TaxTMI 
TaxTMI 
2015 (4) TMI 466
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....under explanation to sec. 115JA (1) on the basis 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....
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....lity" of the profit have got to be considered together for 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 ....
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.... (A) erred in holding that Exchange Rate Fluctuation/Difference of Rs. 27,35,525/- 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 worki....
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....transaction and gained due to fluctuation the court held that such gain cannot only be 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 ....
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....ised export turnover of Rs. 1,94,6 5,349/-out of total export turnover for computing the deduction u/s. 80HHC. 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 th....
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....m 441 ( Guj.), Hitachi Home and Life Solutions 41 taxmann.com 540 ( Guj.), also for the legal proposition that where assessee's interest free funds far exceeded investments made for 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 prorat....
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....round is consequential depending upon the outcome of the main issue as referred hereinabove. Likewise this ground may be treated as allowed but for statistical purpose only. 8. Ground No. 8 is 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/....
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.... not for permanent increase of capital, rather there was no advantage of enduring nature. According to Assessee only 1/5th was claimed this year and rest was claimed over next four years in instalments. However as per A.O. 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....
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....sede any other provision of the income tax act under which such expenditure is otherwise admissible as a deduction . Under the fitness of circumstances it is therefore required to restore this issue back to A.O. to examine both the 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 bu....
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....concerns collectively referred to as 'Dadhas" as per this agreement SPIL was to get controlling stock in M/s. TOPL share price was fixed @ 290/- out of which Rs. 90/- was to be paid officially whereas Rs. 200/- was to be paid as premium outside books of accounts. Further, 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 c....
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....ase, therefore the consequential addition made in the regular assessment did not survive. However, in respect of the impugned amount pertaining to payment made to Synergy Research Centre P.Ltd.(SRCL), the ld.AR has quoted the decision of ITAT "A" Bench Chennai pronounced in the case of 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....
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....(A) has erred in law and on facts in allowing discount paid to M/s. Antrish and M/s. Dukan for Rs. 13,88,590/-." 12.1. At the outset the observation of the A.O. was that the assessee had created various devices to transfer 'sale consideration' and particularly the premium amount of Rs. 200/- 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 ....
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....aterial records produced which can evidence movement etc. (iv) Regarding the installation of various system which the assessee had referred to are in fact part of the cover up and are revealing that only paper adjustment were created to show that the goods moved from SPIL to Antrish and Dukan thereafter 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....
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....quantum of consideration was adhere to the schedule. Infact net effect of the payments and receipts can only be seen in consolidated account of each individual representing one branch of Dadha Family. Because the assessee group had used so many different pretexts of transferring funds and then moving entries from books 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.....
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....cumentary evidence before the lower authorities that the distribution had in fact happened through the said firms. The said firms had the necessary trade and other registrations for carrying on the said activity. The Assessing Officer has also acknowledged that there was savings in turnover tax in the state of TamilNadu as a result of the appointment 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....
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.... case vide order dated 25/09/2009 (supra) hence the impugned addition by that very reason did not survive. The second point of the assessee was that while deciding assessee's appeal in respect of Block Period 1988-1989 to 7.12.1998 by CIT(A) Baroda vide order dated 01/06/2001 (Appeal No. CAB/IV-166/2000-01) had not upheld such additions being not based upon some 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....
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.... law and on facts in deleting the depreciation allowance of Rs. 1,26,50,718/-." 16.1. On perusal of Depreciation chart, it was noted by the A.O. that the assessee had not claimed depreciation in respect of Plant & Machinery and Data Processing Equipments of Silvasa Unit. However in respect of other assets depreciation was claimed. So the A.O. had commented that the purpose 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.....
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....d, namely, Laxmi Machine Works 290 ITR 667 for the legal proposition that Excise Duty & Sales Tax are indirect taxes so do not involve any element of 'Turnover'. Respectfully following this precedent we hereby affirm the findings of CIT(A) and dismiss this ground of the Revenue. 18. Revenue's Ground Nos.8, 9 & 10 read as under:- Ground No.8:- The Ld.CIT(A) has erred in law and on facts 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, t....
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....ss as computed under the head "profits and gains of business or profession", 90% of such quantum of receipts cannot be reduced from the profits of the business. We, therefore, hold that all three grounds now stood covered by these decisions of the Hon'ble Supreme Court, hence the view taken by the ld.CIT(A) is hereby endorsed and the grounds raised by the Revenue are dismissed. 19. Revenue's Ground No.11 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. 1....
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....ort promotional expenses which were stated to be identifiable. It was also noted by him that those expenditure were attributable to different products. Further, he has noted that the assessee has furnished accurate details of the direct expenses attributable to turnover of the products including the overseas sales promotional expenses. Since those were new evidences, which were entertained by the ld.CIT(A), therefore 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....