TaxTMI 
TaxTMI 
2005 (6) TMI 210
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....ons were raised by the counsel for the Department, Sri E.R. Indrakumar, the relevant portion is extracted hereunder: "Memo filed by the respondent (Revenue) In relation to the aforesaid appeal, the appellant has filed the paper book with the following certificate. This is to certify that the above documents are the copies of the originals made available to the authorities below during the proceedings and only the relevant portion relating to the appeal before the Tribunal is enclosed. In this context, it is submitted that the following letters and papers, as detailed herein, have not been filed by the appellant at the time of assessment. Wipro Limited - Asst. yr. 1998-99 List of documents not filed at the time of assessment ------------------------------------------------------------- (Reply dt. 21st March, 2001) ------------------------------------------------------------- Sl. Page No. of Description No. paper book -----------------------------------------....
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....nbsp; Exp/2000070601/4881, dt. 6-7-2000, with annexure. 2. STPI, Hinjawadi-Letter No. STP/P/VIII(A)/270/2000/2459, dt. 19-9-2000 3. STPI, Bangalore-Letter No. STPIB/WIPRO Systems/Expan/ 2000051901/2053 dt. 20-5-2000. 4. STPI, Chennai....
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....pecial counsel for the Revenue, mentioned that the impugned document should not be relied on in deciding the appeals. 2.2 Sri K.R. Pradeep, chartered accountant, appearing for the appellant, strongly resisted the objections filed by the Department. He argued that the documents mentioned in sl. Nos. 1 to 5 were filed before the AO along with its letter dt. 6th March, 2001, which is found in the paper book at pp. 160 and 161, consequently, the objection is contrary to facts on record. Further, it was pointed out that these documents were specifically mentioned in para 4.2 at p. 2 of the assessment order. All copies of licenses were supplied and numbered as Vol. 6 found mentioned in the assessment order and further details submitted have also been mentioned in para 5.2 at p. 3 of the assessment order. He also brought to our attention the order of the CIT(A), particularly the para 3 at pp. 2 and 3 of his order which is extracted hereunder: "3. Ground Nos. 1 to 3 are general grounds directed at the entire assessment order. Ground Nos. 4 to 8 relate to computation of profits under s. 10A. The assessee claimed profits of Rs. 1,02,32,78,192 as exempt under s. 10A. The AO recomputed t....
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....bsp; asst. yr. ment year in which exemption under &nb....
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....p; Church, Street Side, Bangalore -88, 6th STPB/Wipro. 28-2-1994 1994-95 1997-98 Floor, Sys/94/1601 M.G.Road, Facing Church Street, Bangalore -88, IV STP/Wipro/96 4-7-1996 1997-98 1997-98 Floor, /1275 M.G. Road, Church Street Side, Bangalore ....
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....; Bangalore Kora- Koraman- STPIB/Wipro 13-1-1998 1999-2000 1999-2000 mangala gala II, /Gen/5935 -II No. 8, 1st Block, Koraman- gala Indl. Layout, Bangalore Madi- Sri Ganesh STPB/Wipro/ 19-10-1995 1997-98 1997-98 vala-I Complex 95/2097 (Ground 1st, 2nd, 3rd & 4th Floors), House List No. 271 & 271A, Madivala Village, &nbs....
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....sp; -560 068 Elec- -Electronic STPIB/ 19-12-1998 1999-2000 1999-2000 tronic City, Block Wipro City I I & VI, Plot Systems/ No. 72 & 73, Expan/ KEOICS 98071601 Electronic /2496 City, Bangalore -561 229 -Electronic STPIB/ 16-7-1998 1999-2000 1999-2000 City, Block Wipro/ 2, 3 & 4, Expan/ Plot No. 72 Gen/633 & 73, KEONICS Electronics &n....
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....nbsp; Towers, Block, /94-95/ Hydera- 2nd Floor, 2559 bad Surya Towers, S.P Road, Secundera- bad 500 003 Laxmi Laxmi STPH/IMSC 19-12-1995 1997-98 1997-98 Build- Building /95-96/ ing 1-8-446, 1416 S.P.Road, Begumpet Hyderabad 500 016 Guindy, Wipro STPK/G175 18-11-1997 1999-2000 1999-2000 Chennai Systems /97-98/ Division 2761 111....
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....ime of assessment. 2.4 We have made an effort to compare the documents found mentioned in Annex. 4 in pp. 177 to 180. We find that the documents found in page Nos. 181 to 265 are all licences issued by STPI along with certain annexures, etc. Many of these are found mentioned in Annex. 4. Further, we also find that the AO has examined several documents which can be broadly described as copies of licences and other documents issued by STPI, customs and other authorities. And most of these documents are dated prior to passing of assessment orders for asst. yrs. 1998-99 and 1999-2000. Hence, we rely on these licences, etc. as has been done by the AO and CIT(A) in framing the assessment orders. Only p. 266, as submitted by Mr. Pradeep, has been enclosed by mistake and it was produced in the assessment proceedings for the asst. yr. 2001-02 and prayed that the same be admitted as additional evidence. We find p. 266 is of no consequence for any claim made by the assessee or the Department. Hence, we rely on the paper book submitted by the appellant excepting p. 266 to decide the issues. Accordingly, we proceed with the appeal on merits. 3. Issue of allocation of corporate and group o....
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.... of Rs. 102.21 crores claimed as exempt under s. 10A. On making further adjustments to this profit, an amount of 102.32 crores was claimed as exempt in the tax return vide Annex. 111, referred supra. 5.5 The software exports narrated supra are in turn part and parcel of the turnover of 'Infotech group'. The assessee-company, M/s Wipro Ltd., comprises of five such groups and the final statements of accounts are consolidation of accounts of all these groups. Group-wise, division-wise and sub-division-wise P&L a/c and expenditure details and income details were called for and examined. The softex forms filed with STPI authorities were also called for and were examined. The sales break-up was obtained country-wise as well as customer-wise. The details of other income as well as expenditure were obtained. On perusal of all such details, the exempted income under s. 10A is now assessed as under:" Similarly, facts are found by the CIT(A) while disposing of the appeal is narrated in pp. 2 and 3, para 3, in the appellate order for asst. yr. 1998-99 is extracted below: "3. Ground Nos. 1 to 3 are general grounds directed at the entire assessment order. Ground Nos. 4 to 8 relate to co....
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....ices Divisions together form the Wipro (Infotech) Group. The organisation set-up of the Wipro (Infotech) Group is depicted as under: Wipro Infotech Group Wipro Infotech Wipro (Infotech) Systems Software & Services & Services Group Peripherals Customer Services During the course of assessment proceedings, it was submitted that the assessee-company runs each business unit as an independent profit centre. Accordingly, separate accounts are maintained for eac....
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....sp; Year of Whether Paper of STP/ licence & claim allowed book page EHTP units No. in No. earlier year or not -------------------------------------....
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.... -88, 3rd 15(45)92-SDA, -- -- -- Floor, dt. 30-4-1992 M.G. Road, Church Street Side, Bangalore -88, 6th STPB/Wipro. -- -- -- Floor, M.G. Sys./94/1601, Road, Facing dt. 28-2-1994 Church Street, Bangalore -88, IV STP/Wipro -- -- -- Floor, /96/1275, M.G. Road,&nb....
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....p; -Koraman- STPB/Wipro. 1997-98 Yes 177 to 180 gala I, Sys/96/2393, Block D, dt.19-9-1996 K-312, 5th Block, Koramangala, Bangalore -Koramangala STPIB/Wipro 1999-2000 First -- II, No. 8, /Gen/59 year 1st Block, 35, dt. Koramangala 13-1-1998 Indl.Layout, Bangalore 4. MADIVALA-I STPB/Wipro 1997-98 Yes 177 to 180 &nb....
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....nbsp; 6-8-1997 Bommanahalli, Hosur Main Road, Bangalore- 560 068 6. ELECTRONIC 1999-2000 First 177 to 180 CITY year - Electronic STPIB/ City, Blocks Wipro I & VI, Plot Systems/ Nos. 72 & 73, Expan/ KEOICS 98071601/ Electronic 2496, City, ....
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....sp; M.G. Road, Bangalore- 560 001 8. CASTLE STREET -- 1997-98 Yes 177 to 180 - Castle Street, Bangalore 9. MISSION ROAD EHTP/PER 1997-98 Yes 177 to 180 - Mission /62(93) Road, EOP 11/93 Bangalore 10. SURYA TOWERS STPH/IMSC/ 1997-98 Yes 177 to 180 94-95/2559, -E-11 Block, ....
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....sp; Satara Road, Pune- 411 037 14. GURGAON, PCMG/PSE/05 2000-01 First 177 to 180 Wipro Ltd., /025-STPIN/ year Flat No. 201, 5880, dt. Block A STP 19-3-2000 Complex, Electronic City, Sector 18, Gurgaon, Haryana 15. MYSORE -- 2000-01 First 177 to 180  ....
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....; Revenue --------------------------------------------------------------- Lavelle Road, Bangalore 26,89,04,522 4,96,29,839 26,08,69,527 6,78,20,448 M.G, Road, Bangalore 46,84,28,335 9,72,24,001 19,81,04,322 2,88,08,928 Koramangala, Bangalore 54,17,87,285 13,12,19,992 75,33,27,769 18,17,93,404 Madivala-I, Bangalore 56,14,24,496 18,45,18,968 58,42,45,884 12,78,23,641 Madivala-II, Bangalore 22,25,77,339 7,25,09,908 71,62,87,426 19,82,74,043 Electronic City, Bangalore -- -- -- (2,19,71,200) ITPL, Whitefield -- -- 41,25,64,955 6,83,21,615 Chennai -- -- 3,70,44,419 20,91,529 ....
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....0,69,175) (8,27,10,805) 3. Expenses of corporate headquarters now allocated (10,85,11,984) (9,43,52,711) 4. Royalty on software exports (2,97,73,140) (4,07,85,926) 5. Provision for doubtful advances (11,05,607) (52,20,989) 6. Provision for Bad Debts -- (1,44,36,245) 7. SIL Premium no treated as part of software turnover (1,01,35,514) (1,30,00,404) Claim allowed by AO &n....
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....sp; -- 4,04,467 Write back of credit balances in customers accounts 11,12,922 50,77,520 Reversal of sundry creditors/ stale cheques -- 49,37,397 Scrap sales of news papers, battery, etc. 62,797 9,42,643 Employees credit balances reversed 2,61,230 Others -- 7,53,366 Royalty income 47,35,446 Lease rental income -- 29,71,181 Provision for debtors/ advances no longer required -- &nb....
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.... gain 29,046 - Income not relating of s.10A units -- 4,04,467 Write back of credit balances in customers accounts 11,12,922 50,77,520 Reversal of sundry creditors/ stale cheques -- 49,37,397 Scrap sales of news papers, battery, etc. 62,797 9,42,643 Employees credit balances reversed 2,61,230 Others -- 7,53,366 Royalty income 47,35,446 Lease rental income &nbs....
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....elating to s. 10A and that the source of a particular income on which exemption is sought must directly emerge from the running of the industrial undertaking yielding profits and in doing so has relied on the decision of the Karnataka High Court in the case of Sterling Foods Ltd. vs. CIT (1985) 47 CTR (Kar) 157 : (1984) 150 ITR 292 (Kar). Aggrieved with the exclusion done by the AO, the assessee appealed before the CIT(A), who has confirmed the exclusion done by the AO. The findings on the issue as appearing in the order of CIT(A) for asst. yr. 1998-99 in p. 4 at para 4.1 are extracted hereunder: "4.1 The Authorised Representative has contended that the receipt of Rs. 62,797 on sale of newspapers, stationery, batteries, etc. merely represents the recovery of scrap value against the expenditure incurred. It is argued that since the expenditure goes to reduce the profits exempt under s. 10A, the realization from sale of such scrap should be regarded as a recovery of the expenditure incurred. The argument of the Authorised Representative is not tenable. The amount received from sale of newspapers, etc. cannot be construed as profits derived from industrial undertaking eligible unde....
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....ted units. The expenses of such nature have reduced the eligible profit of the export-oriented unit. When the same items of expenses are reduced while calculating the eligible profit, the income which actually reduces such type of expenses should not be treated as other income not forming part of profit of eligible business. While calculating the profit of the eligible business, the expenses and the income of the same unit are required to be netted out. The expenses and the income are relatable to the same nature. We direct that the computation should be made after netting out the expenditure by reducing the income of the nature in dispute. In other words, though it cannot be held that the income of the nature in dispute is income arising out of the activity of an export-oriented unit, however, the expenses are to be calculated on net of income basis. In the result, the income of the eligible business of a unit as prescribed under s. 10A will go up by an amount of Rs. 21,142. The ground is, therefore, accordingly allowed." Therefore, following the said decision, we reverse the orders of the authorities below on this issue and direct the AO to follow our decision in relation to s....
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....nbsp; (Rs.) -------------------------------------------------- 1. Write back of credit balances 50,77,520 2. Sundry creditors/stale cheques 49,37,397 3. Reversal of employees credit balances 2,61,230 -------------------------------------------------- 5.2 The appellant had shown the above receipts/income as falling under the provisions of s. 10A as it is related to the industrial undertakings coming under s. 10A. In the assessment, the AO has considered it as income not derived from software export business and that the source of a particular income on which exemption is sought must directly emerge from the running of the industrial undertaking yielding profits and in doing so, has relied on the decision of the Supreme Court in the case of Sterling Foods Ltd. Assessee appealed before the CIT(A), who has confirmed the exc....
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....ved in the present appeals are similar in nature to that decided by the Tribunal and prayed for issuing directions to the AO, not to exclude the above receipts/income while determining the profits of industrial undertakings coming under s. 10A. 5.4 Sri. Indrakumar, in reply, has filed written submissions on the above issues, for sake of convenience, the submission are extracted hereunder: "(2.2) It is submitted that the appellant is claiming that the foregoing receipts/income fall within the purview of the provisions of s. 10A of the IT Act. As such, at the outset, it is extremely relevant to refer to the contours of the provisions of s. 10A of the IT Act. The provisions of s. 10A of the IT Act provide for exemption in respect of profit and gain derived from an industrial undertaking. The thrust of the provisions of s. 10A of the IT Act providing for exemption relates to 'income derived from the source referred to therein1. It is, therefore, an essential ingredient of the provisions of s. 10A of the Act that to be in the nature of eligible profit/gain, the income must be one 'derived' from the particular source. The meaning of the expression 'derived' so referred to and emplo....
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....ires that such profits must have been derived from the industrial undertaking. The industrial undertaking must itself be the source of that profit. The business of that industrial undertaking must directly yield that profit. It must be direct source of that profit and not a means to earn any other profit. 'Source' means not a legal concept but something which a practical man would regard as a real source of income. The assessee may have separate sources of income-s. 3(3) of the Act. All taxable income must necessarily have a definite source. If that is the concept of the 'source', can we legitimately say that the profits and gains derived by the sale proceeds of the import entitlements must be held to have been derived from the industrial undertaking of the assessee. Far from it, the import entitlements were awarded by the Central Government under a scheme to encourage exports. The source referable to the profits and gains arising out of the sale proceeds of the import entitlements would, therefore, be the scheme of the Central Government and not the industrial undertaking of the assessee. The Hon'ble Supreme Court has approved the aforesaid decision of the Division Bench ....
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....id reasons as to why such amounts cannot be considered as eligible profit and gain derived from such source as envisaged under s. 10A of the IT Act. Also, having regard to the rulings of the Hon'ble jurisdictional High Court as well as the Supreme Court in the case of Sterling Foods, referred to earlier, the said amounts in question cannot be considered to be falling under s. 10A of the IT Act". 5.5. We have gone through the records, submissions and the decisions relied on by both sides. We find that the issues involved in the present appeal are similar in nature to that decided by the Tribunal in ITA No. 651/B/1994 for the earlier years. Though the findings are in relation to similar issue under ss. 80HH and 80-I, the said findings are applicable to the issue on hand as the provisions of s. 10A and ss. 80HH and 80-I are pari materia on such issues and following the said decision we hold that the receipts/income mentioned supra are eligible for exemption under s. 10A. It may be noted that we are dealing with appeals pertaining to asst. yrs. 1998-99 and 1999-2000. Sec. 10A, as it then stood, provided for exclusion of any profit derived by assessee from industrial undertaking to w....
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....addition and in stating that other income of Rs. 7,53,366 was essentially miscellaneous income and hence cannot be held as income derived from software exports. The learned CIT(A) failed to appreciate that such income were directly relatable to the business of software exports." 7.1 The details of miscellaneous income of Rs. 7,53,366 apparently have not been furnished by the assessee. On perusal of the records indicates that these details also have not been furnished before the AO or CIT(A). No plausible reason has been given by the appellant even before us. Hence, the action of AO is confirmed and the addition as made by the AO stands and the assessee's ground is dismissed. 8. The next issue raised by the appellant in its grounds of appeal for asst. yr. 1999-2000 as ground No. 12 which is extracted hereunder: "12. The learned CIT(A) erred in confirming the addition and in not considering royalty income of Rs. 47,35,446 as profit derived from s. 10A units." 8.1 The assessee has earned a sum of Rs. 47,35,446 as royalty from the software products it has developed and licensed during the course of its carrying on of business. The AO is of the view that royalty earned canno....
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....of product, enabling the use of product, licensing of products, deputing engineers for rendering services from India to outside India for export of products or services specifically mentioned in sub-s. (a) or in sub-s. (b) of Explanation mentioned supra and as listed in notification, all of which fall into the export of computer software for which deduction under s. 10A must be given. Thus, royalty received the clearly falls into earning from software product from export. As noted by us earlier in para 5.5, what is to be seen while computing deduction under s. 10A is whether the profit is derived from the undertaking to which section applies. Unlike the amended provision w.e.f. 1st April, 2001, there is no requirement that the profit has to be derived from export of articles or things or computer softwares. The royalty is received from the products earlier developed by the eligible undertaking to which s. 10A applies. Accordingly, we hold that income from royalty is part of the export turnover of the undertaking and is entitled to relief under s. 10A. Accordingly, the assessee is entitled to succeed on this issue and we direct the AO to grant relief of Rs. 47,35,446. 9. The a....
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.... 1/9th of the original cost. The stock has to be valued at cost or market price. The AO asked the assessee to furnish the item-wise break-up of stock resulting in valuation at Rs. 25,00,000. The assessee explained that the entire stock was valued at lump sum price. There was no justification to value the stock at Rs. 25,00,000. Hence, the AO rightly disallowed the claim of loss arising out of valuation of stock against the principles of accounting, amounting to Rs. 1,75,95,641. Even during the appellate proceedings, no break-up of stock inventory to substantiate the valuation of Rs. 25,00,000 was furnished. I find no reason to interfere with the order of the AO. The disallowance of Rs. 1,75,95,641 is confirmed." 10.2 Before us, Sri K.R. Pradeep, arguing for the assessee, submitted that the facts in relation to claim of loss from discontinuance have been erroneously appreciated by the authorities. He also submitted the following chart explaining and quantifying the loss claimed by him as appearing in the books of account. Loss from Apple Products ---------------------------------------------------- &nb....
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....sp; 57,78,336 ---------- ----------- ------------ 6,41,05,747 2,61,95,923 9,03,01,670 ----------- ----------- ------------ Operating loss (2,55,84,099) (1,65,60,602)(4,21,44,701) --------------------------------------------------------- First of all, the business of dealing in Apple Products was part of larger hardware and hardware component business carried on by the assessee. The dealing of the Apple Products, USA, was not an independent business. Secondly, the analysis of the loss claimed by the assessee as per the break-up given above indicates that the appellant has incurred an operational loss of Rs. 2,55,84,099 from Apple Products and Rs. 1,65,60,602 from the product support segment. The operational loss was inc....
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....ect of discontinuance of business regarding Apple Product. The appellant had claimed total loss from discontinuance of Apple Product business in the sum of Rs. 4,23,71,186 consisting of various components as referred to by the assessing authority in the course of assessment order at paras 64 and 65. The first component of a sum of Rs. 49,32,097 was held to be in the course of trade and was allowed in the assessment order. The second component related to question of valuation of stock. The appellant contended that stock worth Rs. 2,04,95,641 is to be valued at Rs. 25,00,000 which is less than 1/9th of the original cost/worth. The assessing authority on noticing the position that stock valuation principles stipulate that stock has to be valued either at cost or market value and going by the assessee's contention, though the cost is at Rs. 2,04,95,651, the market value is claimed to be Rs. 25,00,000. In that behalf, the appellant was asked to furnish complete details like the break-up of stock, description of items, the dates of purchase, the cost of each item, invoice number, dates of import and copies of bills of entry. The appellant was also asked by the assessing authority to give....
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....ce contracts. In the instant case, the assessee was asked to clarify as to who provided the warranty services and whether these customers/purchasers of Apple Products were continued to be served by the assessee-company. In course of the discussions, it was also stated that M/s Apple Products was now continuing its own distribution in India. The assessee was, therefore, asked to clarify whether M/s Apple Products has taken over the servicing job from the assessee-company and whether there was any provision for transfer of debtors as well. The assessee was also asked to furnish the copy of distribution agreement which was originally entered into and also an agreement executed at the time of exit from the dealership to examine whether these aspects were covered/discussed. These details could not be filed. 69. The assessee was also asked to furnish the details of debtors written of with complete names and addresses and account copies so as to check whether the write off was actually made in the accounts of the individual debtors or was only a provision on an estimate basis. The details of debtors were also not furnished. However, the assessee in course of discussion, stated that thi....
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....ck valuation regularly in the earlier years. The method followed is cost or net realizable value, whichever is less, is a universally-accepted method and cannot be found fault with. That the valuation was substantially lower than cost cannot be reason for disallowing inventory loss. The reason given by the assessee that due to discontinuance of product business and technological obsolescence and cannibalization of equipment to spare parts due to non-supply from Apple Products appears plausible in the realm of business and such occurrence is not rare. We have not been able to find any reason for the AO disallowing this loss except that he wanted certain details. Such a reason by the AO appears to be flimsy as the purchases from Apple Products has been allowed as an expenditure having found that they seem to be genuine. In the same breath to say that for the valuation of inventory loss details not furnished by the assessee appears to be incorrect. Hence, the loss claimed by the assessee is allowable. 11. issue of claim of bad debts: 11.1 Adverting to the issue of claim of bad debts, the same is allowable in compliance of conditions prescribed in s. 36(1)(vii) of the IT Act. The....
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....ions of the Employees' State Insurance Act, 1948 (34 of 1948), or any other fund for the welfare of such employees" 13.2 Perusal of these two sections clearly indicates that payment of gratuity is not covered under aforesaid clauses. Consequently, s. 36(1)(va) is not concerned with payment of gratuity. Since the payment is otherwise allowable under s. 43B, we find no other reason to disallow the claim. Insofar as the payment of provident fund of Rs. 2,538 is concerned, Sri K.R. Pradeep chose not to press the issue and accordingly, it is dismissed. The AO is directed to allow Rs. 12,50,000. 14. The next issue in dispute pertains to invoking s. 40(a)(i) by the AO to disallow payment of royalty for the asst. yr. 1998-99. This ground of the appellant is extracted hereunder: "Issue of invoking s. 40(a)(i) 12. The authorities below erred in incorrectly applying s. 40(a)(i) and disallowing royalty of Rs. 25,37,876 even though tax was deducted at source and remitted in accordance with Chapter XVII-B read with the IT Rules." 14.1 On the issue of allowing of royalty paid to Toshiba Lighting, Japan, Sri K.R. Pradeep submitted that since the claim has been allowed in the subsequ....
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.... in appeal before us relates to asst. yr. 1999-2000 which is extracted hereunder: "20. The authorities below, while considering the claim for deduction under s. 80-IA in respect of the computer factory at Pondicherry erred in stating that the appellant could not substantiate the contribution credit of Rs. 85,00,000 as profits and gains derived from the industrial undertaking. The authorities below having noted that the contribution credit of Rs. 85,00,000 was in the nature of supplier's discount and the same had been considered as a reduction in the raw material cost of the company, ought to have allowed the claim of the appellant. 21. Without prejudice, the authorities below having held that contribution credit in the nature of supplier's discount of Rs. 85,00,000 is not to be considered for arriving at the profit derived from the eligible industrial undertaking should have also excluded the same for the determination of the total income of the appellant." 17.1 In the assessment, the AO has not considered the sum of Rs. 85,00,000 received by the appellant from Wipro Acer towards contribution credit which is in the nature of suppliers discount in arriving at the profit fro....
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....rial undertakings. He further submitted that both the AO and CIT(A) have factually erred on the issue inasmuch the contribution credit is received from Wipro Acer Ltd. on the purchases made by the assessee and not on the sales made to them. He further submitted that a similar issue has already been considered by the Tribunal in its order in ITA No. 651/B/1994 for earlier year which findings are at pp. 100 to 102 in paras 34.1 to 34.4, hence prayed for issuing directions to the AO for including the above sum in the profits of the industrial undertaking and for allowing deduction under s. 80-IA as claimed. 17.3 Sri Indrakumar has submitted written submissions on the issue reiterating the stand of the authorities below and no fresh arguments have been advanced other than the findings of the authorities below. 17.4 We have considered the arguments of both sides and perused the records. We find that the assessee has received a sum of Rs. 85 lakhs as contribution credit from Wipro Acer Ltd. which is in the nature of supplier's discount and goes to reduce the total cost of raw materials of the industrial undertaking. Further, we find that a similar issue of supplier's discount for e....
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....Representative argued that the income has not irrevocably accrued and, therefore, not assessable. The argument made by the Authorised Representative is not acceptable, for any interest received under s. 244A is an income liable to tax. Action of the AO is confirmed. This ground of appeal is dismissed" 18.2 Sri. K.R. Pradeep submitted that the assessee has not received the said sum during the year and further submitted that the so-called interest granted to the assessee under s. 244A has been withdrawn subsequently by the AO. Many of the grounds on which relief was granted by appellate authorities which resulted in refund have not attained finality inasmuch as the Department is in appeal before High Court. In the event the higher authorities were to reverse the decision, the Department is bound to withdraw the interest granted under s. 244A. Thus, his argument, based on the decision of the Supreme Court in Indian Molasses Co. Ltd. vs. CIT (1959) 37 ITR 66 (SC), is that until an irrevocable right to receive and retain the interest, no income can be said to have arisen to the appellant. Moreover, from the order, it is not clear when the interest was due and which assessment year th....
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.... concept of accrual supports this findings and also Supreme Court in (1959) 37 ITR 66 (SC), though explained the term accrual in the context of expenditure, nevertheless applicable for recognition of income even more forcefully. The liability to tax interest as and when it becomes irrevocably due and not when the refund is actually given to the assessee. Further, there are number of cases which bring to tax the liability for various years depending, whether the refund is on account of excess payment of advance tax or payment under s. 140A, etc. Unless these aspects are brought on record and considered appropriately, finding on merits is not possible. Hence, we remit the matter back to the AO for fresh consideration and to pass order in the light of the observations and directions given above. Accordingly, the issue is remitted to the AO and the assessee succeeds on this issue. We may add that when the issue has not become final the same shall not be brought to tax, as the receipt of interest is subject to outcome of pending legal process and cannot be brought to tax. 19. Issue of deduction under s. 80HHE 19.1 The appellant had made a claim for a deduction under s. 80HHE of Rs....
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....rtered accountant, is reproduced as under: Details relating to the claim by the exporter of computer software for deduction under s. 80HHE of the IT Act, 1961. (Rupees) ----------------------------------------------------- 1. Name of the assessee Wipro Limited 2. Permanent Account Number AAACW0387R 3. Assessment year 1999-2000 4. Export turnover relating to (i) Export of computer software or its transmission to any place outside India. (ii) Providing technical services outside In....
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....rnover", "Total turnover" and "Profits of the business" are with regard to the software business other than the income considered as exempt under s. 10A. ----------------------------------------------------- 20.6 In order to examine the relevance of the claim of the assessee-company, it would be useful to refer to the following Explanation below sub-s. 5 of s. 80HHE of the IT Act; 'Explanation: For the purposes of this section- (a) 'convertible foreign exchange' shall have the meaning assigned to it in cl. (a) of the Explanation to s. 80HHC; (b) 'computer software' means,- (i) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (ii) any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to a place outside India by any means. (c) 'export turnover' means the consideration in respect of computer software receiv....
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....the claim made by the assessee-company, it is seen that the total turnover of the business disclosed is the total turnover of the unit for which deduction under s. 80HHE is being claimed. The total turnover of the business cannot be Rs. 13,80,16,246 that the assessee declared the total turnover for computation of profit of the business computed under the head profit and gains of business to be Rs. 12,56,56,18,975. The claim of the assessee-company for the purpose of deduction under s. 80HHE is totally erroneous, even though the accountant has thought it appropriate to certify the same. 21.2 In view of the facts and circumstances mentioned above, the deduction under s. 80HHE of the IT Act, even if it were to be allowed would be as under: Deduction under s. 80HHE of the IT Act ------------------------------------------------------- (Rup....
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....income 1,26,62,893 4. Export incentives 4,22,76,977 5. Other income 2,82,66,812 ------------- 19,98,28,387 17,98,45,548 --------------- 24,27,05,646 D. Deduction under s. 80HHE Hence, deduction under s. 80HHE is computed as under: Export turnover ----....
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..... 80HHE of the Act is merely facilitated the AO to compute and allow the deduction. 19. The learned CIT(A) ought to have issued a direction to the AO to allow the deduction under s. 80HHE as claimed by the appellant." 19.3 Sri K.R. Pradeep appearing before us argued that the authorities below erred in rejecting the claim of the appellant under s. 80HHE. He further contended that the findings of the authorities below on the legal sustainability and on the quantum of deduction are legally incorrect and sought for a proper direction to allow the deduction. He argued that the AO erred in rejecting the claim oh the premise that the deduction under s. 80HHE was not claimed in the return of income filed and that the required audit report in Form 10CCAF under IT Rules filed during the course of assessment on 15th March, 2002, was not as per law. Further, the AO's finding that the total turnover for the purposes of s. 80HHE should be Rs. 12,56,56,18,975 as against the turnover indicated in the certificate in Form 10CCAF of Rs. 13,80,16,246. He further contended that the AO has also erred in making adjustment to the profits arrived at by the assessee indicated in Form 10CCAF of Rs. 13,....
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....Chapter VI-A, even without the deduction under s. 80HHE, exceeded the gross total income a claim was not made in the return of income. 2. If the returned income is altered for any reason, our claim for deduction under s. 80HHE may be kindly considered and allowed." It is only for these reasons that the claim was not made in the return of income, Sri. Pradeep contended that though sub-s. (4) of s. 80HHE mentions that the report in Form 10CCAF should be filed along with the return of income, it is just an enclosure with the return of income and is not mandatory and is only directory. It was submitted that the claim in return of income was all procedural in nature and it is not a hard and fast rule that the claim must be made in return of income. In support of this argument, he relied on the decision of the Tribunal in the case of M/s Vinayaka Enterprises, ITA Nos. 177 and 178/B/1993, the relevant portion is extracted hereunder: "4. We have considered the rival submissions and the evidence on record. We do not find any infirmity in the order of the learned CIT(A) who has held that the deduction under s. 80HHC is admissible in this case, on the basis of certificate in Form 10C....
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....appears that these instructions are not being uniformly followed. 2. Complaints are still being received that while ITOs are prompt in making assessments likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to the assessees under the Act. Dilatoriness or indifference in dealing with refund and claims (either under s. 48 or due to appellate, regional, etc. orders) must be completely avoided so that the public may feel that the Government is actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs. 3. Officers of the Department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department, for, it would inspire confidence in him that he may be sure of getting a squar....
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....e was repatriated from abroad. In our opinion, it will be extremely unfair not to give the benefit to the petitioner under s. 80HHB. The petitioner, admittedly, has executed projects which would entitle it to the benefit of s. 80HHB and there was bona fide reason for the petitioner in not complying with the provisions of s. 80HHB(3), because the CBDT had accorded approval to the agreements under s. 80-0 and, therefore, the petitioner naturally expected that relief would be granted under s. 80-0. We have, however, held that on the facts of the present case, the petitioner was entitled to the relief not under s. 80-0 but under s. 80HHB and this is what in fact was argued before us by learned counsel for the Department. This being so, the IT Department should not stand on mere technicalities and must give an opportunity to the petitioner to fulfil the requirements of s. 80HHB(3) and on such compliance within a reasonable time, it should grant the benefit to the petitioner under that provision." The said decision was also confirmed in the decision of the Supreme Court in Continental Construction Ltd vs. CIT (1992) 101 CTR (SC) 386. (1992) 195 ITR 81 (SC). Further, Hon'ble Supreme....
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....uction under s. 80HHE is being claimed. The total turnover of the business cannot be Rs. 13,80,16,246 that the assessee declared; the total turnover for the computation of profit of the business computed under the head profits and gains of the business to be Rs. 12,56,56,18,975. The claim of the assessee-company for the purpose of deduction under s. 80HHE is totally erroneous, even though the accountant has thought it appropriate to certify the same." It is the contention of the AO that the total turnover of the company excluding the turnover from units under s. 10A should be treated as total turnover for the purpose of the denominator in calculating the deduction. Sri K.R. Pradeep submitted that the total turnover under s. 80HHE should be from the eligible business mentioned in s. 80HHE and cannot be confused with the total turnover of the entire company. In support of the proposition, he relied on the decision of the Tribunal, Bangalore Bench, in ITA Nos. 322 to 328/B/2001 in case of M/s Wipro GE Medical Systems Ltd., wherein the issue was similar to the present case. The relevant portion of the order is extracted hereunder: "30. The next dispute in relation to asst. yr. 19....
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.... 2,93,77,916 Less: Depreciation (s. 32) 7,63,861 Telephone/Telex deposit 8,202 under Tatkal Entertainment expenditure s. 37(2) 239 7,72,303 --------- ------------ 2,86,05,614 &....
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....: Other income has been Rs. 1,38,03,069 disallowed by the assessee Deduction under s. 80HHE Export turnover 6,35,77,722 ---------------- -------------- x 1,38,03,069 Total turnover 1,52,44,87,471 = 5,75,647 The CIT(A) however, accepted the export turnover at Rs. 6,35,77,722 but considered the total turnover of the entire business at Rs. 1,48,55,01,543 and computed the profits of the business at Rs. 1,14,39,002 and arrived at a smaller deduction under s. 80HHE of the Act. The AO had added excise duty and sales-tax paid to arrive at the total turnover, which the CIT(A) has directed to be excluded. 31. The learned counsel for the assessee vehemently opposed the determination made by the Departmental authorities. He drew our attention to pp. 48, 49, 50 and 51 of the paper book to impress upon us to the correctness of the assessee's claim under s. 80HHE. The....
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....C and s. 80HHE, although speak of deductions with reference to profits from export business, s. 80HHC provides for deduction in respect of profits retained for export business whereas s. 80HHE deals with export out of India of computer software or its transmission from India to a place outside India by any means and providing technical services outside India in connection with the development or production of computer software. What is an export turnover is again defined in s. 80HHE(5). Identical provision in s. 80HHC(4B) deals with goods and merchandise to which that section applies whereas the provisions of s. 80HHE(5) deals with consideration received in respect of computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-s. (2). The total turnover is defined not to include freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India. What essentially s. 80HHE is dealing with is with reference to the turnover of computer software. The total turnover for the pur....
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....f the Bombay High Court in the case of CIT vs. Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596 : (2000) 245 ITR 769 (Bom). In this regard, it would be relevant to quote from the judgment of the Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO & Anr. (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC): 'A statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. Where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction.' If the Department's computation is accepted, it would only result in manifest anomalies and arbitrariness. Therefore, in our view, for the purpose of deduction contemplated by the s. 80HHE, the total turnover for the said section should not include turnover on account of manufacturing, trading, etc. which is totally unconnected with the public software business. Therefore, in our considered view, the total turnover....
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....e Tribunal found that sub-s. (3) of s. 80HHC was applicable to the present case as the assessee in addition to the export-oriented business of forgings had other business also and was earning income therefrom. The Tribunal also realized that apart from the export of the forgings the assessee had the advantage of the local sales of those forgings also. The contention of the assessee was that the forging division was entirely separate from the other division of the company which was engaged in the business of sale of motorcycles, motorcycle spare parts and television sets, and it was the further contention of the assessee that the accounts were completely separate. Therefore, the assessee's contention was that only the turnover of the forgings meaning the export sales of forgings as also the local sales of the forgings was the only turnover which was liable to be used in the aforementioned formula which would be less than the turnover of the whole business of the assessee including that of the sale of motorcycles, spare parts thereof and television sets. In short, according to the assessee, more profits were liable to be arrived at by showing a lower turnover as the denominator in th....
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.... the total turnover. There can be no doubt that under the formula which emerges from the language of the sub-section, export turnover becomes the numerator while the total turnover becomes the denominator. If the claim of the assessee is accepted as has been done by the Tribunal, the denominator should only relate to the business of forgings thereby the denominator will be less and the result would be more deductible profits. Similarly, if the contention of the Revenue is accepted then, since the denominator would increase because of the turnover of sale of motorcycles, motorcycle spare parts, television sets, that is bound to result in a smaller quotient and ultimately the lesser deductible profits. Mrs. Venkataraman very strongly urged that where the language of the subsection is clear enough then, there would be no scope to accept the assessee's contention. Learned counsel urges that since the business of sale of motorcycles, spare parts thereof, television sets was a part of the business of the assessee, the total turnover of the business would certainly include the business of sale of motorcycles, spare parts thereof and television sets, and as such, the turnover on that....
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.... of sub-s. (2). The language is extremely important and hence we would reproduce the said sub-section. '(2)(a) This section applies to all goods or merchandise, other than those specified in cl. (b), if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange.' Therefore, it is crystal clear that the whole s. 80HHC applies only to the goods which are not only exported out of India but the sale proceeds of which are receivable in convertible foreign exchange When we sit to consider sub-s. (3), cl. (a) thereof speaks about the assessee who has an exclusive business of exports of such goods or merchandise. Clause (a) would apply where the assessee has no other business meaning all his income would be out of the export sales, the proceeds of which are receivable in convertible foreign exchange. There is again almost by way of abundant caution the user of the words 'goods or merchandise to which this section applies.' Once we have this stage then the task of interpreting cl. (b) of sub-s. (3) becomes easier because even in cl. (a) of sub-s. (2) and cl. (a) of sub-s. (3), the same terminology is used in r....
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....th profits out of exports and the profits earned otherwise than by export, but one thing is certain that the business contemplated in the sub-section would be in relation to those goods alone to which the section applies as per cl. (a) of sub-s. (2). Once we read sub-s. (1) of s. 80HHC, cl. (a) of sub-s. (2) and cls. (a) and (b) of sub-s. (3), there remains no doubt that the total turnover of the business would contemplate only the business regarding such goods part of which are exported and the others are not so exported. There is just no scope to include the turnover of the business of the goods which are not contemplated by the section. That way, though the legislature has specified about the applicability of the section to the goods by cl. (a) of sub-s. (2), we would be unnaturally making the section applicable even to the goods which are outside the limits of cl. (a) of sub-s. (2) and that will not be permissible. Once this situation is clear, there would be no scope for accepting the argument of the Revenue that the total turnover of business would include even the turnover of goods which are outside the scope of cl. (a) of sub-s. (2). Hence, we are of the clear opinion th....
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....er ss. 80HHC and 80HHE. The decision of the Madras High Court would apply to the decision on hand and accordingly prayed for treating the total turnover at Rs. 13,80,16,246 and export turnover at Rs. 12,36,29,409. 19.3.3 On the third issue, i.e., the assessee had arrived at the eligible profits under s. 80HHE at Rs. 3,89,15,811, whereas the AO, though denied deduction under s. 80HHE for non-filing of audit report, had arrived at the figure of the eligible deduction at Rs. 23,87,909 and for this purpose the computation made by him at p. 51 of the assessment order is extracted hereunder: "Deduction under s. 80HHE of the IT Act (Rupees) A. Total turnover As per P&L a/c 18,30,84,47,997 Add: Sales-tax to be included in above turnover 34,84,72,049 &....
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....bsp; ------------- 24,27,05,646 D. Deduction under s. 80HHE Hence, deduction under s. 80HHE is computed as under: Export turnover --------------- x Profits of the business Total turnover i.e., 12,36,29,409 --------------- x 24,27,05,646 12,56,56,18,975 The resultant figure is Rs. 23,87,909. Thus, if the assessee were to be allowed deduction under s. 80HHE of the IT Act, it would be Rs. 23,87,909 and not Rs. 3,89,15,811 as claimed by the assessee." Sri K.R. Pradeep pointed out that the AO had erroneously adopted the profit of the company as profits eligible under s. 80HHE whereas in the case of the assessee t....
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....itigation, the legislature deliberately provided that the profits of the entire business including exports must be ascertained irrespective of whether separate accounts were maintained for export or not, computing them by applying those rules as are applicable for the computation of income under the head 'Profits and gains of business or profession' and then apportioning those profits on the basis of turnover of export bearing to the total turnover. Nowhere is it said that if such a person had dealings both in exports and local business, if export profits are easily identifiable then only cl. (a) would apply. This is reading something into the section which it did not provide. The object of cl. (a) of sub-s. (3) is clearly not to identify the export profits. The object of cl. (a) of sub-s. (3) is to find out whether the business carried on by the assessee consisted exclusively of export of goods outside India. Carrying on an exclusive business out of India without domestic turnover will disclose only the profits in such exclusive export business. That does not mean that the purpose of cl. (a) is to find out whether the profits in export are easily identifiable even in a case where ....
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....intained and separately ascertained, there is no need to have recourse to s. 80HHC(3)(a) and (b). In such a situation, s. 80HHC(1) can be applied in exclusion of sub-s. (3). Therefore, there was no need for invoking sub-s. (3)(b) for finding out what should be the deduction under s. 80HHC. Per contra, Mr. Menon, learned counsel for the Revenue, submits that this is the only provision that is provided under s. 80HHC(1) of the Act. The mode of calculation pleaded by the assessee is not contemplated or provided by the statute. We notice from sub-s. (3) that it points by words 'for the purposes of sub-s (1), profits derived from the export of *goods or merchandise out of India shall be......'. It means that the section wholly and completely applies to s. 80HHC(1). What is mentioned in sub-s. (1) is 'where an assessee is engaged in the business of export out of India of any goods or merchandise to which the said section applies, there shall, in accordance with and subject to the provisions of the said section, be allowed, a deduction of the profits derived by the assessee from the export of such goods or merchandise.' This section disables the permutation of the profits irrespecti....
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....acts and circumstances obtaining the issue. In the cases relied on by the Revenue, the issue was that the assessee had both export turnover and domestic sales of products of the same business and consequently, the question addressed by the above authorities was whether export profit could be determined in a manner other than provided by the Act by maintaining separate books of the account. The issue in this case is what is the total turnover for purpose of s. 80HHE. Whether total turnover must mean turnover of the entire company which in this case includes turnover of hardware, soaps, detergents, fluid power systems, lighting, etc., or total turnover of the business mentioned in s. 80HHE of the IT Act. The question in the present appeal on issue of turnover was not present or not considered in the decisions relied on by the Revenue. Consequently, he submitted that the two decisions are not relevant for the purpose of deciding the issue on hand. 19.6 We have considered the arguments and perused the records available before us. Firstly, on the issue of making a claim during the course of assessment by the appellant, we find that failure to make claim in return would not defeat ....
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.... of the circular of the Central Board of Revenue issued in June, 1955 (as reproduced above), and the decision of the Supreme Court in Navnit Lal C. Javeri vs. K.K. Sen, AAC (1965) 56 ITR 198 (SC), although at the time of the original assessments, the assessee-firm itself did not claim relief under s. 84/80J and though the responsibility for claiming refund and reliefs rested with the assessee, the ITO should have drawn the attention of the assessee to this relief under s. 84/80J in which the assessee appeared to be clearly entitled but which the assessee had omitted to claim." Mere technical consideration should not come in the way of substantive justice. Accordingly, the claim of the appellant must be allowed. 19.7 On the second and third issues of eligible turnover and eligible profits, we find that the issue stands covered by decision of this Tribunal in Wipro GE Medical Systems Ltd. ITA Nos. 322 to 328/B/2000. Such a view has also been upheld by the Madras High Court in (2002) 257 ITR 69 (Mad) at pp. 69 to 70 extracted supra and supports the view that the total turnover of eligible business must be considered, and not the turnover of other business of the company. Here, w....
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....ccordingly, the claim made by the appellant for deduction under s. 80HHE of Rs. 3,89,15,811 requires to be allowed for the reason that the claim made subsequent to the return of income is a valid and sustainable claim. The delay in filing of audit report cannot be held against the assessee. Further, total turnover for the purpose of the denominator should be turnover of eligible business mentioned in s. 80HHE, in this case Rs. 13,80,16,246. Further, the profits of the business of the assessee as computed in the Form 10CCAF are treated as correct as per the Act. For all these reasons, we direct the AO to allow the claim as made by the assessee in the interest of justice. 20. Issue of Foreign tax credit The appellant has filed additional ground for asst. yr. 1998-99 claiming tax credit of Rs. 3,07,93.530. The ground filed by the assessee is extracted hereunder: "The assessee claimed tax credit of Rs. 3,07,93,530 paid in the United States of America on the income which is included in the P&L a/c of the assessee. The tax credit has not been given by the AO. The issue is dealt by the Supreme Court in the case of Union of India & Anr. vs. Azadi Bachao Andolan & Anr. (2003) 184 C....
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....f his contention, he relied on the decision of the Supreme Court in National Thermal Power Co. Ltd vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC), an extraction of which is as under: "Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee." 20.2 Whereas, Sri Indrakumar, appearing for the Department, objected for the admission. The objections in his written submission filed before us are extracted hereunder: "11.1 As regards the claim for preferring additional grounds of appeal, it is submitted, at the outset, that there are no valid and justifiable grounds whatsoever to allow the additional grounds of appeal. As mentioned earlier, it is now pointed by the appellant that the assessee claimed tax credit paid in the United States of America on the income which is not included in the P&L a/c of the assessee and ....
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....mittedly being legal must be dealtwith by the Tribunal. The judicial dictum on the issue of admission of additional ground is in the favour of admission and not against. We find that the claim of the appellant made in the return has not been entertained and no reasons have been attributed by the AO. Further, the details of nature of income on which the foreign tax paid are already available on record. On the issue of eligibility for tax credit, the legal position is outlined by the Supreme Court in (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). When the decisions of the Supreme Court on the subject are available, it is not possible for the Tribunal to shut its eyes from even considering the additional grounds. After all, mere admission of a ground cannot be detrimental to either party. It has been repeatedly clarified by the apex Court that when technical considerations are pitted against dispensing substantive justice, the right course is to prefer substantive justice to technical consideration Accordingly, we are inclined to admit the additional grounds raised by the assessee for both the assessment years. 20.4 On merits, learned Authorised Representative submitted that....
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....n exemption under s. 10A was given in India, still there is an impact of double taxation inasmuch as the fact that a certain income was exempt for a particular period of time did not underscore the fact that the income was included for tax in both the countries. In this regard, he relied on the decision of the Supreme Court in the case of Union of India & Anr. vs. Azadi Bachao Andolan & Anr., the relevant portion is extracted hereunder: The test of liability for taxation is not to be determined on the basis of an exemption granted in respect of any particular source of income, but by taking into consideration the totality of the provisions of the IT law that prevails in either of the Contracting States. Merely because, at a given time, there may be an exemption from income-tax in respect of any particular source of income, it is not correct to say that the taxable entity is not liable to taxation. Liability to taxation is not the same as payment of tax. Liability to tax is a legal situation : payment of tax is a fiscal fact. He also relied on the provision of the DTAA between India and United States of America, in particular art. 7.1 which is extracted hereunder: "Artic....
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....ay be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." Based on the DTAA r/w s. 90 and the decision of the Supreme Court, the learned Authorised Representative sought for a direction to allow the claim of the tax paid in the United States of America against the tax liability in India. 20.5 Sri Indrakumar, appearing for the Department, filed his objections by way of written submissions, the relevant portion is extracted hereunder: "11.4 In any event and without prejudice to the foregoing contention, it is submitted that the ground put forth by the appellant to the effect that the AO erred in not giving credit to the taxes paid in the foreign country is not tenable. As can be noticed on a perusal of the additional grounds, it is submitted that the claim is based upon the position that the tax amount is paid in the foreign country on the income which is included in the P&L a/c of the assessee. It is reiterated that none of the provisions of the IT Act enables any claim for tax relief to be put forth in respect of the tax amount paid ....
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....er arts. 6, 7, 8, 9, 10, 11, etc. of the agreement. In case the income from a source is not covered by any of the provisions of the agreement, then the provisions of ss. 4 and 5 of the IT Act would operate on the said income and the tax certainly could be levied by the Indian Government. In such an event, to claim the benefit against double taxation, cl. 2 of art. 22 of the agreement shall have to be satisfied. The effect of 'agreement' entered into by virtue of s. 90 of the Act would be : (i) If no tax liability is imposed under this Act, the question of resorting to the agreement would not arise. No provision of the agreement can possible fasten a tax liability where the liability is not imposed by this Act; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement prevail over the provisions of this Act and can be enforced by the appellate authorities and the Court.' The foregoing ruling is also approved by the Supreme Court in the case of Union of India & Anr. vs. Azadi Bacho Andolan. It is, therefore, submi....
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....ed by this Act; (ii) if a tax liability is imposed by this Act, the agreement may be resorted to for negetivating or reducing it; (iii) in case of difference between the provisions of the Act and of the agreement, the provisions of the agreement would prevail over the provisions of the Act and can be enforced by the appellate authorities and the Courts. To the same effect is the circular issued by the CBDT as per Circular No. 333, dt. 2nd April, 1982, which reads thus: 'It has come to the notice of the Board that sometimes effect to the provisions of double taxation avoidance agreement is not given by the AOs when they find that the provisions of the agreement are not in conformity with the provisions of the IT Act, 1961. The correct legal position is that where a specific provision is made in the DTAA, that provision will prevail over the general provisions contained in the IT Act, 1961. In fact, the DTAAs which have been entered into by the Central Government under s. 90 of the IT Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contra....
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....and further action as per the law. 21. Issue of Interest under s. 234B The appellant has prayed for consequential relief on interest charged under s. 234B of the IT Act, The prayer of the appellant is in line with the law and accordingly, AO is directed to grant consequential relief in levy of interest under s. 234B of the Act. Departmental appeals: The issues involved in the appeals filed by the Department in ITA. Nos. 881 and 882/B/2003 are discussed and disposed off as under: 22. Issue of premium on sale of special import licence: 22.1 The Department has raised the following grounds for both the assessment years: Asst. yr.: 1998-99 "The CIT(A) erred in holding that the premium on sale of special import license of Rs. 1,01,35,514 is to be considered as exempt under s. 10A. The CIT(A) has, of course, followed the decision of Tribunal in the assessee's own case for asst. yr, 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of the Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." Asst. yr.: 1999-2000 "The CIT(A) erred in holding ....
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.... to delete the allocation made to s. 10A units of Rs. 8,27,10,805 being the expenditure of Wipro Infotech Group. The CIT(A) has of course, followed the decision of Tribunal in the assessee's own case for asst. yr. 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of the Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." 23.2 Brief facts relating to the issue are that the AO made additional allocation of expenditure out of corporate and group overheads to s. 10A units based on the similar allocation made in the assessment for asst. yr. 1997-98. In appeal, the CIT(A) deleted the additional allocation made by the AO and the Department is in appeal against the deletion. The arguments of the Department as submitted by Sri Indrakumar in his written submissions are extracted hereunder: "(a) Asst. yr. 1998-99 : In relation to the asst. yr. 1998-99, while concluding the assessment, a sum of Rs. 4,20,69,175 which remained unallocated in the Infotech division books was allocated to the s. 10A units and consequently, reduced from the exemption income so computed. In....
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....it is submitted that, in relation to the present assessment year, the assessee itself had made on allocation of group overheads on the basis of the sales to various units. The remaining unallocated amount was to the tune of Rs. 4.2 crores. The AO examined the expenses after calling the revenue trial balance and held them to be attributable to a. 10A units after due verification of each item booked by the assessee. Even otherwise, since unallocated expenditure did not yield any income, the same could not be allowed as per the provisions of s. 14A of the IT Act. As such, the AO has examined this expenditure and on such due consideration and verification allocated the expenditure to s. 10A units on the basis and the same pertains to software business. It is submitted that having regard to such factual position, the allocation so made by the assessing authority to s. 10A units cannot be found to be untenable. (3.2)(b) Asst. yr. 1999-2000 : In relation to the asst. yr. 1999-2000, an amount of Rs. 8,27,10,805 has been allocated to the software sub-division and consequently exemption under s. 10A of the IT Act has been reduced by an identical amount. In the course of the assessment ord....
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....d to be without any basis. The facts as noticed by the assessing authority for the assessment years in question justify the allocation." 23.3 Sri K.R. Pradeep, in reply, submitted that an identical and similar issue for the earlier year has been decided in favour of the assessee by the Tribunal in ITA No. 651/B/1994 in paras 27.1 to 27.14 in pp. 76 to 92. the relevant portion is extracted hereunder: "27.14. In view of these entire facts of the case and in the absence of any specific finding by the authorities below that the expenditure is incurred for the various units claiming exemption/deduction in an artificial way of allocating the expenses and that too on surmises is not justifiable. We are, therefore of the opinion that the profits of the undertaking eligible for exemption under s. 10A is correctly worked out and no artificial working can be attributed thereto. The ground taken by the assessee is, therefore, allowed and the order of the CIT(A) is reversed on this aspect." and that the CIT(A) has rightly decided the issue in favour of the assessee by following the order of the Tribunal and prayed for dismissing this ground of the Department and upholding the decision ....
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.... as submitted by Sri Indrakumar in his written submission are extracted hereunder: "(a) Asst. yr. 1998-99 : While concluding the assessment for the assessment year of 1998-99, the assessing authority allocated an expenditure of Rs. 10,85,11,984 to s. 10A units and consequently deducted the same in the computation of income exempted under s. 10A of the IT Act. The assessing authority has extensively dealt with this issue in paras 22 to 34 of the assessment order. On analyzing the related facts placed on record, the assessing authority recorded the findings as under. '31. The growth and the visible impact and results are clearly in the software sector. It is also an undisputed fact that the name of the company, M/s Wipro is today synonymous with software technology. In this background, it is, therefore, a fallacious argument that the strategic planning and indeed about the software growth the profitability in that line, but none of the expenditure incurred on such strategic planning could be attributed to and debited to the software account. The arguments of the assessee are, therefore, rejected.' Thereupon, the assessing authority has distinctly and comprehensively analyzed....
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....ssessing authority are totally different for the current assessment year. It is reiterated that the assessing authority has dealt with the issue in detail examining the various expenditures. In that, of the total expenditure of Rs. 21.7 crores, Rs. 18 crores comprised of interest expenses and other Rs. 3,47,74,718. In the course of the assessment order at para 33, the AO has sought to examine the loan usage and interest payment. In that behalf, it was, however, submitted by the assessee that the fund utilization break-up was not possible and no details for interest expenditure as against loan utilization were furnished. Even the interest burden on the company as discussed in para 33 of the order is as follows. Of the total interest payment, the allocation made to various units was --------------------------------------------- CCD Rs. 46.5 lakhs Lighting division Rs. 3.59 Crs. Fluid power division Rs. 5.64 Crs. ....
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.... made thereto, the allocation as made by the assessing authority is justifiable. (4.5)(b) Asst. yr. 1999-2000 : While concluding the assessment for this assessment year of 1999-2000, the assessing authority has allocated an expenditure of a sum of Rs. 9,43,52,711 to the s. 10A units and thereby refusing such amount from the income exempted under s. 10A of the IT Act. The assessing authority noticed that the organization set up of the assessee-company includes Wipro Corporate consisting of chairman's office, corporate human resources, corporate finance and mission, quality and IM and corporate affairs. Wipro Corporate incurs expenses by way of salary, travel and other administrative overheads and interest to meet these business objectives and also manages it own assets. At para 8.1 of the assessment order, the assessing authority has noticed several related features. During the assessment proceedings, the details of corporate expenses and recoveries were called for, as referred to in para 8.2 of the order. It was found that the Wipro Corporate had incurred an expenditure of Rs. 18,87,05,422 over and above its income. Inasmuch as the assessee-company is primarily known for softwar....
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....ing to the allocation of 50 per cent of expenditure, the assessing authority has taken note of all the related factors and has rightly resorted to allocation. Even, applying the Tribunal's decision, it can be noticed that the assessing authority has made a proper evaluation of all the related factors in the matter of the allocation." 25.3 Sri K.R. Pradeep submitted that the issue of allocation of expenditure has already been considered and decided in favour of the assessee in the earlier years by the Tribunal in its order in ITA No. 651/B/1994 at paras. 27.1 to 27.14 at pp. 76 to 92 and the CIT(A) following the same has deleted the allocation made by the AO and prayed for dismissing of these grounds of the Department. 25.4 We have gone through the records and the submissions of both the sides on the above issue. From the submissions made by the Department we find that no new point or reason has been brought to our notice to deviate from our stand in the Tribunal's order mentioned supra. We agree with the learned Authorised Representative of the assessee that the issue stands covered by the decision of the Tribunal and the CIT(A) relying on the said decision has decided the is....
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....are not applicable and hence the amount cannot be disallowed by recourse to s. 40(a)(i) of the IT Act, has held that the disallowance of the expenditure claimed on the imported software is not warranted. (5.2)(b) Asst. yr. 1999-2000 : Also for this assessment year, the assessing authority had disallowed and added back the expenditure in a sum of Rs. 5,42,15,924 on account of software imported for inhouse utilization. On appeal, the CIT(A), in the light of Tribunal's order had directed the assessing authority to allow the deduction of the tune of Rs. 1,34,29,998 in the computation of business income and also similarly reduced the sum of Rs. 4,07,85,926 from the profits computed under s. 10A of the IT Act. (5.3) It is submitted that the decision of the Tribunal relied upon by the CIT(A) has not reached finality since the matter is contested by the Revenue. (5.4) In any event, it is submitted that the disallowance of expenditure on imported software, as made by the assessing authority is to be upheld in view of the position explained hereinafter. (5.5) It is submitted that this Hon'ble Tribunal in its order dt. 31st July, 2002, had negatived the Revenue's claim on the issu....
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....rt in the case of National Thermal Power Corporation Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC), wherein it is held that the purpose of assessment proceedings before the taxing authorities is to assess correctly the liability of an assessee in accordance with law and the Tribunal is not at all precluded from considering the questions of law arising in assessment proceedings although not raised earlier. In the light of this decision of the apex Court, it is submitted that the legality of the addition made by way of the disallowance in respect of imported software being subject-matter of consideration, the contention herein put forth by the Revenue to the effect that the expenditure being of capital nature, the disallowance is to be upheld, is amenable for being considered in the present appeals. Thus, it is submitted that inasmuch, as the software used in house being the tool of business, the expenditure on the same is to be held as capital expenditure and consequently, the disallowance as made by the assessing authority is sustainable in law." 26.4 Sri Pradeep submitted that the CIT(A) has rightly dismissed the grounds on this issue by following the order of ....
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.... Rs. 9,42,61,936 and decide in accordance with the directions contained in the order passed by the Tribunal on 31st July, 2002, for asst. yr. 1997-98. The CIT(A) ought to have appreciated that the deduction claimed by the assessee was disallowed by the AO as s. 36 doesn't provide for such deduction. As the assessee's case is not covered by r. 46A(1), the CIT(A) should not have permitted further evidence to be filed. (b) The CIT(A) failed to note that under s. 251(1)(a) of the Act, in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment and cannot remit the matter back to the AO. For asst. yr. 1999-2000 (a) The CIT(A) erred in directing the AO to verify the correctness of claims made by the assessee regarding the provision for bad and doubtful debts amounting to Rs. 9,42,61,936 and decide in accordance with the directions contained in the order passed by the Tribunal on 31st July, 2002, for asst. yr. 1997-98. The CIT(A) ought to have appreciated that the deduction claimed by the assessee is only a contingent liability and the order of the Tribunal on this issue has not become final. (b) The CIT(A) failed to note that under s. ....
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....the position that the debt has become bad and irrecoverable is to be established to sustain the claim. In that behalf, the assessing authority relied upon the decision of the Delhi Bench of the Tribunal in the case of Dy. CIT vs. India Thermit Corporation Ltd. (1996) 56 ITD 307 (Del). It was further observed by the assessing authority that the assessee itself indicates 'evaluates' a debt, makes a 'provision' and then makes 'adjustments' to this provision as an ongoing process. It was seen that the assessee had written off only Rs. 2,51,644 and as such the intended item for allowing as bad debt under the provision of s. 36(1)(vii) is the said actual debt amount of Rs. 2,51,644 and not the provision of Rs. 9.42 crores. Eventually, the assessee allowed an amount of Rs. 2,51,644 as bad debt written off as against the claim of Rs. 9,42,61,936 and the net addition for the said assessment year is, therefore, to the tune of Rs. 9,40,10,292. (6.1) On appeal, the CIT(A) by following the Tribunal's order dt. 31st July, 2002, held that the classification of the claim of the bad debts as made subsequent to the Tribunal's order is to be verified and decided afresh. On such premises, the CIT(A....
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....sessee was to prove that the debt had become bad in the relevant previous year. Such requirement led to the enormous litigation and, therefore, the amendment was brought so as to eliminate the controversy with regard to the year in which the debt had become bad. If the debt had become bad, it would be allowed in the year in which it was written off by the assessee. However, nowhere did it say that any debt could be written off and claimed as bad debt. Had that been the intention of the legislature, it would have mentioned any debt or part thereof which is written off as irrecoverable in the amended provision. Therefore, the debt written off had to be a bad debt. It was the prior condition for allowability of the deduction under s. 36(1)(vii) even after the amendment of the provision. Once the debt was established to be bad, deduction would have to be allowed in the year in which the assessee wrote off the same'. It may also be mentioned that this Hon'ble Tribunal in the case of M/s Fairgrowth Financial Services Ltd. vs. Dy. CIT (ITA No. 510/1996 and other connected appeals dt. 23rd July, 2004), has held that mere provision for bad and doubtful debts without establishing th....
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....0 on account of provision for bad debts/advances to s. 10A subdivisions retained in group books". has held that the addition for the year is on the basis of addition made in asst. yr. 1997-98. It is incumbent for the authorities to follow the decision of earlier year when the facts are identical as held by the Madras High Court in CIT vs. L.G. Ramamurthi & Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453 (Mad). Adverting to the decision of this Bench in the case of Fairgrowth Financial Services Ltd. vs. Dy. CIT, Central Range-V, Bangalore, in ITA. No. 510/B/1996 23rd July, 2004, we find that the facts in that case are not similar to the present case. In this case, the claim for bad debts was on account of non-performance of contracts by the assessee, over invoicing, under supply, defective supply, etc.; in such cases the debt itself has not accrued in favour of the assessee. These are classic instances of reversal of sales or sales return and are unenforceable debt due to the default of the assessee. These instances are factually and materially different from the case relied on by the Departmental Representative mentioned supra. Hence, the decision is not relevant for the issue o....
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....thod in which the loss is recognized in the books is not applicable to advances. In fact, even if no entries are passed in the books of account, a business loss would still be eligible for deduction.' The assessing authority, thereupon, called for the various particulars and evidence as referred to in the assessment order at p. 52 reproduced below. '52. The above claim was examined. Advances given can be either on capital account or on revenue account. In case a capital advance becomes irrecoverable and has to be actually written off, it takes the character of capital loss. The assessee was, therefore, asked to furnish the details on this account. Details like name and complete address of the person to whom the advance was given, amount, date, the purpose for which the advance was given, the amount which remained outstanding, the amount written off and the reasons for such write off were to given case-wise.' As noticed in the assessment order (para 53), the assessee merely stated that the advances are in the nature of earnest money deposits, other deposits, employees advances, advances to suppliers and other claims receivable. However, the details were not made available a....
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....ords and the submissions made by both sides, oral as well written submissions. We find that the CIT(A) has remitted back the issue to the AO with a direction to verify the claim made by the assessee after going through the details of the advances. No grievance can arise to the Department on a such a course of action, hence this ground is not sustainable. 29. Issue regarding disallowance of warranty expenses: 29.1 The grounds raised by the Department on the above issue are as follows: Asst. yr. 1998-99: "The CIT(A) has erred in deleting the disallowance of provision for warranty expenses. Asst. yr. 1999-2000 The CIT(A) erred in directing the AO allow the assessee's claim of provision for warranties of Rs. 2.08 crores. The CIT(A) has, of course followed the decision of Tribunal in the case of Wipro GE Medical Systems for the asst. yrs. 1991-92 to 1997-98 which has been contested by the Department. The CIT(A) ought to have appreciated that the decision of Tribunal has not become final and an appeal under s. 260A has been filed before the Hon'ble High Court of Karnataka." 29.2 In the assessments for the above assessment years, the AO has disallowed the claim made by t....
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....thority has rightly disallowed the claim on account of warranty expenditure as it was purely of contingent nature. It is significant to note that warrant commitment, which is an obligation arising out of contract between the seller and the buyer in respect of a product sold by the seller, is to be executed on the claim as may be made by the buyer. The liability ripens and comes into play only when the concerned buyer invokes the warranty claim. Therefore, such warranty claim being of contingent nature, a provision made regarding the same cannot be allowed at all. In the case of Metal Box Company of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC), the Supreme Court has clearly held that what is in the nature of contingent liability cannot be claimed as deduction. Therefore, having regard to this feature of the expenditure being a contingent liability, the assessing authority has rightly disallowed the same." 29.4 Sri K.R. Pradeep, in reply to the above submissions, submitted that the issue is covered by the decision of this Tribunal in the case of Wipro GE Medical Systems Ltd. in ITA. Nos. 321 to 328/B/2002 and the CIT(A) has correctly decided the issue in favour of the assess....
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....is assessment year, while concluding the assessment, the assessing authority had noticed that in the computation of the income statement filed along with the return, the assessee-company had made an addition of Rs. 58,05,908 on account of excise duty/customs duty on uncleared manufactured/imported goods. It also refers to Annex. 4 filed along with the return. In the Annex. 4 to the return, however, the net disallowance was only computed at Rs. 82,02,552 and thereby there was difference amount of Rs. 23.96 lakhs. The assessee was asked why the said difference amount of Rs. 23.96 lakhs should not be disallowed. However, by letter filed in that behalf, the assessee enclosing the reworking claimed a deduction of Rs. 2,36,04,819 to be allowed in its case. Adverting to the claims so put forth by the assessee regarding the said sum of Rs. 2,36,04,819, the assessing authority referred to the salient features as regards the accrual and payment of excise duty liability. The assessing authority noticed that the liability towards excise duty arises immediately on manufacture and when the goods are despatched or removed, the duty is paid and gets accounted and when both events occurred during t....
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....duty as shown in P&L a/c under excise outstanding at the end of the year is allowable and on such premises the CIT(A) directed the AO to verify the claim of excise duty and allow if the conditions are fulfilling in keeping with the order of the Tribunal. (9.2) It is submitted that the appellate order of the Tribunal relied upon by the CIT(A) in directing the assessing authority to allow relief in respect of excise duty claimed has been contested by the Revenue and the said order of the Tribunal has not attained finality. (9.3) It is submitted that the assessing authority, while concluding the assessment, has looked into the correctness of the claim regarding excise duty made by the assessee and in that behalf, in the course of paras 80 to 92, the assessing authority has sustained the position as to how the claim made by the appellant is untenable and unsustainable. It is particularly noticed by the assessing authority that if one were to go by the assessee's claim, then the principle of balancing of accounts laid down by the Hon'ble Supreme Court in the case of Chainrup Sampatram vs. CIT cited supra by the assessee itself would stand impaired. The assessment so concluded invo....
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....ue date of filing of return of income, the impact from the point of view of Revenue was neutral and no addition was called for on account of valuation of closing stock. However, the situation regarding customs duty was found to be different, with regard to said duty payable on goods imported but not cleared and while customs duty is deemed to accrue on the landing of the material at the Indian port, the said liability was to the extent of Rs. 1,21,08,879, but however, out of such sum, only a sum of Rs. 97,98,517 was remitted before the due date of filing of return of income. Hence, on the footing that the net of two has to be considered as addition on account of customs duty on goods imported but not cleared for the purposes of valuation of closing stock, an addition of a sum of Rs. 23,10,309 was made on account of increase in the valuation of closing stock. (10.1) On appeal, it was contended before the CIT(A) by the appellant that the said disallowance was already considered by the appellant in the return of income and making a further disallowance amounted to duplication and the appellant furnished the copy of the computation of income enclosed to the return of income to subst....
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....ehalf, the assessing authority has taken note of the business activity of five major divisions of the assessee-company. The assessing authority on marshalling of the related facts having the bearing upon the subject-matter of allocation of expenditure pertaining to peripherals unit at Mysore, has analysed and evaluated the same in the course of the discussion and the finding recorded thereto in paras 108 to 130 of the assessment order regarding the deduction under s. 80-IA of the IT Act. (11.2) On appeal, the CIT(A) directed the deletion of the allocation of a sum of Rs. 33,95,46,466 made in respect of the peripherals unit at Mysore on the ground that there is no justification to sustain the additional allocation made by the AO. (11.3)(b) Asst. yr. 1999-2000 : In respect of this assessment year, the assessing authority has dealt with the issue pertaining to deduction under s. 80-IA of the IT Act regarding the peripherals factory at Mysore. As noticed by the assessing authority in para 22.1, the peripherals factory had shown sales and services turnover of Rs. 77.97 crores and a profit of Rs. 2.42 crores and correspondingly, the peripherals division has shown a turnover of Rs. ....
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....the appellate order relating to asst. yr. 1998-99 is not tenable and vitiated, as urged above, the appellate order pertaining to the asst. yr. 1999-2000 is also equally untenable." On the basis of the above submissions and oral arguments prayed for reversing the order of CIT(A) and to restore the order of the AO. 32.3 In reply, Sri K.R. Pradeep submitted that the AO disallowed a sum of Rs. 33,95,466 whereas the Departmental Representative in his submission has stated it as Rs. 33,95,46,466. He further submitted that the assessee has maintained separate books of account for Mysore units and the results disclosed are in conformity with the same. Similar results for the earlier years have been accepted by the Department. The AO has erred in construing the entire expenditure as indirect or common expenditure while factually both direct and indirect expenditures have been treated as common expenditure by the AO. He further submitted that the allocation made is without any rationale and there is no need to disturb the allocation, as the Department has accepted the results for the last several years. That allocation is a part of method of accounting as has been accepted by the Depar....
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....s an intermediate raw material like fatty acid which is in turn consumed captively for production of finished goods, like toilet soap. At para 135 of the assessment order, the assessing authority has pointed out as to how the deduction as claimed under the said provision was not tenable and on further analysis of the expenditure allocation on account of direct and indirect expenses, it was found that on account of direct and indirect expenses, it was found that on account of improper expenditure allocation as referred to therein, the Amalner unit has ended up showing good profits which is in turn utilized for claiming deduction under Chapter VI-A of the IT Act. Thus, taking into consideration all such facts and circumstances and in the light of findings recorded in paras 131 to 139 of the assessment order, the assessing authority allocated an expenditure of Rs. 1,89,00,000 to Amalner unit. (12.1) On appeal, the CIT(A) has, however, directed the AO to delete the expenses to the tune of Rs. 1,89,00,000 from the eligible profit under s. 80HH of the IT Act on the ground that the composition of sale of the consumer care division of Amalner unit being entirely different and not compar....
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....ng the assessment for this assessment year, the assessing authority has dealt with the deduction claimed by the assessee under s. 80-I of the IT Act relating to Tumkur unit. It was noticed by the assessing authority that the assessee-company had declared profit of Tumkur FAGP plant at Rs. 2,17,84,523 and the said unit produces an intermediate raw material like fatty acid which in turn is consumed captively for the production of finished goods like toilet soap. At para 135 of the assessment order, the assessing authority has pointed out as to how the deduction as claimed under the said provision was not tenable and on further analysis of the expenditure allocation as outlined therein, the Tumkur unit had ended up showing good profits which is, in turn, utilized for claiming deduction under Chapter VI-A of the IT Act. Thus, taking into consideration all such facts and circumstances and in the light of the findings recorded in paras 131 to 139 of the assessment order, the assessing authority allocated an expenditure of Rs. 1,81,00,000 to Tumkur unit. (13.1) On appeal, the CIT(A) directed the deletion of the expenditure of Rs. 1,81,00,000 from the profits under s. 80-I and to recomp....
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....ylinders for the fluid power division. The total profit shown by this unit of Peenya is at Rs. 1,45,64,462 and the deduction claimed under s. 80-IA was to the tune of Rs. 43,69,339. The eligible profit was computed in the sum of Rs. 13,65,335 and in doing so, a sum of Rs. 1,00,00,000 was allocated to the said unit as the assessing authority found there is short allocation. 14.2 On appeal, the CIT(A) has directed the restoration of the allowance of deduction under s. 80-IA of the IT Act as claimed by the appellant. 14.3 (b) Asst. yr. 1999-2000 : While concluding the assessment for this assessment year, regarding the deduction under s. 80-IA of the IT Act in respect of Peenya unit, the assessing authority made a further allocation of a sum of Rs. 1,05,23,323 to this unit. 14.4 On appeal, the CIT(A) by following the appellate order relating to the asst. yr. 1998-99 and the findings given thereto has held that the said finding also holds goods for the present assessment year and consequently, the AO was directed to follow the directions given in the appellate order relating to the asst. yr. 1998-99. 14.5 It is submitted that the appellate orders passed by the CIT on the for....
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....; Expenses now allocated 1,00,00,000 Total reduction to be made 1,00,13,280 Profits of unit reassessed 45,51,182 Deduction eligible under s. 80-IA: 13,65,3557' -------------------------------------------- It is submitted that as can be noticed from the foregoing findings of the assessing authority that in resorting to reallocation, the assessing authority has assigned valid and cogent reason. Even the normal basis of allocation followed by the assessee-company was itself based on proportionate turnover. But, however, even reckoning the same as a basis, the assessing authority has shown that there is short allocation. This being the case, the appellate CIT erred in passing the appellate order, on the footing that the apportionment on the basis of turnover is not rational basis to reckon. The appellate order therefore, ignores the valid reasons as assigned by the assessing authority. As such,....
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....ification to be made, although the assessing authority has recorded the categorical finding to the effect that the unavailed valued Modvat credit to the extent of Rs. 3,15,20,952 is to be considered for addition to the value of closing stock of raw materials and eventually, taking into consideration the addition made to the closing stock in the previous assessment year, an amount of Rs. 1,39,89,220 was rightly added back to the assessing authority. As such, the question of direction for any verification was not tenable." 36.3 We have gone through the assessment, appellate records and the submissions made by both sides. We find the assessee has also raised a ground on the above issue which has been decided above. We have dismissed the ground of the assessee as there is nothing wrong with the directions given by the CIT(A) and since the present ground of the Department is also on the same issue, we, therefore dismiss this ground of the Department also on the above issue. 37. Issue relating to deduction under s. 80HHC in respect of excise duty and sales-tax: "The CIT(A), erred, in directing the AO to exclude sales-tax and excise duty from the total turnover and recompute the ....