AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 1230
X X X X Extracts X X X X
X X X X Extracts X X X X
...., it is further submitted that sundry income included insurance claim received, fees received for R & D activities and the said receipts would not fall within the ambit of the said clause." 3. This ground co-relates to grounds 1 & 2 raised by the revenue, which reads as follows:- "1. The CIT (A) erred in directing the AO to exclude 90% of the 'net interest income' instead of 'gross interest receipts' from the 'profits and gains of business or profession' to arrive at 'business profit' under clause (baa) for the purpose of computation of deduction u/s 80HHC particularly in view of use of expression -receipt- and not "income" in the said clause. 2. The CIT(A) erred in directing the AO not to exclude 90% of the amount on account of sale of scrap, cash discount, excise duty, octroi, C S fees, country management fees, service charges and exchange gain, from the 'profits and gains of business or profession' to arrive at 'business profit' under clause (baa) for the purpose of computation of deduction u/s 80HHC." 4. Therefore, the above grounds of assessee and revenue are taken up together for consideration for the sak....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6) Country Management fees 4535650 7) Service charges from Daewoo Power India Ltd. 1676081 8) Exchange Gain 58952904 8. Against these findings of the CITJA, both the assessee and the revenue are in appeal before us. 9. After hearing both the parties, we are of the opinion that this issue came up for consideration before this Tribunal in ITA No.3240/MUM/2004 for AY 2000-01 and the Tribunal vide order dated 18.3.2020 observed as under:- "10. As far as ground of appeal No.(i) of revenue is concerned, it is directed against the action of the CIT(Appeals) in treating 'other income' as part of business income of the assessee not falling within the ambit of Explanation (baa) of section 80HHC of the Act, insofar as it relates to other income, except rental income, commission, notice pay, income from cancellation of orders and miscellaneous income. In respect of the grievance projected by the revenue in its appeal, the CIT(Appeals) has in the impugned order followed his own order for the AY 1999-2000 dated 4.3.2004. The aforesaid order of the CIT(Appeals) dated 4.3.2004 was subject matter of appeal by the department in ITA No.3958/MUM/2004 for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and Kantilal Chotelal (Supra) of the jurisdictional High Court, in so far as the application of clause (baa) of the Explanation is concerned, it has to be restricted in respect of the interest amount, profit on sale of assets, rent, notice pay, insurance claim, DBK on export, income from cancellation of order, sale of REP licence, commission amount received from Gujarat Prima and miscellaneous receipt. On the other hand, in the light of the decision of the jurisdictional High Court in the case of Bangalore Clothing Co. (Supra), in respect of receipts by way of scrap, sales, cash discount, excise duty recovered, exchange rate, sales-tax refund, it has to be held that the said clause has no application. These receipts are to be taken as part of the business profits as also as part of the total turnover. Further, the exchange gain is required to be taken as part of the export turnover as well apart from being taken as part of business profits. In so far as octroi refund amount is concerned, the submission of the appellant's representative reveal that it is a refund of payment of octroi made earlier both on purchases of raw material as well as part of the units. While the refund o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ond part of ground No.2 in which the assessee has contended that trading exports are independent units and Head Office expenses need not be allocated to the trading exports unit. 14. As far as the grievance of the revenue in 2nd part of ground (i) is concerned, we are of the view that the said direction of the CIT(Appeals) is in accordance with the laws and we find no grounds to interfere with the order of CIT(Appeals). 15. As far as the grievance projected by the assessee in 2nd part of ground No.2 is concerned, we are of the view that the Head Office expenses has to be allocated to trading exports also. In this regard, we find that there is no material on record to come to the conclusion that trading export is an independent unit requiring no assistance from the Head Office. To this extent, the grievance projected by the assessee in 2nd part of ground No.2 in its appeal is rejected. 16. That leaves for consideration only first part of ground No.2 raised by the assessee viz., considering rental income, commission, notice pay, income from cancellation of orders and miscellaneous income as income falling within the ambit of Explanation (baa) of the Act. As....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... subject to verification of the nexus between commission payment and commission receipt. The ld. counsel did not press for adjudication of exclusion of 90% of miscellaneous income of Rs. 1,41,71,000 under explan.(baa) to Sec.80HHC of the Act because of the absence of break-up of this item of income. " 17. The facts and circumstances in the present assessment year being similar, we direct that the directions given in the order of Tribunal for AY 1999-2000 (supra) should be followed and deduction u/s. 80HHC be computed accordingly. 18. As far as miscellaneous income is concerned, it was admitted by the parties before us that the said issue was decided against the assessee in the order of Tribunal for AY 1999-2000 (supra). The grievance projected by the assessee in the first part of ground No.2 is decided accordingly against the assessee. 19. There are certain new items of other income which are excluded by the AO under Explanation (baa) of section 80HHC viz., fees from group companies and networking charges. These are receipts for providing facilities to group companies and have to be regarded as falling within the ambit of Explanation (baa) to sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Mumbai Bench of the Tribunal in assessee's own case in AY 1997-98 in ITA No.2555/MUM/2003 by order dated 05.04.2007 and on identical issue it was held as follows:- "The case of the assessee, however, is that the subject matter of deduction u/s. 80IA is the profits derived from the business of industrial undertakings and hence it is only that expenditure which is directly attributable to the earning of the said profits that can be the subject matter of deduction for computing the aforesaid profits and not head office expenses. We are unable to agree with the aforesaid submission for two reasons. First reason is that it is the profit derived by the assessee from the business of industrial undertaking which has been made eligible for deduction u/s. 80IA d not any other profit. Second reason is that the computation of profits eligible for deduction u/s. 80IA has to be done in accordance with the provisions of section 28 to 43. Perusal of the aforesaid provisions reveals that all those expenses, which are incurred for the purposes of the business of the industrial undertaking, are to be allowed while computing the business profit. It cannot be said that Head Office exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was extracted in the earlier part of this order is applicable to the present assessment year also. We find no grounds to take a contrary view. The decision in the case of Zandu Pharmaceuticals Works Ltd. (supra) is with reference to apportionment of R&D expenses and no parity of facts exist with the present case. As far as the decision of the Hon'ble Madras High Court in the case of Hindustan Lever (supra) is concerned, that decision rests on the facts of that case, where it was found that common head office expenses were simple administrative expenses for running the business. In that view of the matter, we uphold the order of CIT(Appeals) and dismiss ground No.1 raised by the assessee." 4. In the light of the aforesaid decision of the Tribunal, we are of the view that there is no merit in ground No.1 raised by the assessee and accordingly the same is dismissed." 13. Following the Tribunal order for AY 2000-01 and taking a consistent view, this issue is decided against the assessee. 14. Ground No.3 by the assessee is as follows:- "3. The Learned CIT (A) erred in confirming disallowance of the claim for deduction for a sum of Rs. 6,74,600/- being deduction c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Asea Brown Boveri Ltd. (Taiwan), Air Pollution Control Group (PES), 6F, Nanhing E Road, Sec.4, P.O. Box 81 54, Taipei. Taiwan R.O.C. Description of Goods Quantity Rate USD Amount TECHNICAL SERVICE CHARGE Charges for Mechanical Design Drawing FAA-5*45M-2*24M-150M-A2 1 Lot. Service Charges of our Mr S K Datta who visited your office in connection with cited business and as per your lotus note dated 15.06.98 a) Agreed charges [as per above LN] for the period from 01.07.98-07.07.98 7 days 200/day 1,400.00 b) Out of pocket expense @ USD 25/day 7 days 25/day 175.00 b) Air Ticket Cost INR 33,205.00 - - 786.00 @ USD1 = Rs. 42.25. Total 2,361.00" 29. It appears from the invoices, especially the third invoice (dt. 28.07.98) th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to agree with the reasoning of the CIT (A), which does not require our intervention. It is ordered accordingly." 30. The facts of the case in the present assessment year being identical to the facts in the aforesaid decision of the Tribunal for AY 1998-99, We are of the view that there is no material before us in the present AY to take a contrary view. We are also of the view that in view of the aforesaid conclusion, the question as to whether; to claim deduction u/s. 80-O, the person claiming deduction should be the owner of the IPR or not, is academic and therefore does not call for any adjudication in the facts and circumstances of the present case. 31. In the result, ground No.3 raised by the assessee is dismissed." 16. Since the facts in the present assessment year are similar to those considered by the Tribunal in AY 1999-2000, this ground is rejected. 17. Ground No.4 of the assessee's appeal reads as follows:- "4. The Learned CIT (A) erred in holding that expenditure of Rs. 18,14,331/- being amount spend towards Repairs and renovation of Leasehold premises is capital expenditure." 18. This issue also came up for consideration before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the present case, the CIT(A) was of the view that the only issue to be seen is whether any fresh provision was made towards obsolescence in the accounts for the year under consideration. As mentioned earlier as on 1/4/00 the total provision for obsolescence stood at Rs. 11,17,52,538/-. As on 1/4/01 the provision had come down to a lower figure of Rs. 11,11,79,742/-. Thus there has been a reversal in the provision and no fresh provision has been made. An attempt has also been made to show how the AO arrived at a figure of Rs. 1,23,08,347/- as the provision for stock obsolescence. It is explained that details relating to provision created were provided to the AO during the assessment proceedings. In the details filed on 4/2/04, the following figures were given. Location Amount Andheri 9,660,369 Faridabad 5,106,000 Maenja 1,875,787 Nasik -987,825 Peenya -3,045,984 Total 12,608,347 23. According to the CIT(A), there are two mistakes in the details given. In respect of the Andheri unit the provision made during the year was shown at Rs. 96,60,369/- instead of the correct figure of Rs. 12,85,226/-. Likewise in respect of the Faridabad unit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s under:- "6. The Learned CIT (A) erred in confirming disallowance made under section 14A of the income tax act being expenses incurred for earning the dividend from the investment made out of the interest bearing funds. It is submitted that no investment has been made out of the interest bearing funds and therefore the CIT (A) ought to have held as such." 28. The company had claimed dividends of Rs. 6,86,190 as exempt u/s.10(33). Based on the details given, in the assessment order the AO estimated the expenditure attributable to the earning of dividends at 8,93,184/-. The CIT(A) observed that basically the formula adopted is erroneous, since the expenditure estimated is more than the income. He noted that the AO considered the investment made in taxable investments also. The CIT(A) therefore directed to estimate the expenditure only on the investments made in tax free dividends. 29. We have heard both the parties on this issue. Similar issue also came up for consideration before the Tribunal in ITA No.3330/Mum/2004 for AY 1999-2000 wherein the Tribunal held as under:- "40. From a perusal of the details of own funds available, it is clear that own f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....81,60,001 as follows:- Name of the customer MVA Material cost Material O/H Process Cost Total Cost Sale Price Provision for Loss Order UPSEB 100 9.239,563 461,978 4,315,000 14,016,541 10,198,541 3,818,000 Tata Consulting Engineers 90 10,967,067 548,353 3,883,500 15,398,920 12,313,920 3,085,000 ABB THS-SS (MSEB) 25 4,931,667 246,583 1,078,750 6,257,000 5,000,000 1,257,000 Total 8,160,001 39. According to the AO, the loss in question was contingent in nature and cannot be allowed as deduction. According to the Assessee, as per the method of accounting followed by the Assessee, it provides for loss that are likely to be incurred on execution of particular order. 40. On appeal by the Assessee, the CIT(A) confirmed the order of the AO holding that the Accounting Standards claimed to have been followed in claiming the aforesaid deduction by the Assessee cannot override the provisions of the Act and that as per the Act only expenditure or loss that has accrued or ascertained can be allowed as deduction and not a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 (Delhi) for AY 2000-01, in which it was held that when the Assessee followed Completed contract method of accounting income from projects, provision for expenses to be incurred up to the stage of completion of contract was to be allowed as deduction as it was not disputed that it was not a contingent liability but the dispute was only in the year of allowability, the Court held that it was allowable because the rate of tax for the year in which the liability would actually accrue and the year in which it was claimed as deduction was one and the same. 42. The learned Standing Counsel for the Department submitted that there has been no basis given by the Assessee as to how it quantified the loss in question. He submitted that it is, at best, a provision which cannot be allowed as deduction and in this regard relied on the observations of the Hon'ble Supreme Court in the case of Rotork Controls India (P) Ltd. Vs. CIT 314 ITR 62 (SC) wherein it was held that for a provision to be recognized as liability a reliable estimate has to be made of liability, otherwise it does not satisfy the test of being called as a provision for liability. 43. The learned counsel for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... explain the basis for writing off various items amounting to Rs. 8.46 crores. The company filed a list showing general reasons for the write off such as dispute about taxes and dues, excess supplies not accepted, claim for demurrage, dispute relating to freight, insurance and discount, dispute relating to quality, specification, guarantee and the category including companies which become sick or transactions in respect of which records are not available. The AO took note of the fact that the company did not explain the efforts made to recover the same. On being given a further opportunity the company reiterated its earlier stand. Copies of correspondence with various parties were filed. The AO held that the same are not acceptable as evidence. He further held that the company was unable to establish how it made an honest judgement regarding the amounts written off. The AO also concluded that the books of earlier years were not produced to show that the amounts in question had been part of the computation. The AO took a view that the decision to identify and write off bad debts should be a bonafide judgement. He therefore disallowed the entire claim. 37. During the appellate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e sending the original remand report detailed enquiries were made. b) No details were filed in respect of aggregate sum of Rs. 50,48,446/-since it would include items below Rs. 2 lakhs. c) In addition, the AO has provided a classification of the bad debts In respect of 53 items exceeding Rs. 2 lakhs each he has submitted a tabulation. The total claim of Rs. 8,46,73,674/- has been written off for various reasons as under : 43. The CIT(A) noticed that in respect of items exceeding Rs. 2 lakhs each write off is supported by documents and valid reasons. During the proceedings the learned representatives were asked to indicate the basis for identification of bad debt and the hierarchy involved in the decision making. It was clarified that each division has its own marketing and other functions. The marketing department of each division is responsible for recovery of dues. Since each division is treated as a profit centre, there is pressure on the marketing persons to realise all the dues. In this background, in case recovery has become difficult for any reason, the marketing group head of a particular division identifies such items and submits a proposal for writ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liquidity problems suffered by the purchasers. Each of these figures has been quantified by the AO himself after going through individual details. There is no question or doubt about the veracity. 47. The AO's objection that the company has not established that the amounts written off were not part of the book results in earlier periods, the CIT(A) held that this is a clear contradiction in terms. Having quantified the write off under various heads, the AO cannot say that these sums were not part of the book results. The objection of the AO was misplaced. The CIT(A) therefore held that the company has produced details to substantiate the claim by and large. The entire write off was a business decision based on facts and circumstances except in the following cases : i) In respect of smaller items a total claim of Rs. 53,23,047/- has been made. The full details of the claim are not available. ii) It is seen that the above amount further cannot be allowed as a deduction a) The following advances were made to group concerns : i) Rs. 7,01,844/- ii) Rs. 1,64,660/- The advances were written off on the ground that the companies which had r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... than 5 years old as on 1/4/00 is justified. This takes into account the business practice and the system employed for write off. In respect of older write off would not be in conformity with the system employed and the treatment of contractual liabilities. The details filed were therefore analysed. It was seen that 239 items amounting to a total of Rs. 6,28,40,382 represent debts which are less than 5 years old. 74 debts aggregating Rs. 2,18,33,372/- represent debts which are more than 5 years old as under :- Nature Number of Items Amount Late Delivery 63 18,563,076 Dispute of taxes 2 28,432 Frieght not paid/freight 1 6,097 Others 3 1,041,178 Technical disputes 3 483,034 Liquidity problem/company do not exist 2 1,711,555 Total 74 21,833,372 49. The Assessing Officer was directed to disallow the amount of Rs. 2,18,33,372/- which represent debts which are more than 5 years old as on 1/4/2000. This is over and above the disallowance of Rs. 53,23,247/- towards similar items. The balance was allowed as a deduction. 50. We have heard both the parties and perused the material on record on this issue. Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relevant year was offered to income in Previous year or earlier years, (ii) whether the assessee has debited the amount of doubtful debt to profit and loss account and has reduced the same from the asset side of the balance sheet. The matter is remitted to the AO for de novo consideration of the aforementioned aspect. 54. In the result the assessee's appeal is partly allowed. 55. Coming to the revenue's appeal, ground No.3 reads as follows:- "3. The CIT(A) erred in directing the AO to allow deduction u/s 80HHB when no separate books in respect of foreign project were maintained." 56. The AO did not allow deduction u/s.80HHB in respect of specified projects. He held that the assessee has not maintained separate books in respect of business of foreign project. The CIT(A) noted that separate accounts were maintained in respect of each project and audit certificates in form I0CCAH have also been furnished in respect of each project. A summary of such projects has been filed and is available in the audit report which has also been filed in page 56 of the paper book filed. In the circumstances, the CIT(A) observed that the AO is incorrect in holding that separate accou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and find no merits in the relevant ground of appeal (iii) raised by the revenue." 58. Accordingly, we reject this ground by the revenue. 59. The next ground by the revenue is as under:- "4. The CIT(A) erred in allowing the claim of expenses towards entrance and the subscription fees paid by the assessee to clubs holding them to be revenue expenditure." 60. The AO has disallowed an amount of Rs. 9,05,227/-. This includes both entrance fees and subscription. This disallowance was deleted by the CIT(A) for AY 99-00 and 2000-01. Besides the ITAT, Bangalore Bench in East West Hotels Ltd. vs. ACIT 2006 9 SOT 48 has also held that entrance fees paid to club has to be allowed as business expenditure. Following the decision of the ITAT the disallowance was deleted by the CIT(Appeals). 61. This issue came up for consideration before this Tribunal for AY 1999-2000 wherein the Tribunal decided the issue against the department by para 68 of the order which is as follows:- "68. Aggrieved by the order of CIT(Appeals), the revenue has raised ground (v) before the Tribunal. This issue is no longer res integra and has been settled by the Hon'ble Supreme Court in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntific & Industrial Research (DSIR), approving such claim, Assessing Officer could not have denied weighted deduction under section 35(2AB) in respect of scientific expenditure. It was held that Assessing Officer cannot sit in judgment over report submitted by prescribed authority . It was held that where Assessing Officer does not accept claim of assessee made under section 35(2AB), he should refer the matter to Board, which will then refer question to the prescribed authority. In view of the aforesaid decision, we are of the view that there is no merit in ground No.(iv) raised by the revenue." 66. Accordingly, we reject this ground of appeal by the revenue. 67. Ground No.6 reads as follows:- "6. The CIT(A) erred in allowing the claim of expenses on the basis of purchase of packing materials, loose tools and consumables in the year of purchase without regard to actual consumption thereof." 68. The AO noted that the assessee had a practice of writing off packing materials, loose tools and consumables in the year of purchase irrespective of the fact whether they were used for the business during the year or not. In the assessment order for the AY 2000-01, the AO re....