TaxTMI 
TaxTMI 
2010 (3) TMI 1175
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....f the case by confirming the disallowance of ₹ 91,04,865/- made by the Assessing Officer in respect of reimbursement of marketing expenses to Gharda Chemicals Ltd., after invoking provisions of Section 40A(2)(b) of the Income Tax Act, 1961 and holding that the expenditure in question is unreasonable and excessive. 4. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by confirming disallowance of ₹ 39,20,000/- made by the Assessing Officer after holding that expenditure on ERP Software is of capital nature. 5. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has also erred in confirming disallowance of ₹ 10,80,000/- made by the Assessing Officer in respect of training expenses for operation of ERP System paid to the holding company. 6. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by confirming addition of notional interest of ₹ 38,81,250/- made by the Assessing Officer in respect of ICD placed with Nipun Investments Pvt Ltd. 7. The Learned Commissioner of Income Tax (Appeals)-VI, Baroda has erred in law and on facts of the case by co....
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....there was no agreement or copies of accounts for such payment was produced before the AO. The Ld. CIT(A also erred in not appreciating the fact that the assessee had failed to establish the business expediency with justification for paying such commission. 3. The Learned CIT(A) has erred on facts and in law, the Ld.CIT(A) has erred in deleting the addition of ₹ 34,88,000/- made by the AO on account of lower sale price of giloquin. 4. The Learned CIT(A) has erred on facts and in law, the Ld.CIT(A) erred in not appreciating the fact that the assessee had directly sold giloquin at price lower than the price at which the giloquin was sold by the assessee through Gharda Chemicals. The direct sale was made at ₹ 121.72 per Kg as against the sale at ₹ 157.84 through Gharda Chemicals. 5. The Learned CIT(A) has erred on facts and in law in directing recomputation of deduction u/s 80IA. 6. On the facts and in the circumstances of the case and in law,the Learned CIT(A) erred in not appreciating the fact that the assessee was systematically manipulating the profits of separate units to maximize deduction u/s 80IA. The Ld.CIT(A) therefore also erred in directing the AO ....
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....ation per kg / ltr received by the assessee worked ou to ₹ 153.45, the AO doubted the genuineness of the claim and accordingly, disallowed. 2.1. As regards commission of ₹ 15,13,500/- to Nipun Finvest Pvt. Ltd.,on verification of credit note No.GIL/203/2000 dated 31.03.2000, the AO noticed that in the particulars column of credit note issued in favour of M/s Nipun Finvest Pvt Ltd, it was mentioned as under: "Being amount of commission payable to you for the following business secured during the year in terms of letter No.GIL/101/99 dated 19th May 1999…." In the debit note dated 31.03.2000 the details of payments revealed as under: Chq 615706 20.4.99 5,00,000 Cr.No 615715 4.6.99 5,00,000 203/2000 15,13,500 615727 19.8.99 7,50,000 218/2000 2,50,000 615856 12.5.2000 13,500 17,63,500 2.11 On perusal of the aforesaid details, the AO observed that though the terms for payment of commission were fixed vide letter dated 19th May 1999, the details of payment given in the debit note showed that payment of ₹ 5 lac towards commission wase made on 20.4.99 i.e. before finalisation of terms & conditions vide letter dated 19.5.1999. It was further ....
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....ion of ₹ 15,13,500 to Nipun Finvest Pvt Ltd., it was stated that Nipun Finvest was a regular agent of appellant company and merely because the payment was made earlier than fixing of the term no disallowance can be made. As regards payment of ₹ 2,50,000 in March, 2000 it was stated that the sale were to Government of Gujarat and therefore, therefore no further details were required to be furnished. Regarding commission to Mercury Enterprises it was stated that there was an error in the credit note and that the actual commission amount was ₹ 10,00,000/- as against ₹ 8,28,000 stated by the AO. In the light of these submissions, the ld.CIT(A) while allowing the commission of ₹ 37,44,780 paid to M/s Household Remedies Pvt Ltd and ₹ 8,28,000/- in respect of Mercury Enterprises, upheld the disallowance of commission to M/s Nipun Finvest Pvt Ltd in the following terms: "4.3 I have carefully considered the submissions of the appellant and the assessment order.As regards the commission to Household Remedy Pvt Ltd. the contention of the appellant is that the commission is paid on base price and accordingly the commission on the sales effected were made wa....
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....f the paperbook, wherein a copy of credit note dated 31.3.2000 is placed. In the light of these documents, the ld. AR pleaded that the ld. CIT(A) was not justified in upholding the disallowance of commission. On the other hand, the ld. DR while pleading that the said credit note no.219 placed at page 50 of the paper book was never placed before the AO or the ld. CIT(A) nor have they referred to the said document in their impugned order. While supporting the findings of the AO, the ld. DR argued that the assessee did not adduce any evidence in support of services rendered by the aforesaid parties for which commission had been paid to them. 5. We have heard both the parties and gone through the facts of the case. We find that in the preceding year also disallowance of ₹ 5 lakhs on sales commission to Nipun Finvest Pvt. Ltd. was made and on appeal , the ld. CIT(A) dismissed the appeal of the assessee. In the year under consideration, as pointed out by the AO, though terms and conditions of commission payment were fixed vide letter dated 19.05.1999, ₹ 5,00,000 was paid to M/s Nipun Finvest P Ltd. on 20.4.1999. Further all the commission payments were in round figures such ....
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....nd circumstances of the case in the year under consideration are similar to the facts in the preceding year. Therefore, following the reasoning given in the preceding assessment year, especially when no material has been placed before us by the Revenue in order to controvert the findings of the ld. CIT(A), the appeal of the Revenue on the issue of payment of commission to the aforesaid party is dismissed. However, in the appeal of the assessee , claim for further deduction of ₹ 1,72,000 has been raised. We find that the ld. CIT(A) restricted the disallowance to ₹ 1,72,000/- on the basis of credit note no.219 dated 31.3.2000, wherein rate mentioned was ₹ 12 per kg However, the ld. AR on behalf of the assessee invited our attention to another credit note bearing sm no. 219 placed at page 50 of the paperbook ,wherein rate mentioned is ₹ 15 per kg. Though the ld. AR claimed that the said credit note was submitted before the AO and the ld. CIT(A), there is nothing to suggest as to whether or not the AO and the ld. CIT(A) considered the said credit note nor there are any findings on the said credit note in the impugned orders.In these circumstances, we consider it....
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....non deductible it is for the assessee to show which part is not deductible and, if he fails, the whole part of the expenditure is disallowable. In the instant case the appellant has failed to discharge its onus as to the nature of services rendered. Therefore the Assessing Officer is justified in disallowing the claim of payment of 10,39,594/-. The ground therefore fails." 8. The assessee is now in appeal before us. Both the parties agreed that issue may be adjudicated in the light of decision of the ITAT for the AY 1999- 2000. We have in our order dated 12.3.2010 in ITA no. 1438/Ahd./2007 in the assessee's own case for the AY 1999-2000 held on this issue as under "10.2 We have considered rival submissions and material available on record. The findings of the Assessing Officer show that assessee explained this issue before Assessing Officer by producing the resolution of the Board. It would therefore, show that assessee was aware of the matter in issue. Therefore, it was duty of the assessee to produce sufficient material to substantiate the claim for the deduction of the expenditure. The onus is upon assessee to prove the expenditure laid out for the purpose of business because....
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....b) of the Act. The AO noticed that the assessee reimbursed expenses on sales promotion[25%], travelling[15%], conveyance[20%], trunk, telephone & postage[30%] & vehicle maintenance[10%] to Gharda Chemicals Ltd.[GCL] for sale of ₹ 9,10,48,683/- effected by it. The GCL claimed reimbursement of expenses of ₹ 91,04,865/-i.e 10% of the sales effected through it. Since the assessee did not furnish any evidence and justification in support of their claim, relying upon his own findings in the AY 1999-2000,the AO disallowed the said claim. 11. On appeal, the ld.CIT(A) upheld the disallowance in the following terms: "6.3 I have gone through the contentions of the appellant and the argument of the Assessing Officer. The main grounds on which the expenditure were disallowed by the Assessing Officer were as under: i) that the appellant has not produced any details regarding expenses incurred under various head by the marketing agent. ii) That the agreement is merely a debit note and it was entered at the fag end of the year. iii) That the agreement is nothing but diversion of profit. 6.3.1 In appeal no submissions were made as regards justifiability of the expenditure unde....
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....y the marketing agent, the assessee being manufacturer shall compensate the marketing agent/ holding company by way of payment of one time fees of ₹ 2 crores (Clause-8). This payment shall be made after successful placement of the product in concerned State. The assessee shall keep the above amount as security deposit and the amount will be adjusted against the fees of Marketing Agent and Marketing Agent shall pay interest @ 13.5% per annum to the assessee from the date of receipt to the date of adjustment. We may mention that none of the clauses in this agreement have explained reimbursement of any marketing expenditure by the assessee to the holding company. The assessee explained that after this agreement, another supplementary agreement was executed on 9.10.1998 for payment on marketing expenses @10% of sales of formulation (Tollpack). However, such a supplementary agreement or the justification to enter into such agreement, which is contrary to the main agreement dated 7.04.1997 is not explained before the authorities below and did not find mention in the impugned orders. By supplementary agreement dated 9.10.1998, the assessee has completely changed the earlier agreemen....
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.... for the purpose of business of the assessee, the explanation of the assessee could not have been accepted. The assessee has failed to prove any nexus between the payment to the holding company and the expenditure incurred for the purpose of business of the assessee. We therefore do not find any justification to interfere with the orders of authorities below. The decision cited by learned Counsel for assessee and the circular of the board, would not advance the case of the assessee in view of the facts and circumstances noted by the authorities below. We accordingly, confirm the findings of authorities below and dismiss this ground of appeal of the assessee." 13. In the light of our aforesaid decision in the appeal for the AY 1999-2000 and undisputedly facts in the year under consideration being similar, we confirm the findings of the ld. CIT(A) and accordingly, ground no. 3 in the appeal of the assessee is dismissed 14. Ground nos. 4 & 5 pertain to reimbursement of expenses of ₹ 39,20,000/- on ERP software and ₹ 10.80 lakhs in relation to the training for ERP software to M/s Gharda Chemicals Ltd.[GCL]. During the course of assessment proceedings, the AO noticed that ....
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....ness information Processing Services vs ACIT (1999) 106 Taxman 116 (Mag)/(2000) 73 ITD 304 (Jp),Bank of Punjab Ltd vs Jt.CIT (2002) 122 Taxman 235 (Chd)(Mag),Media Video Ltd vs Jt.CIT (2002) 122 Taxman 28 (Del)(Mag),ITC Classic Finance Ltd vs Dy.CIT 112 Taxman 155 (Cal)(Mag),Naveen Projects Ltd vs Dy.CIT (2005) 1 SOT 232 (Del), Ajitkumar C Kamdar vs Dy.CIT (2005) 1 SOT 183 (Mum),Sumitomo Corporation India (P) Ltd vs Addl CIT 1 SOT 91 (Del) and CIT vs K & Co 181 CTR 378, the assessee claimed the entire expenditure revenue in nature. However, the ld. CIT(A) rejected the claim of the assessee with the following observations: "7.3 I have gone through the rival contentions. I agree with the arguments of the Assessing Officer that the ERP software is a major application software purchased by the parent company for all its subsidiary companies. Expenditure of ₹ 10,80,000 on training paid to Garda Chemicals Ltd is not substantiated by any evidence of such expertise is available with parent company to impart such training to staff of the appellant. The training is actually rendered by RAMCO Systems Ltd as part of licensing the software. Further the expenditure of ₹ 39,20,000 pr....
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....nclined to interfere with the findings of the ld. CIT(A). Therefore, ground no. 5 in the appeal of the asssessee is dismissed. 18. As regards remaining expenditure of ₹ 39.20 lacs reimbursed to GCL, though the assessee relied upon a number of judgments in their support, the ld. AR did not inform us as to how the said expenditure initially incurred by GCL has been treated in the assessment of GCL. Moreover, expenditure on software is capital or revenue ,depends upon a number of factors. In their detailed judgment in the case of Amway India Enterprises vs. DCIT,111 ITD 112(SB)(Delhi)., the Special Bench held that since software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of the computer software is shorter(say less than two years), it may be treated as revenue expenditure. It was further held that nature of advantage of computer software has to be seen in a commercial sense. If the advantage is in the capital field then the same would be capital expenditure. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's bus....
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....er needs to be restored back to the file of the Assessing Officer for doing such exercise. The Assessing Officer shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down above after giving an opportunity of being heard to the assessees. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down in the subsequent paragraphs." 18.1 Since in the instant case, neither the AO nor the ld. CIT(A) had benefit of the aforesaid decision of the Special Bench nor they analysed the nature of expenditure reimbursed to GCL in the manner analysed by the Special Bench while the ld. AR did not inform us as to how the said expenditure initially incurred by GCL has been treated in the assessment of GCL,we are of the opinion that the matter needs to be restored back to the file of the Assessing Officer for doing necessary exercise as laid down in the aforesaid decision. The Assessing Officer shall examine the question whether expenditure on computer software is capit....
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....g system was deleted by the CIT(A), on appeal by the Department, though the ITAT reversed the decision of the CIT(A), on further appeal, Hon'ble Gujarat High Court, vide their order dated 27-12-2005 reversed the decision of the ITAT and upheld the decision of the CIT(A), approving the change in the method of accounting of interest on late realization of sales from mercantile to cash system. In the light of these submissions, the ld.CIT(A) after having a remand report from the AO and comments of the assessee thereon and while distinguishing the judgments in the case of Sarabhai Chemicals Pvt Ltd vs CIT 257 ITR 355 (Guj); and CIT vs Shiv Prakash Janak Raj & Co Pvt Ltd 222 ITR 583 (SC) as also decision of the Hon'ble jurisdictional High Court in the assessee's own case for the AY 1994-95, upheld the addition in the following terms: "8.3 I have carefully considered the submissions as well as perused the decisions cited by the appellant. It is a fact that till A.Y. 1999-2000 the interest income was shown on accrual basis. The appellant has unilaterally decided not to account for the interest on the ground that such receipts is uncertain and on the ground of prudent accounting policies ....
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....was recovered in January,2004,Rs. 1 crore in April,2004,Rs. 60 lacs in July,2005 & remaining ₹ 15 lacs in March,2007. However, the assessee is silent on recovery of interest. There is nothing to suggest that the financial condition of Nipun Investment P Ltd. was such that it was unable to pay its debts or that the said company was insolvent. Not an iota of evidence has been placed before us either for the view taken by the assessee that accrued interest was not recoverable nor the relevant terms and conditions of the ICDs were placed before us. It is well settled that taxability of income is attracted not only when income is actually received but also when it accrues. Income accrues when it falls due, that is to say when it becomes legally recoverable, irrespective of whether it is actually received or not and accrued income is that income which the assessee has a legal right to receive. Since the assessee had been consistently following mercantile system of accounting and accordingly, had shown interest accrued on ICDs as its income until the AY 1999-2000 while there was no material before the lower authorities nor even before us, suggesting that recovery of principal amount....
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....aced by gas based fuel system , which resulted in continuous and timely supply of fuel, smoothening thereby manufacturing process. Inter alia, the assessee relied on decisions in the case of Addl.CIT, Gujarat Vs Desai Bros, 108 ITR 14 (Guj), Hanuman Motor Service vs CIT 66 ITR (Mysore),CIT vs Sri Rama Sugar Mills Ltd 21 ITR 191 (Mad), Ahmedabad Mfg & Calico Ptg. Co vs CIT (162 ITR 800)(Guj), Permali Wallace Ltd vs CIT, Bhopal - 151 ITR 43 (MP),CIT Delhi Vs Eagle Theatres 165 ITR 93 (Del),CIT vs Shree Hari Industries (161 ITR 249)(Raj),Addl CIT vs India United Mills Ltd 141 ITR 399 (Bom),CIT s CPA Yoosuf (113 ITR 225),CIT vs Chowgule & Co Pvt Ltd (214 ITR 523,CIT vs Shri Rama Sugar Mills Ltd (21 ITR 191)(Mad),CIT vs Mahalakshmi Textile Mills Ltd (66 ITR 710)(SC),CIT vs Atherton West & Co Ltd (82 ITR 352)(All),Madras Cement Ltd vs CIT ITAT Madras (42 TTJ 175),CIT vs Sri Narsimha Textiles P Ltd (238 ITR 351)(Mad),CIT vs Tutocorin Spinning Mills Ltd (249 ITR 694) and Ambika Cotton Mills Ltd Vs. JCIT ITAT Madras-71 TTJ 871.It was further submitted that similar disallowance made by the AO in the AYs 1992-93, 1993-94 & 1994-95 had been deleted by holding that the expenditure of replacemen....
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....ported the findings of the ld. CIT(A). 26. We have heard both the parties and gone through the facts of the case . At the outset, we find that reliance by the assessee on the decision of the ITAT in their own case for the AY 1998-99 is totally misplaced since in the AY 1998-99 expenditure was incurred on replacement of crates and steam injector system. The expenditure on ejector system was allowed, following the decision of the ITAT for the AY 1992-93 & 1993-94 while the issue of expenditure on crates had been restored to the file of the AO. In the instant case, the boiler in the processing plant was hitherto being run on oil fuel. In the year under consideration, the assessee incurred expenditure on imported Thermax Gas Burner assembly, Gas Burner-Gas Train, Control Panel, other accessories for Heat Resistance etc in order to replace oil based fuel system with the gas based fuel system . We find from the impugned orders that nowhere the asssessee claimed that the said expenditure amounted to 'current repairs' under s. 31 of the Act. Rather, the claim is that expenditure is revenue in nature. The issue before us is as to whether the replacement of oil based fuel system wit....
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....an enduring benefit for the assessee amounts to capital expenditure. Since the aforesaid replacement in the instant case amounts to bringing into existence a new asset & advantage, and thereby an enduring benefit for the assessee, it is clear then that expenditure of the assessee here is not of revenue nature and thus, cannot be claimed as a deduction even under s. 37 of the Act. In view thereof, especially when there is no material before us for taking a different view in the matter , we have no alternative but to uphold the findings of the ld. CIT(A). Therefore, ground no. 7 in the appeal of the assessee is dismissed. 27. Ground no. 8 in the appeal of the assessee pertains to disallowance of ₹ 6,67,492 made out of sales promotion expenses. The AO noticed that the assessee incurred sales promotion expenses of ₹ 37,62,633/- vis-à-vis ₹ 33,19,680/-in the preceding year. The said amount included expenditure of ₹ 26,69,968/- towards payment for purchase of silver coins and articles from M/s JK Jewellers & M/s Pratap Jewellers, Mumbai for distributing the same to the customers. Since the assessee furnished same justification as in the preceding year ,rel....
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....accordingly, allow ground no. 8 in the appeal of the assessee . 31. Ground No.9 in the appeal of the assessee and ground nos. 5 & 6 in the appeal of the Revenue relate to deduction u/s 80IA of the Act. The AO noticed that the assessee claimed deduction of ₹ 94,67,651/- u/s 80IA of the Act for its Unit V and VI on proportionate basis of the total turnover and profit thereon. The company had shown total sales of ₹ 137.99 crore and taxable profit of ₹ 1.40 crore The AO further found the profitability of each of the units as under: Unit No.I This unit is not eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 28.73 crore and arrived at loss of ₹ 1.36 crore. Unit No.II This unit is not eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 6.75 crore and arrived at loss of ₹ 0.72 crore Unit No.III this unit is not eligible for deduction u/s 80IA and the assessee has shown sales of ₹ 35.32 crore and arrived at loss of ₹ 3.77 crore Unit No.IV This unit is not eligible for deduction u/s 80IA and the assssee has shown sales of ₹ 30.90 crore and arrived at profit of ₹ 1.61 crore Unit No.V....
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....f the Act as against the claim of ₹ 94,67,651/-. 32. On appeal, the assessee submitted that the deduction u/s 80IA has been claimed on the basis of detailed working duly certified by the Chartered Accountant in accordance with method accepted in earlier years. While pointing out that an identical issue involved in A.Y. 1985-86 has already been decided in favour of the assessee by the ITAT, the assessee contended that they did not effect sales of trading goods in Unit V and VI , eligible for deduction u/s 80IA. Therefore, the question of quantifying and excluding trading profit from eligible profit does not arise at all. Inter alia, the assessee relied upon decisions in the case of CIT Vs Ahmedabad Electricity Co Ltd 203 ITR 521 (Bom), Cambay Elect.Supply Indl. Co Ltd CIT 113 ITR 84 (SC),CIT vs Hindustan Antibiotics Ltd - 137 ITR 42 (Bom) and Philips Carbon Black Ltd vs CIT - 136 ITR 205 (Cal). In the light of these submissions, the ld. CIT(A) concluded as under: "15.3 I have gone through the contentions of the appellant carefully and also the arguments of the Assessing Officer. In view of the fact that in past the computation for 80IA deductions were accepted by the departm....
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....been rejected. As regards interest on FD , interest from others-ICD and insurance claim, issue had been restored to the AO by the ITAT. Regarding interest on margin money FD, the assessee relied on decisions in the case of Inductotherm India Ltd. Vs. DCIT,75 TTJ 728,CIT Vs. Chinanachmuthu Const, 297 ITR 70(Kar) and CIT Vs. Tamlnadu Diary Development Corporation Ltd.,216 ITR 535(Mad.). As for claim for deduction u/s 80IA on sale of scrap, the ld. AR relied upon the decision in the case of DCIT Vs. Core Healthcare Ltd.,308 ITR 263(Guj) and in respect of interest from debtors, relied on the decisions in the case of Hero Cycles Ltd. vs. ACIT,84 TTJ 485,Nirma Industries ltd vs. CIT,283 ITR 420(Guj) and Carbon Co. Ltd.,286 ITR 201(Mad.). For the amount of liquidated damages from suppliers, credit balance written off, sales tax refund, profit on sale of raw material, interest on NSC/bonds and profit on sale of raw material, the ld. AR did not make any separate submissions . On the other hand, the ld. DR supported the findings of the AO. 34. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. We find that the AO in his assessment order ....
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....gh Court in their decision dated 25.10.2007 in the case of Honda Siel Power Products Ltd. vs. CIT in ITA no. 995/2007 held that profits and gains from trading activity can not be held to be derived from the business of industrial undertaking. In the light of view taken in the said decision, we do not find any infirmity in the directions of the ld. CIT(A) to recompute the deduction under section 80IA in respect of Unit V & VI after excluding the income from trading profits , if any relating to these units . Consequently sale proceeds of raw material in unit-V & VI would not be eligible for deduction u/s 80IA of the Act. As regards income from other sources, we find that that the neither the AO nor the ld. CIT(A) analysed as to whether or not each of the items of receipts comprised in other income related to the business of the industrial undertakings in the units -V & VI of the assessee. 34.1 We further find that the ITAT in their order dated 20.11.2009 in the assessee's own case for the AY 1998-99 in IT no. 1522 & 1594/Ahd./2005 concluded that the AO having not given any reason for not accepting the computation of deduction as per audit certificate while the income for the purpose....
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....for business cannot be treated as business income but only as income from other sources. It was further held that the assessee cannot claim adjustment of expenditure against interest assessable under section 56. Section 57 of the Act sets out in its clauses (i) to (iii) the expenditures which are allowable as deduction from income assessable under section 56. It is not the case of the assessee that the interest payable by it on term loans is allowable as deduction under section 57 of the Act.. The decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172, which was rendered in the context of sections 56 and 57, has been followed in CIT v. Autokast Ltd. [2001] 248 ITR 110 (SC). Likewise, in CIT v. Dr. V. P. Gopinathan [2001] 248 ITR 449 (SC) interest on fixed deposits was held not to qualify for setting off against interest on loans borrowed. The other decisions on the same lines, in the context of section 80HHC are CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC). In these decisions, the Hon'ble Supreme Court reiterated the nexus theory and declined to treat such interest earned as business income. The ....
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....preme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, the profits or gains eligible for deduction under section 80IA of the Act must be derived from the actual conduct of the business, and unless the profits or gains are derived from the actual conduct of the business, it cannot be stated that the interest is derived from the business of the industrial undertaking. In other words, the industrial undertaking must directly yield the profit, and it cannot be the means to yield the income. The deposit might be an incidental investment with the business of the industrial undertaking and that would not be sufficient to render the interest income as profits and gains derived from the industrial undertaking. The fact that the amount was assessed as business income itself would not be sufficient to hold that the interest income was derived from the actual conduct of the business of the industrial undertaking. In other words, it is not all business receipts that would qualify for the deduction and the Legislature has apparently not intended to give the benefit of deduction to all business income. If the intention of the Legislature was to grant relief to all bus....
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....e Kerala High Court held that interest on bank deposits was not profit derived from export of goods. The Kerala High Court has further held that the interest earned by the assessee on fixed deposits, commission received on sale of machinery, etc., were not business income and consequently the assessee was not entitled to computation of eligible deduction under section 80HHC of the Act by including those receipts under business income. Therefore, considering the aforesaid two decisions, we must hold that the Tribunal as well as the Commissioner of Income-tax (Appeals), both committed an error in treating the interest on deposits as "business income" and granting the assessee the deduction under section 80HHC of the Act.." 34.5 As regards sale of scrap, though the assessee relied upon a decision in the case of DCIT Vs. Core Health care Ltd.,308 ITR 263(Guj.) not an iota of evidence has been placed before us that these scrap resulted from the business activities of the unit-V & VI nor any findings on this aspect have been recorded by the AO and the ld. CIT(A). 34.6 Likewise there is no evidence on record nor it has been placed before us by the ld. AR that interest receive....
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.... On appeal, the ld..CIT(A) following his predecessor's order for assessment year 1999-2000 , upheld the action of the AO. 36 The assessee is now in appeal before us. Both the parties agreed that issue may be adjudicated in the light of decision of the ITAT for the AY 1999- 2000. We have in our order dated 12.3.2010 in ITA no. 1438/Ahd./2007 in the assessee's own case for the AY 199-2000 held as under "3.2 We have considered rival submissions. The assessee in the reply before Assessing Officer specifically pleaded that water pollution equipment and energy saving device systems includes cost of the civil structure to maintain the above equipments. The civil structure was explained to the foundation of the above items without which the water pollution equipment and energy saving device would not have worked. The proper certificate to that effect was also filed certifying the above facts. Since, the structure was part of the same items, therefore, it could not be excluded from the 100% depreciable items. The authorities below instead of bringing any adverse material against the assessee on the explanation of the assessee without any basis considered it to be a different item. Hon'....
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....he AO is directed to allow depreciation @ 100% on the civil structure for the pollution control equipment. Therefore, ground no. 10 in the appeal of the assessee is allowed 38. Ground nos. 3 & 4 in the appeal of the Revenue relate to addition of ₹ 34,88,000/- on account of lower sale price of giloquin. The AO noticed much difference in the average sale price of assessee company in the sales effected through its associate company Gharda Chemicals Ltd. and the sales made directly. The relevant details reveal as under: GILOQUIN Qty.MT. Value Average rate / kg Total Sales 359.97 48647579 135.14 Less:Sales through GCL 133.77 21114259 157.84 Direct sale by assessee 226.20 27533320 121.72 To a query by the AO, the assessee explained vide letter dated 28-03-2003 that : " The pesticide industry works on variety of sales models. The sale of technical goods to formulators and these sales are at the prevailing commercial prices. Kindly note that technicals goods can not be used by the end consumer without formulation. The two important components of sale of branded formulation products are (1) availability of marketing infrastructure / arrangement and (2) established brand image. Y....