TaxTMI 
TaxTMI 
2002 (7) TMI 790
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....t"). It was, therefore, argued that in the case of the present assessee being a company, sub-cl. (c) of s. 140 requires the appeal to be signed by the managing director of the company and only for any unavoidable reason it can by any director of the company. Since the appeal memo in the present case has not been signed by the managing director nor any reason has been shown regarding his unavailability and since a director has not signed the same, the appeal is not maintainable. It was stated that in the present case, the appeal memo has been signed by a person authorised by the board of directors to sign the same. In the situation, the appeal cannot be entertained. He, thereafter, referred to the following decisions and vehemently argued that following the case laws cited, the appeal cannot be entertained : 1. Special Manager, Court of Wards, Naraindas Narsinghdas vs. CIT (1950) 18 ITR 204 (All) 2. Commr. of Agrl. IT vs. Sri Keshab Chandra Mandal (1950) 18 ITR 569 (SC) 3. New India Construction Co. vs. CIT (1979) 120 ITR 763 (Cal) 4. National Insurance Co. Ltd. vs. CIT (1995) 127 CTR (Cal) 238 : (1995) 213 ITR 862 (Cal) 5. CIT vs. Swastic Motors (1992) 195 ITR 368 (R....
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....id judgment. "9. In cases like the present where suits are instituted or defended on behalf of a public corporation, public interest should not be permitted to be defeated on a mere technicality. Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable. 10. It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under O. 6 r. 14 of the CPC, a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity, it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 r. 1 of the CPC, therefore, provides that in a suit by or against a corporation the secretary or any director or other principal officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company. Reading O. 6, r. 14 together w....
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.... raised a plea of having not signed since no mark was put by him. The Revenue raised a plea that signature was proper when duly authorised, and absence of mark should not be considered as not properly signed. The Supreme Court by majority decision dismissed the plea of Revenue and held that since the signature as required under law is not found, no action can be taken against the assessee. The Department in that case sought to raise a plea that it was only a technical breach and signature should be presumed. The Court upheld the plea of the assessee and came to the conclusion that in prosecution proceedings there cannot be any presumption nor it was held that there is a defect in the signature. In view of this decision of the Supreme Court it was, therefore, urged before us that defect in signing the appeal memo as required by law invalidates the appeal and hence should not be entertained. The case before us is entirely on different facts than before the Supreme Court in the case of Shri Keshab Chandra Mandal (supra). The assessee, which was assessed under s. 143(3) has preferred an appeal based on the provisions of the IT Act. Though there is a provision in the Rules that only a p....
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....n. 3.3. The AO disallowed the claim mainly on the ground that these are only provisions and not actual write off. He also held that in the absence of details of each and every account which has been written off, the amount cannot be allowed as deduction. It is also stated by the AO that in the absence of any subjective satisfaction by the assessee, the provision made is not allowable. The CIT(A) confirmed the order of the AO for the reason given in the assessment order. The CIT(A) also stated that the assessee is making the provision to suit its own requirement and not based upon the subjective satisfaction so that the assessee can claim maximum benefit under the IT Act. 3.4. Before us, the learned authorized representative of the asssessees, Mr. Pradeep, made detailed submissions. It was stated that the details were broadly filed though not pertaining to individual accounts. However, it was demonstrated that the segment-wise write off was filed with the AO as well as the CIT(A). In one year even the account-wise details were also filed. He argued that if the CIT(A) was not satisfied with the details, he could have asked for detailed accounts which was never denied. After hav....
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....nuine. He drew our attention to the retrospective amendment made to s. 36(1)(vii) by Finance Act, 2001, wherein an Explanation has been inserted w.e.f. 1st April, 1989, to the effect that any provision for bad and doubtful debts made in accounts is not eligible for deduction. Hence, as per amendment there has to be actual write off of the amount in respect of each party and a combined entry for all the doubtful debts is not sufficient. He, thereafter, sought to raise a plea that in any case, it has to be proved that the amount has really become bad. For this proposition, he relied upon the following decisions : (i) N. Annajee Rao & Brother vs. CIT (1974) 97 ITR 265 (AP) (ii) CIT vs. Dunlop India Ltd. (1994) 122 CTR (Cal) 39 : (1994) 209 ITR 221 (Cal) (iii) CIT vs. Annapurani Veerappan (1992) 193 ITR 426 (Mad) (iv) CIT vs. Coates of India Ltd. (1998) 150 CTR (Cal) 311 : (1998) 232 ITR 324 (Cal) In all these abovereferred cases, it has been held that the condition that the amount has become bad is to be proved. 3.6. At this moment, the attention of the learned Departmental Representative was drawn to the amendment made to s. 36(1)(vii) w.e.f. 1st April, 1989, which ....
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....been actually written off as irrecoverable in the accounts of the assessee though not necessarily crediting the account of respective debtor or advances. It was argued that the decision cited in the case of Vittahal Das (supra) still holds for the proposition that the writing off in the accounts can be by way of debit to the P&L a/c. 3.7. At this moment, an alternative claim was put up by the learned authorised representative to demonstrate the nature of incremental provision for bad debts and advances. It was stated that the same consists of various types of debits. Provision was required to be made for the following reasons : I. Short shipment'Short supply of some of the peripherals in large projects in domestic technological business. II. Incentive sales'Incentive to be given to the dealers for the targets achieved which are not properly communicated to the sales department. III. Contractual obligations for defective performance/delays'customer invoking contractual terms and refusing to pay full amount of debts. IV. Sales cancellation'Company raising invoices for period of services committed but the customer cancelling the services in between resul....
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....he previous year" are replaced by the words "any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year". Thus, it is the objective satisfaction of the assessee while writing off any bad debt which is to be seen and the assessee is not required to prove that the debt has become bad in the relevant previous year. If the amended provision is read in the light of the above proposition, only then the intention of the amendment is truly given effect to. If the assessee is still required to prove the debt to be bad even though it has written off the same in the accounts then the controversy whether the debt has become bad or not in the relevant previous year will still continue and the effect of the amendment will be nullified. Our above view is fortified by the decision of the Gujarat High Court in the case of Dy. CIT vs. Patidar Ginning & Pressing Co. (1999) 157 CTR (Guj) 177 : (2000) 108 Taxman 476 (Guj), where it was held that it was enough if the assessee wrote off the debt as bad and need not establish the same to have become bad. 3.10. For asst. yr. 1992-93, we find the facts bit differently. The CIT(A) called for th....
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....laim for deduction of the expenditure and did not speak of the provision under which the claim was made. Therefore, it was open to the High Court to entertain the claim for deduction with reference to s. 31 also, having regard to the wide nature of the question referred to it, notwithstanding the fact that no specific plea was made by the assessee before the Department or the Tribunal for deduction under s. 31 of the Act." Thus, it is amply clear that the deduction claimed under s. 36(1)(vii) if not allowable under the said section, is allowable under s. 37. The nature of deductions, claimed thereunder are of seven different types. Since the relevant material for allowing the claim was not before the lower authorities, we restore the matter back to the file of the AO to verify the claim in respect of the various natures in line with the view pronounced hereunder : (i) In respect of short shipments, the matter is restored back with a direction that the assessee will demonstrate the claim thereof and if the claim is found genuine, the same will be allowed as deduction as not being income under s. 28 of the Act itself. (ii) As regards the claim of the dealers in respect of in....
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....tive submitted that though it is agreeable that there has to be a trip-wise disallowance, however, since that exercise has not been done and an amount of Rs. 1 lakh has been disallowed as ad hoc the same should be reasonably estimated. It was also argued that the limit of Rs. 150 per day under r. 6D has been raised to Rs. 1,500 per day by amendment in the rules w.e.f. asst. yr. 1992-93. The learned Departmental Representative supported the orders of the authorities below. 4.3. On the basis of the material found on record, we hold that a sum of Rs. 50,000 be disallowed in asst. yr. 1991-92. However, since the limit for travelling expenses has been substantially raised from Rs. 150 per day to Rs. 1,500 per day, even considering the trip-wise disallowance, the same appears to be within the limits prescribed under r. 6D and, therefore, for asst. yrs. 1992-93 and 1993-94, we delete the entire addition of Rs. 1 lakh made. 5. The next issue in the appeals pertaining to asst. yrs. 1990-91, 1994-95, 1995-96 and 1996-97 is relating to disallowance of foreign travel expenses for spouses of employees. The same was not pressed by the learned authorized representative saying that the same ....
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....expenses in the nature of entertainment expenses. However, the auditor cannot certify as to what portion is attributable to employees and hence the entire expenses in the nature of entertainment expenses are mentioned in the audit report. Expln. 2 to s. 37(2)/37(2A) as prevailing at the relevant time specifically mentioned that expenditure on tea/coffee or beverages provided by the assessee to its employees is not part of entertainment expenditure. Since the AO himself has attributed 50 per cent of the expenses to the employees for asst. yrs. 1996-97 and 1997-98, we hold that similar treatment needs to be given to the expenses of such nature for asst. yrs. 1991-92 to 1995-96. We. therefore, direct that out of the amount referred in the tax audit report as entertainment expenditure. 50 per cent thereof be treated as attributable to the employees to which provisions of disallowance are not attracted. This view is also held in assessee's own case for asst. yr. 1988-89 in ITA No. 650/Bang/1994. Disallowance to that extent is deleted. 7.1. The next issue in appeal for asst. yr. 1991-92 under the head 'entertainment expenses' pertains to club expenses of Rs. 40.778 disallo....
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....rs. 1993-94, 1995-96, 1996-97 and 1997-98. The AO treated the conferences expenses as entertainment expenses based on either as per past practice or as expenses though on guests for business promotion yet are within the definition of entertainment expenses. The CIT(A) has endorsed the view. It was upheld either because the full details were not furnished or it was held to be lavish in nature for highly paid employees of company. The facts which emanate from record pertaining to conference expenses are summarised below : (a) Wipro Ltd. Asst. yr. Total conference expenses (Rs.) Amount held as attributable to employees or not as entertainment expenses by AO (Rs.) Amount held as entertainment expenses (Rs.) 1993-94 6,64,057 1,66,014 (25%) 4,98,043 (75%) 1994-95 10,43,809 10,43,809 (100%) - 1995-96 5,44,643 1,36,161 (25%) 4,08,482 (75%) 1996-97 21,86,884 10,93,442 (50%) 10,93,442 (50%) 1997-98 6,73,525 1,68,382 (25%) 5,05,143 (75%) (b) Wipro Infotech Ltd. 1993-94 Rs. 4,72,416 Rs. 1,00,000 hall charges Rs. 1,86,208 Rs. 1,86,208 Balance 50 per cent It was st....
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....ions but also have a character of entertaining participants which are both employees as well as guests. The definition of the term "entertainment expenses" is wide enough as given in the Explanation to s. 37(2) to cover all sorts of hospitality. It was lastly argued that the CIT(A) was right in concluding that even "annual sales conference" expenses would be covered by word "entertainment" as held in the case of H.M.M. Ltd. vs. CIT (1998) 144 CTR (P&H) 371 : (1998) 231 ITR 726 (P&H). 8.4. We have given our considered thought to the issue in appeal. It is not case of anybody that conference expenses are not part of business revenue expenditure. The issue here is only for limited extent as to whether any of entertainment expenditure has to be read therein or not. The CIT(A) has upheld the order of the AO mainly because full details were not furnished either to the AO or to him. The finding given by the CIT(A) has not been challenged by the representative of the assessee. If the claim of the assessee is to be upheld full details have to come from it. If full details are not furnished, the general statement made that it is for staff only cannot be entertained. The judgment relied up....
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....nment expenses and as such allowable under s. 37 of the Act. 10.1. The next ground of appeal is for Wipro Ltd. for the asst. yrs. 1994-95, 1995-96 and 1996-97. The issue relates to disallowance of excise duty paid of Rs. 35,90,637 for asst. yr. 1994-95, Rs. 2,46,98,096 for asst. yr. 1995-96 and Rs. 1,49,80,350 for asst. yr. 1996-97. The amounts relate to excise duty paid but held in personal ledger account (PLA) under excise rules maintained by the assessee. The amount of duty paid is shown as loans and advances in the balance sheet and not debited to the P&L a/c. However, the assessee has claimed the same amount during the course of assessment proceedings. 10.2 The AO held that since the claim was not raised in the return of income and since it is claimed towards payment of future liability the same was not allowable. The CIT(A) considered the claim and held that the assessee is entitled to lodge the claim so long as it is made before the assessment order is passed. The CIT(A) asked for explanation of the assessee regarding the claim. The assessee submitted that the liability for payment of excise duty is on manufacture of goods and is only postponed for payment till the goo....
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....his Act. Secondly, he went on to observe as under : "Assuming for the sake of argument that the closing credit in the PLA as on the closing date of the previous year is equal to or less than the excise duty on goods manufactured but not removed from the factory, then the position is that the assessee is entitled to claim the same as a deduction as an expenditure incurred and hence deduction otherwise allowable under the Act and allowable under s. 43B because the amount is actually paid in that previous year. But mercantile system of accounting followed by the assessee required that the assessee has to increase the value of the closing stock of finished goods by the same amount which is claimed as allowable as expenditure for the goods manufactured. It can be seen that corresponding to the debit of the claim, in working out the profit there would be an addition to the value of closing stock and the profit does not alter by this exercise. This is the requirement of neutrality of accounts in respect of profits on unsold goods and also the matching principles of accounting." He, therefore, held that though the deduction even if allowable there will be corresponding increase in th....
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....ity to pay excise duty arises on manufacture of goods though the payment is postponed till the removal of goods. It is, therefore, a liability which is otherwise allowable under the Act. The assessee has also paid the excise duty during the previous year. As per the method of accounting regularly employed the amount paid is firstly debited to the PLA under excise rules. On removal of goods the amount is debited to P&L a/c by crediting to the PLA. Sec. 43B is a non obstante clause and the payment of a nature referred therein, which also includes excise duty, is allowable on actual payment basis irrespective of the method of accounting employed by the assessee. In view thereof, disregarding the method of accounting employed the amount paid during the year which is less than the liability incurred is allowable. This view is supported by the decision in the case of Lakhanpal National Ltd. (supra), wherein the Court held as under at pp. 246, 247 and 248 : "On a perusal of the language of s. 43B, it is clear that it opens with a non obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, s. 43B will have overr....
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....ed in the year 1983 (including the one under the closing stock), the liability to pay import duty and excise duty on the said goods was incurred by the petitioner-assessee. When that is so, it is also clear that the deduction of the said excise duty and import duty even on the closing stock was allowable in the accounting year 1983, but because of the specific language of s. 43B of the Act which has an overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and hence, in this case, it is not the case of the respondent that the payment of the said duty is not made and, therefore, it is not allowable. Therefore, the submission of Mr. Shelat that deductions in respect of the amounts which are not allowable under commercial principles are claimed as deductions merely because they are paid, cannot be accepted." 10.7 Similar view is also expressed in the case of (i) Indian Communication Network vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (1994) 206 ITR 97 (Del)(SB), (ii) Dy. CIT .vs. Stone India Ltd (2000) 69 TTJ (Cal) 569 and (iii) Honda Siel Power Products Ltd. .vs. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del). In view of the above....
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....id. . 11.4. We have carefully considered the submissions of both the parties. Though we find that the payment of customs duty, by way of advance, in the PLA is in substance pari materia with the payment of excise duty as discussed while dealing with the earlier issue, however, we find that the excise duty paid cannot form part of the cost of goods but the custom duty paid on raw materials imported definitely forms part of the cost of goods. If the assessee chooses to debit the customs duty paid in PLA, the value of imported raw materials held as stock-in-trade is not increased. However, if the same amount is claimed as deduction permissible because the liability is incurred, the value of closing stock of imported raw materials necessarily increases. These are the costs incurred for bringing the goods to its present situation. The assessee cannot claim that the method of accounting regularly employed by it does not include the customs duty paid in valuation of the closing stock. It is a necessary ingredient for valuation of closing stock. The method howsoever long employed by the assessee cannot be accepted so long as it is not the correct method of accounting. This view has also....
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....ntory. The amount claimed is as under : Assessment year Amount (Rs.) 1994-95 12,58,53,40 1995-96 12,21,67,724 1996-97 15,51,27,659 12.2. The learned counsel for the assessee contended that imported raw materials and stores are cleared by paying applicable customs duty or adjusting the same in PLA balance. Thus, the landed cost of purchase includes customs duty paid. The landed cost of purchases which includes customs duty is valued at cost at the year end. Therefore, a portion of customs duty paid gets included in the closing stock valuation since the closing stock includes customs duty portion and since the amount is paid, the same should be separately allowed as deduction as per s. 43B of the Act. He also relied upon the decision in the case of Lakhanpal National (supra) and Dy. CIT vs. Addison & Co. Ltd. (1995) 53 ITD 514 (Mad), whereas the learned Departmental Representative has strongly relied on the order of the CIT(A). 12.3. We have heard the parties and perused the materials including the chart presented by the learned authorised representative of the assessee. We find that, at the first instance the customs duty paid on raw materials....
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....e. However, the assessee chose to claim 1/10th of the fee so paid as amortisation of expenditure under s. 35. Sec. 35D(1) reads as under : "Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-s. (2),' (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up of a new industrial unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new industrial unit commences production or operation." 14.3. Reading the above provision, it appears that to claim the expenditure under s. 35D(1), the expenditure needs to be provided in s. 35D(2). Sec. 35D(2)(c)(iii) allows the fee paid for re....
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....uch profits or gains," Sec. 2(43) defines the word 'tax'. But s. 2 itself starts with the words "unless the context otherwise requires". Hence, the word 'tax' cannot mean as per definition in s. 2(43) only. 15.4. Since the amount is paid by way of income-tax on the profits derived from business or profession in USA, taxes so paid are still covered by s. 40(a)(ii). Even otherwise, taxes paid cannot be called an expenditure laid out or expended wholly and exclusively for the purpose of business or profession. It is a tax on the income and not an expenditure incurred in the course of business. The tax is payable after the profits and gains of business are calculated. In view of the above, and more particularly, in view of s. 40(a)(ii), taxes paid outside India are not allowable as expenditure under s. 37(1) of the Act. The above- referred payments, are, therefore, not allowable. The order of the CIT(A) on this ground is upheld and the ground is rejected. 16.1. The next ground of appeal relates to Wipro Infotech Ltd. for asst. yrs. 1991-92 and 1993-94. The issue relates to disallowance of premium payable on redemption of debentures. The amount for asst. yr. 199....
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....payable on the redemption of debentures. We, therefore, hold that the issue on hand is covered by the aforesaid decision of the Hon'ble Supreme Court and the AO is to allow the claim proportionately in each year from the year of issue of debentures till the debentures are redeemed. 17.1. The next ground of appeal relates to Wipro Ltd.. for asst. yr. 1996-97. The issue relates to deductibility of provision for leave encashment amounting to Rs. 5,17,17,000. 17.2. The assessee made a provision for leave encashment of Rs. 8,24,64,000 in its accounts towards leave benefits accrued till the end of the previous year. Out of the above sum, Rs. 3,07,47,000 relate to relevant previous year while Rs. 5,17,17,000 relate to earlier years, i.e., for past service liabilities. Till the immediately preceding assessment year, the assessee was not providing for any provision towards leave benefits. However, after the Accounting Standards AS-15 issued by the Institute of Chartered Accountants of India were declared mandatory, the assessee had provided for the entire liability accrued till the end of the relevant financial year. The said standard, inter alia, provided that accrued liability b....
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....panies in respect of accounting period commencing on or after 1st April, 1995. The accounting standards also narrates various retirement benefits covered therein. Leave encashment benefit on retirement is one of the benefits covered therein. As per the standard prescribed, the assessee provided for the entire liability accrued as a result of operation of the abovereferred accounting standards. To that extent, this may be called the change in the method of accounting in respect of provision for retirement benefits. Since the total liability of the assessee as at the end of the relevant previous year, including the liability for past years, is ascertained during the year and hence, fully allowable. 17.5. Shri Amitabh Kumar. the learned Departmental Representative, supported the order of the CIT(A). He referred to the same decision on which reliance was placed by the CIT(A) for the proposition that the accounting standards and IT Act cannot march hand-to-hand. What may be required to be provided under Companies Act as per the accounting standards is not binding under the IT Act. The accounting standards are prescribed for presenting a true and fair picture as per the Companies Act.....
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....count for this cost. One view is that this cost should be recognised as soon as it has been determined. Others believe that the entitlement giving rise to past service cost is in return for services to be rendered by employees in future and, therefore, this cost ought to be allocated over the periods during which the services are to be rendered. Accounting Standard 28. In respect of gratuity benefit and other defined benefit schemes the accounting treatment will depend on the type of arrangement which the employer has chosen to make. (i) If the employer has chosen to make payment for retirement benefits out of his own funds, an appropriate charge to the statement of profit and loss for the year should be made through a provision for the accruing liability. The accruing liability should be calculated according to actuarial valuation. However, those enterprises which employ only a few persons may calculate accrued liability by reference to any other rational method, e.g., a method based on the assumption that such benefits are payable to all employees at the end of the accounting year." 17.8. From a reading of the above standards, it is clear that the assessee needs to as....
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....r is allowable in its entirety and no part thereof which relates to services rendered in past can be said not to have accrued during the previous year. This ground is, therefore, allowed and the order of the CIT(A), to this extent, is reversed. 18. The next ground of appeal relates to M/s Wipro Infotech Ltd. for asst. yr. 1992-93 and for Wipro Ltd. for the asst. yr. 1997-98. The issue relates to the disallowance of expenses of the nature of advertisement covered under s. 37(3) r/w r. 6B. For asst. yr. 1992-93, the total amount disallowed being only Rs. 9,872, the same was not pressed. We, therefore, dismiss the ground for want of prosecution. 19.1. For asst. yr. 1997-98, as per para 4(iv) of the audit report in Form No. 3CD, the articles presented or intended for presentation where expenditure on each article exceeded Rs. 1,000 is Rs. 1,40,119. It was mentioned by auditors the that the company contended that the above gifts did not carry any logo of the company or its products/services was not in the nature of advertisement and was, therefore, outside the purview of r. 6B. It was also mentioned that the expenditure incurred on articles distributed for sales promotion and cost....
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....at no details were ever called for. The gift articles were incurred on distribution of sweet packets and other articles to its agents, brokers, bankers, contractors and other business associates. It is a customary payment on various festivals. Our attention was drawn to the fact that for similar expenses incurred the same was fully allowed by the same Appellate CIT for asst. yr. 1993-94. 19.6. We have carefully considered the rival submissions and perused the record. Sec. 37(3) r/w r. 6B applies to an expenditure referred to in s. 37(1) of the Act. Sec. 37(3) applies to an expenditure in the nature of advertisement expenses. Hence, if the analogy of the CIT(A) is accepted, any expenses falling within s. 37(3) can never be allowed under s. 37(1). However, that is not the correct interpretation. Sec. 37(3) only restricts the allowance otherwise allowable under s. 37(1) by an artificial disallowance, as per r. 6B. However, to apply s. 37(3), expenses have to be in the nature of advertisement expenses. Para 4(iv) of the tax audit report in Form No. 3CD does not refer to the expenditure covered under r. 6B only. The auditor is required to furnish, information in respect of all the ar....
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....essee had not submitted the details while ignoring the details already available on record." The assessee has claimed deduction of Rs. 1,48,57,579 being lease rent for the entire period of 11 years for the property taken on lease from an associate concern, M/s Wipro Infotech Ltd. It appears that the assessee filed details before the AO but not the relevant lease deed. The AO held that what is paid covers lease rent and is prepaid expenses and, hence, cannot be allowed. The AO tried to distinguish the judgment relied upon by the assessee in the case of CIT vs. HMT Ltd. (1993) 109 CTR (Kar) 392 : (1993) 203 ITR 820 (Kar). It was held that the relevant decision considered the issue whether amount paid is a capital expenditure or revenue expenditure. 21.2. Before the CIT(A) also the assessee reiterated the arguments and relied on the decision of the Karnataka High Court in HMT Ltd. (supra). The CIT(A) considered the relevant decision and concluded as under : "As mentioned earlier, the fact to be considered here is whether amount has been 'paid' as per the definition given in s. 43(2) of the IT Act so that it can be considered as rent paid and allowable. The decision of....
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....ent on record. We are inclined to admit the additional evidence in the form of the copy of the lease deed. Based on the lease deed, it was argued that the facts are identical with the facts narrated in the case of HMT Ltd. (supra) decided by the Hon'ble Karnataka High Court, the jurisdictional one. 21.5. We now consider the relevant clause of the lease deed. Clause 1 of the said deed reads as under : (1) In pursuance of the said agreement and in consideration of the premises and of the rents and the lessee's convenants, conditions and provisions hereinafter reserved and contained the lessor's doth hereby demise unto the lessee the said lands hereditaments and premises admeasuring 43,239 sq. ft. or thereabouts situate at 6, Brunton Road, Bangalore, and more particularly, described in the first schedule hereunder written together with all buildings and structures standing thereon with the rights, easements and appurtenances thereto, but subject to all existing easements and rights if any over or in respect thereof including the rights of drainage and any other rights which any person may be entitled to over in or under the same (all of which are hereinafter for brev....
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....the finding given by the CIT(A). The only issue is whether the matter is required to be disposed of based on the evidence produced before us. The CIT(A) has remanded the matter back to the file of the AO with a limited direction. However, the time-limit given was only 4 weeks. As per s. 251(1)(a), the CIT(A) has power to set aside an assessment and refer the case back to the AO for making a fresh assessment in accordance with the directions given by the CIT(A). This also amounts to passing of an order under s. 250 of the Act. As per s. 153(A) where the assessment has been set aside under s. 250, the AO shall have power to decide the issue at any time before the expiry of two years from the end of the financial year in which the order under s. 250 is passed. The fetters put by the CIT(A) by way of reducing the time-limit is not in accordance with law. Since the direction given by the CIT(A) is not in accordance with law, we proceed to deal with the issue. 21.9. The CIT(A) has given a finding that if the payment is towards payment of rent, once and for all, and no part of it is to be received back or adjusted against the rent determined as payable for each month or year of use, th....
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....nufacture or produce the electronics or software items the income on account of which is claimed to be exempt under s. 10A. The assessee has not explained how the newspaper, diesel drum, wooden racks, etc. are connected with the industrial activity. 22.2. We have considered the facts of the case. It is not in dispute that the very nature of expenses in the form of newspaper, diesel drum and certain packing materials have formed part of the expenses incurred in the course of carrying on export-oriented units. The expenses of such nature have reduced the eligible profit of the export-oriented unit. When the same items of expenses are reduced while calculating the eligible profit the income which actually reduces such type of expenses should not be treated as other income not forming part of profit of eligible business. While calculating the profit of the eligible business the expenses and the income of the same unit are required to be netted out. The expenses and the income are relatable to the same nature. We direct that the computation should be made after netting out the expenditure by reducing the income of the nature in dispute. In other words, though it cannot be held that t....
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....O with a direction to furnish the necessary details within four weeks of the receipt of the order. The learned authorized representative has strongly objected to the observation of the CIT(A). The ground for disallowance by the AO was not due to non-furnishing of the details. The AO has held that the loss is a contingent liability. He has also held that even though the loan was raised and held as working capital, since it is held as capital, it is a capital loss. It was never held by the AO that the loan was obtained for acquiring any capital asset and, hence, not allowable. It was, therefore, not correct on the part of the CIT(A) to have, on one hand, decided that the loss in respect of working capital is an allowable loss and, at the same, remitting the matter back to furnish further details as to utilization of loan, etc. The issue regarding utilization of loan has already been examined by the AO and hence, he was not correct in allowing the AO a second inning. 23.5. The learned authorized representative also outlined the facts of the borrowing. It was stated that the transaction in foreign exchange is translated in the Indian currency on the date of transaction at the prevai....
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....the loan and not the purpose. However, since the details are not available, the action of the CIT(A) is justified. 23.7. We have considered the arguments advanced by the parties. We have also appreciated the facts of the case. At the outset, we say that the facts are not in dispute that part of the loan under foreign currency was utilized for acquiring capital asset and part of the loan was held as working capital. The AO has disallowed the loss because no reduction of loan has taken place during the year. To that extent, it was held as a contingent liability and hence, the deduction was not allowed. The AO has noted that even though the FCNRB loan from SBI is towards working capital, it is a capital loss. The finding of the AO is not disputed by the CIT(A). The CIT(A) has categorically held that the purpose of utilization of the borrowal is not relevant but the actual utilization thereof is relevant in considering the allowabiiity of the deduction. He has also held that the decision in the case of Groz Beckert Saboo Ltd. (supra) is required to be applied in the sense that if the loss is sustained towards trading account, it is a trading loss and if it is suffered towards capita....
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....art of the circulating capital would be a trading loss, but depreciation of fixed capital on account of alteration in exchange rate would be a capital loss. (vi) For determining whether devaluation loss is revenue loss or capital loss what is relevant is the utilization of the amount at the time of devaluation and not the object for which the loan had been obtained. Even if the foreign currency was intended or had originally been utilized for acquisition of fixed asset, if at the time of devaluation it had changed its character and had assumed the new character of stock-in-trade or circulating capital, the loss that occurred on account of devaluation shall be a revenue loss and not a capital loss. (vii) The way in which the entries are made by an assessee in the books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee." In view of the above, both the losses as claimed by the assessee are allowed. The ground is disposed of accordingly. 24.1. The next ground of appeal re....
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....s. 10, it does not constitute income for the purpose of s. 195 and hence tax is not deductible at source in respect of such amount. 24.4. In reply, the learned Departmental Representative argued that s. 40 overrides the provisions of ss. 30 to 38 of the Act. It is, therefore, implied that when the claim of royalty is made under s. 37 of the Act, in view of the embargo put under s. 40(a)(i), the same cannot be allowed without deduction of tax at source as per Chapter XVII-B. The proviso added to s. 40(a)(i) also says that when the tax has been paid or deducted under Chapter XVII-B in any subsequent year in respect of any sum such sum shall be allowed as deduction in the year in which such tax has been deducted. Hence, if the tax is deducted for the subsequent year then the amount is allowable in the subsequent year and not the relevant previous year. 24.5. We have considered the rival submissions and perused the record. We have also considered the judgment relied upon by the learned authorized representative. It is true that following mercantile system of accounting the assessee was required to provide for royalty payable for the period January, 1997 to March, 1997. The same i....
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....withstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction (or collection) at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter."' Reading s. 190(1), it appears that though the regular assessment in respect of any income arising to the recipient has to be made in a later assessment year, the tax on such income is required to be made by deduction at source in accordance with the provisions of Chapter XVII-B itself. We are, therefore, of the considered opinion that since the assessee has not deducted the tax at source on the provision made for the royalties payable outside India, s. 40(a)(i) is applicable and, hence, the amount of royalty payable of Rs. 10,61,908 is not allowable as a deduction. The ground is therefore, rejected and the order of the CIT(A) is confirmed. 25.1. The next ground of appeal relates to Wipro Ltd. for asst. yr. 1997-98. This issue relates to claim for deduction of Rs. 33,88,585 being royalties payable outside India on which no tax has been deducted at source. The AO and the CIT(A) disallowed the cla....
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.... from sale of SIL is not income derived from the industrial undertaking eligible for option under s. 10A. It was argued by the learned authorised representative that s. 10A contemplates two things, i.e., manufacture of an article in any electronic hardware technology park (EHTP) or software technical park (STP) and second, export of all such undertaking should not be less than 75 per cent of the total turnover of such undertaking. He also placed before us the Exim Policy announced by the Director General of Foreign Trade pertaining to set up of EHTP and STP, under what circumstances the SILs are being granted. He also drew our attention to the minimum export performance to be given by the undertaking. Our attention was also drawn to the condition for obtaining SIL. It was thereafter stated that SIL can be used for the purpose of importing certain goods which are not in the OGL category. However, if the licence is not immediately required, it can be sold in the market which fetches a premium. If the goods are imported as raw materials, it has also a cost to the assessee. However, instead of importing if the same material is purchased in the local market, the price payable for the do....
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....r tax holiday concession based on the percentage of capital employed of the other eligible unit under ss. 80HH & 80HHA, etc., the interpretation given to such sections should also govern the interpretation to s. 10A. He thereafter, heavily relied upon the decision of the Supreme Court in the case of Sterling Foods (supra) and argued that the income arising out of the sale of SIL has its route in the scheme of the Government and not in the industrial undertaking. In the absence of the income having any nexus which can indicate the income is derived from an industrial undertaking the income arising out of sale of SIL cannot be held to be exempt under s. 10A. 26.4. The learned authorized representative in the rejoinder argued that but for the exports the SIL would not have been granted to them and only because of sale of such SIL the income has arisen. Hence, it should be treated as income derived from the industrial undertaking. It was also argued that if the section is interpreted otherwise, it will not be a workable proposition. In the end, it was argued that when some benefits are given to an assessee the interpretation of the relevant section should be liberally construed, rel....
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....r under any other law for the time being in force." The condition under which the SIL is granted under the STP Scheme reads as under: "STP units have the facility of obtaining Special Import License (SIL) which allows them to import certain items which otherwise are not permitted. SIL is also tradable/transferable. At present, SIL entitlement is @ 15 per cent of Net Foreign Exchange Earned (NFEE). If the unit is ISO 9000 certified then additional SIL @ 5 per cent of the FOB value of exports (excluding deemed exports). SIL is also being allowed to ISO 9000 'Quality Consultancy Services'. The procedure for obtaining SIL is as follows." 26.7. The intention behind the introduction of s. 10A when it was first introduced in the Act can be found from the relevant speech of the Finance Minister while presenting the same and the memorandum explaining have also been considered by us. The same is also reproduced below : "I had earlier in my speech referred to the imperative need to promote our exports in view of our difficult balance of payments situation. To encourage establishment of export-oriented industries in the Free Trade Zone, the Government proposes to allow comp....
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....ew industrial units set up in backward areas and small scale industrial undertakings established in rural areas extend over a period exceeding five years. Units availing of the complete tax holiday now proposed will not be entitled to such concessions even after the expiry of the tax holiday period." 26.8. Reading the above provisions in the Act and the relevant scheme which are required to be complied with to set up an eligible unit, we find that the two sections, though granting relief to the assessee, are different in nature. Whereas s. 80HH requires only to set up an industrial undertaking in a specified area while s. 10A requires the assessee to set up a unit not only in a particular area but also to export substantially the whole of its products manufactured. The condition as to the export of articles manufactured is not found in the scheme and s. 80HH. The intention behind granting benefit to a unit under s. 80HH is to develop a backward area whereas the intention behind granting exemption under s. 10A is to earn the foreign exchange. The benefit under s. 80HH is available only on certain percentage of profit of the industrial undertaking whereas the benefit under s. 10A ....
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....00 per cent eligible industrial units. Having undertaken the exports by setting up an eligible unit the assessee is eligible for the various export benefits. To deny exemption to such profit arising out of export benefits, therefore, amounts to defeating the purpose of the relevant section. 26.12. The word 'derived' is not defined in the Act. Hence, we resort to the dictionary meaning of the same. The Oxford Illustrated Dictionary defines the word 'derived' as "get, obtain from a source, have one's or its origin from, deduce from, be descended or have one's." In the case of a 100 per cent export-oriented unit, the origin or source of export benefits in the form of import entitlement is the business of export only. The scheme of the Government is only an enabling factor. The judgment of Hon'ble Supreme Court in the case of Sterling Foods (supra) is, therefore, distinguishable, since the present issue is under s. 10A and not under s. 80HH as in the said case of Sterling Foods (supra). 26.13. At this juncture, we are referring to an earlier decision of Hon'ble Madras High Court in the case of CIT vs. Wheel and Rim Co. of India Ltd. (1977) 107 ITR ....
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....usiness carried on by the undertaking". It can be seen from the amendment w.e.f 1st April, 2001, the twin requirement of eligible business and export are confined together in s. 10A, the amount of eligible deduction to such units is defined in s. 10A(4). As per the meaning assigned, the formula is to be applied which means : Profit of the business of undertaking x Total turnover of business of the undertaking The income in nature of export benefit in nature of sale of SIL forms part of profit of business undertaking as per s. 28(iiic) of the Act. The intention of the amendment in s. 10A has to restrict the exemption to such profit of the undertaking from export activity only. However in such restriction, the words 'derived from' are conspicuously absent which are otherwise used in all other sections granting deduction or exemption. We are not holding that the amendment to s. 10A is retrospective in nature. We are only trying to see the intention of legislature as to the eligible amount in granting benefit to the assessee. The intention also seemed to be the same as we had pronounced earlier. 26.17. In view of the relevant provisions of the Act, the ....
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....human resources development, quality, legal and treasury operations. The appellant maintains separate accounts for each of its divisions and sub-divisions. The units set up under EHTP/HTP are eligible for exemption under s. 10A Act. Some of the other divisions are either eligible for deduction under ss. 80HH, 80-I and 80-IA. Some of these are not eligible for any sort of exemptions/deductions. 27.3. In the first appeal before the CIT(A), the assessee has not challenged this. However, the same was taken up as an additional ground which the CIT(A) has admitted. It is argued by the assessee before the CIT(A) that the revenue trial balance in respect of the Wipro Infotech group which shows unallocated expenditure is definitely available. All the arguments raised before the AO were also reiterated before the CIT(A). However, they did not find favour with the CIT(A). The CIT(A) held that since the exact details of the allocation of overheads including the interest are not available, the same have to be worked out on ad hoc basis. It was held that, major component or rather the entire component of unallocated expenditure is in respect of interest only and since sums are likely to be lo....
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....f funds. At the same time, if the unit has surplus funds and if the amount is availed by the Wipro corporate group interest is paid to such units of the company. The same is also clear from the summary. The entire administrative expenses are either recovered from various sub-divisions or recovered from software export division. Out of the total interest out-go, there is payment by intra-business units also and from the interest earned the same is in respect of charging from intra-business also. However, the entire interest cannot be allocated to the sub-divisions because the same is not borrowed specifically for those sub-divisions. It was also argued that while dismissing the ground the CIT(A) has done so, on the basis of hypothesis and not based on facts. Our attention was drawn to this specific finding giving by the CIT(A) which is purely on surmises, conjunctures and not based on cogent material. The only reason shown by both the AO and the CIT(A) for reducing the claim under s. 10A is that no details are furnished or the accounts are prepared to suit assessee's own convenience which is not the correct fact. The assessee has, in fact, prepared unit-wise accounts, got them a....
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....t that if separate books are maintained, the expenses should be allocated as per the books of accounts itself and, if not, the same cannot be attributed to the exempt profits. When no specific defect is found in respect of the accounts of the eligible s. 10A units, such allocation is not permissible. It was demonstrated that the interest expenses in respect of such units have specifically been charged to those units themselves. In the end, he strongly urged to allow the claim of the assessee and reverse the findings of the CIT(A). 27.7. We have considered the rival submissions carefully and perused the records. At the outset, we shall consider what is the exact expenses and interest which are either recovered or unallocated. Summary of the expenses as furnished before the AO is as under: Rs. Rs. A Expenses consisting of salaries, travel, etc., excluding interest less revenues 7,37,98,774 Less: Recoveries from sub-divisions other than software exports sub-division 4,93,49,416 Sub-total 2,44,49,358 Less: Recoveries from software exports sub-division 3,70,00,000  ....
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....ware technology park is charged with interest amount of Rs. 5,12,06,102. On p. 36, we find that for three units set up in EHTP, the total interest charged is Rs. 2,55,59,446. From the summary of the entire profit eligible under s. 10A as found in p. 34 of the paper book, we find that though an interest amount of Rs. 6,08,640, was capitalized in the books of account but since it is deductible under s. 36(1)(iii), the same was reduced from the eligible profit worked out for the purpose of s. 10A of the Act. All these working were filed before the AO along with return of income. However, we do not find the details as regards what is the total interest paid to outside agencies, the total interest earned from deployment of funds and the intra-unit charge and recovery of the interest. It is true that under s. 36(1)(iii) interest paid for the purpose of business is an eligible expenditure. At the same time, it is equally true that if the interest is paid for the units that are eligible for exemption under s. 10A, to that extent the amount of exemption available is liable to be reduced. 27.9. An attractive argument was raised before us, justifying non-allocation of interest to the units....
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....ight to apportion such expenses on a fair and reasonable basis." In the case before us, we find that the assessee has maintained separate account for its units eligible for exemption under s. 10A. There is no finding by the AO that interest paid and claimed as expenditure under s. 36(1)(iii) is relatable to the units claiming exemption under s. 10A of the Act. Decision cited, therefore, is not helping the case of the Revenue. (b) M.S.P. Raja & Anr. (supra) : the Hon'ble Madras High Court held as under : (i) "that the principle applicable to a case where an assessee carried on a single business part of whose profit is not assessable to tax is different from a case where the assessee carries on more than one business; (ii) in the present case, there is a finding by the Tribunal that the business carried on by the assessees through the three different funds do not constitute a single business and this finding was not attempted to be challenged; (iii) any business expenditure has to be related to a business which is taxed or taxable before it can be deducted and there is no scope for deduction of interest in the instant case, as there is no business income, taxed or ....
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....on for the purpose of allocation and not the net amount." In this case, the facts show that interest paid on amount borrowed was utilized for investment in firms and purchase of shares also. The Tribunal was, therefore, justified in holding that interest has to be apportioned proportionately between interest from the firm which was chargeable to tax and also against dividend income being income realized from investment in shares. We find that there is specific finding by the AO that the amount was borrowed for dual purposes and the interest was rightly allocated. However, we do not find any finding that the amount was borrowed for eligible units claiming exemptions under s. 10A of the Act. The case is, therefore, distinguishable on facts of it. 27.12. We shall now consider the cases relied upon by the learned authorized representative of the assessee. (A) Indian Bank Ltd. (supra) : The Hon'ble Supreme Court noted as under : "There is nothing in the language of s. 10 of the Indian IT Act, 1922, from which it can be fairly implied that an expenditure or allowance falling within the section must fulfil some other condition before it can be allowed. In construing the se....
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....on, income from which was exempt from tax as agricultural income : Held that the entire managing agency commission was laid out or expended for the purpose of business carried on by the assessee and was allowable under s. 10(2)(xv) of the IT Act, 1922. The fact that the income from a part of the business was not exigible to tax under the Act, was not relevant circumstance. There is no basis for the view that only expenditure incurred in respect of the business activity giving rise to income, profits or gains taxable under the Act can be allowed as a deduction under s. 10(2)(xv) and not otherwise. To find out whether a deduction claimed is permissible under the Act or not, all that has to be done is to examine the relevant provisions of the Act. Equitable considerations are wholly out of place in construing the provisions of a taxing statute. The provisions of the statue have to be taken provisions as they stand. If the allowance claimed is permissible under the Act then the same has to be deducted from the gross profit. If it is not permissible under the Act, it has to be rejected." In this case. before the Supreme Court the assessee has two types of activities. The income....
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.... the assessee. 27.13. As we have noted earlier, the assessee has all the while been maintaining separate accounts for its divisions claiming exemption/deduction under the Act. The accounts are audited. No defect has been pointed out by the AO. It is also seen that the units claiming exemption under s. 10A of the Act are having substantial profits. The profits of such eligible undertaking are even exceeding the entire profits of all the other units. This fact is amply demonstrated before us. It can, therefore, be implied that there is always a surplus fund with the eligible units under s. 10A of the Act. The actual interest paid by such units on its borrowals has been deducted in calculating its profits. The same fact has been noted by us in the earlier paragraphs. The assessee is also required to maintain its corporate image, set up a corporate house and employ various persons as well as operate for such purposes. The same cannot, therefore, be related to any of the industrial undertaking, nonetheless the expenditure is wholly and exclusively for the purpose of business. As far as the administrative expenses are concerned, the assessee has allocated the same for its various unit....
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....to which they relate. The assessment order for the asst. yr. 1991-92 was passed on 17th Feb., 1994, for asst. yr. 1992-93 on 22nd Feb., 1995. Therefore, the AO could not consider this aspect in the assessment for 1991-92. The CIT(A), therefore, refused to interfere in the matter saying that since the issue has not been considered in the order for asst. yr. 1991-92, the same has to be rejected. However, it was remarked that the assessee may proceed with its claim under s. 154 of the Act. 29.2. The assessee has claimed the amount of Rs. 2,93,230, in its return of income for the asst. yr. 1992-93. Since as per the audit report the amount was shown as pertaining to asst. yr. 1991-92, the AO disallowed the claim for asst. yr. 1992-93 on the ground that the expenses relate to asst. yr. 1991-92. The AO has not given any finding whether the expenses are revenue expenditure or otherwise allowable or not. We also find from the appellate order that the entire details of Rs. 2,93,230 were filed even before the CIT(A). All these expenses, including Rs. 2,17,719 in respect of purchase of materials are revenue in nature. When the expenditure is revenue in nature and otherwise allowable, the CI....
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....e effected in an earlier year. The genuineness of commission is not in dispute. We are, therefore, in agreement with the learned authorized representative of the assessee and the claim of the assessee for deduction of dealer commission of Rs. 1,14,432 is allowed. 31.1. The next ground of appeal relates to Wipro Infotech for asst. yr. 1992-93. The issue relates to treatment of Rs. 55,000 as capital expenditure instead of revenue expenditure as claimed by the assessee. 31.2. The learned authorized representative of the assessee fairly conceded that in view of the said amount of capital expenditure incurred, the incidental expenditure estimated by the AO does not call for any interference. This ground is, therefore, rejected as no argument in support of the ground is taken before us. 32.1. The next ground of appeal relates to Wipro Infotech for asst. yr. 1993-94. The issue relates to claim of Rs. 41,760 being penalty levied under the ST Act.. The amount is paid in lieu of confiscation of goods under the Karnataka ST Act. It was contended that the revised Form 39 under the Karnataka ST Act was misplaced by the transporter and could not be produced at the intra-district border ....
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....es, in fact, equalled or exceeded the income of the nature aforesaid. He, therefore, held that due to the inability of the assessee to connect the investment to the borrowings no credit for the income can be given against any expenses and the working out only the net expenses while computing the profit of the industrial undertaking eligible for deduction under ss. 80HH and 80-I of the Act. The assessee is, therefore, in appeal before us. 33.3. We have carefully considered the rival contentions and gone through the record. We have also perused the decisions cited. The Delhi Bench of the Tribunal in the case of Honda Seil Power Products (supra) has considered the decision of the Mumbai Bench in the case of Pink Star (supra). Quoting from the decision of the Mumbai Bench, the claim of the assessee was allowed by the Delhi Bench of the Tribunal. The Mumbai Bench has discussed the issue at paras 15 to 18 of its order which have been quoted by the Delhi Bench. If we are to follow the above two decisions, we need to find that the facts are also identical. The facts before the Mumbai Bench in the case of Pink Star, as noted in para 18 of the order, are as under : ".... in the present....
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....ink Star (supra) and also of the Delhi Bench of the Tribunal in the case of Honda Seil Power Product (both cited supra). This issue, therefore, stands set aside for further adjudication by the AO in the light of the discussions above. 34.1. The next ground of appeal relates to M/s Wipro Ltd. for the asst. yr. 1994-95. The issue relates to exclusion of other income in working out the profits and gains derived from the industrial undertaking for deduction under ss. 80HH and 80-I of the Act. 34.2. The other income of the assessee amounting to Rs. 12,01,884 was excluded while computing the eligible profit derived from the industrial undertaking. The break up of the other income given by the assessee was as under : Interest income 59,935 Miscellaneous income 11,41,949 12,01,884 The assessee has furnished details before the AO stating that the miscellaneous income consisted of discount received against early payment in the case of sundry debtors written back. The CIT(A) held that since the assessee has not given the break up of the other income the matter was restored back to the file of the AO. He also directed the assessee to submit the detai....
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....e CIT(A). The CIT(A) himself has noted this in his order, as reproduced earlier. There is no material with us to suggest that the assessee has no objection in treating these items as not forming part of profit derived from the industrial undertaking. On the contrary, the assessee has raised a specific ground and furnished before the CIT(A) as per its letter, dt. 6th Jan., 1998. We have, therefore, no hesitation in holding that the miscellaneous income which is in the nature of trading receipt like discount received from suppliers for early payment and the amount written back in respect of sundry credit balances would form part of the profit derived from the industrial undertaking eligible for deduction under ss. 80HH and 80-I of the Act. The AO is directed to include the sum of Rs. 11,41,949 being the miscellaneous income while computing the profit derived from industrial undertaking for the purpose of deduction under ss. 80HH and 80-I of the Act. 34.4.1. As regards the interest income of Rs. 59,935, we restore the matter back to the file of the AO, as held by us in the case of the assessee for the asst. yrs. 1991-92, 1992-93 and 1993-94. The AO shall examine the claim in relati....
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....im of the assessee in respect of the above sums is, therefore, rejected. 36.1. The next ground of appeal relates to M/s Wipro Ltd. for the asst. yr. 1996-97. The ground reads as under : '"The authorities below erred in excluding the income in computation of profit derived from industrial undertaking : (c) Peenya unit for the purpose of deduction under s. 80-IA : Interest received 5,062 Miscellaneous income 24,620 (d) Peripheral unit at Mysore for the purpose of deduction under s. 80-IA : Miscellaneous income 3.24.540 (a) Wipro fluid power at Peenya unit: Miscellaneous income 1,219,092 Total 1,219,092 (b) Peripheral Unit at Mysore : Interest 2,23,633 Miscellaneous income 28,08,570 Total 30,32,203 36.1.1. As regards interest income of Rs. 2,23,633 in respect of peripheral unit at Mysore, the issue is set aside to the file of the AO. The AO is directed to follow our direction given in para 180 above in respect of the assessee (erstwhile Wipro Infotech) for asst. yrs. 1991-92, 1992-93 and 1993-94. 36.1.2. As regards the miscellaneous income in respect of....
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....e to pay for converting raw material to fatty acid in another third party unit located at Bombay. The basis for this is that the third party unit at Bombay is the nearest fatty acid producing facility and that the soap unit was largely getting fatty acid requirement converted out of raw oil brought and issued to the unit at Bombay prior to the commissioning of own fatty acid plant at Amalner. It was the contention of the assessee that for the current transfer price viz., fair market value the assessee values the stock transfer based on principle of standard costing with fair reasonable margin of profit. The cost includes cost of octroi duty payable at Mumbai and Amalner which the assessee used to pay while processing the non-edible oil outside. 37.2.1. The AO noted that the working of the intermit transfer price of fatty acid was scrutinized for the preceding assessment year, i.e., asst. yr. 1992-93. It was found that the assessee-company was working out such transfer price by including, inter alia the Mumbai octroi, the Amalner octroi and the transportation of fatty acids from Mumbai to Amalner to the cost of raw material and conversion charges of raw material into fatty ....
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....ermining the transfer price of fatty acid to the toilet soap unit. As stated earlier, prior to the operation of the FAGP unit, the toilet soap unit sourced its fatty acid requirements from Bombay. Hence, costs such as octroi at Bombay and Amalner and freight which were normally incurred to bring fatty acid from Bombay have been added to determine the value of fatty acid manufactured in the FAGP unit. The learned Dy. CIT has excluded the costs which are normally incurred to bring fatty acid from Bombay and consequently reduced the profits of the FAGP unit by Rs. 46,35,479. The AO has followed the method adopted in the assessment order for the asst. yr. 1992-93 which was confirmed in the first appeal before the CIT(A). The Hon'ble CIT(A) upheld the order of the AO for asst. yr. 1992-93 even while acknowledging in the appellate order that an attempt should be made to determine the reasonable market value of fatty acid manufactured by the FAGP unit and treat the same as the price at which fatty acid should have been transferred to the toilet soap unit. It is respectfully submitted that while confirming the reduction in profit of the FAGP unit for the asst. yr. 1992-93, the....
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.... The CIT(A) further held that the hypothetical cost of acquisition of fatty acids (comprising purchase price, octroi and transportation charges from the market to the factory) is not the same as market value which is as per Explanation to s. 80-I(8). The CIT(A), in the end, held that since the assessee has not incurred expenses on octroi, transportation charges, etc., they would not add upto the cost. He, accordingly, dismissed the plea of the assessee. 37.5. Before us, the learned counsel for the assessee reiterated the submissions advanced before the CIT(A) whereas the learned Departmental Representative supported the orders of the authorities below. We have given our considered thought to the issue on hand. The assessee is manufacturing fatty acids and glycerine at Amalner and the said unit is eligible for deduction under ss. 80HH and 80-I of the Act. The material produced is not sold outside but transported to its another unit manufacturing toilet soaps at Amalner itself. It is an accepted proposition that when the sale of material is taking place by way of intra-unit transfer, a reasonable sum of profit is required to be added to its cost. This view, as canvassed by the lea....
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.... procure the material at Amalner, the price it would have to pay will be Rs. 28,637 per ton (Rs. 27,768 plus Rs. 869). If an outsider has to sell the product at Amalner, he will have to charge not less than Rs. 28,637 as this will be the cost to the person procuring the material at Amalner. It can, therefore, be substituted for the market price prevailing at Amalner. The market price prevailing at Mumbai cannot be equated with the market price prevailing at Amalner. In respect of the assessee itself the manufacturing at Amalner out of the said unit was to procure the material at Amalner, the price it would have paid will become the market price. 37.6. Sec. 80-I(8) of the Act requires that only if the consideration recorded in the accounts of the industrial undertaking does not correspond to the market value then only the profits of the undertaking has to be computed by replacing the market value of such goods. The onus is, therefore, on the AO to prove that the transfer by the industrial undertaking does not correspond with the market price. It is the AO who is required to find out the market price. On the contrary, the CIT(A) has requested the authorized representative of the a....
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....al undertaking, similarly, the sales-tax benefit which is an incentive to encourage investment in specific asset is referable to the sales-tax benefit scheme of the Act and not to the industrial activity as such. 38.2. Before us, the learned counsel for the assessee stated that the incentive from the sales-tax Department was granted as per letter No. IDF/DR/ST-115/1993-94, dt. 21st Feb., 1994. The unit has undertaken expansion/modernisation programme by installing additional plant and machinery and testing equipment for improving the productivity and quality with an additional investment of Rs. 300.90 crores and has already invested Rs. 242.99 lakhs in fixed assets under the above expansion/modernisation programme. The unit falls under the trust sector for category of electronics. Accordingly, the unit is eligible for 100 per cent sales-tax exemption (CST and KST) on sale of finished goods for a period of five years from 30th Sept., 1993, i.e., from the date of commencement of production under the expansion/modernisation programme in terms of Government Order No. C1/138/SPC/90(PX), dt. 27th Sept., 1990 and Finance Department Notification No. FD/239/CSL/90, dt. 19th June, 1991. A....
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....ax incentive is given in the form of cash assistance or in the form of exemption from payment of sales-tax after the same was found payable by the assessee. We are also unable to find the details whether the assessee has claimed any expenditure in respect of the sales-tax paid as revenue expenses which were considered in determination of the profits eligible for deduction under s. 80-IA of the Act or not. If the sales-tax incentive is in the form of rebate of the sales-tax paid on the various capital expenditure incurred by the assessee (as seen from the details submitted before us giving the bifurcation of Rs. 32,90,666), the same shall be treated as capital receipt to be reduced from the cost of respective assets and not to be treated as revenue income of the assessee. To this extent, the profit of the industrial undertaking itself will be reduced which is forming part of the gross total income and also from the cost of the assets on which depreciation has been claimed. 38.5.1. We. therefore, remit the matter back to the file of the AO, to verify the exact nature of the receipt and allow or refuse the claim of the assessee based on our following observations : (I) If the as....
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..... (supra) and argued that when the issue is not arising out of the facts on record before the AO, the action of the CIT(A) is justified. 39.4. We have carefully considered the rival submissions and gone through the record. We have also perused the judgment of the apex Court in the case cited supra. The Hon'ble Supreme Court in the aforesaid decision noted that where the Tribunal is only required to consider the question of law arising from the facts on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. We find that whether the assessee is eligible for deduction under s. 80HHC or not is available as per the record of the AO. The assessee, in the first instance, might not have claimed the deduction under s. 80HHC of the Act. However, when the assessee realized its mistake and since the assessment was finalized, the CIT(A) should have entertained the additional around raised by the assessee. The CBDT, by its Circular No. 14(XL-35) of 1955, dt. 11th April, 1955, issued the following direction : "Officers of ....
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....erwise allowable, as per the provisions of the Act at the relevant time. This ground of the assessee is, therefore, allowed. 40.1. The next ground of appeal is in respect of Wipro Ltd. for the asst. yr. 1994-95. By this ground, the assessee challenges the order of the CIT(A) in setting aside the issue of computation of deduction under s. 80HHC. 40.2. From the records, we find that while calculating the deduction under s. 80HHC, the AO has reduced 90 per cent of commission income and 90 per cent of interest income under Expln. (baa) to s. 80HHC. This amount has been arrived at as per computation of the assessee itself which was filed along with the return of income. The learned counsel for the assessee submitted that instead of deducting 90 per cent of the commission income and 90 per cent of the interest income, the assessee, by mistake, reduced the entire amount of commission and interest income. The grievance of the assessee is that instead of allowing the rebate directly, the CIT(A) should not have remitted the matter back. 40.3. From the details available including the orders of the authorities below, we find that if the assessee has any grievance in calculation of ded....
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....hould be reduced to the extent of 90 per cent while calculating the profit of business for the purpose of deduction under s. 80HHC of the Act. 41.4. Before us, the learned counsel for the assessee argued that the receipt in question is not by way of other income nor referred to in Expln. (baa) to s. 80HHC of the Act. It is not service charges as held by the AO but it is an amount received for export of services The amount received for export of services cannot be equated with service charges. The CIT(A) held that what is received for allowing somebody to use the software developed by the assessee for a specified period should go under the meaning of rent. The learned counsel for the assessee, therefore, argued that by any stretch of imagination, this cannot be equated with the word "rent". He, therefore, urged that on a proper interpretation of Expln. (baa) to s. 80HHC the amount of software export cannot be reduced from the profits and gains of business. On the other hand, the learned Departmental Representative argued that s. 80HHC is intended to give benefit in respect of profits of the export of goods. In the present case, what has been exported by the assessee is the softwa....
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....the intention of introduction of the Explanation was to exclude the receipts of such a nature which though may be taxed as profits of the business yet do not have element of turnover which requires to be excluded. The assessee, in the present case, has exported software. The assessee is entitled to deduction under s. 80HHC in respect of such receipt also. Deduction under s. 80-O of the Act has also been allowed by the AO. The total receipts from export of software is Rs. 84.41 crores for asst. yr. 1995-96, Rs. 166.87 crores for asst. yr. 1996-97. One of the main businesses of the assessee is export of software. It cannot, therefore, be held that the receipts are of such a nature which cannot be considered to be part of the total turnover of the assessee. The receipts from the export of software cannot be said to be other receipts of a similar nature. The principle of ejusdem generis to be applied will indicate that the receipt should be of the nature of akin to brokerage, commission, interest, rent or charges. The receipt can also not be treated as rent. The word 'rent' is defined to mean a payment made usually on fixed interval to an owner of land or property in return for....
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....500 2,59,99,949 Dividend from UTI 2,37,765 2,62,37,714 The assessee claimed deduction for the entire receipts without deducting any expenses. According to the AO deduction is available only in respect of income by way of dividends and not gross receipts by way of dividends. The assessee claimed that no expenses were incurred for earning the dividend. Without prejudice to the above, the assessee claimed that if at all only 1 per cent of the gross dividend was to be estimated as expenses and that too on account of managerial expenses. The AO did not accept the plea of the assessee. Relying on the decision in the case of CIT vs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), the AO held that proportionate managerial expenses are to be reduced from the gross dividend. In the absence of details, the AO estimated the expenses at 5 per cent of the gross dividend from companies of Rs. 2,59,99,949. However, the AO did not deduct any amount from UTI. The AO, accordingly, worked out the deduction under s. 80M as under : Income by way of dividend from companies 2,46,99,952 2/5 of dividend from UTI ....
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....tments for reduction of borrowed funds to save interest. It may be true that the assessee has borrowed funds but there is no finding that borrowed funds have been used for investment in shares. On the contrary, there are also huge surplus funds in the form of reserves which should have been equally utilized for the purpose of investment. The learned counsel for the assessee, thereafter, relied upon the decision of the Calcutta High Court in the case of CIT vs. United Collieries Ltd. (supra) and also on the decision of the Bangalore Bench of the Tribunal in the case of M.N. Dastur & Co. Ltd. vs. Dy. CIT (supra) for the proposition that there is no scope for estimating the expenditure and correspondingly reducing the deduction under s. 80M. 42.5. On the other hand, the learned Departmental Representative submitted that it cannot be denied that atleast some expenditure is required to be met to earn the dividend income. Either some funds should have been invested out of borrowals or also some managerial expenditure is required to manage the portfolio of collection of the dividend. It is also found that similar computation made in the earlier years has not been challenged by the asse....
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.... dividend income, we are not inclined to agree with the submissions of the learned Departmental Representative that a reasonable sum should be estimated for arriving at the net dividend income. This view has also been recently held by the Hon'ble Bombay High Court in the case of CIT vs. General Insurance Corpn. of India (2002) 254 ITR 203 (Bom). 42.7. There is also no finding that for realizing the dividend income, any commission has been charged by the bankers as the dividend income has been received by way of cheques payable at par. We. therefore, hold that no estimation is required to be made towards expenditure incurred and hence, the gross dividend income is held as the net dividend income and, accordingly, deduction under s. 80M is allowable on such net dividend income, without deducting any estimated expenditure for earning such dividend income. 42.8. This ground of appeal is, accordingly, allowed. 43.1. The next ground of appeal relates to deduction under s. 80-O of the Act for the asst. yrs. 1990-91, 1991-92, 1992-93, 1993-94, 1995-96 and 1996-97. The ground taken is as under : "The authorities below erred in restricting the deduction under s. 80-O on the n....
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....IT(A), after considering the relevant provisions of the Act and also the decision of the Hon'ble Calcutta High Court in the case of M.N. Dastur & Co. (supra) held that deduction under s. 80-O is to be allowed with reference to the income from the amount received in foreign exchange in India which is computed in accordance with the provisions of the Act. He, therefore, held that deduction under s. 80-O is allowable after reducing the direct and indirect expenses incurred by the assessee and only on the balance, deduction, under s. 80-O is available. The assessee is challenging this action of the CIT(A). 43.4. Before us, the learned counsel for the assessee submitted that deduction under s. 80-O is allowable on the amount realised in foreign exchange. The provisions of the Act allow deduction of an amount equal to 50 per cent of the income so received in or brought into India. Thus, what is to be seen is the income brought into India and this amount can only be the gross receipts of the assessee without deducting any expenditure in respect of earning the same. He invited our attention to the decision of the Hon'ble Calcutta High Court in ITP No. 112/1998 in the case of CIT....
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....se of CIT vs. Chemical & Metallurgical Design Co. Ltd. (2001) 165 CTR (Del)(FB) 201 : (2001) 247 ITR 749 (Del)(FB) for the proposition that in view of the stipulation contained in s. 80AB one thing which emerges clearly is that mode of computation as envisaged in s. 80AB has full application to the case relating to s. 80-O. Thus, the deduction under s. 80-O has to be allowed keeping in mind the overriding provision of s. 80AB which, according to s. 80AB, should be computed after reducing the expenditure incurred in respect of such income described in s. 80-O of the Act. 43.6. In reply, it was submitted that though the Calcutta High Court has decided in its reported decision in (2000) 159 CTR (Cal) 417 : (2000) 243 ITR 10 (Cal) (supra) that deduction under s. 80-O has to be allowed on the income which is computed in accordance with the provisions of this Act, in a later decision, in the case of the very same assesseee, the Hon'ble Calcutta High Court has held that the same is allowable before deducting any expenditure in relation to earning of such income. It was, therefore, argued that the later decision should be applied in preference to the earlier decision. The later deci....
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....one of the provisions contained in Chapter VI-A under the head 'C' and is a provision to which s. 80AB applies. Sec. 80AB, as observed by the Hon'ble Supreme Court in the case of Motilal Pesticides (supra) is merely declaratory, and has declared the law as it always stood in relation to deduction under the various provisions of Chapter VI-A excluding s. 80M from the time those sections were introduced. Sec. 80AB specifically provides that deduction that can be claimed under the provisions of Chapter VI-A, excluding s. 80M, is the amount determined in accordance with the provisions of the Act. It is, therefore, not the gross amount or the total receipts that has to be taken but it is only the income derived for which deduction is sought and as computed in accordance with the provisions of the Act that can be eligible for deduction. In the case of the assessee, the fee that it had received from abroad constituted its gross receipts and the "income from fee" which was required to be computed in accordance with the provisions of the Act, for deducting from the gross receipt, such amounts as were required to be deducted under the provisions of the Act and which would only be....
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....sessee has incurred direct expenses in respect of travelling and manpower cost. However, there is no finding that the assessee has also incurred certain expenditure in India for earning the income abroad. The AO has simply estimated certain expenditure out of the establishment expenses to have been incurred for earning the income. 43.9. The Bangalore Bench of the Tribunal in the case of M.N. Dastur & Co. vs. Dy. CIT (supra) [since been approved by the Hon'ble High Court in C.C. No. 58/1998), dt. 4th June, 2001], has held that deduction under s. 80-O is admissible after reducing expenses incurred abroad to earn the income and the proportionate expenses incurred in India are not required to be deducted for computing the income of the nature referred to in s. 80-O. What s. 80AB requires is that for the purpose of computing deduction under s. 80-O, the amount of income of that nature computed in accordance with the provisions of the Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee. Thus, in our opinion, only the direct expenses incurred by the assessee in earning the income of the nature referred to in s. 80-O is re....
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....nk fit to discuss in detail. 43.13. This ground of appeal is accordingly disposed of. 44.1. The next issue pertains to the direction issued by the CIT(A) resulting in enhancement of the taxable income by restricting the eligible deductions under Chapter VI-A particularly deductions under ss. 80HH, 80-I, 80-IA and 80-O. This issue pertains to asst. yrs. 1995-96. 1996-97 and 1997-98. 44.2. The CIT(A) noted as under while dealing with the appeal for the asst. yr. 1995-96 : "The revised computation of total income filed along with the revised return for the asst. yr. 1995-96 gives the following details : Profits and gains of business (revised) 31,43,34,639 Income from other sources Dividend income 2,65,94,361 Gross total income 34,09,29,000 Less : Deduction under Chapter VI-A Sec. 80HH relief on Amalner FAGP unit 94,13,191 Sec. 80HH relief on Amalner soap unit 60,44,242 Sec. 80HH relief on Micro sales-Infotech Division 1,19,56,776 Sec. 80HHC relief on leather products/Engg. Lighting, etc. 64,31,201 Sec. 80-I relief ....
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....oss total income worked out by the AO is Rs. 42,76,73,769 including income from dividend of Rs. 2,47,95,058 which was allowed deduction under s. 80M. To put in other words, the profits and gains of business included in gross total as computed by the AO are Rs. 40,28,78,711 (i.e., Rs. 42,76,73,769 ' Rs. 2,47,95,058). The total of income by way of profits and gains of business considered for deduction under ss. 80HH, 80-I, 80-IA and 80-O as adopted by the AO is Rs. 62,07,85,344 as against the total income computed under the head profits and gains of business computed by her at Rs. 40,28,78,711. The appellant has objected in this appeal to certain disallowances/additions to income. Some of these are liable to be upheld and this would be discussed in the appellate order. To that extent the additions to income/disallowances of expenses are deleted. The income computed under the head profits and gains of business may be reduced. Even then the position would be that the aggregate of profits and gains of eligible business would be higher than the aggregate of income computed under the head profits and gains of business or profession." 44.2.1. Similarly, for asst. yr. 1996-97, the CI....
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.... 1,20,13,74,426 57,58,47,955 29.3. Deduction under s. 80HHC claimed in respect of FAGP unit, Amalner, soap unit, Amalner and FAGP unit, Tumkur, was Rs. 63,94,624, Rs. 25,58,342 and Rs. 38,31,206 respectively, based on the profit shown for the purpose of s. 80-I are not included in the above table to avoid duplication of profits derived from various units included in the above computation. If these are included, the deduction claimed by the assessee under ss. 80HH, 80-I, 80-IA and 80-O in respect of various units would increase to Rs. 59,60,77,786. 29.4. The AO appears to have overlooked the claim for deduction under ss. 80-I and 80HH in respect of soap unit, Amalner. He has worked out the profit from other units eligible for deduction at Rs. 1,20,13,74,436 and the deduction eligible at Rs. 57,58,47,955. Here also, if we include Rs. 52,23,677, the deduction under s. 80HH in respect of FAGP unit, Aamlner, which he considered as allowable, the total deduction which he considered as allowable under ss. 80HH, 80-I, 80-IA, and 80-O would increase to Rs. 58,10,71,632. Of course, the claim of deduction has been limited to the gross total income by the assessee. The AO has also lim....
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.... view of the intervening holidays and weekend. Ever after 5th April, 2001, there were several holidays and on 10th April, 2001, the assessee had sought for time/adjournment for filing reply, since the CIT(A) has not disposed of the appeals, the request for time could be considered. However, the CIT(A) has explained reasons for refusal of adjournment in the appellate order for the asst. yr. 1997-98. It is necessary to note that the CIT(A)'s order for the asst. yrs. 1995-96 and 1996-97 has been dated as 10th April, 2001, but, however, has been received by the assessee only on 20th April, 2001. The reason for refusal of opportunity by the CIT(A), as mentioned in the order, is that the assessee was trying to delay the matter unnecessarily. Further, the CIT(A) even before the issue of letter of 26th March, 2001, had spent lot of time in going through the issues and it is only after he was convinced that appellate orders were prepared in March, 2001, and thereafter, the letter dt. 26th March, 2001, was issued. The CIT(A) also apprehended that if the appeals were delayed further, there may be change in the incumbent and there was great possibility that a new person would take consider....
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.... that the enhancement having been made without affording opportunity should be quashed. On merits, it was submitted that the citations relied on by the CIT(A) were inapplicable as the dealt with by the Supreme Court in the case of Kotagiri Industrial Co-op. Tea Factory (supra) was about the manner of allowability of deduction under s. 80T and whether unabsorbed loss of earlier years should be set off before allowing deduction under s. 80P. In the case of Motilal Pesticides (I) Pvt. Ltd. (supra), the Supreme Court dealt with whether deduction under s. 80HH is to be allowed on gross profit or net profit. The other case law relied on by the CIT(A) were also not applicable as the issues therein were different. The learned counsel submitted that the issue on hand, whether loss from non-priority business should be set off against the profits of the priority business has been dealt specifically by the Supreme Court in the case of CIT vs. Canara Workshop (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) upholding the decision of the Karnataka High Court, wherein the Supreme Court has held as under : "In the application of s. 80E of the IT Act, 1961, the profits and gains earned ....
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....submitted that the subsequent decision of the Supreme Court did not alter the position of law as explained in the case of Canara Workshop (P) Ltd. (supra), which is in favour of the assessee. 44.9. We have perused the facts, records and other decisions, and the decisions cited before us. Elaborate arguments were advanced on both the sides placing reliance on plethora of decisions. We have referred to only the relevant and direct decisions. Firstly, the letter, dt. 26th March, 2001, served on the assessee did not specifically propose the enhancement. Further, the CIT(A), should not have been hasty in refusing the adjournment as it is a fact that several national holidays and weekends had intervened in between. It is also in the realm of possibility that the finance department of the company would have received the letter after lapse of several days as the assessee is a very large organization having manpower of more than 10,000 with offices located all over the city and the country. Such small delay cannot be viewed with suspicion. No harm would have been caused had the time sought by the assessee was given. There was no compulsion of limitation or otherwise for the CIT(A) to ref....
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....stances, the relevant portion of which is extracted below : "A perusal of ss. 80AB, 80B, 80HH and 80J of the IT Act, 1961, shows that s. 80AB refers to profits in respect of which deductions are available under various provisions referred to in Chapter VI-A of the Act. According to the said section, for the purpose of computing the deduction under the specified section, the amount of income, which was included in the gross total income as computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A shall alone be considered. To the same effect is the definition of gross total income referred to under s. 80AB(5). Similarly, if we look into the provisions of ss. 80HH and 80-I of the Act, the benefit of deduction is referable only to the profits and gains derived from any industrial undertaking computed in accordance with the provisions of the Act, which was included in the gross total income of the assessee. The deduction is not referable to the gross total income of the assessee but is only with reference to the income of that particular industrial undertaking alone. The deduction is referable to 'such profits and gains' included in....
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....ccordingly, the AO shall not act upon the direction of enhancement given by the CIT(A). The assessee is entitled to succeed on both the grounds for lack of opportunity as well as on merits. 44.12. This issue is accordingly decided in favour of the assessee. 45.1 We shall now deal with the Departmental appeals. 45.2. The first issue in the Departmental appeals is in relation to the asst. yrs. 1991-92, 1992-93 and 1993-94 in the case of M/s Wipro Infotech Ltd. This relates to deletion of disallowance of travelling expenses. The assessee, applying r. 6D of the IT Rules, disallowed some of the travelling expenses. However, in its calculation, the assessee has not included the conveyance expenses and telephone expenses incurred by the employees while on travel outside the headquarters. The AO observed that the disallowance under r. 6D was made by the assessee on the total expenses incurred for all the trips undertaken by an employee during the year based on trip-wise. Since extra details of expenses trip-wise were not available, the AO resorted to estimation of the disallowance on account of this. The AO also observed that travelling expenses of persons other than employees lik....
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....the Calcutta High Court in the case of Vidyut Mettalics Ltd. (supra), we are of the opinion that the expenses on conveyance and telephone, etc., are not covered under r. 6D of the IT Rules and, hence, cannot be disallowed resorting to the said rule. However, the CIT(A) has held that expenses permissible under r. 6D are to be calculated trip-wise per employee and not for the total expenditure incurred by an employee. The CIT(A) has, accordingly, correctly estimated the disallowable expenditure and no interference in his order is required. In the result, this ground for all the three years is dismissed. 46.1. The next ground of appeal is in relation to the assessee M/s Wipro Infotech. Ltd. for the asst. yrs. 1991-92, 1992-93 and 1993-94. The assessee claimed expenses of Rs. 2,60,974, Rs. 6,89,779 and Rs. 15,03,456, respectively for, the asst. yrs. 1991-92, 1992-93 and 1993-94 towards travelling expenses of spouses of employees deputed outside India for software development work, and who are required to remain abroad for considerable length of time. It was contended that the assessee was having contractual obligation with the employees in this regard and the expenses were allowable....
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....and more. In such a situation, it is obligatory on the part of the assessee-employer to incur expenses for the spouses to join the employees abroad. The justification for such expenses has to be seen from the point of view of a businessman and not whether the expenses were required to be incurred or not. The propriety of the expenses is not the subject-matter of scrutiny by the AO. What is to be arrived at is whether the expenses are incurred wholly and exclusively for the purpose of business or not. In the present case, since the employees are required to work abroad for a considerable long period of time, it can be correctly held that it is the obligation of the assessee-employer to send the spouses also and incur expenses on their travel. The genuineness of the expenditure is not in doubt. The contractual obligation need not to be in writing so as to allow the expenses. The allowability of the expenses can still be inferred even in the absence of a written contractual obligation. We are, therefore, of the opinion that the expenditures on travel of the spouses of the employees working abroad are incurred wholly and exclusively for the purpose of business and are, therefore, fully....
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....ot inclined to take any other view than that taken by the CIT(A). We, therefore, hold that excise duty and sales-tax collected by the assessee cannot form part of the total turnover for the purpose of computation of deduction under s. 80HHC of the Act. This ground is, therefore, dismissed. 49.1. The next ground of appeal relating to M/s Wipro Infotech Ltd. for asst. yr. 1991-92 is against the order of the CIT(A) holding that interest under s. 234C of the Act has to be charged on the returned income and not on the assessed income. The learned Departmental Representative fairly conceded that there is no mention that interest is payable on the assessed income but what is mentioned is interest payable as per the tax due as per the returned income only. 49.2. Since the section is clear which requires no other interpretation, that interest under s. 234C is payable only on the returned income and not on the income ultimately assessed by the AO, this ground of appeal of the Revenue is dismissed. 50.1. The next ground of appeal in relation to M/s Wipro Ltd. for the asst. yr. 1997-98 is as under : "The CIT(A) erred in holding inhouse the expenditure incurred for importing softwar....