TaxTMI 
TaxTMI 
2016 (9) TMI 593
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.... required to arrive at the correct amount of allowance. 2. That the Department craves leave to add, alter or modify any ground of appeal during the hearing." The Assessee is a company. It is engaged in the business of manufacture of iron castings, MS item & plastic items. The assessee filed return of income for A.Y.2003- 04 declaring the total income of Rs. 1,49,71,820/-. Order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed on 30.03.2005. Later on, the AO noticed that because of the change in law by the Taxation Laws (Amendment) Act , 2005 with retrospective effect from 01.04.1998, the assessee's claim for deduction u/s 80HHC(3) of the Act that was allowed in original assessment proceedings was excessive. Therefore reassessment proceedings were initiated against the assessee u/s 147 of the Act. The issue that was considered by the AO in the re-assessment proceedings was as to the manner in which profit on sale of DEPB licence had to be computed. The AO noticed that the total value of export incentive in the form of DEPB licence received by the assessee during the previous year was a sum of Rs.,1,31,54,015/-. The assessee had however taken only Rs. 2,14,20....
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.... sec. 28 would be applicable. Clause(iiid) of section 28 dealing with DEPB reads as under: "( iiid) any profit on the transfer of the Duly Entitlement Pass Book Scheme, being the Duty. Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) It was submitted that in clause (iiid) the word mentioned is "any profit on transfer of ........... " It is thus only the profit arising on sale or transfer of DEPB is covered u/s 28(iiid) of the Act and not the entire realization on transfer of DEPB. Upon making an export the exporter becomes entitled to claim credit of certain percentage of value .of exported product which can be used to adjust the amount payable on account of customs duty, if any import is made by him. So as soon as export is made it gives rise to an entitlement basically to neutralize the duty component comprised in raw material used in goods exported. The exporter can either import the goods and use this entitlement for payment of customs duty or transfer the same to any other importer who gets the same benefit. The exporter thus buys goods in local market paying ....
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....d the assessment order and considered the submission of the appellant. Following the judgement in the case of Topman Export of Hon'ble Supreme Court the AO is directed to calculate the deduction u/s.80HHC as under: 7. In the result, the appeal is partly allowed.," 7. Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before the Tribunal. It can be seen from the grounds of appeal filed by the revenue that the revenue does not dispute the correctness of the action of CIT(A) in holding that the it is only the profit arising of sale of transfer of DEPB that is covered u/s 28(iii) of the Act and not the entire realisation of transfer of DEPB. The ld. DR however was of the view that even the action of CIT(A) in coming to the conclusion that it is only the profit arising out of sale for transfer of DEPB which is covered u/s 28(iii) of the Act is also challenged in the grounds of appeal. We are of the view that even if the contention of the DR is accepted the same is without any merit in view of the decision of the Hon'ble Supreme Court in the case of Topman Exports Civil Appeal No.1699 of 2012 arising out of SLP (C) No.26558 of 2010 dated 8.2.2012 wher....
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....s the profits. It is held that the claim of depreciation by the assessee @l00% on pollution control equipment is not genuine. The assessee has not been able conclusively to establish the justification of the claim. However, the assessee is allowed the claim depreciation ,on the equipment, considering the equipment as "plant & machinery". Therefore, the claim is allowed @15%. Accordingly, the depreciation is re-worked to Rs. 2,11 ,602/ - and the balance amount of depreciation amounting to Rs. 14,32,581/- is disallowed out of the claim of depreciation and added back to the assessee's total income. "" 11. Before CIT(A) the assessee submitted that the assessee was in the manufacture of iron castings. In the process of manufacturing of castings a considerable amount of polluted air is released. The assessee gave a list of pollution control equipments it had installed to reduce the air pollution. This list is given in para 5.1. of the CIT(A)'s order. The assessee further pointed out that it was not possible for the assessee to carry on its manufacturing activity without such pollution control equipments as these are statutory requirements and inspected by the pollution control authoriti....
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.... of emission after installation of pollution control equipments was conducted by one M/s. Envirochek and a copy of the said report was filed before the AO. Order of the AO is silent on all these facts. The reasons assigned by the AO for rejecting the claim of 100% depreciation by the Assessee was, a mere observation that the assessee did not justify the claim for depreciation on pollution control equipments. There is no finding of the AO that the assessee did not manufacture pollution control equipments by utilising the raw materials which it had purchased. In the given circumstances we are of the view that the equipments in question on which the depreciation at 100% was claimed was pollution control equipments and the assessee was entitled to the claim of depreciation at 100% as claimed by it. We do not find any ground to interfere with the order of CIT(A) on this issue. Hence ground no.1 raised by the revenue is dismissed. 14. Ground No.2 raised by the revenue reads as follows :- "2. Ld. CIT(A) is erred in law and on the facts and in circumstances of the case by deleting of Rs. 3,88,731/ - in respect of disallowance u/s 14A without taking into account the verdict of jurisdiction....
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....y and the last day of the previous year ; C = The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; Here, A = Rs. 27,38,878/- B = Rs, 1,80,72,310/- (being average of long term assets as on 31.03.05 and those as on 31.03.06.) C = Rs. 16,58,94,269/- (being average of total assets appearing in the balance sheet as on 31.03.06 and 31.03.05 respectively.) Therefore, the disallowance = Rs.27,38,878/- x Rs. 1,80,72,310/- = Rs. 2,98,370/- Rs.16,58,94,269/- Disallowance of ½% of average value of investment : The average value of investment income from which does not or shall not form part of total income in assessee's case is Rs. 1,80,72,310/-. Therefore, this component of disallowance would be Rs. 90,362/-. Therefore, total disallowance u/r. 8D read with sec. 14A = (i) + (ii) = (iii) = Rs. 3,88,731/-." 17. Before the CIT(A) the assessee reiterated its stand, as was taken before the AO. No interest expenses whatsoever were incurred for making the investments which yielded tax free income. With regard to the disallowance of other expenses admissible u/r 8D (2)(iii) of th....
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....pplicable and disallowance u/s 14A of the Act had to be made on a reasonable basis. The Tribunal in several cases has applied 1% of the tax free income has amount which can be disallowed under the head "Other Expenses" This view of this tribunal has also been approved by the Hon'ble Calcutta High Court. We therefore confirm the order of the CIT(A) on this issue also. 21. Ground No.3 raised by the revenue reads as follows :- "3. Ld. CIT(A) is erred in law and on the facts and in circumstances of the case by deleting of Rs. 40,23,251/- made on account Bad Debt without rebutting the case laws cited by the AO and the reasons stated by the AO." 22. The Assessee had written off a sum of Rs. 8046502/- out- of total outstanding of Rs. 13410837/- due from M/s Mccoy Castings Inc. of Canada as bad debts and claimed the same as deduction. The Assessee claimed that the overseas firm went bankrupt and receiver was appointed. It was estimated that not more than 40% of the outstanding would be recoverable and hence 60% was written off as bad debt in the books of accounts. The A.O differed on the estimation and disallowed 50% of the claim of bad debts on the reasoning that the assessee has to e....