THE COMMISSIONER OF INCOME TAX V. M/S WIPRO GE MEDICAL SYSTEMS LTD

ITA/912/2008

AI Insights

The case involves two Income Tax Appeals (ITA 912/2008 and ITA 890/2008) filed by the Commissioner of Income Tax against M/s. Wipro GE Medical Systems Ltd. The appeals were heard by the High Court of Karnataka, which addressed several substantial questions of law concerning the allocation of expenses, the write-off of obsolete stock, and the deduction under Sec. 80HHE of the Income Tax Act, 1961. The court examined the methods of expense allocation used by the assessee, the validity of writing off obsolete stock due to technological changes and lack of demand, and the conditions under which deductions for exports of computer software were claimed.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 728520 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 07-06-2016
• Assessment Year: misc
• Other Referred Cases: Indo Nippan Limited vs. CIT, Rotork Controls India (P) Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: S R ANURADHA
• Assessee Lawyers: K V ARAVIND
• Keywords: Assessment Year; Contingent Liability; Income tax appeal; Obsolete stock; Franchise Sales
• Section: 80HHE; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7TH DAY OF JUNE, 2016 PRESENT THE HON’BLE MR.JUSTICE JAYANT PATEL AND THE HON’BLE MR.JUSTICE B.SREENIVASE GOWDA ITA NO.912/2008 C/W ITA NO.890/2008 IN ITA NO.912/2008 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R.BUILDING, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), C.R. BUILDING, QUEENS ROAD, BANGALORE. ... APPELLANTS (By SRI. K. V. ARAVIND, ADV.) 2 AND: M/S. WIPRO GE MEDICAL SYSTEMS LTD., PLOT NO.4, KADUGODI PLANTATION INDUSTRIAL AREA, SADARAMANGALA, BANGALORE – 560 067. ... RESPONDENT (By SMT. S. R. ANURADHA, ADV.) THIS ITA IS FILED U/S.260-A OF THE I.T.ACT, 1961 ARISING OUT OF ORDER DATED 16-5-2008 PASSED IN ITA.NO.812/BANG/2007, FOR THE ASSESSMENT YEAR 2004-05, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.812/BANG/2007,DATED 16-5-2008 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1(3), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. IN ITA NO.890/2008 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, C.R. BUILDING, QUEENS ROAD, BANGALORE. 3 2. THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), C.R. BUILDING, QUEENS ROAD, BANGALORE. ... APPELLANTS (By SRI. K. V. ARAVIND, ADV.) AND: M/S. WIPRO GE MEDICAL SYSTEM LTD., PLOT NO.4, KADUGODI PLANTATION INDUSTRIAL AREA, SADARAMANGALA, BANGALORE – 560 067. ... RESPONDENT (By SMT. S. R. ANURADHA, ADV.) THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 16-05-2008 PASSED IN ITA NO.811/BNG/2007, FOR THE ASSESSMENT YEAR 2003-2004, PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.811/BNG/2007, DATED 16-05-2008, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(3), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. 4 THESE APPEALS COMING ON FOR HEARING THIS DAY, JAYANT PATEL J., DELIVERED THE FOLLOWING: J U D G M E N T I.T.A. 912/2008 : The present appeal preferred by the Revenue, has been admitted on the following substantial questions of law, vide order dated 30th March, 2010 : a) Whether the Appellate Authorities were correct in holding that allocation of expenditure as worked out by the assessee on account of consumables, salary, etc., on the basis of sales based on percentage should be accepted without taking into account the fact that 31.2% of sales were made through franchisers which did not require the sale percentage of expenditure as worked out by the Assessing Officer ? b) Whether the Appellate Authorities were correct in holding the obsolete stock of Rs.1,18,69,458/- is an allowable deduction due 5 to change in technology, wear and tear, lack of demand, etc., when the assessee has not produced any evidence to substantiate such claim and therefore the order is perverse as it is not supported by material ? 2. We have heard Mr. K.V.Aravind, the learned Counsel appearing for the appellants and Ms. S.R.Anuradha, the learned Counsel appearing for the respondent – assessee. 3. The learned Counsel appearing for both sides, fairly conceded that so far as question (a) is concerned, it is already covered by a decision of this Court dated 19-01-2016 passed in ITA 902/2008 and they pray that, similar view may be taken by this Court, so far as that question is concerned. 4. We may record, that in ITA 902/2008 there were various questions, but so far as the relatable 6 question is concerned, the same was question No.6, which was at par with question (a) in the present appeal. This Court in ITA 902/2008, while dealing with question No.6, which is at par with question (a) in the present appeal, observed thus : “17. Learned Counsel appearing for the revenue seeks to remand this issue also to the Assessing Officer as no adequate material was made available before the authorities to come to a conclusion that the allocation of expenditure as worked out by the assessee on account of consumables, salary, etc. are applicable to the sales made through franchises. However, learned counsel appearing for the assessee would contend that Appellate Commissioner deleted the allocation of expenses made by the Assessing Officer based on the order of ITAT in the very same assessee’s case reported in 81 TTJ 455 and the decision of the Apex Court in Indo Nipan 7 Limited’s case (261 ITR 775). It is noticed that over 5.6% of the sales is made through franchises, however, the assessee adopted sales as basis for allocation. The sale made through the franchises stands on a different footing than the sale made directly by the assessee company. In the case of sale made through franchise, no effort is involved by the assessee except getting commission whereas the direct sales made by the assessee requires much more efforts and obviously the expenditure of the nature of consumables, salary and benefits etc., are incurred. It is also significant to observe that the Assessing Officer has not disturbed the method adopted by the assessee for the purpose of allocation of expenses in the trading turnover. What the Assessing Officer has done is removing the value of Franchise sales from the total sales as the Franchise sales are different from direct sales. This methodology adopted by the Assessing Officer is not properly considered by the CIT and ITAT. CIT was of 8 the view that the course adopted by the Assessing Officer in allocating the expenses amounts to prescribing a new method of estimation based on the Proportionate turnover contrary to the method of accounting regularly followed by the assessee and accepted by the department in earlier years. This view is confirmed by the ITAT placing reliance on the Judgment of the Apex Court in Indo Nippan’s case (supra). The Apex Court in Indo Nippan’s case has held that whatever method the Assessing Officer adopts, the method has to be consistent with the accepted principles of accountancy. 18. In the present case, what the Assessing Officer has done is to delete the value of franchise sales from total expenses. No method of accountancy adopted by the assessee is disturbed. The course adopted by the Assessing Officer to delete the franchise sales is based on the reasoning that franchise sales differs from the direct sales. Such being 9 the case, this method adopted by the Assessing Officer is no way contrary to the Judgment of the Apex Court in Indo Nippan’s case (supra). In the circumstances, we are of the view that CIT and ITAT proceeded on a misconception that Assessing Officer has disturbed the consistent method of accountancy followed by the assessee for many years. In view of the aforesaid reasons, we are of the opinion that the finding given by the CIT confirmed by the ITAT on this issue is not sustainable and accordingly, we decide this question in favour of the revenue and against the assessee. The issue is remanded to the A.O. to redo the assessment in the light of the observations made above, after providing an opportunity of hearing to the assessee. All contentions are left open to the parties. “ 10 5. As there is agreement on the part of the learned Counsel appearing for both the sides, we need not discuss the matter further, except that question (a) shall stand covered by the above reported decision of the Division Bench of this Court. Accordingly, the finding given by the CIT and confirmed by the Tribunal, is found to be not sustainable and the question is decided in favour of the Revenue against the assessee. For further consideration of the issue, the matter is remanded to the A.O. to redo the assessment in the light of the observations made, after giving opportunity of hearing to the assessee. All contentions are left open to the parties. 6. The aforesaid would now lead us to examine question (b). We may record that the relevant discussion of the A.O. to the aforesaid question are at 11 para 4.1 in the order of the assessment, which reads as under : “4.1 It is seen that the assessee had written off obsolete stock to the extent of Rs.1,18,69,458/-. The details regarding the items, date of purchase, etc. was called for vide Q.No.3 of this office letter dated 6.7.2006. The assessee vide letter dated 29.11.2006 has furnished the details of the break up of obsolete stock written off. In the letter, the assessee has stated that the stock has been written off as obsolete due to technological changes and lack of market for the products. The assessee’s reply has been examined. The assessee has not furnished the date of purchase of the stock and also how these stocks became obsolete due to technological change. In the absence of date of purchase of these stock, it is not possible to come to a conclusion whether the particular stock has become obsolete due to technological change or lack of market for the 12 produce. In the absence of the relevant details, the claim of the assessee for write off of obsolete stock of Rs.1,18,69,458/- is disallowed.” 7. In the appeal before the CIT (Appeals), the discussion is at para 8 which reads as under : “8. Disallowance of write off of obsolete stock of Rs.1,18,69,458/-. The assessing officer during the course of assessment proceedings of AY: 2004-2005 called for item wise details of the obsolete stock written which was furnished by the appellant a copy which is also submitted during the course of hearing before me along with the written submissions. The AO has disallowed the same on the ground that date of purchase has not been furnished and how the same has become obsolete. It was submitted that the stock was written off as obsolete due to lack of demand for the said stock and technological changes in the products. That the stock written off when 13 compared to the turnover of the appellant was very negligible, its accounts were audited and on the advice of its technical team and auditors, the same has been treated as obsolete and written off in the books. The disallowance has been made for unsustainable reasons and prayed for deletion of the disallowance in the interests of justice. I have looked into the discussion on this issue in the assessment order and the details submitted. After considering the same, I am of the view, there is no case for any disallowance when the details have been furnished, and its accounts have been audited and have been written off on the advice of technical team. Moreover such stock obsolence is a commercial reality in any kind of business due to change in technology, lack of demand, old stock, etc., I accordingly delete the addition made on this issue.” 14 8. The Tribunal in the further appeal at para 19(ii) has concluded thus : “19(ii). We have gone through the orders of authorities below on this issue and after considering the arguments, we do not see any need to disturb the order of the Id. CIT(A) as it is a commercial reality that stocks become obsolete due to change in technology, wear and tear, lack of demand, etc., more so, in today’s fast changing developments in technology and various fields. Further it is not for the AO to decide or determine how the assessee conducts its business. Assessee is the best judge of the market conditions, business requirements, demand for the products, changes in technologies, etc., The write off of stock has been done on the advice of the technical team and audit team shows that experts opinion has been taken before the same is written off. It is also a fact that the obsolete stock written off when compared with the 15 turnover of the company is very negligible and miniscule. Accordingly, we uphold the order of the Id. CIT(A) on this issue and dismiss the grounds.” 9. If the question is examined in the light of the above discussion of the earlier authority, one may say that whether the stock has become obsolete or not, is a question of fact for which the Tribunal is the ultimate fact finding authority. 10. However, Mr. Aravind, the learned Counsel appearing for the appellants, contended that A.O. during the course of enquiry, called for the date of purchase of the stock which was declared as obsolete, but the assessee having failed to submit the document, the A.O. was within his power to disallow the writing off of the obsolete stock. He submitted that neither the CIT (A) nor the Tribunal appreciated the said aspect, and 16 therefore, the discussion made by the A.O. ought to have been maintained. 11. In our view, the judicial scrutiny in the present appeal is limited to the question of law and not the question of fact for which the Tribunal is the ultimate fact finding authority. The contention raised may fall in the arena of re-appreciation of evidence and upsetting the finding of fact as to whether the stock had become obsolete or not. It is true that one of the mode as to whether stock had become obsolete or not may be, the consideration of the date of purchase of the stock, but the same is not the only criteria, and there could be other criteria including that of the advice of the technical team, auditor, etc. The CIT (A) has found that not only the stock which is written off is very negligible in comparison to the total turnover, but the same was audited and upon the advice of the technical team of the 17 auditor, the stock is written off. In our view, sufficiency of evidence cannot be invoked, as sought to be canvassed, that too, for upsetting the finding of fact, for which the Tribunal is the ultimate authority. Under these circumstances, we find that while considering the question (b), it cannot be said that such is a substantial question of law as sought to be canvassed. Hence, need not be answered. 12. At this stage, we may usefully refer to one decision of Delhi High Court, wherein more or less, similar question arose for consideration and at paragraphs 3 and 4, it was observed thus : “3. The Tribunal, while considering the Revenue’s appeal, confirmed the findings of the CIT(A). The Tribunal also came to the conclusion that neither was there any change in the method of valuation in comparison to previous years nor was there any deviation 18 from the method adopted by the assessee by valuing the stock at market price. The Tribunal concluded that the assessee had valued its closing stock at the approximate market value as estimated by a qualified chartered engineer and that the AO could not point out any defect in the valuation report. Consequently, the Tribunal was of the view that the valuation report prepared by a technically qualified person cannot be disregarded keeping in view the facts and circumstances of the case of the assessee and the nature of its business. The assessee was in the business of manufacturing television sets which required electronic components in respect of which technical obsolescence was a well known fact. On the basis of this, the Tribunal rejected the Revenue’s appeal. 4 .Considering the aforesaid, we find that the decision of the Tribunal turns entirely on facts and no substantial question of law arises for our consideration.” 19 13. Under these circumstances, question (a) is already answered earlier and question (b) is not required to be answered. The appeal shall stand disposed of accordingly. ITA 890/2008 : 14. The present appeal preferred by the Revenue has been admitted on the following four questions vide order dated 21-06-2010 : “i) Whether the Appellate Authorities were correct in holding that the provision in respect of a percentage of sale to account for various expenses transferred to a separate account is an allowable expenditure even though the same is a contingent liability which has not accrued? ii) Whether the Appellate Authorities were correct in holding that a 20 provision for reserves for warranty is an allowable expenditure even though it is a contingent liability? iii) Whether the Appellate Authorities were correct in holding that allocation of expenditure as worked out by the assessee on account of consumables, salary etc. on the basis of sales based on percentage should be accepted without taking into account the fact that 31.2% of sales were made through franchisers which did not require the sale percentage of expenditure as worked out by the Assessing Officer? iv) Whether the Appellate Authorities were correct in holding that the computation made by the Assessing Officer u/s. 80HHE of the Act the expenditure incurred in foreign currency and on freight, telecommunication charges and insurance attributable to delivery of 21 computer software out side India is to be excluded from the total turnover and export turnover (if the assessee’s ultimate income is worked out to a profit)?” 15. We have heard Mr. K.V.Aravind, the learned Counsel appearing for the appellants and Ms. S.R.Anuradha, the learned Counsel appearing for the respondent – assessee. 16. Learned Counsel appearing for both the sides, fairly conceded that so far as the above referred question Nos. 1, 2 and 3 are concerned, the same are covered by the decision of this Court in ITA 902/2008, decided by the order dated 19-01-2016. The learned Counsel submitted that question Nos. 1, 2 and 3 in the present appeal may be answered in terms of the same 22 view taken by this Court in the above referred matter ITA 902/2008. 17. We may record that so far as question No.1 in the present appeal is concerned, the same was question No.1 in the above referred ITA 902/2008. Question No. 2 in the above ITA 902/2008, was same as in the present matter vide question No.2. So far as question No.3 in the present matter is concerned, it was at par with question No.6 in the above referred ITA 902/2008. 18. The Division Bench of this Court in the above referred appeal, while considering question No.1 and question No.2, observed thus : “Regarding Question No.1: 4. Sri. K. V. Aravind, learned counsel appearing for the revenue placing reliance on the Judgment of the Apex Court in the case of Rotork 23 Controls India (P)Ltd., vs Commissioner of Income Tax reported in ((2009)314 ITR 62 ) wherein, the assessee herein was also a party would strongly contend that, what is a provision is elaborately considered by the Apex Court and the parameters are set-out by the Apex Court to examine the recognition of provision for the purposes of the Act. The three conditions to be satisfied for the recognition of the provision are: a) an enterprise should have a present obligation as a result of past event. b) it is probable that an outflow of resources will be required to settle the obligation. c) a reliable estimate can be made out of the amount of obligation. He would contend that only if these three tests laid down by the Apex Court are satisfied by the assessee, provision made relating to the percentage of sale to account for various expenses transferred to a separate account, whether is an allowable expenditure or not, would be ascertained 24 though the same is a contingent liability which has not accrued. None of the authorities below have examined this issue in the light of the Judgment pronounced by the Apex Court in Rotork Controls Case (supra). No finding is forth coming from the records that the assessee has satisfied the three conditions laid down by the Apex Court to claim the benefit of a provision. In such circumstances, he requests this Court to remand the matter back to the assessing officer so as to enable him to examine the case of the assessee in the light of the tests laid down by the Apex Court in Rotork Controls Case (supra). 5. On the other hand Smt. Anuradha, learned counsel appearing for the assessee would contend that all these aspects were considered by the authorities below and it is categorically held by the authorities that the provision is as per accounting standards and is based on the past experience coupled with scientific and rational basis. It is also contended that the department has accepted the earlier order passed by the authorities 25 for the assessment year 1998-99 wherein similar provision was made as per standard of accounting. Tribunal has allowed similar issue of provision in favour of the assessee and no remand is made. 6. We have considered the submissions of the learned counsel for the parties. This very argument was advanced by the revenue before the ITAT to remand the matter to the Assessing Officer to consider the issues in the light of the Judgment of Rotork Controls Case (supra). The ITAT having observed that the only reason why the Assessing Officer has disallowed the claim of the assessee is on account that the provision is contingent liability, cannot be allowed, expenditure can be allowed only on payment basis. The ITAT having considered the adequate material placed before it, thought it fit not to remit the matter to the Assessing Officer. It is also noticed that the method of accounting followed by the assessee is mercantile wherein the income and expenditure is on accrual basis. We have examined this issue in the light of the Judgment pronounced by the Apex Court in Rotork Controls 26 Case (supra), wherein the three tests are laid down to recognize a provision under the act. The ITAT being a last fact finding authority has held that all these ingredients which goes to the recognition of provision are satisfied and as such, there is no need to remit the matter back to the Assessing Officer. In such circumstances, we do not see any ground made out by the revenue to remand the matter back to the Assessing Officer. The claim of expenditure being consistent with the method of accounting followed and the provision has been made on concluded transactions, the order of the Assessing Officer is held to be incorrect. We do not see any reason to differ from this view, which is in accordance with Section 145 of the Act. Re-Question No.2 7. The learned counsel Mr. K. V. Aravind appearing for the Revenue reiterated the grounds urged before the ITAT and sought for remanding the matter back to the Assessing Officer to examine the issue in the light of the Judgment of the Apex Court in Rotork Controls Case (supra). 27 8. Learned Counsel Smt. Anuradha, appearing for the assessee would contend that this issue is covered in favour of the assessee in assessee’s own case by the order of this Court in ITA 438-444/12, affirmed by the Hon’ble Supreme Court in Rotork Controls Case(supra), in none of these cases remand is made. 9. After considering the rival submissions of the learned counsel for the parties on this issue, we are of the view that this issue is similar to that of Question No.1. In view of the observations made in Question No.1, we are not inclined to remit the matter back to the Assessing Officer on this issue more particularly, this issue being covered by the Judgment of the Co-ordinate Bench of this Court in the very same assessee’s case reported in 270 ITR 259 and 278 ITR 337 confirmed by the Apex Court in Rotork Controls Case (supra).” 19. In view of the aforesaid decision of a Division Bench of this Court, we need not further 28 discuss the matter, more particularly, when the learned Counsel appearing for both the sides are in agreement that question Nos. 1 and 2 in the present matter may be answered by this Court, in the same manner as were answered in the above referred ITA 902/2008. Accordingly, claim of the appellants is consistent with the manner of accounting followed under the provisions made in concluding transactions. The order of the Assessing Officer is held to be incorrect and there is no reason to take a different view. Further, as the issue is already covered by the judgment of a Division Bench of this Court in respect of very assessee’s case, vide order dated 02-07-2015 in ITR 259 and 270 and ITR 278 and 337, confirmed by the Apex Court in the case of Indian Transformers Ltd., the matter is not required to be remanded back to the Assessing Officer. Accordingly, 29 both the above referred questions are answered in favour of the assessee, against the Revenue. 20. So far as question No.3 which is at par with question No.6 in the above referred ITA 902/2008 is concerned, a Division Bench of this Court, while dealing with the aforesaid question has observed at paragraphs 17 and 18 as under : “17. Learned Counsel appearing for the revenue seeks to remand this issue also to the Assessing Officer as no adequate material was made available before the authorities to come to a conclusion that the allocation of expenditure as worked out by the assessee on account of consumables, salary, etc. are applicable to the sales made through franchises. However, learned counsel appearing for the assessee would contend that Appellate Commissioner deleted the allocation of 30 expenses made by the Assessing Officer based on the order of ITAT in the very same assessee’s case reported in 81 TTJ 455 and the decision of the Apex Court in Indo Nipan Limited’s case (261 ITR 775). It is noticed that over 5.6% of the sales is made through franchises, however, the assessee adopted sales as basis for allocation. The sale made through the franchises stands on a different footing than the sale made directly by the assessee company. In the case of sale made through franchise, no effort is involved by the assessee except getting commission whereas the direct sales made by the assessee requires much more efforts and obviously the expenditure of the nature of consumables, salary and benefits etc., are incurred. It is also significant to observe that the Assessing Officer has not disturbed the method adopted by the assessee for the purpose of allocation of expenses in the trading turnover. What the Assessing Officer has done is removing the value of Franchise sales from the total sales 31 as the Franchise sales are different from direct sales. This methodology adopted by the Assessing Officer is not properly considered by the CIT and ITAT. CIT was of the view that the course adopted by the Assessing Officer in allocating the expenses amounts to prescribing a new method of estimation based on the Proportionate turnover contrary to the method of accounting regularly followed by the assessee and accepted by the department in earlier years. This view is confirmed by the ITAT placing reliance on the Judgment of the Apex Court in Indo Nippan’s case (supra). The Apex Court in Indo Nippan’s case has held that whatever method the Assessing Officer adopts, the method has to be consistent with the accepted principles of accountancy. 18. In the present case, what the Assessing Officer has done is to delete the value of franchise sales from total expenses. No method of accountancy adopted by the 32 assessee is disturbed. The course adopted by the Assessing Officer to delete the franchise sales is based on the reasoning that franchise sales differs from the direct sales. Such being the case, this method adopted by the Assessing Officer is no way contrary to the Judgment of the Apex Court in Indo Nippan’s case (supra). In the circumstances, we are of the view that CIT and ITAT proceeded on a misconception that Assessing Officer has disturbed the consistent method of accountancy followed by the assessee for many years. In view of the aforesaid reasons, we are of the opinion that the finding given by the CIT confirmed by the ITAT on this issue is not sustainable and accordingly, we decide this question in favour of the revenue and against the assessee. The issue is remanded to the A.O. to redo the assessment in the light of the observations made above, after providing an opportunity of hearing to the assessee. All contentions are left open to the parties. “ 33 21. We need not discuss the issue further when the learned Counsel appearing for both the sides are in agreement. This question comes from the same order as considered by a Co-ordinate Bench of this Court in the above referred matter. Hence, finding given by the CIT (A) and confirmed by the Tribunal, which is impugned, is found to be not sustainable and the question is decided in favour of the Revenue, against the assessee, with the further direction that the matter is remanded to the A.O. to redo the assessment, in the light of the observations made above, after affording opportunity of hearing to the assessee. All contentions are left open to the parties. 22. The aforesaid, now will lead us to decide question No.4. The relevant discussion in the order of 34 the CIT (A) is at para 9, the relevant of which for ready reference may be reproduced. \"9. Deduction u/s 80HHE: For the AY: 2003-2004 the assessing officer has not allowed deduction u/s. 80HHE inspite of the accounts being audited and audit report as required under the Act being furnished along with the return and the assessee having complied with all the conditions prescribed under the Act. The reasons and the discussion of the AO for not allowing deduction u/s 80HHE is extracted hereunder: “The assessee has filed a Report in form No.10CCAF computing a deduction of Rs.7,22,58,704/- u/s. 80HHE duly certified by an auditor. The assessee has not claimed the deduction u/s. 80HHE as the profit of the business is showing a loss. However, after making adjustments as per Transfer Pricing Officer’s order and other additions / disallowances 35 made, the loss have been converted into profit and accordingly the deduction u/s.80HHE is computed as per Annexure – III. While computing the deduction u/s. 80HHE, the expenditure incurred in foreign currency in providing technical services has been excluded from the export turnover and total turnover. Similarly, expenditure on freight, telecommunication charges and insurance attributable to delivery of computer software outside India is also excluded from the total turnover and export turnover. However, the assessee has declared a loss of Rs.101,94,16,673/-. After making the disallowance discussed u/s.80HHE is not allowed. The adjustments proposed by the TPO of Rs.114 crores is not considered for computing the business income for the purpose of deductions u/s. 80HHE as per the proviso to sec.92C(4) of the Act.” 36 23. The aforesaid shows that CIT (A) did find the issue as academic, since assessee did not claim deduction under Sec. 80HHE, but the CIT (A) did not end there and further observed that in the event any claim is made, the decision of the Tribunal in respect of the assesses own case for the year 1997-98 be followed. 24. The Tribunal while considering the aforesaid aspect, has observed at paragraph 12 which reads as under : “12. We have considered the submissions from both the sides, the orders of authorities below and the records. The Id.CIT(A) has in fact rejected the assessee’s claim for allowing deduction u/s 80HHE on the total business income arrived at after ALP adjustments were made and the department cannot have any grievance. Further, he has directed that in the event there is any taxable 37 business income before any ALP adjustment is made, then the eligible deduction u/s 80HHE is to be allowed on such income. In computing the eligible deduction he has directed the AO to follow the order of ITAT for assessment year 1997-98 on the issue of manner of computation of deduction. We do not find any infirmity in the orders of the Id. CIT(A) as he has given directions following the orders of this Tribunal. Accordingly we dismiss the grounds on this issue.” 25. The aforesaid shows that the Tribunal has further examined and explained the scope of considering the deduction under Sec. 80HHE. 26. As such, in our considered view, when no claim for deduction under Sec. 80HHE of the Act was made by the assessee, the issue for consideration thereof was an academic exercise. The CIT(A) as well as the Tribunal ought not to have made any further 38 observations thereafter, for giving treatment for the computation of the deduction under Sec. 80HHE. The observations can be said on hypothesis and surmises. At the most, the CIT (A) as well as the Tribunal could observe for consideration of the claim of deduction under Sec. 80HHE in accordance with law. Under the circumstances, we find that the observations made by the CIT (A) as well as the Tribunal for the deduction under Sec. 80HHE deserves to be expunged by observing to the extent that the claim, if any, can be made by the assessee for deduction under Sec. 80HHE is to be considered in accordance with law. Hence, to that extent, the order of the Tribunal is set aside. Question is answered accordingly to that extent in favour of the Revenue against the assessee. 39 All questions are answered. Hence, appeals stand disposed of accordingly. SD/- JUDGE SD/- JUDGE mgn/- "