TaxTMI 
TaxTMI 
2025 (6) TMI 1295
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....er and disposed of by this common order for the sake of convenience. ITA No. 1416/Del/2011-AY 1998-99 3. The Ground Nos. 1 and 6 raised by the assessee are general in nature and does not require any specific adjudication. 4. The Ground No. 2 raised by the assessee is challenging the confirmation and disallowance of Rs. 3,92,92,190/- towards provision for leave encashment. 5. We have heard the rival submissions and perused the materials available on record. The assessee is a Govt. of India Enterprise engaged in the business of trading and manufacturing of various commodities which are exported or imported and sold in domestic market as well. The assessee company filed its return of income for AY for 1998-99 on 20.11.1998 declaring total income of Rs. 82,58,101/- u/s 115JA of the Act and a sum of Rs. 3,02,82,098/- under normal provisions of the Act. The return was accompanied by auditor's report, balance sheet, profit and loss account, tax audit report u/s 44AB of the Act and audit report u/s 80HHC of the Act. During the previous year relevant to the assessment year 1998-99, the assessee for the very first time and in line with the guidelines issued by the Institute of Ch....
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....ote that during the remand proceedings, the ld AO vide remand report dated 16.01.2002, categorically observed that the provision made during the relevant year may be allowed as deduction. The relevant observations of the ld AO are extracted as under:- "It may be mentioned here that previously this provision was not claimed as liability. I, however, do not agree with the point of view that the entire amount should be allowed but only the provision made during the year and whatever amount may be allowed as deduction and balance may be disallowed." (emphasis supplied) 6. However, the ld CIT(A) proceeded to deny the claim of provision on the alleged ground that the assessee failed to substantiate that liability for leave encashment had arisen during the assessment year 1998-99. 7. A sum of Rs. 1,57,07,810/- was allowed as deduction in AY 1999- 2000 and a sum of Rs. 3,92,92,190/- being provision made for AY 1998-99 was disallowed. This was upheld by the ld CIT(A). 8. We find that the main grievance of the revenue is that this provision was not claimed in the return of income by the assessee. Since, the time limit for filing revised return had expired, the assessee made....
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....lances and also on short term deposits Rs. 1,09,60,832 Earned from customers against credit facilities extended to them Rs. 3,56,42,109 From intercorporate deposits on short term basis Rs. 14,10,411 From staff advances Rs. 3,45,79,775 From tax free bonds of different PSUs Rs. 13,92,30,786 Total Rs. 22,18,23,913 Interest Paid Particulars Amount To Banks Rs. 4,78,57,637 On public deposits Rs. 10,42,63,547 On intercorporate borrowings Rs. 2,74,34,674 On other account, mainly interest paid to UBS against gold loan Rs. 1,59,95,593 Government (Department of Fertilizer) against supplies of fertilizer Rs. 35,699 Total Rs. 19,55,87,150 12. In the impugned assessment order, the ld AO excluded the net interest income of Rs. 2,62,36,763/- (ie. Rs. 22,18,23,913/- less Rs. 19,55,87,150/-) from 'business income‟ for the purpose of computing deduction under section 80HHC of the Act. On appeal, the ld CIT(A) directed the ld AO to treat interest from banks, customers against credit facilities, inter-corporate deposits and PSUs as business income, in line with the decision rendered for assessment year 200....
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....rior period expenses incurred are provided as under:- Expenditure/Purchase Amount Cost of Sales 2,24,13,589 Salary & Allowances 21,95,571 Administrative Expenses 24,74,880 Interest (16,78,763) Others 2,97,355 Depreciation (81,512) Total 2,56,21,120 Income/Sales Sales (16,58,957) Interest 97,65,023 Other receipts 23,25,682 Total 1,04,31,748 Total (Net) 1,51,89,372/- 17. It was argued by the ld AR that the aforesaid prior period expenses was disallowed by the ld AO on the ground that such expense did not pertain to the assessment year 1998-99. However, for the purpose of compotation of deduction u/s 80HHC of the Act, the ld AO included the same as part of indirect cost. On appeal, the ld CIT(A) though allowed the deduction claimed in respect of prior period expenses, but proceeded to confirm the action of the ld AO in including it as part of 'indirect cost for the purpose of computation of deduction u/s 80HHC of the Act simply on the ground that the same was allowed as business deduction. 18. In this regard, it would be relevant to understand that assessee has been separately allowed ....
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....ves/ exgratia which would have to be construed as wholly and exclusively incurred for the purpose of the business of the assessee. Hence, we have no hesitation to hold that said provision is a ascertained liability duly eligible for deduction and provisions of Section 43B of the Act cannot be applied at all for the same. Accordingly, Ground No. 5 raised by the assessee is allowed. 22. In the result, the appeal of the assessee for AY 1998-99 is partly allowed for statistical purposes. ITA No. 216/Del/2005 AY 1999-2000 23. Ground Nos. 1 and 13 raised by the assessee are general in nature and does not require any specific adjudication. 24. Ground Nos. 2 and 3 raised by the assessee are challenging the action of the ld CIT(A) in upholding the disallowance of claim of write off of Rs. 101.37 lacs towards pre operative expenses of MITCO which got merged with assessee w.e.f. 01.04.1994. 25. We have heard the rival submissions and perused the materials available on record. It was submitted that the assessee is a public limited company incorporated on 26.09.1963 under the erstwhile Companies Act, 1956 and during the relevant year was engaged in the business of trading and exp....
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....pany M/s. MITCO This certificate is issued subject to the condition that the total tax benefit under Section 72(A) (ii) of the Income Tax Act to be availed by the amalgamated company does not exceed Rs. 663.12 lakhs envisaged in the Scheme sanctioned by the Board Order dated 08.04.96. It is further confirmed that Certificate whether filed along with the Return of Income or filed subsequently with the concerned Income Tax Authorities shall be deemed to be considered as due compliance of the provisions of Section 72A of Income Tax Act, 1961." (emphasis supplied) ) Copy of BIFR certificate is enclosed at pages 175 of the Paper Book. 26. It is pertinent to note that restriction of the aforesaid benefit was in respect of accumulated losses and depreciation u/s 72A of the Act relating to MITCO was for the period prior to amalgamation. The said restriction had nothing to do with the post- amalgamation event, i.e., events post 1.04.1994. It may also be pertinent to note that the claim of the assessee in respect of the aforesaid preoperative expense was allowed in the first year of claim i.e., assessment year 1997-98, after specific query being raised by the ld....
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....0. It may also be pertinent to note that the claim of deduction in respect of preoperative expense has also been allowed in assessment year 2000-01. It is submitted that the ld AO / ld CIT(A) failed to appreciate that the BIFR vide its order/ certificate, merely provided that the benefit of adjustment of accumulated losses/ unabsorbed depreciation of MITCO in terms of section 72A of the Act alone would stand restricted to Rs 663.12 lakhs and nowhere provided for any capping/restriction in respect of other expenses. 27. it was submitted that as per Section 32 of Sick Industrial Companies Act, 1985, the provisions of the scheme approved by BIFR has overriding effect over anything inconsistent contained in any other law, which includes the provisions of Income Tax Act also. Reliance in this regard is placed on the CBDT Circular dated 31.08.1990 and the decision of Hon'ble Delhi High Court in the case of Lord Chlora Alkalies Ltd Vs. DGIT in WP(C) No 1915/2013 dated 19.07.202(Del). The total tax benefit eligible u/s 72A of the Act has been provided in the BIFR order for Rs. 663.12 lacs which is enclosed in page 162 of the Paper Book. It is pertinent to note that the restriction o....
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.... assessee's own case by this Tribunal in ITA No. 1722/Del/2006 dated 30.03.2023 for AY 2003-04 wherein, by placing reliance on the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. vs. CIT reported in 343 ITR 89 (SC), the Tribunal held only the net interest is to be considered while computing deduction u/s 80HHC of the Act. Hence, respectfully following the same, the Ground No. 5 raised by the assessee is allowed. 33. Ground No. 6 raised by the assessee is challenging the action of the ld CIT(A) in upholding the action of the ld AO by including the certain items (as detailed below in later part of this order) as part of indirect cost for working out deduction u/s 80HHC of the Act. 34. We have heard the rival submissions and perused the materials available on record. In the computation of total income, the assessee claimed deduction u/s 80HHC of the Act amounting to Rs. 19,19,99,875/-. The claim of the assessee was supported by report of the Chartered Accountant u/s 80HHC(4) of the Act. The ld AO, however, recomputed the claim of deduction u/s 80HHC of the Act at Rs. 14,67,44,405/- as against deduction of Rs. 19,19,99,875/- claimed by t....
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.... AO cannot take a different figure as part of indirect cost which is not reflected as expenditure in the profit and loss account. Hence, relief is granted to the extent of Rs. 4,28,97,914/- (Rs. 7,63,25,036- Rs. 3,34,27,122/-) to the assessee in respect of bad debts as not to be treated as part of indirect cost. 37. With regard to actual bad debts written off Rs. 3,34,27,122/- we find that same is part of total administrative and general expenses of Rs. 35,93,12,072/- which fact is evident from page 40 of Paper Book containing audited financial statement. Hence, inclusion of bad debts written off of Rs. 3,34,27,122/- again as separate line item in Annexure A to computation of deduction u/s 80HHC as part of indirect cost, tantamount to double addition. Hence, we direct the ld AO to remove Rs. 3,34,27,122/- as part of indirect cost while computing deduction u/s 80HHC of the Act. 38. To provide clarity, we hold that the entire sum of Rs. 7,63,25,036/- (3,34,27,122/- +Rs. 4,28,97,914/-) on account of bad debts should not be treated as part of indirect cost while computing deduction u/s 80HHC of the Act in the facts and circumstances of the instant case and in view of the observat....
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....g the action of the ld AO in upholding the action of the ld AO by taking the gross rental income instead of net rental income as part of other income and reducing 90% therefrom while computing deduction u/s 80HHC of the Act. 44. We have heard the rival submissions and perused the materials available on record. The rental payment made by the assessee was more than the rental income earned by the assessee. The assessee considered net rental income, if found to be positive in the deduction u/s 80HHC of the Act. The ld AO took the gross rental income, which stood upheld by the ld CIT(A). We find that this issue is no longer res integra in view of the decision of the Tribunal in assessee's own case for AY 2003-04 in ITA No. 1722/Del/2006 dated 30.06.2023 wherein, it has been held that net rental income should be considered by placing reliance on the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd Vs. CIT reported in 343 ITR 89. Accordingly, Ground No. 7 raised by the assessee is allowed. 45. Ground No. 8 raised by the assessee is challenging the order of the ld CIT(A) in upholding the action of the ld AO in treating the following items as ....
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....purpose. Hence, we proceed to adjudicate the same at the level of Tribunal directly. It is a fact that a sum of Rs. 9,78,490/- is credited as part of other income on account of profit on sale of assets and whether this receipt is to be construed as capital receipt or revenue receipt is of no relevance as far as computation of deduction u/s 80HHC of the Act. All said and done, this profit on sale of assets has been credited by the assessee itself in its profit and loss account considering it as revenue receipt. No revised return or no revised computation was made by the assessee to shift the same as capital receipt either during the course of assessment proceedings or during the course of first appellate proceedings or during before us. Hence, that question per se need not be gone into at all at this level. Be that as it may, the said receipts have been credited in the profit and loss account. The same would have to be considered as part of other income. Consequently, need to be part of the computation of deduction u/s 80HHC of the Act. Hence, we do not find any infirmity in the action of the lower authorities in this regard. Accordingly, Ground No. 9 raised by the assessee is dismi....
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....on in respect of profits derived from export and in case of an exporter like present assessee who is engaged in both export of trading goods i.e. goods other than, one manufactured by the assessee and also goods manufactured by the assessee, then the profits derived from export which formed the basis for deduction under the said section is computed in accordance with formula prescribed in sub-section (3) of sub section 80HHC of the Act. It was submitted that Chapter VI-A of the Act deals with deduction to be made in computing total income. According to section 80A of the Act, in computing the total income of assessee deductions specified in section 80C to 80U are allowed from gross total income. It was submitted that the only limitation contained in sub section 2 of section 80A is that the aggregate deduction under Chapter VI-A of the Act cannot exceed the gross total income which is defined in section 80B(5). It was submitted that the aforesaid interpretation establishes that first the gross total income has to be computed and thereafter deductions if any under Chapter VI-A of the Act have to be made. It was submitted that in the case of assessee the profit eligible for deduction ....
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....ved that the assessee had reported profit of the business at Rs. 2,47,088,375/- while profits from export of trading goods at Rs. 33,78,35,239/-. The Gross Total Income (Revised) was submitted at Rs. 19,13,55,170/- and the Id AO arrived at Business income of (-) 913479702/- after reducing the interest income and dividend and in alternative the adjusted business profit is calculated at (-) Rs. 313591737/- after reducing the interest income and 90% of other income including dividend income. 29. Now, in regard to manner of treating interest income of assessee the issue has been restored to the files of Ld AO. Therefore, the effect giving order has to passed by the ld AO and the Business income has to be re-calculated. Similarly on determination of ground no 3 as above and also the interest income issue as determined by previous orders, the 'Adjusted business profit has to be recalculated. Therefore, by merely relying the decision of Hon'ble Supreme Court in IPCA Laboratories Ltd. Case, the 80HHC deduction can not be declined as adjusted business profit has to be recomputed and may not be in minus. 29.1 At the same time in regard to the applicability of Sectio....
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....n 80C to Section 800 of the Act shall be allowed from his 'gross total income'. Sub-section (2) of Section 80A of the Act provides that the aggregate amount of the deductions under Chapter VIA shall not exceed the 'gross total income' of the Assessee. We are in agreement with the Appellate Authority that Section 80AB of the Act which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of 'net income'. 30. Therefore, these grounds no 4 to 6 are allowed for statistical purpose while directing the Ld. AO to recompute the deduction u/s 80HHC, while giving effect to the judgment of Hon'ble Supreme court in Commissioner of Income Tax-1 versus Reliance Energy Ltd.(Supra)." 55. Respectfully following the same, the Ground No. 11 is restored to the file of the ld AO to recompute the deduction u/s 80HHC of the Act in the light of the judgment of Hon'ble Supreme Court in the case of Reliance Energy Ltd reported in 127 taxmann.com 69 (SC) . Accordingly, Ground No. 11 raised by the assessee is allowed for statistical purposes. 56. Ground No. 12 raised by the assessee is to be ....
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....e assessee while computing the amount admissible for deduction u/s 80HHC of the act had considered net interest (interest paid less interest income) in the indirect cost. The revenue considered gross interest paid. This issue is no longer res integra in view of the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd Vs. CIT reported in 343 ITR 89 (SC) wherein it has been held only the net interest is to be considered. Respectfully following the same, Ground Nos. 5, 6 and 9 raised by the assessee are allowed. 65. Ground Nos. 10 to 10.2 raised by the assessee are challenging the disallowance u/s 14A of the Act. 66. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had earned dividend income at Rs. 2,97,04,556/- from the Units of Unit Trust of India which was claimed as exempt u/s 10 of the Act. The ld AO disallowed proportionate interest expenses of Rs. 1,61,69,085/- u/s 14A of the Act as expenses incurred for the purposes of earning exempt income which stood confirmed by the ld CIT(A). There is no question of applicability of computation mechanism provided in Rule 8D(2....