TaxTMI 
TaxTMI 
2019 (3) TMI 1608
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee carried the matter before Ld. CIT(A), who vide order dt.19.06.2009 in (appeal No.PN/CIT(A)-III/Cir-10/101/06-07) granted partial relief to the assessee. Aggrieved by the order of Ld. CIT(A), Assessee and Revenue are now in appeal before us. 3. The grounds raised by the Assessee in ITA No.1055/PUN/2009 reads as under : "Being aggrieved by the order passed by the CIT(A) III PUNE, your appellant submits the following grounds of appeal for your sympathetic consideration. 1. PREMIUM ON LEASE HOLD LAND The learned CIT(A) further erred in confirming the action of the AO in disallowing Appellant's claim for deduction of amortised amount of premium in respect of leasehold land in the amount of Rs. 2,69,628/-. 2. REVENUE RECOGNITION On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the AO, to work out the excess provision for profit equalization in the light of the directions of the learned CIT(A) for A.Y. 2002-03. On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have accepted the contention of the Appellant that it had correctly app....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... On the facts and in the circumstances of the case and in law, the learned CIT(A) ought to have accepted the contention of the Appellant that the liability for STIP was a crystalised liability in the year under appeal and was allowable as such. Alternatively, without prejudice to the above, the learned CIT(A), could have directed AO to allow the deduction for the same in the year of payment. 8. DEPRECIATION ON KNOW HOW On the facts and in the circumstances of the case and in law the learned CIT(A) erred in disallowing depreciation on technical know how on the ground that the technical know how was not actually put to use on 31.03.2003 of Rs. 61,58,625/-. 9. CLUB EXPENSES The learned CIT(A) erred in confirming the action of AO in disallowing full amount of club expenses amounting to Rs. 1,34,210/- on the ground that it was a non-business expenditure rejecting the contention of the appellant that the said expenditure was incurred wholly and exclusively for the purposes of the business of the appellant and no enduring benefit accrued there from. 10. ADHOC DISALLOWANCES: On the facts and in the circumstances of the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the case and in law the learned CIT(A) further erred in confirming the action of the AO confirming levying interest under section 234D of the Act without appreciating the fact that said interest was not leviable for the year under appeal." 4. The grounds raised by the Revenue in ITA No.1056/PUN/2009 reads as under :- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 324.5 lacs on account of adjustments made to closing stock in accordance with the provisions of Sec.145A of the I.T. Act.? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the entire amount accrued to the assessee as per invoice raised is not taxable and there is no fault in following AS-7 ? 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in giving direction to AO to delete the disallowance of Rs. 200.26 lacs, claimed as liquidated damages, when as per Sec.251 of the I.T. Act, 1961 the Ld.CIT(A) is not empowered to issue any such direction to AO ? 4. Whether on the facts and in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Co-ordinate Bench of the Tribunal in the earlier assessment years and ground Nos.5 and 7 to 9 are new grounds which requires separate adjudication. Before us, Ld DR did not controvert the submissions made by Ld AR. In view of the aforesaid submissions of both the parties, we proceed to adjudicate the issue in the following paragraphs. 7. Ground No.1 is with respect to disallowance of premium in respect of leasehold land. AO on perusing the details of expenditure noticed that assessee had debited an amount of Rs. 2,69,628/- being amortization of premium paid on leasehold land. AO noted that similar expenditure claimed by the assessee in earlier years was disallowed by the AO and the action of AO was also upheld by Ld.CIT(A). He therefore, by following the reasoning of AO and CIT(A)'s decision of earlier years, disallowed the claim. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who dismissed the same being not pressed. Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. 8. Before us, at the outset, Ld. AR fairly conceded that identical issue arose is assessee's appeal before Tribunal in A.Ys. 2000-01 to 2002-03 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the authorities below on this aspect are upheld and assessee fails." Accordingly, ground No. 2 in the appeal of assessee is dismissed. 15. We thus find that the Co-ordinate Bench, relying on the decision of Hon'ble Apex Court in the case of Govind Sugar Mills Limited (supra) decided the issue against the assessee. Further, in view of the Ld. AR's submission that the issue in the year under consideration is similar to A.Y. 2000-01 and 2001-02 and since in those years the issue was decided against the assessee, we find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground is dismissed." 10. Before us, Ld AR has not pointed to as distinction in the facts of the case for the year under consideration and that of earlier years. We therefore following the same reasoning as given by the Co-ordinate Bench while deciding the issue in Assessee's own case in AY 2000-01 to 2002-03, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground is dismissed. 11. Ground No.2 is with respect to addition made to the contract income. AO noticed that assessee is a manufacturer of industrial boilers and heat tran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. Revenue is also aggrieved by order of CIT(A) to the extent of relief granted by him and has therefore raised ground No.2 in its appeal. Since the grounds raised by assessee and Revenue are interconnected, both are considered together. 12. Before us, Ld. AR submitted that identical issue arose before Tribunal in assessee's appeal for A.Y. 2002-03 and the issue was decided by the Co-ordinate Bench of the Tribunal in assessee's favour by following the Tribunal order in A.Ys.1997-98 to 2002-03. He placed on record the order of Tribunal for A.Ys. 2000-01 to 2002-03 and pointed to the relevant findings of the Tribunal. He submitted that since there are no change in the facts of the case for the year under consideration, therefore following the order of the Tribunal in Assessee's own case for earlier years, the issue be decided in favour of the assessee. Ld. DR did not controvert the submissions made by the Ld. AR but however supported the order of AO. 13. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to increasing the income to the exten....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment year 1997-98, the Tribunal vide its order dated 03.09.2014 (supra) in the assessee's own case has upheld the stand of the assessee by following the decision of the Pune Bench of the Tribunal on a similar issue in the case of Thermax Babcock & Wilcox Ltd. vs. DCIT vide ITA Nos.157 & 158/PN/1995 dated 11.05.2001 for assessment years 1990- 91 & 1991-92. The Tribunal in its order dated 03.09.2014 (supra) upheld the allowability of provision for profit equalization while noted that in the case of Thermax Babcock & Wilcox Ltd. (supra) which was a group company of the assessee, the Tribunal recognizing incomes on application of percentage of completion method in the case of long term contracts in the light of the AS-7 issued by the ICAI. In view of the decision of the Tribunal in the assessee's own case in the preceding assessment year, we do not deal with the issue any further except directing the Assessing Officer to implement the order of the Tribunal dated 03.09.2014 (supra) on this Ground too. As a consequence, whereas Ground of Appeal of the assessee is allowed that of the Revenue is dismissed." There has been no change in the facts and circumstances in the presen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity to pay arises. However, in the case under consideration, as stated by the appellant, the amount in question represents the commission remitted during the year to foreign parties on the sales that have taken place in earlier years. Since the commission is linked with the sales, the liability to pay commission has arisen in the respective years in which the sales have taken place and therefore, it cannot be allowed as deduction from the income of this year. The commission cannot be considered as deductible during this year on the ground that the same has been remitted during the year. Accordingly, this ground of appeal fails." Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. 16. Before us, Ld. AR reiterated the submissions made before AO and Ld.CIT(A) and further fairly submitted that identical issue arose in assessee's appeal in AY 2002-03 and the ground was decided against the Assessee by the Tribunal. He therefore submitted that the issue be decided accordingly. Ld.D.R. on the other hand, did not controvert the submissions of Ld AR and supported the order of lower authorities. 17. We have heard the rival submissions and perused the material on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee inter-alia submitted that the software expenses were not expected to give enduring benefit to the assessee and that software rarely last for long and therefore it considered the expenses to be of revenue nature. The submissions of the assessee were not found acceptable to the AO. AO was of the view that the benefit of acquiring software gives enduring benefit and it has to be treated as capital expenditure. He was of the view that w.e.f. 01.04.2003 through an amendment into the Income tax Rules, computer software has been clubbed with computers and both put together have been made eligible for depreciation at 60% which also shows that the expenditure is of capital in nature. He accordingly denied the claim of expenses as revenue expenditure but however granted depreciation @ 60% which comes to Rs. 2,07,053/- and accordingly made net disallowance of Rs. 4,00,263/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who upheld the order of AO, by holding as under : "9.3. After careful consideration, I am not inclined to accept the contention of the appellant. The nature of softwares purchased by the appellant shows that the appellant is goin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....years 1998-99 and 1999-2000 by the assessee, as well as, the Revenue. The Co-ordinate Bench dismissed this ground raised in the appeals of both the parties. 10.2 A perusal of the order of the Co-ordinate Bench in assessee's own case for assessment years 1998-99 and 1999-2000 shows that the Tribunal followed the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Raychem Rpg. Ltd. reported as 346 ITR 138 (Bom.) and rejected the ground raised by the assessee, as well as, the Revenue by observing as under :- 30. We have carefully considered the rival submissions. In our considered opinion, the issue regarding the nature of the expenditure incurred on account of acquisition of software is liable to be decided in terms of the ratio of the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Raychem Rpg. Ltd., 346 ITR 138 (Bom.). The Hon'ble Bombay High Court upheld the order of the Tribunal whereby the expenditure incurred on acquisition of software which did not form part of the profit making apparatus of the assessee was treated as a revenue expenditure. In the said context, it is to be noted that the CIT(A) has given a finding that expendi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d for similar reasons, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground No.5 is dismissed." 21. Before us, both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years. In earlier years, the Co-ordinate Bench of the Tribunal has decided the issue against the assessee. We therefore following the reasoning of the Co-ordinate Bench of the Tribunal in assessee's own case for AY 2002-03 and for similar reasons, find no reason to interfere with the order of Ld.CIT(A) and thus the assessee's ground No.4 is dismissed. 22. Ground No.5 of Assessee's appeal and Ground No.3 of Revenue's appeal is with respect to Liquidated Damages. 22.1. During the course of assessment proceedings AO noticed that Assessee had debited Rs. 200.26 lacs under the head "Liquidated damages". The Assessee was asked to justify it towards the allowability along with the evidences. Assessee inter-alia submitted that Assessee manufactures water treatment plants, pollution control equipments etc and these are manufactured as per the order and requirements of the customers. The contracts involves medium to long term con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny has also furnished before me the partywise details of liquidated damages of Rs. 200.26 lakhs. It has also filed sample copies of purchase orders of a few customers of the appellant company containing clause of Liquidated Damages according to which penalty at the prescribed rate is leviable in case of delay in supply of goods ordered. On perusal of these documents, in principle, I agree with the claim of the appellant company that the liquidated damages, arising out of the terms of the purchase orders, schedule, are allowable as business expenditure. The cases relied upon by the Assessing Officer while disallowing the liquidated damages of Rs. 200.26 lakhs have also been successfully distinguished by the appellant by explaining the difference in the facts of appellant's case from the facts of those cases. In this view of the matter, I direct the Assessing Officer to verify and allow the appellant's claim of liquidated damages out of Rs. 200.26 lakhs to the extent the amounts debited under this head are found supported by the clause of Liquidated Damages. Decided accordingly." Aggrieved by the order of CIT(A), Assessee and Revenue are now in appeal before us. 23. Befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision for liquidated damages and had only dealt with the case where the matter was to be referred to Arbitration. He further submitted that the facts in the case of CIT Vs. Seshasayee Industries Ltd.(242 ITR 691) are distinguishable and therefore not applicable to the present facts of the Assessee. He thereafter submitted that the expenditure has been incurred during the course of business and is for the purpose of business more so when CIT(A) has accepted the allowability of claim of liquidated damages as business expenditure. He further submitted that Hon'ble Apex Court in the case of SA Builders (288 ITR 1) has held that to the extent that the expenditure may not have been incurred under legal obligation but yet it is allowable as a business expenditure if it is incurred on grounds of commercial expediency. It has further held that "commercial expediency" is a term of wide import and has been held to include such expenditure as a prudent businessmen incurs for the purpose of business. He further submitted that no disallowance of liquidated damages were made in earlier years though the assessee was following similar methodology for accounting. Ld AR thereafter submitted that w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tality of the facts we are of the view that the expenditure is allowable. Thus, the ground of Assessee is allowed and that of Revenue is dismissed. 26. Ground No.6 is with respect to disallowance of higher depreciation. 26.1. On perusing the depreciation chart, AO noticed that assessee had claimed depreciation at higher rate of 80% depreciation on plant Nos.4 and 8 and 11 wherein it was manufacturing shell type boilers and absorption cooling devices. It was Assessee's contention that these items of plant and machinery were used in the manufacture of renewable energy devises and therefore it was eligible for higher rate of depreciation of 80%. The submissions of the Assessee were not found acceptable to AO. AO was of the view that due to the type of equipments that were manufactured by the assessee with the aforesaid machines, the aforesaid machines per se did not qualify for higher depreciation as those machineries could be used for manufacturing of other types of machinery as well and that it cannot be said that the machineries were used wholly and exclusively for manufacturing the energy saving machineries. He accordingly held that Assessee was only eligible for normal depr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discussion i.e., plants no.4 and 8, the appellant's arguments have been already noted. The Assessing Officer was certainly not justified in holding that entry 3(xii)(e) applies only to solar heating system. There is nothing in this entry enabling such a conclusion. In the absence of any prefix such as 'solar' any renewal energy device being in the nature of an air / gas / fluid heating system will be covered by this entry. However, the crucial questions is if the products manufactured by the appellant are renewal energy devices as distinguished from energy saving devices which are covered by entry no.3(iii). During the course of the appeal proceedings, the appellant was asked to obtain and furnish certificate from experts to the effect that the multitherms, shellmax, fluidpacs and bi-drum boilers are in the nature of renewal energy devices. The appellant was also asked to submit copies of brochures, pamphlets as may be available with regard to the specifications and functioning of these products. The details / evidences thus called for have not been furnished. In the circumstances, I have to hold that the appellant has not been able to substantiate that these products are in the na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e issue in the present case is with respect to allowing higher rate of depreciation on certain machineries. We find that identical issue of disallowance of high depreciation arose in assessee's own case in A.Yrs. 2000-01 and 2001-02. The coordinate Bench of the Tribunal while deciding the appeal in ITA Nos. 1247 & 1248/PN/2005 decided the issue partly in favour of assessee by holding as under: "11. The fifth ground in appeal of the assessee is with respect to claim of 100% depreciation on plant and machinery. The Revenue has also impugned the findings of the Commissioner of Income Tax (Appeals) on this issue as ground No.2 in its appeal. 11.1 The assessee had claimed 100% depreciation on its plant and machinery in Plant No.3, Plant No.4, Plant No.8, Plant No.10 and Plant No.11. In the first appeal, the Commissioner of Income Tax (Appeals) accepted the contentions of the assessee in respect of all the plants except Plant No.11. The assessee has come in second appeal with respect to the claim of depreciation @ 100% in respect of item of Plant No.11. Whereas, the Revenue in its appeal has assailed the findings of the Commissioner of Income Ta the Commissioner of Inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evenue is dismissed." 27. Before us, since both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years, we therefore following the decision of the coordinate Bench of the Tribunal in assessee's own case of earlier years and for similar reasons hold that assessee is eligible to claim depreciation @ 100% with respect to plant and machinery used in the manufacture of air / gas / fluid systems but is not eligible for 100% depreciation in respect of plant and machinery used in the manufacture of heat pumps. Thus the ground of assessee is partly allowed." 29. Before us, since both the parties have admitted that the facts of the case in the present ground are identical to that of earlier years, we therefore following the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for A.Y 2002-03 and for similar reasons hold that assessee is eligible to claim depreciation @ 80% with respect to plant and machinery used Plant Nos.4 and 8 in the manufacture of air / gas / fluid systems but is not eligible for 100% depreciation in respect of plant and machinery used in the manufacture of heat pumps. Thus, the g....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... pay the incentive only on 28.05.2003, the date when the scheme recommended by the Vice President (HR) was approved by the Board of Directors of the company. Since the provision has been made on the basis of the new scheme, appellant's argument based upon the fact that in the immediately preceding financial year, the company did have a scheme for payment of incentives to its employees, does not appear to have any force. After all, the provision has not been made on the basis of the old scheme. 13.4 So far as appellant's reliance on judicial pronouncements is concerned, a cursory appraisal of the facts of the cases relied upon by the appellant reveals that these cases are based on facts which are distinguishable from the facts of the present case. In the case of United Motors (I) Ltd., 181 ITR 347, a provision was made pursuant to the notice of termination of awards given by the trade union. Therefore, on the facts of the case, the Hon'ble Court held that an impending liability arose, pursuant to the termination. No such situation is found in the case of the appellant. Similarly, the provision made on a reasonable basis for payment to be made to the workers was held as allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccrued liability into a conditional one. He further submitted that if the amount is held to be not allowable then in such a situation the assessee be granted the relief of the amount that has been offered to tax. He therefore submitted that AO and wrongly held the liability to have not arisen during the year and therefore the order of AO which has been upheld by CIT(A) be set aside. 33. Ld DR on the other hand took us through the observations of AO and submitted that after considering the material on record AO had come to the conclusion that the Assessee became liable to pay the incentive only on 28.05.2003, being the date when the scheme was approved by the Board of Directors of the Company. In such a situation the AO had rightly disallowed the expenses. He thus supported the order of lower authorities. 34. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to allowability of provision made for short term incentive plan to the employees. It is Assessee's submission that it has been consistently paying performance based incentives in the past and which has been allowed. However, during the year, the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing commencement of commercial production on 26.02.2003 is evidence by the fact that as per the agreement, the third instalment was payable to Air Pol within 45 days of the commencement of production and the remittance of the same has been made on 29.04.2003, does not appear to have much strength. The third instalment was payable within 45 days and not after 45 days of the commencement of production. The consideration of the fact of payment on 29.04.2003 in the light of the agreement with Air Pol shows that the production has commenced on any date between 15.03.2003 to 29.04.2003. Similarly, the payment of royalty to the collaborator also does not conclusively prove that the production commence before 31.03.2003 or for that matter, the technical knowhow was put to use during the year. In this view of the matter, I hold that the Assessing Officer is justified in disallowing assessee's claim of depreciation in respect of the technical knowhow. The disallowance is confirmed." Aggrieved by the order of CIT(A), Assessee is now before us. 36. Before us, Ld AR reiterated the submissions made before AO and CIT(A) and further submitted that the Agreement with Air Pol for the kno....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any benefit out of membership of the director in such club. In the present case, as observed by the Assessing Officer, no such evidence has been produced by the assessee. Even at the appellate stage, the appellant has made no effort to show if any benefit has been derived by the company out of club membership of its executives. Therefore, in the light of the judicial pronouncements mentioned supra, the action of the Assessing Officer in disallowing the amount of Rs. 1,34,21 0/- as non-business expenditure is upheld and the disallowance is confirmed." Aggrieved by the order of CIT(A), Assessee is now before us. 39. Before us, Ld AR reiterated the submissions made before lower authorities and further submitted that providing club membership to employees is a normal trade practice. He further submitted that it is not necessary that each and every business expenditure should result in benefit to business and what is important is that the expenditure must have been incurred by the assessee wholly and exclusively for the purposes of business which fact cannot be denied. He further relying on the decision of Hon'ble Apex Court in the case of United Glass Manufacturing CO Ltd ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aforesaid expenses were not fully verifiable, he disallowed 5% of total expenses of Rs. 51,55,605/-resulting into disallowance of Rs. 2,57,780/-. Similarly with respect to vehicle expenses, AO disallowed Rs. 725168/- (being 5% of the vehicle expenses as being not incurred for the purpose of business. With respect to foreign travel expenses he noted that out of the expense of Rs. 3,11,62,875/-, Rs. 16,30,830/- was towards miscellaneous expenses which was disallowed by him on account of failure on the part of the Assessee to produce the full details. Out of the residential telephone expenses, he disallowed 5% of the expenses (Rs. 3,73,617/-) for the reason that personal element of expense could not be ruled out. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), Assessee is now before us. 42. Before us, Ld AR reiterated the submissions made before lower authorities and further submitted that identical issue arose in Assessee's own case in A.Y 2002-03 before the tribunal and the issue was decided in Assessee's favour. He placed on record the order of tribunal for A.Y 2002-03 and pointed to the releva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resaid facts, we are of the view that no disallowance of expenses on adhoc basis is called for in the present case and thus the ground of the assessee is allowed." 44. Before us, no distinguishing feature in the facts of the case under consideration and that of earlier years has been pointed out by the revenue. Before us, the submission of Ld AR that in subsequent years CIT(A) has deleted the adhoc deletions made by AO has not been controverted by Revenue. In such circumstances and following the reasoning as given while deciding the Assessee's appeal for AY 2002-03 and for similar reasons, hold that no disallowance of expenses on adhoc basis is called for in the present case. We therefore direct its deletion. Thus the ground of Assessee is allowed. 45. Ground No.11 is with respect to deduction u/s 80HHC of the Act. 45.1. During the course of assessment proceedings, AO noticed that assessee had claimed deduction of Rs. 5,56,43,000/- u/s 80HHC of the Act. On perusing the details of deduction, he noticed that assessee had not included excise duty (Rs. 24,97,57,000/-) and sales tax collected (Rs. 14,77,41,675/-) as forming part of total turnover. AO was of the view that the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rni Machine Works, 290 ITR 667.Therefore, I see no justification in the action of the Assessing Officer in adding sales tax and excise duty in the total turnover while calculating deduction u/s. 80HHC. This part of the ground of appeal is allowed. 19.3.2 I also do not find the action of the Assessing Officer in adopting the figure of trading exports as per accounts Rs. 2,68,83,000/- instead of the figure of export turnover Rs. 1,11,49,759/- as per report in form no. 10CCAC, to be in accordance with the provisions of law. As per Explanation (b) to section 80HHC 'export turnover' means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of subsection (2) of any goods or merchandise to which section 80HHC applies and which are exported out of India. In the present case, the appellant has taken the figure of export turnover as per statutory mandate while calculating deduction u/s 80HHC. It is not the case of the Assessing Officer that the sale proceeds brought into India. by the assessee are more than Rs. 1,11,49,759/-. Therefore, the Assessing Officer is not justified in adopting the figur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contract Rs. 6,32,606/- iv) Other income from investment Rs. 1,06,23,000/- v) Lease rent and notional lease rent Rs. 2,82,52,673/- vi) Miscellaneous income Rs. 8,61,30,020/- vii) Trading profits as per form 10CCAC Rs. 10,42,000/- 20.1.1 During the course of assessment proceedings, the Assessing Officer found that the assessee has received claims and refunds of Rs. 38,19,594/- balances written off now recovered Rs. 22.72 lakhs, premium on forward contract Rs. 6,32,505/-, other income from investments Rs. 106.23 lakhs, lease rent Rs. 1,29,31,371/- and also lease rent and notional lease rent added to the total income of the assessee at Rs. 1,53,21,302/-. The Assessing Officer observed that these amounts have not been excluded by the assessee from the profits of business and profession for the purpose of deduction u/s. 80HHC. He was of the view that the receipts from claims and refunds is not the operational income of the assessee as the same specifically pertains to the claims which might have been made by the assessee on certain pretext and refunds which may have been received by the assessee from the Government agencies. He observed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,31,371/- and notional lease rent of Rs. 1,53,21,302/- which has been added to tile income of the assessee. He was of the view that it is not the business of the assessee to earn from leasing activities of the assets. The assessee is in the business of manufacturing and sale of steam boilers heat exchangers etc. and therefore, these receipts from these rentals cannot be treated to be operational income at all. Accordingly, he excluded the total amount of Rs. 2,82,52,673/- (1,29,31,371 + 1,53,21,302) from the profits of the business of the assessee for the purpose of computation of deduction u/s 80HHC. 20.1.5 The Assessing Officer also found that the assessee in total has received Rs. 10,68,69,368/- as miscellaneous income which is on account ofcredit balances appropriated, DEPB, excess provision written back of material and expenses, rent received, warehousing charges, cash discounts, miscellaneous income and short provisions written off. From the details of these receipts he observed that except the receipts from DEPB and cash discounts, others do not form part of the operational income of the assessee. Accordingly, the miscellaneous receipts of Rs. 10,68,69,368/-* as red....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Therefore, these items are considered on merits as follows: 20.3.1 The claims and refunds being amounts received from government agencies, are in the nature of charges, and therefore, their recoveries also cannot qualify as operational income Similarly, premium on forward contract, other income from investment, miscellaneous income cannot partake the character of operational income in the light of the decision in the case of Bangalore Clothing Company. However, balances written off now recovered have been held to be a part of the total turnover in para 19.3.4 and therefore, the same shall form the operational income of the company. The trading profits of Rs. 10,42,000/- also stand on the same footing. 20.3.2 Coming to the lease rent and notional lease rent, the action of the Assessing Officer in excluding the same from profits of the business for the purpose of deduction u/s 80HHC has to be confirmed. The income earned by way of lease of various goods is neither related to the manufacturing nor export activity of the assessee and therefore, does not qualify as its operational income. However, the amount to be excluded under this head has to be res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the order of my predecessor against the appellant in appellant's own case in AY. 2003-04. Respectfully following the same, I dismiss this ground of appeal. 24. Ground of appeal No.16(f) is against the action of the Assessing Officer in reducing from the eligible total exports turnover Rs. 8,76,93,013/- for which proceeds were not received within stipulated time. 24.1 Before me, the appellant submitted that amount of Rs. 8,76,93,013/- has been excluded from the export turnover allegedly for non-receipt of the sale proceeds in the hands of the appellant company. The Assessing Officer has excluded the said amount on the plea that the sale proceeds were not received within 12 months from export shipment. In fact the appellant has received the export proceeds within the period of 12 months and which is the period allowed in accordance with the provisions of sub-section (2)(a) of section 80HHC. 24.2. It is seen from the assessment order that this issue has . elaborately been dealt with by the Assessing Officer who after verification of the details submitted by the assessee in this regard has given a categorical finding that the entire sale proceeds of Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and the Apex Court in various decisions and we proceed deduction u/s 80HHC of the Act has been adjudicated by the Hon'ble to adjudicate the issues raised by making reference to the said decisions relied upon by the Ld.A.R. for the assessee and Ld.D.R. for the Revenue. 48. First we take up the ground of appeal No.11(a) and (b) raised by the assessee in this regard. i.e., determination of total turnover. 48.1. The assessee is aggrieved by the inclusion of sale of scrap, balances written back and exchange difference as part of "total turnover". The Revenue is also in appeal against the order of Ld. CIT(A). Vide ground No 7, Revenue is aggrieved by the directions of CIT(A) for adoption of Rs. 1.11 crores (rounded off) as per Form 10CCAC and not the figure of Rs. 2.68 crore (rounded off) on account of trading turnover in the total turnover. 49. The plea of the assessee is that the scrap is generated during the course of manufacturing. The aforesaid contention of the assessee is not controverted by the Revenue. In such a situation, we find that the ratio of the decision of Hon'ble Apex Court in the case of CIT Vs. Punjab Steel Industries India reported in 364 ITR 144 would be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cannot be excluded under Explanation (baa) to Sec.80HHC of the Act. (iii) Premium on forward contracts, other income from investments, lease rent, trading profit and miscellaneous income : Before us, Ld AR fairly submitted that the aforesaid items would stand excluded under Explanation (baa) to s. 80HHC and therefore it is to be decided against the Assessee. In view of the aforesaid submission of the Ld AR, we find no reason to interfere with the order of AO to exclude the aforesaid items for calculation of eligible profits. Thus this ground is decided against the Assessee. With respect to ground 11(c) on account of exclusion of exchange difference of Rs. 14883/-, Ld AR submitted that due to smallness of the amount, the Assessee does not wish to press the issue. Thus, the same is dismissed. With respect to second part of ground 11(c) the assessee is aggrieved by the non-exclusion of business losses. In this regard, it was pointed out that profits if any of the representatives of the assessee ought to be excluded u/s 80HHC of the Act, so consequently the losses have to be excluded under Explanation baa (2) of Sec.80HHC of the Act and consequently the profits....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r statistical purposes. 54. Ground No 11(g) is with respect to reducing the claim of u/s deduction u/s 80HHC by the amount of deduction allowed u/s 80IB. 54.1. Before us, Ld AR submitted that AO had applied the provisions of Sec.80IA(9) and deducted the amount of profit eligible for deduction u/s 80IA from the profits eligible for computing deduction u/s 80HHC. Ld AR fairly admitted that the method adopted by the AO has been upheld by the Hon'ble Delhi High Court in the case of Great Eastern Exports (332 ITR 14) wherein it had approved the decision of the Special Bench of ITAT in the case of Hindustan Mint and Agro Products P Ltd 315 ITR (AT) 401 and therefore the ground of the Assessee will have to be dismissed. In view of the aforesaid submissions of Ld AR, the ground of assessee is dismissed. (iv) Miscellaneous income : The next item is Miscellaneous Income, wherein the assessee claimed the said income at Rs. 4.39 crore to be part of export turnover. The Ld. CIT(A) allowed the claim of the assessee to the extent of Rs. 2.29 crores referring the Ld. CIT(A) vide para 24.3 discussed the issue and we find merit in his observations and upheld the order o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... him, has the implied meaning that it refers to closing stock only as because what is available to the assessee as on the date of valuation is the closing stock only and nothing else. I find that the Assessing Officer has misdirected himself in forming his view by relying on such notes on clause to Finance (No.2) Bill 1998 that, in their original' form, never saw the light of the day as the bill was passed after making amendments to it so much so that even the original caption "computation of value of inventory" was changed to "Method of accounting in certain cases." After making a plane reading of section 145A, I am inclined to accept the appellant's contention that the clause (a) of section 145A clearly refers to purchases, sales and inventory and does not in any manner restrict to closing stock only as interpreted by the Assessing Officer. In fact, while reading the provision, we cannot close our eyes to read only part of the provisions in inferring that the provisions of section 145A apply to the valuation of closing stock only. Further, while forming the above mentioned view that provisions of section 145A apply to the closing stock only, the Assessing Officer has reli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stock in terms to Sec.145A of the Act. We find that CIT(A) after considering the decision of Mumbai tribunal in the case of Gandhar Oil Refinery decided the issue in favour of the Assessee. Before us, Revenue has not pointed out any fallacy in the findings of CIT(A). We therefore find no reason to interfere with the order of CIT(A) and thus, the ground No.1 of Revenue is dismissed. 61. Ground No.2 is with respect to the action of CIT(A) in holding that the entire amount raised in the invoice does not accrue. 61.1. Before us both the parties submitted that the present ground is inter-connected to ground No.2 of assessee's appeal. 62. We have heard the rival submissions and perused the material on record. Before us both the parties submitted that the present ground is inter-connected to ground No.2 of assessee's appeal. We have hereinabove have decided the ground No.2 in Assessee's appeal 5 in assessee's favour. In view of the reasons cited therein while deciding the ground No.2 of assessee, the ground No.2 of Revenue is dismissed. 63. Ground No.3 is with respect to the action of CIT(A) in directing deletion of addition of Rs. 200.26 lacs. 63.1. Before us both the part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the other hand reiterated the submissions made before lower authorities and further submitted that in the year under appeal there was no subsisting lease agreements. He further submitted that in earlier year, the order of CIT(A) deleting the addition made by the AO has been upheld by the Tribunal. He thus supported the order of CIT(A). 68. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to addition made on account of lease rentals. Before us it is submitted that in no fallacy has been pointed out by the revenue in the order of CIT(A). earlier year the addition has been deleted by the tribunal. Before us, We therefore find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. 69. Ground No 5 is with respect to deletion of addition on account of medical expenses. During the course of assessment proceedings AO noticed that Assessee has made additional provision of Rs. 7,54,000 for the medical expenses. The AO was of the view that the provision was without quantification and the amount did not crystalised. He accordingly disallowed Rs. 7,54,000 and made its addition....