M/S. BAJAJ AUTO LTD.,MUMBAI V. THE DCIT RG 3(1), MUMBAI

CO 319/MUM/2005

AI Insights

Bajaj Auto Limited filed a Cross Objection against the order of the Commissioner of Income Tax (Appeals)-XXVII, Mumbai, concerning the Assessment Year 1999-2000. The Cross Objection addressed several grounds, primarily focusing on the computation of deductions under sections 80HHC and 80-IA of the Income Tax Act, 1961. The Tribunal examined issues such as the inclusion of certain expenditures in 'indirect costs' and the computation of eligible profits for deductions under section 80HHC. The Tribunal's decision involved directing the Assessing Officer to adjust the computation of 'indirect costs' and restoring the matter of depreciation on technical know-how fees for further examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473763 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 1999-2000
• Other Referred Cases: Associated Capsules (P.) Ltd. vs. DCIT, NTPC vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NISCHAL B
• Assessee Lawyers: VASANTI PATEL
• Keywords: Capital asset; Revenue expenditure; Depreciation
• Section: 143(3); 250; 32; 80HHC; 80IA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER CO No.319/Mum/2005 Arising out of ITA No.1933/MUM/2005 Assessment Year 1999-2000 Bajaj Auto Limited, Bajaj Bhavan, 226, Nariman Point, Mumbai – 400021 PAN: AAACB3370K ……………. Cross Objector (Original Respondent) v/s Deputy Commissioner of Income Tax, Range-3(1), Mumbai - 400020 ……………. Respondent (Original Appellant) Assessee by : Ms. Vasanti Patel Revenue by : Shri Nischal B, CIT-DR Date of Hearing – 27/11/2024 Date of Order – 29/01/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present Cross Objection has been filed by the assessee against the impugned order dated 28.12.2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-XXVII, Mumbai [“learned CIT(A)”], for the Assessment Year 1999- 2000. CO No.319/MUM/2025 (A.Y. 1999-2000) 2 2. The corresponding appeal filed by the assessee, being ITA No.1933/Mum/2005, was disposed of by the Co-ordinate Bench of the Tribunal vide its order dated 28.11.2023. However, as per the parties, the present Cross Objection was not listed, and therefore, remained to be adjudicated, which is now taken up for hearing. 3. In this Cross Objection, the assessee has raised the following grounds:- “1. On the facts and in the circumstances of the case and in law, the respondent submits that the premium paid to Maharashtra Industrial Development Corporation amounting to Rs. 32,89,05,800/- ought to be allowed as revenue expenditure in its entirety in the year of payment or without prejudice to the said claim, alternatively, on a pro-rata basis spread over the period of lease. 2. On the facts and in the circumstances of the case and in law, the respondent submits that while computing 'indirect costs' attributable to the export of trading goods for the purpose of deduction under section 80HHC, the Assessing Officer ought to be directed to exclude expenses attributable to other income and export incentives estimated at 10% thereof. 3. On the facts and in the circumstances of the case and in law, the respondent submits that while computing 'indirect costs' attributable to the export of trading goods for the purpose of deduction under section 80HHC, items that had not been allowed as a deduction in the assessment order forming part of 'other expenses' ought not to have been included as part of the indirect costs. 4. On the facts and in the circumstances of the case and in law, the respondent submits that the Assessing Officer erred in reducing the proportionate profits eligible for deduction under section 80HHC, for the purpose of computing the deduction eligible under section 80HHC. 5. On the facts and in the circumstances of the case and in law, the respondent submits that eligible profits for the purpose of deduction under section 80-IA have to be computed after excluding the following incomes: Particulars Plant III (Rs.) Duty Draw Back / Export incentives Interest 2,45,27,289 9,63,450 6. On the facts and in the circumstances of the case and in law, the respondent submits that if at all the aforesaid items are to be excluded then only the net interest and the net cost of raw materials, net of duty drawback CO No.319/MUM/2025 (A.Y. 1999-2000) 3 received ought to be taken into account while computing the profits of the eligible undertakings. 7. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not appreciating the fact that \"profits and gains derived from the business of an industrial undertaking” is eligible for deduction under section 80-IA and not only \"profits and gains derived from an industrial undertaking\" which is the wording in section 80-I. 8. On the facts and in the circumstances of the case and in law, the respondent submits that the Assessing Officer erred in not granting deduction in respect of depreciation amounting to Rs.7,26,408/- on technical know-how fees treated as intangible asset, eligible for depreciation at the rate of 25% under the provisions of section 32(1)(ii) of the Act.” 4. Grounds No.1 and 2 raised in the present Cross Objection were not pressed during the hearing. Accordingly, the same are dismissed as not pressed. 5. Ground No.3 raised in the present Cross Objection pertains to the computation of deduction under section 80HHC of the Act. 6. The brief facts of the case pertaining to the issue as emanating from the record are: The assessee is a public limited company engaged in manufacturing and selling two-wheelers and three-wheelers under the brand name of “Bajaj”. For the year under consideration, the assessee filed its return of income on 29.12.1999, declaring total income at Rs.5,92,90,19,690/-. Vide assessment order passed under section 143(3) of the Act, the Assessing Officer (“AO”) while computing the ‘indirect cost’ attributable to the export of trading goods for the purpose of deduction under section 80HHC of the Act included interest expense net of interest disallowed, depreciation under section 32 of the Act and other expenses as reported in Schedule-12 of the Financial Statements (excluding specific items such as stores, spares and tools CO No.319/MUM/2025 (A.Y. 1999-2000) 4 consumed, power etc., repairs to machinery, freight and octroi duty). Accordingly, the AO computed an indirect cost of Rs.640,10,47,041/- while computing the deduction under section 80HHC of the Act. 7. In its appeal before the learned CIT(A), the assessee submitted that various expenditures included by the AO in the ‘indirect cost’ were incurred for the purpose of manufacturing, and therefore, have no connection with the trading activity carried on by the assessee and thus no portion thereof can be reduced while computing profit from traded goods. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on the basis that the assessee brought no evidence on record to prove how the items included in ‘indirect cost’ pertain to manufacturing activity and these items are not attributable to export out of the India and trading goods. Being aggrieved, the assessee is before us. 8. Having considered the submissions of both sides and perused the material available on record, we find that Schedule-12 of the Financial Statements deals with other expenses and includes expenses such as stores, spares and tools consumed, power, fuel and water, octroi duty, freight, directors’ travelling expenses, etc. We further find that while computing its income the assessee already disallowed some of these expenses. However, while computing the ‘indirect cost’ for the purposes of computation of deduction under section 80HHC of the Act, the AO included some of the items of expenditure which were already disallowed by the assessee. As per the assessee, if the items of expenditure, which form part of Schedule-12 of the Financial Statements, are considered for the purpose of computation of CO No.319/MUM/2025 (A.Y. 1999-2000) 5 ‘indirect cost’ then the same would mean that though the said expenditure is not allowable as deduction while computing the total income of the assessee, however, the same can be considered as ‘indirect cost’ while computing the profits for the purpose of deduction under section 80HHC of the Act. Accordingly, we deem it appropriate to direct the AO to exclude the items of expenditure, which are already disallowed by the assessee while computing its total income, for the purpose of computation of ‘indirect cost’ attributable to the export of trading goods for computation of deduction under section 80HHC of the Act. With the above direction, Ground No.3 raised in the cross objection is allowed for statistical purposes. 9. The issue arising in Ground No.4 raised in the present Cross Objection pertains to the computation of deduction under Chapter VI-A of the Act. 10. We have considered the submission of both the sides and perused the material available on record. From the perusal of notes to the computation of total income filed by the assessee along with return of income, we find that in note no.18, the assessee made the following disclosure. “Deduction Under Section 80HHC In the Return of Income, the deduction under Section 80HHC has been claimed at Rs. 22,02,62,890/- as per clause 26 the Tax Audit Report. In the said working, the figure of total Turnover has taken at Rs.3526,91,22,910/- which includes a sum of Rs. 564, 93, 40, 324-/ being the amount paid and collected on account of excise duty. It is submitted that the said sum of Rs. 564, 93, 40, 324/- should be excluded from the total turnover for the purposes of computing the deduction under Section 80HHC, since export turnover does not contain any element of duty and only like items are to be taken to arrive at are to be taken to arrive at proportionate profits. CO No.319/MUM/2025 (A.Y. 1999-2000) 6 Further, it may noted that a sum of Rs.16,58,237/- has reduced from the allowable deduction under section 80HHC due to the provisions contained in section 801A (9A). However, it is submitted that no reduction is required to made, since the total profits of the said undertakings as computed section 80IA, far exceeds the total deduction under section 80IA and 80HHC.” 11. Thus, as per the assessee, no reduction is required in terms of provisions of section 80-IA(9A) of the Act while computing the deduction under section 80HHC since the total profits of the eligible undertaking far exceeds the total deduction under section 80-IA and section 80HHC of the Act. During the hearing, in support of the aforesaid position taken by the assessee, while filing its return of income, the learned AR placed reliance upon the decision of the Hon’ble Jurisdictional High Court in Associated Capsules (P .) Ltd. vs. DCIT, reported in (2011) 332 ITR 42 (Bom). From the perusal of the aforesaid decision, we find that the Hon’ble Jurisdictional High Court observed as follows: - “39. In the result, we hold that section 80-1A(9) does not affect the computability of deduction under various provisions under heading \"C” of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under beading 'C' of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading \"C” of Chapter VI-A do not exceed 100 per cent of the profits of the business of the assessee. Our above view is also supported by the C.B.D.T. Circular No. 772 dated 23-12-1998, wherein it is stated that section 801A(9) has been Introduced with a view to prevent the tax-payers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading 'C’ of Chapter, it is reasonable to hold that section 80-IA(9) affects allowability of deduction and not computation of deduction. To illustrate, if Rs. 100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80, then, la view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70, so that the aggregate deduction does not exceed the profits of the business.” CO No.319/MUM/2025 (A.Y. 1999-2000) 7 12. Thus, in the aforesaid decision, it was held that section 80IA(9) does not affect the computation of deduction under various provisions of heading \"C” of Chapter VI-A, but it only affects the allowability of deduction computed under various provisions of the aforesaid Chapter so that the aggregate deduction under section 80-IA and other provisions of heading \"C” of Chapter VIA does not exceed the profit of the business of the assessee. Accordingly, respectfully following the decision of the Hon’ble Jurisdictional High Court, as cited (supra), we direct the AO to compute the deduction allowable under Chapter VI-A of the Act in conformity with the decision of the Hon’ble Jurisdictional High Court. As a result, Ground No.4 in the present Cross Objection is allowed for statistical purposes. 13. Grounds No.5 to 7 raised in the present Cross Objection were not pressed during the hearing. Accordingly, the same are dismissed as not pressed. 14. The issue arising Ground No.8 raised in the present Cross Objection pertains to depreciation on technical know-how claimed under section 32(1)(ii) of the Act. 15. Having considered the submissions of both sides and perused the material available on record, we find that no claim in this regard was made before the AO as well as before the learned CIT(A). During the hearing, the learned AR submitted that this ground may be considered as an additional ground and admitted for consideration as all the material for deciding the same is available on record. Since the issue raised by way of Ground No.8 is CO No.319/MUM/2025 (A.Y. 1999-2000) 8 a legal issue, which can be decided on the basis of material available on record, therefore, the same is admitted in view of the ratio laid down by the Hon’ble Supreme Court in NTPC vs. CIT, reported in (1998) 229 ITR 383 (SC). 16. During the year under consideration, the assessee incurred an amount of Rs.29,05,630/- on technical know-how fees which was capitalized in the financial statement of the assessee at 1/6th of the said amount, being amortization of the intangible capital asset was debited to the profit and loss account and was added while computing the total income of the assessee. We find that in Note No.8 to the computation of total income filed along with the return of income, the assessee submitted that as far as Rs. 29,05,630/- is concerned it is eligible for depreciation at 25%. The assessee further mentioned that no depreciation was included and reported in clause 14 of the Tax Audit Report, in respect of same and that the depreciation of Rs.7,26,408/- (being 25%) of Rs.29,05,630/- be allowed on assessment. It cannot be disputed that know-how is considered an intangible asset under the Act for the purpose of depreciation under section 32(1)(ii) of the Act. However, at the same time, it is evident from the record that the claim of depreciation of Rs.7,26,408/- being 25% of the technical know-how fees of Rs.29,05,630/- was not examined by any of the lower authorities. Therefore, in view of the facts and circumstances as noted above, we deem it appropriate to restore this issue to the file of the Jurisdictional AO for grant of depreciation, as per law, after due verification of the details filed by the assessee in support of its claim of depreciation on payment of technical know-how fees. With the above CO No.319/MUM/2025 (A.Y. 1999-2000) 9 directions, Ground No.8, which is an additional ground, is allowed for statistical purposes. 17. In the result, the present Cross Objection by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 29/01/2025 Sd/- OM PRAKASH KANT ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 29/01/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "