TaxTMI 
TaxTMI 
2015 (4) TMI 466
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....of taxable profits as per Income Tax Act, 1961 and not as per Book Profits as claimed by the Appellant. 1.2 The CIT (A) ought to have appreciated that Sec. 115JA seeks to levy a minimum tax on the basis of the book profits. Accordingly, while computing the book profits under Explanation to Sec. 115JA (1), the profits eligible for deduction u/s. 80HHC ought to be computed on the basis of Book Profits and not taxable profits as claimed by the Assessing Officer." 1.1 An Assessment order has been passed by the A.O. u/s 143(3) dated 28.3.2002. The appellant company is a manufacturer of pharmaceuticals products. A return of income was filed declaring total income U/s 115JA at Rs. 3,63,23,970/-, whereas, the total income U/s 115JA was assessed at Rs. 17,00,06,767/. There was a computation of assessed income under the normal provisions of the Act totalling Rs. 4,11,86,495/-. In respect of this Ground it is informed that the Assessee had claimed the deduction U/s 80HHC of Rs. 7,96,93,199/-, whereas the A.O. has allowed the deduction only of Rs. 4,62,87,167/- on the ground that only the eligible profit of Sec. 80HHC is to be deducted for computing the income u/s 115JA. 1.2 When this issue....
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....r working out the deduction as mentioned in clause-(iv) of the Explanation to section 115JB of the Act. The Hon'ble Court has said that there was no merit in the said argument of the Revenue Department. The Court has made an observation as under:- "10. ........... . If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a selfcontained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department. 11. For the above reasons, we set aside the impugned judgment of the High Court and restore the judgment of the Tribunal. Accordingly, ....
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....5/- in respect of balances under EEFC Account is miscellaneous trading receipt forming part of 'total turnover' for the purpose of calculating the deduction u/s. 80HHC of the Act. 3.2 Without prejudice to the above, if the Exchange Rate Fluctuation/Difference in respect of balances under EEFC Account is treated as part of total turnover then the learned CIT(A) ought to have directed the Assessing Officer to treat the said receipts as part of export turnover as it is inextricably linked and forms part of the export sales proceeds." 3.1. On perusal of details of expenses debited to P&L A/c it was noted by the A.O. that the assessee company had reduced the expenses by a sum of Rs. 27,35,525/- stated to be income on account of ' exchange rate difference'. According to A.O. by this method on one hand the 'miscellaneous expenses' were reduced but on the other hand claimed excess deduction under Sec. 80HHC & 80 IA. Further he has observed that the receipt being in the nature of ' misc. trading receipt' then it should be treated as part of the 'Total Turn Over' and 90% should be reduced while working eligible profits of deduction U/s 80 HHC. He has concluded that there shall be n....
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....said to have been 'derived' from export business but the fluctuation gain arose subsequent to receiving the sale consideration hence part of the export sales . The gain was not due to delayed realization of export proceeds. The issue was decided in favour of the assessee. Respectfully following the above cited precedents we hereby hold that the assessee is entitled to the claimed deduction. Ground allowed. 4) Ground No 4 is reproduced below: "Re: Inclusion of Sale of scrap of Rs. 15,75,932/- in total turnover for the purpose of deduction u/s. 80HHC. 4.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that scrap sales of Rs. 15,75,932/- formed part of total turnover for computing the deduction u/s. 80HHC. 4.2 The CIT (A) ought to have appreciated that sale of scrap represented a recovery of process loss and cannot be regarded as trading receipts." 4.1. On perusal of P & L A/c it was noted by the A.O. that a sum of Rs. 15,75,932/- was received on account of sale of scrap generated from business. The appellant's argument was that the receipt was not a trading receipt hence not a part of the turnover. But that was rejected and hel....
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....HC. 5.2 The CIT (A) ought to have appreciated the fact that the appellant had duly filed an application for extension of time with the prescribed authority being Reserve Bank of India and since the same was not rejected it ought to have been construed as approved. 5.3 In respect of export proceeds realised subsequently amounting to Rs. 1,63,11,271/- the learned GIT (A) ought to have directed that the same be considered as export turnover and accordingly be considered for the purpose of computing the 80 HHC deduction. 5.4 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not deciding the ground of the Appellant relating to the reduction of direct costs being purchases of the trading goods and other direct expenses attributable to unrealised export proceeds while computing the trading export profits." 5.1. Ld Counsel appearing on behalf of the Assessee has stated at Bar not to press this ground, hence dismissed being not pressed. 6) Ground No. 6 is reproduced below: "Re: Disallowance u/s. 14A 6.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of interest expense of Rs.....
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.... earning exempted income and A.O. has also failed to establish nexus between borrowed funds and investment made, no disallowance could be made u/s Sec. 14A. 6.5. Having heard the submissions of both the sides we are of the view that the basic information about the availability of the interest free funds can only be furnished by the assessee. Reply before the A.O. only suggested that the profit was ploughed back but the amount, stated to be Rs. 16.25 Crores invested in the firm, actually invested out of the said interest free fund is to be established. Certain basic information such as fund flow statement is not available before us. Side by side, A.O. has simply applied a formula which was only giving the figures of the total income verses exempted income, however, before applying the said formula it is also a requirement to establish that the interest bearing borrowed funds have actually been applied to earn the exempted income and then if such expenditure is not separately identifiable then on prorate basis disallowance can be calculated. Moreover this is A.Y 1999-2000, which is before the introduction of Rule 8D. We therefore direct that if the assessee is placing reliance on th....
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.... reproduced below: "8. Re: Disallowance of deduction u/s. 80IA in respect of sale of import licenses of Rs. 3,72,797/-: 8.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the disallowance of deduction u/s. 80-IA in respect of sale of import licenses holding that the same were not derived from the eligible industrial undertaking. 8.2 The CIT( A) ought to have appreciated the fact that the said licenses were received in respect of the exports made by the Silvassa Unit (eligible undertaking for sec. 80-,IA) of the Appellant." 8.1 Ld Senior Advocate, Mr. Soparkar has expressed that the appellant is not willing to contest this ground hence hereby dismissed being not pressed. 9. Ground No. 9 is reproduced below: 9. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred not deciding on the ground of the Appellant relating to allocation of expenses to Silvassa unit eligible for deduction u/s. 80IA on account of exchange rate difference reduced from Miscellaneous Expenses." 9.1. The observation of the A.O. was that the assessee had claimed deduction u/s 80IA at Rs. 40,13,40,021/- pertaining to....
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..... the expenditure could not be amortised u/s 35D of the Act. He has held that the expenditure was not at all an allowable expenditure as held in the case of Brookebond India Ltd. 225 ITR 798 ( SC) and Mihir Textiles 225 ITR 327 (Guj.). Resultantly disallowance of Rs. 4,54,000/- was made. That action of the A.O. was challenged. 10.2 When the matter was carried before the First Appellate Authority, the action of the A.O. was confirmed. 10.3 Heard both the sides at some length. Sec. 35 D grants a deduction in respect of expenditure which may otherwise be disallowable on the ground that it is a 'capital expenditure' or is incurred prior to the setting up of the business, but in instalments in number of assessment years. This can also be interpreted, and naturally so, that an expenditure which is otherwise allowable as revenue expenditure cannot be brought within the purview of this section. Certain fine distinction had been made by Honble courts in respect of the Sub-sections of this section 35D, such as, that the fees paid for registration of the amendment of the memorandum of association for enhancement of authorised capital is held to be covered by sec. 35D (2) (c) (iv) . But expe....
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....he aspects i.e. Revenue Expenditure or Capital Expenditure and then decide the question of disallowance. Resultantly this ground is restored back for denovo adjudication hence to be treated as allowed for statistical purpose only. 10.4. In the result, appeal of the assessee is partly allowed protanto. B. Revenue's Appeal (ITA No. 3273/Ahd/ 2002) 11 Revenue's Ground No. 1 is reproduced below: "1. The learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 50,00,000/- made on account of payment made to Synergy Research Centre Pvt. Ltd. 11.1. It was noted by the A.O. that a sum of Rs. 40,00,000/- was paid to Synergy Research Centre P.Ltd. On query the explanation of the assessee was as under, only relevant portion reproduced:- "1. It is once again repeated that Sun Pharmaceutical Industries Limited (SPIL) never acquired the shares of TDPL. The amalgamation of TDPL with SPIL was not a cover up for any acquisition of shares but an actual amalgamation as is evident from various events post amalgamation also. In fact one of the major purposes of the amalgamation/alliance with TDPL was to leverage the technical expertise of Dadhas in areas relating to oncology etc....
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...., if by any mechanism assessee company could transfer consideration to Dadhas by cheque but at same time the same is tax free Dadhas would give discount & 20%. It is her that role of SRCL comes into picture this entity not having any prior role is brought into existence and part of consideration is passed on to said concern in garb of purchasing / advance towards research and knowhow. This amount is utilised by Dadhas and is recovered by them as tax free because SRCL gets exemption u/s. 80IA (4A) on whole of this amount received as consideration / additional advance. .......... As discussed in block assessment order there is no evidence to prove that the technical knowhow claimed to have been purchased from SRCL was infact developed there and simultaneously could not have been developed at Research Facilities available in assessee's own entities which are having world class research facilities with advanced capabilities. Keeping in view this background, it is clear that the payment to SRCL was not for purpose of scientific research etc. but for a different purpose. Accordingly Rs. 40 lac paid is held for non-genuine purposes and is disallowed. Since assessee had claimed weighted ....
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....f DCIT vs. Shri Mohanchand Dadha (Indl.) bearing IT(ss)A No.180/Mds/2002 for the Block Period 01/04/1986 to 15/12/1998, order dated 16/11/2007, wherein the core issue was decided in favour of the assessee on the ground that the amalgamation being approved by the Hon'ble High Court, hence that process was not a colourable device. The ld.AR has placed reliance on the decision of ITAT "B" Bench Ahmedabad pronounced in the case of DCIT vs. Aditya Medisales Ltd. Bearing IT(SS) 95/AHD/2011 for the Block period AY 1988-89 to 7/12/1998, order dated 31/05/2007, wherein facts were narrated as under:- "16. The facts relating to ground No.2, and Ground No.3 are that Tamilnadu Dadha Pharmaceuticals Ltd. (TDPL) had amalgamated with Sun Pharmaceutical Industries Limited (SPIL). TDPL was jointly promoted by DADHA family of Chennai and Tamilnadu Industrial Development Corporation Ltd. (TIDCO) with equity holdings of 25% and 26% respectively. In the beginning, it was proposed that SPIL would purchase the shares in TDPL from the Dadhas. The Dadhas would also purchase the shares held by TIDCO in TDPL and the same would be sold to SPIL. However, the plan of purchasing the shares from Dadhas was later ....
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.... per share to the promoters of M/s TDPL , the company which later on amalgamated with the assessee company. According to A.O. the modus operandi was as under:- "During the course of search as discussed earlier various evidences were found which revealed that the assessee company individually and as a group had created various devices by virtue of which they had transferred sale consideration particularly the premium amount of Rs. 200/- per share to the promoters of M/s. TDPL the company which was later amalgamated with the Assessee company. One of the devices used by the assessee to move consideration from the books of assessee company to Dadha Group was through creation of two entities namely M/s. Antriksh and Dukan. These two entities controlled by Dadha Group where an additional level of agency created for the territories of Tamilnadu and Karnataka. Instead of earlier movement of goods which was being followed for all the years, goods being sold by SPIL to Aditya Medisales and thereafter distributed. Through these fictitious entities another level was created thereby the goods were claimed to have been transferred from SPIL to AML through these entities. In consideration of whi....
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.... to AML. Fact of the matter is that there was no physical movement. (v) The assessee has no explanation as to why against normal commission rate of 2% these two concerns were paid 5%. In fact as an afterthought and to somehow coverup the issue as is clear from the above reply assessee had itself stated that they have reduced the rate from 5% to 2% in F.Y 99-2000. This is an indicator that there is no basis and logic for even paying the commission rate and it was for the sole purpose of transferring the consideration with no services being offered. In view of above the discount paid to these concerns in post search period is disallowed and added to the total income of the assessee. Accordingly a sum of Rs. 13,88,590/- is added to the total income." 12.3. Ld. CIT(A) has accepted the explanation of the assessee especially under the circumstance when his predecessor had accepted the genuineness of the claim. He has directed to delete the addition of Rs. 13,88,590/-. Now the Revenue is in appeal. 12.4 Heard both the sides. Case record perused. Ld DR has placed reliance on the order of the A.O., while Ld AR has supported the view taken by Ld. CIT(A). Few decisions of the Tribunal have....
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....of one concern to another not only in their group but also in Dadha Group that if any single transaction eq. interest recovery by M/s. AML is seen it would give distored picture. Accordingly assessee consolidated account is prepared after 7-12-98. In case of these individuals representing sum total of transaction which assessee group had with Dadha Group from and applying agreement condition following situation of interest payable as on 31-3-99 emerges Interest payable for post search period. S. Mohanchand Dadha Rs. 9,64,841/- M. Mahendra Dadha Rs. 4,325/- M. Maherchand Dadha Rs. 6,68,074/-" 13.2. When the matter was carried before the First Appellate Authority it was noted that there was no evidence which would indicate that Interest was to be paid to Dadhas for post search period. The addition was deleted as under: 22. The Assessing Officer has not been able to bring to light any evidence or support which would indicate that the interest was paid to Dadhas in post search period. An addition can be made only on the basis of specific finding supporting such addition. Any addition made on the basis of any presumption cannot stand the test of law. To me the f....
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....tment by the said firms. The Assessing Officer having accepted in part the business benefit of the appointment of the said firms, as distributors cannot in the same breadth question the other part Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee to the individual members of the Dadha family as advances in the ordinary course of business. Thus, even if the advances were given in the guise of a trade advance, the same would still be considered as for the purpose of business. Further we noted that the decision of the Supreme Court in the case of S.A. Builders (supra) has clearly stated that if the business considerations require, interest free funds can be advanced. Since the commercial expediency cannot be doubted in the case of the Assessee. We find no reason to interfere with the order of the CIT(A) and accordingly we confirm the order of the CIT(A) on this ground." 13.4. Since in the past a consistent view had been taken that once the Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee's other decision taken in the ordinary course of business. W....
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....e incriminating evidence. The third point for our consideration was that it was merely presumed by the A.O. that even for the post search period the Solvent might have been sold on the same rates. But the basic question is that when even for search period the impugned addition did not survive on account of lack of evidence then how such presumption could be approved for the post search period. The reasoning appears to be convincing especially when no contrary material is available on record form the side of the Revenue. This ground of the Revenue is therefore dismissed. 15. Revenue's Ground No.5 reads as under:- "5. The Ld.CIT(A) has erred in law and on facts in deleting the addition made on account of DEPB sale for 80IA deduction." 15.1 It was noted by the A.O. that the sale/purchase of DEPB licenses was carried out at Mumbai but transferred the profit to the accounts of Silvasa Unit with the purpose to claim higher deduction. It was also observed that such profit was not 'derived' from the manufacturing activity. Hence the amount of Rs. 9,95,000/- credited to the Silavasa Unit had been disallowed from the claim of deduction U/s 80IA and also the necessary adjustment has been m....
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....was to retain higher WDV as long as the Silvasa Unit was enjoying tax holiday u/s 80-IA. Through this method on one hand a higher claim of deduction u/s 80IA was made and on the other hand retained higher WDV to get large depreciation when the tax holiday period got over and the assessee started enjoying taxable income. Then the A.O. had discussed the legal position by comparing the old and new provisions of Sec. 32 vis-a-vis amendment introduced in the Finance Act 2001 providing for compulsory allowance of depreciation w.e.f. 1.4.2002. Finally it was concluded that the depreciation was to be allowed of Rs. 1,26,50,718/- in respect of Silvasa Unit and to be deducted from the business profit. 16.2. On this issue Ld. CIT(A) has held that the provision of compulsory allowance of depreciation is applicable w.e.f. 1.4.2002 by making it mandatory u/s 32 of the Act. Reliance was placed on Mahindra Mills 243 ITR 56 (SC) and held that the A.O. was not justified in compulsorily granting depreciation. 16.3. Heard both the sides. The assessment Year under consideration is A.Y. 1999-2000. On this issue that whether the depreciation can be compulsorily foisted upon the assessee, an order of the....
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.... in allowing consideration of gross interest for computing profit of business for working of deduction under section 80HHC. Ground No.9:- The Ld.CIT(A) has erred in law and on facts in allowing consideration of gross lease rent for computing profit of business for working of deduction under section 80HHC. Ground No.10 :- The Ld.CIT(A) has erred in law and on facts in allowing consideration of gross operational charges covered for computing profit of the business for working of deduction under section 80HHC. 18.1. All these three grounds are inter-connected and covered by a decision of Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt.Ltd. reported at 343 ITR 89(SC). In respect of the computation of the interest for the purpose of deduction u/s.80HHC of the Act, the AO has reduced 90% of the gross interest for claiming the deduction. According to AO, the legal requirement of section 80HHC is to deduct 90% of gross receipt. However, ld.CIT(A) was of the view that the net interest income was to be taken into account for reducing 90% to arrive at the figure of profits of the business for computing the deduction u/s.80HHC of the Act. In respect of lease rent as raise....
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....1 reads as under:- The Ld.CIT(A) has erred in law and on facts in allowing adjustment to trading export profit on account of export promotion expenses of Rs. 17,40,000/-. 19.1. The assessee had incurred export promotion expenses both for its own products and the products which were traded. It was noted by the AO that while working the computation u/s.80HHC, the assessee had allocated an amount of Rs. 15.81 lacs from "other export promotional expenses". The AO was not convinced and bifurcated the same by assigning the following reason:- (iii) Adjustments to trading export profits: Assessee company had incurred export promotion expenses both for its own products and that in which it has traded. In working of 80HHC it is seen that assessee had allocated an amount of Rs. 15.81 lac from other export promotional expenses. This has been done by the assessee on the basis of clear-cut identifiable expenses relating to trading which as per assessee was primarily in only two products namely Cephalexin Cefadroxil. In fact perusal of ledger account and vouchers of other export expenses indicated that majority of expenses are product specific and also territory specific and are relatable to ....
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....it is demanded by the ld.CIT-DR to give an opportunity to examine those evidences which were entertained by the ld.CIT(A) at the back of the AO. Considering the said preliminary technical objection of the assessee, we hereby restore this ground to the file of ld.CIT(A) with the direction to give opportunity to both the sides and then decide as per law. In the result, this ground of the Revenue may be treated as allowed for statistical purposes. 20. Revenue's Ground No.12 reads as under:- The Ld.CIT(A) has erred in law and on facts in reducing deduction under section 80-IA. 20.1. The assessee had claimed deduction u/s.80IA of the Act of Rs. 40,13,40,021/- in respect of profits of Silvassa Units. It was noted by the AO that the assessee had not allocated certain expenses. After assigning few reasons, he has recomputed the eligible profit for the deduction u/s.80-IA and reduced the same to Rs. 38,23,04,924/-. The expenses which were allocated were R&D expenses of Rs. 50,17,034/-, depreciation of Rs. 1,26,50,718/- and DEPB sale of Rs. 9,95,000/-. 20.2. When the matter was carried before the first appellate authority, the assessee has not contested the allocation of expenses pertain....