TaxTMI 
TaxTMI 
2008 (10) TMI 653
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....ase of the assessee for assessment years 2001-02 and 2002-03 in ITA Nos.426, 427, 468 and 469/Bang/2006 dated 30-5-2008 wherein the order of the learned CIT(A) disallowing the claim of the assessee was upheld. The Tribunal considered the same in paras.40 and 41 as under: "40 Grounds of appeal no. 23 and 24 are against the finding of the learned CIT(A) in not allowing deduction u/s 80IB on the receipts under the head 'AMC'. 40.1 This issue has been discussed while disposing off the ground of appeal of revenue in respect of deduction u/s 80IB. Following that discussion contained in those paras, it is held that the learned CIT(A) was justified in not allowing deduction u/s 80IB on AMC receipts." As the facts are similar in the present year, we uphold the order of the learned CIT(A). 3. The next issue relates to charging of interest u/s 234B and 134D of the Act. In the aforesaid order dated 30-5-2008 this issue fell for consideration as under: "42.1 The interest is mandatory. It cannot be charged on the returned income. It is to be charged as per the provisions of the Income Tax Act. The Assessing Officer will allow consequential relief on inter....
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....day of the assessment year. Earlier there was no provision to levy interest on an amount which the assessee enjoyed by way of refund not legally due to him. The only provision was to withdraw the interest granted, The Legislature, therefore, in its wisdom thought fit to levy interest as the assessee utilized the sum by way of refund not legally due to him. The amendment seeks to remedy defect in this regard, which earlier law did not provide. In a case where an assessee claims refund of a substantial portion of advance tax or TDS treated as paid by him on the basis of the total income, as declared in his return of income furnished u/s 139, such refund has to be granted to him at the time of processing of the return u/s 143(1). Subsequently, if the regular assessment is made on a total income much higher than the returned income, the refund earlier granted to the assessee or a substantial portion of it is treated as tax payable, But where the assessee pays interest for shortfall in payment of advance tax with effect from the 1st day of the assessment year, nothing is charged from the assessee for having utilized the refund amount till the due of regular assessment,....
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....nal in the above referred order wherein it has been observed as under: "37.1 The above-referred issues stands covered by the decision of this Bench in the case of Tata Elxsi Ltd. in ITA No.315/Bang/2006. The findings recorded in that order dated 16th October, 2007 are reproduced as under for ready reference:- '14. We have heard rival submissions and perused the records. Chapter 3 of the Exim Policy issued by the Ministry of Commerce and Industry defines "deemed export" as under: '8,1 'Deemed Exports' refers to those transactions in which goods supplied do not leave country and payment for such supplies is received either in Indian rupees or in free foreign exchange'. Under clause 8.3 benefit' for deemed exports are as under:- 8.3 Deemed exports shall he eligible for any/all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP v1. a) Supply of goods against advance Authorisation/Advance Authorisation for annual requirement/DF1A. b) Deemed Export Drawback. c) Exemption from terminal excise duty where supp....
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.... foreign exchange in accordance with sub-section 3 of section 10A. The foreign taxes levied cannot be a consideration in respect of export of computer software received in India by the assessee in convertible foreign exchange, The foreign taxes are to be remitted in the foreign country and the foreign exchange to that extent cannot be brought into India, Considering the definition of export turnover contained in section 10A, we feel that the Assessing Officer was justified in not including the foreign taxes in the export turnover. Once the sum is not included in export turnover, then the sum cannot be included in the total turnover. 38.2 If the consideration for export of software attributable is assumed as (a) and the foreign taxes is assumed as (x), then (x) is not to be included in the export turnover. Hence for the purpose of computing deduction u/s 10A, if the receipts are taken as (a) + (x), then expenditure of (x) will be allowable, If the receipts are taken at (a) in the accounts and (x) is separately treated as part of balance sheet, then no further adjustment is required. Hence, if if the accounts, the turnover has been included as (a) + (x), then expenditure wil....
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....lusion that the business itself has been discontinued. The authorities below seem to have fallen into an error. Further, even if a business is discontinued during a year loss cannot be disallowed. There is no such prohibitive condition u/s 70 of the IT Act. Consequently, the assessee is entitled to seek set off of operating loss as business loss of the year. 10.5 On the issue of transfer of stock purchased at Rs. 1,79,95,641/- to the Support 'Division at Rs. 25,00,000/- it seems that the assessee has followed this method of stock valuation regularly in the earlier years. The method followed is Cost or Net Realizable Value whichever is less is a universally accepted method and cannot be found fault with. That the valuation was substantially lower than cost cannot be reason for disallowing inventory loss. The reason given by the assessee that due to discontinuance of Product business and technological obsolescence and cannibalization of equipment to spare parts due to non supply from Apple Products appeals plausible in the realm of business and such occurrence is not rare. We have not been able to find any reason for the AO disallowing this loss except that he wanted cer....
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....ound that no tax at source has been deducted. Hence we confirm the order of the learned CIT(A) on this issue." Facts are similar in the present case. Hence, applying the same, we confirm the order of the learned CIT(A). 11. The next issue relates to allocation of corporate expenses. This issue is also covered by the decision of this Tribunal dated 30-5-2003 wherein in para. 4 to 6 it has been held as under: "4.11 Prior to asst year 2001-02, section 10A permitted that profit and gains derived from industrial undertaking is not to be included in the total income of the assesses. However, with effect from asst year 2001-02, section 10A has been amended and now the deduction is to be allowed from the total income. Section 14A mentions that expenditure is not to be allowed in relation to income which does not form part of the total income under the Act Now we have to consider as to whether the deduction allowed u/s 10A is part of the total income or not. 4.12 The learned Apex Court in the case of CIT v Williams and Financial Service reported in 297 ITR 17 had an occasion to consider the meaning of word 'income'. At page 30, the Apex Court observed that se....
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....emed to accrue or arise to him in India and accrues or arises to him outside India. Such inclusion is in respect of a person, who is resident and in the instant case, we are concerned with an assessee, who is a resident. Section 14 of the I.T Act says that all income for the purposes of charge of income tax and computation of total income is to be classified under five heads of income mentioned in that section. Section 29 of the I.T Act says that income referred to in section 28 i.e. income chargeable under the head 'profits and gains of the business' is to be computed in accordance with the provisions contained in section 30 to 43D. As mentioned earlier, section 10A as amended from the asst. year 2001-02 has provided the deduction from the total income in respect of profit and gains of the undertaking from the export of computer software. Thus, the income from the undertaking, which is engaged in the business of export of computer software is an income to be assessed under the head 'profit ana gains of business or profession' and is to be reduced from the total income. Such income is chargeable to Income-tax Act bur no tax is payable in view of section 10A of the I....
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....ed from the industrial undertaking. 5.8 The Apex Court in the case of Motilal Pesticides (I) Pvt Ltd. v CIT 243 ITR 26 held that special deduction is to be allowed only on net income and not on gross income. Thus, amount of income, which is included in the total income, is to be considered for the purposes of deduction u/s 10A. The amount, which is to be included in the total income, is to be computed as per section 30 to 43A. Hence, all the expenses, which are necessary for earning income of the undertaking, are to be allowed as deduction for the purposes of computing income from that undertaking. 5.9 The jurisdictional High Court in the case of CTT v HMT Ltd. 203 ITR 811 had an occasion to consider the quantum of deduction admissible u/s 80J and 80HH. The learned High Court held that for the purpose of section 80J and 80HH, profit and gains of new undertakings are not commercial profits but only such profits as are computed in the manner laid down under the Act in pursuance of section 80AB, as if such undertaking was a separate assessee. From the above discussion, it is clear that we have to compute the profit of, the undertaking in accordance with the provision....
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.... books. Only the balance amount is being taken as common expenditure. (Net allocation of Rs. 1,55,72,898/-) for allocation. From the above, it is clear that when direct expenses of rates and taxes were known in respect of unit whose income is deductible u/s 10A then otherwise allocation cannot be made. The allocation of common expenditure cannot be made on the basis of revenue generated. The assessee himself has agreed to allocation of 20% of such expenditure and the same has been confirmed by the learned CIT(A). We, therefore, feel that allocation at the rate of 20% of common expenses is in order. Hence, direct expenditure disallowed by the Assessing Officer is confirmed and disallowance of 20% of common expenditure as confirmed by learned CIT(A) is upheld." In the present case also the facts are identical. Hence, applying the same, we confirm the order of the learned CIT(A). 12. The next issue relates to exclusion of scrap sales while granting deduction u/s .10A of the Act. This Tribunal, by order dated 30-5-2008 decided similar issue in favour of the assessee in para.7.3 as under: "7.3 The above referred issue stands covered by the decision of the Tribuna....
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....ivity of an export oriented unit, however, the expenses are to be calculated on net of income basis. In the result, the income of the eligible business of a unit as prescribed u/s 10A will go up by an amount of Rs. 21,142/-. The ground is, therefore, accordingly allowed". From the above, it is clear that the sale of scrap reduced the quantum of expenditure debited for that purpose. On that basis, the amount received from the sale of scrap cannot he excluded for the purpose of computing deduction u/s 10A.'' Applying the same, we confirm the order of the learned CIT(A). 13. The next issue relates to interest income. This issue is also covered by the decision of the Tribunal dated 30-5-2008 wherein it has been held as under: "10.2 On the above-referred issue, we have heard both the parties. We have also gone through the computation of income made by the Assessing Officer. The Assessing Officer in his order has not stated the interest income as income from other sources. The, treatment to be meted out to interest had been under dispute while computing profits of the business u/s 80HHC of the I.T Act, As per Explanation (baa) to section 80HHC, 90% of the ....
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....r Tardev Road, Mumbai (2006) 10 SOT 148 held that exchange gain itself is to be considered as part of the export turnover. Hence, following the decision of the Bench in the case of the assessee for the earlier years, it is held that exchange fluctuation is to be considered as part of the profit of the undertaking eligible for deduction u/s 10A. 11.4 The Apex Court in the case of Sutlej Mills Ltd. v CIT 116 ITR 1 held that if the remittance is on capital account then exchange profit is capital and if it is trading asset, then such profit is revenue. Thus, profit arising on account of exchange fluctuation is revenue as the remittance is not under capital field. Once it is profit of the business, the same is permissible as deduction in view of section 10A(4), 11.5 This Bench in the case of M/s Sasken Communication Technologies Ltd. vide order dated 27th February, 2007 in ITA No.244/Bang/2005 held that profit of the business of the undertaking is to be considered for computation of deduction u/s 10A in view of amendment in section 10A(4)'. Applying the same, we confirm the order of the learned CIT(A). 15. The next issue relates to receipt of rental income an....
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....nover the collections made after the expiry of 6 months as per details submitted by the assessee. 28. The CIT(A) erred in observing that the competent authority is deemed to have allowed delayed realization made after expiry of 6 months from the end of the relevant financial year. 29. The CTT(A) ought to have appreciated that there is no provision for deeming the approval by the competent authority." The facts are similar as in the case of the assessee for assessment years 2001-01 and 2002-03. In the order dated 30-5-2008, this Tribunal dealt with the issue as under: "2 3.5 We have heard both the parties. 80HHC(2), the deduction was admissible in case the sale proceeds were received in or brought into India in convertible foreign exchange within a period of six months from the end of the previous year or within such further period allowed by the Chief Commissioner or Commissioner. By Finance Act, 1999, the sub-section of 80HHC was amended and the sale proceeds were to be received or brought into India in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority ....
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....f the Legislature that it wanted to provide deduction in case the foreign exchange is brought into India after the extended period of six months. 23.6 As per section 8 of the Foreign Exchange Management Act, 1999, a person who is to receive any amount of foreign exchange due then he has to take all reasonable steps to realize and repatriate to India such foreign exchange within such period and in such manner as may be specified by the Reserve Bank. Under Section 47(2)(c) of the Foreign Exchange Management Act, 1999, the Reserve Bank was authorized to make regulation and may make rules for the period within which and the manner of repatriation of foreign exchange u/s 8 of the Foreign Exchange Management Act, 1999. In exercise of power conferred u/s 47(2) of the Foreign Exchange Management Act, the Reserve Bank of India formulated regulations and the relevant regulation is titled as "the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 hereinafter referred to as RBI Regulations. As per Rule 9 of RBI Regulations, the proceeds were to be realized within six months from the date of export. It will be useful to reproduce Rule 9 of the RBI Regulations:....
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....eans, the RBI has given permission to repatriate foreign exchange. It may be true that no formal approval letter might have been issued as the RBI might have thought not to issue any direction under Rule 15 of the RBI Regulations. 23.8 The learned AR has relied on the decision of the PandH High Court As per provisions of section 139(2) of the I.T Act as existed at that relevant time, the assessee could have sought extension of time for Filing the income tax return. The PandH High Court held that in case no communication is received in respect of either accepting or rejecting the application, then the assessee is justified in presuming that extension of time has been granted. The decision is also squarely applicable. Keeping in view the above discussion and considering the insertion of section 155(11A), we hold that the learned CIT(A) was justified in directing the Assessing Officer to include in export turnover the collections made after the expiry of six months." Facts are similar in this year also. Hence, applying the same, we confirm the order of the learned CIT(A). 17. The next issue relates to reimbursement of communication links, incentives, rewards and tele-co....
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....in export turnover, then the same is to be considered for exclusion from the total turnover. The learned CIT(A) held that reimbursement of communication links and other sales performance incentives relate to manufacture and development of computer software. Therefore, these are to be included in the export turnover. The learned CIT(A) held that foreign taxes are to be excluded both from export and total turnover. In respect of telecommunication expenses, the learned CIT(A) has recorded his finding as under:- "Export turnover is defined to exclude "freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India" The appellant's contention on this is two fold. First, exclusion is required only if the said item is included in first place in the export turnover and second. exclusion should be restricted to that portion which is attributable to the delivery of computer software outside India. I agree with both the contentions of the appellant These submissions were made before the AO as well. However, the AO has not dealt with these objections. The amount of Rs. 8.96 crores for AY 2001-02 and Rs. 19.4....
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....f technical services. It will be useful to reproduce para 14 and 15 from that order:- "14. During the course of proceedings before us, the learned AR submitted that the issue stands deeded in favour of the assessee by the Tribunal in the case of; 1. ACIT v M/c Infosys Ltd. 653 and 969(B)/2006 2. M/s Tata Elxsi Ltd. 315(B)/2006 order dated 16.10.2007 3. M/s I-Gate Global Solutions Ltd. v ACIT (Supra) 15. We have heard both the parties. Deduction u/s 10A is available in respect of profit or gains derived from an undertaking from the export of articles or things or computer software. One has to understand the meaning of computer software with reference to the fact that it is preceded by articles or things. Deduction u/s 10A was allowed if export proceeds are from the export of articles or things or computer software. It means that such export proceeds must relate to the goods and not for the services. Computer software is developed by providing off site expenses and on site expenses. The amount receivable in respect of computer software does not include any reimbursement of on site expenses. Payments made to Engineers employed on site are f....
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....lecommunication expenses relating to the delivery of the software. This Bench in the case of I-Gate Global Sales held that 80% of uplinking charges should be reduced from the export turnover. Such finding of the learned CIT(A) was confirmed on the basis of the fact that the learned CIT(A) discussed the software development with a number of representatives of various companies and noticed that 80% of the uplinking charges are incurred for the delivery of software. We are not having the details of the uplinking charges, hence, the issue of disallowance of telecommunication expenses relating to the delivery of software is restored on the file of the Assessing Officer. The Assessing Officer will give opportunity to the assessee to furnish the details in respect of telecommunication expenses for the delivery of software." The facts are similar as in the earlier years. Therefore, applying the decision of the Tribunal in the case of the assessee, we direct the AO to give effect to the order in the line as in the earlier year. 18. The next issue relates to the claim of loss of 10A units. In the case of the assessee for assessment years 2001-01 and 2002-03 the Tribunal considered simi....
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....on or after the 1st day of April, 1994 in any electronic hardware technology park or as the case may be, software technology park. However, section 10A was amended by the Finance Act, 2000 with effect from 1.4.2001. Earlier, the exemption was allowable for five asst. years while with effect from 1.4.2001, the deduction is allowable for ten asst. years. The conditions for deduction are mentioned in section 10A(2). The first condition is that the undertaking should commence manufacture or production of computer software during the previous year relevant to the asst. year commenced on or after 1st April, 94. The Assessing Officer has heavily relied on the fact that existing undertaking was allowed permission for expansion and therefore, such expanded units cannot be considered as new undertakings commencing production. The assesses applied for the expansion of software technology park facility. The assessee has not applied for extension of the undertaking but has applied for the expansion of the STP facility. STPI while approving the STP facility observed that such STP facility can be availed subject to the standard terms and conditions as enclosed to the original approval letter and ....
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.... facilities were obtained were started with the help of old plant and machinery and with the existing employees. If an undertaking can independently work then such undertaking can be considered for the purpose of deduction u/s 10A. What is to ne seen is as to whether the undertaking in question is engaged in the production or manufacture of specified articles or things in its own right. Such undertaking may be producing the same article, which are being earlier produced. The Bombay Tribunal in the case of JCIT v Associated Capsules (P) Ltd., Mumbai (2008) 21 SOT 420 observed that deduction u/s 80I cannot be denied on the ground that the unit has been producing the capsules on the ground that the assessee was engaged in the production of capsules. The Tribunal observed at page 431 as under:- "Organizational features, such as the legal status of the unit or the fact that they are controlled or managed by common management or located in the same premises where existing units are located to derive certain advantages or are producing similar goods as the existing ones are hardly relevant to decide whether a unit is in the nature of undertaking. Likewise, the fact that procureme....
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....se in and set at rest judicial and quasi judicial controversies at it must in other spheres of human activity". Assessments are certainly quasi-judicial and these observations equally apply. We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through it e different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter-and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowe....
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....T(A). 21. The next issue relates to un-availed MODVAT credit. By order dated 30-5-2008 this issue was remanded to the AO with a specific direction to re-compute the income. The AO, is therefore, directed to verify the details as found in the Tribunal order dated 30-5-2008 for assessment years 2001-02 and 2002-03 and in the same line to re-compute the same. It is ordered accordingly. 22.. The next issue relates to action of the AO to exclude excise duty and sales tax from the total turnover for the purpose of computation of deduction u/s 80HHC of the Act. The revenue has raised the following grounds in their appeal: "66. The CIT(A) erred in directing the Assessing Officer to exclude excise duty and sales tax from the total turnover for the purpose of computing deduction u/s 80HHC following the decision of the ITAT in ITA No. 881, 882, 895 and 896/B/2003. 67. The CIT(A) ought to have appreciated that the decision of the ITAT relied on by the CIT(A) has not become final and appeal before High Court is pending." This issue stands covered by the decisions of the Apex Court in the cases of CIT vs. Lakshmi Machine Works (290 ITR 667) and CIT vs. Catapharma (Indi....
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.... the use of the words "goods or merchandise to which this section applies". Once we have this stage then the task of interpreting clause (b) of sub-section (3) becomes easier because even in clause (a) of sub-section (2) and clause (a) of sub-section (3) the same terminology is used in respect of the goods and merchandise. When a plain meaning has to be given to the opening part of the section, it is clear that the word "business' means the business relating to the goods to which the section applies and the thrust is on the word 'exclusively'. The sub-section considers a situation where the assessee's business is of exports and the assessee's business is not that of export alone. However, one thing is certain that the business has to be only in respect of the goods or merchandise to which the section applies. As has been stated earlier, the thrust is on the word 'exclusively'. The Legislature has rightly intended the situation where the business could be relating to the goods which would fetch the foreign exchange but there could also be the business in relation to these goods which may not be exported or which may not fetch foreign exchange. However, th....
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....cable even to the goods which are outside the limits of clause (a) of sub-section (2) and that will not be permissible. Once this situation is clear, there would be no scope for accepting the argument of the revenue that the total turnover of business would include even the turnover of goods which are outside the scope of clause (a) of sub-section (2). Hence, we are of the clear opinion that the turnover from the business of sale of motorcycles, motorcycle spare parts, television sets cannot be introduced to inflate the total turnover artificially in order to reduce the benefit which the assessee is entitled to. That would be clearly going against the object of section 80HHC which is solely to encourage the exports". After discussing the above judgment, the learned CIT(A) has reproduced the relevant portion from the order of the Tribunal in the case of the assessee for the asst. year 1998-99 and 1999-2000 in ITA No.895 and 896/Bang/03:- "19.5 In reply, Shri K R Pradeep submitted that the decision of Special Bench in 255 ITR 76(AT) and the decision of Kerala High Court in 257 ITR 41 relied on by the revenue are inapplicable to the facts and circumstances o....
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....law relied on by the assessee that is the Madras High Court in 257 ITR 60 supports the decision of this bench in ITA No.332 to 328/Bang/2000. These squarely address the issue in favour of the appellant Whereas the decision of Madras High Court was rendered subsequent to the decision of the Special Bench in Delhi Tribunal in 255 ITR 76. Consequently, it is essential that the decision of High Court must be followed in preference to the decision of the Special Bench. (Though it is to be mentioned that the issue involved before the Special Bench and before us are some what different). Such a course is correct in law as held in CIT v Smt. Godavaridevi Saraf reported in 113 ITR 589 (Bom.) the relevant portion is extracted hereunder: "An authority like the Income Tax Appellate Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question", Accordingly, the learned CIT(A) directed the Assessing Officer to consider only the total turnover and profits of the business of the assessee, which are eligible to claim deduction u/s 80HHC. In ....
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....ales are mere reversal of expenditure debited to PandL account during earlier years and therefore, exclusion of such reversals from eligible profits is not warranted. In respect of discount received and customs claims, the learned CIT(A) upheld the disallowance of 90% as made by the Assessing Officer. Similar finding was recorded for the asst. year 2002-03. 21.3 During the course of proceedings before us, the learned AR has relied on the order of the Tribunal made in the case of the assessee for the earlier year. 21.4 On the other hand, the learned DR supported the order of the Assessing Officer. 21.5 After hearing both the parties, we make it clear that the assessee is free to revise his claim for deduction u/s 80HHC during the course of assessment proceedings provided such claim is supported by necessary documents to be filed for the claim. Hence, it cannot be held that if revised claim is filed during the course of assessment proceedings, the same cannot be considered. 21.6 In respect of computation of turnover, the issue has been decided by the Tribunal in the earlier years in the case of the assessee. Following the rule of consistency and ru....
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....scrap sales. ii) We also upheld the finding of the learned CIT(A) in respect of discount received and customs claims. It is made clear the profit of the business as mentioned in Explanation (baa) to section 80HHC does not refer to commercial profit but the profit as computed under the provisions of the Act. Such profits of the business of the assessee is to be computed as per provisions of the Act in respect of that business, which is eligible to claim deduction u/s 80HHC" Considering the fact that this issue is covered by the decision of this Tribunal in the assessee's own case for assessment years 1998-99 and 1999-00, we confirm the order of the learned CIT(A).24. The next issue that fells for our consideration is: i) issue of expenditure on difference in exchange ii) issue of exclusion of royalty iii) issue of exclusion of provision for doubtful debts written back iv) issue of exclusion of miscellaneous income. All these issues fell for consideration before this Tribunal in the order dated 30-5-2008 cited supra. In paras.21.1 to 21.6 and 27 to 32 the aforesaid issues have been discussed and decided as under: ....
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....ded that what should be considered is the profits of the business in respect of which deduction u/s 80HHC is claimed and not the entire profits of the company. The assessee relied on the decision of the Madras High Court in 257 ITR 60. The Assessing Officer has relied on the decision of the Special Bench in the case of Pearl Polymers v DCIT in 80 ITD 1 and the decision of the Kerala High Court in the case of CIT v Parry Agro Industries Ltd. in 257 ITR 41. The learned CIT(A) was of the view that the decision of the Madras High Court squarely covers the appellant's case. The learned CIT(A) has reproduced the following extract from the decision of the Madras High Court:- "Therefore, it is crystal clear that the whole section 80HHC applies only to the goods which are not only exported out of India but the sale proceeds of which are receivable in convertible foreign exchange. When we sit to consider sub-section (3), clause (a) thereof speaks about the assessee who has an exclusive business of exports of such goods or merchandise Clause (a) would apply where the assessee has no other business meaning all his income would be out of the export sales, the proceeds of which are ....
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.... the sub section itself. The sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the profits earned out of export alone vis-a-vis the profits earned otherwise than by export. The total profits earned out of the business of such goods are not exemptible because those profits would include both profits out of exports and profits earned otherwise than by export but one thing is certain that the business contemplated in the sub-section would be in relation to those goods alone to which the section applies as per clause (a) of sub-section (2). Once we read sub-section (1) of section 80HHC, clause (a) of sub-section (2) and clauses (a) and (b) of sub-section (3), there remains no doubt that the total turnover of the business would contemplate only the business regarding such goods part of which are exported and the others are not so exported There is just no scope to include the turnover of the business of the goods which are not contemplated by the section. That way, though the Legislature has specified about the applicability of the section t....
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....by decision of this tribunal in Wipro GE Medical Systems Ltd. ITA 322 to 328/B/2000. Such a view has also been upheld by the Madras High Court in 257 ITR at page 69 to 70 extracted supra and supports the view that the total turnover of eligible business must be considered and not the turnover of other business of the company. Here we may notice that the Form 10 CCAF filed by the assessee, wherein the total turnover of the business of the assessee has been taken at Rs. 13,80,16.246/- and the export turnover at Rs. 12,36,29,409/-. Thus, the domestic business of the assessee is Rs. 1,43,95,837/-. The assessee has reckoned the turnover of the entire business that is domestic and exports. Similarly, the total profits of the business is Rs. 4,34,44,470/-. Whereas the profits derived in manner computed in sub-section 3 of section 80HHE is shown at Rs. 3,89,15,811/-. From these calculations what can be seen is that the assessee had already computed the profit in the manner of section 80HHE(3) which in effect means it has computed the profits in the manner mentioned in the decision of the Kerala High Court relied on by the revenue. Hence, it is nobody's case that this decision ....
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....profit on sale of fixed assets, profit on sale of investments and dividends, the learned CIT(A) observed that such items of income are either exempt from tax or liable to tax under a different head and these have already boon reduced by the assessee in computing the profits of the b business. Hence, no further exclusion is warranted . However, the above referred items have not been considered by the Assessing Officer in his chart at pace 170 but as per the assessee, these are part of other income of Rs. 69,29,15,000/-. In respect of the following items, the learned CIT(A) held that the decision of the Bombay High Court in 2.60 ITR 371 should be applied:- Difference in exchange Rs.86,399,088 Royalty Rs.30,788,838 Discounts received Rs.89,101 Customs claims Rs.1,609,094 Provision for doubtful debts written back Rs.6,367,169 Scrap sales Rs.1,635,104 Sundry creditors/other credit balances written back Rs.64,637,268 Others Rs.20,877,247 The learned CIT(A) held that difference in exchange and royalty would fall within the ambit of operational income and hence, cannot be considered for exclusion of 90%. The items such as p....
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.... are either exempted or are not taxable under the head 'business'. The difference in exchange is taxable under the head 'business income'. Similarly, royalty has also been taxed under the head 'business income'. Under Explanation (baa) to section 80HHC, receipts by way of brokerage, commission, interest, rent chargeable on any other receipts of a similar nature included in the profits. As per rule of ejusdem generis, the words of general nature following specific and particular words then such words of general nature should be construed as limited to things which are of the some nature as those specified. This has been held by the Allahabad high Court in respect of interpretation of Rules 60 of Income Tex Rules in the case of CIT v Shivalik Drug (Family Trust) (300 ITR 339). The learned CIT(A) has also referred to the decision of the Bombay High Court. Considering these facts, we confirm the finding of the learned CIT(A) that 90% of difference in exchange, royalty is not to be reduced. It is to be considered as part of profit of the business. Following the same logic, we confirm the finding of the learned CIT(A) that 90% of the following cannot he excluded:-....
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....y portion of the export earnings prorata. However, the Kerala High Court in the case of CIT v Parry Agro Industries 257 ITR 41 has held that deduction is to be computed as per provisions of section 80HHC(3) in spite of the fact that separate accounts are being kept. Since in respect of total turnover we have already decided the issue that total turnover of eligible business is to be taken and following that, the profits of the eligible business is to be taken if the assessee has maintained separate accounts for eligible business and other business. Subject to this direction, the finding of the learned CIT(A) is upheld in respect of the above referred grounds of appeal. 28. Ground of appeal no. 84 for the asst. year 2001-02 is that the learned CIT(A) has erred in directing the Assessing Officer not to consider the profit on sale of fixed assets for exclusion while computing the deduction u/s 80HHC. 28.1 Deduction u/s 80HHC is to be given as per provisions of section 80HHC read with section 80AB. Deduction is not available on commercial profit. If a fixed asset is sold, then its value is to be reduced from the block of assets. If due to sale of an asset, block cease....
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....ssee that it is doing the business of investment in shares. Therefore, dividend income is to be excluded for computing the deduction u/s 80HHC. 31. Ground of appeal no.87 for the asst. year 2001-02 is against the finding of the learned CIT(A) that while computing deduction u/s 30HHC profit of the eligible business should be considered. The revenue's case is that total profit of the assessee's business should be considered. 31.1 This issue has been disposed off in view of the reasons given in earlier paras and accordingly, this ground of appeal is dismissed. 32. Ground of appeal no.88 to 92 for the asst. year 2001-02 are against the finding of the learned CIT(A) in directing that the following items should not be considered for exclusion while computing deduction u/s 80HHC: 1. Difference in exchange 2. Royalty 3. Provision for doubtful debts written back 4. Scrap sales 5. Sundry creditors or other credit balances written back 32.1 The above referred issues have already been discussed in earlier paras and finding stands already recorded. Accordingly, such grounds of appeal are disposed off in vie....
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....l dated 30-5-2008 wherein paras.22.1 to 2.2.8 it has been held as under: "22.1 Before the Assessing Officer, the assessee vide letter dated 8th March, 2004 claimed credit for tax paid in foreign countries. The Assessing Officer observed that in view of the provisions of section 139(5), the claim is not admissible. The assessee has not filed any revised return for claim of tax credit with reference to income computed u/s 10A. The learned Assessing Officer further held that since income is being treated as exempt u/s 10A, therefore, tax credit can be given under the DTAA only to the extent to which the income has been taxed twice. The learned Assessing Officer relied on the decision of the Madras Bench in the case of Duromattalic India v ACIT 85 ITD 442. 22.2 Before the learned CIT(A) it was submitted that the issue has been decided in favour of the assessee by the Tribunal while deciding appeals for the asst year 1998-99 and 1999-2000. It was further submitted that the learned CIT(A) allowed credit for foreign tax in the case of the assessee for the asst. year 1990-91 and the department has not filed any appeal against that order. The learned CIT(A) recorded the fo....
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....y enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income tax under this Act and income-tax in that country" 22.7 The word 'paid' has been defined in section 43(2) of the I.T Act. Though the definition is for the purposes of section 28 to 41, but the meaning of the word can be imported for section 90(1)(a). As per section 43(2), paid means actually paid or incurred according to the method of accounting upon the basis of which the profit or gains are computed under the head 'profit and gains of business or profession'. In respect of the income of the unit qualifying for deduction u/s 10A, income tax is neither paid nor incurred. The Apex Court in the case of CIT v Williamson Financial Services 297 ITR 17 had an occasion to consider the computation of deduction u/s 80HHC in respect of profits from export of tea. The Apex Court held that deduction u/s 80HHC is to be allowed only after apportionment of income from tea under Rule 8(1) of the Income Tax Rules, 1962. The Hon'ble Apex Court at page 30 referred that section 10 groups in one pl....
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....Officer in his order. Hence, this issue is restored back on the file of the learned CIT(A). Following this Tribunal's order, we restore this issue back to the file of the learned CIT(A). 27. The next issue relates to expenditure relating to Madivala Research and Development Unit. Madivala unit was set up with a view to develop shrink wrapped computer software products and product development. The assessee claimed that this is a long gestation activity involving substantial research and development efforts. It was also claimed by the assessee that development expenses qualify for deduction u/s 37 or alternatively u/s 35. However, the AO did not allow it to be set off against 'other income' of the assessee. The learned CIT(A), when the matter traveled before him, granted relief to the assessee by observing as under: "20.6 I agree with the appellant that development of shrink wrapped computer software is a long gestation activity without certainty about outcome. Once the product is developed successfully, only the copies thereof are sold. The expenses incurred for development activities have not given rise to any inventory which has resale value. Hence, the ....
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....duction u/s 80IB commences from the year in which the industrial undertaking begins to manufacture or produce articles or things. Hence, the intention of the legislature is quite clear that the deduction should be allowed to an industrial undertaking which the profit is derived from the manufacturing or production of an article or thing Therefore, the learned CIT(A) was justified in holding that profit from AMC cannot be included for the purpose of computing deduction u/s 80IB. 33.6 In respect of monitors, it was submitted before the learned CIT(A) that the monitors are sold along with the computer manufactured by the undertaking. It may be an integrated component of the computer. If there is no value addition without any change in name, character or and use, then such an activity cannot constitute manufacture or production. If the monitors have been sold as part of the computer without making any value addition by the industrial undertaking, then the profit derived from sale of such monitors cannot be considered as profit derived from the industrial undertaking. therefore, the learned CIT(A) was justified in holding that profit from sale of monitors is not inducible for c....
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....irected the Assessing Officer to consider and allow the similar claim of the assessee for the said year. Since the issues are identical and similar in this year also, I direct the Assessing Officer to allow credit for foreign taxes paid and in doing so will follow the findings and directions of the ITAT given in para 20.7 of its order". 22.3 In respect of asst. year 2002-03, the Assessing Officer has allowed the claim for foreign tax credit for only those units in respect of which deduction u/s 10A was disallowed. 22.4 Before us, the learned AR relied on the decision of the Tribunal in the case of the assessee for the asst. year 2000-01. the learned AR drew our attention to para 21 of the order of this tribunal dared 21st November, 2005 in ITA No.669/Bang/2004 and 804/Bang/2005. 22.5 On the other hand, the learned DR supported the order of the Assessing Officer. 22.6 We have gone through the order of the Assessing Officer for the asst. year 2002-03. The Assessing Officer has discussed this issue from pages 103 to 113 of the order. Though the learned CIT(A) has discussed the reasons as to why the Assessing Officer has not allowed the deduction, bu....
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....st. year 2001-02, section 10A provides deduction out of the total income and it is not the income, which is exempt from tax Hence, the deduction, which is allowed u/s 10A is an item of income on which tax is not payable. 22.8 The learned Madras High Court in the case of CIT v K S Vaidyanathan 153 ITR 11 (FB) had an occasion to consider the allowability of deduction of debt u/s 2m of Wealth Tax Act. As per section 2m(ii) of the Wealth Tax Act, debts which are secured on or which have been incurred in relation to any property in respect of wealth tax not chargeable under this Act is not to be allowed as deduction. Section 5 of the Wealth Tax Act provided that on certain assets, wealth tax was not payable. If in respect of an asset on the entirety wealth tax is not chargeable then the debts secured on such assets has to be excluded from reckoning. In case where an asset is only partially exempt from chargeability to wealth-tax then it must necessarily follow that the portion of the debt secured on such portion of the asset or incurred in acquiring such portion of the asset has to be excluded from reckoning. Though the learned Madras High Court held that debt can be bifurcated....
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....text." Considering the factual position and also the submissions, we do not find any infirmity in the order of the learned CIT(A). As rightly observed by the learned CIT(A), expenses incurred for development activities having not given rise to any inventory which has re-sale value. We, therefore, confirm the order of the learned CIT(A). 30. The next issue relates to transfer pricing adjustment. During the year under consideration, the assessee had international transaction with its associated companies. The AO had referred the transaction to Transfer Pricing Officer (TPO). The TPO passed order dated 21-3-2006 who determined a sum of Rs. 18,89,220/- as arms length price for the interest chargeable on the trade advances made by the assessee to its associated enterprises. The assessee disputed the order of the TPO and the adjustments trade in the assessment order foe the following reasons: * The advances predominantly relate to short-term advances which do not require any change of interest. * No interest was earned by the appellant on these advances. * The advances were made out of surplus funds available with the appellant and the substantial portion....
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....cing materials. The order of the learned CIT(A) on this issue is therefore, confirmed. 32. Let us now take up the appeal filed by the assessee viz., ITA No.1178/Bang/2007 against the order of the learned CIT dated 27-9-2007 u/s 263 of the Act. 33. We have heard both sides and perused the records During the assessment proceedings, the assessee had claimed the following losses while computing total income: (i) Loss from discontinued operations Rs.18,15,85,000/- (ii) Loss from discontinued operations Rs.11,48,52,000/- (iii) Loss from discontinued ISP business Rs.35,21,95,000/- From the records, it is seen that the AO had called for several details from the assessee relating to aforesaid loss. The assessee had filed necessary details enclosing with letters dated 11-11-2005 and 10-2-2006. Along with letter dated 11-10-2005 the assessee had enclosed balance-sheet as on March 31,2003 and Profit and Loss account for the year ending 31-3-2003. While dealing u/s 263 of the Act, the learned CIT was of the view that as there were no details available regarding discontinued operation loss at Rs. 18,15,85,000/- he proceeded in the matter u/s 26....
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.... on discontinued business As stated earlier Wipro Infotech Division of the appellant company decided to discontinue its existing infrastructure based ISP business but continue with the managed network and remote management services as part total I.T solutions In connection with the discontinuance of the ISP business, the customers were transitioned to an independent service provider for a consideration of Rs. 2.5 crores and incurred certain expenses on the following: 1) Loss from discontinued operations Rs.18,15,85,000 2) Tax effect on discontinued operations Rs.11,48,52,000 3) Loss from discontinued ISP business Rs.35,21,95,000 Out of the above sums, Rs. 11,48,52,000, being a tax adjustment not, allowable under the Income-tax Act, 1961 (Act) was added back by the assessee in the computation of income. Out of Rs. 35,21,95,000, a sum of Rs. 27,47,80,000 being capital loss in relation to the assets employed in the business was also added back Thus the claim before the AO as allowable revenue expenditure was in respect of Rs. 18.15 Cr. and Rs. 10.67 Cr. While AO has allowed the deduction of Rs. 18.15 Cr. the balance was disallowed....