TaxTMI 
TaxTMI 
2010 (11) TMI 991
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the decision for writing off the bad debt was taken on 14.07.1999 and hence there could not have been filed any claim for bad debt in the books of account for the year ending on 31.03.1999. He made addition of Rs. 29.49 lakhs. In the first appeal the learned CIT(A) deleted the addition except for a sum of Rs. 10,064 which was outstanding from M/s Abishek Textile Enterprise. 3. After considering the rival submissions and perusing the relevant material on record it is seen that the assessee's accounts were finalized on 14.07.1999 and on the same day resolution was passed by the Board for writing off the bad debt amounting to Rs. 29.49 lakhs. From the annual accounts it is seen that the assessee wrote off a sum of Rs. 0.54 lakh by reducing provision made in earlier years amounting to Rs. 28.95 lakhs from bad debt written off amounting to Rs. 29.49 lakhs. Thus it is the amount of bad debt for the year at Rs. 29.49 lacs, which has been written off in the books of account and was added by the Assessing Officer. Recently the Hon'ble Supreme Court in the case of T.R.F. Ltd. Vs. CIT [(2010) 323 ITR 397 (SC)] has held that after 1.4.1989 any amount written off as bad debt in....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., we agree with the contention of the learned A.R. if the said amount of Rs. 10,064 was not realized then it should have been written off as business loss. However in the absence of any documentation to support this claim, we set aside the impugned order and restore the matter to the file of the A.O. for verifying the veracity of assessee's claim and then decide as per law. 4. Ground no.2 of the assessee's appeal is against the re-computation of deduction u/s.80-IA. The facts apropos this ground are that the assessee claimed deduction u/s.80-IA at Rs. 59,95,468. This claim was in respect of LABSA plant at Roha. The A.O. noted that for the purpose of this deduction, the assessee had taken sales and processing income at Rs. 6.49 croree, which was correct but total cost of goods sold taken at Rs. 4.49 crores, was not inclusive of indirect labour cost. It was seen that the assessee had debited total employment cost at Rs. 794.82 lakhs. The assessee admitted that indirect employment cost was not considered for determination of total cost for the purpose of deduction u/s.80-IA. The assessee also informed that only direct labour in respect of Roha plant was included for this purpose. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the assessee in support of its contention. In our considered opinion if the amount claimed by the assessee as representing indirect labour cost was already included in the sum of Rs. 4.49 crores, there was no logic in including the same amount once again which stood embedded in the total figure of Rs. 31.79 lakhs. Similarly as regards R & D and Sales commission for which the A.O. had made addition of Rs. 1.89 lakhs, the assessee filed certain evidence before the learned CIT(A) in support of its claim that the same did not relate to LBASA unit. In our considered opinion the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of A.O. We order accordingly and direct him to verify the claim of the assessee qua the inclusion of indirect labour cost in the Miscellaneous factory expenses and Miscellaneous factory overheads. If the same is not found to be correct, then deduction be allowed accordingly from Indirect employee cost worked out by the AO. Similarly as regards R & D and sales commission, the A.O. need to verify the relation of such amount with LABSA unit and then decide accordingly. 7. Ground no.3 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me is towards commission of Rs. 64,55,917. From the audit report in Form 10CCAC in which deduction u/s.80HHC was claimed, the A.O. noted that the assessee had reduced a sum of Rs. 64,55,917 against the head "Commission" while computing the profits of business. On being called upon to explain as to why the said amount was reduced, the assessee stated that the correct amount in respect of commission income was Rs. 4.43 lakhs but it was due to oversight that the auditor mentioned a sum of Rs. 64.55 lakhs. As the said amount was not offered for taxation, the Assessing Officer held that it was liable to be added. He, therefore, made addition for the said sum. However while computing deduction u/s.80HHC, the Assessing Officer held that indenting commission of Rs. 4.43 lakhs along with interest income of Rs. 20.71 lakhs and miscellaneous income of Rs. 37.02 lakhs were to be reduced on gross basis at 90%. As a result of that deduction u/s.80HHC was computed at Rs. 42,23,158. The assessee could not convince the learned CIT(A) on this point of view in the matter of computation of deduction u/s.80HHC as well as addition of Rs. 64.55 lakhs made by the A.O. on account of commission, on th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the net amount was reduced for calculating "profits of the business" under Explanation (baa) to section 80HHC. The Assessing Officer opined that 90% of the gross sum was liable to be reduced for computing profits of the business and not 90% of the net sum. When the matter came up before the learned CIT(A), he noted that out of interest income of Rs. 71.73 lakhs, a sum of Rs. 51.02 lakhs was interest on tax free bonds which was exempt. He, therefore, held that this amount could not be taken into consideration again by the A.O. for the purposes of exclusion while computing the profits of the business. There is no appeal of the Revenue on this point. As regards the remaining amount of Rs. 20,71,241, the learned CIT(A) upheld the view point of the Assessing Officer. 13. The learned Counsel for the assessee contended that the interest income of Rs. 20.71 lakhs included a sum of Rs. 9,31,000, being interest on delayed payments. It was contended that the same amount should not be considered for the purpose of exclusion under Explanation (baa). He relied on certain judgements, rendered in the context of section 80HH/80I etc., for canvassing the view that interest from debt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee contended that the Tribunal has decided this issue in assessee's favour in the earlier years and hence the same view be taken. In the opposition the learned Departmental Representative relied on the impugned order. 16. Having heard both sides and perused the relevant material on record, we find that the contention raised by the assessee cannot be accepted in view of the judgement of the Hon'ble Supreme Court in CIT Vs. K.Ravindranathan Nair [(2007) 295 ITR 228 (SC)]. In this case it has been held by the Hon'ble Supreme Court that in terms of clause (baa), 90% of the "independent income" had to be deducted from the gross total income to arrive at the business profits to which the fraction has to be applied. In this case the dispute was about the reduction of 90% of processing charges. The Hon'ble Supreme Court held that such processing charges were independent income and 90% thereof had to be reduced from the gross total income. Adverting to the facts of the instant case we find that the sale of miscellaneous scrap and sale of gunny bags are also in the nature of `independent income' and the judgement of the Hon'ble Supreme Court will squarely apply thereto. The sam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this figure for calculating income under the head `Profits and gains of business or profession', to which certain additions etc. have been made. Though the Assessing Officer has referred to in para 5 about the amount of deduction u/s.80HHC at Rs. 4,22,158, but it is not coming up from para 5 whether it was the figure of profits after reduction of Rs. 20 lakhs which was considered by the A.O. or not. Under such circumstances we set aside the impugned order on this issue and direct the Assessing Officer to verify this aspect. If the said sum of Rs. 20 lakhs already stands excluded from the figure for computing "profits of the business" then 90% of the same should not be once again reduced. In the converse situation, the view point of the ld. CIT(A) is to be upheld. 19. Next items are write back of liability received from customers at Rs. 1,58,852 and write back of A & W share applicable money due to exchange difference at Rs. 1,18,454. The Assessing Officer excluded 90% of these items for computing profits of business as per Explanation (baa). Primarily we find that these items are not covered u/s.41(1) so as to qualify for inclusion in the income under the head `Profits and gains....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rks Pvt. Ltd. [(2009) 318 ITR 116 (Bom.)] and the Hon'ble Delhi High Court in CIT Vs. Mahavir Alluminium [(2008) 297 ITR 77 (Del.)] have held to this extent. As the authorities below have not adjusted other figures with the amount of tax, duty, cess etc., we set aside the impugned order and restore the matter to the file of A.O. for deciding it afresh in accordance with the afore-noted judgements and the provisions of section 145A. 23. Ground no.6 is against the confirmation of disallowance of capital expenditure incurred for scientific research expenditure of Rs. 22,34,617. The assessee claimed capital expenditure on scientific search at Rs. 22.34 lakhs. On being called upon to justify the deduction, the assessee furnished a list of capital assets purchased for scientific research. The A.O. noted that there was only one person who had Ph.D qualification and others were only Science graduates. It was opined that the equipments purchased by the assessee were not used for any scientific research and further no scientific research work having been done was brought to the notice of the A.O. He, therefore, did not allow any deduction for the said sum. No relief was allowed in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to justify the deduction the assessee replied vide its letter dated 13.03.2002 that Shri Khandelwal served the company for nearly twenty five years and retired as Managing Director. He was in possession of company's trade secrets and had access to confidential information pertaining to company's business and activities. In order to avoid any competition from him and to protect the business interest of the company the said sum was paid as noncompete fees. Not convinced with the assessee's claim of such amount as deductible in full, the Assessing Officer made addition, which came to be approved in the first appeal. 28. After considering the rival submissions and perusing the relevant material on record it is noticed that the assessee paid the above said sum of Rs. 20 lakhs to its Managing Director on his retirement in order to avoid competition from him as he had the knowledge of all secrets of the assessee-company. The learned A.R. has relied on the judgement of the Delhi High Court in the case of CIT Vs. Eicher Ltd. [(2008) 302 ITR 249 (Del.)]. The facts of this case are that a full time employee of the assessee acquired specialized knowledge of technology during the course o....