THE ACIT, CIRCLE-5,, AHMEDABAD vs. M/S. NIRMA LIMITED,, AHMEDABAD

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

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8) In law and in facts of the Appellant's case, the deduction u/s.80lA in respect of Power Project should be allowed. 9) In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing appellant's ground regarding charging interest u/s.2346 of Income-tax Act. 10) In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing appellant's ground regarding charging interest u/s.234C of Income-tax Act. 11) In law and in facts and circumstances of the Appellant's case, the learned Commissioner 'of Income-tax (Appeals) has grossly erred in dismissing appellant's ground regarding raising demand of Rs.36,89,24,219. 12) In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing appellant's ground regarding issuing notice u/s.271(l)(c) of l.'l. Acl for concealment of income or furnishing inaccurate particulars of income. 13) Your appellant reserves the right to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time.

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and Wind Farm Division. The assessee in the year under consideration has claimed deduction under section 80IA of the Act with respect to such units. At the same time, the assessee has shown losses in its corporate division amounting to Rs. 151,70,06,276/- which was not allocated to the manufacturing units eligible for deduction under section 80IA of the Act. The assessee, for not allocating the loss of the corporate division to the eligible units, contended that: i. There was the huge interest expenses in the corporate division on the borrowed fund which was utilized for the purpose of the fixed assets and working capital. However, there were negligible fixed assets in the manufacturing units eligible for deduction under section 80 IA of the Act. Likewise, the eligible manufacturing units have shown sufficient profit in their respective divisions which is able to meet the working capital requirements adequately. Thus, there was no borrowed fund either against the fixed asset or working capital used in the manufacturing units eligible for deduction under section 80 IA of the Act. ii. The loss of the corporate division also includes other expenses which was not related to the manufacturing units eligible for deduction under section 80IA of the Act. Such loss includes the following: a. Exchange rate difference Rs. 61.25 lacs b. Bad debts Rs. 7.84 crores c. Diminution in the value of investments Rs. 1.15 crores

iii. There were separate books of accounts maintained by the assessee for its units eligible for deduction under section 80IA of the Act. 6.1 In view of the above, the assessee submitted that the losses shown under corporate division cannot be allocated/attributed to the manufacturing units eligible for deduction under section 80IA of the Act.

6.2 However, the AO observed that the present proceedings are arising from the direction of the ITAT in ITA number 3725/Ahd/2008 vide order dated 12th July 2009.

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The ITAT in his order has directed to decide the issue on hand after considering the principles laid down by Mumbai bench of tribunal in the case of ACIT vs. Asea Brown Boveri Ltd reported in 110 TTJ 502 (Mum).

6.3 In the case of Asea Brown Boveri Ltd, the Mumbai tribunal has directed to allocate all the expenses incurred by the assessee directly or indirectly including the head office/common expenses to the unit eligible for deduction under section 80IA of the Act. Thus, the loss incurred in the corporate division should be allocated to the eligible units. Accordingly, the AO allocated a sum of ₹ 5,70,22,039/- to Moraiya Division and ₹ 39,80,000/- to its Wind Farm Division which has resulted the reduction in the eligible amount of deduction under section 80IA of the Act claimed by the assessee.

7.1 The assessee before the learned CIT-A made elaborated submissions which are summarized as under: a. Loss in corporate division includes interest cost of Rs. 42,40,49,425/- which contain interest of Rs. 25,17,31,537 on Deep Discount Bond (DDB) issued by M/s Nirma Industries Limited transferred to its corporate division on account of merger. Thus interest on DDB cannot be allocated to Moraiya division or Wind Farm division as the same is not related to business of those undertakings. b. Remaining interest was on account of borrowing for acquisition of fixed assets and majority of fixed assets were installed at Soda Ash division and LAB division. As such units eligible for deduction under section 80-IA of the Act have negligible fixed assets, hence no interest expenses required to be allocated to these units. c. Other expenses include loss on account of exchange rate difference on export proceeds for Rs. 61,25,000/- and Rs. 7,84,04,719/- for the bad debt written off which are not pertaining to Moraiya Division or Wind Farm Division.

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d. Similarly an amount of Rs. 1,1,5,84,175 being diminution in the value of Investment charged against the profit of corporate division does also not relate to either directly or indirectly to the units eligible for deduction under section 80IA of the Act. 8. The learned CIT (A) after considering the facts in totality confirmed the order of the AO by observing as under: 3.5 In the instant case it is seen that the appellant has incurred loss of Rs. 92,25,07,507/- in the Corporate Division. The main constituent of this loss is interest expense of Rs. 42.40 crores. The appellant contended that the interest expenses are incurred by the corporate office for installing substantial asset at Bhavnagar and Alindra units. Accordingly, the appellant contended that the interest expenses should be allocated in proportion to the value of fixed assets. The appellant also contended that interest expenses should not be allocated to Moraiya division as corporate division has not incurred any expense for Moraiya division. The appellant reiterated the same argument in its letter dated 11.1.2013. The contention of the appellant cannot be accepted as the appellant could not file any cogent evidence that the interest expenses pertains to Bhavnagar and Alindra units and the interest expenses as debited in the corporate division does not pertain to Moraiya division. In this letter the appellant had mentioned three expenses which does not pertain to the Moraiya division. By this the appellant has tried to allocate expenses debited in the corporate division, to the unit to which it pertains. The details of these expenses and my findings are given as under :- (i) Exchange rate difference Rs.61,25,000/- Perusal of the P & L account of corporate division reveals that this expense is claimed in this division. The appellant contended that this expense does not pertains to Moraiya Division. However, the appellant had not furnished any evidence in support of this claim. In view of above, the appellant's contention cannot be accepted. Since this expense is common expense to all the divisions and accordingly I hold that this expense should be allocated to all the units for the purpose of computing the deduction. Accordingly, no benefit can be given in respect of this expense. (ii)The appellant has also identified bad debt written off of Rs.7,84,04,719/-. In respect of this expense also the appellant contended that this expense does not pertain to Moraiya Division. However, the appellant has not furnished any evidence in support of this claim. In view of above, appellant's contention cannot be accepted. Since this expense is common expense to all the units, accordingly, I hold that this expense should be allocated to all the units for the computation of deductions. The appellant will not get any benefit on this account. (iii)Provision for diminution of investment of Rs. 50 lacs The appellant contended that this expense has been disallowed by it in the computation of income. Perusal of computation of income reveals that this expense was disallowed in the computation of income. It is further seen for the purpose of the allocation of corporate division losses, the A.O. has taken the loss of Rs. 15,70,06,2767- which is final loss appearing in the computation of income. The losses as mentioned above, has resulted after making disallowance of provision of diminution in value of investment. This way, the provision for diminution in value of investment was not part and parcel of the expenses allocated for the purposes of computation of deduction and accordingly, I am not inclined to agree with the contentions of the Ld.A.R. The appellant will not get any benefit on this account.

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3.6 The facts mentioned above clearly indicate that the appellant has failed to produce cogent evidence to prove that part of corporate division losses pertain to a particular unit/division. Accordingly, it is held that the corporate division expenses/loss of Rs.48,84.23,020/- are common to all units and the same should, be allocated to various units for the purpose of computing the deductions. Hon'ble Mumbai ITAT in Asian Brown Boveri had clearly held that the corporate division expenses should be allocated to the various units in proportion to the turnover. Perusal of the assessment order reveals that the A.O. had allocated head office losses to Moraiya division in proportion to the turnover only. The appellant has not pointed out any discrepancy in this working of allocation of losses. Accordingly the working made by the A.O. for allocation of corporate loss is taken as correct. In view of above, the allocation of corporate loss of Rs.5,70,22,036/- made to Moraiya division for the purposes of computing deduction u/s.80!A is confirmed. This ground of appeal is dismissed.

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Division. If yes, then that direct/indirect expenditure ought to be debited. If it is not possible to dissect the expenditure or identify the expenditure relatable to Moraiya Division; but from the misc. expenditure, if it is discernible that some of the expenditure must have been attributable to this concern, then those expenditure are to be identified by following some formula; for example, they can be allocated in proportionate to the turnover or some other methods. The finding of the ld.CIT(A) to the extent of above proposition is not disturbed. The question is, whether interest expenditure of Rs.44.35crores representing DDB has any relationship with the activities of Moraiya Division. The assessee has pointed out that its profit for the last two years was Rs.2791.97 lakhs and Rs.1779.89 lakhs. Fixed assets of this division is of Rs.3195.28 lakhs, as against fixed assets of the company at Rs.2125.30 crores. The DDBs were issued by the company for raising capital. It is to be seen whether this capital was being used for the purpose of acquiring assets in this division. Assessee pointed out that fixed assets of this division is of Rs.3195.28 lakhs (roughly Rs.31 crores), as against aggregated fixed assets of the company at Rs.2125.30 lakhs. Similarly profit for the last two years in the Moraiya Division was Rs.27.91 crores and Rs.17.79 crores. These two years profit would easily take care of any fund required at this undertaking. Thus, the ld.Revenue authorities have failed to point out deployment of any interest bearing funds for which interest expenditure has been incurred at the corporate division of this unit. In that case, it is not advisable to reduce eligible profit in the ratio of turnover. We allow this ground of appeal and delete disallowance.

12.1 Respectfully following the same we set aside the finding of the learned CIT (A) and direct the AO to delete the disallowances made by him. Hence, the ground of appeal of the assessee is allowed.

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14.1 However, the AO was of the view that the interest income and the other income shown by the assessee as profit of the business for claiming the deduction under section 80HHC of the Act is not correct. As per the AO, the interest income and the other income for Rs. 11,62,76,112/- respectively cannot be regarded as the profit of the business in pursuance to the explanation (baa) provided under section 80HHC of the Act and therefore the same cannot be considered for calculating the deduction under section 80HHC of the Act. As per the AO the deduction under section 80HHC of the Act is available on the export profit. But Assessee failed to establish the nexus that the interest and other income was relating to the export profit. Therefore, the AO rejected the benefit for the deduction on the interest and other income claimed by the assessee under the provisions of section 80HHC of the Act.

15.1 The assessee before the learned CIT-A made detailed submission in respect of each item of income shown under the head other sources which is, item wise, detailed as under: a. There was the insurance claim of ₹ 127.02 Lacs against the fixed assets which was utilized for the purpose of the business. Accordingly, such receipt has direct nexus with the business activity and therefore the same should be treated as business receipt for calculating the deduction under section 80HHC of the Act. b. The miscellaneous income of for Rs. 0.57 Lacs represents the sale of Scrap which has direct nexuses with the industrial undertaking. Therefore the same should be eligible for deduction under section 80HHC of the Act. c. The receipt of Rs. 4.30 Lacs represents the recovery of the transport expenses from the staff and the workers. The assessee against such recovery has incurred expenses. If such recovery is excluded for computing the deduction under section 80HHC, then the corresponding expenses should also be excluded from the profit of the business.

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d. The amount of sales tax refund of ₹ 26.67 Lacs represents the income against the sales tax expenses which were claimed as deduction previously and the same was allowed. Therefore, the impugned amount of the tax refund should be considered as business income of the assessee eligible for deduction under section 80HHC of the Act. e. The amount of Kasar-Vatav of Rs. 4,518/- represents the credit balance of sundry debtors which was written back by crediting the profit and loss account. Such credit balance of various debtors was in relation to the business activities. Therefore the same is very much eligible for deduction under section 80HHC of the Act as profit of the business. f. The amount of central excise refund of Rs. 7,78,963/- represents the duty paid on the goods received back for reconditioning. As such, the impugned amount cannot be treated as real income. g. The amount of agricultural income of ₹ 18,453/- represents the income from the activity of agricultural carried out at the factory premises which was offered as business income. Being the income from the business, the same should be eligible for deduction under section 80HHC of the Act. h. The amount of ₹ 31,77,501/- represents the truck hiring charges against which depreciation and expenses claimed as business expenses, therefore income should not be excluded. If income is excluded then corresponding expense and depreciation should also be excluded. i. The amount of ₹ 64,07,944/- represents the profit on the sale of securities which is not a business profit but under the head capital gain. But such profit is on the investments held under the business. Furthermore, the same income has already been excluded from business income in the computation of income. Therefore the same cannot be excluded while calculating the deduction under section 80HHC of the Act. j. The amount of ₹27.72 lakhs, 15.56 Lacs and 4.44 lakhs represents the lease rent, rent and the service charges which should be treated as business profit for the purpose of calculating the deduction under section 80 HHC of the Act.

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If, the same is not treated as business profit then the corresponding amount of depreciation on the lease assets should also be excluded. k. The amount of Rs. 1,71,510/- represent dividend income which already been excluded from business income in computation of income, hence same does not require to be excluded again. l. The amount of ₹ 8,21,87,922/- represents the exchange gain which is from the business activities of the assessee. Therefore the same should be eligible for deduction under section 80HHC of the Act. m. Similarly, it was submitted that consultancy fee of Rs. 6,18,000/-, refund of tax and insurance of Rs. 13,08,045/-, recovery of bad debt written off for Rs. 65,000/- and job work income of Rs. 5,12,897 are business income which should not be excluded from the computation of deduction under section 80HHC of the Act. 15.2 The assessee without prejudice to the above also contended that if the above incomes are excluded from the definition of the profit of the business as provided under explanation (baa) to section 80HHC of the Act, then the corresponding expenses should also be reduced while calculating the business profit.

15.3 The assessee with respect to the interest income submitted that the impugned income was offered to tax as business income and therefore the same should be considered as profit of the business eligible for deduction under section 80HHC of the Act.

15.4 The assessee alternatively contended that if the impugned interest income is excluded while calculating the deduction under the provisions of section 80HHC of the Act, then the corresponding interest expenses of Rs. 29,36,00,072/- should also be reduced from such interest income. As such only the amount of net interest income should be excluded while computing the deduction under section 80HHC of the Act.

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15.5 However, the learned CIT(A) rejected the contention of the assessee by observing as under: 5.4 The unambiguous reading of the Hon'ble ITAT order clearly reveals that to claim deduction u/s.80HHC, the appellant has to prove that the particular income has sprung from the export turnover. Perusal of the appellants reply reveals that it has narrated the nature of all the incomes on which deduction/s.80HHC is claimed and the same is reproduced in para 5.1 of this order. The eligibility of these incomes for deduction u/s.80HHC are discussed briefly in the following paragraphs:- (i) Insurance claim of - Rs. 1,27 crores The appellant contended that insurance claim amounting to Rs. 127.02 lacs is in respect of goods, Plant & Machinery, Building Equipment and vehicles used in the business carried out by the assessee company. Since it constitute part of .business income and accordingly, deduction u/s.SOHHC be allowed on this. Taking the entirety of facts in view, I am of the considered view that the appellant's submissions are general in nature and the appellant has d to produce sufficient evidence to prove that this income Plant & Machinery, Building equipment and vehicles cannot be treated as business income. Secondly, the appellant has failed to produce sufficient evidence to prove that this business has sprung from the export turnover. Accordingly, I hold that appellant is not entitled to claim deduction u/s.SOHHC on these receipts as per the directions of Hon'ble ITAT. (ii) Miscellaneous Income - Rs. 4.57 lacs This receipt is in respect of recovery of freight, miscellaneous sales, sale of scrap, empty barrels, drums, sale of bardana etc. The appellant has failed to furnish any evidence to prove that this income has sprung from the export turnover. Since this income does not have a direct bearing on export activity, accordingly, t hold that the appellant is not entitled to claim deduction u/s.80HHC on this income as per the directions of Hon'ble ITAT. (Hi) Transport income - Rs. 4.30 lacs This income has accrued on account of recovery of transport expenses from staff/workers. The nature of this receipt makes it abundantly clear that the same has not been derived from the export turnover. Accordingly, I hold that the appellant is not entitled for deduction u/s.80HHC on this receipt.. (iv) Sales Tax Refund - Rs. 26.67 lacs In this regard the appellant contended that sales tax refund is a business receipt and accordingly, it is entitled to claim deduction u/s.80HHC on this receipt. In this regard it is observed that every business receipt cannot be a receipt derived from the export turnover. As per the directions of Hon'ble 1TAT, the appellant is entitled for deduction u/s.80HHC on incomes which has sprung from export turnover. Since the appellant has failed to bring cogent evidence to prove this fact, accordingly, I hold that the appellant is not entitled to claim deduction u/s.80HHC on this receipt. (v) KasarVatav -Rs. 4,518/- In respect of this income the appellant summarily contended that Kasar Vatav is a business income as per the decision of Tribunal in the case of Khambatta family trust. 62 TTJ 675. In this regard it is observed that every business receipt is not eligible for deduction u/s.80HHC. The appellant has not brought any evidence on record to prove that this income is derived from export activities. Accordingly, I hold that the appellant is not entitled to claim deduction u/s.80HHC on this income as per the directions of the Hon'ble ITAT. (vi) Truck Higher Charges - Rs. 31,77,501/- In respect of this income the appellant has submitted that this income is nothing but the reimbursement of identical amount of Rs. 31,77,5017- from Shree Ambica Carriers. The

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appellant has incurred expenses towards the salary of drivers and cleaners of M/s. Shree Ambica Carriers, which has been reimbursed by the Ambica Carriers to the appellant company. The analysis of facts narrated by the appellant makes it very clear that this income does not have any bearing on export activities Since this income has not sprung from the export activities, accordingly I hold that the appellant is not entitled to claim deduction u/s.80HHC on this income. (vii) Lease rent - Rs. 27,72,000/- This lease rent has accrued to the appellant as a result of lease rent from the assets leased out. The appellant contended that the depreciation in respect of these assets is Rs. 15,27,086/-. The facts available on record clearly indicate that the income of lease rent is not derived from the export turnover or this income has not sprung from export turnover. In view of above, I hold that this income has not sprung from the export activities and accordingly the jappellant is not entitled to claim deduction u/s.80HHC on this income. (viii) Central Excise Refund - Rs. 7,78,693/- In this regard appellant has contended that sales tax and central excise refund is received against the sales tax and excise duty paid in the earlier years. The appellant contended that it is only the recovery of the expenses incurred in earlier year and accordingly, it is entitled to claim deduction u/s.80HHC on these receipts. Perusal of facts available on record reveals that the appellant has not given details of expenses incurred in the earlier years. Secondly, the appellant has not brought any material on record to prove that these incomes have sprung from the export activities. In : view of above, I hold that the appellant is not entitled to claim ; deduction u/s.80HHC on these receipts. (ix) Agricultural Income Rs. 18,453:- In this regard the appellant contended that agricultural income has accrued to it by the agricultural activities carried on the site of Alindra factory. The l.T.Act provide separate treatment for taxing agricultural income. This income is not a business income at all. Secondly, this income does not have any bearing on export turnover. Accordingly, I am of the considered view that the appellant is not entitled to claim deduction u/s.80HHC on this income. (x) The appellant has agreed with the fact that dividend income of Rs. 1,71,510/- and profit on sale of securities of Rs.64,07,9447- is not part of the business income. In view of these facts, I hold that the appellant is not entitled to claim deduction u/s.80HHC on these receipts. (xi) The appellant has merely contended that the following income are business income and deduction u/s.80HHC should be allowed on these incomes. The particulars of such incomes are given as under :-

(a)Consultation Fees Rs.618,000/- (b)Exchange rate difference Rs. 8,21,87,922/- (c) Refund of tax and insurance Rs. 13,08,045/- (d)Service charges income Rs. 4,44,000/- (e)Bad debts written off received Rs. 65,000/- (f)Job work charges income Rs. Rs.5,12,897/- (g)Rent received Rs.15,56,001/- Total Rs.8,66,91,865/- During the appellate proceedings the appellant has not filed cogent evidence to prove that these income are business income. Secondly, there is nothing on record which proves that

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these incomes has sprung from the export turnover. Accordingly, I hold that the appellant is not entitled to claim deduction u/s.80HHC on these receipts as per the directions of Hon’ble ITAT. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 6.3 Perusal of the order of Hon'ble 1TAT reveals that the Hon’ble ITAT has laid down following conditions for allowing deduction u/s.80HHC on interest income. (i) If interest income forms part of 'income from other sources,' then the same should be assessed as income from other sources and it will not form part of profits of business. (ii) (ii) The interest income cannot be included in the profits of business in view of specific provisions in explanation (baa) to sec. 80HHC. (iii) If afly-ifiterest4ncom&-is found-to be business, income,then the difference of gross interest income and the expenditure incurred to earn this income should be reduced for the purpose of profits of business. This issue has to be decided strictly as per these guidelines 6.4 I have carefully considered the rival contentions. The appellant contended that all the interest receipts are assessed as business income, accordingly the appellant is entitled to deduction u/s.80HHC on the interest receipt. In this regard I would like to reproduce the details of interest income received by the appellant. (i) Interest on fixed deposits Rs. 54,79,271/- (ii) Interest on inter corporate deposit Loans and staff loan Rs. 6,58,08,511/- (iii) Other interest income Rs. 7,00,169/- (iv) Interest on late payment Rs. 1,22,25,419/- (v) Interest from debtors Rs. 5,75,54,530/- (vi) Interest on income tax refund Rs. 28,33,544/- Taking entirety of facts in view, I am of the considered view that interest on fixed deposit, interest on inter corporate deposits, loans and staff loans, other interest income and interest on income-tax refund are income from other sources and these receipts has to be assessed accordingly. I am not inclined to agree with the appellant's contention that these income were assessed as business income as the A.O. has not made any observations in this regard. Interest income from debtors of Rs. 5,75,54,530/- may or may not be business income. However, the appellant had not given any detail of this income and accordingly, I am not in a position to ascertain exact nature of this income. Even if this income is a business income, the same cannot be said to have accrued from export turnover. Secondly, the-appellant has failed-to bring any material on record to prove that these incomes have sprung from the export activities. In view of above facts, I am of the considered view that the appellant is not entitled to claim deduction u7s.80HHC on these incomes. The appellant's contention that the interest expenses be set off against these income is inconsequential in view of above findings. Otherwise also the appellant has failed to bring any cogent material to prove that the interest expenses of Rs. 43,82,01,5167- were incurred to earn the above mentioned interest incomes. In view of above facts, I am inclined to agree with the contentions of Ld. A.O.

6.6 As a result this ground of appeal is dismissed.

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19.1 We first proceed to adjudicate the issue of exclusion of 90% of gross interest income instead of net interest income. We note that on previous occasion in the own case of the assessee, the impugned issue has been reached to Hon’ble Gujarat High Court in tax appeal number 423 of 2007 and the Hon’ble court held that only 90% of net interest income should be excluded from the computation of deduction. We also find that this ITAT in the own case of the assessee for AY 2003-04 in ITA No. 1280/Ahd/2013 after considering the above order of the Hon’ble Gujarat High

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Court has remitted the issue of interest income to the file of the AO with following direction: Considering the above decision of Hon’ble jurisdictional High Court in the assessee’s own case, we remit this issue to the file of AO for re-working of eligible profit for grant of deduction under section 80HHC. The ld.AO shall exclude net interest income from the eligible profit. This ground of appeal of the assessee is allowed.

19.2 In view of the above and respectfully following the order of the Hon’ble Gujarat High Court and this ITAT in own case of the assessee we also remit the issue to the file of the AO for reworking of eligible profit after excluding net interest income.

19.3 Coming to exclusion of 90% of other income. We find that the other income also includes various types of income under different head. We first proceed to adjudicate the same one by one:

i. The assessee during the year has shown receipt of Rs. 1,27,02,093/- being insurance claim in respect of goods, plant and machinery, building, equipment and vehicle and claimed the same as business receipt on the reasoning that claims were received against the assets which were used in the business. At the outset we note that similar issue was there before this tribunal in the own case of the assessee in ITA No. 1280/Ahd/2013 corresponding to AY 2003-04 where the bench has observed as under: A perusal of break-up of misc. income reproduced by the ld.CIT(A) would indicate that all the items were not sprang from export turnover except some element of export turnover involved in insurance claim. It is pertinent to observe that if the claim represented exported goods which have been damaged in transit, then such receipt could be considered as derived from export of articles. It can be understood by way of following example; viz. an assessee is engaged in manufacture and export of sea-foods. It has exported frozen sea-food. On account of some mishaps, due to electricity failure, fishes got damaged/decayed in transit and the assessee received claim. This claim would be construed as derived from export activities. On the other hand, a claim has been received by an assessee on account of some damage to the plant & machinery, then that would not qualify for consideration for grant of deduction under section 80HHC. Neither the AO, nor the ld.CIT(A) has determined nature of insurance claim in the impugned order. Therefore, we deem it appropriate to set aside this limited issue to the file of AO. The ld.AO first determine the nature of insurance claim in the

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light of the above discussion, and then decide its inclusion or exclusion from eligible profit for grant of deduction under section 80HHC.

ii. On perusal of the above order, it appears that the issue on hand is covered in the own case of the assessee as discussed above. However, we are looking the case on hand from a different angle. First of all, the insurance claim is not an income of the assessee. The question of insurance claim arises against the losses which has been incurred by the assessee. Admittedly, such losses has to be allowed as deduction to the assessee provided such loss relates to the business of the assessee. As the insurance claim has been treated as income by the assessee which implies that insurance loss was on account of business activities only. Generally, there is no element of income in the amount of insurance claim which is always settled against the loss. If the assessee is not allowed the deduction under section 80HHC of the Act against the insurance claim, then the loss claimed by the assessee should also be excluded from the profit of the business while calculating the deduction under section 80HHC of the Act. In other words, there was direct nexuses between the insurance claim and the loss, thus the net amount of insurance claim if any should be considered for the purpose of calculating the deduction provided under section 80 HHC of the Act in the manner as provided by Hon’ble Gujarat High Court in the case of the assessee with respect to the interest income which has been elaborated in paragraph No. 19 of this order. Accordingly, we direct the AO to take the net insurance claim if any while calculating the deduction under section 80HHC of the Act.

i. At the outset, we note that the identical issue was also there in the own case of the assessee in the assessment year 2003-04 in ITA No. 1280/AHD/ 2013 which was set aside to the AO for fresh adjudication vide order dated 19th April 2018. The relevant extract of the order is reproduced as under: 70. With regard to profit on sale of asset is concerned, the ld.counsel for the assessee contended that the assessee itself has not included this amount in the eligible profit for grant of deduction under section 80HHC. We remit this issue to the file of the AO for verification

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and re-adjudication. If the assessee itself has excluded this amount, then it should not be again excluded otherwise that will be double exclusion. Similarly, dividend income has not been included by the assessee. The ld.AO shall verify this aspect also, and if it is found that the dividend income has not been included by the assessee in the eligible profit, then it should not be excluded again.

ii. The facts of the case on hand are identical to the facts of the case as discussed above. Therefore, respectfully following the same, we set aside the issue of dividend income and profit on sale of assets to the file of the AO for verification in the light of the above stated discussion. Thus the contention of the assessee is allowed for the statistical purposes.

i. At the outset we note that the foreign exchange gain shown by the assessee cannot be allowed as deduction under section 80HHC of the Act until and unless it relates to the proceeds against the export sales. The ITAT in the own case of the assessee in ITA No. 1280/AHD/2013 vide order dated 19th April 2018 has held as under: 69. The next item of which deduction under section 80HHC is claimed is exchange rate difference of Rs.112,53,942/-. We find that the ld.CIT(A) has recorded a finding that this rate difference was received in respect of various foreign currency loan repayment. The ld.CIT(A) has allowed deduction of Rs.84,594/- which represented exchange rate difference on the realization of export proceeds. The ld.counsel for the assessee relied upon the judgment of the Hon’ble jurisdictional High Court in the case of CIT Vs. Priyanka Gems Vs. ACIT, 367 ITR 575. We find that this decision has been considered by the ld.CIT(A), and thereafter on verification of the details, the ld.CIT(A) accepted case of the assessee in principle. We do not find any error in the order of the ld.CIT(A). If sale proceeds of exported items could not be realized by the assessee and on account of exchange fluctuation the assessee received more sale proceeds, then the total amount will qualify for grant of deduction under section 80HHC. However, the ld.CIT(A) has observed that the assessee has taken various foreign currency loans and on repayment of which exchange gain was there. These are not related to export activities of the assessee, hence, the ld.CIT(A) has rightly disallowed the claim of the assessee.

ii. However, in the given facts and circumstances, there is no clarity whether the impugned foreign exchange gain represents against the debtors of the export sales. In other words, the foreign exchange gain other than from the debtors of the export sales, cannot be subject to the deduction under section 80HHC of the Act. Accordingly, we set aside this issue to the file of the AO for the limited purpose to

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verify the nature of foreign exchange gain in the light of the above principles and adjudicate the same afresh as per the provisions of law. Hence, this contention of the assessee is partly allowed for the statistical purposes.

i. With respect to job work charges, we note that the ITAT in the own case of the assessee for the assessment year 2003-04 in ITA No. 1280/Ahd/2013 vide order dated 19th April 2018 has denied the benefit of the deduction under section 80HHC of the Act after considering the judgment of Hon’ble Gujarat High Court in the own case of the assessee in tax appeal No. 46 of 2007. The relevant extract of the order of the ITAT reads as under: 67. With the assistance of ld.representatives, we have gone through the record carefully. So far as job work income receipt is concerned, this was considered by Hon’ble High Court in Tax Appeal No.46 of 2007. He placed on record copy of Hon’ble High Court dated 24.6.2016. The question framed by the Hon’ble High Court reads asunder: “Whether on the facts and circumstances of the case, Appellate Tribunal is justified in law in holding that income from job work charges and sales tax refund is derived from an industrial undertaking for the purposes of deduction under section 80HH & 80I.” 68. This question has been decided in favour of the assessee. However, we are of the view that income might be resulted to the assessee from job work, but whether it has been derived from export activities, there is a vital difference between sections 80HHC and 80I. The income should result from export activities only then it will qualify for grant of deduction under section 80HHC. The assessee cannot draw any benefit from judgment of Hon’ble High Court which is with regard to section 80HH and 80I. The ld.CIT(A) has rightly declined the grant of deduction of these items.

ii. In view of the above, there remains no ambiguity to the fact that the assessee is not eligible for deduction under section 80HHC of the Act with respect to the income shown under the head job work charges.

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(e) Central excise refund (f) Agricultural income (g) Truck hire charges (h) Lease Rent (i) Rental income (j) Service charges (k) Consultancy Fee (l) Refund of tax and insurance (m) Recovery against bad debt written off. 25. At the outset we note that all the above item of other income except central excise refund, consultancy fee and recovery against bad debts written off were also in dispute in A.Y. 2003-04 and reached to this tribunal in ITA No. 1280/Ahd/2013. The coordinate bench vide order dated 19th April 2018 held that these incomes do not spring from the export as required under section 80HHC of the Act in order to claim the deduction. The relevant finding of the bench reads as under: 72. With the assistance of ld.representatives, we have gone through the record. A perusal of break-up of misc. income reproduced by the ld.CIT(A) would indicate that all the items were not sprang from export turnover except some element of export turnover involved in insurance claim. It is pertinent to observe that if the claim represented exported goods which have been damaged in transit, then such receipt could be considered as derived from export of articles. It can be understood by way of following example; viz. an assessee is engaged in manufacture and export of sea-foods. It has exported frozen sea-food. On account of some mishaps, due to electricity failure, fishes got damaged/decayed in transit and the assessee received claim. This claim would be construed as derived from export activities. On the other hand, a claim has been received by an assessee on account of some damage to the plant & machinery, then that would not qualify for consideration for grant of deduction under section 80HHC. Neither the AO, nor the ld.CIT(A) has determined nature of insurance claim in the impugned order. Therefore, we deem it appropriate to set aside this limited issue to the file of AO. The ld.AO first determine the nature of insurance claim in the light of the above discussion, and then decide its inclusion or exclusion from eligible profit for grant of deduction under section 80HHC. As far as other items are concerned, we do not find any error in the order of the ld.CIT(A).

25.1 Respectfully following the same we hold that above item of other income except central excise refund, consultancy fee and recovery of bad debt written off should be excluded from the business profit for the purpose of calculating the deduction under section 80HHC of the Act. As far as central excise and consultancy fee is concern we are of the view these income also cannot be included in the

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business profit for the purpose of section 80HHC of the Act as these are also not arising from the export turnover and these are also similar to job work charges and sale tax refund which has been held as excludable as discussed above.

25.2 Coming to recovery of bad debt written off, we are of the view that if the same are on account of export debtor which has been written off on the earlier occasion being bad and doubtful in the books of account then it should be treated as part of profit of the business for the purpose of the deduction under section 80HHC of the Act. Hence, the AO is directed to verify this fact and decide the inclusion and exclusion accordingly of the same in the business profit.

25.3 Now coming to the alternative claim of the assessee that if these income are excluded from the business profit then corresponding expenses should also be excluded. In other words only net income should be excluded as per the explanation (baa) to section 80HHC of the Act. In this regard, we note that the Hon’ble Gujarat High Court in the own case of the assessee in tax appeal number 423 of 2007 has already directed to take net interest income while calculating the deduction under section 80HHC of the Act. The extract of the judgment has been reproduced somewhere in the preceding paragraph. Thus, taking the guidance from the said judgment, we are inclined to direct the AO to take net income as discussed above while calculating the deduction under section 80HHC of the Act. We also note that the Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. Vs CIT reported 18 taxmann.com 137 has held as under:

“In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included in the profits of business of the assessee as computed under the head "Profits and Gains of Business or Profession", is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business.”

25.4 However, the AO while calculating the income shall take into consideration the direct expenses incurred by the assessee in relation to such income as discussed above. In other words, the assessee cannot seek the deduction of the expenses

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against the income as discussed above on pro rata basis. For example, if the assessee has incurred expenses against transportation/truck hiring charges which are directly connected to such income, then only such deduction will be allowed while computing the deduction under section 80HHC of the Act. In view of the above and after considering the facts in totality, the ground of appeal of the assessee is partly allowed for the statistical purposes.

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28.1 Thus in view of the above we direct the AO to allow the deprecation to the assessee on closing WDV as decided in A.Y. 2003-04. Hence the ground of appeal of the assessee is partly allowed.

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31.1 We also note that there was no discussion in the order of the AO dated 30th December 2010 in the set-aside proceedings. Accordingly, the appeal filed by the assessee before the learned CIT-A against the order of the AO passed in the set- aside proceedings, it was observed as under:

7.2 I have carefully considered the contention of Ld.A.R. It is seen that in the impugned assessment order the A.O. has neither discussed this issue nor made addition against sales tax subsidy. In view of above, I hold that the appellant is not aggrieved by the impugned assessment order on this issue and accordingly, as per the provisions of sec.246 of the IT. Act, appeal on this issue is not maintainable. Secondly, it is observed that the impugned order dated 30.12.2010 is completed u/s.143(3) of the I.T.Act. Vide this order the A.O. was supposed to adjudicate the issues set aside by the Hon'ble ITAT. Since the issue of Sales Tax Subsidy was not set aside by the Hon'ble ITAT, accordingly, I am of the firm view that this issue cannot be a subject matter of impugned order. In view of above, no interference is called for. This ground of appeal is dismissed.

31.2 From the above discussion, we note that there is no grievance to the assessee. It is for the reason that the issue on hand has been allowed in favour of the assessee in the 1st round of proceedings. As such, there does not arise any issue whether the sale tax subsidy presents the capital receipt or the revenue receipt. Accordingly, we hold that no adjudication is required in the ground of appeal raised by the assessee. Hence, the ground raised by the assessee is dismissed.

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Coming to ITA No. 1798/AHD/2015 an appeal by the Revenue for for A.Y. 2004-05

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the AO after receiving the order of the learned CIT(A) completed the penalty proceeding and levied the penalty under section 271(1)(c) of the Act. However, we note that the assessee against the quantum addition filed an appeal before us in ITA No. 896/Ahd/2013 which has been allowed by us in favour of the assessee vide paragraph No. 12 of this order. In other words, we have deleted the quantum addition. Therefore once the quantum addition itself has been deleted the question of levying penalty under section 271(1)(c) of the Act on the same does not arise. Thus in view of the aforesaid discussion we quash the penalty order. Hence the ground of appeal of the Revenue is dismissed.

38.1 In the result appeal of the Revenue is dismissed.

Coming to ITA No. 1187/Ahd/2013 an appeal by the assessee for A.Y. 2000-01

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capital in nature though the expenses were claimed as revenue in the computation of income.

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since the last many years. Thus both the new units were being established relating to the existing business activities. Likewise, the assessee also submitted that both the new units were under the common management and administration, thus there was interlacing of the funds, management and administration used in the establishment of such units.

43.1 The assessee further submitted that it has incurred an expense of 121,82,41,657/- on both the units before commencement of the operation. The details of such expenses are classified unit-wise as under:

43.2 Out of the aforesaid expenses, the major component was representing the interest expenses which is detailed as under: The break-up of these interest expenses is as under: a) Soda Ash NCD Rs.2.20 crores Premium on SPN Rs.51.54 crores (pre-operative period) NCD series A,B,C Rs.27.12 crores Other interest Rs.4.00 crores Interest charged by Mandali/Gen. Division Rs.15.68 crores Rs.96.58 crores b) Lab F.E NCD series A,B,C Rs.3.84 crores Interest charged by Mandala/Genl. Division Rs.11.70 crores Rs.15.54 crores

Note: the interest expenses was inclusive of an expense of ₹51.54 crores representing the premium on SPN which was separately treated as capital in nature by the AO by way of making separate addition to the total income of the assessee in the assessment order. However, this issue has not been challenged before us. Therefore, while adjudicating the impugned ground of appeal we are excluding impugned expense of ₹51.54 crores.

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43.3 Thus the remaining expenses of Rs. 9,70,09,941/- were representing the other expenses.

43.4 The assessee has capitalized the aforesaid expenses in the books of accounts but claimed the deduction for the same in the computation of income by treating the same as revenue expenses.

43.5 The AO in pursuance to the above direction of the ITAT started the proceedings against the assessee by issuing a show cause notice dated 21st January 2010. However the AO in the set-aside proceedings vide order dated 28th December 2010 treated all the expenses (including interest and other expenses after excluding premium on SPN) as capital in nature and disregarded the contention of the assessee by observing as under: ITAT has already held the interest expenses of Rs.51,54,00,000/- to be of capital in nature, on the same tines, the remaining interest expenses of Rs.45,03,97,193/- is also held to be of capital in nature, as assessee incurred such expenses for acquiring or brining in to existence assets or advantages of enduring benefit etc., these expenses are capital in nature and the same are not f allowable u/s.37(1) of the Act even though these capital expenditures pertaining to new units of the same business, expension of business or even for existing j business. Regarding the other expenes of Rs.8,69,42,361/-, the assessee has i furnished bifurcation of such expenses. Further in respect of the expenses of I Rs.16,55,02,103/- claimed on and LAB End Project, the assessee has furnished! *. details thereof. On perusal of such details, it is seen, that these expenses were' also made by the assessee for acquiring or brining in to existance assets or; advantages of enduring benefit etc., these expenses are capital in nature and the same are not allowable u/s.37(1) of the Act even though these capital; expenditures pertaining to new units of the same business, expension of business or even for existing business. Therefore, it is held that the expenes of Rs.53,73,39,554/- and Rs.16,55,02,1037- made by the assessee were capital in nature and the same are disallowed and added to the assesseee's income.

43.6 The assessee carried the matter to the learned CIT-A, who confirmed the order of the AO by observing as under: I have carefully considered the rival contentions. It is seen that the assessment order dated 28.12.2010 has been completed in pursuance to the Hon'ble ITAT's directions as issued in ITA No.232/Ahd/2005 dated 30.8.2006. Vide this order, issue of capitalization of expenses were restored back to the file of the A.O. The A.O. has reproduced the directions of the Hon'ble ITAT in the assessment order and the same has been made part of this order also for the sake of brevity. As discussed above, the impugned order was passed in compliance to the order of Hon'ble ITAT. It is an established proposition of law that the A.O. lias got limited jurisdiction in the set aside cases. In the set aside cases the A.O. cannot enter into any question which falls outside the limit laid down by the appellate authorities. It is held by the Hon'ble courts that where the A.O. has travelled beyond these specifications of the

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remand order in making certain additions, the appellate authorities are right in deleting such additions. Reliance in this regard is made on CIT vs Hope Textiles Ltd. (1997) 225 ITR 993 (M.P). 2.4 As discussed above, the jurisdiction of the A.O. in this assessment is to carry out the directions of the Hon'ble ITAT to the logical conclusions. The Hon'ble tTAT has clearly directed that the impugned expenses are not allowable u/s.37(1) of the I.T.Act as these expenses were incurred for the expansion of Soda Ash Project and Lab Front End Project. The Hon'ble ITAT has further directed that common indirect revenue expenditure pertaining to existing as well as new unit, for example auditors fee, directors remuneration etc. are allowable expenditure and the same should be allowed u/s.37(1) of the I.T.Act. During the appellate proceedings the appellant has filed details of expenses incurred on Alindra Project and Soda Ash Project. Copies of details of these expenses are enclosed with this order as Annexure-A for the same of ready reference, Perusal of these expenses reveals that these expenses does not consist common indirect revenue expenditure like directors remuneration, auditor fee etc. In view of above, I am of the considered opinion that these expenses are not allowable as per the directions of the Hpn'ble ITAT. 2.5 During the assessment proceedings as well- as appellate proceedings the appellant has made a detailed submission that interest expenses debited under the Soda Ash Project and Lab Front End Project should be allowed to it as per the provisions of sec.36(1)(iii) of the I.T. Act. In respect of this contention it is observed that the Hon'ble ITAT has directed to consider the allowability of these expenses u/s.37(1j of the I.T.Act as these expenses were claimed by the appellant u/s.37(1) of the IT Act, 1961 and not u/s.36(1)(iii) of the I.T.Act, 1961. In view of above, I am of the considered opinion that provisions of sec.36(1)(iii) cannot be considered for the purposes of this assessment as this assessment is to be completed strictly as per the directions of the Hon'ble ITAT and the Hon'ble ITAT has not directed to examine the allowability of part of these expenses u/s.36(1)(iii) of the I.T.Act as interest. In view of above, I am inclined to agree with the contentions of the Ld A.O. Accordingly, capitalization of expenses of Rs. 70,28,41,656/- is confirmed.

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the AO for fresh adjudication with the direction and as per the law. Direction of the ITAT has been reproduced somewhere in the preceding paragraph.

47.1 It is the trite law that scope of dispute in the set-aside proceedings is limited to the extent of the direction issued by the authority. In the set aside proceedings, nothing more can be added or deleted until and unless some higher judicial authority has decided the issue involved in a different manner. However, we find that the Hon’ble Gujarat High Court in the own case of the assessee reported in 367 ITR 12 vide order dated 27-1-2014, involving identical facts and circumstances, has decided the issue in favour of the assessee. The relevant extract of the judgment is extracted below: 9. Having heard the learned counsel for the parties and having perused the documents on record, we notice that the Commissioner of Income-tax (Appeals) and the Tribunal concurrently came to the conclusion that there was interconnection, inter-lacing and inter-dependence of the management, financial and administrative control of various units of Nirma Limited. It was on this ground, the Tribunal held that the business in question is continuation of the existing business and not a new business. In this context, the decision relied on by the authorities below of this court in the case of Alembic Glass Industries Ltd. (supra) laid down tests for ascertaining whether a business was part of existing business or the assessee was starting a new unit. It was held that merely because the unit was coming to a distant point by itself would not mean that it was a new business. 10. If the facts as recorded by the Commissioner of Income-tax (Appeals) and the Tribunal can be said to have achieved finality, it would emerge that the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called "lab" for its captive consumption for the purpose of its existing manufacturing business. It is no doubt that the assessee is engaged in the business of manufacture of soap and the soda ash and "lab" so produced is used by way of captive consumption. When such facts viewed in light of the findings of the Commissioner of Income-tax (Appeals) and the Tribunal, we have no reason to interfere with the ultimate conclusion. Had it been a case of entirely a new project undertaken by the assessee as canvassed by the counsel for the Revenue, a serious question of claiming pre-operative expenditure of interest by way of revenue expenditure would arise. However, when the authorities below found that it was an expansion of the existing business, applying the tests laid down by this court in the case of Alembic Glass Industries Ltd. (supra), in view of the decision of the Supreme Court in the case of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194/167 Taxman 206 (SC), the fact whether the borrowing is capital or revenue expenditure would be of no consequence.

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In view of the above judgment of Hon’ble Gujarat High Court in the own case of the assessee, which was rendered subsequent to the date of ITAT order as discussed above, we are inclined to reverse the finding of the ld. CIT-A and direct the AO to treat the impugned expenses as revenue in nature. Hence, the ground of appeal of the assessee is allowed.

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assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2004-05 shall also be applied for the year under consideration i.e. AY 2000-01. Hence, the grounds of appeal filed by the assessee is allowed.

58 In the result appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the Court on 24/02/2022 at Ahmedabad.

Sd/- Sd/ (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/02/2022 Manish