TaxTMI 
TaxTMI 
2009 (11) TMI 819
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....ed a copy of ITAT order in ITA No.3146/Ahd/2003 in assessee own case for assessment year 2000-01 and stated that exactly on identical facts, the similar ground raised by Revenue has been dismissed by the Tribunal vide order dated 21-08-2009. On the other hand Ld. CIT DR also stated that the issue is covered in favour of the assessee by the Tribunal's decision in assessee's own case (ITA No.3146/Ahd/2003). But he contested the issue but admitted that the facts are exactly identical in this year also what was in assessment year 2000-01. 4. After hearing the rival contentions and going through the case records we find that the Tribunal exactly on similar facts has dealt with this issue in ITA No.3146/Ahd/2003 for the assessment year 2000-01 order dated 21-08-2000 vide para-7 to 11 as under:- "7. Ground no.2 relates to disallowance of Rs.12,74,66,253/- on account of selling, publicity and medial literature expenses. Relying upon his own order in assessment year 1998-99, the AO allowed one third of the claim for deduction of the said expenditure while disallowing the remaining amount. 8. On appeal, the learned CIT(A), following his own orders for the assessm....
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....sing Officer that the assessee debited expenditure under the head publicity and medial literature expenses amounting to Rs.1,87,57,74/- out of which 66.66% disallowed as per past practice. The calculation of the impugned addition 66.66% of Rs.1,87,57,742/- comes to Rs.1,25,03,910/-. The CIT(A) has deleted the same with the observations in earlier years, following the same reasons as in earlier years there was no basis to disallow 66.6% expenses as deferred capital expenditure. The ld. AR submitted that the issue is covered b the order of the Tribunal in assessee's own assessee for AY 1988-89 in ITA No.4938/91. The relevant observation of the Tribunal in that case is reproduced below: "The ld. counsel for the assessee submitted that the issue in dispute is covered in favour of the assessee and against the revenue as per the decision of the Tribunal in the case of Torrent Laboratories 59 TTJ 676 which although related to disallowance u/s.37(3A) yet the ratio is applicable to deduction u/s.37 also. It was submitted that in the year under consideration the Assessing Officer has disallowed only 4/5 of the expenses presumably considering the same as deferred revenue expendit....
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.... and on facts in directing to exclude only Rs.48 lacs for professional fees and garden expenses of Rs.6.93 lacs for the computation of deduction u/s.235(2AB) instead of Rs.1,71,47,000/- as done by the A.O." Whereas the assessee has raised the following ground No.1 in C.O.:- "1. In law and in the fats as well as circumstances of the respondent's case the learned CIT(A) has grossly erred in holding while disposing of the ground regarding the disallowance of Rs.85,73,500 as inadmissible weighted deduction u/s.35(2AB) that the expenditure of Rs.48,00,000 being professional fees and Rs.6,93,000 (the correct figure should be Rs.9,44,000) being garden expenses are not related to the research activity and, therefore, the respondent would not be entitled to a further deduction of 50% thereon u/s.35(2AB) of the I.T. Act when he ought to have held that the respondent is entitled to such deduction even on the aforesaid expenses. The Hon'ble Tribunal may, therefore, be pleased to hold that there is no justification in holding that the professional expenses and garden expenses would not be covered for the purpose of weighted deduction u/s.35(2AB) of the I.T. Act and direct th....
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....; Rs.21,24,36,628/-" But DSIR in Form No.3CL allowed as under:- "(1) Revenue expenses Rs.19,45,75,518/- Less: Disallowed by DSIR (1) Bldg. repairs Rs. 37,55,000/- (2) Other revenue exp. Rs.1,33,92,000/- Rs. 1,71,47,000/- ....
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....y the assessing officer only on the basis of the report of the prescribed authority was not justified. What is to be seen by the AO is the nature of expenditure. Therefore I consider this ground for disposal on merits. On perusal of the nature of expenditure it is seen that except for professional fees of Rs.48 lacs - and garden expense of Rs.6.93 lacs the other expense are not of the nature referred to above or like. The professional fees are in connection with patent to be registered overseas and hence it would be covered by the nature of expenses covered above. Garden expense has no relation with the research activity. Therefore, I hold that the A.O was justified in excluding these two expenses in granting deduction u/s.35(AB). However, he is directed to allow deduction in respect of the other deductions. This ground is accordingly partly allowed." 8. Before us Ld. CIT Departmental Representative relied on the assessment order and stated that the Assessing Officer has rightly allowed the weighted deduction at 100% on 1,71,47,000/- on the amount of building repairs and other revenue expenses. Accordingly, he supported the orders of the Assessing Officer. On the other hand Ld. ....
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....ion at .1/2 times of the eligible expenditure above referred to of Rs.2124.36 lacs. 3186.54 In view of the above facts and figure, the Ld. counsel for the assessee stated that the weighted deduction should be allowed to the assessee as per the provisions of Section 35(2AB) of the Act. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the prescribed authority has separately indicated Rs.51.26 lacs for the clinical trials and as per the explanation to the sec. 35(2AB) the assessee incurring expenditure on scientific research & development in relation to drugs and pharmaceuticals, shall be granted expenditure incurred on clinical drug trials. Accordingly, we find that the sum of Rs.51.26 lacs in eligible expenditure as the prescribed authority has disallowed sum of Rs.37.55 lacs revenue expenditure relating to Building and sum of Rs.133.92 lacs from the revenue expenditure other than Building. As per the break up given above we find that the assessee is entitled to weighted deduction of sum of Rs.37.55 lacs and Rs.133.92 lacs in view of the following explanations submitted before the ....
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....D center such gardens (and therefore the gardening expenses) become a necessary. In respect of salary of Rs.58.54 lacs paid to Dr. C. Dutt, he is in-Charge of Research & Development Centre at Bhatt. Through him only, entire in- house research activity is carried on by the assessee. He is the person through whom all co-ordination of the technical scientists and other technical persons is carried out and smooth functioning is carried out in various research activities. To convey and for reporting of entire research activity to the management he has been taken to the Board of Directors by the assessee-company. Therefore, salary paid to Dr. C. Dutt is eligible for weighted deduction u/s.35(2AB). When section speaks of any expenditure, there is no justification to exclude the expenditure of Rs.133.92 lacs as done by the prescribed authority. The assessee is eligible for weighted deduction on the entire expenditure of Rs.2124.36 lac, as claimed above." 10. In view of the above facts and circumstances, we are of the view that it is only the expenditure which will only be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained....
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....n this appeal of Revenue is against the order of CIT(A) in deleting amounting to Rs.40,39,306/- added by the Assessing Officer for transaction with M/s. Baldevbhai Dosabhai Cotton Co. 12. At the outset Ld. Counsel for the assessee filed a copy of ITAT order in assessee's own case ITA No.3146/Ahd/2003 and stated that exactly on identical facts, the similar ground raised by the Revenue has been dismissed by the Tribunal vide order dated 21-08-2009. On the other hand, Ld. CIT DR also stated that the issue is covered in favour of the assessee by the Tribunal's order in assessee's own case assessment year 2000-01 but he relied on the order of the Assessing Officer. We find that the Tribunal vide para-16 to 18 held as under:- "16. Ground no.4 in the appeal relates to claim for deduction of Rs.1,95,58.990/- on account of presentation articles while ground no.5 in the appeal relates to addition of Rs.24,57,449/- on account of packing materials from Baldevbhai Dosabhai Cotton Co. The AO noticed during the course of assessment proceedings that the assessee had shown the following purchases from Baldevbhai Dosabhai Cotton Co. (1) Purchase of stationary article....
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....d the expenditure. We, therefore, confirm the order of the CIT(A) deleting the disallowance. Thus, this ground stands dismissed." 18.1 Though the issue relating to claim of packing material was not involved in AY1999-2000, since the assessee submitted the relevant evidence regarding the aforesaid claim of packing material while payment is also sated to have been made by account payee cheques, there seems to be no justification for disallowing 50% of the expenditure, merely on the presumption that the expenditure might have been inflated. Therefore, following the reasoning given by the Tribunal in relation to presentation articles in the AY 1999-2000 and the Revenue having not brought to our notice any material contrary to the findings of the ld. CIT(A), we are of the opinion that the decision of the learned CIT(A) in deleting these disallowances does not call for any interference. Accordingly, both the ground nos. 4 and 5 are rejected." Respectfully following the Tribunal's decision, facts being exactly identical in this year also, we dismiss this issue of the Revenue's appeal. 13. The next issue in this appeal of Revenue is against the order of CIT(A) in del....
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....ess of the purchases has not been denied / doubted. The seller and the assessee both are independent parties and are not connected in any way. If the purchaser has sold the goods to the assessee after buying from the manufacturer at a higher price at which he procured from the manufacturer, the margin will be the profit of the seller i.e. M/s. Vimal Chemicals. This cannot be the basis for making the disallowance in the hands of the assessee until and unless it is proved that M/s. Vimal Chemicals is a bogus concern and the assessee has actually made the purchases not from M/s Vimal Chemicals but from JK Drugs and Pharmaceuticals Co. Ltd. if any person is engaged in the business it is implied that he will buy the goods from the manufacturer at a lower rate and will sell to its customers at a higher rate. The margin in between is the profit of the said concern. No material or evidence has been brought on record which may prove that the assessee has directly purchased the material from JK Drugs and Pharmaceuticals Co. Ltd. or M/s. JK Drugs and pharmaceuticals Co. Ltd. or M/s. Vimal Chemicals are related with the assessee. Under these facts and circumstances we are of the view that no i....
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.... bifurcation was made, it does not render the expenditure to be either allowable or disallowable as held by the Supreme Court in the case of Kedarnath Jute Mfg. Co. v. CIT 82 ITR 363 (SC). The assessee explained before the lower authorities that the entire expenditure was recognized and accounted for during the current year to bring the financial statements of the company at par with the accounting standards. The expenditure was quantified and ascertained for the first time in this accounting year and that as the process of ascertaining and quantification was completed in this assessment year, the accounting of the same was done in current year. So on all practical and commercial reasons the income should be determined after considering such ascertained liability relating to business. The assessee stated that the quantum or method of calculation of leave liability has never been a subject-matter of dispute. What is disputed in the present case is the leave salary relating to earlier period but for claiming deduction of provision for leave relating to previous years i.e. Rs.136.68lacs). At the cost of being repetitive we would like to reiterate: 1. The assessee-company was ....
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....ng the accounting standard (A.S-15) held as under: The CIT(A) referred to AS-15 and then further held as under:- "For the reasons discussed in the above order of ITAT, and following the said decision, I hold that the disallowance of Rs.136.68 lacs made by the Assessing Officer was not justified. The addition made on this account is, therefore deleted." In view of the above facts and circumstances, discussion carried above, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. This issue of the Revenue's appeal is dismissed. 17. The next issue in this appeal of the Revenue is against the order of CIT(A) in computing the deduction on the following accounts u/s.80HHC of the Act as under:- i) The treatment of DEPB income. 18. At the outset Ld. Counsel for the assessee stated that only the net profit of DEPB income should be excluded for the purpose of computation of deduction u/s.80HHC of the Act r.w.s. Clause (baa) of this Section. He referred to the case law in the case of Topman Exports v. ITO (2009) 318 ITR (AT) 87 (Mum) (SB). The Ld. Departmental Representative also stated that the issue can be revert back to....
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.... of deduction u/s.80HHC of the Act. We find that the issue is covered by the decision of the Hon'ble Delhi High Court in the case of CIT v Shri Ram Honda Power Equip 289 ITR 475 (Delhi). The relevant portion of the Head Note of the said judgment is reproduced below: Export--special deduction under section 80HHC--computation OF SPECIAL DEDUCTION --MODE OF COMPUTATION --PROFITS ASSESSABLE AS INCOME FROM OTHER SOURCES NOT PART OF PROFITS FOR PURPOSES of section 80HHC--interest in clause (baa) of Explanation REFERS TO NET INTEREST --INCOME-TAX ACT, 1961, S. 80HHC. Section 80HHC of the Income-tax Act, 1961, was first inserted by the Finance Act, 1983, with effect from April 1,1983, and has since undergone several changes. While ascertaining the true scope of a provision in a statute, attention must necessarily be paid not only to the text, viz., the words employed in the relevant provision, but also the context. The idea of section 80HHC is to ensure that the exporter gets the benefit with reference to profits derived from export. Where surplus funds are parked with the bank and interest is earned thereon it can only be categorised as income from other sou....
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....he Act. Further the words "included in such profits" occurs in both the provisions. Just as in Distributors (Baroda) where it was explained by the Supreme Court that the words "such" profits can only be understood as "computed in accord- ance with the provisions of the Act", similar words in clause (baa) should partake of the same meaning. The underlying principle of netting appears to logically get attracted as no prudent businessman would allow taxation of the interest income de hors the expenditure incurred for earning such income. The words "included any such profits" following the words receipts by way of interest, commission, brokerage, etc., is a clear pointer to the fact that only net interest would be includible in arriving at the business profit. Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted, in terms of section 37 of the Act, to claim as deduction, expenditure laid out for the purposes of earning such business income. Support for this proposition is to be found from Circular No. 621 dated December 19,19911, of the Central Board of Direct Taxes. The idea of....
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.... availing of credit facilities the bank, does not have an immediate nexus with the export business therefore has to necessarily be treated as income from other sources and business income, (vi) Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assessee would be permitted, in terms of section 37 of the Act, to claim as deduction, expenditure laid out for the purposes of earning such business (vii) In the second stage, the Assessing Officer will deduct from the of the business computed under the head "Profits and gains of busier profession" the following sums in order to arrive at the "profits of the business" for the purposes of section 80HHC(3) : (a) 90 per cent, of any sum to in clauses (iiia), (iiib) and (iiic) of section 28, i.e., export incentives; (b) 90 per cent, of any receipts by way of brokerage, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India, (viii) The word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross ....
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....n-1 thereof. It is stated that in terms of the said explanation while determining the period for which capital asset is held by the assessee in respect of the asset which becomes the property of the assessee in the circumstances referred to in section 49(1), there shall be included the period for which the asset was held by the previous owner referred to in said section. It is therefore submitted that the period for which the Torrent Medi System Pvt. Ltd. held the said property has to be included for finding out the index cost. In view of these arguments, the CIT(A) held in para 11.2 as under:- "11.2 I have considered the submissions of the appellant, it is not in dispute that the land was acquired by Torrent Medi System Pvt. Ltd. in F.Y. 1988-89 and that it came to the appellant on merger of said company in F.Y. 1994-95. In view of the clear provisions of explanation below section 2(42A) referred to above, the period of holding of the land by the appellant and the index cost has to be worked out with reference to the acquisition in F.Y. 1988-89. Te Assessing Officer is directed to worked the index cost accordingly." 21. In view of the above facts discussed, we are of t....
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....ilable on record. In respect of the first question of law, the arguments advanced by the counsel on either side are the same as the one advanced before the Delhi High Court cited supra. The Delhi High Court has considered the relevant provisions and dealt with the matter in detail and held that the credit under sections 115JAA should be given effect to before charging of interest under sections 234A, 234B and 234C of the Act. We are in agreement with the reasoning given by the Delhi High Court. The learned counsel appearing for the Revenue has not produced any materials or given compelling reasons to take a contrary view with that of the Delhi High Court. In such circumstances, we answer the first question in favour of the assessee and against the Revenue. In respect of questions Nos. 2 and 3, the learned counsel appearing for the Revenue vehemently contended that the Act does not prescribe the order of priority of adjustments of tax deducted at source, advance tax and tax credit under section 115JAA of the Income-tax Act. Therefore, one has to take recourse to the Income-tax Rules, 1962, for the said purpose. Rule 12(1)(a) of the Income-tax Rules, 1962, prescribe....