M/s. ABB Limited(formerly Asea Brown Boveri Limited), Bangalore V. ACIT, Bangalore

ITA 1227/BANG/2007

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4268 (ITAT-BANGALORE)
• Duration Of Justice: 13 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-09-2021
• Assessment Year: 2004-2005
• Appeal Filed On: 13-12-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DILIP REDDY SR
• Keywords: Business expenditure; Capital expenditure; TDS; Set aside
• Section: 80HHC; 14A; 80IA; 43; 13; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1227/BANG/2007 ASSESSMENT YEAR : 2004-05 ABB LIMITED, KHANIJA BHAVAN, RACE COURSE ROAD, IIND FLOOR, EAST WING, BENGALURU-560001. PAN AAACA 3834 B V S. THE ADDL. COMMISSIONER OF INCOME-TAX (LTU), BENGALURU. APPELLANT RESPONDENT ITA NO.1256/BANG/2007 ASSESSMENT YEAR : 2004-05 THE ADDL. COMMISSIONER OF INCOME-TAX (LTU), BENGALURU. V S. ABB LIMITED, KHANIJA BHAVAN, RACE COURSE ROAD, IIND FLOOR, EAST WING, BENGALURU-560001. PAN AAACA 3834 B APPELLANT RESPONDENT ASSESSEE BY : MS. VASANTI PATEL, ADVOCATE REVENUE BY : SHRI DILIP REDDY, SR. COUNSEL DATE OF HEARING : 27-09-2021 DATE OF PRONOUNCEMENT : 29-09-2021 O R D E R PER BENCH PILLAI, JUDICIAL MEMBER PAGE 2 OF 19 ITA NOS.1227 & 1256/BANG/2007 PRESENT CROSS APPEALS FILED BY ASSESSEE AND THE REV ENUE ARISES OUT OF ORDER DATED 30/08/2007 PASSED BY CIT( A), LTU , BENGALURU, RELATING TO ASSESSMENT YEAR 2004-05. 2. AT THE OUTSET IT IS SUBMITTED THAT ISSUES RAISED BY BOTH SIDES STANDS COVERED BY ORDERS PASSED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN PROCEEDING ASSESSMENT YEAR. ASSESSEES APPEAL 3. GROND NO.1 - DEDUCTION U/S 80 HHC - REDUCTION OF 90% OF RENTAL INCOME, INSURANCE CLAIM, CASH SUBSIDY, RE FUND OF SALES TAX, COMMISSION, INCOME FROM PROFIT ON SALE O F FIXED ASSETS ETC. 3.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2001-2002 IN ITA NO.562 & 755/BANG/2007 ORDER DATED 4.3.2021 DECIDED THIS ISS UE AS UNDER: 11. THE NEXT GROUND (NO.2) RAISED BY THE ASSESSEE READS AS FOLLOWS:- 2. THE LEARNED CIT (A) ERRED IN CONFIRMING THAT HE AD OFFICE EXPENSES IS REQUIRED TO BE ALLOCATED WHILE ARRIVING AT THE PROF IT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF ALLOWING DEDUCTION U /S 80-I / 80-IA OF THE INCOME TAX ACT. WITHOUT PREJUDICE, IT IS FURTHER SUBMITTED THAT ALL OCATION OF EXPENDITURE IS ON A VERY HIGHER SIDE AND IT SHOULD BE REDUCED SUBSTANTI ALLY. THIS ISSUE ALSO CAME UP FOR CONSIDERATION BEFORE TH E TRIBUNAL ITA NO.3240/BANG/2004 FOR AY 2000-01 WHEREIN THE IS SUE PAGE 3 OF 19 ITA NOS.1227 & 1256/BANG/2007 WAS DECIDED AGAINST THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS:- 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSIN ESS OF VARIOUS ENGINEERING FABRICATION, MANUFACTURE AND TRADING OF MECHANICAL, ELECTRICAL AND OTHER ENGINEERING ITEMS. THE DISPUTE RAISED B Y THE ASSESSEE IN GROUND NO.1 IS WITH REGARD TO DEDUCTION U/S. 80IA OF THE A CT. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S. 80IA. THE AO WHILE ALLOWING DEDUCTION U/S. 80IA ALLOCATED HEAD OFFICE EXPENSES ON THE BASIS OF TURNOVER OF THE VARIOUS UNDERTAKINGS OF THE ASSESSEE. CONSEQUE NT TO SUCH ALLOCATION, DEDUCTION U/S. 80IA OF THE ACT WAS ALLOWED AT A MUC H LESSER FIGURE THAN WHAT WAS CLAIMED BY THE ASSESSEE. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION IN ASSESSEES OWN CASE IN AY 1988-89 IN ITA NO.3809/MUM/2003, ORDER DATED 19.10.2012. IN PARA 12.4, THE TRIBUNAL FOLLOWED ITS DECISION IN ASSESSEES OWN CASE FOR TH E AY 1995-96. THE ISSUE WAS CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN A SSESSEES OWN CASE IN AY 1997-98 IN ITA NO.2555/MUM/2003 BY ORDER DATED 05.0 4.2007 AND ON IDENTICAL ISSUE IT WAS HELD AS FOLLOWS:- THE CASE OF THE ASSESSEE, HOWEVER, IS THAT THE SUB JECT MATTER OF DEDUCTION U/S. 80IA IS THE PROFITS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKINGS AND HENCE IT IS ONLY THAT E XPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO THE EARNING OF TH E SAID PROFITS THAT CAN BE THE SUBJECT MATTER OF DEDUCTION FOR COMPUTIN G THE AFORESAID PROFITS AND NOT HEAD OFFICE EXPENSES. WE ARE UNABL E TO AGREE WITH THE AFORESAID SUBMISSION FOR TWO REASONS. FIRST REA SON IS THAT IT IS THE PROFIT DERIVED BY THE ASSESSEE FROM THE BUSINES S OF INDUSTRIAL UNDERTAKING WHICH HAS BEEN MADE ELIGIBLE FOR DEDUC TION U/S. 80IA D NOT ANY OTHER PROFIT. SECOND REASON IS THAT THE C OMPUTATION OF PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IA HAS TO BE DONE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28 TO 43. PERUSAL OF THE AFORESAID PROVISIONS REVEALS THAT ALL THOSE EXPENSE S, WHICH ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE IN DUSTRIAL UNDERTAKING, ARE TO BE ALLOWED WHILE COMPUTING THE BUSINESS PROFIT. IT CANNOT BE SAID THAT HEAD OFFICE EXPENSE S OR COMMON EXPENSES ARE NOT INCURRED OR ARE UNCOMMON FOR THE P URPOSES OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. WHAT IS NOW REQUIRED TO BE COMPUTED IS THE PROFITS DERIVED FROM THE BUSINES S OF INDUSTRIAL UNDERTAKING THEREFORE, THERE IS NO WARRANT FOR THE PROPOSITION THAT ONLY THOSE EXPENSES, WHICH ARE DIRECTLY ATTRIB UTABLE TO EARNING OF PROFITS DERIVED FROM THE BUSINESS OF IND USTRIAL UNDERTAKING ALONE SHOULD BE CONSIDERED. AS ALREADY STATED ABOVE THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 801A ARE NET PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFO RE THEY WILL HAVE TO BE NETTED AFTER ADJUSTING ALL THE EXPENSES ATTRIBUTABLE TO THEM IN TERMS OF THE PROVISIONS CONTAINED IN SECTIO NS 28 TO 43 OF PAGE 4 OF 19 ITA NOS.1227 & 1256/BANG/2007 THE I.T. ACT. THEREFORE ALL EXPENSES, WHETHER THEY ARE DIRECT OR INDIRECT OR FIXED, SEMI-FIXED OR VARIABLE, MUST BE ADJUSTED TO DETERMINE THE PROFITS DERIVED FROM THE INDUSTRIAL U NDERTAKING. OF COURSE, ANY COMPONENT OF HEAD OFFICE EXPENSES, WHIC H HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSES OF THE BUSINE SS OF ANY PARTICULAR UNIT/ UNDERTAKING/DIVISION WILL HAVE TO BE ADJUSTED AGAINST THE RECEIPTS OF THAT PARTICULAR UNIT/UNDERT AKING/DIVISION ONLY. SIMILARLY, HEAD OFFICE EXPENSES OR EXPENSES W HICH ARE COMMON TO ALL THE UNITS/UNDERTAKINGS/DIVISIONS EXPE NSES WILL HAVE TO BE SPREAD OVER AND CHARGED AGAINST THE RECEIPTS OF ALL THE UNITS/ UNDERTAKINGS/DIVISIONS. IF THIS COURSE IS NOT FOLLO WED, THEN WHAT WOULD STAND ALLOWED U/S 80IA WOULD BE INFLATED PROF ITS AND NOT THE NET PROFITS DERIVED FROM THE INDUSTRIAL UNDERTA KING IN TERMS OF THE PROVISIONS OF SECTIONS 29 TO 43. IN THIS VIEW O F THE MATTER AND IN THE ABSENCE OF ANY BETTER ALTERNATIVE, THE CIT(A) I S JUSTIFIED IN HOLDING ASSESSEE IS ENTITLED TO DEDUCTION OF THE EL IGIBLE AMOUNTS IN RESPECT OF THE PROFITS DERIVED FROM THE ELIGIBLE UN DERTAKINGS AFTER THE ALLOCATION OF HEAD OFFICE EXPENSES IN THE RATIO OF TURNOVER . WE SEE NO VALID REASON TO TAKE A VIEW CONTRARY TO T HE ONE TAKEN BY THE CIT(A) IN THIS BEHALF. GROUND NO. 5 IS DISMISSE D. 3. THIS TRIBUNAL FOLLOWING THE AFORESAID DECISION UPHELD SIMILAR ALLOCATION OF HEAD OFFICE EXPENSES IN ASSESSEES CASE FOR AY 1999 -2000 IN ITA NO.3330/MUM/2004 ORDER DATED 5.4.2019 WITH THE FOLL OWING OBSERVATIONS:- 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE DECISION OF THE TRIBUNAL IN AY 1995-96 WHICH WAS EXTRACTED IN THE E ARLIER PART OF THIS ORDER IS APPLICABLE TO THE PRESENT ASSESSME NT YEAR ALSO. WE FIND NO GROUNDS TO TAKE A CONTRARY VIEW. THE DE CISION IN THE CASE OF ZANDU PHARMACEUTICALS WORKS LTD. (SUPRA) IS WITH REFERENCE TO APPORTIONMENT OF R&D EXPENSES AND NO P ARITY OF FACTS EXIST WITH THE PRESENT CASE. AS FAR AS THE D ECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF HINDUSTAN LEVER (SUPRA) IS CONCERNED, THAT DECISION RESTS ON THE FA CTS OF THAT CASE, WHERE IT WAS FOUND THAT COMMON HEAD OFFICE EX PENSES WERE SIMPLE ADMINISTRATIVE EXPENSES FOR RUNNING THE BUSINESS. IN THAT VIEW OF THE MATTER, WE UPHOLD THE ORDER OF CIT(APPEALS) AND DISMISS GROUND NO.1 RAISED BY THE ASSESSEE. 4. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.1 RAISED BY THE ASSESSEE AND ACCORDINGLY THE SAME IS DISMISSED. PAGE 5 OF 19 ITA NOS.1227 & 1256/BANG/2007 16. SINCE THE FACTS IN THE PRESENT ASSESSMENT YEAR ARE SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN AY 1999-2000, THIS GROUND IS REJECTED. 17. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS FOLLOWS:- 4. THE LEARNED CIT (A) ERRED IN HOLDING THAT EXPEN DITURE OF RS. 18,14,331/- BEING AMOUNT SPEND TOWARDS REPAIRS AND RENOVATION OF LEASEHOLD PREMISES IS CAPITAL EXPENDITURE. 3.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVEN UE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE ALLOW THIS GROUNDS RAISED BY THE ASSES SEE. 4. GROUND NO.2 DEDUCTION U/S 80 HHE 4.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDENT ICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN I TA NO.790,791,896 &897/BANG/2008 ORDER DATED 23.7.2021 DECIDED THE ISSUE FOLLOWING AS UNDER : 55. THE NEXT ISSUE RELATES TO COMPUTATION OF DEDUC TION U/S 80HHE OF THE ACT. IN BOTH THE YEARS, THE ASSESSEE HAS SUBMITTED IN ITS GROUNDS OF APPEALS THAT THE MISCE LLANEOUS INCOME HAS BEEN EXCLUDED BY THE A.O. FOR COMPUTING PROFITS OF BUSINESS, EVEN THOUGH CERTAIN ITEMS ARE NOT LIABLE TO BE EXCLUDED. HOWEVER, WE NOTICE SOME THING ELSE IN THE ORDER OF LD CIT(A). 56. IN ASSESSMENT YEAR 2002-03, THE ASSESSEE HAD CL AIMED DEDUCTION U/S 80HHE OF THE ACT AT RS.3,27,998/- AND THE A.O. HAS RESTRICTED IT TO RS.2,44,804/-. THE LD. CIT(A) HAS DEALT WITH THIS ISSUE IN PARAGRAPH 14 OF HIS ORDER. ACCORDING TO THE LD. CIT(A), THE A.O. HAS INCLUDED EXCISE DUTY AND SALE S TAX IN THE TOTAL TURNOVER AND ACCORDINGLY COMPUTED DEDUCTION U /S 80HHE OF THE ACT. THE LD. CIT(A) HELD THAT THE EXCISE DUTY AND SALES TAX SHOULD NOT BE INCLUDED IN TOTAL TURNOVER AND ACCORD INGLY DIRECTED PAGE 6 OF 19 ITA NOS.1227 & 1256/BANG/2007 THE A.O. TO RECOMPUTE DEDUCTION U/S 80HHE OF THE AC T. THUS, WE NOTICE THAT THERE IS NO DISCUSSION ABOUT THE OTHER INCOME BY LD. CIT(A). SIMILAR IS THE CASE WITH AY 2003-04 ALSO. ACCORDINGLY, WE ARE OF THE VIEW THAT THE IMPUGNED GROUND OF THE ASSESSEE RAISED IN ASSESSMENT YEAR 2002-03 AS WELL AS IN 200 3-04 DOES NOT EMANATE FROM THE ORDER PASSED BY LD. CIT(A). A CCORDINGLY, WE REJECT THE GROUNDS RAISED BY THE ASSESSEE RELATI NG TO DEDUCTION U/S 80HHE OF THE ACT. 4.2 RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE ASSESSEE. 5. GROUND NO.3 - ALLOCATION OF HEAD OFFICE EXPENSES U/S 801 / 801A 5.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDENT ICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN I TA NO.790,791,896 &897 /BANG/2008 ORDER DATED 23.7.202 1 DECIDED THE ISSUE. 57. THE LAST COMMON ISSUE RELATES TO DEDUCTION U/S 80IA OF THE ACT. THE A.O. DEDUCTED PROPORTIONATE HEAD OFFICE EXPENSES WHILE COMPUTING DEDUCTION U/S 80IA OF THE ACT AND THE LD. CIT(A) AL SO CONFIRMED THE SAME. THE LD. A.R. SUBMITTED THAT THIS ISSUE HAS BEEN DEC IDED AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2000-01. WE ALSO NOTICE THAT THE C OORDINATE BENCH HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY FOLLOWING THE DECISION RENDERED IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 1997-98 AND 1999-2000. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DISCUSSIO N MADE BY THE TRIBUNAL IN ASSESSMENT YEAR 2000-01. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE APPEAL BY THE ASSESSEE IN ITA NO.3959/MUM/2004. AS FAR AS GROUND NO.1 RAISED BY THE ASSESSEE IS CONCERNED, THE SAME READS AS FOLLOWS:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THAT HEA D OFFICE EXPENSES IS REQUIRED TO BE ALLOCATED WHILE ARRIVING AT THE PROF IT OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF ALLOWING DEDUCTION U /S 80-I / 80-IA OF THE INCOME TAX ACT. PAGE 7 OF 19 ITA NOS.1227 & 1256/BANG/2007 THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F VARIOUS ENGINEERING FABRICATION, MANUFACTURE AND TR ADING OF MECHANICAL, ELECTRICAL AND OTHER ENGINEERING ITEMS. THE DISPUTE RAISED BY THE ASSESSEE IN GROUND NO.1 IS WI TH REGARD TO DEDUCTION U/S. 80IA OF THE ACT. IT IS NOT IN DI SPUTE THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S. 80IA. THE AO WHILE ALLOWING DEDUCTION U/S. 80IA ALLOCATED HEAD OFFICE EXPENSES ON THE BASIS OF TURNOVER OF THE VARIOUS UNDERTAKING S OF THE ASSESSEE. CONSEQUENT TO SUCH ALLOCATION, DEDUCTION U/S. 80IA OF THE ACT WAS ALLOWED AT A MUCH LESSER FIGURE THAN WHAT WAS CLAIMED BY THE ASSESSEE. IT IS NOT IN DIS PUTE BEFORE US THAT IDENTICAL ISSUE CAME UP FOR CONSIDER ATION IN ASSESSEES OWN CASE IN AY 1988-89 IN ITA NO.3809/MUM/2003, ORDER DATED 19.10.2012. IN PARA 12.4, THE TRIBUNAL FOLLOWED ITS DECISION IN ASSESSEES OW N CASE FOR THE AY 1995-96. THE ISSUE WAS CONSIDERED BY THE MUM BAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 1997-98 IN ITA NO.2555/MUM/2003 BY ORDER DATED 05.04.2007 A ND ON IDENTICAL ISSUE IT WAS HELD AS FOLLOWS:- THE CASE OF THE ASSESSEE, HOWEVER, IS THAT THE SUB JECT MATTER OF DEDUCTION U/S. 80IA IS THE PROFITS DERIVED FROM THE BUSINESS OF IN DUSTRIAL UNDERTAKINGS AND HENCE IT IS ONLY THAT EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO THE EARNING OF THE SAID PROFITS THAT CAN BE THE SUBJECT MATTER OF DEDUCTION FOR COMPUTING THE AFORESAID PROFITS AND NOT HEAD OFFICE EXPENSES. WE ARE UNABLE TO AGREE WITH THE AFORESAID SUBMISSION FOR TWO REASONS. FIRST REA SON IS THAT IT IS THE PROFIT DERIVED BY THE ASSESSEE FROM THE BUSINESS OF INDUST RIAL UNDERTAKING WHICH HAS BEEN MADE ELIGIBLE FOR DEDUCTION U/S. 80IA D NOT AN Y OTHER PROFIT. SECOND REASON IS THAT THE COMPUTATION OF PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IA HAS TO BE DONE IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 28 TO 43. PERUSAL OF THE AFORESAID PROVISIONS REVEALS THAT ALL THOSE EXPENSE S, WHICH ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE INDUSTRIAL UNDE RTAKING, ARE TO BE ALLOWED WHILE COMPUTING THE BUSINESS PROFIT. IT CANNOT BE SAID THAT HEAD OFFICE EXPENSES OR COMMON EXPENSES ARE NOT INCURRED OR ARE UNCOMMON FOR THE PURPOSES OF THE BUSINESS OF THE INDUSTRIAL UNDERTAK ING. WHAT IS NOW REQUIRED TO BE COMPUTED IS THE PROFITS DERIVED FROM THE BUSI NESS OF INDUSTRIAL UNDERTAKING THEREFORE, THERE IS NO WARRANT FOR THE PROPOSITION THAT ONLY THOSE EXPENSES, WHICH ARE DIRECTLY ATTRIBUTABLE TO EARNIN G OF PROFITS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING ALONE SHOULD BE CONSIDERED. AS ALREADY STATED ABOVE THE PROFITS ELIGIBLE FOR DEDUCTION U/S . 801A ARE NET PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFO RE THEY WILL HAVE TO BE PAGE 8 OF 19 ITA NOS.1227 & 1256/BANG/2007 NETTED AFTERADJUSTING ALL THE EXPENSES ATTRIBUTABLE TO THEM IN TERMS OF THE PROVISIONS CONTAINED IN SECTIONS 28 TO 43 OF THE I. T. ACT. THEREFORE ALL EXPENSES, WHETHER THEY ARE DIRECT OR INDIRECT OR FI XED, SEMI-FIXED OR VARIABLE, MUST BE ADJUSTED TO DETERMINE THE PROFITS DERIVED F ROM THE INDUSTRIAL UNDERTAKING. OF COURSE, ANY COMPONENT OF HEAD OFFIC E EXPENSES, WHICH HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSES OF THE B USINESS OF ANY PARTICULAR UNIT/UNDERTAKING/DIVISION WILL HAVE TO BE ADJUSTED AGAINST THE RECEIPTS OF THAT PARTICULAR UNIT/UNDERTAKING/DIVISION ONLY. SIMILARL Y, HEAD OFFICE EXPENSES OR EXPENSES WHICH ARE COMMON TO ALL THE UNITS/UNDERTAK INGS/DIVISIONS EXPENSES WILL HAVE TO BE SPREAD OVER AND CHARGED AGAINST THE RECEIPTS OF ALL THE UNITS/UNDERTAKINGS/DIVISIONS. IF THIS COURSE IS NOT FOLLOWED, THEN WHAT WOULD STAND ALLOWED U/S 80IA WOULD BE INFLATED PROFITS AN D NOT THE NET PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING IN TERMS OF THE PROVISIONS OF SECTIONS 29 TO 43. IN THIS VIEW OF THE MATTER AND IN THE ABS ENCE OF ANY BETTER ALTERNATIVE, THE CIT(A) IS JUSTIFIED IN HOLDING ASS ESSEE IS ENTITLED TO DEDUCTION OF THE ELIGIBLE AMOUNTS IN RESPECT OF THE PROFITS D ERIVED FROM THE ELIGIBLE UNDERTAKINGS AFTER THE ALLOCATION OF HEAD OFFICEEXP ENSES IN THE RATIO OF TURNOVER . WE SEE NO VALID REASON TO TAKE A VIEW CONTRARY TO THE ONE TAKEN BY THE CIT(A) IN THIS BEHALF. GROUND NO. 5 IS DISMISSE D. THIS TRIBUNAL FOLLOWING THE AFORESAID DECISION UPHE LD SIMILAR ALLOCATION OF HEAD OFFICE EXPENSES IN ASSESSEES CA SE FOR AY 1999-2000 IN ITA NO.3330/MUM/2004 ORDER DATED 5.4.2 019 WITH THE FOLLOWING OBSERVATIONS:- 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE DECISION OF THE TRIBUNAL I N AY 1995-96 WHICH WAS EXTRACTED IN THE EARLIER PART OF THIS ORDER IS APPL ICABLE TO THE PRESENT ASSESSMENT YEAR ALSO. WE FIND NO GROUNDS TO TAKE A CONTRARY VIEW. THE DECISION IN THE CASE OF ZANDU PHARMACEUTICALS WORKS LTD. (SUPRA) IS WITH REFERENCE TO APPORTIONMENT OF R&D EXPENSES AND NO P ARITY OF FACTS EXIST WITH THE PRESENT CASE. AS FAR AS THE DECISION OF THE HO NBLE MADRAS HIGH COURT IN THE CASE OF HINDUSTAN LEVER (SUPRA) IS CONCERNED, T HAT DECISION RESTS ON THE FACTS OF THAT CASE, WHERE IT WAS FOUND THAT COMMON HEAD OFFICE EXPENSES WERE SIMPLE ADMINISTRATIVE EXPENSES FOR RUNNING THE BUSI NESS. IN THAT VIEW OF THE MATTER, WE UPHOLD THE ORDER OF CIT(APPEALS) AND DIS MISS GROUND NO.1 RAISED BY THE ASSESSEE. IN THE LIGHT OF THE AFORESAID DECISION OF THE TRIBU NAL, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.1 RAIS ED BY THE ASSESSEE AND ACCORDINGLY THE SAME IS DISMISSED. PAGE 9 OF 19 ITA NOS.1227 & 1256/BANG/2007 5.2 THERE IS NOTHING ON RECORD BROUGHT BY REVENUE T O MAKE AS COUNTER VIEW. 5.3 RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE ASSESSEE. 6. GROUND NO.4 - REPAIRS AND RENOVATION 6.1 THIS GROUND IS NOT PRESSED BY THE ASSESSEE, HEN CE DISMISSED. 7. GROUND NO.5 - DISALLOWANCE U/S 14A 7.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDENT ICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN I TA NO.790,791,896 &897 /BANG/2008 ORDER DATED 23.7.202 1, DECIDED THIS ISSUE AS UNDER: - 43. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED TH E RECORD. WE NOTICE THAT THE A.O. HAS EXTRACTED INTEREST FREE FU NDS AVAILABLE WITH THE ASSESSEE AS WELL AS THE VALUE OF INVESTMENTS IN BOTH THE YEARS UNDER CONSIDERATION. WE NOTICE THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE AS ON 31.3.2002 WAS RS.440.92 CRORES AS AG AINST THE VALUE OF INVESTMENTS OF RS.12.95 CRORES. SIMILARLY, AS O N 31.3.2003, THE ASSESSEE WAS HAVING OWN FUNDS OF RS.505.51 CRORES A S AGAINST VALUE OF INVESTMENTS OF RS.0.95 CRORES. ACCORDINGLY, WE NOTICE THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IN BOTH THE YEARS ARE IN FAR EXCESS OF THE VALUE OF INVESTMENTS. ACCORDINGLY, AS PER T HE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF MICR O LABS LTD. (SUPRA), NO DISALLOWANCE OUT OF INTEREST EXPENDITUR E IS CALLED FOR. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. C IT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT TH E A.O. TO DELETE DISALLOWANCE MADE U/S 14A OF THE ACT IN BOTH THE YE ARS UNDER CONSIDERATION. PAGE 10 OF 19 ITA NOS.1227 & 1256/BANG/2007 7.2 THERE IS NOTHING ON RECORD PLACED BY REVENUE IN ORDER TO TAKE A CONTRARY VIEW. 7.3 RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F THE TRIBUNAL, WE ALLOW THIS GROUNDS RAISED BY THE ASSESSEE. 8. GROUND NO.6 - DISALLOWANCE OF SUM OF RS. 82,00,0 00 BEING TECHNICAL AND PROFESSIONAL FEES PAID TO M/S K OTAWALA 8.1 WE HAVE PERUSED SUBMISSION ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 8.2 THIS GROUND CHALLENGES THE DISALLOWANCE OF RS.8 2,00,000/ BEING PAYMENT OF TECHNICAL AND PROFESSIONAL FEES TO M/S KOTAWALA (INDIA) LTD. ALLEGING THAT NO SERVICES HAS BEEN REC EIVED BY THE ASSESSEE. 8.3 THE CONTENTIONS OF LD.COUNSEL WAS THAT THE ASSE SSEE ALSO SUBMITS THAT PAYMENT FOR THE SERVICES RENDERED BY T HE AGENT WERE MADE THROUGH ACCOUNT PAYEE CHEQUE IN PURSUANCE TO A N AGREEMENT. M/S KOTAWALA (INDIA) LTD. IS ASSESSED TO TAX AS EVIDENCED BY ITS PERMANENT ACCOUNT NUMBER. 8.4 HOWEVER LD.CIT(A) HAS OBSERVED AND HELD AS UNDE R: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E APPELLANT AND ALSO THE REASONS GIVEN BY THE AC FOR DISALLOWIN G THECOMMISSION PAID TO M/S KOTAWALA(INDIA) LTD. THE AC HAS RELIED ON TH E STATEMENT GIVEN BY THE MANAGING DIRECTOR OF M/S.KOTAWALA (INDIA) LTD., STATING THAT HE HAS NO EVIDENCE FOR RENDERING SERVICES TO THE APPELLANT . BESIDES THIS, THE AC HAS ALSO POINTED OUT CERTAIN DISCREPANCIES / CONTRA DICTIONS IN THE ACCOUNTS AND THE TDS CERTIFICATES ISSUED BY THE APP ELLANT, INDICATING THAT PAGE 11 OF 19 ITA NOS.1227 & 1256/BANG/2007 THE TRANSACTION IS NOT FREE FROM DOUBT. HOWEVER, TH E APPELLANT IN ITS SUBMISSION DURING APPEAL PROCEEDINGS AND ALSO DURIN G ASSESSMENT PROCEEDINGS HAS NEVER CONTESTED THE STATEMENT OF TH E MANAGING DIRECTOR OF M/S.KOTAWALA (INDIA) LTD. THE APPELLANT REITERAT ES ITS STAND THAT THE PAYMENT HAS BEEN MADE BY ACCOUNT-PAYEE CHEQUE, WHIC H IS DULY REFLECTED IN ITS BANK ACCOUNT AND THE TDS ON SUCH P AYMENTS HAS BEEN MADE AND CREDITED TO THE GOVERNMENT ACCOUNT ACCORDI NGLY. FURTHER, IT IS ALSO STATED BY THE APPELLANT THAT M/S.KOTAWALA (IND IA) LTD. IS ASSESSED TO TAX AS EVIDENCED BY THE PAN NUMBER WITHOUT CONFI RMING WHETHER THE RECIPIENT HAS REFLECTED THE AMOUNTS RECEIVED BY IT IN ITS RETURN OF INCOME. THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE REGARDI NG RENDERING OF THE SERVICE BY THE RECIPIENT OF COMMISSION EITHER AT TH E ASSESSMENT STAGE OR AT THE APPEAL STAGE, EXCEPT THE COPIES OF THE AGREE MENT ENTERED INTO BY IT WITH M/S.KOTAWALA (INDIA) LTD. DATED 02/01/2002 AND 18/10/2002 AND THE INVOICES RAISED BY M/S.KOTAWALA (INDIA) LTD. DA TED 23/10/2003 AND 24/10/2003. THE APPELLANT HAS NOT GIVEN ANY DETAILS REGARDING THE PROJECTS AWARDED TO IT IN PURSUANCE OF THE SAID AGR EEMENTS SUCH AS THE DATE OF THE AWARD, THE CORRESPONDENCE WITH MIS. KOT AWALA (INDIA) LTD., ETC. IT IS NOTEWORTHY THAT THE TDS CERTIFICATE MENT IONS THE PERIOD OF RENDERING SERVICE AS 01/03/2004 TO 31/03/2004 WHERE AS THE BILLS WERE RAISED BY M/S KOTAWALA (INDIA) LTD. ON 23/10/2003 A ND 24/10/2003 AND ON THE SAME DAYS THE AMOUNTS HAVE BEEN CREDITED TO THE ACCOUNT OF M/S.KOTAWALA (INDIA) LTD. AT NO STAGE, THE APPELLAN T HAS CONTRADICTED THE STATEMENT GIVEN BY THE M.D. OF M/S.KOTAWALA (INDIA) LTD. NOR HAS IT PRODUCED ANYTHING TO DISPROVE THE STATEMENT SO GIVE N. WHEN THE APPELLANT ITSELF HAS NOT PRODUCED ANY EVIDENCE IN S UPPORT OF THE SERVICES RECEIVED BY IT, THE QUESTION OF ALLOWING THE CLAIM FOR EXPENDITURE DOES NOT ARISE. IN VIEW OF THE ABOVE DISCUSSION, THE ACTION OF THE AO IS CONFIRMED. 8.5 EVEN BEFORE US THE LD.COUNSEL COULD NOT COUNTER THE STATEMENT GIVEN BY THE DIRECTOR OF KOTAWALA. FURT HER NOTHING WAS PLACED ON RECORD BEFORE US TO ESTABLISH THAT SE RVICES HAVE BEEN RENDERED. WE THEREFORE DO NOT FIND ANY INFIRM ITY IN THE VIEW TAKEN BY LD.CIT(A) AND THE SAME IS UPHELD. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS D ISMISSED. ACCORDINGLY ASSESSEES APPEAL STANDS PARTLY ALLOWED . PAGE 12 OF 19 ITA NOS.1227 & 1256/BANG/2007 REVENUES APPEAL : 9. THE COORDINATE BENCH OF THIS TRIBUNAL ON IDENTI CAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 10. GROUND NO.1 - GENERAL GROUND 10.1 GROUND NO.1 IS GENERAL IN NATURE HENCE NEEDS NO ADJUDICATION. 11. GROUND NO.2 - DEDUCTION U/S 80 HHB 11.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GROUND NO.2. LEARNED COUNSEL FOR THE ASSESSEE POIN TED OUT THAT IDENTICAL ISSUE WAS DECIDED BY THIS TRIBUNAL IN ASS ESSMENT YEAR 2001- 02 IN ITA NO.755/BANG/2007, ORDER DATED 04.03.2021 AND THE TRIBUNAL IN PARAGRAPH 57 OF THE ORDER, FOLLOWED THE TRIBUNALS DECISION FOR ASSESSMENT YEAR 1999-2000 IN ITA NO.3330/MUM/20 04. THE TRIBUNAL NOTICED THAT THOUGH SEPARATE BOOKS OF ACCO UNTS WERE NOT MAINTAINED SEPARATE ACCOUNTS WERE MAINTAINED IN RES PECT OF EACH FOREIGN PROJECT AND AUDIT CERTIFICATES IN FORM NO.1 0CCAH HAVE ALSO BEEN FURNISHED IN RESPECT OF EACH PROJECT. IN THES E CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DECISION RENDERED BY THE T RIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS ON IDENTI CAL GROUND WOULD APPLY AND THEREFORE THE ASSESSEE CANNOT BE DENIED T HE BENEFIT OF DEDUCTION UNDER SECTION 80HHA OF THE ACT ON THE GRO UND THAT SEPARATE BOOKS OF ACCOUNTS WERE NOT MAINTAINED FOR THE FOREI GN PROJECTS. GROUND NO.2 RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED . 11.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REVENUE. PAGE 13 OF 19 ITA NOS.1227 & 1256/BANG/2007 12. GROUND NO. 3 - ENTRANCE AND SUBSCRIPTION FEES P AID TO THE CLUB 12.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 6. AS FAR AS THE ABOVE GROUND IS CONCERNED, THE LAW IS WELL SETTLED THAT ENTRANCE FEE AND MEMBERSHIP FEES PAID WHERE THE EMP LOYEES BECOME MEMBERS IS ALLOWABLE AS A BUSINESS EXPENDITURE AND WAS ALLOWED AS DEDUCTION IN ASSESSEES OWN CASE IN AY 1999-2000. WHEN MEMBERSHIP OF A CLUB IS TAKEN IN THE NAME OF DIRECT OR, IT IS FOR THE ASSESSEE-COMPANY TO PROVE THAT MEMBERSHIP WAS OBTAI NED SOLELY FOR THE PURPOSE OF BUSINESS. [NEW INDIA EXTRUSIONS (P) LIMITED V ACIT 10 TAXMANN.COM 165]. FURTHER ENTRANCE FEES PAID TOWARD S CORPORATE MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT TOW ARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING A PPARATUS OF A BUSINESS ENTERPRISES AND ACCORDINGLY CIT (A) WAS JU STIFIED IN DELETING THE DISALLOWANCES OF ENTRANCES FEE MADE BY THE ASSE SSING OFFICER. [DY. CIT VS. BANK OF AMERICA SECURITIES (INDIA) (P) LTD. 136 TTJ 441]. AGAIN, CORPORATE MEMBERSHIP FEES PAYABLE TO CLUB IS REVENU E EXP. [CIT V SAMTEL COLOUR LIMITED 326 ITR 425]. GROUND NO.3 IS ACCORDINGLY DISMISSED. 12.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REV ENUE. 13. GROUND NO.4 - EXPENSES ON THE BASIS OF PURCHASE OF PACKING MATERIAL, LOOSE TOOLS ETC., IN THE YEAR OF PURCHASE 13.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 PAGE 14 OF 19 ITA NOS.1227 & 1256/BANG/2007 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 13. THE FACTS WITH REGARD TO THIS GROUND ARE THAT T HE ASSESSEE CONSISTENTLY USED TO FOLLOW THE METHOD OF WRITING O FF THE PACKING MATERIALS, LOOSE TOOLS AND CONSUMABLES THAT ARE PUR CHASED IN A YEAR WITHOUT TAKING AN INVENTORY OF THE SAME AT THE END OF THE YEAR. THIS METHOD HAS ALWAYS BEEN ACCEPTED IN THE PAST. ACCORD ING TO THE ASSESSEE, THE METHOD IS ALSO IN ACCORDANCE WITH ACC OUNTING PRINCIPLES. THE AO FOR THE FIRST TIME WHILST COMPLETING THE ASS ESSMENT FOR AY 2000- 01, HAS COME TO THE CONCLUSION THAT THIS METHODOLOG Y IS NOT PERMISSIBLE AND IN THE PRESENT AY ESTIMATED THE CLOSING INVENTO RY OF THE AFORESAID ITEMS AT 18.8% OF THE AMOUNTS CHARGED TO THE PROFIT AND LOSS ACCOUNT. IN DETERMINING THIS PERCENTAGE, THE AO TOOK THE BASIS AS RATIO OF INVENTORY OF FINISHED GOODS IN RELATION TO CONSUMPTION OF RAW MATERIALS.THE ACTION OF THE AO RESULTED IN AN ADDITION OF RS.2,65,15,000 /- TO THE TOTAL INCOME OF THE ASSESSEE AS VALUE OF CLOSING STOCK. 14. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE ORDER OF THE CIT(A) ON I DENTICAL ISSUE FOR ASSESSMENT YEAR 2000-01 AND 2001-02. AT THE TIME O F HEARING, IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECI DED BY THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 IN ITA NO.3959/MUM/2004 ORDER DATED 08.03.2020 AND THE TRIBUNAL HELD AS FOLLOWS: WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) ON THIS IS SUE HAS TO BE UPHELD. ADMITTEDLY THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS CONSISTENT AND ACCEPTED IN THE PAST BY THE REVENUE AUTHORITIES. THERE IS NO REASON WHY THE SAME SHOULD BE DISTURBED. THE DECISION IN THE CASE OF ABDUL LATIF (SUPRA) SUPPORTS THE PLEA OF TH E ASSESSEE. IN THE SAID DECISION, THE FACTS WERE THAT THE ASSESSEE WAS ENGAGED IN BUSINESS OF MANUFACTURE OF PAPERS. IN RETURN OF IN COME FOR AY 2005-06, ASSESSEE HAD SHOWN, INTER ALIA, PURCHASES OF PACKIN G MATERIAL AS ON 31-3-2005, BUT NO AMOUNT OF PACKING MATERIAL WAS SH OWN IN CLOSING STOCK. THE ASSESSEE SUBMITTED BEFORE ASSESSING OFF ICER THAT; (I) PACKING MATERIAL SHOWN AS PURCHASES AS ON 31-3-2005 WAS ACTUALLY PURCHASED IN EARLIER MONTHS AND SUCH PACKING MATERI AL WAS CONSUMED DURING PROCESS; (II) ON ACCOUNT OF SOME COMPUTER P ROBLEM, BILLS WERE POSTED ON 31-3-2005, AND (III) ENTIRE PACKING MATER IAL LEFT AFTER END OF PAGE 15 OF 19 ITA NOS.1227 & 1256/BANG/2007 YEAR BECAME OBSOLETE AND, THEREFORE, IT WAS NOT SHO WN IN CLOSING STOCK. THE ASSESSING OFFICER REJECTED ACCOUNT BOOKS OF ASS ESSEE AND MADE CERTAIN ADDITION TO HIS INCOME. THE TRIBUNAL HELD THAT:- (I) IT WAS NOT CASE OF REVENUE THAT PURCHASES AS DEBITED AS ON 31- 3-2005 WERE NOT GENUINE, AND (II) ASSESSEE WAS FOLLOWING A CONSISTE NT METHOD OF VALUING CLOSING STOCK BY INCLUDING PACKING MATERIAL AS CONS UMED AT TIME OF PURCHASE. REJECTION OF ACCOUNT BOOKS OF ASSESSEE A ND ADDITION TO HIS INCOME WAS HELD TO BE NOT JUSTIFIED. WE THEREFORE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.5 RAISED BY THE REVENUE. 13.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REV ENUE. 14. GROUND NO.5 & 8 - EXCISE DUTY AND SALES TAX TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80HHC & 8OHHE 14.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 200 3-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS ISSUE AS UNDER: 17. AS FAR AS GROUND NOS.6 AND 9 RAISED BY THE RE VENUE IS CONCERNED, THE ISSUE IS AS TO WHETHER SALES TAX AND CENTRAL EXCISE DUTY COLLECTED BY THE ASSESSEE SHOULD BE TAKEN AS FORMIN G PART OF THE TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION U NDER SECTION 80HHC OF THE ACT. THE AO HELD THAT SALES TAX AND CENTRAL EXCISE DUTY IS TO BE REGARDED AS A PART OF THE TURNOVER FOR COMPUTING DE DUCTION UNDER SECTION 80HHC OF THE ACT. THE CIT(A), HOWEVER, FOL LOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (290 ITR 667) (SC) HELD THAT THE SALES TAX AN D CENTRAL EXCISE DUTY SHOULD NOT BE INCLUDED AS A PART OF THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA), WHICH HAS SETTLED THE ISSUE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NOS. 6 AND 9 RAISE D BY THE REVENUE. PAGE 16 OF 19 ITA NOS.1227 & 1256/BANG/2007 WE MAY ALSO MENTION THAT THE PROVISIONS OF 80HHC WH ICH IS THE APPLICABLE PROVISION FOR GROUND NO. 6 AND THE PROVI SIONS OF SECTION 80HHC OF THE ACT WHICH IS THE APPLICABLE SECTION FO R GROUND NO.9, ARE IDENTICAL. 14.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REV ENUE. 15. GROUND NO. 6 - GROSS INTEREST RECEIPT OR NET IN TEREST INCOME TO BE REDUCED FOR COMPUTING BUSINESS PROFIT UNDER CLAUSE (BAA) OF SECTION 80HHC 15.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 24. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE HAS RAISED GROUND NO.8 BEFORE THE TRIBUNAL. AT THE TIME OF HE ARING, LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE DECI SION OF THE TRIBUNAL RENDERED ON AN IDENTICAL YEAR FOR ASSESSMENT YEAR 2 001-02 IN ITA NO.562/BANG/2007 ORDER DATED 04.03.2021 WHEREIN THE TRIBUNAL ACCEPTED A SIMILAR DECISION RENDERED BY THE CIT(A) IN ASSESSMENT YEAR 2001-02. LEARNED DR REITERATED THE STAND OF THE RE VENUE AS REFLECTED IN THE GROUNDS OF APPEAL. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE ON AN IDENTICAL ISSUE FOR ASSESSMENT YEAR 2001-02. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE PRINCIPLE OF NETTING HAS BEEN RECOGNIZED B Y THE VARIOUS DECISIONS OF HONBLE HIGH COURTS AND HAS ALSO BEEN AFFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES VS. CIT 343 ITR 89 (SC). THE PRINCIPLE OF NETTING IS HOWEV ER APPLICABLE ONLY ON THE ASSESSEE ESTABLISHING NEXUS BETWEEN THE INTEREST PAID AND THE INTEREST EARNED. IF SUCH NEXUS IS PROVED, IT I S ONLY THE NET INTEREST THAT HAS TO BE EXCLUDED UNDER EXPLANATION BAA TO SE CTION 80HHC OF THE ACT. PAGE 17 OF 19 ITA NOS.1227 & 1256/BANG/2007 26. IN VIEW OF THE AFORESAID LEGAL POSITION, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.8 RAISED BY THE REVE NUE AND ACCORDINGLY THE SAME IS DISMISSED. 15.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REV ENUE. 16. GROUND NO.7 - FOR COMPUTING DEDUCTION U/S 80HHC IN RESPECT OF CASH DISCOUNT, EXCISE DUTY RECOVERED, SC RAP SALES AND EXCHANGE RATE VARIATION. 16.1 THE COORDINATE BENCH OF THIS TRIBUNAL ON IDEN TICAL FACTS IN ASSESSEES OWN CASE FOR AY 2002-2003 & 2003-04 IN ITA NO.790 & 791/BANG/2008 ORDER DATED 4.3.2021 DECIDED THIS I SSUE AS UNDER: 11. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR N OTICE THAT IDENTICAL ISSUE WAS DECIDED BY THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF TEJAS NETWORK LTD. VS. DCIT (2015) 60 T AXMANN.COM 309 (KARN.) AND IT WAS HELD THAT WHERE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 35(2AB) PURSUANT TO CERTIFICATE ISSUED BY P RESCRIBED AUTHORITY, I.E., DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARC H (DSIR), APPROVING SUCH CLAIM, ASSESSING OFFICER COULD NOT HAVE DENIED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) IN RESPECT OF SCIEN TIFIC EXPENDITURE. IT WAS HELD THAT ASSESSING OFFICER CANNOT SIT IN JUDG MENT OVER REPORT SUBMITTED BY PRESCRIBED AUTHORITY . IT WAS HELD TH AT WHERE ASSESSING OFFICER DOES NOT ACCEPT CLAIM OF ASSESSEE MADE UNDE R SECTION 35(2AB), HE SHOULD REFER THE MATTER TO BOARD, WHICH WILL THE N REFER QUESTION TO THE PRESCRIBED AUTHORITY. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO.4 RAIS ED BY THE REVENUE. 16.2 THERE IS NOTHING BROUGHT ON RECORD BY THE REVE NUE TO TAKE A CONTRARY VIEW. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DISMISS THIS GROUNDS RAISED BY THE REV ENUE. PAGE 18 OF 19 ITA NOS.1227 & 1256/BANG/2007 ACCORDINGLY REVENUES APPEAL STANDS DISMISSED. IN THE RESULT, APPEAL FILED BY ASSESSEE STANDS PA RTLY ALLOWED AND APPEAL FILED BY REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPT, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE, DATED, THE 29 TH SEPT, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE