These Cross Appeals, one by the Assessee and the other by the Revenue Department, have emanated from the order of learned CIT(A)-IV, Ahmedabad dated 30th of June, 2003. These two Appeals are consolidated and hereby decided by this common order, we shall first take up the Appeal of the Assessee.
A. Assessee's Appeal (ITA No.3289/Ahd/2003)
1. Ground No.1 is reproduced below:
"1. Re: Reduction of amount of profits eligible for deduction u/s 80HHC from the book profits u/s 115JB.
1.1 The computation of the amount deductible u/s 80HHC for the purpose of computation of book profits under explanation to sec. 115JB(1) should be made with reference to the book profits and not the taxable profits."
1.1 As per the assessment order passed u/s.143(3) dated 28.03.2003 it was stated that the Assessee company is in the business of manufacturing and export of pharmaceuticals products. As per the return the Assessee has declared an income u/s.115JB at Rs.92,81,34,716/-. That return was revised and u/s.115JB the amount declared was at Rs.92,60,12,264/-. It was observed by the AO that the book profit calculated u/s.115JB was reduced by an amount of Rs.32,48,52,351/- as deduction u/s.80HHC. Following the past history the said claim was revised to Rs.15,97,76,930/- and accordingly calculated the book profit u/s.115JB. When the matter was carried before the First Appellate Authority, learned CIT(A) has held that there was no change in the circumstances of the case as held in the past years; therefore, applying the same ratio the action of the AO was upheld. Being aggrieved now the Assessee is further in Appeal.
1.2 In the past for A.Ys. 1999-00 in assessee's own case (ITA Nos.3047/Ahd/2002 & 3273/Ahd/2002) it was held as under:
1.3 Having heard the submissions of both the sides and after reading the cited decisions viz. Ajanta Pharma Ltd. 327 ITR 305 (S.C.) = 2010-TIOL-68-SC-IT and Bhari Information Tech.Sys.P.Ltd. 340 ITR 593 (S.C.) = 2011-TIOL-107-SC-IT in the background of the facts of this case we are of the view that the decision of Syncome Formulations (I) Ltd. 292 ITR 144 (AT)(Mum.)(SB) = 2007-TIOL-96-ITAT-MUM-SB has been approved by the Hon'ble Supreme Court in the case of Bhari Information Tech.Sys.P.Ltd.(supra). Therein it was held that the deduction u/s.80HHE of the Act in the case of Export of Computer Software has got to be worked out on the basis of adjusted book profits u/s.115JA of the Act and not on the basis computed under the regular provisions of law applicable to the computation of profits and gains of business. Further, an observation was made by the Hon'ble Court that once the law itself declares that the adjusted book profit is amenable for further deductions on specified grounds in a case where section 80HHC/80HHE of the Act is operations, it becomes clear that computation for the deduction under those sections need to be worked out on the basis of adjusted book profit. In the case of Syncome Formulations (I) Ltd. (supra), the Special Bench of the Tribunal came to the conclusion that deduction claimed by the assessee u/s.80HHC has to be worked out on the basis of adjusted book profit u/s.115JA of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. The view taken by the Special Bench was accordingly affirmed and the Special Leave Petition filed by the Revenue Department was dismissed. We have also noted that a decision of Hon'ble Bombay High Court in the case of Ajanta Pharma Ltd. 318 ITR 252 (Bom.) = 2009-TIOL-256-HC-MUM-IT was in favour of the Revenue Department, however, that decision of the Bombay High Court was, later on, reversed by the Hon'ble Supreme Court cited as "327 ITR 305 = 2010-TIOL-68-SC-IT", wherein the Department has argued that both the "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause-(iv) of the Explanation to section 115JB of the Act. The Hon'ble Court has said that there was no merit in the said argument of the Revenue Department. The Court has made an observation as under:-
10. ........... . If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a self-contained code. In s. 115JB, as in s. 115JA, it has been clearly stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.
11. For the above reasons, we set aside the impugned judgment of the High Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order as to costs."
1.4. Therefore, respectfully following the above precedents, we hereby hold that the AO is required to re-compute the taxable profit for the purpose of computation of book profit u/s.115JA of the Act in the light of the guide lines laid down by the Hon Courts as cited above. Thus, ground raised by the assessee is, therefore, allowed.
1.3 Even in A.Y.2000-01 (ITA No.1400 & 1622/Ahd/2003) order dated 13.3.2015 the same view was taken by us. Since the reason as well as the circumstances under which the Revenue Authorities have revised the calculation of the book profit u/s.115JB in the past in identical manner; hence on the same lines for this year as well we follow the past history and refer the issue back to the file of the AO to be decided accordingly as per law. This ground of the Assessee on the same lines is hereby allowed.
2. Ground No.2 is reproduced below:
"2. Re: Addition of expenses of Rs.7,73,732/- to the book profits calculated u/s.115JB
2.1 The addition of Rs.7,73,732/- in respect of certain expenses, in the book profits calculated u/s. 115JB should be deleted."
2.1 The observation of the AO was that although the Assessee had added back an amount of Rs.7,73,732/- in normal computation of income but while computing the book profit u/s.115JB the said amount was not added back in the book profit. In this connection, the explanation of the Assessee was as under:
"The company has submitted in the Block Return that the sum of Rs.7,73,332/- represented the undisclosed expenditure and the amount was withdrawn from regular Books of Accounts and even upto the date of search it was part of as Cash on hand represented by "I.O.U". Therefore, the source of Rs.7,73,332/- is from the regular books only and as such not taxable. Even the Assessing Officer has accepted the facts/submission in the Block Assessment. The Block Assessment was completed on 28.02.2001 and accordingly the "IOU's "representing the above expenses were recorded in the Books of Accounts as expenditure in place of "Cash on Hand." This expenditure has not been claimed by the company as the same were considered in Block Assessment and as such were added to the Total Income in the Return of Income for Assessment Year 2001-02 (i.e. F.Y.2000-01). Like many other items of disallowance and addition in the normal computation for which no adjustment is required/done in computation of Book Profit u/s.115JB, this was also considered as not an allowable expenditure by the company on its own but nonetheless it was an expenditure and recorded in the Books of Account, so that the net profit of the Company was properly reflected and determined and Account duly prepared and audited under the provisions of Schedule VI of the Companies Act, 1956. Therefore, no adjustment is required by your honour in computing Book Profit u/s. 115JB of the Income Tax Act, 1961."
2.2 It was concluded by the AO that the expenditure was not deductible in the P&L Account as per the Companies Act. The expenditure pertained to undisclosed expenses which were detected during the search operation. The Assessee had debited those expenses in the books in A.Y.2001-02 which was not permissible hence the book profit as calculated was suppressed by the said sum of Rs.7,73,732/-. The AO has revised the "book profit" by adding the said amount for the purpose of calculation of tax u/s.115JB of IT Act.
2.3 The Assessee has reiterated those submissions before learned CIT(A) however he has affirmed the action of the AO. Being aggrieved now the Assessee is in Appeal.
2.4 Heard both the sides. The Explanation of the Assessee was that the impugned amount represented the undisclosed expenditure which was withdrawn from regular books of accounts. It was claimed that the said amount was part of cash in hand. According to Assessee, the expenditure was considered in block assessment hence in the regular assessment it was not claimed, therefore, added back to the total income in the return filed for A.Y.2001-02. The other argument of the Assessee is that if an amount is added back in the normal computation of income then it is not compulsory to add back the said amount while computing the book profit u/s.115JB. After considering the facts of the case, we are of the view that the Revenue Authorities were first of all required to ascertain the nature of expenditure and thereupon decide whether required to be added back in the calculation of book profit u/s.115JB or not. Although, it is a settled position of law that for the purpose of the calculation of book profit the same is required to be increased by certain amounts as prescribed under Explanation (1) of Section 115JB. But side by side the "book profit" is required to be calculated as per the accounting policies and accounting standards described under Companies Act, 1956. The law has clearly prescribed that the "book profit" means the net profit as shown in the P&L Account which is to be computed as per the accounting policies and the accounting standards prescribed under the Act. Therefore, the calculation of the "book profit" depends upon the net profit as per P&L Account norms laid down in the accounting standards. Since, the AO has not examined this aspect on these lines we deem it proper to restore this ground back to the file of the AO to be decided denovo. Resultanlty, this ground of the Assessee may be treated as allowed but for statistical purpose only.
3. Ground No. 3 is reproduced below:
"3. Re: Deduction u/s.115JB(2(iii) Book Losses of Pradeep Drug Company Limited Rs.3,39,12,399/-
3.1 The deduction u/s.115JB(2)(iii) being the amount of brought forward business loss of unabsorbed depreciation whichever is less amounting to Rs.3,39,12,399/- of Pradeep Drug Company Limited should be allowed."
3.1 The observation of the AO was that M/s. Pradeep Drug Company Ltd. (in short PDCL) had merged with Sun Pharmaceuticals Industries Ltd. (in short SPIL) (Assessee) w.e.f. 01.04.2000. While calculating the book profit the Assessee had reduced the sum of Rs.3,39,12,399/-, the loss brought forward and an unabsorbed depreciation as per the books of PDCL. The AO has raised the objection. The explanation of the Assessee was PDCL amalgamated with SPIL. As per the amalgamation process the loss of the amalgamating company (PDCL) had statutorily vested and merged with the amalgamated company (SPIL). It was also informed that the said amalgamation was duly approved by Hon'ble Supreme Court. It has also been explained by virtue of Section 72A of IT Act the unabsorbed depreciation and unabsorbed loss of PDCL had become the unabsorbed depreciation and unabsorbed loss of SPIL. However, the AO was of the view that as per the provisions of Section 115JB the book profit is to be computed of one unit and not the combination of different units. Further, he has noted that the Assessee was having substantial reserves and after the merger there was no brought forward loss of the unabsorbed depreciation so according to him there was no question of any reduction of unabsorbed loss and unabsorbed depreciation from the books profit. Therefore, the AO has held that there was no question of any reduction of brought forward loss or unabsorbed depreciation of PDCL from the "Book Profit" of SPIL. Finally, the amount of Rs.3,39,12,399/- was not allowed to be reduced from the working of the "Book Profit". When the matter was carried before the First Appellate Authority, the action of the AO was confirmed.
3.2 We have heard both the sides. At the outset, we have been informed that this issue has not been raised in the past in A.Y.1999- 00 and 2000-01. We have also been informed that the Assessee has moved an application u/s.154 of IT Act. However that too was decided against the Assessee. We have examined the facts as narrated above. One of the important finding of the AO is that after the merger was completed there was no amount of brought forward loss and unabsorbed depreciation remained for adjustment. This finding of the AO has not been controverted by the Assessee. It appears that due to the substantial reserves available at the time of merger it was decided by the amalgamating company and the amalgamated company not to set off such losses or depreciation. Further, the position is that as per Explanation 1(iii) of Section 115JB the "book profit" is to be reduced by the amount of loss brought forward or unabsorbed depreciation but the provision of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation as "Nil". The Assessee has not controverted this fact as noted by the AO that after the amalgamation there was "Nil" amount of brought forward loss and unabsorbed depreciation. Due to this reason, we are of the view that the Assessee has made a wrong claim which was rightly rejected by the AO. Resultantly, we find no force in this ground of the Assessee, hence dismissed.
4. Ground No.4 is reproduced below:
"Re: Inclusion of Exchange Rate Fluctuation of Rs.51,06,825/- in total amount for the purpose of deduction u/s.80HHC.
4.1 The Exchange Rate Fluctuation/Difference of Rs.51,06,825/- in respect of balances under EEFC Account should not be considered as miscellaneous trading receipt forming part of 'total turnover' for the purpose of computing the deduction u/s.80HHC of the Act.
4.2 Without prejudice to the above the Exchange rate difference on the balances in the EEFC account ought to be treated as export turnover for the purpose of computing the deduction u/s.80HHC of the Act."
4.1 On perusal of P&L Account it was noted by the AO that the Assessee had reduced exchange rate difference from misc. expenses amounting to Rs.51,06,825/-. Because of the said rejection the result was that the Assessee had claimed excess deduction u/s.80HHC observed by the AO. Following the past history of the case, he has held that the rejection of the said amount from the misc. expenses was not proper hence recomputed the working of 80HHCeduction.
4.2 This issue has already been discussed and decided in the past in A.Y.1999-00 and 2000-01 by ITAT 'D' Bench (supra). Relevant paragraphs 4.2 and 4.3 from A.Y.2000-01 are reproduced below:
4.2 This issue has already been decided by us in Assessment Year 1999- 2000 in ground No.3, wherein we have held as under:-
"3.3. With this factual back ground we have heard both the sides. At the outset we have been informed that now this issue is directly covered in favour of the assessee by an order of Hon'ble Gujarat High Court in the case of CIT vs, Alps Chemicals Pvt Ltd 367 ITR 594. The Hon'ble Court has discussed decisions namely Sterling Foods 237 ITR 579 (S.C.) = 2002-TIOL-222-SC-IT, wherein the legal proposition was that the source of the income was the export and earned the said income merely on account of fluctuation in foreign exchange. Also cited a decision of Shah Originals 327 ITR 19 (Bom.) = 2010-TIOL-293-HC-MUM-IT wherein as well held that an exporter had an option to keep certain percentage of export receipts in EEFC a/c. The assessee received higher amount in Indian rupees on such amount due to fluctuation in the foreign exchange rate. Conscious of the fact that the assessee had received the proceeds of the export transaction and gained due to fluctuation the court held that such gain cannot only be said to have been 'derived' from export business but the fluctuation gain arose subsequent to receiving the sale consideration hence part of the export sales. The gain was not due to delayed realization of export proceeds. The issue was decided in favour of the assessee. Respectfully following the above cited precedents we hereby hold that the assessee is entitled to the claimed deduction. Ground allowed."
4.3 Following the above decision, we hereby hold that the issue is covered by few orders of the Hon'ble High Courts cited supra; therefore, the assessee is entitled for the deduction. This ground of the assessee is allowed."
4.3 On the same lines for this year as well we hereby hold this issue in favour of the Assessee. Ground of the Assessee is allowed.
5. Ground No.5 is reproduced below:
"5. Re: Inclusion of Sale of scrap of Rs.48,52,918/- in total turnover for the purpose of deduction u/s 80HHC. 5.1 The scrap sales of Rs.48,52,918/- should not be considered to form part of total turnover for computing the deduction u/s 80HHC."
5.1 On perusal of P&L Account under the head "other income" it was noted that the Assessee has included scrap sale of Rs.48,52,908/-. The AO was of the view that the scrap sale was required to be included in the total turnover while computing the deduction u/s.80HHCof IT Act. This issue was raised in A.Y.1999- 00 and 2000-01. While deciding the Appeal of the Assessee for A.Y.2000-01 ITAT 'D' Bench vide an order dated 13th March, 2015 has held vide paragraph 5.2 as under:
5.2 Heard both the sides. This issue has also been dealt with by us while deciding ground No.4 for Assessment Year 1999-2000, wherein we have held as under:-
"4.2. Having heard the submissions of both the sides and after considering the case law cited of Punjab Stainless Ltd. 364 ITR 144 (S.C.) = 2014-TIOL-54-SC-IT, wherein the assessee was claiming deduction u/s.80HHC of the Act and the issue was to decide the meaning of word "total turnover". That assessee was a manufacturer and exporter of Stainless Steel Utensils. In the process of manufacturing, some portion of the Steel could not be used and it was treated as scrap. The assessee sold this scrap in the local market and income arising from sale was reflected in the Profit & Loss account. For the purpose of availing deduction u/s.80HHC, income from sale proceeds of sale scrap was not included in the "total turnover" but it was shown separately. The Revenue Department has accounted the sale proceeds from scrap in the "total turnover". The Hon'ble High Court was of the view that the proceeds generated from the sale of scrap would not be included in the "total turnover". On further appeal, The Hon'ble Supreme Court has expressed that the term "turnover" has not been defined in the Income Tax Act. According to the Hon'ble Court, a meaning of this term was given by ICAI which denotes that in normal parlance the word "turnover" would be total sales, and according to the Hon'ble Court said sales would not include scrap material. According to the Hon'ble Court, intention behind enactment of section 80HHC of the Act is to encourage export to earn Foreign Exchange. It was finally concluded that the proceeds generated from the sale of scrap would not be included in the "total turnover".
4.3. Respectfully following the aforesaid view expressed by the Hon'ble Supreme Court, we hereby direct to re-compute the turnover after excluding the sale amount of scrap. Resultantly, this ground is allowed.
5.3 Respectfully, following the above decision, we hereby direct to recompute the turnover after excluding the sale amount of scarp. This ground of the assessee is allowed."
5.2 Since a view has already been taken on identical facts, therefore, we hereby direct to recompute the turnover after excluding the sale amount of scrap. Resultantly, this ground of the Assessee is hereby allowed.
6. Ground No.6 is reproduced below:
"6. Re: Reduction of unrealised export proceeds of Rs.6,82,19,914/- from export turnover for the purpose of deduction u/s 80HHC.
6.1 The unrealised export proceeds of Rs.6,82,19,914/- should not be reduced from the export turnover for the purpose of computing the deduction u/s 80HHC.
6.2 Without prejudice to the above, the export realised till the date of completion of the assessment should be considered as export turnover for the purpose of computing the deduction u/s 80HHC. u/s.155(13)."
6.1 On perusal of Form 10CCA it was found that the Assessee company had applied for the extension of time for bringing the convertible foreign exchange of Rs.8,41,53,744/- as on 30th September, 2001 to the Reserve Bank of India. A query was raised by the AO that why the amount should not be reduced while calculating the deduction u/s.80HHC of IT Act. The explanation of the Assessee was that the export turnover of Rs.84.54 lacs was outstanding as on 30th of September, 2001. The company had applied for grant of extension of time as on 31st December, 2002. The export proceeds of Rs.374.75 lac were remained outstanding. The argument of the Assessee was that an application was made to Reserve Bank of India to grant extension and there was no rejection of application. It was further explained that the Assessee was made to understand that due to ongoing recession in the world the Reserve Bank of India was flooded with such explanation for extension of time for realization of export proceed. Therefore RBI had given specific directions only in respect whereof RBI was not satisfied about the bona fides of the efforts for realization of export proceeds have not been made. In the case of the Assessee no such investigation was made by the RBI. The Assessee had believed that it was an indirect confirmation. Out of the total outstanding export proceed of Rs.84.54 lac, only 374.37 lac were remained outstanding as on 31.12.2002. Alternatively, the Assessee has also pleaded that as per the insertion of Section 155 of IT Act, the Assessee is entitled to get the claim subsequently in the year in which the convertible fund exchange is received in India. So the request of the Assessee was that the AO can amend the assessment order u/s.154 by allowing the deduction u/s.80HHC accordingly. It was also pleaded that intention of the legislature was that the Assessee should be given the deduction u/s.80HHC on the basis of the sale proceeds received or to be received within six months. If not received within six months from the end of the Financial Year; then the benefit is to be granted subsequently in the year the same is realized. According to AO, the provisions of Section 80HHC(2)(a) prescribes that the sale proceeds of goods exported out of India are to be received in or brought into India by the Assessee in convertible foreign exchange within the period of six months from the end of the previous year or within such further period as allowed by the competent authority. The AO has thereafter prepared a chart to demonstrate that certain invoice numbers were approved by the RBI to brought in the foreign exchange totaling Rs.1,61,71,484/-. Out of the said approved amount the assessee has received Rs.54,86,829/-. The AO has also mentioned that later on the Assessee had also enclosed a letter dated 27th February, 2003 of an another approval from Reserve Bank of India amounting to Rs.10,04,47,000/-; the remittance received.
6.2 Before learned CIT(A), those very facts were reiterated however he has mentioned that in earlier years that issue was decided against the Assessee and since there were no change in the facts therefore the action of the AO was upheld.
6.3 After hearing the submissions of both the sides, we are of the considered opinion that there should not be controversy in respect of allowability of the claim. At the most the controversy could be in respect of the year in which the remittance has been realized and remitted in India. As rightly mentioned by the Assessee in one of the reply to the AO that the provision of Section 115(13) are introduced in the statue with the intention to grant relief to all those exporters who have genuinely applied for the extension of time to the competent authority, i.e., RBI. This provision of IT Act thus prescribes that the claim of deduction is admissible in the year in which the convertible foreign exchange has been brought in and accounted in the books of accounts. We, therefore, direct the AO to apply the provisions of Section 155(13) of IT Act and after examining the record pertaining to the year in which the convertible foreign exchange was remitted the deduction should be allowed. With these directions, we hereby hold that this ground of the Assessee may be treated as allowed for statistical purpose only.
7. Ground No.7 is reproduced below:
"7. Re: Disallowance of deduction u/s.80IB in respect of sale of DEPB of Rs.11,41,480/-
7.1 DEPB sale should be treated as profits derived by the new industrial undertaking for the computing the deduction u/s.80IB (old Section 80-IA)"
7.1 In this ground, the Assessee has raised the issue DEPB claim however the same was disallowed in the past by us while deciding the appeal of the Assessee for A.Y.2000-01 as per paragraph 8, relevant portion is reproduced below:
8.1 It was observed by the Assessing Officer that the assessee has shown DEPB sale in Silvasa Unit. A book profit of Rs.5,79,600/- was taken into account u/s 80IA of the said unit. The said amount was reduced by the Assessing Officer while computing the profit for the purpose of deduction u/s 80IA. The action of the Assessing Officer was confirmed by the ld. CIT(A). Now, the issue has been decided by us in Assessment Year 1999-2000 in assessee's own case while deciding Revenue's ground No.5 in paragraph 15.3 the relevant portion is reproduced below:-
"15.3 With this back ground, we heard both the sides. We are not in agreement with the view taken by Ld. CIT(A), primarily because of the reason that now this issue is well settled by the Hon'ble S.C. in the case of Liberty India 317 ITR 218 = 2009-TIOL-100-SC-IT wherein it was held that Duty Drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of deduction U/s 80I / 80IA / 80IB. It was commented by S.C. that Sec. 80IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words 'derived from' is narrower as compared to that of the words 'attributable to.' By using the expression 'derived from' Parliament intended to cover sources not beyond the first degree. Further Ld CIT(A) has also held that only the balance amount available after the amount taxed in the Block Assessment is to be to be taken into account. This finding is not required to be disturbed being covered by the decision of the jurisdictional high court. In the result this ground of the Revenue is allowed."
8.2 Respectfully following the decision of Liberty India (supra), we hereby dismiss this ground of the assessee. Ground dismissed.
7.2 On the same lines following Liberty India 317 ITR 218 = 2009-TIOL-100-SC-IT, we find no force in this ground of the Assessee and the same is hereby dismissed.
8. Ground No.8 is reproduced below:
"8. Re: Reduction of Exchange rate difference in computing the profits of the new industrial undertaking u/s.80IB.
8.1 The reduction of exchange rate difference on EEFC balances from the miscellaneous expenses should be upheld for the purpose of computing the profits of the new industrial undertaking u/s.80IB."
8.1 The AO has discussed some of such expenditure, relevant portion from the assessment order is reproduced below:
The Assessee has claimed deduction u/s.80IA at Rs.9,02,32,379/- on the profits of Silvassa old as well as Rs.41,38,23,407/- for Silvassa new unit. As explained above, the assessee has various manufacturing units and is also engaged in leasing and financing activities. The assessee has filed unitwise profit and loss account attached with return of income.
Unit wise profit and loss account shows profit from both the Silvassa Unit at Rs.50,40,55,786/- i.e. for Rs.9,02,31,379/- for unit one and Rs.41,38,23,407/- for unit two of the IT Act. It is noticed that in working out this deduction the assessee has not allocated certain expenses to both Silvassa Units which should have been allocated. These are discussed below:
(i) The depreciation as discussed in preceding paras is to be allowed on plant and machinery of both the Silvassa Unit. Accordingly Rs.2,33,38,180/- is reduced from the profit u/s. 80IA for Unit 1 & 2 as per Annexure C.
(ii) Income on account of exchange rate is being removed from miscellaneous expenses as discussed in previous paragraph and the additional allocation expenses is being deducted while computing 80IA profit. The amount of allocation comes to Rs.3,31,944/- for Silvassa-I unit and Rs.4,51,444/- for Silvassa-2 unit, accordingly the same is reduced.
(iii) Sale of DEPB is being removed from 80IA income of Silvassa- 1 unit as discussed in previous paragraph and income of the 80IA units is further reduced by Rs.11,41,480/-
(iv) As share issue expenses cannot be ammortised the same is added back to profit/income of the 80IA both unit by Rs.74,095/-"
8.2 In the light of the above discussion, the AO has revised the eligible profit for Silvassa (New Unit) to Rs.40,12,51,174/-.
8.3 At the outset, we have been informed that the learned CIT(A) has mistakenly not adjudicated this ground pertaining to exchange rate itself. In a situation when the First Appellate Authority has not given an opinion on this issue it is not possible for us to decide that issue because the order in Appeal before us is the order of First Appellate Authority. Therefore in the interest of natural justice, we hereby restore this ground back to him to be decided as per law, needless to say, after providing an adequate opportunity of hearing to both the sides. Since this ground is restored back hence may be treated as allowed for statistical purpose.
9. Ground No.9 is reproduced below:
"9. Re: Disallowance of expenses for increase in share capital of Rs.4,54,000/-
10.1 The expenses for increase in share capital on account of redeemable preference shares should be allowed as a deductible expenditure and without prejudice to the above on a pro rata basis over 3 years being the term of the preference shares.."
9.1 During the year under consideration, the Assessee has claimed amortization of share issue expenses of Rs.4,54,000/- u/s.35D of IT Act. We have been informed that this very issue has been decided earlier in A.Y.1999-00 and 2000-01. Relevant paragraph No.10.2 from the order of A.Y.2000-01 is reproduced below:
10.2 This issue has already been dealt with by us in Assessment Year 1999-2000, wherein vide paragraph Nos. 10.3 to 10.5, we have referred the issue back to the file of the Assessing Officer with certain directions. The relevant portion is reproduced below:-
"10.3 Heard both the sides at some length. Sec. 35D grants a deduction in respect of expenditure which may otherwise be disallowable on the ground that it is a 'capital expenditure' or is incurred prior to the setting up of the business, but in instalments in number of assessment years. This can also be interpreted, and naturally so, that an expenditure which is otherwise allowable as revenue expenditure cannot be brought within the purview of this section. Certain fine distinction had been made by Hon'ble courts in respect of the Sub-sections of this section 35D, such as, that the fees paid for registration of the amendment of the memorandum of association for enhancement of authorised capital is held to be covered by sec. 35D(2)(c)(iv). But expenditure on registration of a company is not covered as per sec 35D(2)(c)(iii). The undisputed factual position is that the filing fees to ROC and stamp duty, etc. was paid in connection of "preferential issue" which were redeemable after three years.
10.4) As per the argument Ld CIT DR, this issue has been dealt with in the case cited as Brooke Bond India Ltd. 225 ITR 798 (SC) = 2002-TIOL-244-SC-IT. However in this case the provisions of Sec 35D were not under consideration. The only point to decide was whether a particular expenditure incurred was in the nature of capital expenditure or not. So it was held that the expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital, is directly related to the expansion of the capital base of the company, hence a capital expenditure. Likewise the other decision of Mihir Textiles Ltd. 225 ITR 327 (Guj.) was dealing with issue in respect of the expenditure incurred by way of filing fees for increasing the authorised capital of the company, and it was held as capital expenditure. Both these decisions are not dealing the applicability of the provisions of Sec 35D.
10.5) As already mentioned above Sec. 35D would apply only in respect of expenditure which is otherwise not allowable under the law being a capital expenditure. This section subscribed or listed certain types of capital expenditure which can be amortised. But if those are not capital expenditure then the view is that after examining the nature and genuineness of the expenditure the same can be considered as Revenue Expenditure. To elaborate it further it can be said that after the insertion of Sec. 35D; the Act has not denied the allowability of Revenue Expenditure. There are few examples such as payment of stamp duty for issue of public subscription of debentures which was held as revenue expenditure U/s 37(1); even though after the insertion of Sec. 35D. Likewise other expenditure pertaining to issue of debenture is entitled U/s 37(1) and the provision of Sec. 35D are not going to effect such deduction. So the outcome of the above discussion is that the provision of amortisation is not intended to supersede any other provision of the income tax act under which such expenditure is otherwise admissible as a deduction. Under the fitness of circumstances it is therefore required to restore this issue back to A.O. to examine both the aspects i.e. Revenue Expenditure or Capital Expenditure and then decide the question of disallowance. Resultantly this ground is restored back for denovo adjudication hence to be treated as allowed for statistical purpose only."
10.3 Since this issue has been restored back for de novo consideration, hence this ground may be treated as allowed for statistical purpose only.
9.2 On the same lines for this year as well this ground is restored back to the file of the AO hence may be treated as allowed for statistical purpose.
10. Ground Nos.10 and 11 are reproduced below:
"10. Re: Set Off of Brought Forward MAT Credit u/s.115JAA after levy of surcharge.
10.1 The surcharge should be levied after giving the set off of brought forward MAT credit u/s.115JAA.
11. Re: Calculation of Interest u/s.234B.
11.1 The interest chargeable u/s.234B should be charged after taking into account set off of MAT Credit u/s.115JAA(1)."
10.1 Both these grounds are consequential in nature however in respect of ground no.10 an order of Hon'ble Supreme Court is cited before us, pronounced in the case of CIT Vs. Tulsyan Nec Ltd, 330 ITR 226 = 2010-TIOL-114-SC-IT-LB wherein it was held that MAT credit is admissible in terms of Section 115 JAA to be set off against the assessed tax before calculation interest u/s.234 etc. Since, the law laid down has no controversy hence following the decision of Hon'ble Supreme Court the AO is hereby directed to grant relief as per law. Resultantly, these grounds may be allowed for statistical purpose only.
B. Revenue's Appeal (ITA No.3434/Ahd/2013)
11. Ground No.1 is reproduced below:
"1. The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs.14,42,823/- made on account of interest to Dadhas."
11.1 For the year under consideration, as well, the AO has followed the past history and disallowed the interest paid to Sri S. Mohan Chand Dadha, M. Mahendra Dadha and Sri Meher Chand Dadha. When the matter was carried before the First Appellate Authority, learned CIT(A) has allowed the same. Now the Revenue is before us.
11.2 While deciding the Revenue's Appeal for A.Y.2000-01 vide paragraph 13.3 and 13.4 we have confirmed the view taken by learned CIT(A), relevant portion reproduced below:
"13.3 Heard both the sides. The issue of addition of interest payment to Dadhas was decided by us in ground No.3 of the Revenue's appeal for Assessment Year 1999-2000 (ITA No.3273/Ahd/2002), wherein we have followed the decisions of the Tribunal as under:-
"13.3. With this back ground we have heard both the sides. The issue is resolved vide a consolidated order for A.Y. 99-00,2000-2001, 01-02, 02-03 & 03-04 of Aditya Medisales bearing ITA No. 3272/Ahd/2002, ITA 1623/Ahd/2003, ITA 1353 & 2180/Ahd/2005 & ITA no. 08/Ahd/2007 dated 30/09/2010. In that order there was a reference of an another order of the Tribunal pertaining to Block Assessment of Aditya Medisales bearing IT(SS)A No.95/Ahd/2001 dated 31/05/2007 wherein vide paragraph no 28 (reproduced by the Tribunal) it was held as under:
"28. We have carefully considered the rival submissions. We find that the main reason for disallowance is that while interest was paid by the Assessee to its suppliers, the Assessee did not charge interest to the two parties. We find force in the contention of the Assessee that on account of amalgamation of TDPL with SPIL the Assessee would experience growth in its turnover and operations. Subsequent events and the figures of turnover of the Assessee vindicate this point in favour of the Assessee. On any such acquisition of business / amalgamation the acquirer would be keen to ensure that there is smooth integration of business across the entire line which include distribution channel also. In such circumstances as the sole distributor of SPIL the action of the Assessee in appointing the said firms as its distributor for the southern regions, at the behest of SPIL would be governed by business expediency. The Assessee has also demonstrated by documentary evidence before the lower authorities that the distribution had in fact happened through the said firms. The said firms had the necessary trade and other registrations for carrying on the said activity. The Assessing Officer has also acknowledged that there was savings in turnover tax in the state of TamilNadu as a result of the appointment by the said firms. The Assessing Officer having accepted in part the business benefit of the appointment of the said firms, as distributors cannot in the same breadth question the other part Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee to the individual members of the Dadha family as advances in the ordinary course of business. Thus, even if the advances were given in the guise of a trade advance, the same would still be considered as for the purpose of business. Further we noted that the decision of the Supreme Court in the case of S.A. Builders (supra) has clearly stated that if the business considerations require, interest free funds can be advanced. Since the commercial expediency cannot be doubted in the case of the Assessee. We find no reason to interfere with the order of the CIT(A) and accordingly we confirm the order of the CIT(A) on this ground."
13.4. Since in the past a consistent view had been taken that once the Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee's other decision taken in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A), hence this ground of the Revenue is dismissed.
13.4 Consistent with the view already taken in the past, for this year as well, we hereby affirm the deletion of the impugned addition. In the result, this ground of the Revenue is dismissed."
11.3 In the result, following the past history, this Ground of the Revenue is hereby dismissed.
12. Ground No.2 is reproduced below:
"2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,01,340/- made on account of unaccounted sale of solvents."
12.1 It was mentioned by the AO that although learned CIT(A) had deleted the addition but a second appeal had been preferred before ITAT by the Revenue Department; hence, to keep the issue alive the addition on account of unaccounted sale of solvent was made in the hands of the Assessee.
12.2 This issue had been decided in favour of the Assessee in A.Y.1999-00 and 2000-01 in the past. For ready reference paragraph 14.2 from A.Y.2000-01 is hereby reproduced below:
"14.2 The issue of alleged unaccounted sale of spent solvents was discussed by us for Revenue's appeal for Assessment Year 1999-2000 and vide ground No.4, it was decided in the following manner:-
"14.4 Heard both the sides. First point from the side of the assessee is that the said Block Assessment had already been quashed by the Tribunal 'D' Bench in IT(SS) No.70/Ahd/2001 in assessee's own case vide order dated 25/09/2009 (supra) hence the impugned addition by that very reason did not survive. The second point of the assessee was that while deciding assessee's appeal in respect of Block Period 1988-1989 to 7.12.1998 by CIT(A) Baroda vide order dated 01/06/2001 (Appeal No. CAB/IV-166/2000-01) had not upheld such additions being not based upon some incriminating evidence. The third point for our consideration was that it was merely presumed by the A.O. that even for the post search period the Solvent might have been sold on the same rates. But the basic question is that when even for search period the impugned addition did not survive on account of lack of evidence then how such presumption could be approved for the post search period. The reasoning appears to be convincing especially when no contrary material is available on record form the side of the Revenue. This ground of the Revenue is therefore dismissed."
14.3 Since the year under consideration is also the post search period and in the financial year under consideration the Assessing Officer has simply presumed that the assessee might have sold the spent solvents; therefore, following the past history of the case, we hereby hold that the addition merely based upon the presumption; hence, rightly deleted by ld. CIT(A). This ground of the Revenue is, therefore, dismissed."
12.3 Following the part history in the identical manner, this Ground of the Revenue is hereby dismissed.
13. Ground No.3 is reproduced below:
"3. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.2,33,38,180/- made on account of compulsory allowance of depreciation."
13.1 For this year as well the AO was of the view that for the purpose of getting more deduction u/s.80HHC and u/s.80IA the Assessee has not claimed the depreciation in respect of both Silvassa Units. The AO had deducted the depreciation accordingly. This very issue was before us and while deciding the Revenue's Appeal for A.Y.2000-01 vide paragraph 15.2 it was held as under:
"15.2 In the past, for Assessment Year 1999-2000, we have decided this issue in Ground No.6 of the Revenue's appeal vide paragraph No. 16.3 which is reproduced below:-
"16.3 Heard both the sides. The assessment Year under consideration is A.Y. 1999-2000. On this issue that whether the depreciation can be compulsorily foisted upon the assessee, an order of the Hon. Gujarat High Court pronounced in Assessee's own case bearing Tax Appeal No. 93 of 2000 dated 17.12.2014 titled as Dy.CIT vs Sun Pharmaceuticals Ind. Ltd. = 2015-TIOL-118-HC-AHM-IT is cited wherein it was held that the Tribunal was right in law in holding that depreciation not claimed by the assessee could be deducted despite the introduction of the blockassets concept. One more order of Hon Guj. High Court is referred as Sakun Polymers Ltd. (Tax Appeal No. 41 of 2007 with others order dated 23.12.2014) = 2015-TIOL-73-HC-AHM-IT wherein for A.Y. 1995-96 it was held that the Tribunal was not right in law in holding that depreciation, whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to Sec. 32(1) of the Act. Respectfully following these decisions, we hereby affirm the findings of Ld. CIT(A). This ground of the Revenue is dismissed."
15.3 On the same lines, we hereby hold that for the year under consideration, which is before the amendment took place, the depreciation cannot be foisted upon the assessee. Therefore, this ground of the Revenue is hereby dismissed."
13.2 Respectfully following the above decision, we hereby affirm the finding of learned CIT(A) and hold that the depreciation under these circumstances and for the assessment year under consideration cannot be enforced upon the Assessee. Resultantly, this ground of the Revenue is hereby dismissed.
14. Ground No.4 is reproduced below:
"4. The Ld. CIT(A) has erred in law and on facts in directing to include sales tax and excise duty in the total turnover for the purpose of deduction under section 80HHC."
14. This issue as raised from the side of the Revenue is now settled by the Hon'ble Supreme Court as we have noted in paragraph 16.1 of Revenue's Appeal for A.Y.2000-01 reproduced below:
"16.1 The observation of the Assessing Officer was that the assessee has excluded the amount of sales-tax and excise duty from the total turnover. This issue was carried in appeal in the past as well, and after considering the provisions of the Act, vide ground No.7, for Assessment Year 1999-2000, we have held as under:-
"17.2. Now before us an order of Hon S.C. is cited, namely, Laxmi Machine Works 290 ITR 667 = 2007-TIOL-72-SC-IT for the legal proposition that Excise Duty & Sales Tax are indirect taxes so do not involve any element of 'Turnover'. Respectfully following this precedent we hereby affirm the findings of CIT(A) and dismiss this ground of the Revenue."
16.2 Respectfully following the above decision, we hereby affirm the findings in the order of the ld. CIT(A) and dismiss this ground of the Revenue."
14.1 In the result, this Ground of the Revenue is dismissed for the year under consideration.
15. Ground No.5 is reproduced below:
5. The Ld. CIT(A) has erred in law and on facts in directing to include scrap sales in the total turnover for the purpose of deduction under section 80HHC of the Act.
15.1 In this year, the Assessee had generated the income by way of sale of scrap of Rs.48,52,198/-. The AO has asked as to why the amount of sale of scrap should not be included with total turnover of the Assessee while calculating the deduction u/s.80HHCof IT Act. Accordingly, the AO has recalculated the deduction u/s.80HHC.
15.2 When the matter was carried before the First Appellate Authority, he had noted that in the earlier years the issue of scrap sale to be treated as part of total turnover as decided by his predecessor against the Assessee. However for the year under consideration this issue was decided in favour of the Assessee due to this reason. For this year now the Revenue is in Appeal.
15.3 However we have noted that in the past where the Assessee was in Appeal we have taken a view following Punjab Stainless Steel, 341 ITR 144 that the profit generated from the sale of scrap would not be included in the "total turnover". On the same lines, we hereby uphold the view taken by learned CIT(A) and reject this ground of the Revenue. Revenue's Ground is dismissed.
16. Ground No.6 is reproduced below:
6. The Ld. CIT(A) has erred in law and on facts in directing to consider the gross interest for computing 'Profit of the Business' for the purpose of deduction under section 80HHC."
16.1 The AO has considered the gross interest for the purpose of computing "profit of the business" for the purpose of calculating the deduction u/s.80HHC of IT Act.
16.2 This issue was dealt with us in A.Y.2000-01 in Revenue's Appeal vide paragraph 18.1, 18.2 and 18.3, we have held as under:
"18.1 The Assessing Officer has raised a question during the assessment proceedings that why the whole amount of interest receipt should not be reduced while working the "eligible profits" for the purpose of claim of deduction. The assessee has received gross interest of Rs.9.85 crores and paid interest of Rs.10.41 crores. The explanation of the assessee was that what is to be excluded was the 90% of the receipt by way of interest forming part of the profits and gains of the business. Therefore, it was the net interest income. According to the assessee, it was not in respect of gross income exclusion. However, the Assessing Officer was not convinced and held that the total interest receipts as credited in the profit and loss account are to be reduced from the profits of the business for the purpose of calculating the 80HHC deduction.
18.2 When the matter was carried before the First Appellate Authority, ld. CIT(A) has followed the decision already taken in the past years and the Assessing Officer was directed to give the proper benefit.
18.3 After hearing both the sides, we have noted that while deciding ground No.8 of the Revenue Department, we have followed ACG Associated Capsules Pvt. Ltd., reported in 343 ITR 89(SC) = 2012-TIOL-13-SC-IT-LB and Topman Exports, reported in 342 ITR 49 (SC) = 2012-TIOL-11-SC-IT-LB; and thereupon arrived at the conclusion that 90% of the net interest which had been included in the profits of the business was required to be deducted as per Explanation (baa) of section 80HHC. On the same line, we hereby direct to compute the 80HHC deduction. Therefore, this ground of the Revenue is hereby dismissed."
16.3 On the same lines, we find no force in this Ground of the Revenue and the same is hereby dismissed.
17. Ground No.7 is reproduced below:
"7. The Ld. CIT(A) has erred in law and on facts in directing to consider the gross lease rent for computing 'Profit of the Business' for the purpose of deduction u/s.80HHC."
17.1 In the past A.Y.2000-01, this issue has also been decided by us in Revenue's Appeal vide paragraph 19.1, 19.2, 19.3 for ready reference reproduced below:
"19.1 While calculating "other income" for the purpose of 80HHC deduction, the assessee has included net lease rental income of Rs.34,00,127/- whereas the gross lease rental income was at Rs.2,10,59,614/-. The objection of the Assessing Officer was that why the gross lease rental income is not taken for the purpose of calculation of deduction u/s 80HHC. Accordingly, the computation u/s 80HHC was reduced.
19.2 When the matter was carried before the First Appellate Authority, he has followed the past history and allowed the claim.
19.3 With this brief factual background, we have noted that while deciding ground No.9 of the Revenue Department, we have followed the decisions of ACG Associated Capsules Pvt. Ltd. (supra) and Topman Exports (supra) and held that net amount was to be taken into account for the purpose of claim of deduction u/s 80HHC. Following the above decision in assessee's own case for Assessment Year 1999-2000, the ground raised by the Revenue Department is hereby dismissed."
17.2 Respectfully following the past history; for this year as well, this Ground of the Revenue is hereby dismissed.
18. Ground No.8 is reproduced below:
"8. The Ld. CIT(A) has erred in law and on facts in deleting the reduction / deduction u/s.80IB (old section 80IA) of the Income Tax Act,1961."
18.1 It appears that this Ground has inadvertently been raised by the Revenue, however the issue on sale of DEPB license is in favour the Revenue following Liberty India, 317 ITR 218 = 2009-TIOL-100-SC-IT hence the issue raised by the Revenue is decided against the Assessee.
19. In the result, this Ground of the Revenue is hereby allowed.
20. Finally, the Appeal of the Assessee as well as the Appeal of the Revenue, both are partly allowed.
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