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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER
ITA No.1227/Bang/2007 Assessment Year : 2004-05
ABB Limited, The Addl. Commissioner of Khanija Bhavan, Race Course Income-tax (LTU), Road, IInd Floor, East Wing, Bengaluru. Bengaluru-560001. V s. PAN – AAACA 3834 B APPELLANT RESPONDENT
ITA No.1256/Bang/2007 Assessment Year : 2004-05
The Addl. Commissioner of ABB Limited, Income-tax (LTU), Khanija Bhavan, Race Bengaluru. Course Road, IInd Floor, V East Wing, s. Bengaluru-560001.
PAN – AAACA 3834 B APPELLANT RESPONDENT
Assessee by : Ms. Vasanti Patel, Advocate Revenue by : Shri Dilip Reddy, Sr. Counsel
Date of Hearing : 27-09-2021 Date of Pronouncement : 29-09-2021
O R D E R Per Bench Pillai, Judicial Member
Page 2 of 19 ITA Nos.1227 & 1256/Bang/2007
Present cross appeals filed by assessee and the Revenue arises out of order dated 30/08/2007 passed by CIT(A), LTU , Bengaluru, relating to Assessment Year 2004-05.
At the outset it is submitted that issues raised by both sides stands covered by orders passed by this Tribunal in assessee’s own case in proceeding assessment year.
Assessee’s Appeal 3. Grond No.1 - Deduction u/s 80 HHC - reduction of 90% of rental income, insurance claim, cash subsidy, refund of sales tax, commission, income from profit on sale of fixed assets etc.
3.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2001-2002 in ITA No.562 & 755/Bang/2007 order dated 4.3.2021 decided this issue as under:
“11. The next ground (No.2) raised by the assessee reads as follows:- “2. The learned CIT (A) erred in confirming that head office expenses is required to be allocated while arriving at the profit of the industrial undertaking for the purpose of allowing deduction u/s 80-I / 80-IA of the Income Tax Act. Without prejudice, it is further submitted that allocation of expenditure is on a very higher side and it should be reduced substantially.” This issue also came up for consideration before the Tribunal ITA No.3240/Bang/2004 for AY 2000-01 wherein the issue
Page 3 of 19 ITA Nos.1227 & 1256/Bang/2007
was decided against the assessee with the following observations:- “2. The assessee is a company engaged in the business of various engineering fabrication, manufacture and trading of mechanical, electrical and other engineering items. The dispute raised by the assessee in ground No.1 is with regard to deduction u/s. 80IA of the Act. It is not in dispute that the assessee was entitled to deduction u/s. 80IA. The AO while allowing deduction u/s. 80IA allocated Head Office expenses on the basis of turnover of the various undertakings of the assessee. Consequent to such allocation, deduction u/s. 80IA of the Act was allowed at a much lesser figure than what was claimed by the assessee. It is not in dispute before us that identical issue came up for consideration in assessee’s own case in AY 1988-89 in ITA No.3809/MUM/2003, order dated 19.10.2012. In para 12.4, the Tribunal followed its decision in assessee’s own case for the AY 1995-96. The issue was considered by the Mumbai Bench of the Tribunal in assessee’s own case in AY 1997-98 in ITA No.2555/MUM/2003 by order dated 05.04.2007 and on identical issue it was held as follows:- “The case of the assessee, however, is that the subject matter of deduction u/s. 80IA is the profits derived from the business of industrial undertakings and hence it is only that expenditure which is directly attributable to the earning of the said profits that can be the subject matter of deduction for computing the aforesaid profits and not head office expenses. We are unable to agree with the aforesaid submission for two reasons. First reason is that it is the profit derived by the assessee from the business of industrial undertaking which has been made eligible for deduction u/s. 80IA d not any other profit. Second reason is that the computation of profits eligible for deduction u/s. 80IA has to be done in accordance with the provisions of section 28 to 43. Perusal of the aforesaid provisions reveals that all those expenses, which are incurred for the purposes of the business of the industrial undertaking, are to be allowed while computing the business profit. It cannot be said that Head Office expenses or common expenses are not incurred or are uncommon for the purposes of the business of the industrial undertaking. What is now required to be computed is the profits derived from the business of industrial undertaking Therefore, there is no warrant for the proposition that only those expenses, which are directly attributable to earning of profits derived from the business of industrial undertaking alone should be considered. As already stated above the profits eligible for deduction u/s. 801A are net profits derived from the industrial undertaking and therefore they will have to be netted after adjusting all the expenses attributable to them in terms of the provisions contained in sections 28 to 43 of
Page 4 of 19 ITA Nos.1227 & 1256/Bang/2007
the I.T. Act. Therefore all expenses, whether they are direct or indirect or fixed, semi-fixed or variable, must be adjusted to determine the profits derived from the industrial undertaking. Of course, any component of Head Office expenses, which has been incurred exclusively for the purposes of the business of any particular unit/ undertaking/division will have to be adjusted against the receipts of that particular unit/undertaking/division only. Similarly, Head Office expenses or expenses which are common to all the units/undertakings/divisions expenses will have to be spread over and charged against the receipts of all the units/ undertakings/divisions. If this course is not followed, then what would stand allowed u/s 80IA would be inflated profits and not the net profits derived from the industrial undertaking in terms of the provisions of sections 29 to 43. In this view of the matter and in the absence of any better alternative, the CIT(A) is justified in holding assessee is entitled to deduction of the eligible amounts in respect of the profits derived from the eligible undertakings after the allocation of head office expenses in the ratio of turnover. We see no valid reason to take a view contrary to the one taken by the CIT(A) in this behalf. Ground no. 5 is dismissed.” 3. This Tribunal following the aforesaid decision upheld similar allocation of head office expenses in Assessee’s case for AY 1999-2000 in ITA No.3330/Mum/2004 order dated 5.4.2019 with the following observations:- “7. We have given a careful consideration to the rival submissions. We are of the view that the decision of the Tribunal in AY 1995-96 which was extracted in the earlier part of this order is applicable to the present assessment year also. We find no grounds to take a contrary view. The decision in the case of Zandu Pharmaceuticals Works Ltd. (supra) is with reference to apportionment of R&D expenses and no parity of facts exist with the present case. As far as the decision of the Hon’ble Madras High Court in the case of Hindustan Lever (supra) is concerned, that decision rests on the facts of that case, where it was found that common head office expenses were simple administrative expenses for running the business. In that view of the matter, we uphold the order of CIT(Appeals) and dismiss ground No.1 raised by the assessee.” 4. In the light of the aforesaid decision of the Tribunal, we are of the view that there is no merit in ground No.1 raised by the assessee and accordingly the same is dismissed.”
Page 5 of 19 ITA Nos.1227 & 1256/Bang/2007
Since the facts in the present assessment year are similar to those considered by the Tribunal in AY 1999-2000, this ground is rejected. 17. Ground No.4 of the assessee’s appeal reads as follows:- “4. The Learned CIT (A) erred in holding that expenditure of Rs. 18,14,331/- being amount spend towards Repairs and renovation of Leasehold premises is capital expenditure.” 3.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we allow this grounds raised by the assessee.
Ground No.2 Deduction u/s 80 HHE
4.1 The coordinate bench of this Tribunal on identical facts in assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790,791,896 &897/Bang/2008 order dated 23.7.2021 decided the issue following as under :
“55. The next issue relates to computation of deduction u/s 80HHE of the Act. In both the years, the assessee has submitted in its grounds of appeals that the “miscellaneous income” has been excluded by the A.O. for computing profits of business, even though certain items are not liable to be excluded. However, we notice some thing else in the order of Ld CIT(A).
In assessment year 2002-03, the assessee had claimed deduction u/s 80HHE of the Act at Rs.3,27,998/- and the A.O. has restricted it to Rs.2,44,804/-. The Ld. CIT(A) has dealt with this issue in paragraph 14 of his order. According to the Ld. CIT(A), the A.O. has included “excise duty and sales tax” in the total turnover and accordingly computed deduction u/s 80HHE of the Act. The Ld. CIT(A) held that the excise duty and sales tax should not be included in total turnover and accordingly directed
Page 6 of 19 ITA Nos.1227 & 1256/Bang/2007
the A.O. to recompute deduction u/s 80HHE of the Act. Thus, we notice that there is no discussion about the other income by Ld. CIT(A). Similar is the case with AY 2003-04 also. Accordingly, we are of the view that the impugned ground of the assessee raised in assessment year 2002-03 as well as in 2003-04 does not emanate from the order passed by Ld. CIT(A). Accordingly, we reject the grounds raised by the assessee relating to deduction u/s 80HHE of the Act.” 4.2 Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the assessee.
Ground No.3 - Allocation of head office expenses u/s 801 / 801A
5.1 The coordinate bench of this Tribunal on identical facts in assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790,791,896 &897 /Bang/2008 order dated 23.7.2021 decided the issue. “57. The last common issue relates to deduction u/s 80IA of the Act. The A.O. deducted proportionate “head office expenses” while computing deduction u/s 80IA of the Act and the Ld. CIT(A) also confirmed the same. The Ld. A.R. submitted that this issue has been decided against the assessee in assessment year 2000-01. We also notice that the coordinate bench has decided the issue against the assessee by following the decision rendered in the assessee’s own case in assessment year 1997-98 and 1999-2000. For the sake of convenience, we extract below the discussion made by the Tribunal in assessment year 2000-01. We shall first take up for consideration the appeal by the assessee in ITA No.3959/Mum/2004. As far as ground No.1 raised by the assessee is concerned, the same reads as follows:- “1. The learned CIT(A) erred in confirming that head office expenses is required to be allocated while arriving at the profit of the industrial undertaking for the purpose of allowing deduction u/s 80-I / 80-IA of the Income Tax Act.”
Page 7 of 19 ITA Nos.1227 & 1256/Bang/2007
The assessee is a company engaged in the business of various engineering fabrication, manufacture and trading of mechanical, electrical and other engineering items. The dispute raised by the assessee in ground No.1 is with regard to deduction u/s. 80IA of the Act. It is not in dispute that the assessee was entitled to deduction u/s. 80IA. The AO while allowing deduction u/s. 80IA allocated Head Office expenses on the basis of turnover of the various undertakings of the assessee. Consequent to such allocation, deduction u/s. 80IA of the Act was allowed at a much lesser figure than what was claimed by the assessee. It is not in dispute before us that identical issue came up for consideration in assessee’s own case in AY 1988-89 in ITA No.3809/MUM/2003, order dated 19.10.2012. In para 12.4, the Tribunal followed its decision in assessee’s own case for the AY 1995-96. The issue was considered by the Mumbai Bench of the Tribunal in assessee’s own case in AY 1997-98 in ITA No.2555/MUM/2003 by order dated 05.04.2007 and on identical issue it was held as follows:- “The case of the assessee, however, is that the subject matter of deduction u/s. 80IA is the profits derived from the business of industrial undertakings and hence it is only that expenditure which is directly attributable to the earning of the said profits that can be the subject matter of deduction for computing the aforesaid profits and not head office expenses. We are unable to agree with the aforesaid submission for two reasons. First reason is that it is the profit derived by the assessee from the business of industrial undertaking which has been made eligible for deduction u/s. 80IA d not any other profit. Second reason is that the computation of profits eligible for deduction u/s. 80IA has to be done in accordance with the provisions of section 28 to 43. Perusal of the aforesaid provisions reveals that all those expenses, which are incurred for the purposes of the business of the industrial undertaking, are to be allowed while computing the business profit. It cannot be said that Head Office expenses or common expenses are not incurred or are uncommon for the purposes of the business of the industrial undertaking. What is now required to be computed is the profits derived from the business of industrial undertaking Therefore, there is no warrant for the proposition that only those expenses, which are directly attributable to earning of profits derived from the business of industrial undertaking alone should be considered. As already stated above the profits eligible for deduction u/s. 801A are net profits derived from the industrial undertaking and therefore they will have to be
Page 8 of 19 ITA Nos.1227 & 1256/Bang/2007
netted afteradjusting all the expenses attributable to them in terms of the provisions contained in sections 28 to 43 of the I.T. Act. Therefore all expenses, whether they are direct or indirect or fixed, semi-fixed or variable, must be adjusted to determine the profits derived from the industrial undertaking. Of course, any component of Head Office expenses, which has been incurred exclusively for the purposes of the business of any particular unit/undertaking/division will have to be adjusted against the receipts of that particular unit/undertaking/division only. Similarly, Head Office expenses or expenses which are common to all the units/undertakings/divisions expenses will have to be spread over and charged against the receipts of all the units/undertakings/divisions. If this course is not followed, then what would stand allowed u/s 80IA would be inflated profits and not the net profits derived from the industrial undertaking in terms of the provisions of sections 29 to 43. In this view of the matter and in the absence of any better alternative, the CIT(A) is justified in holding assessee is entitled to deduction of the eligible amounts in respect of the profits derived from the eligible undertakings after the allocation of head officeexpenses in the ratio of turnover. We see no valid reason to take a view contrary to the one taken by the CIT(A) in this behalf. Ground no. 5 is dismissed.” This Tribunal following the aforesaid decision upheld similar allocation of head office expenses in Assessee’s case for AY 1999-2000 in ITA No.3330/Mum/2004 order dated 5.4.2019 with the following observations:- “7. We have given a careful consideration to the rival submissions. We are of the view that the decision of the Tribunal in AY 1995-96 which was extracted in the earlier part of this order is applicable to the present assessment year also. We find no grounds to take a contrary view. The decision in the case of Zandu Pharmaceuticals Works Ltd. (supra) is with reference to apportionment of R&D expenses and no parity of facts exist with the present case. As far as the decision of the Hon’ble Madras High Court in the case of Hindustan Lever (supra) is concerned, that decision rests on the facts of that case, where it was found that common head office expenses were simple administrative expenses for running the business. In that view of the matter, we uphold the order of CIT(Appeals) and dismiss ground No.1 raised by the assessee.” In the light of the aforesaid decision of the Tribunal, we are of the view that there is no merit in ground No.1 raised by the assessee and accordingly the same is dismissed.”
Page 9 of 19 ITA Nos.1227 & 1256/Bang/2007
5.2 There is nothing on record brought by revenue to make as counter view.
5.3 Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the assessee.
Ground No.4 - Repairs and renovation
6.1 This ground is not pressed by the assessee, hence dismissed.
Ground No.5 - Disallowance u/s 14A
7.1 The coordinate bench of this Tribunal on identical facts in assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790,791,896 &897 /Bang/2008 order dated 23.7.2021, decided this issue as under: - “43. We heard Ld. D.R. on this issue and perused the record. We notice that the A.O. has extracted interest free funds available with the assessee as well as the value of investments in both the years under consideration. We notice that the own funds available with the assessee as on 31.3.2002 was Rs.440.92 crores as against the value of investments of Rs.12.95 crores. Similarly, as on 31.3.2003, the assessee was having own funds of Rs.505.51 crores as against value of investments of Rs.0.95 crores. Accordingly, we notice that the own funds available with the assessee in both the years are in far excess of the value of investments. Accordingly, as per the decision rendered by Hon’ble Karnataka High Court in the case of Micro Labs Ltd. (supra), no disallowance out of interest expenditure is called for. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and direct the A.O. to delete disallowance made u/s 14A of the Act in both the years under consideration.
Page 10 of 19 ITA Nos.1227 & 1256/Bang/2007
7.2 There is nothing on record placed by revenue in order to take a contrary view.
7.3 Respectfully following the aforesaid decision of the Tribunal, we allow this grounds raised by the assessee.
Ground No.6 - Disallowance of sum of Rs. 82,00,000 being technical and professional fees paid to M/s Kotawala 8.1 We have perused submission advanced by both sides in light of records placed before us.
8.2 This ground challenges the disallowance of Rs.82,00,000/ being payment of technical and professional fees to M/s Kotawala (India) Ltd. alleging that no services has been received by the assessee.
8.3 The contentions of Ld.Counsel was that the assessee also submits that payment for the services rendered by the agent were made through account payee cheque in pursuance to an agreement. M/s Kotawala (India) Ltd. is assessed to tax as evidenced by its Permanent Account Number.
8.4 However Ld.CIT(A) has observed and held as under:
“I have carefully considered the submissions of the appellant and also the reasons given by the AC for disallowing thecommission paid to M/S Kotawala(India) Ltd. The AC has relied on the statement given by the Managing Director of M/s.Kotawala (India) Ltd., stating that he has no evidence for rendering services to the appellant. Besides this, the AC has also pointed out certain discrepancies / contradictions in the accounts and the TDS certificates issued by the appellant, indicating that
Page 11 of 19 ITA Nos.1227 & 1256/Bang/2007
the transaction is not free from doubt. However, the appellant in its submission during appeal proceedings and also during assessment proceedings has never contested the statement of the Managing Director of M/s.Kotawala (India) Ltd. The appellant reiterates its stand that the payment has been made by account-payee cheque, which is duly reflected in its bank account and the TDS on such payments has been made and credited to the government account accordingly. Further, it is also stated by the appellant that M/s.Kotawala (India) Ltd. is assessed to tax as evidenced by the PAN number without confirming whether the recipient has reflected the amounts received by it in its return of income. The appellant has not produced any evidence regarding rendering of the service by the recipient of commission either at the assessment stage or at the appeal stage, except the copies of the agreement entered into by it with M/s.Kotawala (India) Ltd. dated 02/01/2002 and 18/10/2002 and the invoices raised by M/s.Kotawala (India) Ltd. dated 23/10/2003 and 24/10/2003. The appellant has not given any details regarding the projects awarded to it in pursuance of the said agreements such as the date of the award, the correspondence with MIs. Kotawala (India) Ltd., etc. It is noteworthy That the TDS certificate mentions the period of rendering service as 01/03/2004 to 31/03/2004 whereas the bills were raised by M/s Kotawala (India) Ltd. on 23/10/2003 and 24/10/2003 and on the same days the amounts have been credited to the account of M/s.Kotawala (India) Ltd. At no stage, the appellant has contradicted the statement given by the M.D. of M/s.Kotawala (India) Ltd. nor has it produced anything to disprove the statement so given. When the appellant itself has not produced any evidence in support of the services received by it, the question of allowing the claim for expenditure does not arise. In view of the above discussion, the action of the AO is confirmed.”
8.5 Even before us the Ld.Counsel could not counter the statement given by the Director of Kotawala. Further nothing was placed on record before us to establish that services have been rendered. We therefore do not find any infirmity in the view taken by Ld.CIT(A) and the same is upheld.
Accordingly this ground raised by assessee stands dismissed.
Accordingly Assessee’s appeal stands partly allowed.
Page 12 of 19 ITA Nos.1227 & 1256/Bang/2007
Revenue’s appeal : 9. The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under: 10. Ground No.1 - General Ground 10.1 Ground No.1 is general in nature hence needs no adjudication.
Ground No.2 - Deduction u/s 80 HHB 11.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
“4. Aggrieved by the order of the CIT(A), the Revenue has raised ground No.2. Learned Counsel for the assessee pointed out that identical issue was decided by this Tribunal in Assessment Year 2001- 02 in ITA No.755/Bang/2007, order dated 04.03.2021 and the Tribunal in paragraph 57 of the order, followed the Tribunal’s decision for Assessment Year 1999-2000 in ITA No.3330/Mum/2004. The Tribunal noticed that though separate books of accounts were not maintained separate accounts were maintained in respect of each foreign project and audit certificates in Form No.10CCAH have also been furnished in respect of each project. In these circumstances, we are of the view that the decision rendered by the Tribunal in assessee’s own case for the earlier Assessment Years on identical ground would apply and therefore the assessee cannot be denied the benefit of deduction under section 80HHA of the Act on the ground that separate books of accounts were not maintained for the foreign projects. Ground No.2 raised by the Revenue is accordingly dismissed.” 11.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Page 13 of 19 ITA Nos.1227 & 1256/Bang/2007
Ground No. 3 - Entrance and subscription fees paid to the club
12.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
As far as the above ground is concerned, the law is well settled that entrance fee and membership fees paid where the employees become members is allowable as a business expenditure and was allowed as deduction in Assessee’s own case in AY 1999-2000. When membership of a club is taken in the name of director, it is for the assessee-company to prove that membership was obtained solely for the purpose of business. [New India Extrusions (P) Limited v ACIT 10 Taxmann.com 165]. Further Entrance fees paid towards corporate membership of the club is an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprises and accordingly CIT (A) was justified in deleting the disallowances of entrances fee made by the Assessing Officer. [Dy. CIT vs. Bank of America Securities (India) (P) Ltd. 136 TTJ 441]. Again, Corporate membership fees payable to club is revenue exp. [CIT v Samtel Colour Limited 326 ITR 425]. Ground No.3 is accordingly dismissed. 12.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Ground No.4 - Expenses on the basis of purchase of packing material, loose tools etc., in the year of purchase
13.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790
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& 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
The facts with regard to this ground are that the assessee consistently used to follow the method of writing off the packing materials, loose tools and consumables that are purchased in a year without taking an inventory of the same at the end of the year. This method has always been accepted in the past. According to the assessee, the method is also in accordance with accounting principles. The AO for the first time whilst completing the assessment for AY 2000- 01, has come to the conclusion that this methodology is not permissible and in the present AY estimated the closing inventory of the aforesaid items at 18.8% of the amounts charged to the profit and loss account. In determining this percentage, the AO took the basis as ratio of Inventory of finished goods in relation to consumption of raw materials.The action of the AO resulted in an addition of Rs.2,65,15,000/- to the total income of the assessee as value of closing stock.
On appeal by the assessee, the CIT(A) deleted the addition made by the AO by following the order of the CIT(A) on identical issue for Assessment Year 2000-01 and 2001-02. At the time of hearing, it was brought to our notice that identical issue was decided by the Tribunal in Assessment Year 2000-01 in ITA No.3959/Mum/2004 order dated 08.03.2020 and the Tribunal held as follows:
“We have given a careful consideration to the rival submissions and are of the view that the order of the CIT(A) on this issue has to be upheld. Admittedly the method of accounting followed by the Assessee was consistent and accepted in the past by the Revenue authorities. There is no reason why the same should be disturbed. The decision in the case of Abdul Latif (supra) supports the plea of the Assessee. In the said decision, the facts were that the Assessee was engaged in business of manufacture of papers. In return of income for AY 2005-06, assessee had shown, inter alia, purchases of packing material as on 31-3-2005, but no amount of packing material was shown in closing stock. The Assessee submitted before Assessing Officer that; (i) packing material shown as purchases as on 31-3-2005 was actually purchased in earlier months and such packing material was consumed during process; (ii) on account of some computer problem, bills were posted on 31-3-2005, and (iii) entire packing material left after end of
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year became obsolete and, therefore, it was not shown in closing stock. The Assessing Officer rejected account books of assessee and made certain addition to his income. The Tribunal held that:- (i) it was not case of revenue that purchases as debited as on 31-3-2005 were not genuine, and (ii) assessee was following a consistent method of valuing closing stock by including packing material as consumed at time of purchase. Rejection of account books of assessee and addition to his income was held to be not justified. We therefore uphold the order of CIT(A) on this issue and dismiss ground No.5 raised by the Revenue.”
13.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Ground No.5 & 8 - Excise duty and sales tax to be excluded from the total turnover for the purpose of deduction u/s 80HHC & 8OHHE
14.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
“17. As far as ground Nos.6 and 9 raised by the Revenue is concerned, the issue is as to whether sales tax and central excise duty collected by the assessee should be taken as forming part of the turnover for the purpose of calculating deduction under section 80HHC of the Act. The AO held that sales tax and central excise duty is to be regarded as a part of the turnover for computing deduction under section 80HHC of the Act. The CIT(A), however, following the decision of the Hon’ble Supreme Court in the case of CIT Vs. Lakshmi Machine Works (290 ITR 667) (SC) held that the sales tax and central excise duty should not be included as a part of the total turnover while computing deduction under section 80HHC of the Act. In view of the aforesaid decision of the Hon’ble Supreme Court in the case of Lakshmi Machine Works (supra), which has settled the issue, we are of the view that there is no merit in ground Nos. 6 and 9 raised by the Revenue.
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We may also mention that the provisions of 80HHC which is the applicable provision for ground No. 6 and the provisions of section 80HHC of the Act which is the applicable section for ground No.9, are identical.”
14.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Ground No. 6 - Gross interest receipt or net interest income to be reduced for computing business profit under clause (baa) of Section 80HHC
15.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
“24. Aggrieved by the order of the CIT(A), the Revenue has raised ground No.8 before the Tribunal. At the time of hearing, learned Counsel for the assessee brought to our notice decision of the Tribunal rendered on an identical year for Assessment Year 2001-02 in ITA No.562/Bang/2007 order dated 04.03.2021 wherein the Tribunal accepted a similar decision rendered by the CIT(A) in Assessment Year 2001-02. Learned DR reiterated the stand of the Revenue as reflected in the grounds of appeal. Learned Counsel for the assessee relied on the order of the Tribunal in assessee’s own case on an identical issue for Assessment Year 2001-02. “25. We have considered the rival submissions and are of the view that the principle of netting has been recognized by the various decisions of Hon’ble High Courts and has also been affirmed by the Hon’ble Supreme Court in the case of ACG Associated Capsules Vs. CIT 343 ITR 89 (SC). The principle of netting is however applicable only on the assessee establishing nexus between the interest paid and the interest earned. If such nexus is proved, it is only the net interest that has to be excluded under explanation baa to section 80HHC of the Act.”
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In view of the aforesaid legal position, we are of the view that there is no merit in ground No.8 raised by the Revenue and accordingly the same is dismissed. 15.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Ground No.7 - For computing deduction u/s 80HHC in respect of cash discount, excise duty recovered, scrap sales and exchange rate variation.
16.1 The coordinate bench of this Tribunal on identical facts in Assessee’s own case for AY 2002-2003 & 2003-04 in ITA No.790 & 791/Bang/2008 order dated 4.3.2021 decided this issue as under:
At the time of hearing, it was brought to our notice that identical issue was decided by the Hon’ble Karnataka High Court in the case of Tejas Network Ltd. Vs. DCIT (2015) 60 taxmann.com 309 (Karn.) and it was held that where assessee claimed deduction under section 35(2AB) pursuant to certificate issued by prescribed authority, i.e., Department of Scientific & Industrial Research (DSIR), approving such claim, Assessing Officer could not have denied weighted deduction under section 35(2AB) in respect of scientific expenditure. It was held that Assessing Officer cannot sit in judgment over report submitted by prescribed authority . It was held that where Assessing Officer does not accept claim of assessee made under section 35(2AB), he should refer the matter to Board, which will then refer question to the prescribed authority. In view of the aforesaid decision, we are of the view that there is no merit in ground No.4 raised by the Revenue.” 16.2 There is nothing brought on record by the revenue to take a contrary view. Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the revenue.
Page 18 of 19 ITA Nos.1227 & 1256/Bang/2007
Accordingly Revenue’s appeal stands dismissed. In the result, appeal filed by assessee stands partly allowed and appeal filed by Revenue stands dismissed. Order pronounced in the open court on 29th Sept, 2021
Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member
Bangalore, Dated, the 29th Sept, 2021.
/Vms/
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order
Assistant Registrar, ITAT, Bangalore