TaxTMI 
TaxTMI 
2010 (3) TMI 1175
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....has erred in law and on facts of the case by confirming the disallowance of Rs. 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 Rs. 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 Rs. 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 Rs. 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 fact....
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....greement 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 Rs. 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 Rs. 121.72 per Kg as against the sale at Rs. 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 to exclude the profit ....
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....g / ltr received by the assessee worked ou to Rs. 153.45, the AO doubted the genuineness of the claim and accordingly, disallowed. 2.1. As regards commission of Rs. 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 Rs. 5....
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....dit note, could not be a ground for disallowance of the commission amount, the assessee pleaded. In respect of commission of Rs. 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 Rs. 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 Rs. 10,00,000/- as against Rs. 8,28,000 stated by the AO. In the light of these submissions, the ld.CIT(A) while allowing the commission of Rs. 37,44,780 paid to M/s Household Remedies Pvt Ltd and Rs. 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 co....
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....contentions in their appeal for the AY 1999-2000 invited our attention to page no.11 of the paper book wherein details of selling commission amounting to Rs. 89,60,266/- are placed as also to page 50 of 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 Rs. 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 condit....
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....ciding the appeal for the preceding assessment year, we have through our order dated 12.3.2010 in ITA no. 1438/Ahd./2007 dismissed the appeal of the Revenue. Undisputedly, the facts and 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 Rs. 1,72,000 has been raised. We find that the ld. CIT(A) restricted the disallowance to Rs. 1,72,000/- on the basis of credit note no.219 dated 31.3.2000, wherein rate mentioned was Rs. 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 Rs. 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....
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.... claim for deduction of expenditure did not amount to bringing any material evidence. In the case of Sabalgarh Industries Ltd. vs. CIT-46 ITR 978 (All) it was held that if an expenditure is partly deductible and partly 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. Therefo....
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....e appeal of the assessee is dismissed. 10. Ground no.3 in the appeal of the assessee relates to disallowance of Rs. 91,04,865/- on account of reimbursement of marketing expenses, invoking the provisions of sec. 40A(2)(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 Rs. 9,10,48,683/- effected by it. The GCL claimed reimbursement of expenses of Rs. 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 me....
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....y Ltd. was appointed as marketing agent for the assessee to carry out the task of marketing of the products of the assessee. In this agreement, it is mentioned that the marketing efforts and for the product developments efforts by the marketing agent, the assessee being manufacturer shall compensate the marketing agent/ holding company by way of payment of one time fees of Rs. 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 m....
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....nditure. As noted above, the nature of the expenses shows that the same would be spent by the holding company for its own purposes therefore, in the absence of specific evidence that the amount is spent by the holding company 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 reimb....
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....,000/- has been paid for training given by Gharda Chemicals Ltd to the staff of assessee company for the operation of said software. Relying upon the decisions in the case of Business 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 Rs. 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 s....
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....ards training of employees of the assessee for operating the aforesaid software. In the absence of any basis for taking a different view in the matter, we are not inclined 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 Rs. 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 ca....
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....this exercise is required to be done in respect of each and every software independently having regard to the criteria laid down above, we are of the view that the matter 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 Office....
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.... as revenue on realization basis on account of uncertainty of its collection. It was pointed out that during the AY1994-95, the assssee changed the method of accounting for interest received from debtors from Mercantile to Cash system and the addition made by the then Assessing Officer on the basis of Mercantile accounting 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 ....
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....hat the principal or interest accrued thereon were not recoverable or doubtful. However, the ld. CIT(A) found that an amount of Rs. 160 lacs had already been recovered until 31.3.2006. Before us, the assessee submitted that entire amount on account of ICDs has been recovered until 31.3.2007.Of this Rs. 50 lacs was recovered in January,2004,Rs. 1 crore in April,2004,Rs. 60 lacs in July,2005 & remaining Rs. 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 rig....
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....e AO that the Termax Gas Burner assembly, Gas Burner-Gas Train, Control Panel, other accessories for Heat Resistance etc. were part and parcel of the processing plant and were not independent items of equipment / machinery itself. Earlier, the Boiler was run on oil fuel which was supplied by Refinery and was brought to the plant through Tanker, which took substantial time to reach the plant. During the year, the said system had been replaced 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 ....
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....n nature and allowing depreciation thereof. In summary the disallowance of Rs. 27,56,291/- is confirmed." 25. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while carrying us through page 13 and 441 of the paper book and relying on the order of the ITAT for the AY 1998-99 contended that expenditure is revenue in nature. On the other hand, the ld. DR supported 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-....
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.... system. As held by the Hon'ble Apex Court in the case of Travancore Cochin Chemicals Ltd. vs. CIT 1977 CTR (SC) 148 : (1997)(sic- 1977) 2 SCC 20, expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Further, in Lakshmiji Sugar Mills (P) Co. vs. CIT AIR 1972 SC 159 it has been held that bringing into existence a new asset or 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 Rs. 6,67,492 made out of sales promotion expenses. The AO n....
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.... on mere presumption without bringing any adverse material against the assessee. We accordingly set aside the orders of authorities below and delete the entire addition. This ground of appeal of assessee is allowed. 30. 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 set aside the order of the ld. CIT(A) on this issue and 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 Rs. 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 Rs. 137.99 crore and taxable profit of Rs. 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 Rs. 28.73 crore and arrived at loss of Rs. 1.36 crore. Unit No.II This unit is not eligible for deduction u/s 80IA and the assesse....
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....AO reduced aforesaid profit from trading besides 1 Interest on investment Rs. 1,91,000 Interest on deposit Rs. 56,01,000 2 Misc.income Rs. 35,36,000 3 Profit on sale of fixed assets Rs. 13,00,000 Since while allocating the cost between various manufacturing units on an adhoc basis, the assessee ignored the aforesaid amounts, the AO after reducing the aforesaid amounts from the taxable profits, allowed a deduction of Rs. 17,48,570/- u/s 80IA of the Act as against the claim of Rs. 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 Ahmeda....
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....he profits eligible for deduction u/s 80IA of the Act while the Revenue is in appeal against the findings of the ld. CIT(A) in directing the AO to exclude profit from trading activity while working out eligible profits for the purpose of deduction u/s 80IA of the Act. The ld. AR on behalf of the assessee while inviting our attention to page 20 of the third paper book and referring to order of the ITAT for the AY 1998-99 contended that their claim for similar deduction u/s 80IA has been allowed in respect of amount of notice pay and miscellaneous sales while in respect of dividend, profit on sale of assets, miscellaneous income and penalty from suppliers, had 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 26....
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....us expenses is not evident nor explained before us by the ld. AR. If separate accounts were maintained for each of the units, there could be no reason to allocate other income on the basis of sale income. Section 80IA of the Act grants deduction in respect of profits and gains "derived from" an industrial undertaking. Unless income is derived from the activities of the industrial undertaking -units V & VI of the assessee in the instant case, profits of these two units can not be eligible for deduction u/s 80IA of the Act as held in the case of CIT Vs. Sterling Foods,237 ITR 579(SC) &, Pandian Chemicals Ltd. Vs. CIT,262 ITR 278(SC).Hon'ble Delhi High 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....
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....akings and therefore, these were not eligible for deduction u/s 80IA of the Act , as concluded by the ITAT in their aforesaid order for the AY 1998-99. Following this order, claim of the assessee for deduction u/s 80IA on the Act on the amount of dividend income & profit on sale of fixed assets is rejected. 34.4 . As regards claim for deduction u/s 80IA of the Act in respect of bank interest on fixed deposits kept for margin money, the leading decision is that of the Hon'ble Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997] 227 ITR 172 which holds that interest earned on deposits placed for the purposes of obtaining loans 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....
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....sarily have to make the deposit with the bank for certain guarantees or warranties , the income on account of interest from such deposits with the bank cannot be said to have been derived from the business of the industrial undertaking. The immediate source of interest is the deposit itself, and the effective source of the genealogy of the source of the interest income is the deposit and not business, as the industrial undertaking is removed by one step from the source of income for the interest. In other words, the immediate and effective source of the interest is the deposit and not the business of the industrial undertaking. As held by the Hon'ble Supreme 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 ....
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....m" in section 80HH of the Income-tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. The Supreme Court held that interest derived by the industrial undertaking of the assessee on deposits made with the Tamil Nadu Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the said deduction under section 80HH. In G.T.N. Textiles Ltd. v. Dy. CIT [2005] 279 ITR 72, the 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), ....
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....pronouncements, including those referred to above and after allowing sufficient opportunity to the assessee. 34.9. In view of the foregoing, Ground no.9 in the appeal of the assessee and ground nos. 5 & 6 in the appeal of the Revenue are disposed of. 35. Ground no. 10 in the appeal of the assessee relates to depreciation on civil structure work for foundation of water pollution control equipment at 100%. Relying on his findings for the AY 1999-2000,the AO allowed depreciation @25% on the additions towards the pollution control equipments of Rs. 5,93,971/- as against 100% depreciation claimed by the assessee.. 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 devi....
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....er pollution equipment and energy saving device without which the above items could not have worked properly. The above items have foundation on civil structure, therefore, it being part and parcel of the same should be treated as within the definition of plant, and the authorities below should have allowed depreciation @ 100%. In this view of the matter, we set aside the orders of authorities below and delete the addition. Assessing Officer is directed to allow depreciation on civil structure also @ 100%. As a result, ground no.1 of the appeal of the assessee is allowed. 37. In the light of of our aforesaid decision, the 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 Rs. 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....
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.... sum of Rs. 34,88,000/-to the gross profit, being the difference between the cost (without considering any profit element) of Rs. 137.14 and gross selling price purported to be realized by the co. of Rs. 121.72 per kg. 39. On appeal, the ld.CIT(A) called for a remand report from the AO on the submission of the assessee that the AO compared the cost price of the product, which was inclusive of excise duty and sales tax and that if the net cost price was compared to the net sale price, there was profit . It was pointed out that the direct sale price inclusive of excise duty was Rs. 146.85 per kg as against cost price of Rs. 137.14, inclusive of excise duty leading to profit of Rs. 9.71 per kg. The AO in his report dated 02-08-2007 reiterated his findings in the assessment order. In these circumstances, the ld. CIT(A) deleted the addition with the following observations: "13.3 I have carefully considered the rival submissions and I am in agreement with the contentions of the appellant that the comparison is not based on the correct facts and if likes are compared with the likes there is no loss in the transactions. No assertions were made by the Assessing Officer in remand repor....