TaxTMI 
TaxTMI 
2014 (3) TMI 327
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....and Rs. 36,12,973/- for AY 2002-03 respectively, though the same was arisen out of export business, entitled for deduction u/s 80HHC of the IT Act. 3. According to the assessee, this interest income represent the interest on TDRs kept with banks towards margin money for obtaining letter of credits for importing raw material and, therefore, it has direct nexus with the business, hence, the same has got to be considered for the purpose of deduction u/s 80HHC of the Act. He, further, submitted that for the AY 2004-05, the CIT(A) gave a categorical finding in para 8.5 of his order wherein it was held that interest income to be treated as business income of the assessee and eligible for deduction u/s 80HHC subject to verification of the AO whether the same was earned in respect of TDRS kept in the bank as margin money towards bank guarantee by placing reliance on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. K. Ravindranathan Nair, 295 ITR 228. Further, he relied on the following judgments: 1. CIT Vs. Producin Pvt. Ltd., 322 ITR 270 2. CIT Vs. K & Co., 88 DTR (Del.) 166. 3. Lalsons Enterprises Vs. DCIT, 89 ITD 25 (Del.)(SB) 4. On the other hand, the learned D....
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.... electricity deposit did not form part of the business profits of the appellant for the purpose of computation of deduction u/s 80HHC of the IT Act, 1961. 10. We have heard both the parties and perused the record. With regard to the conversion charges, the coordinate bench of this Tribunal in the case of ACIT Vs. Bio-tech Medicals, Hyderabad, 119 ITD 143 held that conversion charges to be considered as derived from the industrial undertaking of the assessee. Further, the Hon'ble Supreme Court in the case of K. Ravindranathan Nair (supra) held that processing charges received by the assessee being an independent income, 90% thereof had to be reduced from this income but the same being an important component of business profits, had to be included in the total turnover as per the formula given in 80HHC of the Act. Accordingly, we direct the AO to consider the conversion charges as an independent income and exclude 90% thereof from the gross total income in terms of Explanation (baa) to section 80HHC of the Act, so as to arrive at business profits. This ground is partly allowed. 10.1 As regards Exchange fluctuation, if it is received in the end of the FY corresponding to the sal....
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.... in AY 2001-02. Bill was issued on 01/09/2011 by Shri Ganesh from M/s Q Pharma Consulting India and this falls in FY 2001-02 relevant to AY 2002-03 and the same is to be allowed. 13. The learned DR, on the other hand submitted that the assessee has paid Rs. 1 lakh on 07/03/2001 for the period from 01/04/2000 to 31/03/2001 ad another amount of Rs. 1 lakh on 07/03/2002 for the period from 01/04/2001 to 31/03/2002. The bill dated 01/09/2001 issued by Sri Ganesh from M/s Q Pharma Consulting India in response to work order dated 28/12/2000 clearly provides that he received Rs. 2.00 lakh towards consultation services provided in establishing CGMP System at factory unit at Kazipally for period November, 2000 to November, 2001. Out of total fees, Rs. 1 lakh was received in FY relevant to AY 2001-02 and for the AY under consideration only Rs. 1 lakhs is relevant and being so, 1 lakhs is allowed. 14. We have heard both the parties and perused the material on record. Though the claim of Rs. 2.00 lakh is relevant to AY under consideration, however, bill issued by Sri Ganesh from M/s Q Pharma Consulting India shows that only Rs. 1 lakh is relating to AY under consideration and balance Rs. 1 l....
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....mbursement of excise duty paid on export of goods and since, it increases the export competitiveness and the reimbursement thus, received is cash assistance in the form of excise rebate, which help to the exporter in the competitive market. The word 'cash assistance' mention in the provisions of section 28(iiib) has wider meaning as Parliament intentionally further used word 'by whatever name called along with cash assistance', it clearly shows that cash assistance not only includes cash compensatory support but also subsidy, incentive and rebate. The rebate is nothing but an incentive given by the Government of India under a scheme framed in the Rule 12 of Central Excise Rules, 1944 and Rule 18 of Central Excise Rule, 2001 by issuing notification w.e.f. 01/07/2001. 17.1 The CIT(A) noted that in case of ACIT Vs. Pratibha Syntex Ltd., reported in 63 TTJ (Ahm.) pg. 409, the Hon'ble Ahmedabad Bench held that total benefit derived by an assessee on duty free imports will form part of the profit by business u/s 28(iiib) of the Act. The Tribunal found that u/s 28(iiib) of the Act, the expression used was 'cash assistance' received by an assessee by whatever n....
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....2001 and the receipt falls in the provisions of section 28(iiib) of the Act and, therefore, it has to be assessed under the head 'profits and gains of business or profession' and accordingly in terms of Explanation (baa) 90% of the receipt has to be excluded to determine deduction u/s 80HHC(3) of the IT Act, 1961. 18. Against this, the assessee is in appeal before us. 19. We have heard both the parties and perused the record. In our opinion excise duty refund does not fall u/s 28(iiib) of the Act as it related to the Modvat credits returned from the excise duty payments on exports and it was later on refunded and, therefore, it is neither an incentive nor a rebate and the central excise duty what has paid by the assessee and there being so, there is no question of excluding 90% receipts by invoking Explanation (baa) to section 80HHC of the . Accordingly, we reverse the findings of the CIT(A) and allow this ground of appeal. 20. A common ground raised by the assessee in ITA No. 355/Hyd/2007 for AY 2002-03 and ITA No. 1145/Hyd/08 for AY 2004- 05 is with regard to disallowance of interest relating to the amount advanced to M/s Nextage Broadband Ltd. 21. According to the as....
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....ent in shares was disallowed by the AO u/s 14A of the Act following the decision of the Calcutta Bench of ITAT in case of DCIT Vs. SG Investments and Industries Ltd., 89 ITD 44. 26. On appeal, the CIT(A) observed that the assessee has not received any dividend on the investments. However, it was observed that the assessee had paid interest on overdraft account and since business of the subsidiary company cannot be considered as business of the assessee, it cannot be said that borrowed funds were utilized for the purpose of business. Accordingly, the CIT(A) computed the disallowance at 12% on the amount of investment, which was worked out at Rs. 1,35,980/- as against Rs. 2,96,110/- made by the AO for AY 2002-03. Similar is the position in AY 2004-05. 27. The learned AR submitted that the assessee made investment in SMS International Ltd. at Rs. 21,22,206/-, which has not declared any dividend. Further Rs. 2,75,380/-, which made investment in shares of M/s Jeedimetla Effluent Treatment Ltd. and M/s Pattan Cheru Effluent Treatment Ltd. to take membership in those companies so as to send residuals and wastage solvents as it is mandatory for the assessee to send the residual and wasta....
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....of the goods manufactured by the company. He further, observed that under the provisions of Sec.28(iiib) income assessed (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India shall be chargeable to income tax act under the head of "profits and gains from business or profession". He also relied provisions of sec.28(iiic) and held that the excise rebate claimed by the assessee u/s.11 B of Central Excise Act r.w.r.18 of Central Excise Rules is chargeable to Income tax u/s.28(iiib )/28(iiic). 33.1 In the remand report, the Assessing Officer mentioned circular no.572 dated 3.8.1990 which is applicable with retrospective effect 1.4.1962. As per para 27.2 of the circular, the incentive given to the exporters by way of profit on sale of import entitlement licenses, CCS and draw back of duty are revenue receipts and hence liable to tax as per new clauses (iiia, iiib and iiic) of Sec.28 of the LT. Act under the head "profit and gains of business". 33.2. He also referred order of the CIT(A)-IV, Hyderabad on the similar issue in case of Srini Pharmaceutical Ltd. for assessment year 2002-03 in order dated 25.11.2005 in ITA N....
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....d pay back of amount already paid and is in no way assistance. (7) If rebate was to be treated on par with draw back, it would have certainly figured in clause (iiic) and what is not figuring in (iiic) can not be transferred to (iiib). (8) In case of Godavari Drugs Ltd., Secunderabad Vis. JCIT (Assts.) SR-1, Hyderabad, (2004 - Tax Indinaonline - 27 ITAT - Hyderabad, where the assessee sought to include rebate under clause (iiib) the Tribunal denied the benefit with the observation: "If all Export Benefits have to be brought under this clause there was no requirement for the legislature to have sub clauses (iiia) or (iiic). " In view of the above, if rebate is covered under clause (iiib) so would draw back and there would have been no need for clause (iiic) and it is an axiom that parliament does not pass laws for nothing. What was sought to be taxed u/s.28(iiib) was cash compensatory support and other assistance and not rebate I refund. (9) Thus, it can be deduced from above that what the appellant received back from the central Excise Department is neither a cash assistance as specified u/s.28(iiib) nor a duty drawback. This is merely a reimbursement of central excise duty pa....
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.... and Rule-18 of Central Excise Rule, 2001 with effect 1st July, 2000. 33.6 The CIT(A) further noted that by the Finance Act, 1990, with retrospective effect 1.4.1967, clause (iiib) of Sec.28 was inserted. According to this clause, the "cash assistance" (by whatever name called) received or receivable by any person against exports made under any scheme of the Government of India shall be chargeable to income under the head "profits and gains of business or profession". In section-2, sub-sec.24 clause (vb) was inserted which meant that the word "income included any sum chargeable to income tax under clause (iiib) of Sec.28". 33.7 The CIT(A) observed that in the present case, the appellant while working out deduction u/s.80HHC has not excluded 90% excise rebate being cash assistance in terms of Explanation (baa) to Sec.80HHC, though indirectly it has considered as an income by reducing cost of raw material. In para no.13.02, I have hold that no separate addition is required to be made as excise rebate has already been considered indirectly in the P&L a/c. However, for the purpose of determining deduction u/s.80HHC, in terms of Explanation (baa) to Sec.80HHC, 90% of export incentive ....
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....h 5 of the aforesaid circular, it has been stated that the Finance Act, 1990, has amended Sec.28 of the Income Tax Act, by inserting therein clauses (iiia) , (iiib) and (iiic) with retrospective effect with a view to ensuring that cash compensatory support (CCS), duty drawback (DBK) and profit on sale of import entitlement licenses (I/L) shall be taxable under the head "Profits and gains of business or profession" and that in view of this amendment, the export incentives would have to be included in the profits of the business for computing the deduction uls.80HHC. These export Incentives have also been included in the definition of "income" contained in Sec.2(24) of the Income Tax Act The amendments to Sec28 as well as to Sec 2(24) of the Income Tax Act have been made with retrospective effect from the dates from which these incentives were made available to the exporters Thus. CCS has been included in "income" and in the list of incomes chargeable to tax under the head "Profits and gains of business or profession" with effect from 1.4.1967. The duty drawback has been so included with effect from 1 4 1972 The profits on sale of import entitlement licenses have been included with ....
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....ncome as this represent excise duty which is being modvat paid on import of raw material has been deducted from purchases and business profit has already been enhanced. Section 28(iiib) is not applicable to this factor of the income as purchases have been reduced and profit has been enhanced. Being so, we vacate the findings of the CIT(A) that Explanation (baa) to section 80HHC is applicable so as to reduce 90% of receipts to determine the income u/s 80HHC of the Act. Accordingly, this ground of assessee is allowed. 35. A common ground raised by the assessee in ITA No. 355/H/07 for AY 2002-03, ITA No. 554/H/07 for AY 2003-04 and ITA No. 1145/Hyd/08 for AY 2004-05 is that the CIT(A) while enhancing the disallowance claim of deduction u/s 80 HHC amounted to Rs. 76,68,283/- by holding that: i) The appellant was not entitled for deduction under the 3 rd proviso to section 80 HHC in relation to DEPB benefit of Rs. 2,31,71,352/- for AY 2002-03 and Rs. 1,14,74,893/- for AY 2004-05. ii) The deduction under 80HHC (IIIA) of IT Act at negative figure of Rs. 3,22,79,307/- for AY 2002-03. iii) The deduction under First provisio read with Fifth Proviso to section 80 HHC(3) of the IT Act at a....
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.... under the DEPB Scheme. It is further, submitted that the rate of DEPB was 22% during the financial year 2001-02 and the rate of custom duty on imports was 30% to 35% during the financial year 2001-02. It IS therefore, requested deduction u/s.80HHC in respect of DEPB benefit may be granted in accordance to the 3 rd Proviso of Sec.80HHC(3). 36.3 The CIT(A) observed that the appellant had received DEPB benefit of Rs.2,40,98,206/- including sale tax of Page 28 of 35 Rs.9,26,854/- and shown in the details of sales for the financial year 2001-02 relevant to assessment year 2002-03. Though, the appellant had mentioned that it was having option to choose either the duty draw back or the duty entitlement pass book scheme as provided for in Chapter '4 of the Exim Policy. 2002-07, but no documentary evidence to prove its contentions is produced before the under- singed. It is therefore, held that first condition mentioned in the 3 r d Provision of Sec.80HHC(3) is not satisfied. 36.4. The CIT(A) noted that in respect of Second condition. it is stated that the rate of DEPB was 22% and rate of custom duty on import was 30% to 35% in the financial year 2001-02 in the appellant case is foun....
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....As this ground is correlated to the earlier ground wherein we have directed the Assessing Officer to recompute deduction u/s 80 HHC as per our direction in Para No. 37, hence, this ground is also remitted to the Assessing Officer with identical directions. 40. As regards the ground raised by the assessee in ITA No. 554/H/07 for AY 2003-04 regarding foreign exchange fluctuation, the same is decided by us in ITA No. 553/H/07 for AY 2001-02 and ITA No. 554/H/07 for AY 2003-04 (supra) vide para 10.1. Following the conclusions drawn therein this ground of appeal is allowed. 41. As regards the ground raised in ITA No. 1145/H/08 for AY 2004- 05 against the action of the CIT(A) in confirming deduction u/s 80HHC at Rs. 39,66,231/- as against Rs. 47,58,556/- as claimed by the assessee, since we have directed the Assessing Officer to recompute the deduction u/s 80HHC in earlier grounds, this ground is also remitted to the file of Assessing Officer to recompute the deduction u/s 80HHC. This ground is allowed for statistical purposes. 42. In ITA No. 554/H/07 for AY 2003-04, the assessee raised a ground that the CIT(A) erred in deducting the profits of the business subjected to deduction u/s ....
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....No. 619/H/10 for AY 2006- 07: "The CIT(A) failed to appreciate the fact that the disallowance of interest on the ground that funds were not utilized for the purpose of business and borrowed funds only supplemented cash that is diverted for non-business purpose as held by Kerala High Court in the case of CIT Vs. Baby & Co., 254 ITR 248. 50. We refer to the facts from AY 2002-03 being ITA No. 396/Hyd/07. In the assessment order the Assessing Officer mentioned that the assessee had advanced an amount of Rs. 59,60,000/- to M/s Nextage Broad Brand Ltd., Chennai as share advance and Rs. 1.40 crores to M/s Direct Finance & Investments Ltd. as deposit and no interest on such advances were charged. He further, mentioned that the assessee had incurred huge interest liability of Rs. 4.20 crores and debited to the P&L A/c during the year. The assessee owed an amount of Rs. 14.17 crores to SBI as working capital loan at the end of the accounting year on 31/03/2002. He further observed that the assessee had advanced money not for business purpose and therefore, the interest attributable @ 12% on pro-rata basis is not allowable. Follow few case laws, the Assessing Officer disallowed interest of....
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....hs. Thus, the assessee gets relief of Rs. 16,95,000/- (Rs. 2395200-700200). The Assessing Officer is directed to delete disallowance of interest of Rs. 16,95,000/-." 53. Before us, the learned AR submitted that there is direct nexus between the Inter Corporate Deposit (ICD) made with Direct Finance Ltd. and it is having direct nexus with the equity funds raised by the assessee and the same was established before the lower authorities. He drew our attention to pages 135 to 137 of the paper book to submit that the assessee is having huge resources and the company has earned net profit from the which the assessee has made the investments. 54. After hearing both the parties and perusing the record, we are of the view that the disallowance of interest is not warranted when the assessee is having enough funds in the form of reserve funds and net profit. The CIT(A) has taken correct view in deciding the issue in favour of the assessee, therefore, we are inclined to confirm the order of the CIT(A) on this count and dismiss the ground raised by the revenue in this regard. 55. The revenue has raised the following ground in ITA No. 1107 and 1747/H/2008 for AY 2004-05 and 2005-06 respective....
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....elt that the same could not be allowed u/s. 436 also. The Assessing Officer further did not accept the claim of deduction made by the appellant regarding the allowance of excise duty of Rs. 19,84,695/- on the closing stock on closing stock disallowed in the assessment for the asst. year 2004-05 as the appellant's appeal was pending at the relevant time. 57. Before the CIT(A), the AR of the assessee submitted that the cost of manufacturing is the minimum price when there are profits as the finished goods are being valued at cost or market price whichever is lower. He, therefore, claimed that even if the goods are destroyed or damaged, their liability for payment of excise duty will not change as opined by the Assessing Officer. The AR averred that the statutory adjustment u/s 145A is not restricted to finished goods alone but those also extend to the total inventory. 58. After considering the submissions of the assessee, the CIT(A) directed the Assessing Officer is directed to allow deduction in respect of excise duty payments u/s 43B, if paid within the due date of filing of return after verification of such payments by observing as under: "I have gone through the submission....