Liberty (supra) is not at all applicable to the facts of the present case since while rendering the said decision, Hon'ble the Supreme Court denied the benefit of 80IB in respect of duty drawback as it found that duty drawback was claimed under AIR and was not arithmetically equal to the actual amount of duty paid. The relevant Para 17 of the judgment Hon'ble Supreme Court is reproduced herein below for immediate reference: "The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials of any particu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounting methodology was followed for the payment and refund of excise duty, the net effect on the P&L A/c was nil. J K Aluminium Co v ITO ITA 3303/Del/2010 dated 29-4-2011 (copy enclosed at Exhibit 6). 3. In any case, in the case of Liberty (supra), it was never argued before the Hon'ble the Supreme Court that for earning DEPB or Duty Drawback, the assessee has to incur expenditure and therefore, while excluding such receipt, only the income portion, if any, embedded in such receipts can be excluded and not the gross receipts. This issue of DEPB or Duty Drawback having cost and the same has to be reduced to find out profit or income from the gross receipts has been accepted and explained by Hon'ble the Supreme Court in later decisions in the following cases: Topmann Exports V CIT (2012) 342 ITR 49(SC). the relevant extract is reproduced hereinbelow for ready reference: xxx... 15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that clause (iiia) of Section 28 treats profits on the sale of an import license as income chargeable to tax and when the license is s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see has received exactly the same amount of duty paid by it. 4. In fact this principal of excluding only the net income, if any, and not the gross receipts has been duly explained recently by Hon'ble the Supreme Court in the context of provisions of S. 80HHC wherein the provisions of Explanation (baa) lays down exclusion of 'receipts'. Despite that, Hon'ble the Supreme Court held that what can be excluded is the profit or income and not the gross receipt. Relevant extract of the said decision are reproduced hereinbelow for ready reference: ACG Associated Capsules (P.) Ltd, v. CIT [2O121 343 ITR 89 (SO XXX... 3. For appreciating the second issue, we may refer very briefly to the facts of the case. For the assessment year 2003-04, the assessee filed a return of income claiming a deduction of Rs. 34,44,24,827/- under Section 80HHC of the Act. The Assessing Officer passed the assessment order deducting ninety per cent of the gross interest and gross rent received from the profits of business while computing the deduction under Section 80HHC and accordingly restricted the deduction under Section 80HHC to Rs. 2,36,25,053/-. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceipts of income which are chargeable as profits and gains of business under Section 28 of the Act will have to be included. Similarly, in computation of such profits of business, different expenses which are allowable under Sections 30 to 44D have to be allowed as expenses. After including such receipts of income and after deducting such expenses, the total of the net receipts are profits of the business of the assessee computed under the head "Profits and Gains of Business or Profession" from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and Gains of Business or Profession". The expression "included any such profits" in clause (1) of the Explanation (baa) would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and Gains ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s computed under the head "Profits and Gains of Business or Profession" referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt cannot be deducted under Explanation (baa) to Section 80HHC. 12. If we now apply Explanation (baa) as interpreted by us in this judgment to the facts of the case before us, if the rent or interest is a receipt chargeable as profits and gains of business and chargeable to tax under Section 28 of the Act, and if any quantum of the rent or interest of the assessee is allowable as an expense in accordance with Sections 30 to 44D of the Act and is not to be included in the profits of the business of the assessee as computed under the head "Profits and Gains of Business or Profession", ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to Section 80HHC. In other words, ninety per cent of not the gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ge a refund of the amount arithmetically equal to custom duty or Central Excise duty actually paid by an individual importer cum manufacturer. It is also stated by Hon'ble Apex Court in para 17 of this judgement that sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. We, therefore, feel that para 16, 17 and 18 of this judgement of Hon'ble Apex Court should be reproduced below for ready reference: "16. DEPB is an incentive. It is given under the Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided of by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as a percentage of the FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by the DGFT for import of r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or as is specified in the rules as the average amount of duty paid on the materials of that class or description used in the manufacture or processing of export goods or carrying out any operation on export goods of that class or description either by manufacturers generally or by persons processing of carrying on any operation generally or by any particular manufacturer or particular person carrying on any process or other operation, and interest if any payable thereon." 5.8 We also reproduce the relevant portion of Customs and Central Excise Duties and Service Tax Drawback Rules, 1995 as per notification No.37/95 dated 26.05.1995. 5.9 In the beginning to the notification, it is stated that on exercise of powers conferred by Section 75 of the Customs Act 1962, Section 37 of the Central Excise Act 1944 and Section 93A read with section 75 of the Finance Act 1944 these rules are made by the Central government. Rule 6 is relevant and the same is reproduced below: ""Rule 6. Cases where amount or rate of drawback has not been determined.- (a) Where no amount or rate of drawback has been determined in respect of any goods, any manufacturers or exporter of such goods may, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ustom duty, out of which Rs. 5,697/- was deducted being @ Rs. 3/kg. for 1899 Kg. being recoverable wastage and the balance amount was paid as duty drawback being Rs. 2,66,698/-. Similarly, for assessment year 2006-07 also, the assessee has submitted complete details about duty drawback, as per which, duty paid by the assessee is of Rs. 15,71,42,086/- and duty drawback received is Rs. 15,48,64,977/-. This goes to show that in both the years, there is direct and arithmetic correlation between the duty paid by the assessee and duty drawback received by the assessee. These facts along with relevant provisions of the Customs Act 1962 and Custom and Central Excise Duty and Service Tax drawback Rules 1995 of which relevant portion is reproduced above, we find that the facts in the present case are distinguishable from the facts in the case of Liberty India (supra). In the case of Liberty India (supra), the issue was decided by the Hon'ble Apex Court against the assessee on this basis that since the rule does not envisage refund of an amount arithmetically equal to customs duty paid by the individual exporter/manufacturer, the duty drawback and DEPB receipt of the assessee is on account of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nded as duty drawback and hence, the facts of the present case are distinct than the facts in the case of Liberty India (supra) and, therefore, this judgment of Hon'ble Apex Court rendered in the case of Liberty India (supra) cannot be applied in the present case because we have seen that factually, all duty drawback received by the assessee is almost arithmetically equal to the duty paid by the assessee wherein some amount for which drawback was not allowed is on this basis that the same is relatable to recoverable wastage. Under these facts, it is established by the assessee that the duty drawback received by the assessee is arithmetically equal to the duty paid by the assessee and, therefore, in the facts of the present case, we are of the considered opinion that duty drawback in the present case is nothing but refund of duty paid by the assessee and, therefore, respectfully following the Tribunal decision rendered in the case of J K Aluminium Co. (supra), we decide this issue in favour of the assessee and hold that in the facts of the present case, duty drawback received by the assessee is eligible for deduction u/s 80-IB. This ground of the assessee is allowed. 6. The next ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of revenue as well as ground of the assessee were rejected. Accordingly, in this year also, ground no.2 of the revenue as well as ground n.1 of the assessee's appeal are rejected. 13. The next issue is regarding allowability of deduction u/s 43B of Rs. 7,12,618/- in respect of employees contribution to PF & ESI. Both the sides agreed that in this year also, the entire amount was paid prior to the due date of filing of return of income and hence, this issue is identical to ground No.6 of the revenue's appeal in assessment year 2005-06. In that year, this issue was decided by us in favour of the assessee. Accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.3 of the revenue is also rejected. 14. The next issue is regarding the action of the A.O. in not reducing the conditional additional amount of Rs. 20 crores added in computation of income to cover any error, omission etc. The same is as per ground No.2 and 3 of the assessee's appeal whereas revenue has raised this issue as per ground No.4 because Ld. CIT(A) has directed the A.O. to allow deduction u/s 80-IB of the Income tax Act, 1961 of Rs. 19,16,20,416/- out of additional undisc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee company. From the assessment order it is very clear that the very basis of acceptance of disclosure was that the assessee has made disclosure vide letter dated 19th June and 21st June, 2006 and paid taxes accordingly. There is no discussion in the assessment order about the incriminating materials found and impounded during the course of survey which indicate that there is undisclosed or unaccounted income emerging out of the same. In the absence of the same, the assessee has specifically retracted the voluntary disclosure during the course of assessment proceedings vide letter dated 29th February and 17th March, 2008. The Hon'ble Apex Court in the case of Shelly Products (supra) has very categorically recorded a finding that similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted form payment of income tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n that a particular income was not taxable in his hand and that it was returned under erroneous impression in the present case before us, the assessee has proved that the disclosure made was neither the undisclosed/unaccounted income of the assessee company and even not a single piece of incriminating paper or document or evidence of any nature were found form the impounded materials. Even the A.O. has made addition just on the basis statement recorded during the post survey proceedings u/s 133A of the Act. There is no iota of evidence, which suggest that there is unaccounted/undisclosed income emerging tout of the incriminating documents impounded during the course of survey. There is nothing on record which could co-relate such additional income/disclosure offered by the assessee company during the course of survey with any other discrepancy. On these facts and circumstances, we allow the claim of the assessee." 16. From the decision in the case of Suzlon infrastructure (supra), we find that in that case also, the issue was regarding the reducing of conditional additional amount of R.700 lacs added in the computation of income to cover any error, omission, discrepancy etc. mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uty drawback received by the assessee of Rs. 15,48,64,977/-. Both the sides agreed that this issue is identical to ground No.5 of the revenue's appeal in assessment year 2005-06 and the same can be decided on similar lines. In that year, this issue was decided by us in favour of the assessee and accordingly in the present year also, this issue is decided in favour of the assessee. Ground No.5 of the revenue's appeal is rejected. 21. Ground No.6 of the revenue's appeal is regarding set off of loss of Rs. 4,68,34,166/- of Dhuneta unit against the profits of other eligible units. It is submitted by the Ld. A.R. that this issue was raised by the assessee in assessment year 2005-06 also as per ground No.5 & 6 regarding set off of the same loss. It is submitted that in that year, this ground was not pressed by the assessee and, therefore, the loss was set off in that year and hence, there is no question of any further set off in the present year. 22. Ld. D.R. supported the orders of authorities below. 23. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that the amount of loss for which set of....