M/s. Metrochem Industries Limited, Ahmedabad V. The ACIT., Circle-4, Ahmedabad

ITA 1692/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8878 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-02-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 20-05-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Depreciation; Revenue expenditure; Set aside
• Section: 80HHC; 234B; 80IB; 80IA; 251; 28; 10

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T.K. SHARMA, JM AND D.C.AGRAWAL, AM ITA NO. ASST. YEAR 1692/AHD/2004 1999-2000 1693/AHD/2004 2000-2001 M/S METROCHEM INDUS. LTD., 505-506, SURYA RATH, NR. PANCHWATI, AHMEDABAD-380006. V/S . CIT-II, AHMEDABAD/ ACIT, CIR-4/ ITO WD- 4(3), AHMEDABAD PAN NO.AABCM 8019K (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI M. K. PATEL, AR RESPONDENT BY:- SHRI SHELLEY JINDAL, CIT,DR O R D E R PER D.C.AGRAWAL, ACCOUNTANT MEMBER . THESE ARE TWO APPEALS FILED BY THE ASSESSEE AGAINS T TWO SEPARATE ORDERS OF LD. CIT(A) DATED 31.3.2004 FOR ASST. YEAR S 1999-2000 & 2000- 01. SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THESE ARE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. ITA NO. 1692/AHD/2004 ASST. YEAR 1999-2000 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS MANUF ACTURER OF SPECIAL CHEMICAL, TRADING IN DYECHEMS AND INTERMEDIARIES AN D THEIR EXPORT. 2 3. THE FIRST GROUND RELATES TO DEPRECIATION ON FIXE D ASSETS. THIS HAS BEEN DEALT BY LD. CIT(A) IN PARA 4 OF HIS ORDER. TH ERE WAS A CLAIM OF DEPRECIATION OF RS.1,47,478/- IN RESPECT OF OFFICE BUILDING CALLED METRO HOUSE IN UNIT-1 AND UNIT-II OF THE COMPANY NAMELY R AHUL DYECHEM INDUSTRIES AND METRO DYCHEM (INDIA) LTD. THE DISALL OWANCE OF THE DEPRECIATION WAS MADE BY THE AO FOLLOWING HIS ORDER S OF EARLIER YEARS. THE LD. CIT(A) ALSO CONFIRMED THIS DISALLOWANCE 4. WE HAVE HEARD THE PARTIES. IT IS SUBMITTED BY TH E LD. AR THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ASST. YEA R 1998-1999 BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.1463/AHD/2002 DAT ED 2.4.2007 AS PER PARA 13 THEREOF AS UNDER :- 13. THE GROUND NO.1 RELATES TO THE DELETION OF THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.1,63,864/-. THE AO HAS DISALLOWED THE DEPRECIATION. THE LD. CIT(A) HAS ALLOWED THE DEPREC IATION FOLLOWING THE ORDER FOR THE ASST. YEAR 1997-98. HAVING HEARD BOTH THE PARTIES, WE FIND THAT THE ISSUE IN CONTROVERSY IS DECIDED BY THE TRI BUNAL IN FAVOUR OF THE ASSESSEE IN ITA NOS.1481 & 1482/AHD/2001 WHEREIN TH E TRIBUNAL HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER :- WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. FACTS AND CIRCUMSTANCES BEING SIMILAR, THE TRIBUNAL HAVING AC CEPTED THE CLAIM OF THE ASSESSEE IN THE BASE YEAR, WHERE THE DEPRECIATION W AS CLAIMED FOR THE FIRST TIME, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE, IN THIS YEAR AS WELL. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE T RIBUNAL, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE ALLOW TH E CLAIM OF THE ASSESSEE. THIS GROUND OF ASSESSEE IS ALLOWED. 3 5. GROUND NO.2 RELATES TO CONTRIBUTION TO EFFLUENT TREATMENT PLANT. THIS HAS BEEN DEALT BY LD. CIT(A) IN PARA 5 OF HIS ORDER. THE LD. AO NOTED THAT EXPENDITURE OF RS.44,52,108/- HAS BEEN INCURRE D BY THE ASSESSEE ON POLLUTION CONTROL EQUIPMENT. THE EXPENDITURE OF SIM ILAR NATURE WAS TREATED AS CAPITAL NATURE IN THE EARLIER YEARS. 6. IT APPEARS THAT NONE APPEARED BEFORE THE LD. CIT (A), THEREFORE, ORDER OF THE AO WAS CONFIRMED BY HIM. IT WAS ARGUED BY LD. AR FOR THE ASSESSEE THAT THIS ISSUE WAS CONSIDERED BY THE TRIB UNAL IN ASST. YEAR 1997-98 VIDE ITS ORDER IN ITA NO.1208/AHD/2001 AND 1484/AHD/2001 DATED 30.3.2007 AND IN ITA NO.1462 & 1463/AHD/2002 FOR ASST. YEARS 1998-99 & 98-99 WHEREIN THE CLAIM WAS ALLOWED IN FA VOUR OF THE ASSESSEE. THE TRIBUNAL HAS OBSERVED AS UNDER :- 14. THE SECOND GROUND OF APPEAL OF THE REVENUE REL ATES TO THE DELETION OF THE AMOUNT OF RS. 44,52,108/- HOLDING IT TO BE REVE NUE EXPENDITURE. THE ASSESSEE MADE CONTRIBUTION TO GREEN ENVIRONMENT SER VICES CO-OP. SOCIETY LTD. THE ASSESSING OFFICER TREATED THIS EXP ENDITURE AS CAPITAL WHEREAS THE LD. CIT(A) HAS ALLOWED THIS EXPENDITURE AS REVENUE FOLLOWING THE ORDER OF 1997-98. WE HAVE HEARD BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT SIMILAR MATTER CAME UP BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 1997-98 AND THE TRIBUNAL IN ITS ORDER IN ITA NOS. 1208/AHD/2001 AND 1484/AHD/2001 DATED 30.3,2007. WE FIND THAT THE FACTS FOR THE YEA R UNDER CONSIDERATION ARE SIMILAR TO THE ASSESSMENT YEARS 1996-97 AND 199 798, THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO DECIDE THE SAME AFRESH AS PER THE OUTCOME OF THE ASSESSMENT YEARS 1 996-97 AND 1997-98. WE DIRECT ACCORDINGLY. SINCE THE ISSUE RELATING TO CONTRIBUTION TO GREEN E NVIRONMENT SERCICES CO-OP. SOCIETY LTD. HAS BEEN RESTORED TO THE FILE O F AO IN ASST. YEAR 1997-98 AND 98-99, WE ALSO RESTORE THE MATTER TO HI S FILE FOLLOWING THE ORDER OF THE TRIBUNAL. THE AO WILL DECIDE THE ISSUE IN ACCORDANCE WITH 4 THE DECISION HE TAKES IN PREVIOUS YEAR TWO YEARS. A CCORDINGLY THIS GROUND IS ALLOWED BUT FOR STATISTICAL PURPOSES. 7. GROUND NO.3 RELATES TO LEASE RENT EXPENSES OF RS .9,90,259/-. THIS ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE TRIBUNAL VIDE ITS ORDER FOR ASST. YEAR 1998-99 IN ITA NO.146 3/AHD/2003 IN ASSESSEES OWN CASE. THE TRIBUNAL VIDE PARA 15 HAD OBSERVED AS UNDER :- 15. THE THIRD ISSUE RELATES TO THE DELETION OF THE DISALLOWANCE OF LEASE RENT AMOUNTING TO RS.14,08,011/-. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE FIND THAT THE ISSUE IN CONTROV ERSY IS ALREADY DEALT WITH IN ITA NO.1208/AHD/2001 & 1484/AHD/2001 WHEREI N WE UPHOLD THE ORDER OF THE CIT(A). THE LD. CIT(A) HAS FOLLOWED TH E ORDER FOR THE ASST. YEAR 1998-99. WE CONFIRM THE ORDER OF THE LD. CIT(A ). IT IS NOTICED THAT APPELLANT COMPANY HAS TAKEN ON L EASE A D.G. GENERATING SET FROM SISTER CONCERN NAMELY M/S METROCHEM CAPITA L TRUST LTD. FOR WHICH LEASE RENT OF RS.9,09,259/- WAS PAID. AO HAS HELD THAT THIS PURCHASE BY M/S METROCHEM CAPITAL TRUST LTD. WAS A SHAM TRANSACTION AND CONSEQUENTLY LEASE RENT PAID BY THE ASSESSEE CO MPANY TO METROCHEM CAPITAL TRUST LTD. WAS NOT A GENUINE EXPENDITURE. A S NONE APPEARED BEFORE THE LD. CIT(A), HE CONFIRMED THE ADDITION. 8. SINCE THE ISSUE HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL, WE RESPECTFULLY FOLL OW THE SAME AND DELETE THE ADDITION. THIS GROUND OF ASSESSEE IS, THEREFORE , ALLOWED. 9. GROUND NO.4 RELATES TO EXCLUSION OF FOLLOWING AM OUNTS FROM THE PROFITS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA. 5 (1) FOREIGN EXCHANGE FLUCTUATION, VATAV, KASAR & IN CIDENTAL CHARGES AND MANAGERIAL REMUNERATION AMOUNTING TO RS. 3,86,3 52/- AND RS.50,000/-. (2) EXCLUSION OF DUTY DRAW BACK AND EXPORT INCENTIV ES RS. 22,84,617/- AND RS.6,92,898/- RESPECTIVELY. (3) EXCLUSION OF GROSS INTEREST INCOME AMOUNTING TO RS.36,42,695/- AND RS.91,398/-. (4) ALLOCATION OF POLLUTION EXPENSES INCURRED IN UN IT-IV, TO PROFITS OF UNIT-II AND UNIT-III AMOUNTING TO RS.1,48,84,137/-& RS.61,09,767/- RESPECTIVELY. (5) LOSS INCURRED FROM UNIT-II IN TRADING TRANSACTI ONS AMOUNTING TO RS.18,94,496/- 10. REGARDING FOREIGN EXCHANGE FLUCTUATION GAIN AMO UNTING TO RS.3,86,352/- ON VATAV, KASAR OR INCIDENTAL CHARGES RECEIVED DURING EXPORT ACTIVITIES, WERE HELD RELATING TO BUSINESS OF EXPOR T AND DIRECTLY CONNECTED WITH FOREIGN EXCHANGE RECEIPTS. THE FOREIGN EXCHANG E GAINS WERE RECEIVED WITHIN THE STATUTORY PERIOD OR WITHIN THE EXTENDED TIME AND ACCORDINGLY IT WAS HELD TO BE DEDUCTIBLE UNDER SECT ION 80IA AS VATAV AND KASAR ARE DIRECTLY HELD TO BE DERIVED FROM INDUSTRI AL UNDERTAKING. THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.2344 & 2545/AHD/2000 FOR ASST. YEAR 1994-95 & 95-96 VIDE P ARA 12 OF ITS ORDER DATED 30.3.2007 AS UNDER :- 12. THE SIXTH GROUND IS AGAINST THE ALLOWANCE OF D EDUCTION U/S 80I ON VATAV/KASAR. THIS IS A DISCOUNT ON PURCHASES AND WO ULD DECREASE THE COST OF PURCHASE OF THE ASSESSEE AND CONSEQUENTIAL INCRE ASE IN PROFIT WOULD BE A PART OF THE PROFIT DERIVED FROM THE INDUSTRIAL UN DERTAKING. THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND ACCORDINGLY THE SAME IS UPHELD. 6 11. THE ISSUE REGARDING FOREIGN EXCHANGE GAIN IN RE SPECT OF GOODS EXPORTED IS COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO.2067/AHD/1999 FOR ASST. YEAR 1993-94 VIDE PARA 5 OF ITS ORDER DATED 31.10.2005 AS UNDER :- 5. THE THIRD GROUND RELATES TO THE DIRECTION BY THE LEARNED C1T(A) FOR EXCLUSION OF THE AMOUNT OF MISCELLANEOUS INCOME, BEING SALES- TAX SET OFF (RS.46,909) AND INCOME BY WAY OF FOREIGN EXCHANGE FLUCTUATION (RS. 11,988) FOR REDUCTION IN THE COMPUTATION OF PROFITS OF THE BUSINESS IN TERMS OF EXPLANATION (BAA)(1) TO SEC.80HHC, THE SAME WAS DONE BY THE LEARNED CIT(A) ON FINDING ON FINDING FORCE WITH THE CONTENTION OF THE ASSESSEE THAT THE TWO AMOUNTS AR E A PART OF THE ASSESSEES TURNOVER/TRADING RECEIPT, INASMUCH AS THE SALES-TAX SET OFF IS ON ITS PURCHASES (SO THAT THE SAME MIGHT AS WELL BE DEDUCTED FROM THE PURCHAS E AMOUNT) AND THE RECEIPT BY WAY OF FOREIGN EXCHANGE FLUCTUATION IS ALSO IN RESPECT OF GOODS SOLD. HE, THEREFORE, ADVERTING THE CIRCULAR OF CBDT, EXPLAINING THE PROV ISIONS OF FINANCE (NO.2) ACT, 1991, VIDE WHICH THE SAID EXPLANATION WAS INTRODUCE D IN THE STATUTE, I.E. TO REMOVE THE DISTORTION THAT OTHERWISE ENTERS INTO THE COMPU TATION OF EXPORT INCOME, I.E, WHEN THE AMOUNT OF INTEREST, RENT. DIVIDEND ETC. ARE NOT EXCLUDED, FINDING MERIT IN THE ASSESSEE'S CONTENTION, DIRECTED THEIR DELETIONS WE ARE INCLINED TO BE IN AGREEMENT WITH THE OBSERVATIONS OF THE LEARNED CIT(A); THE AMOUNT OF SALES-TAX AS WELL AS THE FOREIGN EXCHANGE FLUCTUATION BOTH CONTAIN AN ELEMENT OF TUR NOVER, BEING ONLY IN RELATION TO THE GOODS TRADED IN AND NOT AN ANCILLARY INCOME, WHICH COULD BE TAKEN TO BROKERAGE, COMMISSION, INTEREST, RENT, ETC., FOLLOWING THE PRI NCIPLE OF EJUSDEM GENERIS. HOWEVER, AT THE SAME TIME, WE ALSO FIND THAT THERE IS ANOTHE R AMOUNT OF INCOME, I.E., RS.52,161, BEING MISCELLANEOUS BALANCES WRITTEN OFF THE NATURE OF WHICH HAS NOT BEEN DISCUSSED BY THE LEARNED CIT(A) IN HIS ORDER. AS SUCH, THIS M ATTER, TO THIS EXTENT, WOULD REQUIRE TO BE RESTORED TO HIS FILE FOR ADJUDICATION IN ACCORDANCE WITH LAW. W E ORDER ACCORDINGLY. SINCE BOTH THE ISSUES REGARDING FOREIGN EXCHANGE FL UCTUATION AND VATAV/KASAR ARE COVERED BY THE DECISION OF THE TRIB UNAL IN EARLIER YEARS AS POINTED OUT ABOVE, WE ALLOW THE CLAIM OF THE ASSESS EE. THIS GROUND OF ASSESSEE IS ACCORDINGLY ALLOWED. 12. THE SECOND EXCLUSION WHILE COMPUTING DEDUCTION UNDER SECTION 80- HHC ISREGARDING DUTY DRAW BACK AND OTHER INCENTIVES . THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF HON . SUPREME COURT IN LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) WHERE IN THE HON. SUPREME COURT HAS HELD AS UNDER :- 7 SECTIONS 80-I, 80-IA AND 80-IB PROVIDE FOR INCENTI VES IN THE FORM OF DEDUCTIONS WHICH ARE LINKED TO PROFITS AND NOT I NVESTMENT. ON ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLE AR THAT ANY INDUSTRIAL UNDERTAKING WHICH BECOMES ELIGIBLE ON SA TISFYING SUB- SECTION (2) WOULD BE ENTITLED TO DEDUCTION UNDER SU B-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH IND USTRIAL UNDERTAKING AFTER THE SPECIFIED DATE. APART FROM EL IGIBILITY, SUB- SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DED UCTION TO A SPECIFIED PERCENTAGE OF THE PROFITS. THIS IS THE IM PORTANCE OF THE WORDS 'DERIVED FROM AN INDUSTRIAL UNDERTAKING' AS A GAINST 'PROFITS ATTRIBUTABLE TO AN INDUSTRIAL UNDERTAKING'. DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM T HE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOMS ACT, 1962. INCENTIVE PROFITS ARE NOT PROFIT S DERIVED FROM ELIGIBLE BUSINESS UNDER SECTION 80-IB: THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKING. PROFITS D ERIVED BY WAY OF INCENTIVES SUCH AS DEPB/DUTY DRAWBACK CANNOT BE CRE DITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THEY DO NOT FALL WITHIN THE EXPRES SION 'PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING' UNDER SECTION 80-IB. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HON. S UPREME COURT, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A). TH IS GROUND OF ASSESSEE IS REJECTED. 13. THE NEXT ISSUE IS REGARDING EXCLUSION OF GROSS INTEREST INCOME. THE LD. AR HAS RELIED ON THE DECISION OF HON. DELHI HIG H COURT IN CIT VS. SHRIRAM HONDA POWER EQUIPMENT & ORS. 289 ITR 475 (D EL) FOR THE PROPOSITION THAT NETTING OF EXPENDITURE AGAINST REC EIPT OF INTEREST INCOME SHOULD BE ALLOWED. HOWEVER, THIS DECISION COULD BE APPLICABLE ONLY WHEN IT IS HELD THAT INTEREST INCOME IS DERIVED FROM BUS INESS OF INDUSTRIAL UNDERTAKING. SINCE THERE IS NO SUCH FINDING BY THE AUTHORITIES BELOW AND ALSO NO FACTS HAVE BEEN PUT UP BEFORE US, WE DECLIN E TO TAKE A DIFFERENT VIEW THAN WHAT THE AUTHORITIES BELOW HAVE TAKEN. IT IS FOR THE ASSESSEE TO 8 SUBMIT HIS CLAIM WITH PROPER EVIDENCE WHICH HAS NOT BEEN DONE. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS REJECTED . 14. THE NEXT ISSUE IS REGARDING ALLOCATION OF POLLU TION EXPENSES. THE LD. CIT(A) AND THE AO NOTICED THAT A SUM OF RS.2,19 ,27,738/- HAS BEEN DEBITED TO UNIT IV FOR OPERATING CETP (COMMON EFFL UENT TREATMENT PLANT). ACCORDING TO THE AO, CETP IS COMMON AND MUS T HAVE BEEN UTILIZED BY OTHER MANUFACTURING UNITS. IT WAS SUBMI TTED BY THE ASSESSEE VIDE HIS LETTER DATED 17.1.2001 THAT UNITS II & III HAVE GOT INDEPENDENT EFFLUENT TREATMENT PLANTS AND CETP IS EXCLUSIVELY U SED BY UNIT-I AS IT IS MANUFACTURING DYES INTERMEDIATES, WHICH GENERATES H IGHLY CONCENTRATED ACIDIC EFFLUENTS. THIS CETP IS NOT USEABLE FOR OTHE R UNITS. UNIT-II IS MANUFACTURING SYNTHETIC ORGANIC DYES AND DYE INTERM EDIATES AND UNIT-III IS ALSO MANUFACTURING SAME TYPE OF DYES AND IS USIN G ULTRA FILTRATION TECHNOLOGY AND SPRAY DRYER SYSTEM. THE QUALITY AND QUANTITY OF EFFLUENT IS QUITE DIFFERENT AND CETP CANNOT BE UTILIZED FOR UNI T-II AND UNIT-III. IT WAS ACCORDINGLY SUBMITTED THAT EXPENDITURE ON CETP INCURRED ON UNIT-I COULD NOT BE ALLOCATED TO UNIT-II AND UNIT III. IN THIS CONNECTION IT MAY BE NOTED THAT UNITS II & III ARE CLAIMING DEDUCTION UNDER SECTION 80IA WHEREAS UNIT I IS NOT ENTITLED FOR SUCH DEDUCTION A ND ACCORDINGLY AO SEEMS TO HAVE THOUGHT THAT EXPENDITURE INCURRED ON CETP HAS BEEN ONLY DEBITED IN UNIT I EVEN THOUGH IT IS BEING UTILIZED BY UNITS II & III ALSO, AND THEREBY PROFITS OF UNIT I IS REDUCED WHEREAS PR OFITS OF UNITS II & III IS INFLATED AND HIGHER DEDUCTION UNDER SECTION 80IA HA S BEEN CLAIMED. SUCH DEDUCTION WOULD HAVE BEEN REDUCED IF PART OF THE CE TP EXPENDITURE IS ALLOCATED TO UNITS II & III. THE AO DID NOT BELIEVE ON THE EXPLANATION SUBMITTED BY THE ASSESSEE AND ALLOCATED PART OF THE EXPENDITURE ON CETP TO UNITS II & III AND THUS REDUCED THE BUSINESS PRO FITS OF UNITS II & III AND ACCORDINGLY ALLOWABLE DEDUCTION UNDER SECTION 8 0IA. 9 15. LD. CIT(A) CONFIRMED THE DECISION OF THE AO. 16. BEFORE US, LD. AR SUBMITTED THAT SUCH ALLOCATIO N HAS BEEN DONE BY THE AO ONLY ON PRESUMPTION BASIS IGNORING THE FACT THAT UNITS II & III HAVE THEIR SEPARATE EFFLUENT TREATMENT PLANTS. SEPA RATE ACCOUNTS FOR THE TWO UNITS ARE MAINTAINED. IT WAS FURTHER SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE BY AO FOR ASST. YEAR 1998-99 AND LD. CIT(A) HAD DELETED THE SAME. BUT THE DEPARTMENT HAS NOT PR EFERRED SECOND APPEAL AGAINST THIS DECISION OF LD. CIT(A). 17. AGAINST THIS, LD. DR RELIED ON THE ORDERS OF AU THORITIES BELOW. 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE RES TORE THIS ISSUE TO THE FILE OF AO TO ACTUALLY VERIFY, MAY BE PHYSICALLY, W HETHER CETP HAS BEEN UTILIZED FOR TREATMENT OF EFFLUENTS IN UNIT II & II I. HE MAY OBTAIN EXPERTS REPORT ON THE ISSUE OR TAKE ANY OTHER NECESSARY STE PS TO COME TO THE CONCLUSION WHETHER CETP WAS EXCLUSIVELY USED BY UNI T I OR WAS ALSO UTILIZED BY OTHER UNITS. SO FAR AS BASIS OF ALLOCAT ION IS CONCERNED WHICH HAS BEEN TAKEN ON TURNOVER BASIS, IS UPHELD AND IN CASE IT IS NECESSARY TO ALLOCATE EXPENDITURE ON CETP THEN SUCH ALLOCATION W OULD BE DONE ON TURNOVER BASIS. ACCORDINGLY THIS GROUND OF ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. 19. THE NEXT ISSUE IS ABOUT ADJUSTMENT OF LOSS INCU RRED IN UNIT II ON TRADING TRANSACTIONS AGAINST PROFITS OF UNIT III BE FORE COMPUTING DEDUCTION UNDER SECTION 80IA. 10 20. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW THERE IS NO CASE FOR INFERENCE IN THE ORDER OF LD. CIT(A) IT IS BECA USE THERE IS NO DISTINCTION BETWEEN INCOME FROM MANUFACTURING ACTIVITIES OR FRO M TRADING ACTIVITIES FOR THE PURPOSE OF COMPUTING BUSINESS PROFIT FOR DE DUCTION UNDER SECTION 80IA. IF BOTH ARE DERIVED FROM BUSINESS OF INDUSTRI AL UNDERTAKING THEN BOTH ARE TO BE CLUBBED TO ARRIVE AT NET BUSINESS PR OFIT OF THE UNIT AND IT WOULD BECOME BASIS FOR DEDUCTION UNDER SECTION 80IA FOR THAT UNIT. THIS GROUND OF ASSESSEE IS ACCORDINGLY REJECTED. 21. GROUND NO.5 RELATES TO DEDUCTION UNDER SECTION 80 HHC. IN HIS ORDER LD. CIT(A) HAS ENHANCED THE INCOME BY DIRECTI NG TO GIVE EFFECT TO THE PROVISIONS OF SECTION 80IA(9) WHILE COMPUTING D EDUCTION UNDER SECTION 80 HHC. HE HAS DIRECTED TO GIVE THIS EFFECT WHILE COMPUTING INCOME IN A REGULAR COURSE AND ALSO WHILE COMPUTING INCOME AS PER BOOK PROFIT. IN PARA 10.1 OF HIS ORDER LD. CIT(A) HAS CA LCULATED BUSINESS PROFIT AT RS.5,77,64,641/- AND DEDUCTION UNDER SECTION 80I A AT RS.3,84,54,035/-. BY GIVING EFFECT TO SECTION 80IA(9), BUSINESS PROFI T FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC IS REDUCED TO RS.1,93,10,606/-. THEREAFTER VARIOUS OTHER ADJUSTME NTS AND CALCULATION HAVE BEEN DONE BY LD. CIT(A) IN A VERY LOGICAL AND REASONED MANNER TO ARRIVE AT DEDUCTION UNDER SECTION 80 HHC AT RS.1,45 ,09,811/-. LD. CIT(A) HAS ALSO CARRIED OUT SIMILAR REASONED CALCUL ATION FOR CALCULATING DEDUCTION UNDER SECTION 80 HHC FOR THE PURPOSE OF C OMPUTING BOOK PROFIT UNDER SECTION 115JA. HE HAS ALLOWED THE ADJU STMENT OF RS.1,45,09,811/- IN THE BOOK PROFIT FOR DEDUCTION U NDER SECTION 80 HHC. THIS DEDUCTION WAS CALCULATED BY HIM EARLIER FOR TH E PURPOSE OF COMPUTING INCOME IN THE NORMAL COURSE. THUS ADJUSTI NG DEDUCTION UNDER SECTION 80 HHC AT RS.1,45,09,811/- LD. CIT(A) ARRIV ED AT BOOK PROFIT OF RS.4,55,30,316/-. 11 22. THE CASE OF THE ASSESSEE IS THAT THE CAPPING U/ S 80IA(9) CAN BE APPLIED ONLY WHEN INCOME IS COMPUTED IN NORMAL COUR SE. THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITA T (SB) IN ACIT VS. HINDUSTAN MINT AGRO PRODUCT (P) LTD. (2009) 315 ITR (AT) 401, ITAT (DEL)(SB). SUCH CAPPING IS APPLIED FOR COMPUTING AV AILABLE DEDUCTION UNDER SECTION 80 HHC, ONCE DEDUCTION UNDER SECTION 80IA IS ALLOWED. HE FAIRLY ACCEPTED THE COMPUTATION DONE BY LD. CIT(A) AS PER PARA 10.1 OF THE ORDER. HOWEVER, ACCORDING TO THE LD. AR, WHEN O NE IS COMPUTING BOOK PROFIT UNDER SECTION 115JA THEN ONLY EFFECT TO BE G IVEN IS ABOUT DEDUCTION UNDER SECTION 80 HHC. NO EFFECT FOR DEDUCTION UNDER SECTION 80IA IS TO BE GIVEN AS IT IS NOT SO PROVIDED IN SECTION 115JA. ONCE NO SUCH ADJUSTMENT OF DEDUCTION UNDER SECTION 80IA IS PERMI SSIBLE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JA THEN THER E IS NO CASE FOR INVOKING PROVISIONS OF SECTION 80IA(9) TO REDUCE DE DUCTION UNDER SECTION 80HHC. SINCE LD. CIT(A) HAS REDUCED THE BUSINESS PR OFIT BY THE DEDUCTION UNDER SECTION 80IA (FOR COMPUTING DEDUCTI ON UNDER SECTION 80HHC WHICH IS TO BE ADJUSTED IN THE BOOK PROFIT) H IS CALCULATION IN PARA 11 IS ACCORDINGLY INCORRECT. SIMILAR ISSUE HAS BEEN DISCUSSED BY US IN ITA NO.1000/AHD/2004 WHEREIN THE TRIBUNAL HAS HELD IN P ARA-8 AS UNDER :- 8. WE MAY ALSO CLARIFY HERE THAT EFFECT OF CAPPING UNDER SECTION 80IA(9) IS NOT REQUIRED TO BE GIVEN WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC FOR THE PURPOSE OF COMPUTING INCOME AS PER BOOK PROFIT BECAUSE SECTION 115JA REQUIRES ADJUSTMENT OF DEDUCT ION UNDER SECTION 80 HHC ONLY AND ADJUSTMENT OF DEDUCTION UNDER SECTION 80IA OR 80IB WOULD BE REQUIRED ONLY IN CASE OF AN INDUSTRIAL UND ERTAKING WHICH IS ENGAGED IN INFRASTRUCTURAL FACILITIES. IN OTHER WOR DS BOTH DEDUCTIONS UNDER SECTIONS 80IA/80IB AND 80HHC CAN BE AVAILED OF BY A COMPANY WHICH IS ENGAGED IN PROVIDING INFRASTRUCTURAL FACILITIES AS MENTIONED IN CLAUSE (VI) OF EXPLANATION TO SECTION 115JA READ WITH EXPLANATI ON TO SUB-SEC.(4) OF SECTION 80IA. FOR THE SAKE OF CONVENIENCE WE REPROD UCE EXPLANATION TO 12 SECTION 115JA AND SUB-SECTION(4) CONTAINING EXPLANA TION IN SECTION 80IA AS UNDER :- SEC.115JA EXPLANATION.--FOR THE PURPOSES OF THIS CLAUSE, THE LOSS SHALL NOT INCLUDE DEPRECIATION; OR (IV).. (V) (VI) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATI NG ANY INFRASTRUCTURE FACILITY AS DEFINED UNDER SUB-SECTIO N (12) OF SECTION 80-IA, AND SUBJECT TO FULFILLING THE CONDITIONS LAI D DOWN IN SUB- SECTION (4A) OF SECTION 80-IA; OR (VII).. (VIII).. (IX). SEC. 80IA (1). (2). (3). (4) THIS SECTION APPLIES TO-- (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING, (II) MAINTAINING AND OPERATING OR (III) DEVELOPING, MAIN TAINING AND OPERATING ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY :-- (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA O R BY A CONSORTIUM OF SUCH COMPANIES ; 13 (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY O THER STATUTORY BODY FOR (I) DEVELOPING, (II) MAINTAINING AND OPERA TING, OR (III) DEVELOPING, MAINTAINING AND OPERATING A NEW INFRAST RUCTURE FACILITY SUBJECT TO THE CONDITION THAT SUCH INFRASTRUCTURE F ACILITY SHALL BE TRANSFERRED TO THE CENTRAL GOVERNMENT, STATE GOVERN MENT, LOCAL AUTHORITY OR SUCH OTHER STATUTORY BODY, AS THE CASE MAY BE, WITHIN THE PERIOD STIPULATED IN THE AGREEMENT ; (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAI NING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL, 1995 : PROVIDED THAT WHERE AN INFRASTRUCTURE FACILITY IS TRANSFERR ED ON OR AFTER THE 1ST DAY OF APRIL, 1999 BY AN ENTERPRISE W HICH DEVELOPED SUCH INFRASTRUCTURE FACILITY (HEREAFTER REFERRED TO IN THIS SECTION AS THE TRANSFEROR ENTERPRISE) TO ANOTHER ENTERPRISE (H EREAFTER IN THIS SECTION REFERRED TO AS THE TRANSFEREE ENTERPRISE) F OR THE PURPOSE OF OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILI TY ON ITS BEHALF IN ACCORDANCE WITH THE AGREEMENT WITH THE CENTRAL G OVERNMENT, STATE GOVERNMENT, LOCAL AUTHORITY OR STATUTORY BODY , THE PROVISIONS OF THIS SECTION SHALL APPLY TO THE TRANSFEREE ENTER PRISE AS IF IT WERE THE ENTERPRISE TO WHICH THIS CLAUSE APPLIES AND THE DEDUCTION FROM PROFITS AND GAINS WOULD BE AVAILABLE TO SUCH TRANSF EREE ENTERPRISE FOR THE UNEXPIRED PERIOD DURING WHICH THE TRANSFERO R ENTERPRISE WOULD HAVE BEEN ENTITLED TO THE DEDUCTION, IF THE T RANSFER HAD NOT TAKEN PLACE. EXPLANATION.--FOR THE PURPOSES OF THIS CLAUSE, IN FRASTRUCTURE FACILITY MEANS,-- (A) A ROAD, BRIDGE, AIRPORT, PORT, INLAND WATERWAY S AND INLAND PORTS, RAIL SYSTEM OR ANY OTHER PUBLIC FACIL ITY OF A SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD IN T HIS BEHALF IN THE OFFICIAL GAZETTE ; (B) A HIGHWAY PROJECT INCLUDING HOUSING OR OTHER A CTIVITIES BEING AN INTEGRAL PART OF THE HIGHWAY PROJECT ; AN D (C) A WATER SUPPLY PROJECT, IRRIGATION PROJECT, SA NITATION AND SEWERAGE SYSTEM ; 14 THUS FROM A READING OF TWO PROVISIONS TOGETHER IT I S GATHERED THAT ADJUSTMENT IN THE BOOK PROFIT CAN BE DONE FOR THE D EDUCTION UNDER SECTION 80IA AND 80HHC IN CASE OF AN INDUSTRIAL UNDERTAKING DERIVING PROFIT FROM THE BUSINESS OF DEVELOPING, MAINTAINING AND OP ERATING INFRASTRUCTURAL FACILITIES. ONCE THIS IS SO THAT IS IN THE CASE OF AN INDUSTRIAL UNDERTAKING WHERE BOTH THE DEDUCTIONS ARE AVAILABLE (I.E. BOTH UNDER SECTION 80 HHC AND 80IA IN RESPECT OF INFRASTRUCTUR AL UNDERTAKING) THEN CAPPING OF SECTION 80IA(9) WOULD BE EFFECTIVE. BUT IN A CASE OF OTHER INDUSTRIAL UNDERTAKING, EVEN IF DEDUCTION UNDER SEC TION 80IA IS CLAIMED BY THEM IN THE NORMAL COMPUTATION OF INCOME BUT NO ADJUSTMENT IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JA. ONCE DEDUCTION UNDER SECTION 80IA IS NOT REQUIRED T O BE ADJUSTED WHILE COMPUTING BOOK PROFIT IN CASE OF NON-INFRASTRUCTURA L INDUSTRIAL UNDERTAKING THEN NO CAPPING AS PROVIDED UNDER SECTI ON 80IA (9) IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JA. THE PRESENT ASSESSEE IS ENGAGED IN THE BUSINESS OF INSECTICIDE, DRUGS AND CHEMICAL AND IS NOT ENGAGED IN THE BUSINESS OF DEVE LOPING INFRASTRUCTURAL FACILITIES. THEREFORE, ADJUSTMENT OF CLAIM OF DEDUC TION UNDER SECTION 80IA IS NOT REQUIRED TO BE DONE WHILE COMPUTING BOOK PRO FIT UNDER SECTION 115JA. THUS WHERE NO ADJUSTMENT OF DEDUCTION UNDER SECTION 80IA IS REQUIRED TO BE DONE WHILE COMPUTING BOOK PROFIT THE N CAPPING UNDER SECTION 80IA(9) WILL NOT BE REQUIRED TO BE CARRIED OUT FOR ADJUSTING DEDUCTION UNDER SECTION 80 HHC IN THE BOOK PROFIT. SINCE WE HAVE HELD IN ITA NO.1000/AHD/2004 FOR THE SAME ASST. YEAR THAT IF SECTION 115JA DOES NOT PROVIDE FOR ADJUSTME NT OF DEDUCTION UNDER SECTION 80IA WHILE COMPUTING BOOK PROFIT THEN PROVI SIONS OF SECTION 80IA (9) CANNOT BE INVOKED TO REDUCE BUSINESS PROFI T FOR CALCULATING DEDUCTION UNDER SECTION 80 HHC FOR BEING ADJUSTED I N THE BOOK PROFIT. FOLLOWING OUR DECISION THEREIN WE DIRECT THE AO NOT TO REDUCE BUSINESS PROFIT BY THE DEDUCTION UNDER SECTION 80IA FOR CALC ULATING DEDUCTION U/S 80 HHC BUT ADOPT FULL BUSINESS PROFIT WHICH IS TAKE N BY LD. CIT(A) AT RS.5,77,64,641/- AND CALCULATE DEDUCTION UNDER SECT ION 80 HHC BY SUBSTITUTING FULL AMOUNT OF BUSINESS PROFIT AT RS.5 ,77,64,641/- IN PLACE OF RS.1,93,10,606/- AND MAKE ADJUSTMENT OF THAT DEDUCT ION UNDER SECTION 80 HHC WHILE COMPUTING BOOK PROFIT. THERE IS NO OTHER ADJUSTMENT OR 15 REPLACEMENT MODIFIED BY US IN THE COMPUTATION OF DE DUCTION UNDER SECTION 80 HHC CARRIED OUT BY LD. CIT(A) IN PARA 10 .1 OF HIS ORDER DATED 31.3.2004 WHICH OTHERWISE AFFIRMED SUBJECT TO ABOVE SINGLE MODIFICATION. ACCORDINGLY THIS PART OF THE GROUND OF ASSESSEE IS ALLOWED. 23. THE NEXT PART OF GROUND NO.5 IS ABOUT NOT ALLOW ING DEDUCTION UNDER SECTION 80 HHC IN RESPECT OF BUSINESS PROFITS FROM LAB. SAMPLE TEST, FOR FOREIGN EXCHANGE FLUCTUATION GAIN, VATAV/KASAR, INCIDENTAL CHARGES, SALES-TAX S.T.SET OFF, BALACE, WRITE-OFF, EXCLUSION OF MISCELLANEOUS INCOME AND EXCESS PROVISION WRITTEN BACK. LD. CIT(A) CONFI RMED THE ORDER OF AO IN EXCLUDING THE ABOVE RECEIPTS ON THE GROUND THAT THEY ARE NOT CONNECTED WITH BUSINESS OF EXPORTS OR REMOTELY CONNECTED WITH EXPORT RECEIPTS. 24. BEFORE US, LD. AR FOR THE ASSESSEE SUBMITTED TH AT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE TRIBUNAL FOR ASST. YEAR 1997-98 IN ITA NO.1484/AHD/2001 AS PER PARA 13 THEREOF WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER :- 13. THE FIFTH GROUND IS IN RESPECT OF 80HHC DEDUCT ION ON (A) LABORATORY SAMPLE TESTING RECEIPTS, (B) FOREIGN EXC HANGE FLUCTUATION, (C) DISCOUNT, KASAR AND INCIDENTAL CHARGES, (D) SALES-T AX SET OFF, (E) INSURANCE PREMIUM, (F) SUNDRY BALANCE WRITTEN OFF, (G) MISCEL LANEOUS WRITTEN OFF, AND (H) EXCESS PROVISION WRITTEN OFF. AS REGARDS TH E ISSUES IN RESPECT OF (A) TO (F) ARE DECIDED BY US IN FAVOUR OF THE ASSES SEE IN OUR EARLIER ORDER, IN ASSESSEES OWN CASE. FACTS AND CIRCUMSTANCES BEI NG SIMILAR, WE RESPECTFULLY FOLLOWING OUR EARLIER ORDER, UPHOLD TH E ORDER OF THE CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE ON THESE ISSUES, AS AFORESAID. IN RESPECT OF ITEMS IN (G) MISCELLANEOUS WRITTEN OFF, AND (H) EXCESS PROVISION WRITTEN OFF. BOTH THESE ISSUES, I.E. (G) & (H) ARE COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SUPREME COURT IN THE CASE OF DC IT VS. MIRA INDUSTRIES (87 ITD 475) AND THEREFORE, THE ASSESSEE IS NOT ENT ITLED FOR DEDUCTION U/S 80 HH OF THE ACT. THIS GROUND IS PARTLY ALLOWED. 16 HOWEVER, NO DEDUCTION UNDER SECTION 80 HHC CAN BE A LLOWED IN RESPECT OF MISCELLANEOUS ITEMS WRITTEN OFF AND EXCESS PROVI SION WRITTEN OFF. RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE ALLOW TH E CLAIM OF THE ASSESSEE AS INDICATED IN ASST. YEAR 1997-98. THIS G ROUND OF APPEAL IS PARTLY ALLOWED. 25. NEXT PART OF GROUND NO.5 RELATES TO NOT ALLOWIN G DEDUCTION UNDER SECTION 80 HHC ON GROSS INTEREST RECEIPT AMOUNTING TO RS.1,15,12,656/-. SIMILAR ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ITA NOS.2207/AHD/2005, 2469/AHD/2004 FOR ASST. YEARS 1999-2000 & 2001-02 A ND OTHERS, WHEREIN VIDE PARA 39 THE TRIBUNAL HAS OBSERVED AS U NDER :- 39. GROUND NO.5 RELATES TO NETTING OF INTEREST INC OME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC/80IA. THIS ISSUE HAD ALSO COME UP BEFORE US IN ASSESSEES APPEAL. THERE WE HAVE HELD THAT DEDUCTION UNDER SECTION 80IA WOULD NOT BE ADMISSIBLE TO THE ASSESSE E ON INTEREST INCOME AS IT WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THE CLAIM OF DEDUCTION UNDER SECTION 80HHC ON THE AMOUNT IS NOT EXAMINED. THE AO HAS NOT TAXED INTEREST AS INCOME FROM OTHER SOURCE AND BY I MPLICATION, LD. AR THAT ARGUES THAT IT SHOULD BE TREATED AS BUSINESS INCOME . AGAIN WHETHER THIS INTEREST INCOME WOULD BE TREATED AS INCOME FROM EXP ORT BUSINESS OR INCOME FROM OTHER BUSINESS HAS TO BE DECIDED BY THE AO. ACCORDINGLY THE ISSUE IS RESTORED TO THE FILE OF AO, FOR FIRST DECI DING WHETHER INTEREST INCOME EARNED FROM DEPOSITS ON SURPLUS FUNDS WOULD BE EXPORT INCOME OR NON-EXPORT INCOME. IN CASE IT IS TREATED AS EXPORT INCOME THEN NETTING WOULD BE REQUIRED IN VIEW OF THE DECISION OF HON. D ELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT & OT HERS (SUPRA). THE ASSESSEE WILL PRODUCE NECESSARY EVIDENCE TO SHOW TH AT EXPENDITURE OF INTEREST WAS IN CONNECTION WITH EARNING OF INTEREST INCOME IN CASE INTEREST INCOME IS TREATED AS INCOME EARNED FROM BUSINESS OF EXPORT. ACCORDINGLY FOR THIS LIMITED PURPOSE, WE RESTORE THIS MATTER TO THE FILE OF AO. AS A RESULT, THIS GROUND OF REVENUE IS PARTLY ALLOWED BU T FOR STATISTICAL PURPOSES. 26. ACCORDINGLY THE ISSUE IS PARTLY SET ASIDE FOR S TATISTICAL PURPOSES. 17 27. THE NEXT PART OF GROUND NO.5 IS ABOUT ALLOWING DEDUCTION UNDER SECTION 80 HHC ON EXPORT INCENTIVES AMOUNTING TO RS .33,14,608/-. SIMILAR ISSUE HAS BEEN DEALT BY THE TRIBUNAL IN ITA NOS.2207/AHD/2005, 2469/AHD/2004 FOR ASST. YEARS 1999-2000 & 2001-02 A ND OTHERS, WHEREIN VIDE PARA 18 TO 21 THE TRIBUNAL HAS OBSERVE D AS UNDER :- 18. GROUND NO.9 RELATES TO NOT GIVING DEDUCTION U/ S 80 HHC ON EXPORT BENEFIT OF RS.2,62,82,847/-. ACCORDING TO LD. AR AS SESSEE HAS BEEN CARRYING OUT EXPORT AND AGAINST THOSE EXPORT PROCEE DS IT HAS CREDITED CERTAIN BENEFITS ALLOWABLE UNDER THE SCHEME FRAMED BY THE GOVERNMENT OF INDIA AND HAS OFFERED IT FOR TAXATION. IT HAS, THER EFORE, CLAIMED DEDUCTION UNDER SECTION 80 HHC. IF IT IS NOT A BENEFIT THEN I T SHOULD ALSO NOT BE CONSIDERED AS INCOME. IF IT IS TREATED AS BENEFIT D UE TO EXPORT IT SHOULD BE CONSIDERED FOR DEDUCTION UNDER SECTION 80 HHC. FOR CALCULATING THE ALLOWABLE DEDUCTION HE REFERRED TO THE DECISION OF THE TRIBUNAL, MUMBAI SPECIAL BENCH IN TOPMAN EXPORTS VS. ITO (2009) 125 TTJ 289 (MUM). THE GIST THERE-FROM IS AS UNDER:- (I) THE ARGUMENT OF THE REVENUE THAT DEPB IS A POST EXPORT EVENT AND HAS NO RELATION WITH THE PURCHASE OF GOODS CANNOT BE ACCEPTED. THER E IS A DIRECT RELATION BETWEEN DEPB AND THE CUSTOMS DUTY PAID =ON THE PURCHASES. F OR PRACTICAL PURPOSES, DEPB IS A REIMBURSEMENT OF THE COST OF PURCHASE TO THE E XTENT OF CUSTOMS DUTY; (II) THE DEPB BENEFIT (FACE VALUE) ACCRUES AND BECO MES ASSESSABLE TO TAX WHEN THE APPLICATION FOR DEPB IS FILED WITH THE CONCERNED AU THORITY. SUBSEQUENT EVENTS SUCH AS SALE OF DEPB OR MAKING IMPORTS FOR SELF CONSUMPTION ETC ARE IRRELEVANT FOR DETERMINING THE ACCRUAL OF THE INCOME ON ACCOUNT OF DEPB; (III) THOUGH S. 28 (IIIB) REFERS TO A CASH ASSISTA NCE AGAINST EXPORTS, IT IS WIDE ENOUGH TO COVER THE FACE VALUE OF THE DEPB BENEFIT; (IV) S. 28 (IIID) WHICH REFERS TO THE PROFITS ON T RANSFER OF THE DEPB OBVIOUSLY REFERS ONLY TO THE PROFIT ELEMENT AND NOT THE GROSS SALE PROCEEDS OF THE DEPB. IF THE REVENUES ARGUMENT THAT THE SALE PROCEEDS SHOULD BE CONSIDERED IS ACCEPTED THERE WOULD BE ABSURDITY BECAUSE THE FACE VALUE OF THE DE PB WILL THEN GET ASSESSED IN THE YEAR OF RECEIPT OF THE DEPB AND ALSO IN THE YEAR OF ITS TRANSFER; (V) CONSEQUENTLY, ONLY THE PROFIT (I.E. THE SALE VALUE LESS THE FACE VALUE) IS REQUIRED TO BE CONSIDERED FOR PURPOSES OF S. 80HHC. INTEREST INCOME FROM FUNDS PLACED WITH THE BANK IS NOT INCLUDIBLE IN PROFITS. ACCORDING TO THE LD. AR FOR CALCULATING AL LOWABLE DEDUCTION 18 MATTER SHOULD BE REFERRED TO AO IN ACCORDANCE WITH THE DECISION OF TRIBUNAL, MUMBAI (SPECIAL BENCH) IN THE ABOVE CASE . 19. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESS EE HAS ONLY CREATED NOTIONAL PROFIT AND IT HAS NOT REFERRED TO ANY SCHE ME UNDER WHICH THE ASSESSEE IS ENTITLED FOR ANY EXPORT INCENTIVE. ONCE IT IS NOT IN ANY SCHEME, IT WILL NOT BE TREATED AS EXPORT BENEFIT AND NO DED UCTION UNDER SECTION 80 HHC CAN BE ALLOWED. 20. LD. AR IN REJOINDER SUBMITTED THAT DEDUCTION UN DER SECTION 80 HHC IS ALLOWABLE ON SUCH NOTIONAL CREDIT INCENTIVES IN VIEW OF DECISION OF THE TRIBUNAL IN THE CASE OF UNITED PHOSPHORUS LT D.VS. JCIT (2002) 81 ITD 553 (AHD) ALSO. HE REFERRED TO THIS DECISION BE CAUSE IT IS PERTAINED TO ALLOWABLE DEDUCTION ON EXPORT BENEFITS UNDER SECTIO N 80I AND 80IA. THIS IS ISSUE IS ALSO COVERED BY THE DECISION OF HON. SU PREME COURT IN LIBERTY INDIAS CASE (SUPRA). THE PRESENT ISSUE IS ABOUT DE DUCTION UNDER SECTION 80 HHC ON EXPORT BENEFIT AND APPLICABILITY OF DECIS ION IN TOPMAN EXPORTS CASE (SUPRA). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE RES TORE THE MATTER TO THE FILE OF AO. THE ASSESSEE WILL PROVIDE THE SCHEM E UNDER WHICH ASSESSEE IS ENTITLED FOR BENEFIT CREDITED BY IT IN THE P & L ACCOUNTS. THE AO WILL EXAMINE WHETHER ASSESSEE IS SO ENTITLED FOR SUCH BE NEFIT AS PER THE SCHEME; WHETHER ANY CERTIFICATE OR SANCTION ORDER H AS BEEN ISSUED BY THE GOVERNMENT DEPARTMENT CONFERRING EXPORT INCENTIVE T O THE ASSESSEE; OR WHETHER ANY APPLICATION HAS BEEN FILED BY THE ASSES SEE FOR RECEIVING SUCH EXPORT BENEFIT FROM THE CONCERNED DEPARTMENT; OR EV EN OTHERWISE HOW ASSESSEE WILL BE ENTITLED FOR EXPORT BENEFIT ON SUC H NOTIONAL CREDIT INCOME. WHAT HAS BEEN THE BASIS FOR CALCULATING SUCH INCOME ? WHETHER SUCH BASIS IS APPROVED BY ANY SCHEME FRAMED BY GOVERNMENT OF I NDIA? EVEN IF IT IS SO WHETHER CALCULATION MADE BY THE ASSESSEE IS CORR ECT? THUS IN THE LIGHT OF DECISION OF TRIBUNAL, MUMBAI (SPECIAL BENCH) IN THE CASE OF TOPMAN EXPORTS (SUPRA) AO WILL EXAMINE THE CASE, AND IF NE CESSARY, CALCULATE ALLOWABLE INCENTIVE TO THE ASSESSEE AND ACCORDINGLY PART OF THE PROFITS TO BE INCLUDED AS EXPORT PROFITS ELIGIBLE FOR DEDUCTIO N UNDER SECTION 80 HHC. FOR CARRYING OUT NECESSARY ENQUIRY AND CALCULA TION, ON THE ISSUE, MATTER IS RESTORED TO THE FILE OF AO. THIS GROUND I S ALLOWED BUT FOR STATISTICAL PURPOSES. 19 28. RESPECTFULLY FOLLOWING ABOVE ORDER, WE RESTORE THE MATTER TO THE FILE OF AO TO DECIDE ACCORDINGLY. THIS GROUND IS AL LOWED BUT FOR STATISTICAL PURPOSES. 29. THE NEXT PART OF THIS GROUND IS ABOUT NOT SETTI NG OFF TRADING LOSS AGAINST TRADING RECEIPTS TO THE EXTENT OF RS.18,94, 496/- FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC. 30. WE HAVE HEARD THE PARTIES. THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ITA NO.1463/AH D/2001 FOR ASST. YEAR 1998-99 VIDE PARA 18 THEREOF WHICH IS AS UNDER :- 18. THE SIXTH GROUND OF APPEAL RELATES TO THE ORDER OF THE CIT(A) HOLDING THAT THE LOSS FROM EXPORTS OF TRADING GOODS WERE TAKEN AS NIL FOR COMPUTATION DEDUCTION U/S SQHHC THIS ISSUE STANDS C OVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SUPREME COURT IN TH E CASE OF IPCA LABORATORY LTD., 266 ITR 521, WHEREIN IT HAS BEEN O BSERVED AS UNDER: A PLAIN READING OF SECTION 80HHC MAKES IT CLEAR TH AT IN ARRIVING AT PROFITS EARNED FROM EXPORT OF BOTH SELF MANUFACTURED GOODS AND TRADING GOODS, THE PROFIT AND LOSSES IN BOTH TRADES HAVE TO BE TAK EN INTO CONSIDERATION. IF AFTER SUCH ADJUSTMENTS THERE IS A POSITIVE PROFIT THE ASS ESSEE WOULD BE ENTITLED TO DEDUCTION UNDER SECTION 80 HHC(L). IF THERE IS A LO SS, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION.'' HOWEVER, IN VIEW OF THE AMENDMENT IN SECTION SQHHC, THE MATTER IS TO BE REEXAMINED. WE, THEREFORE, SET ASIDE THE ORDER O F THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R TO EXAMINE THE SAME IN THE LIGHT OF THE AMENDED PROVISIONS AND DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW. AS A RESULT, GROUND NO.5 IS PARTLY ALLOWED AND PART LY ALLOWED FOR STATISTICAL PURPOSES. 31. GROUND NO.6 IS NOT PRESSED AND HENCE REJECTED. 20 32. GROUND NO.7 IS ABOUT CHARGING OF INTEREST U/S 2 34A, 234B & 234C. IT IS CONSEQUENTIAL IN NATURE AND WILL DEPEND UPON FINALLY ASSESSED INCOME HENCE IT IS REJECTED. 33. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1693/AHD/2004 ASST. YEAR 2000-01 34. GROUND NO.1 RELATES TO DEPRECIATION ON FIXED AS SETS. THIS ISSUE IS THE SAME AS GROUND NO.1 IN ITA NO.1692/AHD/2004 FOR ASST. YEAR 1999- 2000 ABOVE. FOLLOWING THE REASONING GIVEN IN THAT Y EAR THE ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. THIS GROUND IS ALLOW ED. 35. GROUND NO.2 IS ABOUT COMPENSATION PAID UNDER VO LUNTARY RETIREMENT SCHEME, AMOUNTING TO RS.21,81,487/-. THE AO NOTED THAT ASSESSEE COMPANY HAD INCURRED AN EXPENDITURE OF RS. 24,22,763/- BY WAY OF COMPENSATION UNDER VOLUNTARY RETIREMENT SCHEME W HICH WAS TREATED BY THE ASSESSEE COMPANY AS DEFERRED REVENUE EXPENDITUR E, SPREAD OVER THE PERIOD OF 10 YEARS. ACCORDINGLY A SUM OF RS.2,42,27 6/- BEING ONE TENTH WAS DEBITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2000. THE AO TREATED THE CLAIM AS CAPIT AL EXPENDITURE AND, THEREFORE, HE DECLINED TO ALLOW EVEN AMORTIZATION O F EXPENDITURE. THE LD. CIT(A) CONFIRMED THE ORDER OF AO HOLDING THAT THERE IS NO MATERIAL ON RECORD WHICH COULD INDICATE THAT EXPENSES INCURRED BY THE ASSESSEE COMPANY ON ACCOUNT OF VRS WAS OF REVENUE NATURE. 21 36. IT WAS SUBMITTED BY THE LD. AR THAT ENTIRE EXPE NDITURE IS CONSEQUENCE TO SALARY PAYABLE TO THE EMPLOYEES. EVE N THOUGH THE ASSESSEE HAS TREATED IT AS DEFERRED REVENUE EXPENDI TURE ENTIRE PAYMENT IS AN ALLOWABLE EXPENDITURE IN VIEW OF THE DECISION OF THE TRIBUNAL, JODHPUR BENCH IN PI INDUSTRIES LTD. VS. ACIT (2006) 104 TTJ (JD) 333. WHATEVER MAY BE THE TREATMENT ASSESSEE MIGHT HAVE GIVEN IN T HE BOOKS OF ACCOUNT WILL NOT BE RELEVANT AND ITS TRUE NATURE HAS TO BE DECIDED AS HELD IN FOLLOWING THREE JUDGEMENTS:- (1) DCIT VS. CORE HEALTHCARE LTD. (2001) 251 ITR 61 (GU J) (2) CIT VS. GUJARAT MINERAL DEV. CORPN. (1981) 132 ITR 377 (3) KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363 37. AGAINST THIS, LD. DR RELIED ON THE ORDERS OF AU THORITIES BELOW. 38. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE CLAIM IS BASICALLY REVENUE IN NATURE AS IT IS DIREC TLY CONNECTED WITH SALARY EXPENDITURE. THE ASSESSEE HAS SAVED FUTURE SALARY B Y ACCEPTING VOLUNTARY RETIREMENT OF THE EMPLOYEES. BUT THIS BENEFIT WILL ACCRUE TO THE ASSESSEE IN SUBSEQUENT YEARS. HENCE IT HAS BEEN RIGHTLY TREATED AS DEFERRED REVENUE EXPENDITURE. ACCORDINGLY THE CLAIM MADE BY THE ASSE SSEE AT 10% OF THE TOTAL EXPENDITURE WAS REASONABLE AND SHOULD HAVE BE EN ACCEPTED BY THE REVENUE AUTHORITIES. ACCORDINGLY CLAIM OF THE ASSES SEE AT RS.2,42,276/- IS ALLOWED. THE QUESTION OF MAKING ADDITION OF RS.21,8 1,487/- DOES NOT ARISE BECAUSE THIS AMOUNT IS NOT CLAIMED AS REVENUE EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. AS A RESULT, THIS GROUND O F ASSESSEE IS ALLOWED. 39. THE NEXT ISSUE IS REGARDING PAYMENT OF LEASE RE NT OF RS.16,84,000/. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE I N ASST. YEAR 1999- 22 2000 AND FOLLOWING THAT ORDER WE ALLOW THIS CLAIM O F ASSESSEE THIS YEAR ALSO. 40. GROUND NO.4 RELATES TO VARIOUS ITEMS -LIKE FORE IGN EXCHANGE FLUCTUATION, INCIDENTAL CHARGES, EXPORT INCENTIVES ETC. WHICH ARE EXCLUDED FOR CALCULATING DEDUCTION UNDER SECTION 80IA. 41. THE ISSUE REGARDING FOREIGN EXCHANGE FLUCTUATIO N AND INCIDENTAL CHARGES IS TREATED AS DERIVED FROM BUSINESS OF INDU STRIAL UNDERTAKING. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE FOR AS ST. YEAR 1999-2000. FOLLOWING THAT ORDER, THE CLAIM OF ASSESSEE IS ALLO WED. 42. GROUND REGARDING EXCLUSION OF DUTY DRAW BACK AN D EXPORT INCENTIVES HAS BEEN DECIDED AGAINST THE ASSESSEE IN ASST. YEAR 1999-2000. FOLLOWING THAT ORDER THIS ISSUE IS DECIDED AGAINST THE ASSESSEE THIS YEAR ALSO. 43. GROSS INTEREST INCOME IS RESTORED TO THE FILE O F AO TO DECIDE WHETHER IT IS DERIVED FROM BUSINESS OF INDUSTRIAL U NDERTAKING OR IS TO BE ASSESSED UNDER INCOME FROM OTHER SOURCES. FOLLOWING OUR ORDER FOR ASST. YEAR 1999-2000 ABOVE, WE RESTORE THIS ISSUE TO THE FILE OF AO. 44. THE ISSUE REGARDING DEDUCTION U/S 80IA OF ALLO CATION OF EXPENDITURE ON EFFLUENT TREATMENT PLANT HAS BEEN RE STORED TO THE FILE OF AO IN THE ASST. YEAR 1999-2000 FOR ENQUIRIES TO BE CAR RIED IN THE MATTER. FOLLOWING THAT ORDER, WE ALSO RESTORE THIS ISSUE T O THE FILE OF AO FOR THIS YEAR ALSO. 23 45. NEXT ISSUE IS ABOUT ADJUSTMENT OF TRADING LOSS OF RS.80,32,515/-. IN ASST. YEAR 1999-2000 THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE. THIS YEAR ALSO, THE ISSUE IS DECIDED AGAINST THE ASSESSE E FOLLOWING THE SAME REASONS. ACCORDINGLY, THIS PART OF THE GROUND IS RE JECTED. 46. GROUND NO.5 RELATES TO GIVING EFFECT TO SECTION 80IA(9) WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC WHILE COMP UTING BOOK PROFIT AS PER SECTION 115JA. AS PER THE DETAILED REASONING GIVEN BY US IN ASST. YEAR 1999-2000 WE HOLD THAT CAPPING AS PROVIDED IN SECTION 80IA(9) WOULD BE APPLICABLE WHEN DEDUCTION UNDER SECTION 80 HHC IS COMPUTED IN THE NORMAL COURSE OF COMPUTATION OF INCOME AS PE R I.T. ACT. THE EFFECT OF SUCH CAPPING CANNOT BE GIVEN IN COMPUTATION OF D EDUCTION UNDER SECTION 80 HHC IF INCOME IS COMPUTED AS PER BOOK PR OFITS UNDER SECTION 115JA. ACCORDINGLY THIS GROUND OF ASSESSEE IS PARTL Y ALLOWED. 47. THE NEXT PART OF GROUND NO.5 RELATES TO NOT IGN ORING TRADING LOSS AND ADJUSTING THE SAME AGAINST TRADING PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC. THIS ISSUE HAS BEEN DECIDED BY US AGAINST THE ASSESSEE IN ASST. YEAR 19 99-2000. FOLLOWING THE SAME WE DECIDE THIS ISSUE AGAINST THE ASSESSEE THIS YEAR ALSO. 48. THE NEXT ISSUE IS REGARDING EXCLUSION FROM BUSI NESS PROFIT OF GAINS FROM LABORATORY SAMPLE TEST, FOREIGN EXCHANGE FLUCT UATION, INCIDENTAL CHARGE, ST SET OFF, INSURANCE ETC. AMOUNTING TO RS. 35,05,874/-. 49. WHILE DISPOSING OF GROUND NO.5 FOR ASST. YEAR 1 999-2000 WE HAVE DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE. FOLLOWING THE SAME WE DECIDE THIS ISSUE THIS YEAR ALSO IN FAVOUR OF ASSESSEE. TH IS PART OF GROUND IS ALLOWED. 24 50. NEXT PART OF THE GROUND IS ABOUT EXCLUSION OF G ROSS INTEREST RECEIPT. SIMILAR ISSUE HAD COME BEFORE US IN ASST. YEAR 1999 -2000. WE HAVE HELD THEREIN THAT ISSUE REQUIRED TO BE EXAMINED AFRESH B Y THE AO TO DECIDE WHETHER THE INTEREST INCOME IS BUSINESS RECEIPT OR IT IS AN INCOME FROM OTHER SOURCES. IF IT IS BUSINESS RECEIPT THEN FOR T HE PURPOSE OF NETTING NEXUS IS REQUIRED TO BE ESTABLISHED BY THE ASSESSEE OF THE EXPENDITURE INCURRED WITH THE INTEREST RECEIPT. IF ASSESSEE IS ABLE TO ESTABLISH THE NEXUS NETTING MAY BE ALLOWED. IN CASE INTEREST INCOME IS TREATED AS INCOME FROM OTHER SOURCES THEN ASSESSEE HAS TO ESTABLISH NEXUS OF INTEREST EXPENDITURE WITH THE EARNING OF INTEREST AND IF IT IS SO NETTIN G IS TO BE DONE. HOWEVER, THIS WOULD BE CONSIDERED SEPARATELY UNDER THE HEAD OF INCOME FROM OTHER SOURCES AND WILL NOT HAVE ANY EFFECT ON THE COMPUTA TION OF DEDUCTION UNDER SECTION 80 HHC. IT IS ONLY WHEN INTEREST INCO ME IS CONSIDERED BUSINESS INCOME AND NETTING IS REQUIRED TO BE DONE THEN 90% THEREOF WOULD BE EXCLUDED FROM BUSINESS PROFIT AS PER EXPRE SSION (BAA) TO SECTION 80 HHC. THIS PART OF THE GROUND IS ALLOWED BUT FOR STATISTICAL PURPOSES. 51. THE NEXT PART OF THE GROUND IS EXCLUSION OF EXP ORT INCENTIVES OF RS.11,57,407/-. FOR ASST. YEAR 1999-2000 SIMILAR IS SUE HAD COME BEFORE US AND WE HAVE RESTORED THE SAME TO THE FILE OF AO TO DECIDE AFRESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL SPECIAL BENCH IN TOPMAN EXPORTS VS. ITO (SUPRA). FOLLOWING THE SAME, WE RESTORE THIS IS SUE THIS YEAR ALSO TO THE FILE OF AO TO ACT ACCORDINGLY. THIS PART OF THE GROUND IS ALLOWED BUT FOR STATISTICAL PURPOSES. 52. GROUND NO.6 IS GENERAL IN NATURE AND REJECTED. 25 53. GROUND NO.7 IS ABOUT CHARGING OF INTEREST UNDER SECTION 234A, 234B & 234C WHICH IS CONSEQUENTIAL IN NATURE AND IT DEPENDS UPON THE INCOME FINALLY ASSESSED. SINCE NO SPECIFIC ADJUDICA TION IS REQUIRED, THIS GROUND IS REJECTED. 54. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AN D PARTLY ALLOWED FOR STATISTICAL PURPOSES. 55. IN THE RESULT, BOTH THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 5/3/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 5/3/2010