TaxTMI 
TaxTMI 
2009 (11) TMI 958
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the relevant assessment year. The AO allowed the general rate of 25% under item-(1) under the aforesaid head. After considering the rival arguments, we see no reason to interfere. The orders of the income tax authorities on this point are upheld and the ground is dismissed. 3. Ground no.2 is in two parts. In the first part the assessee has disputed the inclusion of the sales-tax and excise duty amounting to Rs. 76,53,354.00 and Rs. 6,03,67,032/- respectively in the total turnover, which is the denominator in the formula prescribed in section 80HHC of the Act. This issue has been decided in favour of the assessee by the order of the Tribunal dated 29-3-2006 in ITA Nos.3079 and 3080/ Ahd/2003 for the assessment years 1996-97 and 1997-98. This issue also stands covered in favour of the assessee by the judgment of the Supreme Court in CIT Vs. Lakshmi Machine Works, 290 ITR 667. Respectfully following the order of the Tribunal and the judgment of the Supreme Court, we direct the AO to exclude the sales-tax and excise duty from the total turnover. 4. The second part of the ground no.2 also relates to the deduction under Section 80HHC. The assessee raised a bill dated 31-3-1998....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Thus, both the subgrounds of ground no.2 are allowed. 5. Ground no.3 relates to the disallowance of Rs. 2,87,204/- out of the interest claimed by the assessee as deduction. The interest was paid in respect of the cash credit account and overdraft account with the bank. From the perusal of the details of borrowings from the bank the AO noticed that it included the borrowing for payment of advance tax of Rs. 3.04 crores on 12-3- 1998 and due to this borrowing the assessee's account showed a debit balance of Rs. 3.73 crores. The interest was paid by the assessee at the rate of 18% on the debit balance. The AO, relaying on section 40(a)(ii) of the Act held that since taxes on the assessee's income are not allowable as a deduction, the interest paid on borrowings effected for payment of taxes cannot also be allowed as a deduction. He calculated the interest at 18% for the period 12-3- 1998 to 31-3-1998 at Rs. 2,87,204/- and disallowed the same while computing the business income. On appeal, the assessee contended that the advance tax cannot be said to have been paid out of the borrowings from the bank since all the sale proceeds of the year were also deposited in the same account wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions, we are of the view that the judgment of the Calcutta High Court (supra) supports the assessee's case. There the assessee was having an overdraft account in the bank and the entire profits of the relevant year, which were far in excess of the advance tax liability, were deposited in the overdraft account. The assessee withdrew monies from the said account both for business purposes and also for payment of advance tax. The facts in that case show that on 12-12-1969 the overdraft account showed a debit balance of Rs. 1,39,412/-. The assessee paid advance tax on 15-12-1969 in the amount of Rs. 18,05,000/- which increased the overdraft to Rs. 14,63,593/- on 31-12-1969 which was the last day of the accounting year relevant to the assessment year 1970-71. While dealing with the assessee's claim for deduction of the interest paid to the bank on the overdraft account, both the AO and the first appellate authority held that though the profits of the business were embedded in the combined financial transactions, yet at the time of payment of the advance tax the assessee did not have a credit balance in the overdraft account and it was forced to resort to the overdraft facility specifica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the advance tax there was a debit balance in the overdraft account. Even so, as held by the Calcutta High Court in the judgment cited above, a presumption should be drawn that the advance tax was paid out of the profits of the year and not out of the overdraft facility. It makes no difference to this principle that on the date of making the tax payment there is a debit balance in the overdraft or cash credit account. When there is a presumption as above, then there is no question of the assessee discharging any onus of proving that the tax payment came out of the business receipts. Thus, respectfully following the judgment of the Calcutta High Court, we hold that departmental authorities were not justified in disallowing Rs. 2,87,204/- from the interest claim. We delete the disallowance and allow the ground. 8. The fourth ground relates to the disallowance of the expenditure of Rs. 1,30,478/- incurred on replacement of crates and Rs. 93,635/- incurred on steam ejector system. So far as the ejector system is concerned, a similar expenditure has been held to be revenue expenditure by the Tribunal in the assessee's own case for the assessment year 1992-93 and 1993-94 and the rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the assessee at pages 103 and 104 of the paper book. So far as the amount of Rs. 51,175/- is concerned, it represent interest income credited and offered to tax twice, once in the assessment year 1995-96 and again in the assessment year 1996-97. The circumstances under which the amount was wrongly credited in the accounts for the assessment year 1996-97 have also been narrated in the said pages. This mistake, namely, that the interest was twice offered to tax, was sought to be corrected by reversing the entry in the accounts for the year under appeal. The AO does not appear to dispute the factual position, but says that the assessee should have corrected the mistake in the accounts of the year ended 31-3-1995, in which year the mistake was committed, and not in the accounts for the year under appeal. We are unable to agree with the view taken by the AO because the closed accounts for an earlier year cannot be reopened and corrective measures have to be taken only in the accounts of the year which are open. Accordingly, we delete the disallowance of Rs. 51,175/-. 11. As regards the interest of Rs. 32,878/- it is seen that the assessee paid the same to M/s.Mrugakh Investment Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs.8,749.00 v) Penalty account : Rs.98,206.00 vi) Sales (Misc.)account : Rs.579.00 vii) Insurance claim received : Rs.16,74,455.00 viii) Interest earned on FDRs. : Rs.43,79,814.00 ix) Interest earned-others : Rs.35,86,163.00 13. Some of the aforesaid items of receipts for the assessment years 1996-97 and 1997-98 have been considered by the Tribunal in the context of section 80IA in its order dated 22-11-2007 in ITA Nos.2979 and 3267/Ahd/2003, a copy of which has been placed at pages 123 to 127 of the paper book. These receipts have been considered while dealing with the claim for deduction under Section 80IA in respect of the profits of units-V and VI of the assessee. In the present year also we are concerned with the same units. In para-18 and 19 of the aforesaid orders, the Tribunal has opined that the dividend, recovery from suppliers towards penalty for late supply and miscellaneous income are not eligible for the deduction as they are not profits derived from the industrial undertaking. Respectfully following the aforesaid order, we hold that the dividend income of Rs. 7.50, penalty of Rs. 98,206.00 and Misc. income of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me. Needless to add that the assessee shall be given due opportunity of being heard and substantiate its claim before the AO takes any decision. 16. As regards the interest of Rs. 35,86,163.00 earned from others, it is stated before us that only the interest received from the customers for late payment of the bills is eligible for deduction as profits derived from the industrial undertaking. Reliance is placed on the judgment of the Hon'ble Gujarat High Court in Nirma Industries Ltd. Vs. DCIT, (2006) 283 ITR 402. The learned SR-DR has however relied on the judgments of the Supreme Court in Pandian Chemicals Ltd. Vs. CIT, (2003) 262 ITR 278 and Liberty India Vs. CIT, (2009) 317 ITR 218. However, we find that the judgment of the Hon'ble Gujarat High Court cited above has been rendered after considering the judgment of the Supreme Court in Pandian Chemicals Ltd., (supra) as can be seen from para-5 at page no.410 of the report. Ultimately it was held that it would be an incorrect proposition to state that interest paid by the customers for late payment of the sale proceeds would not form part of the eligible income for the purpose of computing the relief under section 80I. The natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asis of the sales - income. He has not allowed the actual expenses as a deduction, on the ground that the actual expenses have been understated in order to inflate the profits from these units which are eligible for the deduction. The contention of the assessee before us is that the audit certificate filed in support of the claim for deduction contains the correct calculations and therefore should be the basis for allowing the claim. Our attention has been drawn to the order of the Tribunal in the assessee's own case in ITA No.2626/Ahd/1991 dated 24-9-1993 for the assessment year 1985-86. Reliance is also placed on the order of the Bangalore Bench of the Tribunal in Wipro GE Medical Systems Ltd. Vs. DCIT, (2003) 81 TTJ 455. On the other hand the learned SR-DR contended that the audit certificate cannot be preferred over the AO's working on the basis of the sales ratio. After giving careful consideration to the matter, we are of the view that the calculations based on the audit certificate filed by the assessee should form basis for computation of the deduction. The audit report is at pages 28 to 31 of the paper book from which we find that deduction of Rs. 1,75,456/- and Rs. 51,17,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsy is the same for the year under appeal and therefore respectfully following the aforesaod order of the Tribunal, we delete the addition of Rs. 46,28,894/-. We may add that section 145A was introduced only with effect from 1-4-1999 and therefore is not applicable for the year under appeal. The ground is allowed. 19. The eighth ground is directed against the disallowance of the foreign travel expenses of Rs. 92,250/- incurred in respect of Rakesh Suri, the sales agent. The reasons for the disallowance is mainly that in the agreement entered into with him for payment sales commission, there is no provision to the effect that his foreign trip expenses would be borne by the assessee. It is not in dispute that Rakesh Suri, who was the employee of M/s.Tulip International, was canvassing the assessee's products for export and through him the assessee was exporting goods to South American countries. It is also not disputed that the purpose of his visit was to understand the requirements of the South American buyers and brief them regarding the assessee's products. It is also not in dispute that during the relevant year, the assessee had exported goods worth US dollars 11,04,030. If al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lty recovered : Rs.98,206/- iv) Sales (Misc.) account : Rs.579/- v) Sales (scrap) account : Rs.45,76,690/- vi) Sales Tax refund received : Rs.95,266/- Total : Rs.48,04,407/- The action of the AO resulted in a lesser deduction being allowed under Section 80HHC. The contention of the assessee before the CIT(A) that as per the aforesaid Explanation only receipts in the form of brokerage, commission, interest, rent charges, or any other receipt of similar nature can be reduced to the extent of 90% from the profits of the business and the six receipts in question, which were not receipts of the nature of brokerage, commission, interest or rent charges the AO was not justified in deducting 90% of Rs. 48,04,407/- from the profits of the business. It was also pointed out before the CIT(A) that by order dated 11-3-2002 for the assessment year 1995-96 the CIT(A) has decided the issue in favour of the assessee. The CIT(A) accepted the assessee's submission and directed the AO not to reduce 90% of the miscellaneous income aggregating to Rs. 48,04,407/- from the profits of the business by invoking Explanation (baa). 23. The revenue is in appea....