TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 1842
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....d. CIT(A), who vide order dt.30- 11-2005 in (appeal No.PN/CIT(A)-III/Cir-8/39/05-06) granted partial relief to the assessee. Aggrieved by the order of Ld. CIT(A), Assessee and Revenue are both in appeal before us. 3. The grounds raised by the Assessee in ITA No.259/PUN/2006 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. EXPENDITURE IN RELATION TO DIVIDEND ETC. The learned CIT(A) erred in confirming the action of the AO of notionally attributing expenditure to dividend and interest-free income rejecting the contention of the Appellant that no such expenditure was, in fact, incurred for earning such income and accordingly none was so attributable. The learned CIT(A) also erred in observing that the appellant had failed to furnish the relevant information in this connection. In any event, the estimate made by the learned CIT(A) @ 2.5% of such income is excessive and unrealistic. 2. LOSS FUNDING OF SUBSIDIARY On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the action of the AO of rejecting th....
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....action of the AO of rejecting the contention of the Appellant that it was entitled to claim depreciation @ 100% in respect of certain items of plant and machinery which were so entitled in accordance with Appendix to Income-tax Rules, 1962 and instead allowing depreciation @ 25%. Without prejudice to the above the learned CIT(A) erred in wrongly concluding that machinery used in the manufacture of renewable energy devices referred to in entry 3(xiii)(r) of the Appendix has itself to be in the nature of renewable energy devices and in consequently observing that the appellant had failed to adduce evidence in support of such eligibility. The learned CIT(A) failed to notice that the claim in respect of renewable energy devices and plant and machinery used in the manufacture there of was allowed in the earlier years. The claim of the appellant be directed to be allowed. 7. PRIOR YEAR EXPENSES: On the facts and in the circumstances of the case and in law the learned CIT(A) erred in remitting back to the AO to decide afresh the issue of allowability of Prior Year's expenses Rs. 92.37 lacs on the basis of certain restrictive criteria indicated by him instead of allowing th....
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....g reducing the profits of the business by Rs. 72.71 lacs by not allowing deduction with reference to the proportionate export incentive (DEPB ). f) Confirming the action of the AO in reducing the profits of the business by the amount of unabsorbed losses and depreciation u/s 72A and in also observing that the appellant had not pursued this ground in appeal proceedings. 11. On the facts and in the circumstances of the case and in law and without giving the appellant an opportunity of being heard in the matter the learned CIT(A) erred in directing the AO to determined and bring to tax certain portion of Exchange Difference under the head 'Income from Other Sources' when in fact the whole of it was assessable under Business Income. 12. INTEREST U/s 234D On the facts and in the circumstances of 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. Your appellant reserves the right to add to amend or delete the above grounds of appeal." 4. The Revenue in ITA No.276/PUN/2006 has ra....
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.... to manage such huge investment some expenses would have been incurred. In the absence of any details submitted by assessee, AO estimated an expenditure of Rs. 25 lakhs to have been incurred for earning the exempt income and accordingly disallowed Rs. 25 lakhs u/s.14A of the Act. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A) who decided the issue by observing as under : "6.2. I have carefully considered the appellant's submissions. During the course of the appeal proceedings, the appellant was called upon to furnish details as regards the immediate sources from out of which investments in shares and tax-free bonds had been made. It was also asked to establish that such investments had been made from out of free-funds. The above information was called for as the appellant was found to have made substantial borrowals as would be evidenced by its claim of deduction towards interest which was of the order of Rs. 303.72 lakhs. Therefore, the possibility that the impugned investments would have been met, whether fully or partly, from out of interest- bearing borrowed funds could not be routinely ruled out. However, the required details have not been fu....
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....os.1247 & 1248/PUN/2005 order dated 30-06-2015) and the issue was decided against the assessee by holding as under : "12. The sixth ground raised by the assessee in its appeal is with respect to the amount of expenditure attributable to dividend and taxfree interest. We find that identical ground was raised by assessee in appeal for assessment year 1998-99 before the Tribunal. The Tribunal dismissed the contentions of the assessee with following observations :- "45. In this context, the relevant facts are that the Assessing Officer estimated 5% of gross dividend and other tax-free incomes as an expenditure incurred for earning of such income and disallowed the same. The CIT(A) following the decision of her predecessor restricted the disallowance to 2.5% of the gross income. Not being satisfied with the order of the CIT(A), assessee is in appeal before us. 46. On this aspect, the Ld. Representative for the assessee conceded that the disallowance as confirmed by the CIT(A) has been a subject matter of consideration by the Tribunal in assessment year 1997-98 and the same stands confirmed vide order dated 03.09.2014 (supra). In view of the aforesaid precedent, the action of th....
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....nt to its subsidiary by way of funding the latter's loss cannot be allowed as a deduction either u/s.37(1) or u/s.28 merely because of the relationship between the two, and without there being anything to show that the payment had been necessitated by commercial expediency. The presence of any such commercial expediency has not even been highlighted, let alone proved. I would, therefore, hold that the stand taken in this matter by the Assessing Officer will have to be confirmed. The same is confirmed accordingly. Before concluding on this issue it may be pertinent to mention that as in the case of retention money, even in respect of loss-funding of the subsidiary, the appellant cannot be said to have had any grievance arising from the stand taken by the Assessing Officer since the latter merely proceeded on the basis of the treatment given to this issue by the appellant itself in its Return of Income and did not make any deviation therefrom. Therefore, strictly speaking, the appeal in this matter does not pass even the maintainability test. For these reasons, the ground raised by the appellant is hereby dismissed." Aggrieved by the order of Ld.CIT(A) assessee is now in appeal....
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....ted the claim by following, among other things, the decision of the Hon'ble Supreme Court in the case of Commissioner of Income- tax Vs. Govind Sugar Mills Ltd. 232 ITR 319. It was also observed by him that identical disallowances made for some of the earlier assessment years had been confirmed by the Commissioners of Income-tax (Appeals). "8.1 In the grounds of appeal it has been argued that the Assessing Officer erred in disallowing the above claim. During the course of the appeal proceedings, however, the appellant fairly conceded that this ground is covered against it by the decision of the Hon'ble Apex Court in the case of Gobind Sugar Mills Ltd., 232 ITR 319. In view of the submission thus made, the disallowance of Rs. 2,41,534/- is hereby confirmed." Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. 13. Before us, at the outset, Ld. AR fairly conceded that identical issue arose is assesse's appeal before Tribunal in A.Ys. 2000-01 and 2001-02 and the issue was decided against the assessee. He pointed to the relevant findings of the Tribunal. He therefore submitted that the issue be decided accordingly. Ld. DR did not controvert the submis....
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....nd the contract normally runs over a period of more than one year. The assessee was accounting for income on such projects by following the "Projection Completion method" and was raising invoices as per the scheduled payments agreed with the clients but at the same time had created provision towards "Contribution Equalization Provision" to adjust excess billing. During the year, the provision of contribution equalization debited to the Profit and Loss account was Rs. 9,15,29,000/-. AO noticed that the excess amount realized as per the invoices was not offered as revenue receipts and to that extent profit was not offered as income. AO was of the view that since the invoices was raised as per the agreed schedule; the invoice value should be treated as revenue receipts. He further noticed that identical issue arose in A.Y. 1997-98 and addition was made by AO in A.Y. 1997-98. AO therefore held that the deduction of Rs. 9,15,29,000/- cannot be allowed. He accordingly disallowed the same. Aggrieved by the order of AO, assessee carried the matter before CIT(A), who upheld the order of AO, by holding as under : "20.2 I have carefully considered the appellant's submissions. During th....
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..... 95.34 lakhs as reduced by closing stock of Rs. 27.61 lakh), the actual profits worked out to Rs. 32.88 lakhs. However, as the project had been completed upto the year end only to the extent 14% of the total project, the appellant reversed the entire profit of Rs. 32.88 lakhs by taking the same to the equalisation provision. 20.2.2 The moot question is if the appellant was justified in recognizing profit as per the above method. This presupposes a further question if Accounting Standard 7 was applicable to the projects taken up by the appellant. As already noted, both these questions have been already answered in the appellate orders in the appellant's own case for some of the earlier assessment years as well as in the cases of its sister concerns affirmatively. Even in the appellate order for the assessment year 1997-98 in the appellant's case, while confirming the stand taken by the Assessing Officer in principle, the Commissioner of Income-tax (Appeals) had all the same held that only the income which had actually accrued to the appellant could be assessed to tax and not the amounts billed by it. Coming to the orders in the cases of the sister concerns, the issue was....
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....ctee being satisfied that works reflected in the bills have been actually completed, the income embedded in the bill amounts would become chargeable to tax as per section 4. Such income can by no means be put on hold or postponed by adopting y pothetical bench-marks. As already mentioned, in the appellate order in the case of M/s. Thermax Surface Coatings Ltd. for the assessment year 1998-99, the Commissioner of Income-tax (Appeals)-III, Pune, had given an identical finding. I am in agreement with the finding thus given. I am in agreement with the further finding given in the said order that there is no justification for further scaling down (i.e. as shown in the table in para 20.2) towards contingencies / unforeseeable losses when given the time-frame in which the contracts are executed, no unforeseeable losses can be expected. The learned Authorised Representative has submitted that the facts in the appellant's case are similar to the facts in the context in which the Commissioner of Income-tax (Appeals) had given the above finding in the case of M/s. Thermax Surface Coatings Limited (Assessment Year 1997-98). 20.2.4 In view of the above, during the course of the appeal pr....
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....y Ld CIT(A) and has therefore raised ground No.2 in its appeal. Since the grounds raised by assessee and Revenue are interconnected, both are considered together. 17. Before us, Ld. AR submitted that identical issue arose before Tribunal in assessee's appeal for A.Ys. 2000-01 and 2001-02 and the issue was decided by the coordinate Bench of the Tribunal in assessee's favour by following the Tribunal order in A.Yrs. 1997-98, 1998-99 and 1999-2000. He placed on record the order of Tribunal for A.Y. 2000-01 and 2001-02 and pointed to the relevant findings of the Tribunal. He submitted that since there are no changes in the facts of the case for the year under consideration and therefore following the order of the Tribunal, 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. 18. 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 extent of provision for profit equalization. We find that identical issue of increase in the contract income arose in assessee's own case in A.Y. 2000-01 and 2001-....
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....thod 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 present year, nor there is any change in the accounting treatment given by the assessee. We do not find any reason to deviate from the view taken by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000. Accordingly, this ground in the appeal of the assessee is accepted and the ground raised by the Revenue in its appeal is dismissed." 19. 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 and since in earlier years, the issue has been decided by Co-ordinate Bench of the Tribunal in assessee's favour, we therefore following the decision of the coordinate Bench of the Tribunal....
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.... the manufacturing operation much as a plant is used, it cannot be seen as different from a plant. In short, the issue has to be decided by posing the question if the software is a part of and aids the profitmaking apparatus or the profit-making process. If it is the former, it will be capital in nature. If it is the latter, it will be revenue in nature. As can be seen from the assessment order, the appellant had not submitted before the Assessing Officer complete details in respect of the software acquired during the year and the manner in which these were put to use. Even before this forum, only the skeletal break-up for the software expenditures have been furnished. Their actual use has not been clarified. Even the invoices or bills have not been produced. No clarification has also been given regarding the deferred revenue expenditure included in the claim. In the circumstances, it is not possible to give any finding, on the basis of the very limited details submitted by the appellant, as to whether the software expenses incurred by the appellant could be regarded as capital or revenue, and to what extent. It is necessary that the Assessing Officer calls for and examines all the....
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....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 expenditure of Rs. 22,16,107/- was incurred on acquisition of software connected with the manufacturing operations of the assessee. Such softwares have been identified as Autocad, project management software, designing software, etc.. The assessee is in the business of manufacturing of boilers and heat transfer equipment and therefore the aforesaid softwares form part of its profits making apparatus and thus it is liable to be considered as capital expenditure in view of the judgement of the Hon'ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). Therefore, assessee's grievance against the decision of the CIT(A) 10 ITA Nos.1247 & 1248/PN/2005 ITA Nos.1290 & 1291/PN/2005 ITA ....
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....ee carried the matter before Ld CIT(A), who decided the issue by holding as under : "19.2.1 First coming to plant No.11, i.e., absorption cooling division, which manufactures heat pumps, the stand taken by the Assessing Officer will have to be confirmed. Entry No.3(iii)(C)(c) specifically deals with heat pumps. It provides for depreciation on heat pumps at the rate of 100%. This entry will not apply to the appellant as the appellant does not own / use the heat pumps. Instead, it manufactures them. This entry also does not cover to plants and machineries manufacturing heat pumps. Hence plant No.11 would fall outside the purview of entry No.3(iii)(C)( c). It is the appellant's argument that heat pumps would come under entry 3(xii)(e), i.e., air/gas/fluid heating systems. Nothing has been adduced to establish that the heat pumps manufactured by the Appellant are in the nature of such heating systems. Further, even while it has been submitted that a heat pump is also an renewal energy device, no evidences have been adduced in this regard apart from stating that it is a waste heat recovery equipment. If the heat pump is a waste heat recovery equipment the same will come under ent....
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....he 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 Income Tax (Appeals) in respect of all the plants except Plant No.11. 11.2 Similar claims were made by the assessee in respect of Plant No. 11 and the Revenue in respect of other plants (excluding Plant No. 11). The issue was decided by the Tribunal in assessee's own case for assessment years 1998-99 and 1999-2000 as under :- "35. Now, we may first take-up assessee's claim for depreciation 100% with respect to the plant & machinery used in the manufacture of air/gas/fluid heating systems. In this context, it is clear noted that having regard to the entry 3(xiii)(r) read with 3(xiii)(e) of the Depreciation Table annexed to the Rules, plant & machinery used for the manufacture of air/gas/fluid heating systems is eligible for depreciation @ 100%. The plea of the Assessing Officer that other items in Entry in 3(xiii) contain a reference to 'solar' and therefore item (e) of Entry 3(xiii) should also be read to be referring to solar air/gas/fluid heating systems, in our view, is not justified. The Ass....
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....ing vouchers. AO was of the view that since assessee was following mercantile system of accounting, it should have booked the expenses in the respective years. He was therefore of the view that the expenses pertaining to prior years aggregating to Rs. 92.37 lakhs are not allowable and accordingly disallowed the same. Aggrieved by the order of AO, assessee carried the matter before Ld CIT(A), who decided the issue by holding as under : "16.2 During the course of the appeal proceedings, the appellant was asked to submit details in respect of the expenses in question. The appellant was also required to substantiate that the liability in respect of the expenses actually got crystallised during the relevant previous year itself. In response, the appellant filed a prior period income / expenditure statement along with narrations in respect of the entries appearing in this statement. The appellant also filed copies of invoices, bills, credit notes, inter-office memos etc. in support of some of these entries. In the above statement, the total prior period expenses were shown as consisting of Rs. 8,93,281/- towards 'materials' and Rs. 83,44,235/- towards 'others'. 16.3....
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....99/-; commission on sales - franchise: Rs. 2,11,365/-; drawings and designings : Rs. 6,41,695/- etc. These are not exhaustive. In these circumstances, it is appropriate that this issue goes back to the Assessing Officer who shall examine the evidences in respect of each and every prior period expenses and to the extent that the expenses are found to have got crystallised during this year itself in view of late receipt of bills, invoices, statements, credit notes etc. or late-booking of expenses due to factors beyond the control of the appellant etc., he shall allow the same as deduction. The appellant's claim in respect of the balance expenses, i.e., expenses which are not proved as crystalled during the relevant previous year, or, expenses in respect of which no evidences are furnished, shall be disallowed. As the issue is thus being remitted to the Assessing Officer with specific directions, the observations made earlier on regarding the prima facie admissible and inadmissible expenses should be seen as mere observations and not as decisions." Aggrieved by the order of Ld.CIT(A) assessee is now in appeal before us. Revenue is also aggrieved to the extent of relief granted b....
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....e has also not placed the details of expenses. Before us, Revenue has also not placed any material to point out any fallacy in the findings of Ld.CIT(A). In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground No.7 of the assessee is dismissed and likewise the ground of Revenue is also dismissed. 31. Ground No.8 is with respect to loss of amount on embezzlement. During the course of assessment, AO noticed that assessee had debited a sum of Rs. 78,44,316/- under the Head of Miscellaneous Expenditure on account of loss by embezzlement at its Regional Head Office at Mumbai. The assessee was asked to give the details of such loss and justify the claim as expenditure. AO after considering the submissions of the assessee noticed that the loss for the year was only Rs. 4,04,327/- and loss of Rs. 74,39,673/- pertains to earlier period. He was of the view that the loss pertaining to earlier years should be adjusted against the income of the respective year. He accordingly disallowed the loss of Rs. 74,39,673/-. Aggrieved by the order of AO, assessee carried the matter before Ld CIT(A), who decided the issue by holding as under : "10.3 I ....
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....ppellant's claim is admissible in principle, it however appears, on the basis of the details and facts which are available and which have been filed, that the. entire claim of Rs. 78 lakhs is not deductible. By the appellant's own submission, the quantum of the fraud amount as per the confirmations received from the bankers is Rs. 93,86,463/-. This is less than the gross claim of loss of Rs. 1,03, 12,693/-. Further, the above confirmed amount of Rs. 93,86,463/- includes a sum of Rs. 3,82,523/- with the narration "details of other deposits in Memon Cooperative Bank, Jogeshwari Branch". It is not self- evident that these deposits had emanated from the appellant's account. It also includes a sum of Rs. 8,63,687/- with the narration "cheques drawn from Bank of Baroda during April, 1997 to October, 1998". The statement in respect of the above amount does not contain any details regarding the cheques. Therefore, it can not be merely presumed that such cheques had been prepared and drawn from the appellant's account fraudulently. There is another reason as to why the amount of loss claimed by the appellant can not be routinely taken as correct. In the statement showing the....
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....bmitted that in principle the AO and Ld.CIT(A) have both held that the loss is allowable. AO allowed only loss relatable to the year under assessment. Ld.CIT(A) had allowed the loss since it was discovered during the year except for some items for want of details / narration etc. He further submitted that the entire loss have been written off in the accounts as reflected in the police complaint filed by the assessee on 04.04.2002 (the copy of which is placed at page 92 of the Paper Book) and therefore the entire loss should be allowed. Ld. D.R. on the other hand supported the order of AO and submitted that in the absence of any details, the entire loss cannot be allowed. 33. We have heard the rival submissions and perused the material on record. We find that Ld.CIT(A) while restoring the issue to determine the loss has noted that several amounts shown in the loss were not supported by any cheque numbers or any details. He thereafter remitted the issue to AO to verify the facts and allow the loss. We find that to the extent assessee furnished the required details, the loss was allowed by AO. It is also a fact that the Assessee has filed police compliant. It is an undisputed fact t....
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....al telephone expenses). Aggrieved by the order of AO, assessee carried the matter before Ld CIT(A), who decided the issue by holding as under : "11. The next ground relates to the disallowance of a sum of Rs. 50,000/- from out of the appellant's claim of deduction towards public relation expenses which was of the order of Rs. 9,84,462/-. The Assessing Officer noticed from the details filed before him that these were in the nature of sales promotion expenses which also included small gifts, lunch with guests, etc. It was held by him that in the absence of supporting evidences to establish that the above expenses had been exclusively incurred for the purpose of business, a certain disallowance was called for. He estimated such disallowance at Rs. 50,000/-. 11.1 The appellant has argued that the Assessing Officer ought not to have made the above disallowance in an adhoc manner. During the course of the appeal proceedings, a copy of the relevant account was filed in respect of each division. Most of the expenses are seen to be in the nature of canteen expenses incurred on giving canteen coupons to the customers; lunch to customers, guests etc.; conference expenses; and other gues....
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.... Examples are the BCCI membership fees of Rs. 22,000/-, 'listing fees' of Rs.l,40,250/- which have not been clarified, and, membership fees and subscription' of Rs. 6,44,205/- (vide entry dated 31.1.2002) in respect of which no specific details have been furnished. In the light of the above analyses of the relevant accounts, I would hold that the Assessing Officer would have been justified in making some disallowance only in respect of the membership and subscription expenses. At the rate of 5% estimated by the Assessing Officer himself, the disallowance with reference to the membership and subscription expenses would work out to Rs. 1,15,446/- This is rounded off to Rs. 1,15,000/-; and, accordingly, out of the disallowance of Rs. 2,30,456/- made by the Assessing Officer, disallowance to the extent of Rs:1,15,000/- is hereby confirmed. The balance disallowance is deleted. 13.1 During the course of the appeal proceedings, the appellant filed copies of the vehicle expenses account running into several pages. The appellant also filed specimen copies of forms No.16 to show that perquisite value of use of motor cars had been duly included in the taxable salary of the c....
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....e appellant's claim towards telephone expenses. As already mentioned, the AO made such disallowance with reference to the charges incurred on the residential telephones only. It was held by him that since the appellant could not produce any bills, vouchers or other documentary evidences in support of the claim, the plea that the expenses had been incurred wholly and exclusively for the purpose of business was not amenable to verification, and, moreover, personal use could not be ruled out altogether. 14.1 During the course of the appeal proceedings, the appellant filed copies of the relevant account. The appellant also filed a couple of cash payment vouchers showing recoveries made towards personal calls. I have perused the above. No doubt the account shows residential telephone charges in several instances. The Assessing Officer himself has quantified the total expenses on residential telephones at Rs. 79,47,667/-, the correctness of which has not been disputed by the appellant. Needless to say, use of residential telephones for personal purposes as well can be safely assumed. It is only the extent of use which is a matter of degree. As for the appellant's plea that it had made....
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....f any contrary binding decision in favour of Revenue, we relying on the aforesaid decision of Hon'ble High Court of Gujarat in the case of Sayaji Iron & Engg. Co. (supra), hold that no disallowance of vehicle expenses on account of being personal in nature is called for in the present case. As far as the disallowance of other expenses on adhoc basis is concerned, we find that AO has not pointed out any expenses which are not for the purpose of business. Further it is not in dispute that the assessee's books of accounts are regularly maintained, audited and no discrepancies have been pointed out by the Auditor or the Revenue. The disallowance has been made on adhoc basis. Before us, assessee has submitted that no such adhoc disallowance has been made in subsequent years in scrutiny proceedings and this fact has not been controverted by Revenue. Considering the totality of the aforesaid 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. 37. Ground No.10 is with respect to deduction u/s 80HHC of the Act. During the course of assessment proceedings, AO noticed that assessee had ....
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....ecision in the McDowell & Co. case in the context of the Sales Tax Act, a separate enactment altogether, the interpretation of turnover given therein could not be applied to interpret the expression "total turnover" used under the Income-tax Act, 1961. Accordingly, the Hon'ble Calcutta High Court rejected Revenue's appeal for inclusion of sales tax and excise duty in "total turnover" for the purpose of computing deduction u/s.80HHC. Respectfully following the above decision of the Hon'ble Calcutta High Court as well as the decision of the jurisdictional High Court, the Assessing Officer is directed to recompute the deduction admissible to the appellant u/s.80HHC after excluding the excise duty and sales tax collections from "total turnover". 23.3 As for trading exports, inclusion thereof in 'total turnover' can not be questioned in principle. However, all the facts relating to this issue have not been mentioned in the assessment order. I find from the annexure to the report in Form No.10 CCAC that the appellant had shown "trading exports" at Nil and "others" at Rs. 3,68,76,755/-. No categorical finding has been given by the Assessing Officer to the effect tha....
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....as under. (i) Claims and refunds The Assessing Officer has considered gross claims and refunds amounting to Rs. 1,32,37,677/- under clause (baa). This is not correct because the appellant had already considered insurance claims and refunds of Rs.l6,55,318/- under this clause. Coming to the balance claims and refunds, amounting to Rs. 1,15,82,359/- the same, being recovery of excise duty, customs duty and sales tax, are patently not includible in total turnover much as the collections earlier made were not so includible. For the same reason, these recoveries can not also form part of operational income. On the contrary, these are charges received back, hence in the nature of "charges". I would, therefore, hold that the Assessing Officer was justified in excluding 90% of the claims and refunds from the "profits of the business" under clause (baa) of the Explanation to section 80HHC. Accordingly, the stand taken by the Assessing Officer is confirmed. However, this confirmation applies only to an amount of Rs. 1,15,82,359/-, i.e., the net claims and refunds. (ii) Balances written off now recovered. To the extent the balances recovered pertained to debts which in turn relate....
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.... the same preceded the implementation of the orders which were never acted upon. Therefore, the receipts of Rs. 2,50,00,000/- cannot be considered as part of the appellant's operational income. On the contrary, the same will have to be treated as being in the nature of compensatory charges liable for consideration under clause (baa). Hence the action of the Assessing Officer in excluding 90% of the above receipts under clause (baa) is confirmed. (v) Exchange Difference To the extent the exchange differences had been realised in respect of sales, the same would also partake the nature of sales, and, for the same reason, would form part of 'total turnover'. Consequently, exchange differences to such extent cannot be treated as receipt within the meaning of clause (baa). However, to the extent the exchange differences did not relate to sales nor could be considered as 'Income from Other Sources' (such as accretion to a deposit made from out of surplus fund on account of exchange rate fluctuations) the same would qualify to be considered I excluded from 'profits' under clause (baa). As the relevant details have not been made available, the Assessing Of....
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.... the miscellaneous and other receipts of Rs. 1,60,55,992/- (Rs. 1,02,90,430/- + Rs. 57,65,562/-) under clause (baa) is hereby confirmed. 24.3.1 The Assessing Officer shall recompute the amounts to be excluded (i.e. 90%) under clause (baa) as well as the 'total turnover' in the light of the decisions given hereinabove. 25. The next ground relates to rejection of the computation made by the appellant of the net profit of business u/s.80HHC by adding to the profit a sum of Rs. 3,45,90,526/- representing the loss incurred by the foreign representative offices. The Assessing Officer rejected such computation on the ground that "this loss is not related to the export activity and therefore not liable to be added in the profit worked out for deduction u/s.80HHC". 25.1 The appellant has argued against the above action of the Assessing Officer. During the course of the appeal proceedings, the appellant explained the various activities undertaken by the representative offices abroad and the circumstances under which losses had been incurred in such offices. It was also submitted that a similar claim had been allowed, by the Commissioner of Income-tax (Appeals), for an earlier assess....
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....the extent of relief granted by Ld.CIT(A) and has raised ground Nos. 5 and 6. Since the grounds raised by assessee and Revenue are inter-connected, both are considered together. 38. The assessee by way of ground of appeal No.10 has raised various issues in respect of the items to be considered in total turnover and the items to be considered in export turnover. While applying the deduction u/s 80HHC of the Act, the AO had excluded certain items and included certain items against which the Ld. CIT(A) has given relief in respect of certain items and upheld the other items. Both the assessee and the Revenue are in appeal against the respective portions of the order of the Ld. CIT(A). Both the Authorised Representatives have made extensive arguments in support of their respective claims. However, the issue of various aspects of claim of deduction u/s 80HHC of the Act has been adjudicated by the Hon'ble High Court and the Apex Court in various decisions and we proceed 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. 39. First we take up the ground of appeal No.10(a) and (b) raised by th....
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....tten off now recovered : The assessee pointed out that it was part of operational income recovered. Since the expenses when booked were allowed as expenditure, hence, the same is to be considered at cost of export turnover. We find merit in the plea of the assessee in this regard. However once the same is excluded as part of turnover, hence, the same cannot be excluded under Explanation (baa) to Sec.80HHC of the Act. (iii) Settlement of claim of order cancelled totaling to Rs. 2.50 crores : The Explanation (baa) under Sec.80HHC defines the profit of business to mean the profits as computed under the head profits and gains of business to as reduced by 90% of the same referred to in clauses (iii)(a) to (iii)(e) of Sec.28 of the Act beyond any receipts by way of brokerage, claim, interest, rent, charges or any other receipt of similar nature included in such profits. The receipts on account of settlement of claim of order cancellation is in the nature of operational income and cannot be excluded under Explanation (baa) to Sec.80HHC of the Act. (iv) Miscellaneous income : The next item is Miscellaneous Income, wherein the assessee claimed the said income at Rs. 4.39 cror....
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.... Ld. CIT(A) relied on para Nos.73 and 74 of the order and has considered the plea of the assessee and in the absence of details of deductions, has directed the AO to call for the details and examine the same and decide the issue as per his direction and decide the same. We find no merit in the ground of appeal No.11 raised by the assessee in this regard, where the issue has been set aside to the AO for verification. Thus, this ground is dismissed. 48. Now coming to ground of appeal No.5 raised by the Revenue, which is also against the order of Ld. CIT(A) in directing the AO to consider the following items of income u/s 80HHC of the Act. (a) bad debts written off recovered and (b) doubtful debts written off recovered. The said issue has been decided against the Revenue by the ratio laid down by the Hon'ble Bombay High Court 245 ITR 769 (Bom). Applying the said principle, we direct the AO to allow the claim of the assessee in accordance with the law. AO thus has directed to recompute the deductions available during the assessment u/s 80HHC of the Act after applying the directions of the Tribunal on various aspects of the said deduction i.e., the computation of total turnover and ex....
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....t years 2000-01 & 2001-02. It would, therefore, be of use of briefly discuss these orders. 9.2.1 For the assessment year 2000-01, the appellant had not accounted lease rentals from 8 lessees including M/s.Arvind Mills Ltd., M/s.Parasrampuria Industries Ltd. and M/s.Parasrampuria International Ltd. The Assessing Officer brought to tax the income not so accounted for in respect of four parties (excluding M/s. Arvind Mills Ltd.). This is how an addition of Rs. 57,75,268/- had been made. The appellant had argued that it had not recognised the income in accordance with "prudence" which was one of the prescribed policies as per the mandatory Accounting Standard-I recognised u/s.145. The Assessing Officer, however, held that the only course open to the appellant was to offer the income to tax and claim it as bad debt in the event of the debt becoming bad. Before the first appellate authority, the appellant submitted that even though it was following the mercantile method of accounting, generally and even as regards lease rentals, where, however, existed any significant uncertainty about ultimate collection, revenue was being recognised only as and when received. In the cases of the con....
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....anarasidas & Co. Pvt. Ltd. 9.2.2 For the assessment year 2001-02, the appellant had not shown lease rentals amounting to Rs. 1,53,21,302/- from 5 parties which were the same as the parties figuring in the present appeal. The Assessing Officer brought the above amount to tax. As for lease rentals from M/s. Parasrampuria Industries Ltd. and M/s. Parasrampuria International Ltd., the Commissioner of Income-tax (Appeals) followed the decision given by her in the appellate order for the assessment year 2000-01 and deleted the addition. As regards the leases (3 in number) with M/s. Arvind Mills Ltd., it was submitted before the Commissioner of Income-tax (Appeals) that the lessee came out with a debt restructuring plan in March, 2001, with three options. Vide its letter dated 28.3.2001 addressed to the lessee, the appellant communicated its acceptance of participation in this debt restructuring plan and informed that it was opting for scheme B, being one of the three options proposed by the lessee. As per this option, the appellant was entitled to get only 45% of the principal amounts due as on 3l.3.2000 and was to forego the balance. The appellant was also obliged to transfer the lea....
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.... submitted that the issue for the year under consideration being identical to that of earlier years the matter be restored back as earlier years. Ld.A.R. on the other hand supported the order of Ld.CIT(A). 54. We have heard rival submissions and perused the material on record. We find that identical issue of accrual of lease rental income arose in assessee's own case for A.Y. 2000-01 and A.Y. 2001-02 and the issue was set aside to the file of Ld.CIT(A) by the Co-ordinate Bench of the Tribunal by observing as under : "9. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The only issue before us for adjudication is, whether the lease rental income not received by the assessee is liable to be taxed in the assessment year 2000-01 or the same should be excluded from total income of the assessee on the basis of real income theory. The ld. AR of the assessee has contended that the lease rental income which have not been received are not liable to be taxed in assessment year 2000- 01 as the income has not accrued to the assessee. Undisputedly, the assessee is following mercantile system of accounting. It is a....
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.... in earlier year had set aside the issue to the file of Ld.CIT(A). It is also a fact that both the parties have admitted that the issue in the year under consideration is identical to that of earlier years. We therefore following the same reasoning as given by the coordinate Bench of Tribunal while deciding the issue in A.Y.s 2000- 01 and 2001-02 and for similar reasons, restore the issue to the file of Ld.CIT(A). Needless to state that the Ld.CIT(A) shall grant reasonable opportunity of hearing to both the parties. Thus this ground of Revenue is allowed for statistical purpose. 55. Second ground is with respect of accrual of income. Before us it was submitted that the present ground is interconnected to the ground No 4 of Assessee's appeal. Ground No 4 of Assessee's appeal was decided herein above by us in para no 16 to 19 wherein the ground of Assessee was allowed and ground of Revenue was dismissed. In view of the aforesaid reasons, the grounds of Revenue is dismissed. 56. Third ground is with respect to prior period expenses. Before us it was submitted that the present ground is interconnected to the ground No 7 of Assessee's appeal. Ground No 7 of Assessee's appeal was dec....