M/S. NOV SARA INDIA PVT. LTD.,NEW DELHI vs. ADDL.CIT, NEW DELHI

The assessee has preferred the following grounds of appeal :-

The Revenue has preferred the following grounds of appeal :-

The brief facts of the case is that assessee company is engaged in the business of manufacturing of machinery and equipments for oil well drilling and production activities. It also distributes its products world-wide. For assessment year 2009-10 assessee filed its return of income on 27.09.2010 declaring income of Rs.17,79,10,920/- under the normal provision and book profit under section 115JB of the Act was declared at Rs.32.15 crores.

The assessee has two units which are eligible for deduction under section 80IC of the Income Tax Act. The learned Assessing Officer noted that assessee has unit one as capital product unit and unit II as commodity product unit. The assessee has credited the miscellaneous income with respect to sale of licenses, service charges, interest on fixed deposit received, interest on others, miscellaneous income and security bonds forfeiture income aggregating in all of Rs.3,68,90,722/-. The assessee has included all these income part of the business income and claimed deduction under section 80IC thereon. The learned Assessing Officer further noted that assessee has incurred substantial expenses under the head ‘Head Office Expenses’ and claimed huge losses of Rs.5.33 crores thereby there is an excess

Furthermore, he disallowed the deduction under unit I holding that in earlier years it was disallowed. The reason for disallowance was that assessee could not justify the substantial expansion. He disallowed the deduction of Rs.6,52,83,501/-.

He further disallowed a sum of Rs.2,53,03,898/- for deduction under section 80IC in respect of unit No. II where export incentive of Rs.2,52,75,146/- and interest on others amounting to Rs.28,752/- was credited by the assessee and also claimed deduction under section 80IC thereon. According to the learned Assessing Officer such income is not derived from the industrial undertaking.

The assessee aggrieved, preferred an appeal before the learned CIT (Appeals). He allowed the deduction to the assessee under section 80IC of the Act holding that unit I is not eligible on substantial expansion for such deduction. He further held that a sum of Rs.1,06,34,057/- credited to the other income as unit I is also eligible for deduction under section 80IC of the Act. He deleted the disallowance under section 14A of the Act restricting it to investment on which exempt income is earned. However, the learned CIT (Appeals) restricted disallowance of Rs.31,90,217/-, being other income of unit I for the purpose of deduction under section 80IC of the Act @ 30%. He also held that soft ware expenditure is capital expenditure. On soft ware he further directed the Assessing Officer that such expenditure is required to be amortized in 5 equal instalments. Therefore, aggrieved by the order of the learned CIT (Appeals) both the parties are in appeal before us.

We have heard the rival contentions on this issue. However, as the issue is already decided in favour of the assessee on the same set of facts in earlier years wherein vide para No. 11 the Co-ordinate Bench has allowed the claim of the assessee for deduction under section 80IC of the Act on substantial expansion.

The learned Departmental Representative could not show us any reason to deviate from the same. Therefore, respectfully following the decision of the Co-ordinate Bench in assessee’s own

Ground No. 2 of the Revenue’s appeal and ground No. 1 of the assessee’s appeal is with respect to the various other incomes credited as income derived from the industrial undertaking and further allowing deduction under section 80IC of the Act on the same. During the year the assessee has earned following income with respect to unit I amounting to Rs.1,06,34,057/- on which the learned CIT (Appeals) has held that they are not derived from industrial undertaking, but disallowance can be only to the extent of 30% as unit is eligible for deduction under section 80IC of the Act. In fact the ground is misconstrued by the Revenue. In fact the impugned assessment year being the 6th assessment year and assessee is not eligible for deduction of the other income @ 100% but only 30% and, therefore, following his own decision for assessment year 2004-05 he has restricted the total deduction at Rs.31,90,217/- being 30% of Rs.1,06,34,057/-. In view of this, the ground No. 2 of the Revenue does not survive, hence dismissed.

Now we come to ground No. 1 of the appeal of the assessee wherein the assessee contests the disallowance of Rs.31,90,217/- being 30% of 1,06,34,057/-. It was contended before us that identical issue arose in case of the assessee for assessment years 2004-05 to 2006-07 wherein the Co-ordinate Bench vide order dated 18.01.2016 has set aside the whole issue back to the file of the learned Assessing Officer for proper adjudication with respect to each of the income. Similarly for assessment years 2007-08 and 2008-09, the Co-ordinate Bench set aside this issue back to the file of the Assessing Officer following the earlier decision of the Co-ordinate Bench. Therefore, the claim of the assessee is that same may be set aside to the file of the learned Assessing Officer for this year too.

The learned Departmental Representative did not express any serious reservation to the above proposition. As the similar income with the same nature of earnings is required to be adjudicated in the earlier years by the Assessing Officer, it would be unfair for us to give our finding on this income as it will negate the earlier orders of the Co-ordinate Bench. So, we also set aside the whole issue back to the file of the Assessing Officer to test each of the income whether they are

Ground No. 3 of the appeal of the Revenue is against restriction of disallowance under section 14A of Rs.80,635/- to Rs.3,625/-. The learned Assessing Officer disallowed the sum of Rs.80,635/- applying the provisions of Rule 8D of the Act. However, the learned CIT (Appeals) held that the assessee company has investment of Rs.29,86,720/- in companies as equity shares out of which a sum of Rs.22,61,720/- as investment in a US company. As the dividend income, if any, receivable from US company is not an exempt income, therefore, he held that only half per cent of an average value of exempt income to the extent of investment in an Indian company of Rs.7.25 lakhs amounting to Rs.3,625/- could be disallowed under section 14A of the Act.

We now come to ground No. 2 of the appeal of the assessee, which was not pressed before us and, therefore, the same is dismissed.

Now we come to ground No. 3 of the appeal where the assessee has incurred expenditure of Rs.18,86,648/- on account of software development expenditure which was held to be capital expenditure by the Assessing Officer holding that it has given a benefit of enduring nature to the assessee. The claim of the assessee is that same is a license fee and, therefore, it cannot be giving any benefit of enduring nature. The learned CIT (Appeals) held that it was for the development of new products and, therefore, same is a capital expenditure.

In the result, appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed.