TaxTMI 
TaxTMI 
2014 (1) TMI 1759
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....ide note no. 2 attached to the revised return of income filed claimed the amount of Rs. 7,00,000/- paid to Gujarat Cricket Association, Ahmedabad as advertisement and deduction for the same was claimed as the same was debited in the profit and loss account. The Assessing Officer also observed that as per communication from Gujarat Cricket Association addressed to the assessee company, the assessee was required to make payment of Rs. 25,00,000/-, out of which a sum of Rs. 7,00,000/- was paid during the year under consideration. He noted that the assessee was allotted a pavilion site in the Sardar Patel Stadium, Ahmedabad and the name of the pavilion was quoted "Adani Pavilion". It was thus the observation of the Assessing Officer that the assessee was required to make the payment of Rs,25,00,000/- in lieu of allotment of permanent pavilion site at the cricket stadium and the assessee company had paid an amount of Rs. 7,00,000/- as per the agreement. It was also observed by the Assessing Officer that as per the agreement, the television and radio will use the name of the pavilion as "Adani Pavilion" and the name of the assessee company will remain in the pavilion on permanent basis. ....
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....ure incurred should be spread over a period of estimated life of the benefit. In support of the contention, the assessee relied on the judgement of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Limited Vs. CIT 91 taxmann.com 340. 6. The Ld. CIT(A) after considering the submissions of the assessee, observed that the expenditure has been incurred for advertisement of the companies named at the pavilion of the Gujarat Cricket Stadium, Ahmedabad. The Assessee is neither the owner of the pavilion nor is having any right over the pavilion, thus the expenditure incurred has not resulted in acquisition of any fixed assets. Therefore, the Assessing Officer was not justified in treating the expenditure of Rs. 7,00,000/- as capital in nature and disallowing the same. The Ld. CIT(A) further observed that the expenditure of Rs. 7,00,000/- has been incurred for obtaining the benefit of advertisement not only for this year, but in subsequent years also, as the pavilion has been named as "Adani Pavilion". Therefore, the whole of expenditure of Rs. 7,00,000/- incurred this year is not allowable as a revenue expenditure. Therefore, considering the facts of the ca....
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.... stronger than that case. 11. It was further submitted that the expenditure was revenue expenditure and the Ld. CIT(A) was not justified in apportioning it at the rate of 10% over a period of 10 years. It was contended that there was no basis for the Ld. CIT(A) to arrive at a decision with that the assessee will derive benefit out of advertisement expenditure over a period of 10 years. It was submitted that the advertisement of the assessee's name at the site of the pavilion was forever and not limited to a period of 10 years and therefore the expenditure was revenue expenditure and should be allowed in its entirety. 12. After considering the rival submissions, perusing the orders of the lower authorities and the material available on record, we find that the assessee incurred expenditure of Rs. 25,00,000/- on display of its name at the pavilion of Sardar Patel Gujarat Stadium. Out of the sum of Rs. 25,00,000/-, a sum of Rs. 7,00,000/- was paid in this year. The Assessing Officer held that the expenditure was incurred for acquiring stadium site and therefore, treated the same as capital expenditure and disallowed the same. On appeal, the Ld. CIT(A) held that the assessee has not ....
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....ture of advertisement. The conclusion of the Assessing Officer that the payment was made for acquiring permanent pavilion site is not correct. We find that no permanent site was acquired by the assessee in lieu of the payment in question and the assessee has not become the owner of any site in consideration of the said payment. Therefore, we do not find any merit in this ground of appeal of the Revenue. 15. Further, we find that there was no basis on which the Ld. CIT(A) could have held that the benefit of payment in question will be available for 10 years only and consequential deduction is to be allowed over a period of 10 years. It is observed that the benefit was not for any fixed period. We agree with the Ld. CIT(A) that the expenditure in question is revenue in nature and no capital asset of enduring nature was acquired by the assessee by making the payment in question and therefore, the entire payment is allowable as deduction to the assessee in the year on incurring of the expenditure. We, therefore, modify the order of the Ld. CIT(A) and direct the Assessing Officer to allow deduction for entire Rs. 7,00,000/- during the year under consideration. Thus, relevant ground of ....
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....omes, which in the generality of case is part of common expenses, ad hoc 10% deduction from such income is provided to account for these expenses. It was therefore submitted that the following expenses were incurred for earning the export incentives: (i) Advance licence application fees (ii) Maintenance of staff for making applications, collecting information from Custom house, Courts, Marketing departments etc. (iii) Telephone expenses. (iv) Travelling expenses (v) Expenses regarding correspondence & communication with the office of the Directorate General of Foreign Trade at Bombay, Delhi & Ahmedabad. (vi) Proportionate expenses of rent and office expenses at Delhi, Bombay and Ahmedabad. (vii) Proportionate expenditure on telephone, Fax service charges etc. (viii) Professional fees to be paid to the legal experts for interpretation of law regarding percentage of exports of various items at which export incentives are to be granted. (ix) Expenditure incurred for communication with the various Government departments through various agencies. 20. It was submitted that the above mentioned expenses are included in the indirect expenses totaling to RS 82,26,407/-. Th....
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....ion from such income is provided to account for these expense." 22. The above para of the circular allow ad hoc deduction of 10% on certain receipts because some expenditure might have been incurred in earning those incomes which in the generality of cases is part of common expense. The assessee has claimed 10% deduction on export incentives on the ground that some expenses of the profit and loss account are attributable to the earning of export incentives. The assessee has given the items of expenses under which expenditure is incurred for earning and receiving the export incentives. These are mentioned in Para 5.2 of his order. Considering these facts and the order of the Ld. CIT(A)- XXXII, Bombay in the case of V.C.J. (supra), he agreed with the contention of the assessee that 10% of the receipts from export incentives is to be considered as expenditure attributable to earning such income in light of para 32.11 of the said circular. The Ld. CIT(A) observed that Para 32.11 of the said circular read with clause "baa" of the explanation to section 80HHC also clause "iiia, iiib and iiic" of section 28 makes it clear that 10% of the receipts from export incentives are allowable as ....
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....vour of the assessee. The Hon'ble Supreme Court has held that for the purpose of determining export profit u/s 80HHC(3)(b) in case of trader exporter indirect cost can be reduced by 10% of export incentives etc. Therefore, we do not find any error in the order of Ld. CIT(A). Therefore, this ground of appeal of the Revenue is dismissed. 26. Ground no. 3 of Revenue's appeal is against the order of the Ld. CIT(A) directing to allow deduction u/s 80HHC on the expenditure for purchase of pavilion site. 27. In view of our finding in ground no. 1 above of this appeal wherein we held entire Rs. 7,00,000/- is allowable as revenue deduction to the assessee during the year under consideration, this ground of the appeal of the Revenue is to be allowed. 28. Ground no. 4 of the appeal of the Revenue is directed against the order of Ld. CIT(A) to allow deduction u/s 80HHC in respect of income of marine division. 29. The brief facts of the case are that the assessee is a recognized export house. The export turnover (FOB) in the marine division during the year was Rs. 3,07,51,05,859/- in the Assessment Year. The Assessing Officer stated that in the original return of income filed, no deduction ....
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....eld that in view of the above mentioned decisions relied on by the assessee, the Assessing Officer is directed to consider the audit report in Form No.10CCAC filed along with revised return of income while determining deduction u/s 80HHC admissible to the assessee regarding the marine division. 33. With regard to admissibility of deduction u/s 80HHC, the Ld. CIT(A) observed that the assessee submitted FOB of the export turnover of marine division is Rs. 3,07,51,859/- and after deducting the direct cost and indirect cost totaling to Rs. 3,21,01,72,578/-, there is a business loss of Rs. 13,50,71,719/- without considering 90% of the export incentives of Rs. 13,70,95,917/-. The Ld. CIT(A) observed that it was submitted that section 80HHC is an incentive provision and it should be interpreted in a liberal way. The words 'further increase' clearly show that the benefit as per proviso is over and above the benefit as per clause (a) of subsection (3) of section 80HHC in the case of a negative balance as per clause (a) of subsection (3), benefit of proviso cannot be adjusted or reduced. The Ld. CIT(A) further observed that it was submitted that further increase contemplated as per proviso ....
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....the deduction should not exceed gross total income as reduced by deduction u/s 80HHC allowed for trading division. 34. The Ld. DR supported the order of the Assessing Officer. 35. The Ld. AR of the assessee submitted that the Delhi Bench of the Tribunal in the case of MMTC Limited Vs JCIT 112 TTJ 15 (Delhi) has held that when an export house surrenders part of its export turnover in favour of supporting manufacturer, it is required to issue a certificate as referred to in clause (b) of subsection (4A) in respect of the amount of turnover specified therein, then the amount of deduction in the case of the assessee being export house shall be reduced by such amount which bears to the total profit derived by the assessee from export of trading goods, same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. Thus, in respect of the income which the assessee did not disclaim in favour of the supporting manufacturer which pertains to and is attributable to the export incentive, there is no reason to reduce the export incentive relatable to the disclaimed turnover in terms of pro....
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....case of IPCA Laboratory Limited Vs. DCIT (2004) 135 taxmann 594 (SC) held as under: "15. It was next submitted that even when the profits are to be reduced by the losses in cases where an export house has disclaimed its turnover in favour of a supporting manufacturer, the turnover of the exporter gets reduced to the extent disclaimed. It is submitted that as the turnover, which is disclaimed, is reduced it cannot then be taken into consideration for the purposes of computing profits under subsection 3(c)( ii). In our view this is an argument which merely needs to be stated to be rejected. if such an argument is accepted it would lead to an absurd result. It would mean when if there was no disclaimer the export house would not be entitled to any deduction in cases where there is a loss but because disclaimer has been made both the export house and the supporting manufacturer would become entitled to deductions. The proviso to sub-section (3) of section 80HHC enables a disclaimer only to enable the export house to pass on deductions. It in no way reduces the turnover of the export house. In computing total income, the entire turnover is taken into account even though there is a dis....
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....ove decision of the Hon'ble Delhi High Court, we find that after taking into consideration 90% of export incentive, there was a positive profit of Rs. 20,24,198/- in the instant case. Therefore, the assessee was entitled for deduction u/s 80HHC in respect of Rs. 20,24,198/- only. We, therefore, modify the order of the Ld. CIT(A) to the above extent. Thus, the ground of appeal of Revenue is partly allowed. 44. The ground no. 5 of the appeal of the Revenue is directed against the order of the Ld. CIT(A) directing to allow deduction u/s 80HHC as mentioned in the grounds thereby resulting in computation of income lower than shown by the assessee in revised return of income. 45. The Ld. AR of the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Shelly Products and others (2003) 261 ITR 367 (SC) and submitted that at page 382 of the order in placetum C, D & E, Hon'ble Supreme Court has observed that the failure of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of independent action ....