TaxTMI 
TaxTMI 
TaxTMI 
2021 (7) TMI 1019
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....ged in the business of various engineering, fabrication and manufacturing and trading of mechanical, electrical and other engineering items. At the time of hearing, learned Counsel for the assessee submitted that the issue raised by the Revenue in Ground No.2 is identical to the issue raised by the Revenue in Assessment Year 2001-02 in ITA No.3959/Mum/2004 which has already been decided by this Tribunal by order dated 18.03.2020. The facts in relation to the aforesaid ground are that the assessee claimed deduction of a sum of Rs. 10 lakhs under section 80HHB of the Income Tax Act, 1961 (hereinafter called 'the Act'). The aforesaid deduction is allowed to assessee executing foreign projects in pursuance to foreign contracts entered into by it with a foreign enterprise. The expression foreign project is defined in clause (b) of subsection 2 to section 80HHB of the Act to inter alia to mean a project for the assembly or installation of any machinery or plant outside India. The AO did not allow the claim for the assessee by following his own order in Assessment Year 1999-2000 and 2000-01 on similar claim made by the assessee. In those Assessment Years, the deduction under section 80HHB....
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....olly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprises and accordingly CIT (A) was justified in deleting the disallowances of entrances fee made by the Assessing Officer. [Dy. CIT vs. Bank of America Securities (India) (P) Ltd. 136 TTJ 441]. Again, Corporate membership fees payable to club is revenue exp. [CIT v Samtel Colour Limited 326 ITR 425]. Ground No.3 is accordingly dismissed. 7. Ground No.4 raised by the Revenue reads as follows: 4. The ld. CIT(A) erred in allowing the claim of the assessee amounting to Rs. 9,33,995 being R & D expenditure under section 35(1)(iv) when the activity claimed to be the R & D activity is part of normal business of the assessee. 8. The facts with reference to this ground are that the assessee had incurred an expenditure of Rs. 9,33,995/- on research and development. The expenditure was incurred at the assessee's research and development centre, was in the nature of capital expenditure. The break-up of the expenditure incurred on acquisition of various assets was....
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....pproving 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.4 raised by the Revenue. 12. Ground No.5 raised by the Revenue reads as follows: 5. The Id. 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. 13. The facts with regard to this ground are that the assessee consistently used to follow the method of writing off the packing materials, loose tools and consumables that are purchased in a year without taking an inventory of the same at the end of the year. This method has always been accepted in the past. According to the assessee, the method is also in accordance with....
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....time of purchase. Rejection of account books of assessee and addition to his income was held to be not justified. We therefore uphold the order of CIT(A) on this issue and dismiss ground No.5 raised by the Revenue." 15. Respectfully following the order of the Tribunal rendered on identical facts and circumstances, we uphold the order of the CIT(A) and dismiss ground No.5 raised by the Revenue. 16. Ground Nos.6 and 9 raised by the Revenue are identical and they can be disposed together and these grounds read as follows: 6. The Id. CIT(A) erred in directing exclusion of the amount of excise duty and sales tax from the 'total turnover' for the purpose of computing deduction under section 80HHC as such direction is opposed to the provisions of section 145A of the Act introduced w.e.f. 1.4.1999. 9. The ld.CIT(A) erred in directing exclusion of the amount of excise duty and sales tax from the 'total turnover' for the purpose of computing deduction under section 80HHE as such direction is opposed to the provisions of section 145A of the Act introduced w.e.f. 1.4.1999. 17. As far as ground Nos.6 and 9 raised by the Revenue is concerned, the issue is as to whether sal....
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.... AO accordingly reworked the deduction under section 80HHC of the Act by excluding deduction allowed under section 80IA of the Act from the profits of business while allowing deduction under section 80HHC of the Act. On appeal by the assessee, the CIT(A) directed the AO to allow the deduction under section 80HHC of the Act without reducing the deduction under section 80IA of the Act. In coming to the aforesaid conclusion, the CIT(A) has given a finding that none of the export division which have claimed deduction under section 80HHC of the Act have also claimed deduction under section 80IA of the Act. 20. Aggrieved by the aforesaid order of the CIT(A), the Revenue has raised ground No.7 before the Tribunal. As can be seen from the grounds of appeal raised by the Revenue, the Revenue has not disputed the factual findings rendered by the CIT(A) that none of the export division which have claimed deduction under section 80HHC of the Act have also claimed deduction under section 80IA of the Act. Learned Counsel for the assessee submitted that the Hon'ble Karnataka High Court in the case of Millipore India Pvt. Ltd., 341 ITR 219 (Karnataka) has taken a view that in arriving at profits ....
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....g the provisions of section 80IA(9) of the Act. In this factual background of the case, we are of the view that the relief allowed by the CIT(A) is in order and does not call for any interference. We may also add that the decisions referred to by the parties before us do not require any consideration in view of the factual background of the present case. Accordingly, ground No.7 raised by the Revenue is dismissed. 22. Ground No.8 raised by the Revenue reads as follows: 8. The Id. 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 under sec.80HHC particularly in view of use of expression `receipt' and not 'income' in the said clause. 23. While computing deduction under section 80HHC of the Act, the AO excluded 90% of the interest income from the profits and gains of business to arrive at the business profits for the purpose of computing deduction under section 80HHC of the Act. The AO did so by relying on clause baa of explanation to sec....
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.... in the grounds of appeal. Learned Counsel for the assessee relied on the order of the Tribunal in assessee's own case on an identical issue for Assessment Year 2001-02. 25. We have considered the rival submissions and are of the view that the principle of netting has been recognized by the various decisions of Hon'ble High Courts and has also been affirmed by the Hon'ble Supreme Court in the case of ACG Associated Capsules Vs. CIT 343 ITR 89 (SC). The principle of netting is however applicable only on the assessee establishing nexus between the interest paid and the interest earned. If such nexus is proved, it is only the net interest that has to be excluded under explanation baa to section 80HHC of the Act. 26. In view of the aforesaid legal position, we are of the view that there is no merit in ground No.8 raised by the Revenue and accordingly the same is dismissed. 27. In the result, Revenue's appeal is dismissed. 28. ITA No.897/Bang/2008 Revenue's appeal for AY 2003-04: In this appeal, the grounds of appeal raised by the Revenue are identical to grounds of appeal raised by the Revenue in Assessment Year 2002-03. For the sake of ready reference, the grounds of appeal are re....
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.... The grounds of appeal raised by the revenue arise under identical facts and circumstances as it prevailed in AY 2002-03 as was submitted by the parties before us. The reasons given for decision rendered on identical grounds for AY 2002-03 would therefore equally apply to the grounds raised by the revenue in AY 2003-04 also. For the reasons given while deciding identical grounds for Assessment Year 2002-03, we find no merits in any of the grounds raised by the Revenue for Assessment Year 2003-04 also and accordingly the appeal by the Revenue for Assessment Year 2003-04 is also dismissed. 30. In the result, both the appeals of the Revenue are dismissed. 31. We shall now take up the appeals filed by the assessee for assessment years 2002-03 & 2003-04. Grounds of appeal for the A.Y. 2002-03: Your appellant being dis-satisfied with the order passed by the Learned Commissioner of Income Tax (Appeals) LTU, Bangalore KIT (A)') dated March 27, 2008, presents this appeal on the following grounds :- 1. The learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of Rs. 18,387,232/- (Rs. 869,160/- + Rs. 17,518,072/-) being advances written off. It is submi....
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....emises is capital expenditure. 5. The Learned CIT(A) erred in confirming that while arriving at business income for the purpose of deduction u/s 80HHC of the Act, 90% of other income should be excluded under clause (baa) of the explanation below section 80HHC of the Act which includes receipts like rental income, insurance claim received, refund of sales tax, miscellaneous operating income, commission and notice pay. It is further submitted that while computing income from business, dividend and tax free interest income, profit on sale of fixed assets have already been reduced and excluding the same again will amount to double exclusion of it from business income. 6. The Learned CIT(A) erred in confirming that while arriving at business income for the purpose of deduction u/s 80HHE of the Act, 90% of other income should be excluded under clause (baa) of the explanation below section 80HHE of the Act which includes receipts like rental income, insurance claim received, refund of sales tax, miscellaneous operating income, commission and notice pay. It is further submitted that while computing income from business, dividend and tax free interest income, profit on sale of fixed ass....
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.... of other income should be excluded under clause (baa) of the explanation below section 80HHC of the Act which includes receipts like rental income, insurance claim received, refund of sales tax, miscellaneous operating income, commission and notice pay. It is further submitted that while computing income from business, dividend and tax free interest income, profit on sale of fixed assets have already been reduced and excluding the same again will amount to double exclusion of it from business income. Further, the Learned CIT(A) erred in not opining on the issue of indirect cost attributable to trading goods exported outside India. It is submitted that the Assessing Officer erred in arriving at indirect cost attributable to trading goods exported at Rs. 53,942,380 as against Rs. 13,635,340 calculated by the appellant and arriving at loss from export of trading goods at Rs. 18,043,053 as against profit of Rs. 22,263,987 calculated by the Appellant. 5. The Learned CIT(A) erred in confirming that while arriving at business income for the purpose of deduction u/s 80HHE of the Act, 90% of other income should be excluded under clause (baa) of the explanation below section 80HHE of ....
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....ns imposed in order to avail such concessional rate was that the appellant should fulfill certain export obligation within a period of 5 years. Since the assessee could not fulfill the condition of meeting export obligation, it got extension for completing the export obligation. In the mean while, the Government announced certain amendments in the EPCG, according to which Government agreed to consider "deemed exports" also as part of export obligation to be fulfilled under EPCG scheme. As per relaxation so given, it was provided that the assessee could avail this benefit only if it has not claimed any deemed export benefit like duty drawback. Since the assessee had already availed benefit of deemed export and shown the same as income, it became ineligible for the benefits of relaxed schemealso. Hence the amount of Rs. 8,69,160/- became no longer receivable from the Government and accordingly, the assessee chose to write off the above said amount by following due procedure. Inviting our attention to pages 159, 224 & 225 of the paper book, the Ld. A.R. submitted that the assessee has furnished relevant details before Ld. CIT(A) in respect of this claim. Accordingly, the Ld. A.R. su....
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....amount represents advances given by the assessee to promote the business of another company in which assessee was apparently interested. Accordingly, the A.O. took the view that the advance so given cannot be treated as an expenditure. Before the A.O., the assessee put up an alternative claim that the above said amount may be treated as capital loss and allowed to be carried forward. The same was also rejected by the A.O. Accordingly, the A.O. held that the amount receivable by the assessee from NSL and written off by the assessee is neither allowable as a bad debt nor as revenue expenditure. 37. Before Ld. CIT(A), the assessee submitted that M/s. NSL was promoted by the assessee for manufacture of switchgears which are used by the assessee in its business of manufacturing of turbines. Accordingly, it was submitted that M/s. NSL was promoted by the assessee in order to complement its manufacturing facility. Accordingly, it was submitted that, in the interest of assessee's business, it has ensured that the manufacturing activities of M/s. NSL are not affected in any manner and therefore as and when the need arose, the assessee advanced money to M/s. NSL. Advances so given are agr....
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....he assessee has given advances to its subsidiary in order to enable it to meet its liabilities with the understanding that those advances shall be adjusted against the switch gears purchased by the assessee from M/s NSL. Accordingly, he submitted that those advances have been given by the assessee in the course of carrying on its business activities. He also submitted that M/s NSL was promoted by the assessee and hence, it is the obligation of the assessee that its reputation is not spoiled in the market circles. Accordingly he submitted that there was commercial expediency in giving advances to M/s NSL. He further submitted that the Hon'ble Supreme Court has held in the case of S.A Builders Ltd (2007)(158 Taxman 74)(SC) that, if the advances have been given as a measure of commercial expediency, then there is no necessity to disallow part of interest expenditure on the borrowed loans diverted to subsidiaries as interest free loans. He submitted that the co-ordinate bench has allowed write off advances given for purchase of machinery in the case of Asea Limited (supra). He submitted that the Hon'ble Karnataka High Court has held in the case of ACE Designers Ltd vs. Addl CIT (2020)(....
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....red as "Capital loss" and allowed to be carried forward. Since there is no provision under the Income tax Act to support the above said claim of the assessee, the AO has rejected the same. These facts, in our view, would show that there was no business compulsion or commercial expediency vis-a-vis business carried on by the assessee. The Ld CIT(A), in our view, has rightly observed that the advances have been given more as a promoter than as a customer of M/s NSL. The Ld A.R contended that it is imperative for the assessee to maintain its reputation in business circles and hence the assessee has given money to M/s NSL. The said contention may support the assessee as the promoter. However, the question that needs to be answered is whether there was business necessity/compulsion or is there any commercial expediency in given advances to M/s NSL to meet its day to day expenses even when M/s NSL was under liquidation?. In our view, the answer would be negative. The various case laws relied upon by Ld A.R are distinguishable from the facts prevailing in the instant case. Accordingly, we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue in both the years unde....
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....2001-02 had been disallowed. Accordingly, following the above said order passed by the A.O. for earlier years, the A.O. disallowed the claim of repairs & maintenance on leased premises in both the years under consideration. 45. Before Ld. CIT(A), the assessee contended that the expenditure incurred on improvement made in the lease hold premises should be allowed as revenue expenditure. It was submitted that in A.Y. 2000-01 & 2001-02, the assessee had put up an alternative claim before Ld. CIT(A) that depreciation should be granted on the disallowed amount, if the contention of the assessee for deduction as revenue expenditure was not accepted. It was submitted that Ld. CIT(A) had accepted the alternative contention of the assessee and directed the A.O. to allow depreciation. The Ld. CIT(A), following his decision rendered for assessment years 2000-01 & 2001-02 accepted the alternative contention of the assessee and directed the A.O. to allow depreciation on the disallowed amount. 46. The Ld A.R submitted that an identical issue was examined by the coordinate bench in AY 2000-01. The Ld D.R supported the order passed by Ld CIT(A) on this issue. 47. We heard the parties on this is....
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.... said amount from the net profit declared by the assessee in order to arrive at "profits of business" for the purpose of computing deduction u/s 80HHC of the Act. 50. Before Ld. CIT(A), the assessee furnished the details of other income categorizing the items into those covered by clause (baa) and items not covered by clause (baa). For the sake of convenience, we extract below the table extracted by the Ld. CIT(A) in assessment year 2002-03: Nature of expense Total Covered under (baa) Not covered under (baa) Scrap sales 2,03,09,116 - 2,03,09,116 Rent income 55,01,265 55,01,265 - R&D Income 7,23,493 7,23,493 - Sales Tax refund 12,957 - 12,957 Insurance claims 92,57,875 92,57,875 - Commission income 2,55,48,241 2,55,48,241 - Duty drawback 15,49,923 15,49,923 - Compensation in lieu of notice 2,70,275 2,70,275 - Fees from group companies 5,60,501 - 5,60,501 Others 1,12,47,407 1,12,47,407 - Dividend 5,05,000 - 5,05,000 Dividend - nontrade 5,75,000 - 5,75,000 Interest 26,00,000 26,00,000 - Interest - bank 1,89,57,000 1,89,57,000 - Interest - others 18,33,000 18,33,000 - Profi....
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....ified. 14. As far as insurance claim and income from cancellation of orders is concerned, it has been held by the Hon'ble Bombay High Court in the case of Pfizer Ltd., 330 ITR 62 (Bom) that nexus of the income with the business has to be seen. The ld. counsel for the assessee pointed out that insurance claim is relatable to its business and income from cancellation of contracts is also relatable to its business being damages for breach of contract. 15. We are of the view that the plea made by the assessee deserves to be accepted, subject to verification by the AO with regard to receipts on account of insurance claim and income from cancellation of order and its nexus with the business of assessee. 18. As far as commission is concerned, the plea of ld. counsel of the assessee is only for netting of the commission expenses against commission receipts and only excluding 90% of net commission. The plea made in this regard is accepted, 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 ....
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....ing within the ambit of explanation (baa) to section 80HHC of the Act, since the Ld A.R did not press the same. We also hold accordingly. (e) In this year, the assessee has earned "R & D Income". It is not shown to us that it is intricately related to the business carried on by the assessee. Accordingly, we hold that this item of income shall fall within the ambit of Explanation (baa). (f) The only remaining item is interest income received by the assessee from bank and others. There are three items of interest income shown in column 3 of the table. This income is expressly stated to be excluded in explanation (baa) to section 80HHC of the Act. Accordingly, we uphold the order of Ld. CIT(A) on this issue. 53. In assessment year 2003-04 also, the assessee has raised an identical issue. The Ld. CIT(A) has extracted the details of miscellaneous income furnished by the assessee in a tabular form: Nature of expense Total Covered under (baa) Not covered under (baa) Scrap sales 41,78,000 - 41,78,000 Rent income 57,27,000 57,27,000 - R&D Income - - - Sales Tax refund 3,27,000 - 3,27,000 Insurance claims 1,31,70,000 1,31,70,000 - Commission in....
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.....R. submitted that this issue has been decided against the assessee in assessment year 2000-01. We also notice that the coordinate bench has decided the issue against the assessee by following the decision rendered in the assessee's own case in assessment year 1997-98 and 1999-2000. For the sake of convenience, we extract below the discussion made by the Tribunal in assessment year 2000-01. 2. We shall first take up for consideration the appeal by the assessee in ITA No.3959/Mum/2004. As far as ground No.1 raised by the assessee is concerned, the same reads as follows:- "1. The learned CIT(A) erred in confirming that head office expenses is required to be allocated while arriving at the profit of the industrial undertaking for the purpose of allowing deduction u/s 80-I / 80-IA of the Income Tax Act." 2. The assessee is a company engaged in the business of various engineering fabrication, manufacture and trading of mechanical, electrical and other engineering items. The dispute raised by the assessee in ground No.1 is with regard to deduction u/s. 80IA of the Act. It is not in dispute that the assessee was entitled to deduction u/s. 80IA. The AO while allowing deduction u/s. 8....
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....ontained in sections 28 to 43 of the I.T. Act. Therefore all expenses, whether they are direct or indirect or fixed, semi-fixed or variable, must be adjusted to determine the profits derived from the industrial undertaking. Of course, any component of Head Office expenses, which has been incurred exclusively for the purposes of the business of any particular unit/undertaking/division will have to be adjusted against the receipts of that particular unit/undertaking/division only. Similarly, Head Office expenses or expenses which are common to all the units/undertakings/divisions expenses will have to be spread over and charged against the receipts of all the units/undertakings/divisions. If this course is not followed, then what would stand allowed u/s 80IA would be inflated profits and not the net profits derived from the industrial undertaking in terms of the provisions of sections 29 to 43. In this view of the matter and in the absence of any better alternative, the CIT(A) is justified in holding assessee is entitled to deduction of the eligible amounts in respect of the profits derived from the eligible undertakings after the allocation of head officeexpenses in the ratio of tur....
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....at the claim is for fees received for developing and providing designs and drawings, As per the provision of section 80 0 of the Income Tax Act design and drawings need not be registered for availing the deduction under the aforesaid section. In the facts and circumstances of the case your appellant is entitled for deduction u/s 80-0 for fees received in foreign currency." 15. This issue came up for consideration before the Tribunal in ITA No.3330/Mum/2004 for AY 1999-2000 and vide order dated 5.4.2019 it was held as under:- "28. We have given a careful consideration to the rival submissions. As far as the evidence filed by the assessee to show that it had supplied designs for use outside India by a foreign enterprise, the assessee filed copy of invoices at pages 21-23 of PB. The same is as under:- INVOICE (dated 23.06.98) Consignee 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 Amount USD TECHNICAL SERVICE CHARGE Charges for Mechanical Design Drawing FAA-5*45M-2*24M-150M-A2 1 Lot. ....
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....reign enterprise outside India. In fact, on similar grounds, the Tribunal in ITA No.3089/Mum/2003 in assessee's own case for the AY 1998-99, upheld the order of CIT(Appeals) with the following observations:- "10.5 We have heard the rival submissions and perused the materials on record. On a close observation of the reasoning of the CIT(A) in rejecting the assessee's claim, it is observed that the assessee's representative was specifically asked to furnish a copy of agreement entered into Swiss Company. However, the learned AR admitted that no such agreement existed in respect of services rendered and what has been claimed as deduction was merely on the basis of invoices raised for the purpose, The main contention of the assessee all along was that it had provided certain engineering designs for the power plant(s) which Swiss company was, according to the assessee, to set up in India. However, no copies of engineering designs purported to have been provided to the foreign company were furnished for verification/examination even at this stage. As admitted by the learned AR before the first appellate authority, no agreement worth the name has been entered into with Swiss com....