TaxTMI 
TaxTMI 
2022 (12) TMI 1598
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.... "1. The learned CIT(A) erred in not directing the assessing officer to allow full deduction of Rs.13,01,37,812/- under Sec. 80HH and Rs. 4,96,91,57,589/- u/s 80-1/1A as claimed by the appellant. 1.1 The learned CIT(A) erred in holding that for the purposes of section 80HH and 80-1/IA the profits derived from the new industrial undertakings ought to be reduced by the amount of certain common expenses incurred at the Head Office on central departments such as Audit, Legal & Secretarial, Shares dept., Selection & Training, Central accounts & Treasury etc. which cannot be identified with any of the industrial undertakings of the appellant eligible for deduction u/s 80HH/80I/IA. 1.2 The learned CIT(A) failed to appreciate that the appellant has allocated all the expenses including those common expenses which were relevant to compute the profit derived from the concerned industrial undertakings such as marketing, sales & distribution, Purchasing, Export department etc. 1.3 The learned CIT(A) failed to appreciate that the Head Office expenses, not allocated by the appellant, are only those overheads which in any case have to be incurred by the appellant irresp....
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....rnover to the turnover of each of the units. (b) Similarly, Overhead Expenses which were not related to the eligible undertakings were also allocated by the Assessing Officer in the ratio turnover of each unit to total turnover. (c) At the same time the Assessing Officer adopted contrary and narrower approach [i.e. 'profit derived from' and not 'profit attributable to'] in respect of the incomes, the Assessing Officer did not allocate the incomes like Premium, CCS, Royalty etc. (which were not allocated by the Assessee). It was contended by the Assessee, on without prejudice basis, that if additional head office expenses as worked out by the Assessing Officer were to be allocated to various eligible undertakings, in that case, even similar incomes like CCS, premium on licenses, Royalty etc also should have been allocated. 5. The CIT(A) rejected the contention of the Assessee and dismissed grounds raised by the Assessee in this regard. Being aggrieved, the Assessee in now in appeal before us on this issue. 6. We have heard the rival submissions and perused the material on record. Before us, both the sides agreed that identical issue arising ou....
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....and 10 is regarding allocation of expenses at head office while computing deduction under section 80HH and 80I of the Act. The assessee is a multi unit organization. The expenses of head office which remained unallocated to different units were allocated by the AO in the ratio of turnover of a particular unit to the total turnover and reduced from the profit of business and only from the balance profit, deduction under section 80HH and 80I was allowed @ 20%. In appeal the CIT(A) allowed part relief aggrieved by which, the assessee is in appeal before the Tribunal. 9.2 After hearing both the parties, we find that this issue is covered by the decision of the Tribunal in Assessment Year 1988-89 (supra). The Tribunal noted that in Assessment Year 1985-86, the co-ordinate bench of the Tribunal had considered the same issue and noted that CIT(A) had given specific direction not to allocate certain expenses such as expenses of chairman, company secretary, public relation department and salary and wages and staff welfare expenses relating to Financial Controller and Chief Medical Officer as these were in no way connected to the running of the units. The Tribunal found no infirmity....
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....80-I/IA of the Act, the Assessing Officer reduced the losses incurred in earlier years/unabsorbed depreciation of some of the units by notionally carrying it forward to the current year. These units were (i) Concentrated Detergent Powder undertaking at Chhindwara, (ii) Personal Products undertaking Pondicherry, (iii) Detergents undertaking at Daman and (iv) Tea unit at Silvassa. 11. Being aggrieved, the Assessee carried the issue in appeal before the CIT(A). It was contended by the Assessee before CIT(A) that these losses had already been adjusted against profits from other units in earlier years itself and that there was no loss on unabsorbed depreciation being carried forward under sec. 72 or Sec. 32(2) of the Act. Therefore, such an adjustment on a notional basis was unwarranted. Further Sec. 80AB dearly specified that deduction under Section 80-I/IA was to be allowed with reference to the profit included in the Gross Total Income. Since, in arriving at the Gross Total income, no adjustment has been made for any losses, the same could not be reduced on a notional basis for the purposes of allowing deduction under Sec. 80I/IA of the Act. 12. We have heard the rival contenti....
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..../s 80I. Facts of this year are identical. Therefore, respectfully following the decision of Tribunal in assessment year 1988-89 (supra), we confirm the order of CIT(A) in relation to deduction u/s 80HH and set aside the order in relation to sec.80I on which the order of Assessing Officer is restored." 38.1 Following the order of the Tribunal for the earlier years, we decide this issue against the assessee." 13. In view of the specific provisions contained in Section 80IA(6) of the Act and the judgment of the Hon'ble Supreme Court in the case of Synco Industries Ltd. vs. Assessing Officer: 299 ITR 444, this issue raised in Ground No. 3 to 3.2 were decided against the Appellant by the Tribunal in the above decision. Respectfully following the same, we decide the issue against the Assessee and confirm the order of CIT(A) on this issue. Ground No. 3 to 3.2 raised by the Assessee are dismissed. 14. Ground No. 4 to 4.1 4. The learned CIT(A) erred holding that sundry sales, sale of miscellaneous products income from services rendered are required to included total turnover for the purposes of computing deduction under sec. 80HHC. 4.1 He failed to appre....
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.... the Assessing Officer to either include or exclude in the 'turnover' the amount of sundry sales, sales of miscellaneous items and income from services in light of decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. K. Ravindranathan Nair: 295 ITR 228. Accordingly, Ground No. 4 to 4.1 are allowed for statistical purposes. 20. Ground No. 5 to 5.2 "5. The learned CIT(A) erred in confirming that 90% of the following amounts are to be reduced from the profits gains from business for the purposes of allowing deduction under Sec. 80HHC. i) Interest (gross) : 1,33,80,70,295 ii) Commission : 1,65,50,780 iii) Royalty : 87,40,060 iv) Other Income : 8,62,91,416 5.1 The learned CIT(A) failed to appreciate and ought to have held that since the appellant had also incurred interest expenditure, there was no justification in reducing 90% of the gross amount of interest receipts from the profits of the business without considering the interest expenditure. 5.2 The learned CIT(A) further failed to appreciate that Royalty is not specified in the clause (baa) to the Explanation under sec. 80HH....
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....n Business Profits, had to be deducted from Business Profits computed in terms of sections 28 to 44D of the Income-tax Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Profits under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges, etc., formed part of gross total income being Business Profits. But for the purposes of working out the formula and in order to avoid distortion of arriving export profits clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover. Therefore, in the above formula, we have to read all the four variables. On reading all the variables it becomes clear that every receipt may not constitute sale proceeds from exports. That, every receipt is not income under the Income-tax Act and every income may not be attributable to exports. This was the reason for this Court to hold that indirect taxes like excise duty which are rec....
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.... rival submission and perused the material before us. We find that in the case of Glaxo SmithKline Asia (P.)Ltd.(supra), the Tribunal has held that the royaly income was not receipt of a similar nature as that of brokerage commission etc., that the action of the Revenue authorities in excluding 90% of the income could not be sustained. Respectfully following the above, we hold that 90% of the amount of royalty should not be reduced from the amount of profits from the business while calculating deduction under section 80HHC of the Act. We also hold that MSF is not part of the section i.e. clause (baa) to the explanation and therefore, following the decision of Glaxo (supra), we hold that 90% of the MSF should not be reduced for calculating 80HHC deduction. Ground no.11 is decided in favour of the assessee." (Emphasis Supplied) 27. Respectfully following the above, we hold that 90% of the amount of royalty should not be reduced from the amount of profits from the business while calculating Profit of Business for computing deduction under section 80HHC of the Act. Order passed by the CIT(A) to this extent is set aside and the Assessing Officer is directed to re-computed de....
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.... by the appellant. 7.2 He failed to appreciate that under Sec. 80HHC, deduction is allowed in respect of "profit' derived from exports and therefore losses incurred ought to be ignored. 7.3 The learned CIT(A) also failed to appreciate that the losses were incurred in export of traded goods which was a different business activity. 33. The Assessee was engaged in export of goods manufactured by it and also goods which were purchased by it (including goods purchased from supporting manufacturers). According to the Assessee the profit or loss on export of traded goods should not have been taken into account for the purposes of deduction under Section 80HHC of the Act in the hands of Assessee. However, both, Assessing Officer and CIT(A) rejected this contention of the Assessee. Being aggrieved the Assessee is in appeal before us. The Learned Authorised Representative for Assessee fairly submitted that this ground has been decided against the Assessee by the Tribunal in the Assessment Year 1998-99. The relevant extract of the decision of the Tribunal, dated 11.06.2021 passed in ITA No. 2201/Mum/2004 for the Assessment Year 1998-99 reads as under: "16. Af....
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.... is of both self-manufactured goods as well as trading goods. The opening part of sub-section (3)(c) states "profits derived from such export shall". Then follows (i) and (ii). Between (i) and (ii) the word "and" appears. A plain reading of sub-section (3)(c) shows that "profits from such exports" has to be profits of exports of self-manufactured goods plus profits of exports of trading goods. The profit is to be calculated in the manner laid down in sub-section (3)(c)( i) and (ii). The opening words "profit derived from such exports" together with the word "and" clearly indicate that the profits have to be calculated by counting both the exports. It is clear from a reading of sub-section (1) of section 80HHC that a deduction can be permitted only if there is a positive profit in the exports of both self-manufactured goods as well as trading goods. If there is a loss in either of the two then that loss has to be taken into account for the purposes of computing profits." (Emphasis Supplied) 35. Respectfully following the above judgment of the Hon'ble Supreme Court and the decision of the Tribunal in the case of the Assessee for the Assessment Year 1998-99, we decline....
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....8. It is admitted position that there is no change in facts and circumstances of the case. While deciding identical issues in appeal for the Assessment Year 1997-98 [ITA No. 3858 & 4048/Mum/2003, 28.07.2017] the Tribunal has held as under: "8. Next ground (GOA-10) is about provision of retirement pension payable to employees. We would like to reproduce para 11 of AY.1996-97 and its reads as under: "11.Provision for Retirement Pension payable to employees is the subject matter of next ground of appeal. The AR stated that the issue was decided in favour of the assessee by the Tribunal while passing order for the year 1995-96. The DR argued that liability was contingent in nature, that that the assessee had not provided actuarial. We have considered the available material. We find that in the earlier year the Tribunal had dealt the identical issue as under: "13.Ground No.13 is about provision for retirement pension payable to both the employees. Representatives of both the sides agreed that the issue stands decided in favour of the assessee by the order of the Tribunal for the AY.1994- 95(supra). We are re-producing paragraph 51, page -10 of the said order a....
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....ntention of the Assessee, and disallowed INR 47,64,043/- as expenses attributable to earning of exempt dividend income by invoking provisions of Section 14A of the Act. Being aggrieved the Assessee filed appeal before CIT(A) on this issue. The CIT(A) directed the Assessing Officer to restrict the disallowance to 5% of the amount of investments. Being aggrieved the Assessee is in appeal before us. 44. The Learned Authorised Representative for Assessee submitted that this issue has been decided in favour of the Assessee in the Assessment Year 1998-99 (ITA No. 2201/Mum./2004) by following the decision of the Tribunal for the Assessment Year 2006-07 (ITA No. 7868/Mum./2010). He also submitted that since investments have been made out of surplus funds, no disallowance can be made in view of the judgment of the Hon'ble Supreme Court in the case of South Indian Bank Limited Vs. CIT: 438 ITR 1 (SC)[09-09-2021]. The Learned Departmental Representative relied upon the assessment order. 45. We note that the Tribunal had, vide order dated 10.12.2012 passed in appeal for the Assessment Year 2006-07 (ITA No. 7868/Mum/2010), restricted the amount of disallowance to 0.5% of the income cl....
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....ot required to source ice-creams under the sourcing arrangement with the suppliers. 10.3 He also failed to appreciate that the appellant did not acquire any capital asset on termination of the sourcing obligation and therefore the payment cannot be disallowed as capital expenditure. 10.4 He failed to appreciate that expenditure incurred to remove an obligation and to facilitate the business is a revenue expenditure." 48. The relevant facts are that in terms of an agreement entered into in 1995 by Brooke Bond Lipton (1) Ltd. (BBLIL) and Kwality Ice-cream, the Assessee (as successors to BBLIL) was required to exclusively source its requirements of dairy based ice-cream for the Eastern region from Kwality Ice-creams and its associates. The basis for pricing of ice-creams sourced was also specified in the sourcing agreement which prescribed a minimum off take and also look into account the overhead costs. Since BBLIL was not able to sell the required volumes, the arrangement was resulting into severe loss in the ice- cream business as the price paid by BBLIL was much higher. However, under the agreement, it was required to source the ice-cream exclusively from Kwal....
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....99 whereby identical grounds have been decided in favour of the Assessee, Ground No. 10 to 10.4 are allowed. 55. Ground No. 11 "11. The learned CIT(A) erred in confirming the disallowance of 50% of the entrance fees and subscriptions paid to clubs" 56. During the relevant previous year the Assessee had incurred an expenditure of INR 179.85 Lacs on entrance fees and subscriptions. During the assessment proceedings the Assessee justified this expenditure contending that the memberships were obtained to enable its senior employees to interact with their counterparts and colleagues in the industry for conducive interchange of ideas in relatively relaxed environment. The Assessing Officer disallowed 50% of the aforesaid expenditure holding that the possibility of personal benefit to executives could not be ruled out. In appeal, CIT(A) confirmed the disallowance holding that the Assessee had failed to provide supporting documents and details to expenditure. Being aggrieved, the Assessee is in appeal before us. 57. This is a recurring issue. Learned Authorised Representative for Assessee submitted that this issue has been consistently been decided in favour of the Assess....
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....sition that the accounting policy has been consistently been followed by the Tribunal. For the Assessment Year 2006-07, the Dispute Resolution had directed Assessing Officer to adjust the opening stock, purchases and the closing stock by considering all taxes/duties and shares and thereafter, make addition under section 145A of the Act in case there was any difference in the profits. With the same direction we remand this issue back to the file of Assessing Officer. The Assessee is directed to furnish necessary details and information to enable Assessing Officer to implement the directions. Accordingly, Ground No. 12 is disposed off as allowed for statistical purposes. 63. Ground No. 13 to 13.1 "13. The learned CIT(A) erred in confirming the disallowance of exemption u/s 10B in respect of Miscellaneous income of Rs. 26,50,593/-. 13.1 He failed to appreciate that Miscellaneous income relates to amount realised on sale of scrap generated out of normal manufacturing activity, reimbursement of Central Sales-tax and interest received on deposit with Electricity Board and is directly related to the operations carried on at the industrial undertaking." 64. The Asse....
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....he Act as applicable for the Assessment Year 1999-2000 read as under: "10B. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee." :... (Emphasis Supplied) 68. By the Finance Act, 2000 the Section 10B was substituted with effect from 01.04.2001. The substituted Section 10B(1) read as under: "10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :... " (Emphasis Supplied) 69. The amended provisions applied to Assessment Year 2001-2002 and subsequent assessment years. T....
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....s issue has been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1985-86 to 88-89. For the Assessment Year 1988-89, the Tribunal has decided this issue in favour of the assessee in para 24 as under: "24. After considering the judicial principles and facts it is noticed that there are decisions in favour of the assessee as well as Revenue depending on the facts. The Hon'ble Bombay High Court in the case of CIT vs. Zuari Finance LId. 271 ITR 538 and CIT vs. Bhor Industries P. Ltd 281 ITR 319 have not allowed similar expenses. In the case of Alfa Lavel (I) Ltd. quoted supra there was a finding given by the CIT(A) that the travel of the wives was for the purpose of business and was upheld by the ITAT. Consequently the matter was upheld by the Bombay High Court. In the case of CIT vs. Zuari Finance Ltd. (supra) the matter was remanded back to the ITAT for giving finding whether the expense is for the business purpose. In the case of Bhor Industries P. Ltd. supra again there is a factual finding that the expenditure incurred is not for the purpose of business. Coming to the present facts of the case, there is a finding given by the ....
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....o 95-96) were allowed as deductible expenses by the CIT(A), the claim of the Assessee was allowed by the CIT(A) following the earlier years decision and disallowance was deleted. 80. Being aggrieved the Revenue is in appeal before us on this issue. 81. Both the sides agreed that this issue has been decided in favour of the Assessee and against the revenue in preceding assessment years (i.e. Assessment Year 1985-86 to 1999-99) and that there is no change in the facts and circumstances of the case in the year before us. We note that in appeal preferred by the Revenue for the Assessment Year 1991-92, identical ground raised by the Revenue was dismissed by the Tribunal. The relevant extract of decision of Tribunal in the case of the Assessee for the Assessment Year 1991-92 [ITA No. 4658/Mum/2003, 08.02.2012] reads as under: "50. Ground no.2 is regarding entrance fees paid to club. 51 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that this issue has been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1986-87 and 89-90. For....
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....ortant to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under section 80HHC would become unworkable. The view which we have taken is in the light of amendments made to section 80HHC from time-to- time." (Emphasis Supplied) 85. In view of the above, Ground No. 3 raised by the Revenue is dismissed. 86. Ground No. 4 "4 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.52,58,280/- towards expenditure on rural development programme which is a social obligation and not a business expenditure." 87. The Assessing Officer disallowed Rural Development Expenses of INR 52,58,280/- holding that these expenses were in the nature of social obligation and not business expenses. Therefore, the Assessee preferred appeal before CIT(A) on this issue. 88. In appeal before CIT(A) it was contended by the Assessee that activities of the Assessee-company include business of agricultural inputs (such as high breed seeds, fertilizers, Plant Growth Nutrients) and dairy pr....
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.... programmes and infrastructure development projects etc. There is no personal element involved in the expenditure incurred by the assessee. Expenditure was closely related to the business being done by the assessee and, therefore, even if there were no specific provision for allowing such expenses, these expenses have to be allowed as incurred on commercial expediency. We see no infirmity in the order of CIT (A) in allowing the claim and, therefore, the same is upheld." 63 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee." 91. There is no change in facts and circumstances of the present case, therefore, consistent with the view taken in appeals in the case of the Assessee for the preceding assessment years, we uphold the order of the CIT(A) and dismiss Ground No.4 raised by the Revenue. 92. Ground No. 5 "5 On the facts and in the circumstances of the case and in law, the Ld. ICIT(A) erred in deleting the disallowance of Rs.20.74 crores being the deduction claimed by the assessee towards the Voluntary Retirement Scheme by considering the same to be a revenue expenditure and not a ....