TaxTMI 
TaxTMI 
2005 (6) TMI 210
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....epartment, 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 ------------------------------------------------------------- 1. 181 to 185  ....
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....bsp; 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-Letter N....
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....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 the profits under s. 10A at Rs. 87,94,39,076 by holding certain receipts as not profits and gains derived from the individual undertaking eligible under s. 10A and by a....
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.... in which exemption under s. 10A &n....
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....h 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 -88, 4th STPIB/Wipro 12-8-1998 1997-98 1997-98 Floor, Systems/ M.G. Road, Expan/ &nb....
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....nbsp; 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, Hosur Main Road, Bangalore- 560 065 Madi- Ground,1st, STP/Wipro/ 20-8-1996 1998-99 1998-99 vala-II 2nd & 3rd 96/863 Floor,  ....
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....; 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 City, Bangalore- 561 229 ITPL ITPL, 5th & STPIB/Wipro 19-5-1998 1999-2000 1999-2000 6th Floors, Systems/ Information Expan/ Technology 98051901/ &nb....
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....bsp; /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, Mount Road Guindy, Chennai-600 032 Pune Wipro Ltd., STP/P/ 10-3-2000 2000-01 2000-01 CTS, 685/2B VIII(A) & 685/2C, (279)/ Bibwewadi 2000/570 Satara &nb....
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....he 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 overheads: The assessee for asst. yr. 1998-99 has raised the following ground: "8. The learned CIT(A) erred in not issuing a direction for the elimination of corporate and group overheads of Rs. 10,06,66,668 allocated to the software business in the books of account in order to arrive at the profits exempt under s. 10A of the Act." 3.1 The CIT(A) has granted full relief by deleting the addition by the AO. We are unable to understand the reasons for the ground before us. The Department is also in appeal on this issue in their grounds of appeal which has been separately dealt in ITA Nos. 881 and 882/Bang/2003, the findings therein apply here als....
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....he 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 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 the profits under s. 10A at Rs. 87,94,39,076 by holding certain receipts as not profits and gains derived from the individual undertaking eligible under s. 10A and by allocating certain corporate expenses to the s. 10A units. The assessee is engaged in export of software. The assessee has 3 main sub-divisions. (a) Wipro Systems [7 STP units situated at Bangalore (5) and Hyderabad (2)] (b) Global R & D (3 STP units at Bangalore) (c) E-Commerce (part of STP, Lavelle Road, Bangalore, coming under Wipro Systems) 3.1 As stated by the AO, the assessee....
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.... 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 each business unit. The separate accounts of the business units are later consolidated to arrive at the accounting statements of the company. 4.3 The three sub-divisions, i.e., ESD, TSD and ECD have disclosed total software expenditure claimed under s. 10A at Rs. 5,90,71,20,209. This turnover is inclusive of the miscellaneous income disclosed by ESD of Rs. 1,22,18,309, TSD of Rs. 1,26,90,564 and ECD of Rs. 3,60,884. Thus, the total miscellaneous income included in the software turnover aggregates to Rs. 2,52,69,757, On the analysis of the above, it is seen that on the turnover of Rs. 590.71 crores, a profit of Rs. 153.19 crores has been claimed as exempt in the computation of income. Thus, on the above....
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....; year or not ------------------------------------------------------------- 1. LAVELLE -- 1997-98 Yes 177 to 180 ROAD Ground & STPB/Wipro -- -- -- 1st Floor, Sys/95/2550, 40/IA, dt.7-2-1995 Lavelle Road, ....
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.... Street, Bangalore -88, IV STP/Wipro -- -- -- Floor, /96/1275, M.G. Road, dt. 4-7-1996 Church Street Side, Bangalore - 88, 4th STPIB/Wipro -- -- -- Floor, M.G. Systems/ Road, (MG Expan Road Side), /9881201/ Bangalore 3009, dt. ....
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....p; Indl.Layout, Bangalore 4. MADIVALA-I STPB/Wipro 1997-98 Yes 177 to 180 /95/2097, dt. 19-10-1995 -Sri Ganesh Complex (Ground 1st, 2nd 3rd & 4th Floors), House List Nos. 271 & 271A, Madivala Village, Hosur Main Road, Bangalore- 560 065 5. &nb....
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....p; KEOICS 98071601/ Electronic 2496, City, dt. Bangalore 16-7-1998 -561 229 - Electronic STPIB/ City, Blocks Wipro/ 2, 3 & 4, Expan/Gen Plot Nos. 77 /6338, & 73, KEONICS dt. Electronics 19-12-1998 City, Bangalore - 561 229 - ITPL, ITPL, STPIB/Wipro 5th & 6th - Systems/ Floors, &nb....
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.... 94-95/2559, -E-11 Block, dt. 2nd Floor, 28-2-1995 Surya Towers, S.P. Road, Secunderabad - 500 003 11. LAXMI STPH/IMSC/ 1997-98 Yes 177 to 180 BUILDING 95-96/1416, Laxmi dt. Building, 19-12-1995 1-8-446, S.P. Road, Begumpet, Hyderabad -500 016 12. GUINDY STPK/G175/ 1999-2000 First 177 to 180 CHE....
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....nbsp; year ------------------------------------------------------------- The units in sl. Nos. 13, 14 and 15 are not relevant for the issues under appeal. The above list of newly established undertakings which have been claimed as separate by the assessee and accepted by AO after verification of the details such as licences, etc. has allowed the claim of the assessee. On verification of the details of expansion, it is noticed that where substantial expansion has resulted in a new undertaking the same has been shown separately by the assessee and accepted by the AO. The assessee has also obtained licences which have been issued by STPI authorities, some titled as expansion and others as new licences. However, each industrial undertaking bears a new licence as listed in col. No. 3 above. There have been many instances where the existing undertakings have undertaken organic expansion by adding certain equipments/manpower which have been shown as part of pre-existing unit and these have been treated as part of the existing unit by the AO. The assessee has maintained separate books of account for each of the undertaking which fact the AO has....
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....,80,01,951 7,63,99,527 40,73,22,476 13,81,45,629 Laxmi Building, Hyderabad 51,30,40,538 13,74,67,795 81,17,02,945 23,21,42,811 M.G. Road, Bangalore 33,70,79,300 12,96,63,533 7,24,35,762 1,45,20,501 Castle Street, Bangalore 34,61,78,547 7,79,95,598 10,13,51,430 30,71,475 Mission Road, Bangalore 34,27,44,124 5,24,45,608 81,52,40,615 28,61,59,212 Koramangala II,Bangalore -- -- 18,28,54,916 77,34,531 Madivala II Bangalore (EHTP) -- -- 54,01,71,220 15,02,58,247 Lavelle Road, Bangalore 10,42,61,644 1,30,76,451 20,94,50,619 3,93,57,841 M.G.Road- ECD -- -- 1,35,96,543 (1,22,55,765) --------------------....
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.... of the AO on the CIT(A) as extracted will be helpful in dealing with each of confirmation of addition by authorities below. ------------------------------------------------------------ 1 2 3 ------------------------------------------------------------ Issues Disallowances Relief allowed by made by AO in CIT(A) on which the assessment Department is in appeal before us ------------------------------....
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....yalty on software exports 2,97,73,140 4,07,85,926 Provision for doubtful advances 11,05,607 52,20,989 11,05,607 52,20,989 Provision for bad debts -- 1,44,36,245 -- 1,44,36,245 SIL premium not treated as part of software turnover 1,01,35,514 1,30,00,404 1,01,35,514 1,30,00,404 ------------------------------------------------------------ ------------------------------------------------------------ 4 ------------------------------------------------------------ Issues Confirmed by CIT(A) on which the assessee is in appeal before us --------------....
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....d -- -- Royalty on software exports -- -- Provision for doubtful advances -- -- Provision for bad debts -- -- SIL premium not treated as part of software turnover -- -- ------------------------------------------------------------ The above table gives a bird eye view of the issues involved in the assessment, appeal and in dispute before us. Column 2 shows the disallowances made by the AO in the assessment. Column 3 are the issues on which relief was allowed by the CIT(A) in favour of the assessee, on which the Department is in appeal before us in ITA Nos. 881 and 882/Bang/2003 for both the assessment years, Column 4 are the issues which were confirmed by the CIT(A) for which....
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....n of the AO in excluding the scrap sales of Rs. 9,43,643 from the income of 10A units is confirmed." 4.4 Being aggrieved by the order of the CIT(A) on this issue, the assessee is in appeal before us for both the years. Sri. K.R. Pradeep reiterated his arguments made before the CIT(A) for asst. yr. 1998-99 and also submitted that a similar issue has been considered and decided by the Tribunal for asst. yr. 1997-98 in ITA No. 651/B/1994 in favour of the appellant and since the issue involved in the present case is identical and similar to that decided by the Tribunal, prayed for reversing the decision of the authorities below. 4.5 We have gone through the records and the submissions made by both sides. We find that the issue involved in this year is identical and similar to the issue decided by the Tribunal in its order mentioned supra for the earlier year which is found in paras 22.1 and 22.2 which are extracted hereunder: 22.1. The next ground of appeal relates to Wipro Ltd. for asst. yr. 1997-98. The issue relates to deduction of claim in respect of income derived from an export-oriented unit under s. 10A of the Act. The AO held that the income from sale of old newspaper, diese....
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....bsp; Asst. yr. 1998-99 -------------------------------------------------- Sl.No. Issues Amount (Rs.) -------------------------------------------------- 1. Liquidated damages 1,57,193 2. Write back of retention money 1,36,162 3. Sales-tax recoveries 4,80,892 4. Write back of credit balances 11,12,922 5. Foreign exchange gain &n....
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....submitted that the amounts written back are in respect of trading transactions and hence, the amounts written off or claimed so went on to reduce the profit of the industrial undertaking and, hence, when the same amount is written back, it should be considered as profit derived from the undertaking. Further, these are includible under s. 41(1) in computing the business income from any particular source. It was, therefore, argued that the claim of the assessee is tenable. He further submitted that the issue stands covered by the decision of the Tribunal in ITA No. 651/B/1994, dt. 31st July, 2002, wherein while dealing with the computation of eligible profits of undertakings claiming deduction under ss. 80HH, 80-I, etc., the Tribunal has considered similar exclusions made in the earlier years from the eligible profits of industrial undertakings claiming deduction under ss. 80HH and 80-I and has held as under in para 34.4, the relevant portion is extracted hereunder: "We have, therefore, no hesitation in holding that the miscellaneous income which is in the nature of trading receipt, like discount received from suppliers for early payment and the amount written back in respect of sun....
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....not sufficient if a commercial connection is established between the profits earned and the industrial undertaking, but the requirement of the law is that such profits must have been derived from the industrial undertaking, which must itself be the source of profit being a direct source thereto. The Division Bench has analysed the legal position thus. From these observations, it becomes clear that the expression 'derived from' has a definite, but narrow meaning and it cannot receive flexible or wider concept. If a word or expression has received judicial interpretation by the highest Court or the Tribunal and thereafter it is found to have been used in the legislative enactments, it must be presumed that the legislature must have used that word or expression with the same meaning as judicially determined unless the context apparently requires any other meaning. As we have earlier seen, the assessee has an industrial undertaking mainly for the purpose of exporting sea-food. In that business assessee has earned import entitlements under scheme approved by the Government of India. The scheme was not as such connected with the export of sea-food. It was generally for encouraging expo....
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....wed by the word 'from', and it means : get or trace from a source; arise from, originate in; show the origin or formation of.' 'We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the export promotion scheme of the Central Government whereunder the export entitlement become available. There must be, for the application for the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea-food. By reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertaking.' (2.3) The appellant has assailed the assessment order passed by the assessing authority as well as the appellate order passed thereto relating to the foregoing receipts and income. (2.4) Adverting to the p....
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....rior to the amendment, the entire profit of such undertaking is to be excluded. Admittedly, all these items related to the industrial undertaking to which s. 10A applies. Accordingly, these items are not to be excluded atleast for. asst. yrs. 1998-99 and 1999-2000. The appellant succeeds on the above issues and accordingly, we reverse the orders of the authorities below and direct the AO to include the above receipts/income in the profits of business of industrial undertakings under s. 10A. 6. The appellant has raised the following ground No. 3 for the asst. yr. 1999-2000. "3. The learned CIT(A) erred in confirming the addition and in giving a direction that the aggregate of miscellaneous, income disputed by the AO in determining the profits eligible for exemption under s. 10A is Rs. 2,56,74,224 and not Rs. 2,52,69,757. The learned CIT(A) ought to have noted that the AO was duly apprised of the fact that the difference of Rs. 4,04,467 did not relate to the units eligible for exemption of profits under s. 10A and the appellant had not claimed an exemption in respect of the said Rs. 4,04,467." 6.1 The appellant has made a claim for only Rs. 2,52.69,757 whereas the AO while address....
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....he Board, which is transmitted or exported from India to any place outside India by any means: .........." Notification No: 890(E), dt.: 26th Sept., 2000 "In exercise of the powers conferred by cl. (b) of item (i) of Expln. 2 to s. 10A, cl. (b) of item (i) of Expln. 2 to s. 10B and cl, (b) of Explanation to s. 80HHE of the IT Act, 1961 (43 of 1961), the CBDT hereby specifies the following information technology enabled products or services, as the case may be, for the purpose of said clauses, namely: (i) Back-office operations; (ii) Call centres; (iii) Content development or animation; (iv) Data processing; (v) Engineering and design; (vi) Geographic information system services; (vii) Human resources services; (viii) Insurance claim processing; (ix) Legal databases; (x) Medical transcription; (xi) Payroll; (xii) Remote maintenance; (xiii) Revenue accounting; (xiv) Support centres, and; (xv) Website services." includes income earned in the form of royalty which is exploitation of software developed by the assessee. He, therefore, prayed for reversal of the orders of the authorities below on this issue and for issuing directions to the AO to include the royalty inc....
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....e. The ground is extracted hereunder: "Issue of allowing loss of discontinued business segment 9. The authorities below erred in not allowing the loss incurred during the year of discontinuance of a business segment. The authorities below ought to have noted that the loss from the business of Apple Products, which was discontinued, was on the basis of mandatory accounting standards and a loss so computed cannot be disallowed." 10.1 The facts as appearing in the assessment order in p. 24 are extracted hereunder: "Discontinuance of business-Apple products-Loss thereof The assessee-company claimed total loss from discontinuance of Apple products business at Rs. 4,23,71,186 under the category of extraordinary items during the year. The assessee-company was distributor of computers and related products of M/s Apple Products, USA. In February, 1998, the assessee-company discontinued the distributorship. The loss on account of Apple Products business arose consequently. This claim is now examined." Aggrieved by the disallowance of Rs. 3,74,39,089, the appellant filed an appeal before CIT(A) who confirmed the disallowance by the AO after discussing the issue in para 13 extracted here....
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....------------------ Income Direct sales 3,30,71,139 96,35,321 4,27,06,460 Agency commission 30,91,214 - 30,91,214 Captive sales 23,44,893 - 23,44,893 Other income 14,402 - 14,402 ------------ ----------- ------------ 3,85,21,648 96,35,321 4,81,56,969 ------------ ----------- ------------ Expenditure Cost of goods sold-External 4,06,31,837 2,36,95,923 6,43,27,760 Cost of goods 21,99,933 21,99,933 sold-....
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....stification for disallowing the operational loss by the authorities below. It was further submitted that the same business carried on in the earlier years has been brought to tax by the authorities below. 10.2.1 Insofar as valuation of stock whose purchase cost of Rs. 1,79,95,641 transferred to support business at Rs. 25,00,000, Sri K.R. Pradeep submitted that the leftover stock could only be used as spare parts for pending service obligation. The Apple Products had to be cannibalised into spare parts in view of discontinuance of supply from Apple Products; technological obsolescence were also reasons for valuing stock at Rs. 25,00,000. He submitted that the valuation of stock at Rs. 25,00,000 has been disputed by the Department out of suspicion, surmise and disbelief and not for any cogent reason. The valuation of stock is in line with the method of valuation followed by the assessee and is also a prescribed method as per accounting standards by the Institute of Chartered Accountants of India, i.e., cost or market value whichever is less. Such a method accepted by the Department in earlier years cannot be disputed without a valid reason. 10.2.2 Similarly, the debtors' written o....
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....e assessee's claim that the value plummeted to nearly 1/9th by 31st March is not only improbable but is also unsubstantiated. The claim 'loss' arising out of valuation of stock at net realizable value amounting to Rs. 1,75,95,641 is disallowed.' It is submitted that the appellate CIT has confirmed the foregoing disallowance by holding that on the relevant fact noticeable in respect of the said stock valuation, the assessing authority has rightly disallowed the claim of loss arising out of valuation of stock which is against the principles of accounting and it is also observed that even during the appellate proceedings, no break-up of stock inventory was furnished by the appellant. It is submitted that the disallowance so made by the assessing authority and confirmed by the first appellate authority cannot be said to be untenable. (4.1) The other component of the said loss was on account of debtor for Apple Product. The appellant is the distributor for computers and other products made by the reputed manufacturers in the world. The related facts as noticed by the assessing authority and the findings thereto are at pp. 68 and 69 of the assessment order which are reproduced below: ....
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....ng authority has rightly held such claim of write, off is not admissible. It is held that the action of the appellant in writing off the entire debtors without ascertaining the actual bad debt is unsustainable in law and the disallowance is, therefore, upheld. It is submitted that both the assessing authority and the appellate CIT have rightly addressed themselves to issue regarding the disallowance of the said claim." 10.4 We have considered the issue carefully. We find that the details submitted by the assessee were not properly looked into or appreciated by the AO whose order has been extracted above. Consequently, we do not feel handicapped to decide the issue on merits. Analysis of loss of stock from Apple Products activity indicates the loss to be operational loss incurred during the course of carrying on of business. The expenditure incurred by the assessee is also genuine which is not doubted. Consequently, there appears no reason for the expenditure to be disallowed. Further, discontinuance of one or more products cannot lead to conclusion that the business itself has been discontinued. The authorities below seem to have fallen into such an error. Further, even if a busin....
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.... of total income." 12.1 Since the same pertains to mistake of calculation, we direct the AO to look into the same and correct the mistake, if any, while giving effect to this order. 13. The next issue pertains disallowance under s. 43B of the IT Act. 13.1 A sum of Rs. 12,52,738 has been disallowed by the authorities below under s. 43B of the IT Act and the details of expenditure claimed by the assessee are Rs. 12,50,000 towards payment of gratuity and Rs. 2,738 on account of payment of provident fund. The reason given by the AO for disallowance is that there was a delay in payment of impugned sums during the year and consequently, the same is liable to be disallowed under s. 36(1)(va) though the claim may be allowable under s. 43B. Sec. 36(1)(va) is extracted hereunder: "any sum received by the assessee from any of his employees to which the provisions of sub-cl. (x) of cl. (24) of s. 2 apply, if such sum is credited by the assessee to the employees' account in the relevant fund or funds on or before the due date. Explanation: For the purpose of this clause, 'due date' means the date by which the assessee is required as an employer to credit an employee's contribution to the e....
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.... 145A in no way altered the force of the decision of the Hon'ble Supreme Court in Chainrup Sampatram vs. CIT (1953) 24 ITR 481 (SC) relied upon by the appellant" 15.1 On going through the orders of the authorities below on the above issue, we do not find anything wrong in the directions given by the CIT(A) and, therefore, we refuse to interfere with the order of the CIT(A). Assessee cannot be aggrieved by the direction given in the order of the CIT(A). Accordingly, this ground is dismissed. 16. The next grounds of appeal raised by the appellant for the asst. yr. 1998-99 are extracted hereunder: "13. The learned CIT(A) erred in setting aside and issuing directions that are not relevant for computing profits of the peripherals unit in respect of which the appellant had claimed a deduction under s. 80-IA. 14. The authorities below ought to have appreciated that excise duty on finished goods cannot alter the profits derived from industrial undertakings eligible for deduction under s. 80-IA." 16.1 The reasons for taking the above grounds by assessee are on the action of the CIT(A) in setting aside the issue. Sri K.R. Pradeep's main grievance was that the CIT(A) ought to have allowe....
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....t from Wipro Acer Limited". Wipro Acer Limited is one of the subsidiary companies of the assessee. The assessee submitted before the AO that the factory at Pondicherry sources some of its components from M/s Wipro Acer Limited. AO further noticed that the total sales made by the factory to M/s Wipro Acer Limited was Rs. 13,05,15,870. The assessee submitted before the AO that the contribution credit was not made on any particular basis and that it was rather in the nature of an ad hoc discount. As the assessee could not substantiate the claim, the AO has held that the contribution credit of Rs. 85,00,000 cannot be considered as the profits and gains derived from the business of industrial undertaking. He has rightly deleted Rs. 85,00,000 from the profit of the undertaking of Rs. 1,74,99,806 and further reduced depreciation of Rs. 7,04,993. AO has reworked the profits of the undertaking at Rs. 82,94,814 and allowed 100 per cent exemption under s. 80-IA in respect of this amount. Action of the AO is in order and is upheld." 17.2 Before us, Sri. K.R. Pradeep submitted that authorities below have not appreciated the issue in the right spirit, rather on surmise and suspicion have exclud....
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....eived by the appellant during the year. The issue as discussed by the AO in support of the addition made by him as found in para 15 is extracted hereunder: "15.1 On verification of the records of the assessee-company, it is seen that the assessee-company had been granted the following amounts as interest under s. 244A of the IT Act during the financial year 1998-99 relevant to the present assessment year: 15.2 During the course of the assessment proceedings the assessee-company was asked to clarify whether interest under s. 244A has been included in the return of income. In response, the assessee-company stated that the interest as above has not been offered for tax in the present assessment year. It was further stated that based on the letter issued from this office on the accrued interest under s. 244A during the year, the same had been offered for tax during the current financial year, i.e., asst. yr. 2002-03. 15.3.1 In view of the fact that the interest under s. 244A of the IT Act amounting to Rs. 84,34,064 has been received during the previous year relevant to the current assessment year, the same is considered here for addition under the head 'Income from other sources'." ....
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....erefore, was not assessable. (12.1) It is submitted that while concluding the assessment, the assessing authority on verification of records of the assessee-company had noticed that the assessee-company was granted the amount to the tune of Rs. 84,34,064 as detailed in the order. In the proceedings, the company was asked to clarify as to whether the interest under s. 244A had been included in the return of income. It was stated by the company that such interest has not been offered for tax in the assessment year. Thereupon, the assessing authority noticing the position that the interest under s. 244A of the IT Act received during the previous year is to be considered for computation of income and the addition was made in respect of the said amount. On appeal, the appellate CIT had upheld the addition by rightly holding that any interest received under s. 244A is an income liable to tax. It is submitted that the ground urged herein is devoid of any merit." 18.4 We have gone through the issue and find that even basic details such as the details of the interest, when it was due, the number of years for which interest has been paid are not discernible from the records. Hence, it is n....
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....was not made in the return of income. (c) If the return of income is altered for any reason, our claim for deduction under s. 80HHE may kindly be considered and allowed. 20.3 In view of the claim made by the assessee during the course of assessment proceedings, it would be worthwhile to refer to the provision of s. 80HHE (4) of the IT Act, wherein it is stated: '(4) ........ The deduction under sub-s. (1) shall not be admissible unless the assessee furnishes in the prescribed form along with return of income, the report of the accountant as defined in the Explanation below sub-section (sic)' 20.4 As can be seen, the qualifying criteria for admissibility of deduction under s. 80HHE of the IT Act is the requirement that the claim should be furnished in the prescribed form signed by the accountant along with the return of income. However, in the present case, the requirement of sub s. (4) of s. 80HHE has not been met since the claim is not furnished along with the return of income. In view of the same, deduction under s. 80HHE of the IT Act is not allowable. Therefore, the claim under s. 80HHE of Rs. 3,81,15,811 is not allowed as per the above discussion. 20.5 Without prejudice t....
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.... sub-s. (1) of s. 80HHE computed under the sub-s. (3) of the said section (3-4*5) 3,89,15,811 8. Export turnover, deduction in respect of which will be claimed by a supporting software developer in accordance with proviso to sub-s.(1) of s. 80 HHE. Nil 9. Profit from the export turnover mentioned in item 7 above calculated in accordance with proviso to sub-s. (1) of s. 80HHE Nil 10. Deduction under s. 80HHE to which the assessee &nb....
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.... charges or insurance attributable to the delivery of the computer software outside India; and (iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India;' 20.7 It can be seen that deduction provided under s. 80HHE is in respect of 'profit derived from the business'. The profit of the business for these purposes as defined Expln. (d) reproduced above, is profits of business as computed under the head profit and gains of the business as reduced by 90 per cent of receipt by way of brokerage, commission, interest, charges or any other receipt of similar nature. In the above computation furnished by the assessee-company, the profit of business has not been computed in accordance with the provisions of this section. The assessee in the computation should have stated that the 'profit of business as computed in the head 'profit and gains of business or profession' amounting to Rs. 15,03,26,070 (as computed in the computation of income filed along with the return) and then proceeded to exclude 90 per cent of the items such as brokerage, commission, interest, rent, other charges and similar receipts.' 21. The assessee-company for the purpose of....
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....sp; 6,09,13,01,071 ---------------- 12,56,56,18,975 B. Export turnover As returned 12,36,29,409 C. Profits of business 42,25,51,194 Profits of business as computed vide para 19.2 above Less: 90 per cent of the following: 1. Agency commission 9,96,09,513 2. Rental in....
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....proceedings that the assessee made a claim under s. 80HHE of Rs. 3,89,15,811 and filed a report in Form No. 10CCAF on 15th March, 2002. The assessee contended before the AO that in respect of software exports not covered by s. 10A, it is entitled to deduction under s. 80HHE and that since the deduction under Chapter VI-A excluding the deduction under s. 80HHE, exceeded the gross total income, a claim was not made in the return of income. The assessee requested the AO to allow the deduction, in case the income returned is altered in the assessment. Relying on the provisions of s. 80HHE(4), the AO has held the deduction as inadmissible for the reason that the return of income, and the claim was not made in the return." Before us, the assessee in appeal has raised the following grounds: "Issue of admitting a claim for deduction under s. 80HHE 17. The learned CIT(A) erred in confirming the disallowance of the deduction under s. 80HHE on the ground that the claim was not made in the return of income. 18. The learned CIT(A) ought to have appreciated that the claim could be (at) any stage of assessment proceedings and the production of the audit report in Form 10CCAF in support of the....
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....cause the assessee had filed a "NIL" return of income. The gross total income as per the return filed on 31st Dec, 1999, was Rs. 2,79,32,991 and that the eligible deduction under Chapter VI-A under ss. 80-IA, 80HHC, etc. itself was far in excess of the gross total income leading to filing of Nil return. For this reason, the assessee could not make a claim for deduction under s. 80HHE in the return of income filed though the assessee was eligible had the gross total income been higher than what is disclosed by the assessee in the return of income. During the course of assessment based on the enquiries made by the AO and on certain submissions made on the assessment of earlier years which would be repeated during the year, the assessee had reason to believe that there would be substantial addition to the returned income. When these later developments were understood by the assessee, it decided to make a claim for deduction under s. 80HHE by filing a letter dt. 14th March, 2002, the relevant portion of which is extracted hereunder: "Deduction under s. 80HHE: 1. In respect of software exports not covered by s. 10A, we are entitled to deduction under s. 80HHE of the Act. As the deduc....
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....nt proceedings." Though the above decision was rendered under s. 80HHC the requisites of filing audit report under the said section and that of s. 80HHE is similar and parametric. Hence, the decision of the Tribunal would equally apply to the present case also. Insofar as the issue of not claiming deduction under s. 80HHE is concerned, Sri K.R. Pradeep argued that the claim in return of income cannot be the sole criteria for deciding eligibility of deduction under the Act merely because the assessee has not claimed a certain eligible deduction, same cannot be held against him if otherwise the claim of the assessee is tenable under law. The provisions of IT Act alone can decide the eligibility of claim and not any other criteria. In this regard, he submitted that there have been instructions from the CBDT, particularly Circular No. 14, dt. 11th April, 1955, the relevant portions have been extracted hereunder: "Circular No. 14(XL-35) of 1955, dt. 11th April, 1955. The Board have issued instructions from time-to-time in regard to the attitude which the officers of the Department should adopt in dealing with assessee in matters affecting their interest and convenience: It appears th....
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....essee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." Further, he relied on the decision of the Delhi High Court in Continental Construction Ltd. vs. Union of India & Ors. (1990) 85 CTR (Del) 158 : (1990) 185 ITR 230 (Bel), the relevant portion extracted hereunder: "During the course of arguments, we were informed that despite the contention of the Department that the case of the petitioner fell under s. 80HHB, still the benefit under the said provision has not been accorded to the petitioner. The reason for this is that the petitioner has not complied with the provisions of s. 80HHB(3). According to the petitioner, the conditions prescribed under s. 80HHB(3) were not complied with because till the introduction of s. 80HHB in the IT Act, the petitioner was getting the benefit of s. 80-0 in terms of such types of agreements. The petitioner, therefore, did not create reserve accounts as contemplated by s. 80HHB(3) though foreign exchange was repatriated from abr....
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....ade again, the Department has taken a negative view thus indicating a total lack of consistency or judiciousness in dealing with the eligible claim of the assessee. Based on these decisions and other arguments, Sri. Pradeep sought a direction that making a claim during the course of assessment and filing the audit report before completion of assessment should be declared as sufficient compliance and the deduction under s. 80HHE as made by the appellant be allowed. 19.3.2. On the second issue, the total turnover under s. 80HHE as declared by the assessee from the eligible business under s. 80HHE is Rs. 13,80,16,246, whereas, the AO has adopted the same at Rs. 12,56,56,18,975. The reason for not adopting the total turnover declared by the assessee has been explained in para 20.8. which is extracted hereunder: "20.8 The assessee-company for the purpose of computation of deduction under s. 80HHE of the IT Act has disclosed the total turnover of the business at Rs. 13,80,16,246, On verification of the claim made by the assessee-company, it is seen that the total turnover of the company disclosed is the total turnover of the unit for which deduction under s. 80HHE is being claimed. Th....
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....sp; ------------ 2,93,65,868 Add: (a) Travelling expenses 3,465 Disallowed under r. 6D (b) Entertainment expenses 239 (Considered separately) (c) Gratuity provision 1,93,44 22,048 -------- ------------ &nb....
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....nbsp; ------------ Based on the above profits, the assessee recognized the total export turnover as at Rs. 6,35,77,772. Treating the same as total turnover of the business, the assessee claimed deduction under s. 80HHE of the Act. The AO, however, arrived at the deduction under s. 80HHE in the following manner: Profits and gains from software business as claimed Rs. 2,86,05,614 Less: Sundry income Rs. 1,48,02,545 ----------------- Balance: Other income has been Rs. 1,38,03,069 disallowed by the assessee Deduction under s. 80HHE Ex....
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....f profits arising out of export business of goods and. merchandise whereas the deduction under s. 80HHE is in respect of profits from export of software. Under the very scheme of these provisions, what is to be included as total income should be those kinds of receipts which are specified under s. 80HHE, viz., computer software or its transmission and providing technical services in connection with development or production of computer software. The eligible profits of the business for the purpose of s. 80HHE have also not been computed by the authorities below properly, the learned counsel for the assessee pointed out. He contended that the AO is not justified in reducing the sundry income while arriving at the profits and gains from software business. 32. The learned Departmental Representative, on the other hand, strongly supported the impugned orders in the light of the discussions in the orders of the AO as well as the CIT(A). 33. We have carefully considered the rival submissions and gone through the record. The provisions of s. 80HHC and s. 80HHE, although speak of deductions with reference to profits from export business, s. 80HHC provides for deduction in respect of prof....
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....otal income of the profits derived by him in respect of such computer software is received in, or brought into, India in convertible foreign exchange within a period of six months from the end of the previous year or such extended period as the CIT may allow in this behalf. Profits derived from the aforesaid business shall be the amount which bears to the total turnover of the business carried on by the assessee.' Therefore, the total turnover under s. 80HHE can only mean the turnover of the software business alone and the same should not be treated as to include the turnover of the company totally unconnected with the business of computer software. When the numerator speaks of turnover of software business alone, the denominator should also be of similar nature, i.e., the turnover of the company from the business of computer software. In other words, the computer software business should be treated as an independent unit for the purpose of computing deduction under s. 80HHE of the Act. This view of ours is fortified by the decision of 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 regar....
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....iness including the business of sale of motorcycles, motorcycle spare parts and television sets. The Tribunal, however, accepted the claim of the assessee and proceeded to hold that it was only the total turnover of the forging business which was liable to be taken into consideration for arriving at a profit which was liable to be held as a proper deduction under s. 80HHC. Relying on the language of sub-s. (3) of s. 80HHC, the Tribunal interpreted the words therein to mean that in a formula to be used under that section which was Export turnover/Total turnover x Business profits = Available deduction under s. 80HHC, the total turnover should not be the turnover relating to the other business of sale of motorcycles, spare parts thereof and television sets. It is obvious that if the total turnover was considered to be that which included even the turnover of the business other than the forging business, then the denominator would be more and the profits would be less which would be liable for deduction under that section. The 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....
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....rnover of the business carried on by the assessee.' The controversy is about the last words of cl. (b) of sub-s. (3) of s. 80HHC, viz., total turnover of the business carried on by the assessee. There can be no doubt that the present case would be governed by cl. (b) of sub-s. (3) of s. 80HHC as admittedly, the business of the assessee is not exclusively of the export out of India of the forgings. The forgings manufactured by the assessee were sold in India also and' the assessee earned income from the local sales also. It is also an admitted position that the assessee sold motorcycles, motorcycle spare parts and television sets and earned substantial income out of it. While the contention of the assessee, as accepted by the Tribunal, is that the last words indicated above would mean a turnover of the business relating to forgings alone, the Revenue insists that the total turnover of the whole business, i.e., including the sale of motorcycles, motorcycle spare parts, television sets should also be included in 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 tu....
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.... assessee's business is not exclusively of export in the sense that it has income out of the local sales of forgings also and as such, it would be governed by cl. (b) of sub-s. (3). However, that is not the be all and end all of the matter as the whole section pertains to defined goods Sub-s. (1) very clearly provides a rider for the application of s. 80HHC in the opening words itself which are as follows: '80HHC. Deduction in respect of profits retained for export business- (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from the export of such goods or merchandise. The goods or merchandise to which the whole section applies are to be found in cl. (a) 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 specifie....
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....to be read in the colour of the opening clause. The formula envisaged by the section would be 'export turnover, F total turnover, D profits and gains of business'. The business contemplated in the section would be restricted to only the goods to which the section applies and, therefore, by necessary implication, even the total turnover of the business would be the total turnover of the business of the goods to which the section applies. If we include the turnover of the goods to which the section does not apply, it would amount to doing violence to the language of the sub-section itself. The sub-section has been created only to see the ratio of the income out of the export to the total income out of the business in respect of those goods because of the obvious difficulty of segregating the profits earned out of export alone vis-a-vis the profits earned otherwise than by export. The total profits earned out of the business of such goods are not exemptible because those profits would include both 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 t....
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....hich an assessee is entitled to. Ultimately, the object of s. 80HHC is required to be kept in mind in order to encourage exports.' We are in total agreement with the above observations. The Tribunal has chosen to go to the amended section in order to interpret the unamended section applicable to the case at hand. That is clearly impermissible though the Tribunal has reached a correct conclusion and has accordingly interpreted the term total turnover. It was not necessary to go to the amended provision to see the intention of the legislature unless the amendment was of clarificatory or explanatory nature. Even otherwise, as we have pointed out, the correct interpretation of the unamended section would depend upon the language of that section alone. We would, therefore, choose to affirm the final conclusion of the Tribunal on this issue though for reasons of our own." Sri K.R. Pradeep contended that though the decision was under s. 80HHC, having regard to the similar wording under 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. 12,36,2....
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.... 42,25,51,194 Less: 90 per cent of the following: 1. Agency commission 9,96,09,513 2. Rental income 1,70,12,192 3. Interest 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 -------------  ....
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..... As such, the appellate CIT has rightly upheld the disallowance." 19.4.1 On the issue of total turnover and the eligible profits, Sri Indrakumar relied on the decision of the Special Bench in Pearl Polymers vs. Dy. CIT (2002) 74 TTJ (Del)(SB) 1 : (2002) 255 ITR 76 (Del)(AT) in support of the view taken by the AO, particularly the finding recorded in pp. 76 and 77: "There is no ambiguity in the language of s. 80HHC of the IT Act, 1961. Sec. 80HHC(3) is a beneficial section. It is intended to provide incentives to promote exports to earn foreign exchange for the country. The incentive provided is to exempt the profits relatable to exports. In the opinion of the legislature it is possible for an assessee to carry on both export and local business, not only in the same commodity or goods but in a variety of goods not only in trading but also in the manufacture. With a view to avoid litigation, 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....
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....e the assessee is engaged wholly in the business of export out of India of any goods, the deduction granted should be in accordance with s. 80HHC(1). The stress under sub-s. (1) is that it is attracted only if the profits are derived by the assessee exclusively from exports and not by indulging in any domestic trade. As such, sub-s. (1) is confined to and specifically relates to export trade. Sub-s. (3) thereof indicates the manner of computation of the profits derived from the export of goods out of India where the assessee indulges in domestic trade as well. Clause (a) may not be applied here as admittedly, the assessee is carrying on domestic trade as also export. The procedure in cl. (b) would take when there is export as well as domestic trade. The argument of Mr. Jayasanker is that in this case where the profit derived by the assessee by export business is separately maintained 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. Meno....
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....m sub-s. (3)(b) that the formula for ascertainment would be that 'the entire business including profits of the entire business multiplied by export turnover divided by entire business turnover including export and non-export.' This is the formula utilised for the assessment to be made. If this be so, the order of the Tribunal requires to be modified and fresh assessment order has to be made by the AO employing the above formula. The order is accordingly modified." On basis of the abovesaid decision, he sought for upholding of the order of the AO in denying the claim of the assessee. 19.5 In reply, Sri K.R. Pradeep submitted that the decision of Special Bench in (2002) 74 TTJ (Del)(SB) 1 : (2002) 255 ITR 76 (Del)(AT) and the decision of Kerala High Court in (2002) 177 CTR (Ker) 257 : (2002) 257 ITR 41 (Ker), relied on by the Revenue, are inapplicable to the facts 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 ....
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....interpretation in Bajaj Tempo. Similarly, on the issue of filing the audit report in Form 10CCAF during the course of assessment, also stands covered by the decision in Vinayaka Enterprises in ITA Nos. 177 and 178/B/1993 mentioned above. Though the decision has been rendered under ss. 32AB and 80HHC, it would be applicable to the present case having regard to the similarity in the compliance required under all these sections. It is to be noted that if the assessee is entitled to certain deduction which even if assessee failed to claim in the return of income, it is the duty and responsibility of the AO to draw the attention of assessee towards such deduction and allow the same. Similar view has been taken by Hon'ble Gujarat High Court in the case of Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj). Hon'ble Gujarat High Court held thus: "in view 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 responsibilit....
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.....). Such a course is correct in law as held in CIT vs. Smt. Godavaridevi Saraf (1978) 113 ITR 589 (Bom), the relevant portion is extracted hereunder: "An authority like the Tribunal acting anywhere in the country, has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question." The above view has also been upheld by the Special Bench of Delhi Tribunal in the case of Lalsons Enterprises vs. Dy. CIT (2004) 82 TTJ (Del)(SB) 1048 : (2004) 89 ITD 25 (Del)(SB). Further, the decision of Madras High Court is itself based-on the decision of the Mumbai High Court in (2000) 163 CTR (Bom) 596 : (2000) 245 ITR 769 (Bom). Even this decision supports the view of the assessee. We particularly rely on the decision in the Madras High Court in this regard. Accordingly, 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 denominato....
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....g 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." According to Sri K.R. Pradeep, the aforesaid ruling entitles the assessee to claim the tax paid outside India. Since the issue is legal and all the facts and other documents necessary for considering the claim are available on record, it was submitted that there would not be any difficulty in entertaining the additional ground and accordingly sought admission of the same. In support of 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 ....
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....America on an income which is included in the P&L a/c of the assessee. 11.3 It is, therefore, submitted that the question of entertaining and admitting the present additional grounds of appeal preferred by the appellant do not arise at all. The decision relied upon by the appellant in the case of National Thermal Power Corporation Ltd. is not applicable inasmuch as, at no point of time the appellant had put forth the claim in accordance with the provisions of the IT Act. Even the present claim made by the appellant is not based upon any factual foundation whatsoever and the issue never arises out of the assessment order. Hence, there is no legitimate case to admit the additional grounds." 20.3 Sri K.R. Pradeep, in reply, submitted that when all the relevant facts and data are available and the issue admittedly 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 a....
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.... services activity has been included in income from STPI units. The turnover achieved in the United States of America, expenditure incurred and the profits earned thereon have been included in the results of STPI units The income earned from the STPI units has been included in the return of income filed. The eligible deduction under s. 10A has been claimed on the income from STPI units. On these factual matters, the learned Authorised Representative outlined the argument that since the world income is included for tax in India, the income earned in the United States of America and the income-tax paid thereon in the said country is also included in the IT returns in India. Consequently, there is a double taxation of the said income in both the countries. It was further argued that though a certain 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 & An....
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....ome-tax in that country, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or (c) for exchange of information for prevention of evasion or avoidance of income-tax chargeable under this Act or under corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-s. (1) for granting relief of tax, or as the case may 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 i....
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....er the said Act and under the IT Act of the other country. Similarly, cl. (b) also refers to the avoidance of double taxation. We are not concerned with the other clauses of s. 90 in the instant case. In other words, the parties to an agreement, to avoid double taxation are to grant relief to the assessee in case the law of two countries operates on the same income and the assessee may have to pay tax in both countries. The Revenue's contention in the instant case is entirely based on ss. 4 and 5. But, these provisions shall have to be read subject to the provisions of the agreement in question. The agreement in question, by necessary implication, takes away the power of the Indian Government to levy tax on the income in respect of certain categories as per 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 'agree....
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....er the situation under appeal inasmuch the issue before the Karnataka High Court was income earned by Indian resident in Malaysia. Further, arts. 6 and 7 of the DTAA between India and Malaysia had exempted the income earned in Malaysia from tax in India. The provisions of DTAA between India and Malaysia are materially different from that of India and the United States of America. Further, the Karnataka High Court in the said decision has clearly held that: "The effect of an '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 possibly 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 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 ....
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....g the tax liability in India. A perusal of s. 90 indicates that assessee would be eligible for tax credit to the extent and in the manner provided in the DTAA between the countries. The AO has not discussed the issue. The CIT(A) has also not discussed the same as no ground was raised before him. However, in interest of justice, we direct the AO to verify whether the assessee has included the income earned in the United States of America in its return filed in India. The AO shall grant the credit as per applicable provision of DTAA between India and USA. The AO shall also verify and ensure that the taxes have indeed been paid outside India before allowing the credit. Accordingly, the issue is sent to the AO for proper determination 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 discusse....
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....nd group overheads to s. 10A units: 23.1 The grounds of the Department on the above issue are extracted hereunder for both the assessment years: Asst. yr.: 1998-99 "The CIT(A) erred in directing the AO to delete the additional allocation of Rs. 4.2 crores made out of corporate and group overheads to s. 10A unit. 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 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 directing the AO 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 tha....
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...., this expenditure of Rs. 4.2 crore is now allocated fully to the software division/ s. 10A units only. 21. An expenditure of Rs. 4,20,69,175 which remained unallocated in the infotech division books is, therefore, now allocated to the s. 10A units and is reduced from the exempted income so computed'. On appeal, the CIT(A) by following the Tribunal's order, has held in favour of the appellant by directing the deletion of the additional allocation of Rs. 4.2 crores made to the s. 10A units. (3.1) It is submitted that the Revenue has preferred appeal against the appellate order of the Tribunal relied upon by the CIT(A) and, therefore, the issue has not reached finality. In any event 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 no....
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....A of the IT Act is reduced by the identical amount. (3.3) On appeal, the CIT(A) following the decision of the Tribunal had deleted the allocation made by the assessing authority to s. 10A units in the sum of Rs. 8,27,10,805. (3.4) It is submitted that the CIT(A) by following the decision of the Tribunal has deleted the allocation as made by the assessing authority to s. 10A units for the aforesaid two asst. yrs. 1998-99 and 1999-2000. It is submitted that, as mentioned earlier, the Revenue has contested the decision rendered by the Tribunal which has not attained finality. In any event, it is submitted that the allocation as made for the said two assessment years cannot be said 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 authorit....
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....urse, 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." 25.2 Brief facts relating to the issue are that the AO allocated expenditure out of corporate office 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 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 auth....
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....ibunal in the order dt. 31st July, 2002, at para 27.14 has pointed out that in the absence of any specific finding by the authorities below that the expenditure is incurred for the various units claiming exemption/deduction in artificial way of allocating the expenses and that too on surmises is not justifiable. It has also been further held by the Tribunal that there is no finding by the AO that the amount borrowed is not for the purpose of business claiming exemption under s. 10A of the IT Act. The CIT(A) has relied upon the. appellate order of the Tribunal. Herein, it is respectfully submitted that the facts as noticed and considered by the assessing 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....
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....of the IT Act. Since the interest did not pertain to the income generated by Wipro Corporate, it could not be absorbed here; the unabsorbed expenditure has to be allocated to the business unit on the basis of loan utilization. Since the details were not furnished as remarked in para 33 of the assessment order, the AO opted to allocate the same and allocated 50 per cent of software business after discussing the allocation on merit and comparing the turnover and profit of the overall company's statistics. (4.4) Thus, on a consideration of the foregoing factors, as forthcoming from the assessing order and the discussion 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, qua....
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....d consequently, the expenditure of the sum of Rs. 9,43,52,711 is allocated to the s. 10A units and is reduced from the income exempted under s. 10A accordingly. (4.7) It is submitted that on appeal, the CIT(A), by following the decision rendered by the Tribunal, directed the deletion of the allocation of the sum of Rs. 9,43,52,711 as made to the s. 10A units. (4.8) It is submitted that the assessing authority has essentially found and demonstrated an artificial and arbitrary approach by the assessee. Also, the discussion made by the assessing authority at paras 8.1, 8.2, 8.3 and 8.4 would show that in resorting 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. 7....
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....B/1994 on a similar issue for earlier year. Being aggrieved by the order of the CIT(A), the Department is in appeal before us. 26.3 Sri Indrakumar, apart from oral arguments, has submitted written submissions on this issue which are extracted hereunder for the sake of convenience: "(a) Asst. yr. 1998-99 : While concluding the asst yr. 1998-99, the assessing authority has disallowed a sum of Rs. 3,68,76,960 being disallowance of expenditure claimed on imported software. (5.1) On appeal, the CIT(A) by following the Tribunal's order dt. 31st July, 2002, holding the provisions of s. 195 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 ....
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.... authority requires to be upheld, inasmuch as the software used inhouse being a tool of business, the same cannot be held as revenue expenditure but only an expenditure of capital nature. Thus, the legality of the addition made by way of disallowance of the expenditure on software being subject-matter of consideration in the present appeals and on the facts as noticed by the assessing authority, the plea made herein that the expenditure being of capital nature, the disallowance is to be sustained on this ground. In this behalf, reliance is made on a decision of the Supreme Court 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 cons....
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....not brought any fresh reasons or points before us, so as to reverse the decision of the CIT(A), hence, w uphold the decision of the CIT(A) on this issue and dismiss the ground of the Department. 27. Issue relating to disallowance of provision for bad and doubtful debts: 27.1 The next of the grounds taken by the Department is on the above issue and the grounds is as follows: For asst. yr. 1998-99 "(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 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. Fo....
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..... 9,42,61,936 should be allowed, we submit that if our claim is not admitted, the bad debts written off against the provision amounting to Rs. 2,51,644 to be allowed as a deduction.' The assessing authority examined the claim made to the tune of Rs. 9.42 crores. It was held by the assessing authority that the provisions of s. 36(1)(vii) allow write off of bad debts and the fundamental requirement is that, in the first instance, the debts should have become bad and mere 'write off is not the only requirement, but 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,....
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....ct that the debt in question should have become bad. This indispensable requirement of establishing that the debt has become bad and irrecoverable requires to be established for claiming deduction under s. 36(1)(vii) of the IT Act and the said provision does not dispense with this requirement. This legal aspect has been brought out in the decision of the Hon'ble Tribunal of Delhi Bench in the case Dy. CIT vs. India Thermit Corporation Ltd., wherein it is explained thus: 'Before the amendment, the assessee 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 condi....
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.... to the sales turnover of the various sub-divisions. Respectfully following the observations of the learned CIT(A), I, therefore, allocate the unabsorbed expenditure of the Wipro Infotech group amounting to Rs. 19,30,14,901 on the sales turnover of software sub-division and other sub-divisions. However, this deficit of Rs. 19,30,14,901 has to be increased by an amount of Rs. 13,000,404 on account of SIL premium allocated to non-s. 10A units, and decreased by an amount of Rs. 24,113,380 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 o....
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....es to the tune of Rs. 1,46,65,873. The assessee claimed deduction regarding the said provision for doubtful advances on the following ground as referred to in the assessment order at para 51: 'While a specific provision governs the deduction for debts, there is no specific provision for allowing deduction for advances made in the ordinary (course) of business and which have subsequently become bad. They qualify as a business loss under s. 28 of the Act. The method 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 ....
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.... It is submitted that inasmuch as the claim preferred by the assessee is only in respect of the provision and being in the nature of the contingent liability, the assessing authority has rightly disallowed the same. It does not represent the actual amount of advances written off. The assessments so concluded do not suffer from any infirmity regarding the adjudication of the said claim putforth by the assessee." 28.3 We have gone through the records 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 ....
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....s such, the assessing authority disallowed the same. (8.3) On appeal, the CIT(A), on the basis of the earlier decision of the Tribunal in the case of M/s Wipro GE Medical Systems Ltd. allowed the claim. (8.4) It is submitted that the decision of the Tribunal rendered in the case of M/s Wipro GE Medical Systems Ltd., has not attained finality and is contested by the Revenue. (8.5) It is submitted that the assessing authority 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. T....
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....emitted the issue back to the AO for verification and allowing the claim of excise duty, if the conditions are fulfilled in keeping with order of the Tribunal. Being aggrieved the decision and direction of the CIT(A), the Department is in appeal on the issue before us. 30.2 Sri Indrakurnar has submitted written submissions on the issue which are extracted hereunder: "Asst. yr. 1998-99 : In relation to this 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....
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....t phase. However, the value of closing stock is immediately modified to only Rs. 44.97 lakhs since the assessee is now reducing a further amount of Rs. 2.81 crores. This is not acceptable.' On the foregoing finding, the assessing authority disallowed the claim. (9.1) On appeal, the CIT(A) held that the Tribunal in its earlier order had held that the amount paid by the assessee towards excise 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 positi....
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.... year, the assessing authority made an addition of Rs. 23,10,309 on account of increase in valuation of closing stock regarding the component of customs duty. The assessing authority had noticed that in the case of excise duty on goods manufactured but not cleared, the liability was to the tune of Rs. 1,87,91,884 and as per the audit report the same being remitted before the due 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 accou....
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....missions on the above issue which have been extracted hereunder: "(11.1)(a) Asst. yr. 1998-99 : In the course of the assessment proceedings for the asst. yr. 1998-99, the matter of claim for deduction under s. 80-IA of the IT Act in respect of peripherals unit at Mysore, has been thoroughly and extensively considered by the assessing authority. In that behalf, 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 ....
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....ysore being patently untenable and incorrect, the CIT(A) erred in passing the appellate order holding that the assessing authority has failed to make out a case. In relation to the asst. yr. 1999-2000, the CIT(A) has held that the directions as made in the appellate order for the asst. yr. 1998-99 will also apply. It is submitted that inasmuch as 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 i....
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....on to this assessment year, while concluding the assessment, the assessing authority has dealt with the deduction claimed under s. 80HH of the IT Act relating to Amalner unit. It was noticed by the assessing authority that assessee-company had declared profit of FAGP unit of Amalner plant of Rs. 488,48,851 and the said unit produces 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 ....
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....gible profits under s. 80-I without appreciating that the AO had worked out the allocation of various items of expenses on equitable basis." 34.2 The arguments of the Department on the above issue as submitted by Sri Indrakumar in his written submissions are extracted hereunder: "Asst. yr. 1998-99 : While concluding 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 circ....
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....ation of various items of expenses on equitable basis." 35.2 The arguments of the Department on the above issue as submitted by Sri Indrakumar in his written submissions are extracted hereunder: "14.1 (a) Asst. yr. 1998-99 : The assessee-company has a factory at Peenya manufacturing hydraulic cylinders 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 th....
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....ts of the eligible unit as returned: 1,45,64,462 Less: other income 13,280 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 ap....
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.... purchases, sales and closing stock and to verify the same, and if there is any unavailed modvat credit, the same has to be added back to the income. (15.2) It is submitted that the appellate CIT erred in directing the AO to cause verification 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 ....