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2020 (5) TMI 401

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....r 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 these facts, this ground of appeal is dismissed. 6. G....

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....s 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 cannot use and share technical know-how to others and if the a....

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....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. The agreement is much more than an agreement of transfer of know-how. The as....

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....he 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. Raju (supra), Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78 (SC) an....

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....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 under a negative covenant was always treated as a capital receipt till the assessment year 2003-04. It is only vide Finance A....

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.... 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] 198 Taxman 78 (SC) and Rohitasava Chand v. CIT 306 ITR 242 (Delhi) the issue was allowed in favour of the assessee. Since the facts of the present....

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....e 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 only in respect of export out of India of any goods or merchandise to which this section applies. The assessee company has not received this income from exporting ....

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....or 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 the assessee company in Form 10HA. 29. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). The CIT (A) observed the AO has not granted deduction under section 80....

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...., 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 Rajasthan High Court in the case of Reliance Trading Corporation v. ITO [2015] 376 ITR 53 (Raj.) wherein it was held as under: "26. Mr. R.B. Mathur, learned counsel appearing for the IT Department, has referred to....

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.... 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 similar items are deducted in determining the costs of purchase. The duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. They should be treated as separate items of revenue or in....

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....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 Circular No. 564, dt. 5th July, 1990 [(1990) 85 CTR (St) 53],was issued to clear the doubts that cl. (baa) of the Explanation to s. 80HHC of the Act, was introduced w.e.f. 1st April, 1992. The rationale for this change was explained in CBDTs Circular No. 621, dt. 19th Dec, 1991 [(1....

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....her 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 to necessarily be treated as income from other sources and not as business income. 39. It is the settled proposition in interpretation of the statutes, that while ascertaining the true scope of a provision in a statute, attention must necessarily be paid not only to the text, but also the context. In Reserve B....

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....enue 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 section 80HHC of the Act. 42. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). It was contended that insurance claim received is directly derived from the business. It was pleaded that insurance claim is against some business loss, hence, such receipts increases the manufacturing profit. However, CIT (A) observed that the claim of the appellant that it incre....

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.... 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 Industrial undertaking, hence, not required to be included while computing deduction under section 80HHC of the Act. The AO also supported his view by placing reliance in the case of CIT v. Sterling Foods 237 ITR 579 (SC) and same was excluded from working of profit eligible for deduction under section 80HHC of the Act. 52. Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). Howeve....

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.... 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 condition and new market. However, The AO observed that the assessee could not justify the purpose of visit and give proper explanation. Hence, the AO disallowed 1/5th of expenditure which worked out to Rs. 4,48,986. 58. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). It was contended that the appellant is a leading manufacture of nonsynthetic pyrethorid products and undertakes exports as we....

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....se 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 justified in deleting the 1/5th estimated disallowance of foreign travelling expenses. Accordingly, this grounds of appeal of Revenue is therefore, dismissed. 62. Ground No. 2 states the ld. CIT (A) has erred in deleting addition of Rs. 23,226 on account of petrol and diesel expenses without appreciating facts. 63. The AO noticed that the assessee has debited Rs. 3,66,130 under the head Oil and Petrol expenses. The assessee c....

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....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 technology transfer was treated as revenue income by the AO. Further, if it is treated as royalty even than the expenditure is wholly and exclusively incurred for the purpose of business. In view of this matter, the CIT (A) has allowed the appeal on this count. 71. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. supported the order of the AO whereas the learned counsel for the assessee supported the order of Ld. CI....

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....poration [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 Revenue. 79. Ground No. 5 states that the ld. CIT (A) has erred in deleting the disallowance of Rs. 1,250 made out of telephone expenses, without considering the fact the assessee himself disallowed Rs. 50,000 on this account. 80. Brief facts are that the AO has disallowed 1/5th of telephone expenses of Rs. 51,250 which worked out to Rs. 1,250 by observing that it is hard to believe that from telephone installed at the residence of director there absolutely no personal cal....

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....e 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 export sales and it is part and parcel of the export profits only. Thus, the CIT (A) has allowed the contention of the assessee and held that amount on account of exchange rate difference of Rs. 1,55,25,673 would not be excluded while computing deduction under section 80HHC. The CIT (A) observed that the scrap is natural outcome of the manufacturing process. It is generated during the manufacturing process and is thus, directly related to source of business income. Reliance was also placed in the ca....

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....72/& 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 incurred for business purpose. 95. We have heard the rival submissions and perused the relevant material on record. As we have dismissed this grounds of appeal of revenue in their appeal, hence, this ground taken in CO by the assessee has becomes infructuous. Therefore, it is treated dismissed. 96. Ground No. 3 states the ld. CIT (A) has rightly deleted addition of Rs. 23,226 on account of petrol and diesel expenses without appreciating facts. 97. As we have dismissed this ground of Revenue hence, this ground of....

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..... 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 same. Before us, the learned counsel for the assessee submitted that such expenditure is incurred for the purpose of business hence, same is allowable as deduction. Further, the issue is covered in favour of the assessee by Tribunal order in I.T.A.No. 2453/Ahd/ 2004/ A.Y. 01-02 Para 23.1 at Page No. 22. We find that the AO has disallowed the same on estimate basis without any justification. Hence, same are directed to be allowed. This ground is therefore, allowed. 111. Ground No. 4 states that Ld. CIT (A) has erred in confirming disallowance of ....

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....n 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 and sale are during normal course of business and fully supported by the proper bills. The purchaser companies are also being assessed at maximum marginal rate. The addition has been made only on the basis of presumption hence, deserve to be deleted. 121. Au contraire, the learned D.R. supported the order of CIT (A). 122. We have heard the rival submissions and perused the relevant material on record. We find that the purchase and sale are duly supported by the proper bills. There is only one company in which sales are made at lower price. The purchaser companies are als....

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....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 transfer of DEPB under Section 28(iiid) of the Income Tax Act, 1961 (for short 'the Act'). We have already decided this issue in 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. ....

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....p 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 erred in deleting foreign travelling expenses of Rs. 1,54,650 without appreciating the facts that the assessee has failed to substantiate the claim that it wholly and exclusively incurred for business purposes. 142. We have heard the rival submissions and perused the relevant material on record. We find that this ground of appeal was also come before us in A.Y. 2002-03 in the case of the assessee, wherein we have dismissed the Revenue appeal, on this ground. Therefore, following same, this ground of appeal is dismissed. 143. Ground No. 4 states the ld. CIT (A) has erred in deleting addition of Rs. 13,596 on account of petrol a....

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....o 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) has granted relief on the issue of exchange rate difference without appreciating the fact that the assessee enter in to forward contract on account of which there might be an income or loss and hence, it is nothing but a speculation profit and not related to business of the assessee . 152. The Ld. CIT (DR) relied on the AO. 153. On the other hand, the learned counsel for the assessee submitted that netting of interest has been granted by the CIT (A), which is covered by the decision of Hon`ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. CIT [2012] 343 ITR 89 (SC) and DCIT v. Narmada Velley Fertilizers Co Ltd. [2015] 57 taxmann....

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....dering 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/2007 for assessment year 2004-05[ PB-53]. Further, Tax Appeal of the Department has been dismissed by the Hon'ble Gujarat High Court in I.T.A.No. 658 of 2009 (PB-22 to 24). 158. We have heard the rival submissions and perused the relevant material on record. We find that the issue is squarely 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/2007 for assessment year 2004-05[ PB-53]. Further, Tax Appeal of the Departm....

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....his 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-how in India at any point of time, in our considered opinion, the assessee is not eligible for deduction u/s.80-O on account of this receipt because in that situation, it cannot be said that the receipt in question is a consideration for user of technical know-how outside India. Hence, we set-aside the order of CIT (A) on this issue and restore the matter back to his file for fresh decision. 164. In view of above, the CIT (A) has again given an opportunity of being heard to the assessee. It was explained that the assessee company has received a sum of Rs. 18,19,27,200 from M/s. Dow Agro Science BV for the transfer of technical know-how of which 80% amount of Rs. 14,55,41,760....

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....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 intellectual property is acquired. Learned Counsel also referred clause 6.4 (PB-35) of Technology Purchase Agreement dated 01.01.2002 (PB-30) entered in to with Dow AgroSciences B.V., Netherland to contend that this agreement cannot be assigned to third party by the neither party, without written consent of the other party. Thus, the buyer has only a license to use the technical know-how and do not have a right to transfer the same. Learned Counsel further drawn our attention that products sold are insecticides, pesticides and/or its intermediates. Such products cannot be manufactured in India without obtaining a license in the form of registration from the concerned government Depa....

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.... 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 30.08.2006 under section 143 (3) read with section 263 the AO withdrew the deduction under section 80-O of the Act. However, the CIT (A) observed that the assessee has filed copies of agreement entered in to by the Appellant with above stated two parties for transfer of technical know-how to them for consideration. The Ld. AR of the appellant also submitted that an miscellaneous application has been filed by him before the ITAT for rectification of mistake because while adjudicating the appeal the due consideration to CBDT Circular No. 700 dated 23.03.1995 has not been given which amounts to omission and requires to be rectified. Beside this, no evidence has been adduced which shows that there was restriction on the ....

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....w. 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, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill of the assessee for use outside India and in that process to receive income to augment the foreign exchange resources of the country. The assessee can also make available to the foreign enterprise, technical and professional services, expertise of which it possesses for earning foreign exchange for the country. 15. The Central Board of Direct Taxes circular in Circular No. 700 dated March 23, 1995 ([1995] 213 ITR (St.) 78), clarified section 80-O by stating that as long as the technical and professional services arc rendered from India and are received by the foreign Government or ....

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....0 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 arriving at the figure of eligible business profit for the purpose of deduction under section 80HHC instead of reducing total amount of non-compete fees as the said receipt is not derived from the eligible business activity. Other reason, for reopening of assessment was that the assessee has claimed deduction under section 80HHC and under section 80IB simultaneously on the gross total income and as per provisions of section 80IA(9) r.w.s. 80IB(13), the assessee cannot claim deduction under two different sections in respect of same business. The AO has worked out the deduction under section 80HHC at Rs. 8,21,84,014 as against the deduction of Rs. 10.03.50,355 computed in the original assessment. The AO excluded the entire amount of noncompete fees of Rs. 10 crores and also excluded d....

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.... 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 own case held that non-compete fees is a capital receipt, therefore, allowing of deduction under section 80HHC of the Act becomes matter of academic discussion. In view of this, the CIT (A) held that the AO reopened assessment on same set of facts as available on record and on account of principle of merger and moreover, in view of the judgement of Hon'ble Gujarat High Court, this amounts to change of opinion, hence, reopening of assessment u/s.147 is not as per law. As the re-opening assessment has not been found as per law therefore, other grounds of appeal the appellant were not adjudicated. 178. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The learned D.R. supported the order of the AO. It was contended that the CIT (A) has failed to consider the legal po....