DCIT, Hyderabad V. M/s SMS Pharmaceuticals Ltd., Hyderabad

ITA 1747/HYD/2008

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74656 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBASHREE ANANTHA KRISHNA
• Keywords: Business income; Proportionate interest; Retrospective amendment; Deemed export; Capital expenditure
• Section: 43B; 80HHC; 234B; 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER S.NO ITA NO. AY APPELLANT RESPONDENT 1 553/H/07 2001-02 SMS PHARMACEUTICALS LTD., HYDERABAD. PAN AADCS 2221D DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(2), HYDERABAD 2 355/H/07 2002-03 -DO- -DO- 3 554/H/07 2003-04 -DO- -DO- 4 1145/H/08 2004-05 -DO- -DO- 5 547/H/07 2001-02 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(2), HYDERABAD. SMS PHARMACEUTICALS LTD., HYDERABAD. PAN AADCS 2221D 6 396/H/07 2002-03 -DO- -DO- 7 548/H/07 2003-04 -DO- -DO- 8 1107/H/08 2004-05 -DO- -DO- 9 1747/H/08 2006-07 -DO- -DO- 10 619/H/10 2006-07 -DO- -DO- ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SHRI SUBASHREE ANANTHA KRISHNA DATE OF HEARING : 03/01/2014 DATE OF PRONOUNCEMENT : 26/02/2014 ORDER PER CHANDRA POOJARI, A.M.: THESE APPEALS PERTAINING TO ONE ASSESSEE ARE PREFE RRED BY THE REVENUE AS WELL AS BY THE ASSESSEE DIRECTED AGAINST THE SEPARATE ORDERS OF CIT(A) FOR THE ASSESSMENT YEARS 2001-02 TO 2004-05 AND 2006-07. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND, THEREFORE, A C OMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ASSESSEES APPEALS [GROUNDS EXTRACTED AND ADJUDICATED AS PER THE CONSO LIDATED CHART FILED BY THE ASSESSEE.] 2 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 2. A COMMON GROUND IN ITA NO. 553/H/07 FOR AY 2001- 02 AND 355/H/07 FOR AY 2002-03 IS THAT THE CIT(A) ERRED IN HOLDING THAT THE APPELLANT HAS NOT SUBSTANTIATED THAT THE INTEREST R ECEIPT OF RS. 35,14,199/- FOR AY 2001-02 AND RS. 36,12,973/- FOR AY 2002-03 RESPECTIVELY, THOUGH THE SAME WAS ARISEN OUT OF EXP ORT BUSINESS, ENTITLED FOR DEDUCTION U/S 80HHC OF THE IT ACT. 3. ACCORDING TO THE ASSESSEE, THIS INTEREST INCOME REPRESENT THE INTEREST ON TDRS KEPT WITH BANKS TOWARDS MARGIN MON EY FOR OBTAINING LETTER OF CREDITS FOR IMPORTING RAW MATERIAL AND, T HEREFORE, IT HAS DIRECT NEXUS WITH THE BUSINESS, HENCE, THE SAME HAS GOT TO BE CONSIDERED FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT. HE, FURTHER, SUBMITTED THAT FOR THE AY 2004-05, THE CIT(A) GAVE A CATEGORICAL FINDING IN PARA 8.5 OF HIS ORDER WHEREIN IT WAS HEL D THAT INTEREST INCOME TO BE TREATED AS BUSINESS INCOME OF THE ASSE SSEE AND ELIGIBLE FOR DEDUCTION U/S 80HHC SUBJECT TO VERIFICATION OF THE AO WHETHER THE SAME WAS EARNED IN RESPECT OF TDRS KEPT IN THE BANK AS MARGIN MONEY TOWARDS BANK GUARANTEE BY PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAIR, 295 ITR 228. FURTHER, HE RELIED ON THE FOLLOW ING JUDGMENTS: 1. CIT VS. PRODUCIN PVT. LTD., 322 ITR 270 2. CIT VS. K & CO., 88 DTR (DEL.) 166. 3. LALSONS ENTERPRISES VS. DCIT, 89 ITD 25 (DEL.) (SB) 4. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT INTEREST INCOME TO BE CONSIDERED AS INCOME FROM OTHER SOURC ES BEING INTEREST ON TDRS AS THERE WAS NO DOCUMENTARY EVIDEN CE FILED BY THE ASSESSEE TO ESTABLISH THAT THE DEPOSIT WAS MADE OUT OF EXPORT EARNINGS. HE RELIED ON THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS, 262 ITR 278. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. IN OUR OPINION, IF THE INTEREST INCOME IS EARNED FROM THE TDR/FDR DEPOSITS 3 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. KEPT AS MARGIN MONEY TOWARDS BANK GUARANTEE IN THE COURSE OF EXPORT BUSINESS, THE SAME IS TO BE CONSIDERED AS INCOME FR OM BUSINESS. IN OTHER WORDS, IF THE INTEREST INCOME IS RECEIVED FRO M THE DEPOSITS MADE BY THE ASSESSEE WHICH ARE INEXTRICABLY LINKED TO TH E BUSINESS OF THE ASSESSEE, SUCH INTEREST INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. BEING SO, 90% OF THE NET INTEREST WH ICH HAS BEEN ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OF T HE ASSESSEE HAS TO BE DEDUCTED IN TERMS OF EXPLANATION (BAA) TO SEC TION 80HHC FOR DETERMINING THE PROFIT OF BUSINESS AS HELD BY THE H ONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATES CAPSULES PVT. L TD. VS. CIT, 247 ITR 372 (SC) AND AS SUCH THE EXPLANATION (BAA) TO SECTION 80HHC APPLICABLE TO THIS PART OF INCOME, THE AO IS DIRECT ED TO RECOMPUTE DEDUCTION U/S 80HHC. THIS GROUND IS ALLOWED FOR STA TISTICAL PURPOSES. 6. NEXT GROUND RAISED IN ITA NO. 1145/H/08 FOR AY 2 004-05 IS THAT THE CIT(A) ERRED IN HOLDING THAT THE INTEREST INCOM E OF RS. 16,52,216/- AND RS. 1,70,228/- SHOULD FORM PART OF TOTAL TURNOV ER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. 7. ACCORDING TO THE LEARNED AR, THIS INTEREST INCO ME IS DIRECTLY RELATABLE TO IMPORTS OF RAW MATERIALS FOR PRODUCTIO N AND, THEREFORE, THIS IS A BUSINESS INCOME AND CANNOT FORM PART OF T URNOVER. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE ARE INCLINED TO HOLD THAT THIS INTEREST INCOME IS TO BE CONSIDERED AS BUSINESS INCOME SUBJECT TO APPLICATION OF EXPLANATI ON (BAA) TO SECTION 80HHC AS DISCUSSED IN PARA 5 (SUPRA). ACCORDINGLY, THE AO IS DIRECTED TO RECOMPUTE DEDUCTION U/S 80HHC OF THE AC T. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. A COMMON GROUND RAISED IN ITA NO. 553/H/07 FOR A Y 2001-02 AND ITA NO. 554/H/07 FOR AY 2003-04 IS THAT THE CIT (A) ERRED IN HOLDING THAT THE CONVERSION CHARGES, MISCELLANEOUS INCOME, EXCHANGE 4 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. FLUCTUATION AND INTEREST ON ELECTRICITY DEPOSIT DID NOT FORM PART OF THE BUSINESS PROFITS OF THE APPELLANT FOR THE PURPOSE O F COMPUTATION OF DEDUCTION U/S 80HHC OF THE IT ACT, 1961. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WITH REGARD TO THE CONVERSION CHARGES, THE COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. BIO-TECH MEDICALS, HYDERABAD, 119 ITD 143 HELD THAT CONVERSION CHARGES TO BE CONSIDE RED AS DERIVED FROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. FU RTHER, THE HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) HELD THAT PROCESSING CHARGES RECEIVED BY THE ASSESSEE BE ING AN INDEPENDENT INCOME, 90% THEREOF HAD TO BE REDUCED F ROM THIS INCOME BUT THE SAME BEING AN IMPORTANT COMPONENT OF BUSINE SS PROFITS, HAD TO BE INCLUDED IN THE TOTAL TURNOVER AS PER THE FOR MULA GIVEN IN 80HHC OF THE ACT. ACCORDINGLY, WE DIRECT THE AO TO CONSI DER THE CONVERSION CHARGES AS AN INDEPENDENT INCOME AND EXCLUDE 90% TH EREOF FROM THE GROSS TOTAL INCOME IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT, SO AS TO ARRIVE AT BUSINESS PROFITS. THIS GROUND IS PARTLY ALLOWED. 10.1 AS REGARDS EXCHANGE FLUCTUATION, IF IT IS REC EIVED IN THE END OF THE FY CORRESPONDING TO THE SALES EFFECTED DURING T HE FY ON EXPORT OF EXPORTS, IT SHOULD BE CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE, WHICH IS AN INTEGRAL PART OF THE EXPORT AND IT CANN OT BE SEPARATED FROM THE EXPORT PROCEEDS SIMPLY ON THE GROUND THAT INCRE ASE IN THE RATE SUBSEQUENT TO SALE BUT PRIOR TO REALIZATION AS HELD BY THE SPECIAL BENCH OF TRIBUNAL, BOMBAY IN THE CASE OF ACIT VS. P RAKASH I. SHAH, 115 ITD 167 (BOM.)(SB). THEREFORE, IT SHOULD BE CO NSIDERED PART OF THE TOTAL TURNOVER OF THE ASSESSEE. THIS GROUND IS ALLOWED. 10.2 AS REGARDS INSURANCE CLAIM RECEIVED BY THE ASS ESSEE, IT IS OBSERVED THAT IF IT IS RECEIVED ON THE TRADING ASSE TS, THE SAME IS TO BE CONSIDERED AS PART OF THE TURNOVER OF THE ASSESSEE. ON THE OTHER 5 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. HAND, IF IT IS RECEIVED ON THE FIXED ASSETS, IT CAN NOT FORM PART OF THE TURNOVER OF THE ASSESSEE. THEREFORE, THE AO IS DIRE CTED TO VERIFY THE CLAIM AND ALLOW THE CLAIM IN ACCORDANCE WITH LAW. T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10.3 REGARDING WRITE OFF OF CREDIT BALANCES, IT IS OBSERVED THAT IF IT IS HAVING DIRECT LINK WITH THE BUSINESS OPERATION OF T HE ASSESSEE, THE SAME IS TO BE CONSIDERED AS INCOME FROM BUSINESS. B EFORE THE AO, NOTHING HAS BEEN BROUGHT ON RECORD ABOUT THE NATURE OF CREDIT BALANCE AND, HENCE, RS. 1,00,802/- FOR AY 2001-02 AND RS. 3 ,67,569/- FOR AY 2003-04 WAS CONSIDERED BY THE AO. HENCE, WE REMIT T HE ISSUE TO THE FILE OF THE AO TO VERIFY WHETHER IT HAS NEXUS WITH THE BUSINESS OPERATION OF THE ASSESSEE AND IF IT HAS ALREADY TAK EN INTO COMPUTATION OF INCOME UNDER THE HEAD BUSINESS INCOME, THE CLA IM OF ASSESSEE HAS TO BE ALLOWED SO AS TO GRANT DEDUCTION U/S 80HH C OF THE ACT. 10.4 REGARDING INTEREST ON ELECTRICITY DEPOSIT, THI S IS TO BE CONSIDERED AS INCOME FROM OTHER SOURCES IN VIEW O F THE JUDGMENT OF THE HONBLE SUPREME COURT IN CASE OF PANDIAN CHEMIC ALS (SUPRA). ACCORDINGLY, THIS PART OF THE GROUND IS DISMISSED. 11. THE ASSESSEE RAISED A GROUND IN ITA NO. 355/HYD /07 FOR AY 2002-03 IS THAT THE CIT(A) ERRED IN HOLDING THAT CO NSULTATION FEES PAID BY THE ASSESSEE WAS IN THE NATURE OF REVENUE EXPEND ITURE TO THE TUNE OF RS. 1.00 LAKH OUT OF RS. 2 LAKH CLAIMED BY THE A SSESSEE. 12. THE LEARNED AR SUBMITTED THAT THE ENTIRE AMOUNT OF RS. 2 LAKHS IS DEDUCTIBLE AS IT IS NOT A CAPITAL EXPENDITURE. A N AMOUNT OF RS. 1 LAKH WAS INCURRED ON 07/03/2001 AND BALANCE WHICH W AS SHOWN AS ADVANCE AND NOT CLAIMED AS EXPENDITURE IN AY 2001-0 2. BILL WAS ISSUED ON 01/09/2011 BY SHRI GANESH FROM M/S Q PHAR MA CONSULTING 6 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. INDIA AND THIS FALLS IN FY 2001-02 RELEVANT TO AY 2 002-03 AND THE SAME IS TO BE ALLOWED. 13. THE LEARNED DR, ON THE OTHER HAND SUBMITTED THA T THE ASSESSEE HAS PAID RS. 1 LAKH ON 07/03/2001 FOR THE PERIOD FR OM 01/04/2000 TO 31/03/2001 AD ANOTHER AMOUNT OF RS. 1 LAKH ON 07/03 /2002 FOR THE PERIOD FROM 01/04/2001 TO 31/03/2002. THE BILL DATE D 01/09/2001 ISSUED BY SRI GANESH FROM M/S Q PHARMA CONSULTING I NDIA IN RESPONSE TO WORK ORDER DATED 28/12/2000 CLEARLY PRO VIDES THAT HE RECEIVED RS. 2.00 LAKH TOWARDS CONSULTATION SERVICE S PROVIDED IN ESTABLISHING CGMP SYSTEM AT FACTORY UNIT AT KAZIPAL LY FOR PERIOD NOVEMBER, 2000 TO NOVEMBER, 2001. OUT OF TOTAL FEES , RS. 1 LAKH WAS RECEIVED IN FY RELEVANT TO AY 2001-02 AND FOR THE A Y UNDER CONSIDERATION ONLY RS. 1 LAKHS IS RELEVANT AND BEIN G SO, 1 LAKHS IS ALLOWED. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THOUGH THE CLAIM OF RS. 2.00 LAKH IS RELEVA NT TO AY UNDER CONSIDERATION, HOWEVER, BILL ISSUED BY SRI GANESH F ROM M/S Q PHARMA CONSULTING INDIA SHOWS THAT ONLY RS. 1 LAKH IS RELA TING TO AY UNDER CONSIDERATION AND BALANCE RS. 1 LAKH NOT DEDUCTIBLE DURING THE YEAR CONSIDERATION. THE CIT(A) ALLOWED THE AMOUNT RELEVA NT TO AY UNDER CONSIDERATION AND BEING SO, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED. THIS GROUND I S DISMISSED. 15. ANOTHER COMMON GROUND RAISED BY THE ASSESSEE IN ALL ITS APPEALS UNDER CONSIDERATION IS THAT THE CIT(A) HAVI NG HELD THAT THE MODVAT CREDIT WAS RIGHTLY DEDUCTED BY THE ASSESSEE FROM THE RAW MATERIAL CONSUMPTION ACCOUNT ERRED IN HOLDING THAT IT WAS A BUSINESS RECEIPT U/S 28(IIIB) OF THE IT ACT FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 80 HHC OF IT ACT IN TERMS OF EXPLANAT ION (BAA), 90% OF THE RECEIPT WAS TO BE EXCLUDED FOR THE PURPOSE OF D EDUCTION U/S 80 HHC (3) OF THE ACT. HOWEVER, IN AY 2001-02 THIS GR OUND WAS RAISED 7 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. BY WAY ADDITIONAL GROUND AND THE SAME ADMITTED FOR ADJUDICATION AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES BY FOLLO WING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. 229 ITR 383 (SC). 16. THE AO MADE THE ADDITION BY INVOKING THE PROVIS IONS OF SECTION 28(IIIB) OF THE IT ACT. HE OBSERVED THAT THE ASSESS EE HAS BECOME ENTITLED TO CASH REBATE TO BE RECEIVED FROM CENTRAL EXCISE DEPARTMENT UNDER THE PROVISIONS OF CENTRAL EXCISE ACT. HE FURT HER OBSERVED THAT THE ASSESSEE COMPANY HAS RECOGNIZED THE INCOME. THE ASSESSEE ACCOUNTED EXCISE DUTY REFUNDABLE OR RECEIVABLE IN T HE TAX BY WAY OF CREDIT TO THE RAW MATERIAL ACCOUNT AND DEBIT TO THE MODVAT RECEIVABLE (CENTRAL EXCISE DUTY REFUNDABLE RG23A PART II A). THE DEBIT WAS GIVEN TO MODVAT RECEIVABLE AND CREDIT WAS GIVEN TO RAW MATERIAL PURCHASE ACCOUNT. THE RAW MATERIAL COST DEBITED TO THE P&L ACCOUNT BEING TO THE EXCLUSION OF THE PART OF THE AMOUNT. T HE INCOME COMPONENT HAS BEEN PART OF THE P&L A/C WHEN THE ACC OUNTS ARE RECEIVED SUNDRY DEBTORS/REFUNDABLE CHEQUE AMOUNTS, ACCOUNTS ARE CREDITED. ACCORDING TO THE ASSESSEE, THE AO PROCEE DED ON A WRONG PREMISE INVOKED SECTION 28(IIIB) AND 28(IIIC) OF TH E IT ACT. 17. ON APPEAL, THE CIT(A) OBSERVED THAT THE EXCISE REBATE IS NOTHING BUT AN INCENTIVE GIVEN TO THE EXPORTER BY T HE GOVERNMENT OF INDIA AND IT FALLS IN THE PROVISIONS OF SECTION 28( IIIB) OF THE ACT. HE FURTHER OBSERVED THAT EXCISE REBATE IS NOT GIVEN TO GOODS WHICH ARE NOT EXPORTED. SUCH REBATE GRANTED GOES TO REDUCE CO ST OF INPUTS AND THUS, IT PROMOTES EXPORTS. IT WAS OBSERVED THAT THE ASSESSEE RECEIVED EXCISE REBATE BY WAY OF REIMBURSEMENT OF EXCISE DUT Y PAID ON EXPORT OF GOODS AND SINCE, IT INCREASES THE EXPORT COMPETI TIVENESS AND THE REIMBURSEMENT THUS, RECEIVED IS CASH ASSISTANCE IN THE FORM OF EXCISE REBATE, WHICH HELP TO THE EXPORTER IN THE COMPETITI VE MARKET. THE WORD CASH ASSISTANCE MENTION IN THE PROVISIONS OF SECT ION 28(IIIB) HAS WIDER MEANING AS PARLIAMENT INTENTIONALLY FURTHER U SED WORD BY 8 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. WHATEVER NAME CALLED ALONG WITH CASH ASSISTANCE, I T CLEARLY SHOWS THAT CASH ASSISTANCE NOT ONLY INCLUDES CASH COMPENS ATORY SUPPORT BUT ALSO SUBSIDY, INCENTIVE AND REBATE. THE REBATE IS N OTHING BUT AN INCENTIVE GIVEN BY THE GOVERNMENT OF INDIA UNDER A SCHEME FRAMED IN THE RULE 12 OF CENTRAL EXCISE RULES, 1944 AND RULE 18 OF CENTRAL EXCISE RULE, 2001 BY ISSUING NOTIFICATION W.E.F. 01 /07/2001. 17.1 THE CIT(A) NOTED THAT IN CASE OF ACIT VS. PRAT IBHA SYNTEX LTD., REPORTED IN 63 TTJ (AHM.) PG. 409, THE HONBLE AHME DABAD BENCH HELD THAT TOTAL BENEFIT DERIVED BY AN ASSESSEE ON D UTY FREE IMPORTS WILL FORM PART OF THE PROFIT BY BUSINESS U/S 28(III B) OF THE ACT. THE TRIBUNAL FOUND THAT U/S 28(IIIB) OF THE ACT, THE EX PRESSION USED WAS CASH ASSISTANCE RECEIVED BY AN ASSESSEE BY WHATEV ER NAME CALLED AND THE EXPRESSION WHATEVER NAME CALLED WAS HELD TO INCLUDE ANY DUTY BENEFIT DERIVED BY AN ASSESSEE ON DUTY FREE IM PORTS. THE CIT(A) OBSERVED THAT IN THE PRESENT CASE ALSO, THE EXCISE REBATE IS GIVEN BY THE GOVERNMENT OF INDIA ON A SCHEME OF HELPING THE EXPORTER TO COMPETE IN THE COMPETITIVE MARKET FOR EXPORT OF GOO DS AND IT IS ONLY PROVIDED TO THOSE EXPORTERS WHO EXPORT THEIR GOODS AFTER PAYMENT OF EXCISE DUTY. 17.2 THE CIT(A) FURTHER NOTED THAT THE HONBLE ITAT DELHI BENCH G IN CASE OF HERO HONDA MOTARS LTD. VS. JCIT, 103 ITD 157 HELD AT PAGE 190 THAT AS PER AS THE CUSTOM DUTY BENEFIT REC EIVED BY THE ASSESSEE UNDER THE ADVANCE LICENSES SCHEME IS CONCE RNED, AS RIGHTLY HELD BY THE CIT(A), THE SAME WOULD NOT FALL WITHIN THE AMBIT OF SECTION 28(IIIC) OF THE ACT, BUT AS HELD BY THE AHMEDABAD B ENCH OF THE ITAT IN CASE OF P.S. LTD. (SUPRA), THE CASE OF THE ASSESSEE WOULD FALL WITHIN THE PARAMETERS OF SECTION 28(IIIB) OF THE ACT. THIS WOULD BE A RESIDUARY CLAUSE AS HELD BY THE ITAT AND, THEREFORE , ANY OTHER RELIEF GIVEN IN ANY FORM TO AN EXPORTER WILL FALL WITHIN T HE SAID CLAUSE. 9 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 17.3 THE CIT(A) NOTED THAT IN VIEW OF THE DECISION OF HERO HONDA MOTORS LTD CITED SUPRA, IT WOULD BE CLEAR THAT ANY BENEFIT OF EXCISE DUTY RECEIVED/RECEIVABLE SHOULD FORM PART OF THE IN COME FROM BUSINESS OF THE ASSESSEE AS PER PROVISIONS OF SECTI ON 28(IIIB) HAS WIDER MEANING WHICH INCLUDES ALL BENEFITS GIVEN BY THE GOVERNMENT OF INDIA UNDER THE SCHEMES TO HELP THE EXPORTERS. 17.4 THE CIT(A) FURTHER NOTED THAT THE FACTS OF DEC ISION OF ITAT, HYDERABAD IN CASE OF GODAVARI DRUGS LTD. VS. JCIT A RE NOT IDENTICAL TO THE CASE OF THE ASSESSEE. IN THE SAID CASE, THE CIT(A) HELD SINCE THAT IMPORT DUTY BENEFIT ACCOUNTED FOR BY DEBIT AND CREDIT ENTRY IN IMPORT DUTY ENTITLEMENT BENEFIT AND RAW MATERIAL AC COUNT, THEREFORE, THE IMPORT ENTITLEMENT BENEFIT OF RS. 3,67,25,867/- WAS NOTIONAL INCOME. ONCE, IT WAS HELD THAT IT WAS NOTIONAL ENTR Y AND THEREFORE IT WAS NOT HAVING ANY EFFECT TO THE TOTAL INCOME OF TH E SAID ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE RECEIVED BY WAY OF CHEQUE FROM THE CENTRAL EXCISE DEPARTMENT AGAINST E XCISE REBATE CLAIMED ON EXPORT OF GOODS. 17.5 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) HELD THAT EXCISE REBATE IS NOTHING BUT AN INCENTIVE GIVEN BY THE GOV ERNMENT OF INDIA UNDER NOTIFICATION ISSUED UNDER CENTRAL EXCISE RULE S, 1994 AND 2001 AND THE RECEIPT FALLS IN THE PROVISIONS OF SECTION 28(IIIB) OF THE ACT AND, THEREFORE, IT HAS TO BE ASSESSED UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY IN TERMS OF EXPLANATION (BAA) 90% OF THE RECEIPT HAS TO BE EXCL UDED TO DETERMINE DEDUCTION U/S 80HHC(3) OF THE IT ACT, 1961. 18. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN OUR OPINION EXCISE DUTY REFUND DOES NOT FALL U/S 28(III B) OF THE ACT AS IT RELATED TO THE MODVAT CREDITS RETURNED FROM THE EXC ISE DUTY PAYMENTS 10 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. ON EXPORTS AND IT WAS LATER ON REFUNDED AND, THEREF ORE, IT IS NEITHER AN INCENTIVE NOR A REBATE AND THE CENTRAL EXCISE DUTY WHAT HAS PAID BY THE ASSESSEE AND THERE BEING SO, THERE IS NO QUESTI ON OF EXCLUDING 90% RECEIPTS BY INVOKING EXPLANATION (BAA) TO SECTI ON 80HHC OF THE . ACCORDINGLY, WE REVERSE THE FINDINGS OF THE CIT(A) AND ALLOW THIS GROUND OF APPEAL. 20. A COMMON GROUND RAISED BY THE ASSESSEE IN ITA N O. 355/HYD/2007 FOR AY 2002-03 AND ITA NO. 1145/HYD/08 FOR AY 2004- 05 IS WITH REGARD TO DISALLOWANCE OF INTEREST RELAT ING TO THE AMOUNT ADVANCED TO M/S NEXTAGE BROADBAND LTD. 21. ACCORDING TO THE ASSESSEE AN AMOUNT OF RS. 59.6 0 LAKHS WAS INVESTED AS SHARE ADVANCE WITH M/S NEXTAGE BROAD BA ND LTD., CHENNAI ON TWO OCCASIONS, I.E., ON 29/12/2000, AN A MOUNT OF RS. 49.60 LAKHS WAS DEPOSITED AND ON 15/05/2001 AN AMOU NT OF RS. 10 LAKHS. ACCORDING TO THE ASSESSEE, BORROWED FUND WAS NOT UTILIZED TO ADVANCE THIS AMOUNT AND, THEREFORE, THERE IS NO NEX US BETWEEN BORROWED FUNDS AND THE ADVANCES, HENCE, THERE CANNO T BE ANY DISALLOWANCE OF INTEREST ON THIS COUNT. 22. ACCORDING TO THE LEARNED DR, THE ASSESSEE IS PA YING INTEREST ON BORROWED FUNDS, AS SUCH PROPORTIONATE INTEREST ON T HIS AMOUNT TO BE DISALLOWED. 23. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD, IN OUR OPINION, IT IS A FACT THAT THE ASSESSEE IS HAVING H UGE RESERVES AND CAPITAL IN ITS BUSINESS, THIS FACT IS NOT DOUBTED A ND BEING SO, WHEN THERE IS OWN FUNDS AVAILABLE WITH THE ASSESSEE, IT CANNOT BE PRESUMED THAT THE ASSESSEE HAS DIVERTED PART OF BORROWED FUN DS. THE LAW IS NOW SETTLED ON THIS ISSUE BY THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(A) AND ANOTHER, [2007] 288 IT R 1 (SC). THEIR LORDSHIPS HAVE HELD THAT AS LONG AS THE INTEREST FR EE LOANS ARE GIVEN TO 11 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. SISTER CONCERNS AS A MEASURE OF COMMERCIAL EXPEDIEN CY, DISALLOWANCE CANNOT BE RESORTED ONLY ON THE GROUND THAT THE LOANS HAVE BEEN UTILIZED BY THE SISTER CONCERNS FOR ITS B USINESS PURPOSES. WHAT IS TO BE ACTUALLY SEEN IS COMMERCIAL EXPEDIENC Y OF HAVING ADVANCED THE LOANS AND IT IS IMMATERIAL WHETHER OR NOT THE LOANS SO ADVANCED IS USED FOR THE PURPOSES OF THE BUSINESS O F THE ASSESSEE OR FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE'S SIST ER CONCERNS. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE SAID CASE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELE TE THE DISALLOWANCES MADE ON THIS COUNT. THIS GROUND OF AS SESSEE IS ALLOWED. 24. ANOTHER COMMON GROUND RAISED BY THE ASSESSEE IN ITA NO. 355/H/07 FOR 2002-03 AND 1145/H/08 FOR AY 2004-05 I S THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTE REST AT RS. 1,35,900/- FOR AY 2002-03. 25. BRIEFLY THE FACTS RELATING TO THIS GROUND FROM ITA NO. 355/HYD/07 ARE THAT THE ASSESSEE HAD MADE INVESTMENT IN TWO DI FFERENT COMPANIES TOWARDS SHARE CAPITAL TO THE EXTENT OF RS . 24,67,586/-. SINCE INCOME FROM THESE INVESTMENTS IN THE FORM OF DIVIDENDS DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE, PROPORTIONATE INTEREST ATTRIBUTABLE TO THE INVESTMENT IN SHARES W AS DISALLOWED BY THE AO U/S 14A OF THE ACT FOLLOWING THE DECISION OF THE CALCUTTA BENCH OF ITAT IN CASE OF DCIT VS. SG INVESTMENTS AND INDUSTR IES LTD., 89 ITD 44. 26. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSE E HAS NOT RECEIVED ANY DIVIDEND ON THE INVESTMENTS. HOWEVER, IT WAS OBSERVED THAT THE ASSESSEE HAD PAID INTEREST ON OVERDRAFT AC COUNT AND SINCE BUSINESS OF THE SUBSIDIARY COMPANY CANNOT BE CONSID ERED AS BUSINESS OF THE ASSESSEE, IT CANNOT BE SAID THAT BO RROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, THE CIT(A) 12 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. COMPUTED THE DISALLOWANCE AT 12% ON THE AMOUNT OF I NVESTMENT, WHICH WAS WORKED OUT AT RS. 1,35,980/- AS AGAINST R S. 2,96,110/- MADE BY THE AO FOR AY 2002-03. SIMILAR IS THE POSI TION IN AY 2004- 05. 27. THE LEARNED AR SUBMITTED THAT THE ASSESSEE MAD E INVESTMENT IN SMS INTERNATIONAL LTD. AT RS. 21,22,206/-, WHICH HAS NOT DECLARED ANY DIVIDEND. FURTHER RS. 2,75,380/-, WHICH MADE IN VESTMENT IN SHARES OF M/S JEEDIMETLA EFFLUENT TREATMENT LTD. AN D M/S PATTAN CHERU EFFLUENT TREATMENT LTD. TO TAKE MEMBERSHIP IN THOSE COMPANIES SO AS TO SEND RESIDUALS AND WASTAGE SOLVENTS AS IT IS MANDATORY FOR THE ASSESSEE TO SEND THE RESIDUAL AND WASTAGE SOLVE NTS TO THE ABOVE TWO ORGANSATIONS FOR TREATMENT PURPOSES. HE FURTHER SUBMITTED THAT THE INVESTMENT OF RS. 70,000/- IN THE FORM OF NSCS BONDS TO GIVE AS SECURITY IN SALES TAX DEPARTMENT AND OTHER GOVERNME NT DEPARTMENT. BEING SO, THERE CANNOT BE ANY DISALLOWANCE IN THIS REGARD. 28. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE REVENUE AUTHORITIES. 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE ARE OF THE VIEW THAT THE INVESTMENTS MADE BY THE ASSESS EE ARE NOT FOR THE PURPOSE OF THE ASSESSEES BUSINESS. BEING SO, LOWER AUTHORITIES HAVE JUSTIFIED IN DISALLOWING THE INTEREST ON THE INVES TMENTS MADE BY THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE IN BO TH THE YEARS UNDER CONSIDERATION. 30. THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 3 55/HYD/07 FOR AY 2002-03 IS THAT THE CIT(A) HAVING HELD THAT DISALLO WANCES U/S 36(1)(III) OF THE IT ACT IS WARRANTED OUGHT TO HAVE CLEARLY HELD THAT THE PROVISIONS OF SECTION 14A OF THE IT ACT WERE NOT AP PLICABLE. 13 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 31. SIMILAR GROUND HAS BEEN DECIDED BY US VIDE PAR AS 24 TO 29 IN ITA NO. 355/H/07 FOR 2002-03 AND 1145/H/08 FOR AY 2 004-05, THEREFORE, THIS GROUND BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED AS INFRUCTUOUS. 32. IN ITA NO. 355/HYD/07, FOR AY 2002-03, THE ASSE SSEE HAS RAISED A GROUND THAT THE CIT(A) ERRED IN ENHANCING THE INCOME OF THE ASSESSEE LEADING TO DISALLOWANCE OF CLAIM FOR DEDUC TION U/S 80HHC AMOUNTING TO RS. 76,68,283/- IS WHOLLY UNSUSTAINABL E. 33. BRIEFLY THE FACTS ARE THAT IN THE ASSESSMENT OR DER, THE ASSESSING OFFICER HAD WORKED OUT ELIGIBLE AMOUNT OF DEDUCTION U/S.80HHC TO THE EXTENT OF RS.1 ,55,22,193/- IN THE COMPUTATION OF TOTAL INCOME, THE APPELLANT MADE CLAIM U/S.80HHC AT RS.76,68,283/-. IN THE ASSESSMENT ORDER FOR WORKING OF EXPORT TURNO VER, THE ASSESSING OFFICER HAD EXCLUDED DEEMED EXPORT OF RS. 9,32,00,4601- FROM THE TOTAL EXPORT TURNOVER OF RS.39,35,27,888/- AS THE DISCLAIMER CERTIFICATE WAS NOT FURNISHED BY THE ASSESSEE AS RE QUIRED U/S.80HHC(4A)(B). HE EXCLUDED 90% OF EXCISE REBATE OF RS.2,87,87,364/-, INTEREST OF APSCB DEPOSIT OF RS.1 ,33,047/- AND MISCELLANEOUS INCOME OF RS.7,31,385/- IN TERMS OF E XPLANATION (BAA) TO SEC.80HHC. IN THE ASSESSMENT ORDER, HE OBSERVED THAT EXCISE REBATE RECEIVABLE IS IN THE NATURE OF INCOME ARISIN G TO THE ASSESSEE IN THE COURSE OF ITS BUSINESS OF EXPORT OF THE GOODS M ANUFACTURED BY THE COMPANY. HE FURTHER, OBSERVED THAT UNDER THE PROVIS IONS OF SEC.28(IIIB) INCOME ASSESSED (BY WHATEVER NAME CALL ED) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA SHALL BE CHARGEABLE TO INCOME T AX ACT UNDER THE HEAD OF 'PROFITS AND GAINS FROM BUSINESS OR PROFESS ION'. HE ALSO RELIED PROVISIONS OF SEC.28(IIIC) AND HELD THAT THE EXCISE REBATE CLAIMED BY THE ASSESSEE U/S.11 B OF CENTRAL EXCISE ACT R.W.R.1 8 OF CENTRAL EXCISE RULES IS CHARGEABLE TO INCOME TAX U/S.28(IIIB )/28( IIIC). 14 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 33.1 IN THE REMAND REPORT, THE ASSESSING OFFICER ME NTIONED CIRCULAR NO.572 DATED 3.8.1990 WHICH IS APPLICABLE WITH RETR OSPECTIVE EFFECT 1.4.1962. AS PER PARA 27.2 OF THE CIRCULAR, THE INC ENTIVE GIVEN TO THE EXPORTERS BY WAY OF PROFIT ON SALE OF IMPORT ENTITL EMENT LICENSES, CCS AND DRAW BACK OF DUTY ARE REVENUE RECEIPTS AND HENC E LIABLE TO TAX AS PER NEW CLAUSES (IIIA, IIIB AND IIIC) OF SEC.28 OF THE LT. ACT UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS'. 33.2. HE ALSO REFERRED ORDER OF THE CIT(A)-IV, HYD ERABAD ON THE SIMILAR ISSUE IN CASE OF SRINI PHARMACEUTICAL LTD. FOR ASSESSMENT YEAR 2002-03 IN ORDER DATED 25.11.2005 IN ITA NO. 123/AC IT-3(2)/CIT(A)- IV/2005-06, HELD THAT RULE 12(3) CONTEMPLATES REBAT E OF DUTY IN RESPECT OF EXCISABLE MATERIALS AT PAR WITH DUTY DRA W BACK, WHICH ARE MUTUALLY EXCLUSIVE TO EACH OTHER IN THE SENSE THAT WHEN THE EXPORT AVAIL OF DUTY DRAW BACK ON THE SAID DUTY, IT CAN NO T AVAIL OF REBATE THERE ON. THE VERY TREATMENT OF CENTRAL EXCISE OF T HE EXCISE REBATE IN ITS RULES PROVES THAT REBATE IS AN EXPORT INCENTIVE SIMILAR TO BE DUTY DRAW BACK UNDER THE LT. ACT. 33.3 IN RESPONSE TO ENHANCEMENT NOTICE ISSUED U/S. 251(2) BY THE CIT(A), THE APPELLANT'S COUNSEL SUBMITTED WRITTEN SUBMISSION AND STATED THAT (1) THE SAID REBATE / REFUND ARE NEITHER ASSISTANCE NOR AN INCENTIVE. THE EXCISE DEPARTMENT HAS REFUNDED THE A MOUNT ACTUALLY PAID BY US AND NOTHING ELSE. (2) THERE IS NO OBLIGATION ON THE APPELLANT TO PAY THE EXCISE DUTY ON EXPORT SALES BUT THE APPELLANT HAD PAID THE EXCISE DUTY BY EXERCISING ONE OF THE OPTIONS I.E. PAY AND GET B ACK THE DUTY. AS PER CENTRAL EXCISE RULES. (3) IN CASE OF DOMESTIC SALES, THE CUSTOMERS REIMBU RSED THE EXCISE DUTY COMPONENT. WHERE AS IN CASE OF EXPORT S ALES, THE 15 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. DUTY, THE EXCISE DEPARTMENT REIMBURSED COMPONENT AN D THE SAME WAS INCLUDED IN SALES. AS THE DUTY COLLECTED I N RESPECT OF DOMESTIC SALES NOT BEING TREATED AS INCENTIVE THE D UTY COMPONENT ON EXPORT SALES SHOULD NOT BE TREATED AS AN INCENTIVE FOR THE PURPOSE OF CALCULATION 80HHC BENE FIT. (4) AS PER CENTRAL EXCISE RULES, THE APPELLANT IS E LIGIBLE TO CLAIM THE REFUND OF MODVAT IN RESPECT OF EXPORT SAL ES. SUCH REFUND WILL NOT BE TREATED AS AN INCENTIVE OR INCOM E AS THE SAME WAS ALREADY REDUCED FROM THE COST OF THE RAW MATERI AL CHARGED TO PROFIT AND LOSS ACCOUNT. SO THE MODVAT CREDIT UT ILIZED FOR PAYMENT OF DUTY ON EXPORT SALES BY EXERCISING THE O PTION TO PAY THE DUTY FOR EXPORT WILL ALSO NOT TO BE TREATED AS AN INCENTIVE. (5) SUB CLAUSE (IIIB) OF SEC.28 WAS INTRODUCED W.E. F. 01.04.1967. SUBSEQUENTLY, THE CBDT HAS ISSUED A CIR CULAR NO.S72 DATED 3.8.1990 EXPLAINING THE REASONS FOR IN SERTING CLAUSES (IIIA), (IIIB) AND (IIIC) TO SEC.28 OF THE I.T. ACT. AS PER THE SAID CIRCULAR CASH COMPENSATORY SUPPORT (CCS) WILL FALL UNDER THIS CLAUSE. WHERE AS CCS WAS GIVEN UP IN THE YEAR 1991-92 ITSELF. SO THE SAID REFUND AMOUNT WILL NOT FALL UND ER THIS CLAUSE. (6) WHAT IS SOUGHT TO BE COVERED UNDER CLAUSE (IIIB ) IS ASSISTANCE, SUBSIDY, AND SUPPORT BUT NOT CERTAINLY REBATE WHICH IS SIMPLY AND PAY BACK OF AMOUNT ALREADY PAID AND I S IN NO WAY ASSISTANCE. (7) IF REBATE WAS TO BE TREATED ON PAR WITH DRAW BA CK, IT WOULD HAVE CERTAINLY FIGURED IN CLAUSE (IIIC) AND WHAT IS NOT FIGURING IN (IIIC) CAN NOT BE TRANSFERRED TO (IIIB). (8) IN CASE OF GODAVARI DRUGS LTD., SECUNDERABAD VIS. JCIT (ASSTS.) SR-1, HYDERABAD, (2004 - TAX INDINAONLINE - 27 ITAT - HYDERABAD, WHERE THE ASSESSEE SOUGHT TO INCLUDE REB ATE UNDER 16 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. CLAUSE (IIIB) THE TRIBUNAL DENIED THE BENEFIT WITH THE OBSERVATION: IF ALL EXPORT BENEFITS HAVE TO BE BROUGHT UNDER TH IS CLAUSE THERE WAS NO REQUIREMENT FOR THE LEGISLATURE TO HAV E SUB CLAUSES (IIIA) OR (IIIC). ' IN VIEW OF THE ABOVE, IF REBATE IS COVERED UNDER CL AUSE (IIIB) SO WOULD DRAW BACK AND THERE WOULD HAVE BEEN NO NEED F OR CLAUSE (IIIC) AND IT IS AN AXIOM THAT PARLIAMENT DOES NOT PASS LAWS FOR NOTHING. WHAT WAS SOUGHT TO BE TAXED U/S.28(IIIB) W AS CASH COMPENSATORY SUPPORT AND OTHER ASSISTANCE AND NOT R EBATE I REFUND. (9) THUS, IT CAN BE DEDUCED FROM ABOVE THAT WHAT TH E APPELLANT RECEIVED BACK FROM THE CENTRAL EXCISE DEPARTMENT IS NEITHER A CASH ASSISTANCE AS SPECIFIED U/S.28(IIIB) NOR A DUT Y DRAWBACK. THIS IS MERELY A REIMBURSEMENT OF CENTRAL EXCISE DU TY PAID BY THE APPELLANT BY EXERCISING THE OPTION AVAILABLE TO HIM UNDER RULE 18 OF CENTRAL EXCISE RULES, 2001. (10) THE HON'BLE COMMISSIONER MADE A REFERENCE TO T HE DECISION OF M/S. PRATIBHA SYNTEX LTD., REPORTED IN 106 TAXMAN, PG.32. THIS CASE IS TOTALLY DISTINGUISHABLE FROM TH E FACTS OF THE APPELLANTS CASE AS EXPLAINED HEREUNDER:- IN CASE OF 'PRATIBHA SYNTEX LTD.' THE SUBJECT MATTE R IS NOT REFUND OF THE DUTY PAID ON EXPORT. IN THE SAID CASE THE ASSESSEE WAS LIABLE TO PAY CERTAIN IMPORT DUTY ON IMPORTS FO R THE PURPOSE OF ASSESSEE HAD CONSIDERED THIS AS CASH ASSISTANCE AND INCLUDED THE AMOUNT IN THE INCOME LIKE OEPB BENEFIT IN THE APPEL/ANT'S CASE. 33.4 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE AND SUBMISSION MADE BY THE ASSESSMENT OFFICER IN ASSESS MENT ORDER AND IN THE REMAND REPORT, THE CIT(A) OBSERVED THAT IN THE COURSE OF 17 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. MANUFACTURING GOODS, IT PURCHASES RAW MATERIAL FROM ABROAD AS WELL AS IN INDIA ON WHICH IT REQUIRES TO PAY EXCISE DUTY . THE PURCHASER REQUIRES CLAIMING MODVAT ON ACCOUNT OF PAYMENT OF E XCISE DUTY ON PURCHASES OF RAW MATERIAL. THE EXCISE DEPARTMENT DO ES NOT REFUND AMOUNT OF MODVAT TO THE PURCHASER BY CASH BUT THAT AMOUNT OF MODVAT HAS TO BE UTILIZED FOR CLEARANCE OF EXCISABLE GOODS EITHER ON EXPORT OR SALE IN INDIA. AS PER THE PROVISIONS OF CENTRAL EXC ISE, NO EXCISABLE GOODS CAN BE CLEARED FROM THE FACTORY WITHOUT PAYME NT OF CENTRAL EXCISE DUTY EXCEPT IN CERTAIN CONDITION. IN THE PRE SENT CASE, THE APPELLANT CLEARED EXCISABLE GOODS FOR EXPORTS AFTER PAYMENT OF EXCISE DUTY OUT OF RG-23 PART IIA APPLICABLE ON SUCH GOODS . 33.5 THE CIT(A) NOTED THAT RULE 12 OF THE CENTRAL EXCISE RULES, 1944 AND RULE 18 OF CENTRAL EXCISE RULES, 2001, ARE APPLICABLE WHICH STATE THAT WHERE ANY GOODS ARE EXPORTED, THE CENTRA L GOVERNMENT MAY BY NOTIFICATION GRANT REBATE OF DUTY PAID ON SU CH EXCISABLE GOODS OR DUTY PAID ON MATERIALS USED IN THE MANUFACTURING OR PROCESSING OF SUCH GOODS AND THE REBATE SHALL BE SUBJECT TO SUCH CONDITIONS OR LIMITATIONS, IF ANY, SPECIFIED IN THE NOTIFICATION. EXPLANATION 1 TO RULE- 18 DEFINE 'DUTY' MEANS DUTIES OF EXCISE COLLECTED U NDER (A) THE CENTRAL EXCISE ACT, 1994, (B) THE ADDITIONAL DUTIES OF EXCI SE ACT, 1957 (C) THE ADDITIONAL DUTIES OF EXCISE ACT, 1978 AND (D) SPECI AL EXCISE DUTY COLLECTED UNDER A FINANCE ACT. IN THE PRESENT CASE, THE APPELLANT PAID EXCISE DUTY IN TO 12 OF THE CENTRAL EXCISE RULES, 1 944 AND RULE-18 OF CENTRAL EXCISE RULE, 2001 WITH EFFECT 1ST JULY, 200 0. 33.6 THE CIT(A) FURTHER NOTED THAT BY THE FINANCE ACT, 1990, WITH RETROSPECTIVE EFFECT 1.4.1967, CLAUSE (IIIB) OF SEC .28 WAS INSERTED. ACCORDING TO THIS CLAUSE, THE 'CASH ASSISTANCE' (BY WHATEVER NAME CALLED) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINS T EXPORTS MADE UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA SHALL B E CHARGEABLE TO INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. IN SECTION-2, SUB-SEC.24 CLAUSE (VB) WAS INSERTED W HICH MEANT THAT 18 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. THE WORD 'INCOME INCLUDED ANY SUM CHARGEABLE TO INC OME TAX UNDER CLAUSE (IIIB) OF SEC.28'. 33.7 THE CIT(A) OBSERVED THAT IN THE PRESENT CASE, THE APPELLANT WHILE WORKING OUT DEDUCTION U/S.80HHC HAS NOT EXCLU DED 90% EXCISE REBATE BEING CASH ASSISTANCE IN TERMS OF EXPLANATIO N (BAA) TO SEC.80HHC, THOUGH INDIRECTLY IT HAS CONSIDERED AS A N INCOME BY REDUCING COST OF RAW MATERIAL. IN PARA NO.13.02, I HAVE HOLD THAT NO SEPARATE ADDITION IS REQUIRED TO BE MADE AS EXCISE REBATE HAS ALREADY BEEN CONSIDERED INDIRECTLY IN THE P&L A/C. HOWEVER, FOR THE PURPOSE OF DETERMINING DEDUCTION U/S.80HHC, IN TERMS OF EXP LANATION (BAA) TO SEC.80HHC, 90% OF EXPORT INCENTIVE HAS TO BE EXCLUD ED. 33.8 CONSIDERING THE ABOVE FACTS, THE CIT(A) ISSUED AN ENHANCEMENT NOTICE U/S.251 (2) ON 15.12.2006. IN RESPONSE, THE APPELLANT SUBMITTED THE ABOVE REPLY. THE METHOD ADOPTED BY TH E APPELLANT FOR WORKING OUT DEDUCTION IN NOT EXCLUDING 90% OF EXCIS E REBATE FROM THE 'PROFIT OF THE BUSINESS' IN TERMS OF EXPLANATION (B AA) TO SEC.80HHC IN VIEW OF REDUCTION OF RAW MATERIAL COST IS NOT ACCEP TABLE AS CORRECT ONE IN VIEW OF DECISION OF THE SUPREME COURT IN CASE OF TUTICORIN ALKALI (227 ITR 172), HELD THAT THE ACCOUNTING PRINCIPLES/ PRACTICES CAN NOT OVER RIDE THE PROVISIONS OF THE LAW. IT MAY BE THAT THE APPELLANT MAY FOLLOW A PARTICULAR ACCOUNTING PRACTICE FOR THE PURPOSE OF MAINTAINING ITS BOOKS OF ACCOUNT ETC. BUT BY NO MEANS CAN HE BY PASS THE PROVISIONS OF THE LAW ADOPTING SUCH ACCOUNTING PRAC TICE. IN THE IN STANT CASE THE APPELLANT REDUCED COST OF RAW MATERI AL DIRECTLY BY AMOUNT OF EXPORT ENTITLEMENT BENEFIT RE FUND RECEIVABLE. THUS, IT HAS NOT SHOWN IN THE P&L ALC. SEPARATELY, THE EXCISE REBATE AS AN INCOME. IN MY VIEW, THIS METHOD OF ACCOUNTING HAS RESULTED EXCESS CLAIM OF DEDUCTION U/S.80HHC. THE EXPORT INC ENTIVES ARE SPECIFICALLY MADE TAXABLE AS INCOME FORM 'PROFITS A ND GAINS OF BUSINESS'. FURTHER MORE, IN THE CIRCULAR NO.564 DAT ED 5.7.1990, IT HAS 19 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. BEEN CLARIFIED BY CBOT THAT EXPORT INCENTIVES UNDER SEC.28(IIIB) & 28(IIIC) SHALL HAVE TO BE INCLUDED IN THE PROFITS O F THE BUSINESS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80HHC. THE RELEVANT PORTION OF THE CIRCULAR IS REPRODUCED AS BELOW:- '5. THE FINANCE ACT, 1990 HAS AMENDED SEC.28 BY IN SERTING THEREIN, CLAUSES (IIIA) , (IIIB) AND (IIIC) WITH RETROSPECTIVE EFFECT WITH A VIEW TO ENSURING THAT CASH COMPENSATORY SUPPORT (CC S), DUTY DRAWBACK (OOK) AND PROFIT ON SALE OF IMPORT ENTITLEMENT LICENSES (ILL) SHALL BE TAXABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. IN VIEW OF THIS AMENDMENT, IT IS CLARIFIED THAT THE THREE EXPORT INCENTIVES SHALL HA VE TO BE INCLUDED IN THE PROFITS OF THE BUSINESS FOR COMPUTING THE DEDUCTION U/S.80HHC'. THE SAME HAS BEEN FURTHER CLARIFIED IN CIRCULAR NO. 571 DATED 1.8.1990. THE RELEVANT PORTION OF CIRCULAR NO.571 I S REPRODUCED AS BELOW:- ATTENTION IS INVITED TO CIRCULAR NO. 564, DATED 5.7. 1990 (SEE {1990} 184 ITR {ST.] 137, EXPLAINING THE DEDUCTION ADMISSIBLE ULS.80HHC OF THE INCOME TAX ACT, 1961, IN RESPECT OF EXPORT PROFITS. IN PARAGRAPH 5 OF THE AFORESAID CIRCULAR, IT HAS BEEN STATED THAT THE FINANCE ACT, 1990, HAS AMENDED SEC.28 OF THE INCOME TAX ACT, BY INSERTING THEREIN CLAUSES (IIIA) , (IIIB) AND (IIIC) WITH RETROSPECTIVE EFFECT WITH A VIEW TO ENSURING THAT CASH COMPENSATORY SUPPORT (CCS), DUTY DRAWBACK (DBK) AND PROFIT ON SALE OF IMPORT ENTITLEMENT LICENSES (I/L) SHALL BE TAXABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AND THAT IN VIEW OF THIS AMENDMENT, THE EXPORT INCENTIVES WOULD HAVE TO BE INCLUDED IN THE PROFITS OF THE BUSINESS FOR COMPUTING THE DEDUCTION ULS.80HHC. THESE EXPORT INCENTIVES HAVE ALSO BEEN INCLUDED IN THE DEFINITION OF 'INCOME' CONTAINED IN SEC.2(24) OF TH E INCOME TAX ACT THE AMENDMENTS TO SEC28 AS WELL AS TO SEC 2(24) OF THE INCOME TAX ACT HAVE BEEN MADE WITH RETROSPECTIVE EF FECT FROM THE DATES FROM WHICH THESE INCENTIVES WERE MADE AVA ILABLE TO THE EXPORTERS THUS. CCS HAS BEEN INCLUDED IN 'INCOME' AND IN THE LIST OF INCOMES CHARGEABLE TO TAX UNDER THE HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' WITH EFFECT FROM 1.4.1967. THE DUTY DRAWBACK HAS BEEN SO INCLUDED WITH EFFECT FROM 1 4 1972 THE PROFITS ON SALE OF IMPORT ENTITLEMENT LICENSES HAVE BEEN 20 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. INCLUDED WITH EFFECT FROM 1.4.1962, THE DATE FROM WHICH THE INCOME TAX ACT. 1961, CAME INTO FORCE. THE DEPARTMENT'S VIEW ALL ALONG HAS BEEN THAT THESE EXPORT INCENTIVES ARE REVENUE RECEIPTS AND HENCE TAXABLE. THE AMENDMENTS MADE IN THIS REGARD BY THE FINANCE A CT 1990, ARE THEREFORE, CLARIFICATORY IN NATURE AND HAVE BEE N MADE TO PUT AN END TO LITIGATION WHICH MIGHT ARISE REGARDING TH E TAXABILITY OF THESE INCENTIVES'. 33.9 THE CIT(A) NOTED THAT FROM THE ABOVE CIRCULAR S, IT WOULD BE CLEAR THAT THE EXCISE REBATE IS NOTHING BUT AN INCE NTIVE GIVEN TO THE EXPORTER BY THE GOVERNMENT OF INDIA AND IT FALLS IN THE PROVISIONS OF SEC.28(IIIB) OF THE I.T. ACT. IT IS RELEVANT TO MEN TION HERE THAT EXCISE REBATE IS NOT GIVEN TO GOODS WHICH ARE NOT EXPORTED SUCH REBATE GRANTED GOES TO REDUCED COST OF INPUTS AND THUS, IT PROMOTES EXPORTS IN THE PRESENT CASE, THE APPELLANT RECEIVED EXCISE REBATE BY WAY OF REIMBURSEMENT OF EXCISE DUTY PAID ON EXPORT OF GOOD S. SINCE, IT INCREASES THE EXPORT COMPETITIVENESS AND THE REIMBU RSEMENT THUS, RECEIVED IS CASH ASSISTANCE IN THE FORM OF EXCISE R EBATE, WHICH HELP TO THE EXPORTER IN THE COMPETITIVE MARKET. THE WORD 'CASH ASSISTANCE' MENTION IN THE PROVISONS OF SEC 28(IILB) HAS WIDER MEANING AS PARLIAMENT INTENTIONALLY FURTHER USED WORD 'BY WHAT EVER NAME CALLED ALONG WITH CASH ASSISTANCE', IT CLEARLY SHOWS THAT CASH ASSISTANCE NOT ONLY INCLUDES CASH COMPENSATORY SUPPORT BUT ALSO SU BSIDY, INCENTIVE AND REBATE. THE REBATE IS NOTHING BUT AN INCENTIVE GIVEN BY THE GOVERNMENT OF INDIA UNDER A SCHEME FRAMED IN THE RU LE 12 OF CENTRAL EXCISE RULES, 1944 AND RULE.18 OF CENTRAL EXCISE RU LE, 2001 BY ISSUING NOTIFICATION W.E.F. 1.7.2001. 33.10 IN VIEW OF THE ABOVE FACTS AND DISCUSSING THE DECISIONS OF THE ITAT, THE CIT(A) WAS OF THE VIEW THAT EXCISE REBATE IS NOTING BUT AN INCENTIVE GIVEN BY THE GOVERNMENT OF INDIA UNDER NO TIFICATION ISSUED UNDER CENTRAL EXCISE RULES, 1994 AND 2001 AND THE R ECEIPT FALLS IN THE PROVISIONS OF SEC.28(IIIB) OF THE I.T. ACT. IT HAS TO BE ASSESSED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION AND 21 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. ACCORDINGLY, IN TERMS OF EXPLANATION (BAA). 90% OF THE RECEIPT HAS TO BE EXCLUDED TO DETERMINE DEDUCTION U/S.80HHC(3) OF THE I.T. ACT, 1961. 34. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN OUR OPINION, THE PROVISIONS OF EXPLANATION (BAA) TO SEC TION 80HHC OF THE ACT CANNOT BE APPLIED TO THIS COMPONENT OF INCOME A S THIS REPRESENT EXCISE DUTY WHICH IS BEING MODVAT PAID ON IMPORT OF RAW MATERIAL HAS BEEN DEDUCTED FROM PURCHASES AND BUSINESS PROFIT H AS ALREADY BEEN ENHANCED. SECTION 28(IIIB) IS NOT APPLICABLE TO THI S FACTOR OF THE INCOME AS PURCHASES HAVE BEEN REDUCED AND PROFIT HA S BEEN ENHANCED. BEING SO, WE VACATE THE FINDINGS OF THE C IT(A) THAT EXPLANATION (BAA) TO SECTION 80HHC IS APPLICABLE SO AS TO REDUCE 90% OF RECEIPTS TO DETERMINE THE INCOME U/S 80HHC O F THE ACT. ACCORDINGLY, THIS GROUND OF ASSESSEE IS ALLOWED. 35. A COMMON GROUND RAISED BY THE ASSESSEE IN ITA N O. 355/H/07 FOR AY 2002-03, ITA NO. 554/H/07 FOR AY 2003-04 AND ITA NO. 1145/HYD/08 FOR AY 2004-05 IS THAT THE CIT(A) WHILE ENHANCING THE DISALLOWANCE CLAIM OF DEDUCTION U/S 80 HHC AMOUNTED TO RS. 76,68,283/- BY HOLDING THAT: I) THE APPELLANT WAS NOT ENTITLED FOR DEDUCTION UND ER THE 3 RD PROVISO TO SECTION 80 HHC IN RELATION TO DEPB BENEF IT OF RS. 2,31,71,352/- FOR AY 2002-03 AND RS. 1,14,74,893/- FOR AY 2004-05. II) THE DEDUCTION UNDER 80HHC (IIIA) OF IT ACT AT N EGATIVE FIGURE OF RS. 3,22,79,307/- FOR AY 2002-03. III) THE DEDUCTION UNDER FIRST PROVISIO READ WITH F IFTH PROVISO TO SECTION 80 HHC(3) OF THE IT ACT AT A LOSS OF RS. 1, 91,36,639/- FOR AY 2002-03. 22 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. IV) THE APPELLANT IS NOT ENTITLED TO ANY FURTHER DE DUCTION UNDER THE FIRST PROVISO TO SECTION 80 HHC(3) FOR AY 2002- 03. V) THE COMPUTATION OF LOSS AT RS. 2,10,87,917/- FOR THE PURPOSE OF DEDUCTION UNDER 3 RD PROVISO OF THE SECTION 80 HHC(3) OF THE ACT FOR AY 2002-03. 36. WE REFER TO THE FACTS IN AY 2002-03. AS REGARDS THE DEPB BENEFIT OF RS. 2,31,71,352/- FOR PURPOSE OF DEDUCTI ON U/S.80HHC(3) R.W.S. 28(IIID), THIS AMOUNT WAS NOT CONSIDERED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS AMENDMENT TO SEC 28( II ID) CAME BY THE TAXATION LAW (AMENDMENT ACT, 2005 ) WITH RET ROSPECTIVE EFFECT 1.4.1998, ACCORDING TO THIS AMENDMENT DEDUCTION U/S ,80HHC IS TO BE ALLOWABLE AS PER 3 RD PROVISO TO SEC.80HHC(3), IN A CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RS.10 CRO RES, IF HE SATISFIES FOLLOWING TWO CONDITIONS BY SUBMITTING SU FFICIENT EVIDENCE: (A) HE HAD AN OPTION TO CHOOSE EITHER DUTY DRAW BAC K OR DUTY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION S CHEME AND (B) THE RATE OF DRAW BACK CREDIT ATTRIBUTABLE TO TH E CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASSBOOK SCHEME, BEING DUTY REMISSION S CHEME. 36.1 THE CIT(A) NOTED THAT IN THE ENHANCEMENT NOTIC E DATED 15.12.2006, REFERENCE OF STN PROVISO TO SEC.80HHC(3) WAS ALSO MADE AND ACCORDING TO WHICH IF IN A CASE. COMPUTATION UN DER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF SEC.80HHC(3) IS A LOSS, SUCH LOSS SHALL BE SET OFF AGAINST THE AMOUNT WHICH BEARS TO 90% OF (A ) ANY SUM REFERRED TO IN CLAUSE (IIIA) OR CLAUSE (IIIB) OR CLAUSE (III C), AS THE CASE MAY BE OR (B) SUM REFERRED TO IN CLAUSE (IIID) OR CLAUSE ( IIIE) AS THE CASE MAY BE, OF SEC.28, AS APPLICABLE IN CASE OF AN ASSESSEE REFERRED TO IN THE 2 ND OR 3 RD OR 4TH PROVISO, AS THE CASE MAY BE, THE SAME PROPO RTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. 36.2 . IN RESPONSE TO THE ENHANCEMENT NOTICE, THE A PPELLANT 23 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. SUBMITTED THAT AS PER CHAPTER 4 OF EXIM POLICY, 200 2-07, THE APPELLANT WAS HAVING OPTION TO CHOOSE EITHER THE DU TY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME. IT IS THEREF ORE, SUBMITTED THAT CONDITION AT (A) GIVEN IN THE 3 RD PROVISO OF SEC.80HHC(3) IS SATISFIED. IT IS FURTHER, SUBMITTED THAT THE RATE OF DRAW BACK CREDIT ATTRIBUTABLE TO THE CUSTOM DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DEPB SCHEME. IT IS FURTHER, SUBMITTED THAT THE RATE OF DEPB WAS 22% DURING THE FINANCIAL YEAR 2001-02 AND THE RATE OF C USTOM DUTY ON IMPORTS WAS 30% TO 35% DURING THE FINANCIAL YEAR 20 01-02. IT IS THEREFORE, REQUESTED DEDUCTION U/S.80HHC IN RESPECT OF DEPB BENEFIT MAY BE GRANTED IN ACCORDANCE TO THE 3 RD PROVISO OF SEC.80HHC(3). 36.3 THE CIT(A) OBSERVED THAT THE APPELLANT HAD REC EIVED DEPB BENEFIT OF RS.2,40,98,206/- INCLUDING SALE TAX OF P AGE 28 OF 35 RS.9,26,854/- AND SHOWN IN THE DETAILS OF SALES FOR THE FINANCIAL YEAR 2001-02 RELEVANT TO ASSESSMENT YEAR 2002-03. THOUGH , THE APPELLANT HAD MENTIONED THAT IT WAS HAVING OPTION TO CHOOSE E ITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME AS PROVIDED FOR IN CHAPTER '4 OF THE EXIM POLICY. 2002-07, BUT NO D OCUMENTARY EVIDENCE TO PROVE ITS CONTENTIONS IS PRODUCED BEFOR E THE UNDER- SINGED. IT IS THEREFORE, HELD THAT FIRST CONDITION MENTIONED IN THE 3 RD PROVISION OF SEC.80HHC(3) IS NOT SATISFIED. 36.4. THE CIT(A) NOTED THAT IN RESPECT OF SECOND CO NDITION. IT IS STATED THAT THE RATE OF DEPB WAS 22% AND RATE OF CU STOM DUTY ON IMPORT WAS 30% TO 35% IN THE FINANCIAL YEAR 2001-02 IN THE APPELLANT CASE IS FOUND TO BE NOT CORRECT. ON PERUSAL OF BILL OF ENTRY FOR HOME CONSUMPTION OF THE RAW MATERIAL, IT IS FOUND THAT T HOUGH. THE BASIC CUSTOM DUTY WAS LEVYABLE AT RATE OF 30% TO 35% ON V ALUE OF RAW MATERIAL BUT THE APPELLANT HAD NOT PAID IT BY VIRTU E OF EXEMPTION HOWEVER, IT HAD PAID ONLY ADDITIONAL CUSTOM DUTY AT RATE OF 16% OF THE VALUE OF RAW MATERIAL. IT IS FURTHER, ON PERUSAL OF EXCISE CONTROL DECLARATION (GR) FORM AV, FOUND THAT THE APPELLANT WAS ENTITLED 24 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. DEPB RATE AT 22% IN ACCORDANCE TO SI N0. 64 OF THE RATE LIST. IT IS THEREFORE. CLEAR THAT THE BENEFIT OF DEPB WAS HIGHE R THAN THE DRAW BACK ENTITLEMENT TO THE APPELLANT BY VIRTUE OF PAYM ENT OF ADDITIONAL CUSTOM DUTY @ 16%. HE THEREFORE, HELD THAT THE APPE LLANT HAS NOT SATISFIED CONDITION MENTIONED IN CLAUSE (B) OF 3 RD PROVISO TO SEC.80HHC(3). 36.5 IN VIEW OF THE ABOVE FACTS, THE CIT(A) HELD TH AT THE APPELLANT IS NOT ENTITLED FOR DEDUCTION UNDER 3 RD PROVISO TO SEC.80HHC IN RELATION TO DEPB BENEFIT OF RS.2,40,98,206/-. HOWEVER, FOR T HE PURPOSE OF 90% EXCLUSION, DEPB BENEFIT OF RS.2,31,71,352/- WILL BE TAKEN AFTER EXCLUDING SALE TAX OF RS. 9,26,854/-. 37. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. ACCORDING TO THE LEARNED AR THE CONCLUSION GIVEN BY THE CIT(A) AT PARA 26.2 AT PAGE 33 OF THE IMPUGNED ORDER IS NOT C ORRECT AND IT IS REQUIRED TO RECOMPUTED THE DEDUCTION U/S 80HHC IN T HE LIGHT OF STATUTORY PROVISIONS. IT WAS ALSO SUBMITTED THAT TH E ASSESSEE HAS SATISFIED TWO CONDITIONS STIPULATED IN THIRD PROVIS O READ WITH FIFTH PROVISO TO SUB-SECTION (3) OF SECTION 80HHC AND THE ASSESSEE HAS OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE D UTY ENTITLEMENT PASS BOOK SCHEME AS PROVIDED FOR IN CHAPTER IV OF T HE EXIM POLICY 2002-07. THE ASSESSEE HAVING SATISFIED CONDITIONS L AID DOWN THEREIN THE RATE OF DRAW BACK CREDIT ATTRIBUTABLE TO THE CU STOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DEPB SCHEME, WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE DEDUC TION U/S 80 HHC OF THE ACT. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES FOR AY 2002-03. SIMILAR IS THE POSITION IN OTHER AY 2004-0 5 AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 38. IN ITA NO. 554/H/07 AND ITA NO. 1145/H/08, THE ASSESSEE HAS RAISED A GROUND THAT THE CIT(A) HAVING CALLED UPON THE ASSESSEE TO WORK OUT THE DEDUCTION U/S 80 HHC, THEREBY ERRED IN CONFIRMING DEDUCTION AT LOWER FIGURE AS CLAIMED BY THE ASSESSE E. 25 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 39. AS THIS GROUND IS CORRELATED TO THE EARLIER GRO UND WHEREIN WE HAVE DIRECTED THE ASSESSING OFFICER TO RECOMPUTE DE DUCTION U/S 80 HHC AS PER OUR DIRECTION IN PARA NO. 37, HENCE, THI S GROUND IS ALSO REMITTED TO THE ASSESSING OFFICER WITH IDENTICAL DI RECTIONS. 40. AS REGARDS THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 554/H/07 FOR AY 2003-04 REGARDING FOREIGN EXCHANGE FLUCTUATION, THE SAME IS DECIDED BY US IN ITA NO. 553/H/07 FOR AY 20 01-02 AND ITA NO. 554/H/07 FOR AY 2003-04 (SUPRA) VIDE PARA 10.1. FOLLOWING THE CONCLUSIONS DRAWN THEREIN THIS GROUND OF APPEAL IS ALLOWED. 41. AS REGARDS THE GROUND RAISED IN ITA NO. 1145/H/ 08 FOR AY 2004- 05 AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING D EDUCTION U/S 80HHC AT RS. 39,66,231/- AS AGAINST RS. 47,58,556/- AS CL AIMED BY THE ASSESSEE, SINCE WE HAVE DIRECTED THE ASSESSING OFFI CER TO RECOMPUTE THE DEDUCTION U/S 80HHC IN EARLIER GROUNDS, THIS G ROUND IS ALSO REMITTED TO THE FILE OF ASSESSING OFFICER TO RECOMP UTE THE DEDUCTION U/S 80HHC. THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSES. 42. IN ITA NO. 554/H/07 FOR AY 2003-04, THE ASSESSE E RAISED A GROUND THAT THE CIT(A) ERRED IN DEDUCTING THE PROFI TS OF THE BUSINESS SUBJECTED TO DEDUCTION U/S 80IB WHILE COMPUTING THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 80HHC IS TOTALL Y CONTRARY TO THE PROVISIONS OF THE ACT. 43. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY FOLLOWING JUDGMENTS: 1. ASSOCIATED CAPSULES PVT. LTD. VS. DCIT, 332 ITR 423 (BOM.) 2. CIT VS. MILIPORE INDIA PVT. LTD., 219 ITR 219 ( KARN.) 3. CIT VS. RADICO KHAITAN LTD., 360 ITR 462 (AHM.) 4. CIT VS. HINDUSTAN UDYOG LTD., 360 ITR 437 44. BEING SO, DEDUCTION U/S 80IB CANNOT BE DEDUCTED FROM THE PROFIT OF BUSINESS ELIGIBLE FOR DEDUCTION U/S 80HHC. ACCOR DINGLY, WE DIRECT 26 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. THE ASSESSING OFFICER TO RECOMPUTE THE SAME IN THE LIGHT OF THE ABOVE JUDGMENTS. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 45. THE GROUND REGARDING LEVY OF INTEREST U/S 234B AND 234 OF THE ACT RAISED IN ALL THE APPEALS UNDER CONSIDERATION, IS CONSEQUENTIAL IN NATURE, THEREFORE, THE ASSESSING OFFICER IS DIRECTE D TO RECOMPUTE THE INTEREST UNDER THE SAID SECTIONS WHILE PASSING CONS EQUENTIAL ORDER TO THIS ORDER OF ITAT. 46. IN THE RESULT, ITA NOS. 553, 355 & 554/HYD/07 AND ITA NO. 1145/HYD/08 ARE PARTLY ALLOWED FOR STATISTICAL PURP OSES. REVENUE APPEALS IN ITA NO. 547/H/07 FOR AY 2001-02, 396/H/07 FOR AY 2002-03, 548/H/07 FOR AY 2003-04, 1107/H/08 FOR AY 2004-05, 1747/H/08 FOR AY 2005-06 AND 619/H/10 FOR AY 2006-0 7. 47. GROUND NO. 1 IN ITA NO. 547/H/07 FOR AY 2001-02 AND IN ITA NO. 548/H/07 FOR AY 2003-04 IS DIRECTED AGAINST THE CIT(A) THAT THE CIT(A) ERRED IN EXCLUDING THE SALES TAX AND CENTRAL EXCISE DUTY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION O F DEDUCTION U/S 80HHC IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF CHOWRANGHEE SALES BUREAU VS. CIT, 87 ITR 542. 48. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS NO-LONGER RES-INTEGRA. THE HON'BLE SUPREME COURT IN THE CASES OF CIT VS. LAKSHMI MACHINE WORKS , [2007] 290 ITR 667 AND CIT VS. CATAPHARMA (INDIA) P. LTD., [2007] 292 ITR 641 (SC) HELD THAT THE SALES TAX AND EXCISE DUTY ARE TO BE E XCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTI ON U/S 80 HHC OF THE ACT. THE GRIEVANCE IS, THEREFORE, UNSUSTAINABLE IN LAW AND WE REJECT THE SAME. 49. THE REVENUE HAS RAISED THE FOLLOWING COMMON GRO UND IN ITA NO. 396/H/07 FOR AY 2002-03, IN 1107/H/08 FOR AY 20 04-05, IN ITA NO. 1747/H/08 FOR AY 2005-06 AND IN ITA NO. 619/H/1 0 FOR AY 2006- 07: 27 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE D ISALLOWANCE OF INTEREST ON THE GROUND THAT FUNDS WERE NOT UTILI ZED FOR THE PURPOSE OF BUSINESS AND BORROWED FUNDS ONLY SUPPLEM ENTED CASH THAT IS DIVERTED FOR NON-BUSINESS PURPOSE AS H ELD BY KERALA HIGH COURT IN THE CASE OF CIT VS. BABY & CO. , 254 ITR 248. 50. WE REFER TO THE FACTS FROM AY 2002-03 BEING ITA NO. 396/HYD/07. IN THE ASSESSMENT ORDER THE ASSESSING O FFICER MENTIONED THAT THE ASSESSEE HAD ADVANCED AN AMOUNT OF RS. 59, 60,000/- TO M/S NEXTAGE BROAD BRAND LTD., CHENNAI AS SHARE ADVANCE AND RS. 1.40 CRORES TO M/S DIRECT FINANCE & INVESTMENTS LTD. AS DEPOSIT AND NO INTEREST ON SUCH ADVANCES WERE CHARGED. HE FURTHER, MENTIONED THAT THE ASSESSEE HAD INCURRED HUGE INTEREST LIABILITY O F RS. 4.20 CRORES AND DEBITED TO THE P&L A/C DURING THE YEAR. THE ASS ESSEE OWED AN AMOUNT OF RS. 14.17 CRORES TO SBI AS WORKING CAPITA L LOAN AT THE END OF THE ACCOUNTING YEAR ON 31/03/2002. HE FURTHER OB SERVED THAT THE ASSESSEE HAD ADVANCED MONEY NOT FOR BUSINESS PURPOS E AND THEREFORE, THE INTEREST ATTRIBUTABLE @ 12% ON PRO-R ATA BASIS IS NOT ALLOWABLE. FOLLOW FEW CASE LAWS, THE ASSESSING OFFI CER DISALLOWED INTEREST OF RS. 23,95,200/- AND ADDED BACK TO THE T OTAL INCOME OF THE ASSESSEE. 51. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE ADVANCED RS. 2.00 CRORES AS CORPORATE DEPO SIT ON 28/02/1995, OUT OF WHICH THE CREDITOR PAID RS. 60 L AKHS AND BALANCE OF RS. 1.40 CRORE IS SHOWN OUTSTANDING IN THE BALANCE SHEET AS ON 31/03/2002. IT WAS FURTHER SUBMITTED THAT THE DEPOS IT WITH M/S DIRECT FINANCE & INVESTMENTS LTD., WAS OUT OF SHARE APPLIC ATION RECEIVED BY THE ASSESSEE COMPANY. HE ALSO FILED EXTRACT OF ACCO UNT COPY OF SHARE APPLICATION MONEY AVAILABLE WITH THE ASSESSEE ON 13 /02/1995 TO THE EXTENT OF RS. 5.40 CRORES. IT WAS THEREFORE SUBMITT ED THAT THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ASSES SEE DID NOT CHARGE INTEREST EVEN THOUGH IT HAD UTILIZED BORROWED FUNDS FOR GIVING ADVANCE IS NOT CORRECT AND CONTRARY TO THE FACTS ON RECORD. HE, THEREFORE, 28 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. SUBMITTED THAT IT HAD UTILIZED SHARE CAPITAL RECEIV ED TOWARDS THE AMOUNT DEPOSIT AS CORPORATE DEPOSIT. THE AVAILABILI TY OF OWN FUNDS AT THE TIME OF ADVANCING OF CORPORATE DEPOSIT IN HANDS OF THE ASSESSEE IS THEREFORE VERY MUCH EVIDENT. RELYING ON THE DECISIO N OF THE ITAT HYDERABAD IN THE CASE OF ASHOK BROTHERS VS. ITO, 76 TTJ 427, SUBMITTED THAT THE ASSESSING OFFICER WAS NOT RIGHT IN DISALLOWING INTEREST IN RESPECT OF INTERCORPORATE DEPOSIT OF RS . 1.40 CRORE AND REQUESTED FOR DELETION OF THE SAME. 52. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON THE DECISIONS OF THE ITAT DIRECTED T O DELETE THE DELETE THE DISALLOWANCE OF INTEREST OF RS. 16,95,000/- BY HOLDING AS UNDER: 16.04 I HAVE GONE THROUGH THE FACTS OF CASE AND IN VIEW OF THE FACTS IN THAT CORPORATE DEPOSIT WAS GIVEN OUT O F SHARE APPLICATION MONEY AVAILABLE, IT CANNOT BE SAID THAT THE APPELLANT HAD GIVEN DEPOSIT OUT OF THE BORROWED FUND. IT IS A LSO A FACT THAT THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY EVIDENCES TO PROVE THAT THE CORPORATE DEPOSIT OF RS. 140 CRO RES WAS GIVEN OUT OF BORROWED FUND. AS STATED ABOVE, THE APPELLAN T HAD CLEARLY PROVED BY PRODUCING DOCUMENTARY EVIDENCE AND COPY O F LEDGER ACCOUNT OF SHARE APPLICATION ACCOUNT AND COPY OF BA NK STATEMENT OF GLOBAL TRUST BANK LTD. THAT IT HAD ADV ANCED CORPORATE DEPOSIT OUT OF NON INTEREST BEARING FUND, I THEREFORE, HELD THAT THE ASSESSING OFFICER WAS NOT RIGHT IN DI SALLOWING INTEREST IN THE ASSESSMENT ORDER FOR INTER CORPORAT E DEPOSITS AT RS. 1.40 LAKHS. THUS, THE ASSESSEE GETS RELIEF OF RS. 16,95,000/- (RS. 2395200-700200). THE ASSESSING OFF ICER IS DIRECTED TO DELETE DISALLOWANCE OF INTEREST OF RS. 16,95,000/-. 53. BEFORE US, THE LEARNED AR SUBMITTED THAT THERE IS DIRECT NEXUS BETWEEN THE INTER CORPORATE DEPOSIT (ICD) MADE WITH DIRECT FINANCE LTD. AND IT IS HAVING DIRECT NEXUS WITH THE EQUITY FUNDS RAISED BY THE ASSESSEE AND THE SAME WAS ESTABLISHED BEFORE THE LO WER AUTHORITIES. HE DREW OUR ATTENTION TO PAGES 135 TO 137 OF THE PA PER BOOK TO SUBMIT THAT THE ASSESSEE IS HAVING HUGE RESOURCES AND THE COMPANY HAS EARNED NET PROFIT FROM THE WHICH THE ASSESSEE H AS MADE THE INVESTMENTS. 29 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 54. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF INTEREST IS NO T WARRANTED WHEN THE ASSESSEE IS HAVING ENOUGH FUNDS IN THE FORM OF RESERVE FUNDS AND NET PROFIT. THE CIT(A) HAS TAKEN CORRECT VIEW IN D ECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THEREFORE, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THIS COUNT AND DISMISS THE GROUND RAISED BY THE REVENUE IN THIS REGARD. 55. THE REVENUE HAS RAISED THE FOLLOWING GROUND IN ITA NO. 1107 AND 1747/H/2008 FOR AY 2004-05 AND 2005-06 RESPECTI VELY: THE CIT(A) ERRED IN NOT APPRECIATING THE LEGISLATIV E INTENTION IN INSERTING THE PROVISIONS OF SECTION 145A. THE LEARN ED CIT(A) SHOULD HAVE SUSTAINED THE ADDITION ON ACCOUNT OF EX CISE DUTY ON CLOSING STOCK AS THE PROVISION CREATED TOWARDS EXCI SE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS IN ONLY A CONTINGENT LIABILITY AND NOT AN ASCERTAINED LIABILITY AS ON 31 ST MARCH OF THE ACCOUNTING YEAR. 56. WE REFER THE FACTS FROM 1747/H/08 FOR AY 2006-0 7. THE ASSESSING OFFICER OBSERVED THAT THE APPELLANT HAD P ROVIDED EXCISE DUTY PAYABLE ON THE CLOSING STOCK OF FINISHED GOODS AND CLAIMED DEBIT FOR THE SAME. THE AUTHORISED REPRESENTATIVE O F THE APPELLANT CONTENDED BEFORE HIM THAT THE VALUE OF CLOSING STOC K OF FINISHED GOODS AS ON 31.03.2005 WAS RS. 68,50,0000/- AND ON THAT RS. 10,88,800/- HAD BEEN PROVIDED TOWARDS EXCISE DUTY P AYABLE AS THE LEVY OF EXCISE DUTY IS ON MANUFACTURING, THOUGH THE AMOUNT WAS PAID AT THE TIME OF CLEARANCE OF MANUFACTURED GOODS . HE CONTENDED THAT SUCH TREATMENT HAS BEEN GIVEN IN VIE W OF THE ACCOUNTING STANDARD-2 REGARDING ACCOUNTING TREATMEN T OF EXCISE DUTY. HE FURTHER CLAIMED THAT THE STOCK OF SUCH FIN ISHED GOODS WAS CLEARED IN THE MONTH OF APRIL, I.E. WELL BEFORE THE CUT OFF DATE FOR FILING OF RETURN OF INCOME FOR THE RELEVANT ASSESSM ENT YEAR AND THE AMOUNT WAS CLAIMED AS EXPENDITURE IN THE COMPUTATIO N OF INCOME U/S. 436. 30 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 56.1 THE ASSESSING OFFICER HOWEVER, REFERRING TO T HE INTRODUCTION OF SEE. 145A WITH EFFECT FROM 01.04.1999, AS ALSO T HE ASSESSMENT ORDER IN THE APPELLANT'S CASE FOR ASST. YEAR 2004-0 5, FELT THAT THOUGH THE EXCISE DUTY HAS TO BE INCLUDED IN THE VA LUATION OF CLOSING STOCK OF FINISHED GOODS AT THE YEAR END, TH E EXCISE DUTY BECOMES PAYABLE ONLY ON CLEARANCE OF GOODS FROM FAC TORY AND, THEREFORE, IT CANNOT BE DEBITED TO THE PROFIT & LOSS A/E. AS IT HAS NOT BEEN ASCERTAINED AS ON 31.03.2005, PENDING CLEA RANCE OF FINISHED GOODS FROM THE FACTORY. HE WAS OF THE OPIN ION THAT ALLOWING SUCH DEDUCTION U/S. 43B WOULD NULLIFY THE EFFECT OF INCREASE IN VALUATION OF CLOSING STOCK ON ACCOUNT O F EXCISE DUTY. HE OBSERVED THAT THE ACTUAL LIABILITY MAY GET MODIF IED BY THE TIME OF ACTUAL CLEARANCE OF GOODS DUE TO VARIOUS FACTORS , SUCH AS DAMAGES OR DESTRUCTION, WHICH WOULD CHANGE THE QUAN TUM OF LIABILITY. CONSIDERING THE SAME AS CONTINGENT LIABI LITY AND NOT AN ASCERTAINED ONE AT THE YEAR END, HE HELD IT AS DISA LLOWABLE. HE FURTHER FELT THAT THE SAME COULD NOT BE ALLOWED U/S . 436 ALSO. THE ASSESSING OFFICER FURTHER DID NOT ACCEPT THE CLAIM OF DEDUCTION MADE BY THE APPELLANT REGARDING THE ALLOWANCE OF EX CISE DUTY OF RS. 19,84,695/- ON THE CLOSING STOCK ON CLOSING STO CK DISALLOWED IN THE ASSESSMENT FOR THE ASST. YEAR 2004-05 AS THE AP PELLANT'S APPEAL WAS PENDING AT THE RELEVANT TIME. 57. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMI TTED THAT THE COST OF MANUFACTURING IS THE MINIMUM PRICE WHEN THE RE ARE PROFITS AS THE FINISHED GOODS ARE BEING VALUED AT COST OR M ARKET PRICE WHICHEVER IS LOWER. HE, THEREFORE, CLAIMED THAT EVE N IF THE GOODS ARE DESTROYED OR DAMAGED, THEIR LIABILITY FOR PAYME NT OF EXCISE DUTY WILL NOT CHANGE AS OPINED BY THE ASSESSING OFF ICER. THE AR AVERRED THAT THE STATUTORY ADJUSTMENT U/S 145A IS N OT RESTRICTED TO FINISHED GOODS ALONE BUT THOSE ALSO EXTEND TO THE T OTAL INVENTORY. 31 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. 58. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) DIRECTED THE ASSESSING OFFICER IS DIRECTED T O ALLOW DEDUCTION IN RESPECT OF EXCISE DUTY PAYMENTS U/S 43 B, IF PAID WITHIN THE DUE DATE OF FILING OF RETURN AFTER VERIF ICATION OF SUCH PAYMENTS BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELL ANT. IT IS SEEN THAT AN IDENTICAL ISSUE HAD BEEN DECIDED IN TH E APPELLANT'S APPEAL FOR ASST. YEAR 2004-05. IN THE S AID ORDER A REFERENCE TO THE DECISION OF MY PREDECESSOR ON THIS ISSUE IN THE CASE OF M/S. SRI KRISHNA PHARMACEUTICALS LTD. W AS ALSO MADE, WHICH IS IN FAVOUR OF THE APPELLANT. ON GOING THROUGH THE ABOVE, AS ALSO THE DECISION OF HON'BLE MADRAS H IGH COURT IN THE CASE OF ENGLISH ELECTRIC CO. INDIA LTD . (2000) (243ITR 512), I FEEL THAT SEC. 145A CANNOT BE APPLI ED IN SUCH A MANNER AS WOULD GIVE OUT ANOMALOUS RESULTS. IF THE EXCISE DUTY PAYABLE ON THE CLOSING STOCK OF FINISHE D GOODS, WHICH HAS NOT BEEN CLEARED/REMOVED, IS ADDED TO THE VALUE THEREOF AND PAYMENT IN RESPECT OF SUCH ENHANCED VAL UE OF CLOSING STOCK IS NOT ALLOWED AS PER SEC. 43B, SUCH UNILATERAL TREATMENT WOULD THROW OUT UNREALISTIC PICTURE OF TH E PROFITS DURING THE YEAR. HON'BLE JURISDICTIONAL ITAT IN A R ECENT DECISION IN THE CASE OF M/S SRI KRISHNA DRUGS LTD I N ITA NOS 40/HYD/07 DT 30.4.2008 HAVE UPHELD THIS VIEW. FOLLO WING THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT REFERRED TO ABOVE, THEY UPHELD THE ORDER OF CIT(APPEALS) DELETI NG THE ADDITION ON ACCOUNT OF EXCISE DUTY IN CLOSING STOCK . A SIMILAR VIEW WAS EXPRESSED BY HON'BLE ALLAHABAD BENCH OF IT AT IN THE CASE OF SHYAM BEEDI WORKS LTD. VS. ACIT ( 108 I TD 489). RESPECTFULLY FOLLOWING THE ABOVE VIEW AND THE ORDER OF THE JURISDICTIONAL ITAT, THE ASSESSING OFFICER IS D IRECTED TO ALLOW DEDUCTION IN RESPECT OF EXCISE DUTY PAYMENTS U/S 43B, IF PAID WITHIN THE DUE DATE OF FILING OF RETURN AFT ER VERIFICATION OF SUCH PAYMENTS. 59. BEFORE US, THE LEARNED AR RELIED ON THE FOLLOWI NG DECISIONS OF THE HONBLE SUPREME COURT IN SUPPORT OF ASSESSEES CASE: 1. CIT VS. DIANA VISION LTD., 348 ITR 380 2. ACIT VS. TORRENT CABLES LTD., 354 ITR 163. 60. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. TORRE NT CABLES LTD. (SUPRA) OBSERVED THAT THE ASSESSEE FOLLOWED THE NET METHOD FOR 32 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. VALUING THE CLOSING STOCK AND INCLUDED EXCISE DUTY AT THE TIME OF REMOVAL OF GOODS. THE APEX COURT UPHELD THE FINDIN GS OF THE TRIBUNAL HOLDING THAT THE TRIBUNAL WAS RIGHT TO EXCLUDE THE EXCISE DUTY AT THE TIME OF VALUING CLOSING STOCK AT THE END OF THE ACC OUNTING PERIOD. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A ) IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION IN RESPECT OF EXCISE DUTY PAYMENTS U/S 43B, IF PAID WITHIN THE DUE DATE OF FI LING OF RETURN AFTER VERIFICATION OF SUCH PAYMENTS, AND DISMISS THE GROU ND OF APPEAL OF REVENUE. 61. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. 62. TO SUM UP, APPEALS OF THE ASSESSEE IN ITA NOS. 553, 355 & 554/HYD/2007 AND 1145/HYD/2008 FOR AYS 2001-02 TO 2 004-05 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEALS OF THE REVENUE IN IN ITA NOS. 547, 396 & 548/HYD/2007, ITA NO. 1107 & 1747/HYD/2008 AND ITA NO. 610/HYD/2010 FOR AYS 2001-02 TO 2006-07 RESPECTIVELY ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26/02/2014. SD/- SD/- (SAKTIJIT DEY) (CHANDRA POOJARI) JUDICIAL MEMBER ACCO UNTANT MEMBER HYDERABAD, DATED: 26/02/2014 KV COPY TO:- 1) M/S SMS PHARMACEUTICALS LTD., 417, NILGIRI ADIT YA ENCLAVE, AMEERPET, DERABAD. 2) DCIT, CIRCLE 3(2), ROOM NO. 723, 7 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD 500 004. 3) CIT(A)-IV, HYDERABAD 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T. A.T., HYDERABAD. 33 ITA NOS. 553, 355, 554/H/07 & 1145/H/08 AND 547, 396 & 548/H/07 & 1107 & 1747/H/08 AND 619/H/1 0 M/S SMS PHARMACEUTICALS LTD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER