AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 853
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....1st October, 2017. The return of income was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 22nd July, 2008. Assessment order u/s. 143(3) r.w.s. 144C of the Act was finalized on 21st February, 2011. The remaining facts of the case are discussed while adjudicating the various grounds of appeal of the assessee as under:- Ground No. 1 (Confirming addition of Rs. 19,86,525/- by way of upward adjustment in respect of reimbursement expenses on the basis of order u/s. 92C(3) of the Act) 3. During the course of assessment, a reference u/s. 92CA of the Act for the computation of arms length price in relation to international transactions was made to the transfer pricing officer, Ahmedabad. The Assessing Officer stated that according to the order of TPO u/s. 92CA(3) of the Act total addition of Rs. 19,86,525/- of international transactions made in the case of the assessee company. 4. Assessee preferred appeal against the addition of Rs. 19,86,525/- made by the Assessing Officer on the basis of order u/s. 92CA(3) of the I.T. Act. The ld. CIT(A) has dismissed the appeal of the assessee. 5. During the course of appellate proceedings before us, the ld. counsel ....
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....ven to the employees. The expenses have been accounted in the books of account of the assessee incurred for the purpose of business of the assessee company. The associated concern has also reflected such expenses in their books of account and shown as expenses reimbursed by the assessee company. All the details and material facts were disclosed before the lower authorities by the assessee company and submitted that no international transaction has taken place between the assessee company and its associated concern in respect of amount shown as reimbursement of expenses, therefore, no question of arms length price determination was arised in its case. It is observed that ld. CIT(A) has not categorically disproved the material facts and explanation of the assessee company in support of its contention that it has made only reimbursement of expenses to its associated concerned which were incurred for the purpose of business of the assessee company. The ld. CIT(A) has stated in a general manner that assessee has reimbursed expenses which were the responsibility of associated concern, therefore, the transaction was not at arms length. We observe that ld. CIT(A) has not given specific rea....
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....he material on record. During the course of assessment, the Assessing Officer noticed that assessee has debited net prior period expenses of Rs. 84,87,329/- to the Profit and Loss Account. On further verification and examination of the information filed, the Assessing Officer observed that assessee has shown netting of prior period income of Rs. 42,48,547/-. On further investigation, the Assessing Officer found that there was no such prior period income and the same was the amount on account of reversal on discount and sales promotion expenses claimed and allowed in the earlier years. On query, the assessee company vide letter dated 22nd Nov, 2010 admitted that the amount of Rs. 30,80,966/- was actually the liability for expenses claimed and allowed in the earlier years by way of discount and rate difference etc. and agreed for adding the same u/s. 41(1) of the Act. However, on verification of the material on record, the Assessing Officer has brought to the notice of the assessee that such amount on account of reversal of expenses claimed was Rs. 42,48,547/- . The assessee has agreed for the same for making addition to its total income vide order sheet entry dated 3rd Nov, 2010. I....
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....and perused the material on record. During the course of appellate proceedings before us, the ld. counsel has placed reliance on the decision of Hon'ble Jurisdictional High Court of Gujarat in the case of CIT vs. Prayas Engineering Tax Appeal No. 1237 of 2014 dated 17.11.2014. The relevant part of the decision is discussed as under:- "3. Heard the learned advocate appearing for the appellant-Revenue and considered the submissions. Learned advocate appearing for the appellant has contended that the circular issued by CBDT is very clear and the issue is governed by section 194J. The learned ITAT, while considering the question has observed in para-17 as under: "17. After hearing both the parties and perusing the record, we find that there is no dispute about the fact that in respect of payment made by assessee to M/s. Elecon Information Technology Ltd. (EITL) and M/s. Akaaish Mechatonics Ltd. (AML) these was short deduction of tax and therefore the ratio of the Tribunal in the case of Apollo Types Ltd. v. DCIT and UE Trade Corporation (India) Ltd is directly applicable to the facts of this case. In the case of UE Trade Corporation v. DCIT, the Hon'ble Tribunal in similar fact....
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....ance of Rs. 20,24,455/- is not justified. The Assessing Officer is directed to delete the addition." In view of the above, the order passed by Ld. CIT(A) deleting the additions of Rs. 60,60,960/- and Rs. 8,86,940/- is hereby upheld. Both these grounds of revenue are dismissed." 4. In that view of the matter, the same view is confirmed by the Tribunal in its order, and therefore, we are in complete agreement with the order passed by the Tribunal. No substantial question of law is made out and the appeal is devoid of any merits and deserves to be dismissed. Hence, this appeal is dismissed." With the assistance of the ld. representatives, we have gone through the above mentioned findings of the Hon'ble Jurisdictional High Court on the issue of short deduction of tax deducted but not paid to credit of the Government wherein after making adjustment no disallowance was made u/s. 40(a)(ia). After considering the finding of the Hon'ble Jurisdictional High Court in the above referred case, we restore this issue to the file of Assessing Officer for adjudicating afresh after taking into consideration the observation of the Hon'ble High Court in the above referred case. Accordingly, th....
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....was of the view that various items like service contract income, insurance claim, receipt premium of forward contract, development and license fee, sundry income cannot be said to be derived from the export of article, therefore, same were not eligible for exemption u/s. 10B of the Act. Except amount earned on sale of scrap the Assessing Officer has excluded the miscellaneous income of Rs. 1,54,37,346/- from profit to be considered for exemption u/s. 10B of the Act. In respect of export incentive, the Assessing Officer stated that export incentives were not earned from export of goods as the same were received on account of incentives offered from the schemes of the Government. In respect of foreign exchange rate difference the Assessing Officer observed that same was not derived from export and there was no immediate nexus of gain on exchange rate and export of articles or things. The Assessing Officer was also of the view that share and preliminary expenses written off were not on account of profit derived from export of article therefore same was not eligible for deduction u/s. 10B of the act. In respect of interest income, the Assessing Officer observed that same was on account....
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....ed the deduction u/s. 10B of the act to the amount of Rs. 3,90,76,233/- and disallowed a sum of Rs. 1,08,49,754/-. During the course of appellate proceedings before us, in respect of revised claim of assessee, the ld. counsel has placed reliance on the decision of Amarpali Capital and Financial Services Ltd. and Mitesh Impex supra and decision of Hon'ble jurisdictional High Court in the case of Principal CIT vs. Dishman Pharmaceutical & Chemical Ltd. (2019) 112 taxmann.com 91 (Guj). With the assistance of ld. representatives, we have gone through decision of Hon'ble Jurisdictional High Court in the case of PCIT vs. Dishman Pharmaceutical & Chemical (2019) 112 taxmann.com 91 (Guj). The relevant part is discussed an under:- "60. Thus, sub-section (4) of Section IOB stipulates that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of Section IOB refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of Section IOB of the ....
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....to place these funds with its various sister concerns as inter-corporate deposits. The assessee claimed that the interest income as derived from the business of export of articles or things or computer software was eligible for exemption under Section 10A of the Act. The AO disallowed the exemption claimed with respect to the respect income. The ITAT's ruling: ITAT held that the terminology used in sub-section 4 is 'profits of the business' of the undertaking in contradiction to the word profits and gains derived by the asssessee "from a 100% export oriented undertaking. It was held that the term "from the business of is much wider than the term "derived from industrial undertaking". Considering Section 80 HHC, it was observed, that if the legislature intended to exclude interest from the term "profits of business of undertakings" under Sections 1OA and 1 OB of the Act a similar provision as in the case of Section (baa) would have been inserted. No such explanation has been introduced in Sections 10A and 10B and therefore, it held that the interest income is exempted from payment of tax and also their claim for allowance of 5% on scientific basis should be allowed.)....
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...., profit on sale of investments, excess provision return back, duty drawback and interest income could be said to have direct nexus with the income of the business of the undertaking. Although it may not partake the character of profit and gain from the sale of article, yet it could "be termed as an income derived from the consideration realized by the export articles. In view of the definition of "income from profits and gains" incorporated in sub-section (4), the Tribunal committed no error in granting the benefit of exemption, contemplated under Section 10B of the Act.' 63. In view of the aforesaid, the fourth question is answered in favour of the assessee and against the Revenue. 64. In the result, this Tax Appeal fails and is hereby dismissed." With the assistance of ld. representatives, we have also perused through the decision of Mitesh Impex supra of the Hon'ble Jurisdictional High Court of Gujarat . The relevant part of the decision is reproduced as under:- "Section 80-IB of the fncome-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings (Manufacture) assessee was engaged in activity of ....
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....lable under section SOHHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned in interest was not intended to be taken into account for the purpose of giving benefit under sub-action (1) of section 10B may be correct. But the amount of deduction available to a 100 per cent export oriented undertaking is necessarily dependent upon the formula providing sub-section"(4). There is, as "such, no scope for any controversy that part of the money was earned from interest and not from export. [Para J] The Tribunal had held that there is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100 per cent EOU will be the 'profits of the business of the undertaking'. The interest earned on temporarily surplus business funds of the 100 per cent EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100 per cent EOU. As such, the interest earned thereon has to be regarded as part of the 'profit of the busines....
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....o be raised for the first time before the appellate authority or the Tribunal when facts necessary lo examine such ground, contention or claim arc already on record. In such a case the situation would be akin to allowing a pure question of law to be raised at any stage of the proceedings. This is precisely what has happened in the present case. The Appellate Commissioner and the Tribunal did not need to nor did they travel beyond the materials already on record, in order to examine the claims of the assessees for deductions under sections 80-IB and 80IIHC of the Act-41. In the decisions that we have noted above, the Courts have considered such questions when a legal contention or a claim was based on material already on record but raised at an appellate stage. On such premise we wholeheartedly agree that the appellate authority and the Tribunal would have the power to entertain any such new ground, legal contention or claim. However, it is only the Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders (P.I Lid. (supra), which has travelled a little beyond this preposition and come to the conclusion that even if facts necessary to examine such a claim are not placed....
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.... (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: x * Principal CIT, Kanpur v. Surya Merchants Lid. [2016] 72 taxmann.com 16 (All.). The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/Tribunals may be withdrawn/not pressed upon. The above may be brought to the notice of all concerned." T....
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....ficer for deciding de-novo as per the directions laid down in the above referred judicial pronouncements. Accordingly, this ground of appeal of the assessee also allowed for statistical purposes. Ground No. 6 ( Erred in not accepting alternative claim to compute eligible profits by adding to the income additions/disallowance amounting to Rs. 2,58,35,735/-) 17. Since the ground no. 5 of the assessee has been adjudicated as above, therefore, this ground for alternative claim has become infructuous and the same stands dismissed. ITA No. 2681/Ahd/2011 filed by Revenue A.Y. 2007-08 Ground No. 1 (Deleting addition of Rs. 18,14,537/- made on account of additional depreciation) 18. At the time of assessment, the Assessing Officer noticed that assessee has claimed an amount of Rs. 11,72,41,683/- as additional deprecation on additions made to plant and machinery during the year. The Assessing Officer observed that amount claimed as additional depreciation also included a sum of Rs. 18,14,537/- pertaining to addition made for Cogen plant which was eligible for depreciation @ 15%. On query, the assessee explained that it has fulfilled all the conditions laid down under section 32(1)(iia) ....
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.... the assessee as under: "I have considered the AO's order, facts of the case and appellant's submission. Assessing officer disallowed appellant's claim of additional depreciation on machinery of power plant on the ground that electricity generated is not articles or things and accordingly the conditions of section 32 (1)(iia) is not satisfied. However appellant submitted that the requirement of the section is acquisition of new plant or machinery and (other than ships and aircraft) after 31 March 2005 by an assessee engaged in the business of manufacturing or production of any article or thing. The four situations are mentioned in proviso to this section in which additional depreciation is not allowable. In the case of appellant, plant and machinery was acquired after 31 March 2005 and appellant is already manufacturing pharmaceutical products which are articles or things. Therefore appellant fulfilled all the conditions for claim of additional depreciation. Appellant during appeal hearing also relied upon following decisions of Madras High Court in which it is held that there is no requirement that the setting up of a new machinery or plant should have any oper....
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....essment, the Assessing Officer noticed that assessee has debited a sum of Rs. 1,43,84,135/- as product registration expenses under the head sales promotion expenses. The assessee was asked to explain its claim of these expenses as allowable revenue expenditure u/s. 37(1) of the act. The assessee explained that these expenses have been incurred for registration of product in various foreign countries as required under the domestic regulatory laws of these countries. It was explained that product registration expenses did not bring any benefit of enduring nature to the assessee company and these expenditure were in the nature of sales promotion expenses and rightly claimed as revenue expenditure. However, the Assessing Officer has not agreed with the detailed explanation of the assessee. The Assessing Officer was of the view that once the product was registered and approval was granted by the particular country, the assessee can continue to export its goods over a long period of time and the registration of the product provide benefit of enduring nature to the assessee company. Therefore, the Assessing Officer disallowed the claim of registration expenses as revenue expenditure after....
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....ITR 475 and the opinion expressed was that an expenditure incurred in registering for the first time its trademark, then by registration the owner is merely absolved thereafter from obligation to prove his ownership of trademark. As per the Hon'ble Court the expenditure is neither for the creation of an asset nor an advantage for ever. We, therefore, hold that this precedent has direct application on the present issue, therefore, following the same and considering the totality of the factual matrix, we hereby allow the claim. Resultantly, Ground Nos.2 & 3 are allowed." 5. Another order of Hon'ble Gujarat High Court has also been cited in the case of M/s. Torrent Pharmaceuticals Ltd., 213 taxmann.com 297 (Gujarat), wherein it was held as under: "3. The department preferred an appeal against order of the CIT(A) which culminated into the impugned order. As far as the question of treating garden expenses is concerned, the Tribunal held that the issue was covered in favour of the assessee by its decision in assessee's own case in ITA No.1347 of 2007 for the Assessment Year 2003-2004. The Tribunal relied on its own observations in para 29 of the judgment in the said appeal and ac....
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....to the extent incurred on domestic capital expenditure. The Assessing Officer was of the view that the same cannot be derived from export of article and was not eligible for exemption u/s. 10(2) of the Act. The Assessing Officer observed that the balance amount of Rs. 1,06,08,654/- was gain on exchange rate and same was not derived from export of article or things to be eligible for exemption u/s. 10B of the Act and this gain was due to non-realization of export proceedings and not export per-se. Therefore, the claim of exemption u/s. 10B on foreign exchange rate difference on Rs. 2,41,82,727/- was rejected. 27. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee on foreign exchange rate difference on revenue account. 28. Heard both the sides and perused the material on record. With the assistance of ld. representatives, we have gone through the decision of ld. CIT(A). The ld. CIT(A) has disallowed the claim of the assessee on deduction u/s. 10B on account of exchange fluctuation gain in respect of capital expenditure. However, the ld. CIT(A) has held that assessee is eligible for deduction u/s. 10B in respect of....