TaxTMI 
TaxTMI 
2020 (5) TMI 401
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort 'the Act') by the Assistant Commissioner of Income Tax-Vapi Circle, Vapi (referred as the AO). These appeal were by the assessee as well as Revenue for the and Cross Objection by the assessee for assessment year 2002-03 and A.Y. 2003-04 and A.Y. 2000-01 involving common issues were head together and being disposed-of by this consolidated order for the sake of brevity and convenience. 2. I.T.A.No. 1671/Ahd/2006/ A.Y. 2002-03: By the assessee: 3. Ground No. 1 & 2: are general in nature; hence, does not require our adjudication. 4. Ground No. 3 states that the ld. CIT (A) has erred in confirming disallowance of Rs. 29,242 being staff welfare expenses. 5. We have heard the rival submissions and perused the relevant material on record. We find that the assessee has incurred this expenditure under staff welfare expense on account of purchase of washing machine for director and umbrellas given to selected staff. Hence, this expenditure is in the name of gifts, which cannot be allowed as business expenses. We further observe that the Tribunal also confirmed such disallowance in I.T.A.No. 2470/A/2004 for the assessment year 2001-02 in the case of the assessee. In view of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imed this receipt as non-compete fees of Rs. 14,55,41,760 as capital receipt and claimed it as exempt from tax. However, the AO, while going through the assessment records, noticed that during the assessment year 2000-01, the assessee has entered into a non-compete agreement with another party Hoechest AgroEnvo and has received Rs. 10 crores as a consideration for noncompeting into that particular line of business. Since the nature of transaction of this year is similar, the assessee was therefore asked to explain as to why this receipt should not be treated as a revenue instead of capital receipt and tax as business income under section 28 of the Income Tax Act, 1961. It was explained by the assessee that the assessee has entered into a non-compete covenant with the purchaser of technical know-how and by doing so, it had undertaken an obligation that it will not carry out any kind of research related to chloropyridine product for the period of 10 years and will not sell such technical know-how information and intellectual property of manufacturing to any third party. Thus, the assessee company lost its source of income as a result of noncompete agreement. The assessee company c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cal know-how, without the value of any capital asset, should be treated as a business receipt. The AO further observed that the assessee company has itself treated 20% of total receipt as a revenue receipt chargeable to tax as business income. If 20% of the total receipt is business income, which the assessee itself admits, then how 80% of the same total receipt can be treated as capital receipts? Total receipts comes from one single source i.e. from one single transaction (sale of technology/of know-how), then how two treatment can be given to it. Therefore, the assessee company was asked to give the basis of the allocation of total receipts as 20% revenue receipt and 80% capital receipt. However, the assessee company could not provide the basis of allocation and has made the allocation arbitrarily. The AO further observed that there is no transfer of any capital asset. Therefore, in the circumstances, it was held that the entire amount has been received as royalty against transfer of technical know-how along with the future profits of the assessee company. The AO further noted that it appears that the assessee company is a major competitor of the purchaser of the know-how. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on that the assessee must carry on the business during the previous year only then the profits and gains will be taxable under the head 'profits and gains of business'. The Ld. Counsel further argued that Section 28(va)(a) has been inserted by the Finance Act, 2002 w. e. f 1.4.2003 and reference is only to any sum whether received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business. Therefore, such sum is chargeable under section 28(va) with effect from 01.04.2003 i.e. A.Y. 2003-04 and not for the assessment year under appeal. The Ld. Counsel also contended that the main provision of Sec. 28 and Sec. 28(va) refers to carrying on of business and as the assessee has not carried out any business, therefore there is no question on the taxability of non-compete fees under the head profits and gains of business. On the contrary, it is a capital receipt and has been rightly returned under the head capital gains by the assessee in his return of income. The Ld. Counsel filed a Paper book relying upon the decision of ITAT in the case of Mrs. Hami Aspi Balsara (supra), ACIT v. Savita Mandhana in ITA No. 3900/Mum/2010, Dr. B.V.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld as follows: "Two questions arose for determination, namely, whether the amounts received by the appellant for loss of agency was in normal course of business and therefore whether they constituted revenue receipt? The second question which arose before this court was whether the amount received by the assessee (compensation) on the condition not to carry on a competitive business was in the nature of capital receipt? It was held that the compensation received by the assessee for loss of agency was a revenue receipt whereas compensation received for refraining from carrying on competitive business was a capital receipt. This dichotomy has not been appreciated by the High Court in its impugned judgement. The High Court has misinterpreted the judgement of this court in Gillanders Arbuthnot & Co. Ltd.'s case [(1964) 53 ITR 283 (SC)]. In the present case, the Department has not impugned the genuineness of the transaction. In the present case, we are of the view that the High Court has erred in interfering with the concurrent findings of fact recorded by the CIT(A) and the Tribunal. One more aspect needs to be highlighted. Payment received as non-competition fee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee and against the revenue. 15. In the light of judgement of Hon'ble Gujarat High Court a cited above in the case of the assessee, We find that the issue is now squarely covered in favour of the assessee by the judgement of Hon`ble Jurisdictional High Court of Gujarat in the assessee`s own case wherein after considering the decision of Hon`ble Supreme Court in the case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602 (SC)/ [2011] 198 Taxman 78 (SC) which held that non-compete fees received for from refraining from carrying on business was capital receipt and non-compete fees received prior to 01.04.2003 was not taxable under section 28(va) of the Act and CIT v. Sapthagiri Distilleries Ltd. [2015] 53 taxmann.com 218 (SC) it was held that compensation amount received towards loss of source of income and non-competition fees would only be treated as capital receipt and was not liable to tax, held in favour of the assessee. The learned counsel for the assessee further relied in the case of CIT v. Mrs. TARA SINHA [I.T.A.No. 154/2005 dated 11.08.2017 of Hon`ble Delhi High Court] wherein also following the decision of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602 (SC)/ [2011....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pete fees. Accordingly, this ground of appeal was dismissed. 19. Being, aggrieved the assessee filed this appeal before the Tribunal. 20. We have heard the rival submissions and perused the relevant material on record. Since, we have allowed the appeal of the assessee in respect of Ground No. 5 & 6 of non-compete fees. As capital receipt as per judgement of Hon`ble High Court. Therefore, the claim of deduction under section 80HHC becomes academic in nature and infructuous, hence, same is not being adjudicated hence, it is treated as dismissed. 21. Ground No. 8 states that the ld. CIT (A) has erred in upholding the action of the AO in not granting deduction under section 80HHC on the receipts on transfer of technical know-how treated as royalty to the tune of Rs. 8,50,70,440 and assessed as business income . The action of the Assessing Officer is contrary to the facts and law and deserve to be deleted. 22. The AO observed that the assessee has made an alternate claim that deduction under section 80HHC should be granted on the above income, if the non-compete fees is to be treated as revenue receipt. However, the AO observed that deduction under section 80HHC is allowable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00 and 2). Dow Agro Science Rs. 3,63,85,440 totaling to Rs. 8,50,70,440. The 80% of the amount received by the assessee company from the Dow Agro Science was considered as receipts for undertaking non-compete obligation not eligible to tax has been considered as business receipts arising from manufacturing pesticides and as royalty income. Certificate in Form No. 10HA has also been filed by the assessee company along with its return of income. The AO observed that conditions as per provisions of section 80-O and CBDT circular number 71 dated 20-12-1995 has been met with the above transaction. The assessee company did receive income from a foreign enterprise as royalty for sale of technological process developed by it. It received full consideration for it in convertible foreign exchange and such income was received in India within 6 months from the end of the previous year as per the certificate filed by the assessee company along with the return of income. However, the assessee company Form 10HA filed along with his return of income has filed for deduction under this section only for Rs. 08, 50, 70, 440/-. Therefore, deduction under section 80-O is allowed on the amount claimed by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ported his view by placing reliance in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 (SC) : 129 Taxman 539 (SC). 35. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). However, the ld. CIT (A) relying on the decision in the case of CIT Nagpur Engineering Co Ltd. [2000] 245 ITR 806 (Bombay) and Lalson Enterprise v. DCIT 89 ITD 25 (Delhi) directed the AO to exclude only net interest income of Rs. 44,15,400 as earned by the assessee after payment of interest and earning of interest. Thus, this ground of appeal was partly allowed. 36. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned Counsel for the assessee submitted that that CIT (A) has allowed netting of interest income of Rs. 44,15,400 for deduction under section 80HHC of the Act, which is supported by the decision of Shri Ram Honda 289 ITR 475 (Delhi). 37. The ld. D. R. relied on the order of the AO/CIT (A). 38. We have heard the rival submissions and perused the relevant material on record. We find that the issue under consideration is squarely covered by the decision of full bench of Hon`ble Rajas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of s.*) S. 80HHC. Reliance was placed on the judgments in K. Ravindranathan Nair (supra) Punit Commercial Ltd. (supra) and the judgments of the Kerala High Court in Abad Enterprises v. CIT [2002] 253 ITR 319/120 Taxman 503, CIT v. Jose Thomas [2002] 253 ITR 553/121 Taxman 210 (Ker.) and CIT v. Abad Fisheries [2002] 258 ITR 641/125 Taxman 616 (Ker.) as well as Urban Stanislaus Co. v. CIT [2003] 263 ITR 10/130 Taxman 244 (Ker.). 30. In Liberty India (supra), the Supreme Court, dealing with the deduction on Duty Entitlement Passbook Scheme (DEPB), held that there is a distinction between profit linked tax incentives and investment linked tax incentives. Sections 80-I, 80-IA and 80-IB have a common scheme. The incentives in the form of deductions are linked to profits and not to investment. DEPB is an incentive. Source of duty drawback receipt lies in s. 75 of the Customs Act and s. 37 of the Central Excise Act. The remission of duty is on account of the statutory/policy provisions of these Acts. The profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking". The trade discounts, rebate, duty drawback, and such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Avon Apparels [D.B. IT Appeal No. 41 of 1999, dated 11-7-2002], Shri Ram Honda Power Equip (supra), CIT v. Meea & Ceiko Pumps (P.) Ltd. [ITAT No. 298 of 2003, dated 27-11-2014], CIT v. Greatways (P.) Ltd. [2008] 171 Taxman 316 (Punj. & Har.), that where surplus funds 'are parked with the . bank and interest is earned thereon, it can be only categorized as income from other sources. This receipt merits separate treatment under s. 56 of the Act, which is outside the ring of profits and gains from business and profession. Such income which could only be earned under s. 56. goes entirely out of the reckoning for the purposes of s.80HHC. 33. We have considered the submissions at the Bar, and find that in Shri Ram Honda Power Equip. (supra), the question Nos. 1 and 3 were addressed and answered in favour of the Revenue. The discussion in this judgment, is close to the question raised, and has received careful consideration, with reference to the object and purpose of providing deductions under s. 80HHC, prior to amendment w.e.f. 1st April, 1992. The deductions under s. 80HHC was admissible in respect of business incomes, which did not have an element of turnover. The CBDT Ci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rates the entire procedure for computing the business income under s. 28 to 44 of the Act. De hor s. 80HHC of the Act. the consistent approach is that where the statutory provision talks of "income derived from" the business activity in question, the nexus theory should be applied in order to determine whether a particular item of income is business income or not. 38. In Punit Commercial Ltd. (supra), the assessee was a 100 per cent exporter. The AO had proceeded on the footing that the interest income was business income, and that it was not income from exports, and in these circumstances, the High Court held that since the entire business activity of the assessee is only of exports, the entire business income is deemed to be profit derived from export of goods. Both the judgments of the Kerala High Court in K. Ravindranathan Nair (supra), and Southern Cashew Exporters v. Dy. CIT [2003] 130 Taxman 203 (Ker.), were affirmed by the Supreme Court, confirming the findings of the Kerala High Court, that interest earned on fixed deposits for the purposes of availing of credit facilities from the bank does not have an immediate nexus with the export business, and therefore, has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and proximate nexus, with the income earned out of the profits retained for the export business. The earning of the income convertible from foreign exchange, is not a test for determining, as to whether deduction is allowable in respect of the income derived from the profits retained for export business. The question No. 3, is also decided in favour of the Revenue and against the assessee. 45. The reference is answered in the aforesaid terms." 39. In view of respectfully following the ratio laid down by the Hon`ble Rajasthan High Court in above decision, This grounds of appeal of the assessee is accordingly, dismissed. 40. Ground No. 11 states that the ld. CIT (A) has erred in confirming the action of the AO in not considering insurance claim received to the tune of Rs. 2,33,106 and miscellaneous income to the tune of Rs. 54,316 as income from business for the purpose of computing deduction under section 80HHC. The action of the AO is contrary to the facts and law. 41. The Ld.AO relying on the Hon`ble Supreme Court decision in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC) has disallowed the claim of insurance for the purpose of deduction under sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y legal and does not require further facts hence, same is allowed to be admitted for consideration on merit in the light of decision in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383(SC) wherein it was held that the additional ground of appeal can be admitted where the issue involved is pure question of law not involving any investigation of facts. 51. The AO observed that the assessee has claimed deduction on account of expert benefit of DEPB of Rs. 4,51,34,659 while calculating the deduction under section 80HHC of the Act. Therefore, the assessee was asked to show cause as to why the above amount should not be excluded while working out the profits eligible under section 80HHC of the Act. It was explained that DEPB represent Duty Entitlement Pass Book and as per government rule the assessee company can import certain goods free of custom duty to the extent of amounts shown in DEPB. It was contended that the exporter does not receive any income by virtue of DEPB hence, such item disclose duty entitlement should not be considered as other income. However, the AO was of the view that DEPB is not income derived for expert of goods nor is attributable to Indu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n favour of the assessee in a separate judgment in Topman Exports v. CIT [2012] 18 taxmann.com 120 (SC), and we have held that not the entire amount received by the assessee on sale of DEPB, but the sale value less the face value of the DEPB will represent profit on transfer of DEPB by the assessee. The first issue is, therefore, decided accordingly." Therefore, respectfully following same we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. Accordingly, this additional ground of appeal of the Revenue is therefore, dismissed. 56. Ground No.1 states that Ld. CIT (A) has erred in deleting foreign travelling expenses of Rs. 4,48,986 without appreciating the facts that the assessee has failed to substantiate the claim that it wholly and exclusively incurred for business purpose. 57. The assessee has debited a sum of Rs. 22,44,932 as foreign travel expenses. The AO has observed that though the assessee has given the names of person who have visited along with names of the place and number of days of stay. The assessee has submitted that it has export turnover of Rs. 80.90 crores and various executives are required to visit abroad to explore market con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....over and judicial decision relied by the assessee before CIT (A). The CIT (A) was justified in deleting the ad-hoc estimated disallowance. 61. We have heard the rival submissions and perused the relevant material on record. We find that the disallowance @1/5th of total foreign travel expenses have been made on presumption basis without bringing any material or evidence on record that these were not incurred for the purpose of business. The assessee has filed every details of foreign trips undertaken with name, place of visit and number of days. Therefore, relying on the decision of Co-ordinate Bench in the case of M/s. Vikshara Trading & Investment Ltd. [I.T.A.No. 5122/Ahd/1996 dated 30.03.1998) of Ahmedabad tribunal wherein it was held that whether the assessee was benefitted by foreign travel or not was subsequent event and was not relevant. Hence, foreign travel undertaken by directors for business purpose and there no justification for disallowing 50% on pure estimate. and also on the judgement of Hon'ble Gujarat High Court in case of Sayaji Iron & Engineering Co. v. CIT [2002] 253 ITR 749 [2002] 121 Taxman 43 (Guj), we are of the considered opinion the ld. CIT (A) was justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thout prejudice, the A.R. of the assessee submitted that expenses should be apportioned over a period of 3 years. Considering these facts, the AO disallowed 1/3rd of the expenses of Rs. 1,54,200, which worked out to Rs. 1,02,800. The expenditure of Rs. 40,000 incurred for reviewing the draft of technology purchase agreement receipt of which are treated as capital receipt. Hence, said expenditure was disallowed being capital expenditure. 70. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). Wherein it was contended that expenditure was incurred in connection with registration of trademark and itself cannot be treated as capital expenditure. The CIT (A) therefore, held that the assessee company has not incurred the expenditure for purchase of trademark. The expenses were incurred for registration of trademark and relatable expenditure. Hence, expenditure is allowable as deduction under section 37(1) of the Act. The disallowance made of 2/3rd of expenses was therefore, deleted. With regard to expenses of Rs. 40,400 incurred towards reviewing draft technology purchase agreement, the CIT (A) observed that the assessee has submitted that receipt of tech....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ear and paid before due date of filing of return of income is allowable as a deduction under section 43B of the Act. 76. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. submitted the payment of PF and ESIC has not been paid within due date prescribed under the respective statutes i.e. PF Act and ESIC Rules. Therefore, in the light of decision of Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj) : 223 Taxman 398 : [2014] 41 taxmann.com 100 (2014) (1) TML 502 -Guj-HC is not allowable as deduction under section 43B of the Act. 77. Per contra, the learned counsel for the assessee supported the order of Ld. CIT (A). 78. We have heard the rival submissions and perused the relevant material on record. We find that the issue is covered against the assessee by decision of Hon'ble Gujarat High Court in the case of CIT v. Gujarat State Road Transport Corporation [2014] 366 ITR 170 (Guj) : 223 Taxman 398 : [2014] 41 taxmann.com 100 (2014) (1) TML 502 -Guj-HC. Hence, the finding recorded by the Ld. CIT (A) are reversed. This grounds of appeal of Revenue is allow in favour of the Re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T [2003] 262 ITR 278 (SC) : 129 Taxman 539 (SC) has excluded the same from the computation of deduction under section 80HHC of the Act. Similarly, the AO observed that the exclusion of the amount of exchange rate difference for the purpose of deduction under section 80HHC the assessee has claimed that same as accounted separately as per Accounting Standard 11 as prescribed. Therefore, applying the ratio laid down in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC), the AO excluded the amount of exchange rate difference. The AO has also excluded sale of scrap of as it was realized for sale of raw material and packing material. 86. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). It was claimed that fluctuation in foreign exchange rates income is related to the realization of export proceeds and basically exchange rate fluctuation difference is nothing but a part of sales. The assessee has also placed reliance on various tribunal decision as referred by the CIT (A) in his order. After considering the facts and judicial findings, the CIT (A) observed that the exchange rate difference bears the character of income which is treated as derived from exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is covered in favour of the assessee by ITAT in I.T.A.No. 1672/Ahd/2007 (Page No. 53 to 55 ) Further the Tax appeal filed by the Revenue has been dismissed by the Hon'ble Gujarat High Court in Tax Appeal No. 658 of 2009 for A.Y. 2004-05. Further, scrap is generated during manufacturing process and same is covered by decision of Gujarat High Court in the case of Nirma Limited[2015] 55 taxmann.com 125 (Gujarat) and Harjivandas J. Javeri 258 ITR 758 (Gujarat) and is also covered by the ITAT in I.T.A.No. 1672/& 2245/Ahd/2007 for A.Y. 2004-05 in assessee`s own case. In the light of above findings, this ground of appeal is therefore dismissed. 90. Ground No. 7 is general in nature hence, does not require any adjudication. 91. In the result, the appeal of the Revenue is partly allowed. 92. CO No. 184/AHD/2006: A.Y. 2002-03: By the assessee: 93. Ground No.1: is general in nature; hence, does not require our adjudication. 94. Ground No. 2 states that Ld. CIT (A) has rightly deleted the addition made by the AO being foreign travelling expenses of Rs. 4,48,986 without appreciating the facts that the assessee has failed to substantiate the claim that it wholly and exclusively i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n income or loss and hence, it is nothing but a speculation profit and not related to business of the assessee. 105. We have heard the rival submissions and perused the relevant material on record. We find that we have allowed this ground in revenue appeal therefore, our finding thereon would apply accordingly, following the same this grounds of appeal of the assessee is therefore, dismissed. 106. In the result, Cross Objection filed by the assessee is dismissed. 107. I.T.A.No.1672/AHD/2006/A.Y.2003-04:By assessee: 108. Ground No. 1 & 2: are general in nature; hence, does not require our adjudication. 109. Ground No.3 states that Ld. CIT (A) has erred in confirming disallowance of sale promotion expenses of Rs. 2,62,627 which is contrary to the facts and law. 110. We have heard the rival submissions and perused the relevant material on record. We find that the AO observed that the assessee has debited sale promotion expenses of Rs. 2,26,078 which included expenditure on gift to foreign clients, organizer diary etc. claimed to have incurred to development relation with them. Accordingly, the AO disallowed 1/5th the same at Rs. 45,215. The CIT (A) also upheld the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts and law. 118. The AO has observed that the reply of the assessee is not convincing. It is hard to believe that the assessee company which is having a turnover of more than Rs. 40 crores and has undertaken small activity of trading of Rs. 4.6 crores and has incurred losses in the activity. This, further gets strengthened that must of sales are made to related parties. In view of above facts, it is held that losses incurred by the assessee company are not genuine hence, these loss are added to total income. 119. Being dissatisfied, the assessee preferred an appeal before the CIT (A). It was contended that the raw material which is not required for use were disposed-off as a matter of commercial expediency to its related parties. However, Ld. CIT (A) observed that the transaction is not in ordinary course of business and has also resulted in loss of Rs. 1,87,694. The Ld. AR of the appellant has not brought forth the circumstances leading to disposal at a price lower than its purchase cost. Accordingly, this ground was dismissed. 120. Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee submitted that purchase....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clude profit on sale of DEPB to the tune of Rs. 5,91,000 from the profit eligible business for deduction under section 80HHC. The action of the AO is contrary to the facts and law and deserve to be deleted. 128. The learned counsel for the assessee submitted that the issue under consideration is covered by the decision of Hon`ble Supreme Court in the case of Avani Export [2015] 58 taxmann.com 100 (SC) which held the amendment of Taxation law (Second Amendment) 2005 would not operate retrospectively. 129. We have heard the rival submissions and perused the relevant material on record. We find that the Hon`ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. CIT [2012] 343 ITR 89 (SC) the Hon`ble Supreme Court observed as "This is an appeal against the judgment and order dated 06.08.2010 of the Bombay High Court in ITA(L) No. 1276 of 2010 deciding two issues against the assessee. On the first issue, the High Court has held, relying on its judgment in CIT v. Kalpataru Colours & Chemicals [2010] 192 Taxman 435 (Bom.), that the entire amount received by an assessee on sale of the Duty Entitlement Pass Book (for short 'the DEPB') represents profit on transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had disallowance 20 % of such expenses at Rs. 42,358. However, the CIT (A) has deleted the same. We find that such type of disallowance deleted n A.Y. 2001-02 in I.T.A.No. 2470/A/2004 were confirmed by the tribunal, in the case of the assessee. In view of these facts, this ground of appeal is therefore, dismissed. 139. Ground No. 2 states that Ld. CIT (A) has erred in deleting disallowance of Rs. 27,771 made out of audit expenses without considering the facts that the assessee has failed to prove exigency of incurring such expenditure for business purpose. 140. The assessee has claimed the above expenses in-group in misc. expenses on account of expenditure incurred for entertainment of auditor of the assessee company. Therefore, the AO disallowed the same. However, CIT (A) deleted the same by holding that no concrete finding has been given by the AO. In view of this matter, we are of the considered opinion the CIT (A) was justified, in deleting the disallowance so made. Hence, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This grounds of appeal of revenue is therefore, dismissed. 141. Ground No. 3 states that Ld. CIT (A) has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l is dismissed. 149. Ground No. 7 states that the ld. CIT (A) has erred in deleting the disallowance made under section 40A(2)(b) of Rs. 5,912 without appreciating that payment made to related party for purchase of material was excessive as compared to other party. 150. We have heard the rival submissions and perused the relevant material on record. We find that the CIT (A) has deleted this ground by observing that the assessee has purchased the material for related parties at arm's length price and no excessive payment has been made and considering the business exigency. The AO has not brought on record any such facts. In view of this, we do not find any infirmity in the order of CIT (A), accordingly, it is upheld. This ground of appeal is dismissed. 151. Ground No.8 states that the ld. CIT (A) has erred in directing not to exclude the following amounts from the profits eligible for deduction under section 80HHC, though same have no direct or immediate nexus with export activity of the assessee a) Restricted exclusion interest income of Rs. 47,53,885 as against Rs. 92,15,954/- b) Exchange rate difference of Rs. 64,58,750/- c) Sale of scrap of Rs. 3,00,311/-. The CIT (A) h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eld that for the purpose of computation of deduction under section 80HHC of manufacture and exporter of steel utensils, proceeds generated from sale of scrap would not be included in total 'turnover'. These issues are also covered in favour of the assessee by the decision of Tribunal in the case of the assessee as mentioned by the learned counsel for the assessee in above para. Therefore, following same, this ground of appeal of Revenue is dismissed. 155. Ground No. 9 relates that Ld. CIT (A) erred in holding that excise duty and sales would not be included in the total turnover while calculating the deduction under section 80HHC of the Act without considering the facts that the issue in question is yet to be decided by the Highest Court of the Land. 156. The Ld. CIT (DR) relied on the AO. 157. On the other hand, the learned counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon`ble Supreme Court in the case of CIT vs. Laxmi Machine Works[2007] 290 ITR 667 (SC), and also by the decision of Tribunal in assessee`s case for A.Y. 2001-02 in I.T.A.No. 2453/Ahd/2004 [PB56-57] and for A.Y. 2004-05 I.T.A.No. 1672 & 2245/Ahd/20....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....A.No. 1074/ AHD/ 2007 by the assessee] and I.T.A.No.1074/AHD/2007 by the Department. The ITAT vide para 4.2 and 4.3 of its order has set-aside the issue of deduction under section 80-O to the file of CIT (A) by observing that though the CIT (A) has allowed deduction under section 80-O of the Act to the assessee by following CBDT Circular No. 731 dated 20.12.1995, but no finding given by the CIT (A) that even after sale of technical knowhow , there was restriction on the buyer debarring him from using such technical know-how in India. Under these facts, we feel that the order of Ld. CIT (A) is not sustainable on this issue. However, we feel that in the interest of justice, this matter should go back to the file of Ld. CIT (A) for deciding the issue afresh in order to enable the assessee to bring cogent evidence on record to establish that there are restriction on the buyer debarring him from using technical know-how in India at any point of time. If the assessee is able to do so the assessee might have a case for allowing deduction u/s. 80-O but the absence the assessee `s ability to establish this, that there was restriction on the buyer debarring him from using technical know-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dia at any point of time. Keeping in view the direction of the of Hon`ble Ahmedabad and submissions of the appellant as well as reliance on the assessment order, the CIT (A) held that the appellant has not been able to place on record any evidence which shows that there was any restriction on the buyers of technical know-how for using it in India at any point of time. Therefore, as per direction of the ITAT, the appellant is not eligible for deduction under section 80-O of the Act. 165. Being, dissatisfied the assessee has filed this appeal before the Tribunal. The learned counsel for the assessee referred the "Section 8.01-Termination" of the purchase agreement dated 12.09.2001(PB-38) with Syngenta Crop Protection AG, Switzerland by which the said purchase agreement can be terminated by Seller or Purchaser in the event of transaction is being prohibited by the government becomes final or by mutual written consent of both parties (PB-52) to contend that agreement can be terminated by mutual written consent of the parties. Learned Counsel further referred section 9.06- Assignment clause (PB-54) to contend that the buyer cannot assign this agreement and hence, only a right to use ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o what is the provisions of law. Therefore, we would like to answer the question in favour of the assessee and against the Revenue. Ordered accordingly. The appeal stands disposed off. 167. It was further submitted that there are no record available in Supreme Court if any SLP is pending in this regard. The learned counsel for the assessee also placed reliance on CBDT Circular No. 731 dated 20.12.1995 in which it was clarified that deduction under section 80-O would be available to reinsurance agent in India for the gross premium before remittance to his foreign principal.(PB-29). 168. Per contra, the learned D.R. relied on the order of lower authorities. He further submitted that the assessee has sold the technical know-how hence, deduction under section 80-O is not allowable. 169. We have heard the rival submissions and perused the relevant material on record. We find that the Chartered Accountant certificate in regard to the nature of receipt and claim of deduction under section 80-O on which the AO originally granted deduction under section 80-O vide order dated under section 143 (3) dated 21.03.2005 and CIT (A) has allowed the appeal. However, vide order dated 30.0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attention was drawn to the circular issued by the CBDT being Circular No.700 dated specifically referring to section 80-o of the Act. It is stated specifically as under: "The matter has been considered by the Board. It is clarified that as long as the technical and professional services are rendered from India and are received by a foreign Government or enterprise outside India, deduction under section 80-O would be available to the person rendering the services even if the foreign recipient of the services utilizes the benefit of such services in India". 6.Thus, it is not open for the Revenue to argue against the provision of law and the circular by which public at large is informed as to what is the provisions of law. Therefore, we would like to answer the question in favour of the assessee and against the Revenue. Ordered accordingly. The appeal stands disposed off. 171. We further note that similar findings were given by the Hon`ble Madras High Court in the case of CIT v. Chakiat Agencies Pvt. Ltd. [2009] 314 ITR 200 (Mad) wherein it was held that "14. The basic purpose of section 80-O is the spread by an Indian assessee of any patent, invention, m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....opening proceedings. (ii) It is therefore, prayed that the order of the CIT (A), may be setaside and that the order of the Assessing Officer may be restored. 176. Succinct facts are that the assessee is engaged in the business of manufacturing of intermediates like Chloral ICAC and other products. The assessee has filed return of income on 28.11.2000 declaring total income of Rs. 13,00,450 under normal provisions of Income Tax Act,1961 (of the Act) and book profit of Rs. 80,10,690 under section 115JB. The original assessment was completed under section 143 (3) on 28.11.2002 declaring total income of Rs. 11,95,88,016 in which additions were made by reworking of deduction under section 80HHC by reducing 90% of total other income including non-compete fees of Rs. 10,00,00,000 for the purpose of arriving at the figure of eligible profit of the business. The CIT (A) has passed order on 23.04.2003 against which the assessee as well as Department has filed appeal before Income Tax Appellate Tribunal (Tribunal). During the pendency of appeal before Tribunal, The assessment was reopened u/s.147 of the Act on the reason that the assessee has reduced 90% of non-compete fees while ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the CIT (A) was duty bound to adjudicate the issue of re-opening and accordingly, restored the issue to the file of the CIT (A). In view of these facts, the CIT (A) considered the appeal and decided the issue of re-opening of assessment. The CIT (A) observed that in the original assessment the AO treated that amount received on account of non-compete fees of Rs. 10 crores as revenue receipt by treating it benefit to the company out of carrying out of the business and the AO has also considered the same in the computation of income as well as calculation of deduction under section 80HHC and therefore, the view taken by the AO amounts to change of opinion because on the similar facts available on record the AO has arrived at different conclusion. The CIT (A) further observed that notice under section 148 of the Act cannot be issued on the issue which the Assessing Officer has already decided and subsequently also decided by the CIT (A) because the assessment order is merged with the order of CIT (A) against which appeal can be filed before Tribunal. The CIT (A) further observed that the Hon'ble Gujarat High Court in Appeal No. 800 of 2013 vide order dated 16.07.2016 in appellant`s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng on the decision of CIT (A) submitted that CIT (A) has rightly decided the issue in favour of the assessee. 180. Per contra, learned CIT(D.R.) relied on the AO. 181. We have heard the rival submissions and perused the relevant material on record. We find that the original assessment was made by the AO by treating the amount received on account of non-compete fees of Rs. 10 crores as revenue receipt being a benefit to the company out of carrying out of the business and the AO has also considered the same in the computation of income as well as calculation of deduction under section 80HHC and therefore, the view taken by the AO amounts to change of opinion, because on the similar set facts were already available on record. Thus, the AO has arrived at different conclusion as arrived at by the preceding AO. Further, the notice under section 148 of the Act cannot be issued on the issue, which the AO has already been decided, and the CIT (A) subsequently decided said issue. Therefore, said assessment order has been merged with the order of CIT (A). Our view, is further fortified by the decision of ACIT v Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291 ITR 500 (SC) and also fo....