Gujarat High Court Judgments — 2013

The Gujarat High Court allowed the appeal filed by the revenue. The Court noted that it was not in dispute that the employees' contribution towards PF and ESI had not been deposited in the Government Account by the assessee within the prescribed period of the due date under the PF and ESI Act. The Court referred to its own decision in Commissioner of Income Tax II vs. Gujarat State Road Transport Corporation in Tax Appeal No. 637 of 2013 and other allied matters. In that decision, the Division Bench had observed and held that with respect to sums received from employees to which Section 2(24)(x) applies, the assessee is entitled to deduction only if such sum is credited to the employees' account in the relevant fund on or before the due date mentioned in the explanation to Section 36(1)(va). Consequently, the Court held that the ITAT had erred in deleting the disallowances made by the AO, as the sums were not credited to the employees' accounts in the Provident Fund and/or ESI Fund on or before the due date as per the explanation to Section 36(1)(va). The impugned judgment and order of the ITAT were quashed and set aside, and the disallowances made by the AO were restored. The issue was answered in favour of the revenue.

The High Court held that for the sum received by the assessee from its employees, to which Section 2(24)(x) applies, the assessee is entitled to a deduction under Section 28 only if such sum is credited to the employees' account in the relevant fund on or before the 'due date' as specified in the explanation to Section 36(1)(va). The Court disagreed with the view taken by the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts. It reasoned that Section 36(1)(va) remains unamended, and the deletion of the second proviso to Section 43B did not alter the requirement of depositing employees' contributions by the specified due date. Therefore, the ITAT erred in deleting the disallowances made by the AO. The disallowances of employees' and employer's contributions to PF/ESI made by the AO were restored. The questions were answered in favour of the revenue.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), clearly states that an assessee is entitled to a deduction for sums received from employees only if such sums are credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, which allowed deductions if the deposit was made before the due date of filing the return under Section 139(1). The Court clarified that the deletion of the second proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. Therefore, the disallowances made by the Assessing Officer for the shortfall in crediting employees' contribution to PF/ESI on or before the statutory due date were restored. The questions raised in the appeals were answered in favour of the revenue. All appeals were allowed.

The High Court held that the ITAT's reasoning for quashing the Section 154 orders was insufficient. The ITAT had merely stated that the issue was debatable without demonstrating how it was debatable or identifying the two possible views. The Court found that simply asserting an issue is debatable does not make it so; it requires demonstration. The Court concluded that the ITAT had not properly discussed how the issue was debatable or how two different views were possible. Consequently, the High Court quashed the impugned common judgment and order of the ITAT and remanded the matters back to the ITAT to consider the issue afresh on merits, keeping all contentions open for both parties. The appeals were allowed to this extent.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), mandates that for any sum received from employees to which Section 2(24)(x) applies, the assessee is entitled to a deduction only if such sum is credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court found that the ITAT had erred in deleting the disallowances because the sums were not credited by the respective assessees to the employees' accounts in the Provident Fund and/or ESI Fund on or before the due date as per the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts. Consequently, all appeals were allowed, the impugned judgments of the ITAT were quashed, and the disallowances made by the AO were restored. The questions were answered in favour of the revenue.

The High Court held that the substantial question of law raised was not res integra and was squarely covered against the Revenue by the decisions of the Supreme Court in Commissioner of Income-Tax vs. Lakshmi Machine Works and Commissioner of Income-Tax vs. Shiva Tex Yarn Ltd. The Court noted that in Lakshmi Machine Works, the Supreme Court observed that for the purpose of Section 80HHC, a schematic interpretation of 'total turnover' is necessary, considering the object of the section to incentivize exports. The Court reasoned that items like commission, interest, and rent, which do not involve an element of turnover, are not includible in 'total turnover' for the purpose of the Section 80HHC formula. Similarly, excise duty and sales tax, being indirect taxes recovered on behalf of the government and not involving any element of turnover, should also be excluded. The Court found that the Revenue's attempt to distinguish the Supreme Court decisions based on Section 145A was unconvincing, especially considering the observations in Lakshmi Machine Works. Therefore, the High Court held that the learned Tribunal had not committed any error in excluding excise duty and sales tax for the purpose of computing deduction under Section 80HHC. The appeal was dismissed.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, clearly states that for any sum received by the assessee from its employees to which Section 2(24)(x) applies, no deduction shall be allowed unless such sum is credited to the employees' account in the relevant fund on or before the due date as per the explanation to Section 36(1)(va). The court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, finding that the deletion of the second proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. The court found only one possible view, which was in line with the Revenue's contention. Consequently, the disallowances made by the Assessing Officer for the shortfall in employees' contribution to PF/ESI were restored. The questions raised were answered in favour of the revenue.

The High Court addressed two substantial questions of law. Regarding the first question, concerning the disallowance of Rs.26,256/- for employees' contribution to PF & ESI, the Court held in favour of the revenue and against the assessee. This decision was based on the Division Bench's ruling in Commissioner of Income Tax II Vs. Gujarat State Road Transport Corporation (Tax Appeal No.637 of 2013), which held that deduction under Section 36(1)(va) for employees' contribution to PF/ESI is allowable only if such sums are credited to the employees' account in the relevant fund on or before the due date as per the explanation to Section 36(1)(va). Consequently, the ITAT's deletion of the disallowance was quashed and set aside, and the AO's disallowance was restored. For the second question, concerning the computation of profit under Section 80HHC for DEPB credit, the Court held in favour of the assessee and against the revenue. This was based on the Supreme Court's decision in Topman Exports Vs. Commissioner of Income Tax (342 ITR 49 SC). The appeal was partly allowed to this extent.

The High Court answered the questions as follows: Question 1: The Court held that excise duty should be excluded from the valuation of closing stock of finished goods. This was based on the decision in ACIT v. Narmada Chematur Petrochemicals Ltd., which held that for the period prior to April 1, 1999, excise duty on closing stock should be excluded. The reasoning included that no deduction for the liability was claimed, the duty was paid in the subsequent year, the AO did not invoke Section 145(3), and adding it would result in a revenue-neutral situation over time. Section 145A was not applicable as it was inserted with effect from April 1, 1999. Thus, this question was answered against the revenue. Question 2: Regarding interest derived from Bank Guarantee Deposits and Letter of Credit, the Court held it was not eligible for deduction under Section 80IA, following the Supreme Court's decision in Liberty India v. CIT. However, for interest on delayed payments, the Court held it was eligible for deduction under Section 80IA, relying on this Court's decision in Nirma Industries Ltd. v. DCIT. Therefore, this question was partly held against the revenue and partly in favour of the revenue.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the IT Act, read with Section 2(24)(x), clearly states that an assessee is entitled to a deduction for sums received from employees only if such sums are credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court found that the contributions in question were not credited by the respective assessees to the employees' accounts in the Provident Fund or ESI Fund on or before the due date. The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, stating that the deletion of the second proviso to Section 43B did not amend Section 36(1)(va) or its explanation. Consequently, the disallowances made by the AO were restored, and the appeals were allowed in favour of the revenue.

The High Court held that the deletion of disallowances concerning employees' contribution to PF/ESI accounts made by the AO was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), clearly states that an assessee is entitled to a deduction for sums received from employees only if such sums are credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, finding that the deletion of the Second Proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. Therefore, the ITAT erred in deleting the disallowances. The disallowances made by the AO were restored, and the questions raised were answered in favour of the revenue. The appeals were allowed.

The High Court held that the substantial question of law raised was not res integra and was squarely covered against the Revenue by the decisions of the Supreme Court in Commissioner of Income-Tax vs. Lakshmi Machine Works and Commissioner of Income-Tax vs. Shiva Tex Yarn Ltd. The Court referred to paragraphs 16 to 18 of the Lakshmi Machine Works judgment, which emphasized a schematic interpretation of Section 80HHC, considering its purpose to incentivize exports. The Supreme Court in Lakshmi Machine Works held that items like commission and interest, though related to exports, did not involve an element of turnover and were therefore not includible in the total turnover for the purpose of the Section 80HHC formula. Similarly, excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not emanate from turnover and therefore should be excluded. The Court found that the ITAT had not committed any error in holding that excise duty should be excluded for computing the deduction under Section 80HHC. The appeal was dismissed.

The High Court decided on the two substantial questions of law. Regarding Question (A), concerning the retrospective nature of the amendment to Section 43B and the allowability of PF contributions, the Court found no error in the ITAT's decision. It noted that the assessee deposited the PF amount within the grace period, and considering the deletion of the second proviso to Section 43B and the retrospective amendment to the first proviso, the ITAT was justified in granting the deduction. Thus, Question (A) was held against the revenue. Regarding Question (B), concerning the inclusion of duty drawback income in profits for Section 80IB deduction, the Court held that this issue is squarely covered against the assessee by the Supreme Court's decision in Liberty India Vs. Commissioner of Income Tax. The Supreme Court held that duty drawback receipts do not form part of the net profits for Section 80IB purposes as they are incentives not derived from the manufacturing activity. Therefore, Question (B) was held in favour of the revenue and against the assessee. Consequently, the appeal was partly allowed.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), clearly states that an assessee is entitled to a deduction for sums received from employees only if such sums are credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, which allowed deductions if the deposit was made before the due date of filing the return under Section 139(1). The Court clarified that the deletion of the second proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. Therefore, the disallowances made by the Assessing Officer for the shortfall in crediting employees' contribution to PF/ESI on or before the statutory due date were restored. The questions raised in the appeals were answered in favour of the revenue. All appeals were allowed.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), mandates that for any sum received by an assessee from its employees to which Section 2(24)(x) applies, a deduction is permissible only if such sum is credited to the employees' account in the relevant fund on or before the 'due date' as specified in the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, stating that the deletion of the second proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. The Court found that only one view was possible, as canvassed by the revenue. Consequently, the disallowances made by the AO regarding the employees' contribution to PF/ESI were restored, and the questions raised were answered in favour of the revenue. All appeals were allowed.

The High Court held that the deletion of disallowances by the ITAT was erroneous. The Court reasoned that Section 36(1)(va) of the Income Tax Act, 1961, read with Section 2(24)(x), clearly states that an assessee is entitled to a deduction for sums received from employees only if such sums are credited to the employees' account in the relevant fund on or before the 'due date' as defined in the explanation to Section 36(1)(va). The Court disagreed with the views of the Himachal Pradesh, Karnataka, Rajasthan, and Punjab & Haryana High Courts, finding that the deletion of the Second Proviso to Section 43B by the Finance Act, 2003, did not amend Section 36(1)(va) or its explanation. The Court concluded that only one view was possible, as canvassed by the revenue. Consequently, the disallowances made by the AO for the shortfall in employees' contribution to PF/ESI were restored. The questions raised were answered in favour of the revenue.

The Tribunal's decision on both issues was upheld against the revenue. For the first issue, the High Court referred to the Supreme Court's decisions in Commissioner of Income-Tax v. Lakshmi Machine Works and Commissioner of Income-Tax v. Shiva Tex Yarn Ltd., and its own prior decisions. The Court reasoned that excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not have an element of 'turnover' and their inclusion would make the Section 80HHC formula unworkable. Similar to how interest and commission are excluded, these taxes should also be excluded. For the second issue, the Court relied on the Supreme Court's decision in Topman Exports v. Commissioner of Income-Tax. The Court explained that Explanation (baa) to Section 80HHC mandates the exclusion of 90% of certain sums, including profits on the transfer of DEPB. Specifically, 90% of the profit on transfer (the difference between sale value and face value) is to be excluded, not 90% of the entire sale value, especially when the DEPB accrues in one year and is transferred in another.

The High Court held that the ITAT's view that penalty cannot be levied if there is a loss or negative income is unsustainable, citing the Supreme Court's decision in Income Tax vs. Gold Coin Health Food Pvt. Ltd. The Supreme Court in that case held that Explanation 4(a) to Section 271(1)(c)(iii) allows for penalty even if the assessed income remains a loss or a minus figure, provided concealed income has been added and reduces the returned loss. However, the High Court noted that the ITAT had not considered the merits of the penalty order, especially in light of the assessee not appealing the quantum additions. Therefore, the High Court quashed the ITAT's order and restored the matter to the ITAT to decide on the merits of the penalty order.

The High Court held that the Appellate Tribunal was right in confirming the order passed by the CIT(A). The Court applied the ratio laid down by the Hon'ble Supreme Court in the case of Assistant Commissioner of Income-Tax and Anr vs. Hotel Blue Moon and others (321 ITR 362). Based on this precedent, the Court found that the ITAT had not committed any error in upholding the CIT(A)'s decision. Therefore, the substantial question of law raised in the Tax Appeal was decided against the revenue. The appeal was dismissed. The operative direction was the dismissal of the revenue's appeal.

The High Court held that the substantial question of law raised in the appeal was not res integra and was squarely covered against the Revenue by the decisions of the Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that the Supreme Court in Lakshmi Machine Works, in paragraphs 16 to 18, had emphasized a schematic interpretation of Section 80HHC, considering its purpose as a beneficial provision to incentivize exports. The Court reasoned that items like excise duty and sales tax, being indirect taxes recovered on behalf of the government and not involving an element of 'turnover' themselves, should be excluded from the total turnover for the purpose of Section 80HHC. This reasoning was applied even in cases where Section 145A was in effect. Therefore, the Tribunal's decision to exclude excise duty and sales tax was upheld.

The High Court held that the substantial question of law is not res integra and is covered by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that while the Revenue attempted to distinguish these judgments based on the insertion of Section 145A, they could not satisfy the Court on how these precedents would not apply. The reasoning, drawing from the Supreme Court's observations in Lakshmi Machine Works, emphasizes that Section 80HHC is a beneficial provision intended to incentivize exports. The 'total turnover' for the purpose of the Section 80HHC formula should be interpreted to exclude components that do not involve an element of turnover, such as excise duty and sales tax, which are indirect taxes recovered on behalf of the government. These taxes do not emanate from the 'export turnover' or any turnover in the same manner as commission or interest, which were also held to be not part of 'turnover' for this purpose. Therefore, the Tribunal was correct in holding that excise duty and sales tax should be excluded from the total turnover for computing the deduction under Section 80HHC, even after the insertion of Section 145A. The appeal is dismissed.

The Gujarat High Court held that it would not have jurisdiction to entertain the present Tax Appeal. Relying on decisions from the Delhi High Court in Sheth Banarsi Pass Gupta vs. CIT, Karnataka High Court in CIT vs. Madanlal Co., and Punjab and Hariyana High Court in CIT vs. Motoroal India Limited, the Court found that the appropriate High Court to entertain the appeal would be the Bombay High Court, given the location of the assessee's business and the Assessing Officer's office. Consequently, the appeal was dismissed on the ground of jurisdiction without entering into the merits of the case. Liberty was granted to the appellant to prefer an appeal before the Bombay High Court.

The High Court held that the assessee is entitled to interest under Section 244(1A) on the refund amount of interest levied under Sections 139(8) and 215 of the Income Tax Act, provided such interest was collected pursuant to an assessment order that was subsequently refunded. This position was supported by the Madras High Court's decision in CIT vs. Needle Industries Pvt. Ltd. and the Gujarat High Court's own Division Bench decision in CIT vs. Gujarat State Warehousing Corporation, which relied on the Madras High Court's ruling. Applying these precedents, the substantial question of law was answered against the revenue. Consequently, all the appeals filed by the revenue were dismissed. No costs were awarded.

The High Court held that the substantial question of law is no longer res integra and is covered by the decisions of the Supreme Court in CIT vs. Lakshmi Machine Works and CIT vs. Shiva Tex Yarn Ltd. The Court noted that the Supreme Court, in Lakshmi Machine Works, emphasized a schematic interpretation of Section 80HHC, considering its purpose of incentivizing exports. The Court reasoned that items like excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not involve an element of 'turnover' in the same way that commission or interest might be related to exports but not constitute turnover. Therefore, these indirect taxes should be excluded from the total turnover for the computation of deduction under Section 80HHC. The Court found that the ITAT had not committed any error in excluding these components. The appeal was dismissed.

The High Court held that the issues in the present appeal are squarely covered by the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Suresh N. Gupta (Supra) in favour of the Revenue. Applying the ratio laid down by the Supreme Court, the questions/issues arising in the present appeal are required to be answered in favour of the Revenue. The High Court found no merit in the assessee's arguments that the proviso to Section 113 could not operate retrospectively. The Court reasoned that both the Finance Acts of 2000 and 2001 indicated a substantive charge in respect of income tax and prescribed rates of surcharge. The proviso was inserted to clarify the ambiguity regarding which year's Finance Act would apply for surcharge levy in block assessments, specifically stating that the Finance Act of the year in which the search was initiated would be relevant. Therefore, the proviso was considered clarificatory and not retrospective. The High Court allowed the Tax Appeal, holding the question in favour of the Revenue and reversing the impugned judgment and order of the ITAT to that extent.

The High Court held that the substantial question of law was not res integra and was squarely covered against the Revenue by the decisions of the Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works (290 ITR 667) and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. (2012) 25 Taxmann.Com 302 (SC). The Court noted that the Supreme Court in Lakshmi Machine Works, in paragraphs 16 to 18, emphasized a schematic interpretation of Section 80HHC, considering its purpose as a beneficial provision to incentivize exports. The Court reasoned that excise duty and sales tax, being indirect taxes recovered on behalf of the government and not involving an element of 'turnover' in the same way as export sales, should be excluded from the 'total turnover' for the purpose of calculating the deduction under Section 80HHC. This principle was held to apply even after the insertion of Section 145A. The Tribunal's decision to exclude these taxes was therefore upheld.

The High Court allowed the appeal filed by the revenue. The Court noted that the issue was squarely covered by the decision of the Hon'ble Supreme Court in Liberty India (supra). The Supreme Court had held that DEPB/Duty drawback are incentives flowing from government schemes or Section 75 of the Customs Act, 1962. These incentive profits are not profits derived from the eligible business under Section 80IB, but rather ancillary profits. The Court further held that such incentive profits cannot be credited against the cost of manufacture of goods debited in the profit and loss account and do not fall within the expression 'profits derived from industrial undertaking' under Section 80IB. Applying this ratio, the High Court held the issue in favour of the revenue and quashed the ITAT's order.

The High Court held that the substantial question of law is not res integra and is squarely covered against the Revenue by the Supreme Court's decisions in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that while the Revenue attempted to distinguish these decisions based on the insertion of Section 145A, they could not satisfy the Court on how the Supreme Court's rulings would not apply. The reasoning, drawing from the Supreme Court's judgments, emphasizes a purposeful and schematic interpretation of Section 80HHC. The Court reiterated that excise duty and sales tax, being indirect taxes recovered on behalf of the government, do not involve an element of "turnover" in the same way that commission, interest, or rent do not form part of turnover for the purpose of the Section 80HHC formula. Therefore, these taxes must be excluded. The Tribunal's decision was found to be correct, and the appeal was dismissed.

The High Court held that the substantial question of law was not res integra and was squarely covered against the Revenue by the decisions of the Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that the Supreme Court, in Lakshmi Machine Works, emphasized a schematic interpretation of Section 80HHC, considering its purpose as a beneficial provision to incentivize exports. The Court reasoned that items like excise duty and sales tax, being indirect taxes recovered on behalf of the government and not involving an element of 'turnover' themselves, should be excluded from the 'total turnover' for the purpose of calculating the Section 80HHC deduction. This exclusion is consistent with the principle that only profits directly arising from export turnover should be eligible for deduction, and that items like commission, interest, or rent, which do not involve turnover, are also excluded. The Court found that the ITAT had not committed any error in excluding excise duty and sales tax from the total turnover for Section 80HHC computation, even after the insertion of Section 145A.

The High Court held that the substantial question of law was not res integra and was covered by the decisions of the Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that while the Revenue attempted to distinguish these judgments by referencing Section 145A, they were unable to demonstrate how the Supreme Court's reasoning would not apply. The Court, relying on the Supreme Court's observations, particularly in paragraphs 16 to 18 of the Lakshmi Machine Works judgment, concluded that sales tax and central excise do not form part of the 'turnover' for the purpose of Section 80HHC. The reasoning emphasizes that these taxes do not involve an element of 'turnover' and are indirect taxes recovered on behalf of the government. Including them would make the formula under Section 80HHC unworkable. Therefore, the Tribunal's decision to exclude these components was upheld. The appeal was dismissed.

The High Court held that the Appellate Tribunal was right in allowing the deduction under Section 80IB for the income from the sale of scrap. The Court applied the ratio laid down in the case of DCIT vs. Harjivandas Juthabhai Zaveri & Anr. (supra) and the Delhi High Court's decision in CIT vs. Sadhu Forging Limited (supra). These judgments established that receipts from the sale of scrap are part and parcel of the industrial activity and are proximately related to the manufacturing process. Therefore, such income is considered gains derived from the industrial undertaking and is eligible for deduction under Section 80IB. The Court found no error in the Tribunal's decision and answered the substantial question of law against the revenue. The appeal was dismissed.

The High Court held that the substantial question of law raised in the appeal is not res integra and is squarely covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that even though the Revenue attempted to distinguish these judgments by referencing Section 145A, they were unable to satisfy the Court on how these Supreme Court decisions would not be applicable. The reasoning, drawing from the Supreme Court's observations, is that excise duty and sales tax do not involve any element of 'turnover' and are indirect taxes recovered on behalf of the government. Therefore, they should be excluded from the 'total turnover' for the purpose of computing deduction under Section 80HHC, as including them would make the formula unworkable. The ITAT's decision to exclude sales tax and excise duty was upheld. The Court also referred to its own prior decision in Tax Appeal No. 884 of 2006, which followed the Supreme Court's precedents.

The High Court held that the issue raised in the present Tax Appeal is squarely covered against the Revenue by the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Tulsyan Nec Ltd. reported in (2011) 330 ITR 226 (SC). The learned counsel for the Revenue did not dispute that the issue was covered by the Supreme Court's decision. Applying the ratio of the Tulsyan Nec Ltd. case, the Court found the issue to be against the Revenue. Consequently, the Tax Appeal filed by the Revenue was dismissed. No issue was expressly left undecided.

The High Court held that the substantial question of law raised in the appeal was no longer res integra and was covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that the Revenue's attempt to distinguish these judgments by arguing that Section 145A was not considered was unconvincing, especially considering the Supreme Court's observations in Lakshmi Machine Works. The Court further relied on its own prior decision in Tax Appeal No. 884 of 2006, which followed the Supreme Court's precedents. The ratio of these decisions established that excise duty and sales tax do not form part of the 'turnover' for the purpose of Section 80HHC, even after the insertion of Section 145A. The Court reasoned that these indirect taxes do not involve an element of turnover and are collected on behalf of the government, and including them would make the formula under Section 80HHC unworkable. Therefore, the Tribunal's decision to exclude excise duty and sales tax from total turnover for Section 80HHC deduction was upheld.

The High Court held that the Appellate Tribunal was right in allowing deduction under Section 80IB for the income from the sale of scrap. The Court applied the ratio laid down in the case of Harjivandas Juthabhai Zaveri and Anr. (supra) by the Gujarat High Court, which held that items like sale of empty soda ash bardans (jute bags) are directly connected with the manufacturing activities of the assessee and should be allowed. The Court also referred to the Delhi High Court's decision in CIT vs. Sadhu Forging Limited (supra), which held that the receipt of sale of scrap is a part and parcel of industrial activity and therefore, deduction under Section 80IB is allowable. The Court reasoned that the manufacturing activity inherently generates scrap, and receipts from its sale are proximate to and part of the industrial undertaking's gains, thus qualifying for deduction under Section 80IB. The substantial question of law was answered against the revenue.

The High Court held that the ITAT had not properly appreciated the fact that an appropriate computation of loss should be necessary and may have relevance if the assessee declares profits in subsequent years. The Revenue's submission was that the amount involved exceeded the limit laid down in the prevailing circular. The Court noted that an identical substantial question of law was considered by a Division Bench in Tax Appeal No. 1601 of 2009 and other allied appeals, which was subsequently followed in Tax Appeal No. 735 of 2013. Therefore, the present appeal was allowed, the impugned order of the ITAT was quashed and set aside, and the matter was remanded to the ITAT to decide the appeal on merits after issuing notice to the assessee. The issue of whether the ITAT was right in dismissing the appeal on the ground of low tax effect was decided in favor of the Revenue.

The High Court of Gujarat held that it did not have the jurisdiction to entertain the present Tax Appeal. This decision was based on the ratio laid down by the Delhi High Court in Sheth Banarsi Pass Gupta vs. CIT, the Karnataka High Court in Commissioner of Income Tax vs. Madanlal Co., and the Punjab and Haryana High Court in CIT vs. Motoroal India Limited. These judgments established that the appropriate High Court to hear the appeal would be the Bombay High Court, given the location of the assessee and the Assessing Officer. Consequently, the appeal was dismissed without examining the merits of the case. The appellant was granted liberty to prefer an appeal before the Bombay High Court.

The High Court held that the substantial question of law raised in the appeal is not res integra and is squarely covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that while the Revenue attempted to distinguish these precedents by referencing Section 145A, they were unable to satisfy the Court on how those decisions would not be applicable. The Court reiterated the reasoning from the Supreme Court's decision in Lakshmi Machine Works, emphasizing a schematic interpretation of Section 80HHC. The principle established is that 'turnover' for the purpose of Section 80HHC deduction should not include indirect taxes like excise duty and sales tax, as they do not involve an element of turnover and are recovered on behalf of the government. The Court found that the ITAT had not committed any error in holding that sales tax and excise duty do not form part of sale proceeds for Section 80HHC computation, even after the insertion of Section 145A. The appeal was dismissed.

The High Court held that it did not have the jurisdiction to entertain the Tax Appeal. This decision was based on the principle that the jurisdiction to hear appeals lies with the High Court where the Assessing Officer's office is situated or where the assessee carries on business. Given that both the Assessing Officer and the assessee were located in Nani Daman, the appropriate High Court to entertain the appeal would be the Bombay High Court. Consequently, the appeal was dismissed on the preliminary ground of jurisdiction, without delving into the merits of the case. The appellant was granted liberty to prefer the appeal before the Bombay High Court.

The High Court held that the Appellate Tribunal was right in allowing the deduction under Section 80IB for the income from sale of scrap. The Court applied the ratio laid down in its own decision in DCIT vs. Harjivandas Juthabhai Zaveri & Anr. (258 ITR 785 (Guj)) and the Delhi High Court's decision in CIT vs. Sadhu Forging Limited ((2011) 336 ITR 444 (Delhi)). The latter case held that the receipt of sale of scrap is a part and parcel of industrial activity and therefore, deduction under Section 80IB is allowable. The Court reasoned that manufacturing activity of the type undertaken by the assessee would naturally generate scrap in the process. Receipts from the sale of scrap, being part and parcel of the activity and proximate thereto, would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under Section 80IB. The substantial question of law was answered against the revenue. The appeal was dismissed.

The High Court held that the Appellate Tribunal was correct in directing the Assessing Officer to exclude excise duty and sales tax from the total turnover for computing the deduction under Section 80HHC. The Court relied on the Supreme Court decisions in Commissioner of Income-Tax v. Lakshmi Machine Works and Commissioner of Income Tax v. Shiva Tex Yarn Ltd. The reasoning was that excise duty and sales tax do not have an element of 'turnover' and are indirect taxes recovered on behalf of the government, making the formula under Section 80HHC unworkable if included. Similarly, the Court held that the ITAT was correct in its direction regarding interest income, following the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax, which clarified that only net interest income should be deducted under Explanation (baa) to Section 80HHC. Consequently, all appeals filed by the Revenue were dismissed.

The High Court held that the substantial question of law is not res integra and is covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. The Court noted that the Supreme Court, in Lakshmi Machine Works, observed that the purpose of Section 80HHC was to provide incentives for exports, and the formula was designed to ascertain export profits. The Court emphasized a schematic interpretation of Section 80HHC, noting that items like commission, interest, and rent, which do not involve an element of turnover, were not eligible for deduction, even if they formed part of the profit and loss account. Similarly, excise duty and sales tax, being indirect taxes recovered on behalf of the government and not originating from 'turnover' itself, should be excluded. The Court found that even after the insertion of Section 145A, the principle laid down in Lakshmi Machine Works and Shiva Tex Yarn Ltd. remained applicable. Therefore, the ITAT was not in error in holding that Sales Tax and Excise duty do not form part of sale proceeds for the purpose of Section 80HHC.

The High Court held that the ITAT's view that penalty under Section 271(1)(c) cannot be levied in a case of loss or negative income is unsustainable, citing the Supreme Court's decision in Income Tax vs. Gold Coin Health Food Pvt. Ltd. The Supreme Court in that case clarified that Explanation 4(a) to Section 271(1)(c)(iii) permits penalty levy not only when concealed income addition results in positive assessed income, but also when it reduces a returned loss, even if the assessed income remains a loss. However, the High Court noted that the ITAT had not adjudicated on the merits of the penalty order, particularly concerning the fact that the assessee had not appealed the quantum additions. Therefore, the High Court quashed the ITAT's order and restored the matter to the ITAT to decide the appeal on its merits, including whether the penalty order was justified, considering all grounds, especially the absence of an appeal against the quantum additions.

The Tribunal held that for the purpose of calculating "total turnover" under Section 80HHC, sales tax and excise duty are not includible. The Tribunal reasoned that these are indirect taxes recovered on behalf of the government and do not have an element of "turnover" themselves, similar to how interest and commission, though related to exports, are not considered turnover. The Tribunal relied on the schematic interpretation of Section 80HHC and the Supreme Court's decisions in Commissioner of Income-Tax vs. Lakshmi Machine Works and Commissioner of Income-Tax vs. Shiva Tex Yarn Ltd. Regarding the DEPB income, the Tribunal restored the issue to the Assessing Officer for fresh disposal. It found that the CIT(Appeals) was not justified in directing the exclusion of DEPB income without the assessee furnishing details. The Tribunal remanded the matter to the Assessing Officer to provide the assessee with an opportunity of being heard and to dispose of the issue in accordance with the law.

The High Court held that the Appellate Tribunal was correct in allowing the deduction under Section 80IB for income from the sale of scrap. The Court applied the ratio laid down in the case of DCIT vs. Harjivandas Juthabhai Zaveri & Anr. (supra) by the jurisdictional High Court, which held that items like sale of empty bardana and plastic waste, if directly connected with manufacturing activities, are eligible for deduction. The Court also referred to the Delhi High Court's decision in CIT vs. Sadhu Forging Limited, which held that the receipt of sale of scrap is a part and parcel of industrial activity and therefore, deduction under Section 80IB is allowable. The reasoning was that scrap is a by-product of the manufacturing process, and receipts from its sale are gains derived from the industrial undertaking and thus eligible for deduction under Section 80IB. The substantial question of law was answered against the revenue. The appeal was dismissed.

The High Court held that the ITAT was correct in deleting the disallowance made under Section 43B(b) read with the second proviso in respect of unpaid PF/ESI amounts. The Court relied on the Supreme Court's decision in Commissioner of Income Tax vs. Aloma Extrusions Ltd. (2009) 319 ITR 306 (SC), which held that the deletion of the second proviso to Section 43B and the amendment to the first proviso were retrospective. Therefore, the disallowance was not sustainable. Regarding the second issue, the Court held that the ITAT was correct in directing the AO to recompute interest under Section 234B after allowing credit of MAT. This was based on the Supreme Court's decision in Commissioner of Income Tax vs. M.A. Presstressed Works (220 ITR 226). The Court found no error or illegality in the ITAT's directions on both counts. Consequently, the Tax Appeal filed by the Revenue was dismissed.

The High Court held that the substantial question of law is not res integra and is squarely covered against the Revenue by the decisions of the Hon'ble Supreme Court in Commissioner of Income Tax vs. Lakshmi Machine Works (290 ITR 667) and Commissioner of Income Tax vs. Shiva Tex Yarn Ltd. (2012) 25 Taxmann.Com 302 (SC). The Court reasoned that Section 80HHC is a beneficial provision intended to promote exports, and the formula for deduction is based on 'business profits' apportioned by 'export turnover' to 'total turnover'. The Supreme Court in Lakshmi Machine Works observed that 'turnover' should be interpreted schematically, and items like commission, interest, and rent, which do not involve an element of turnover, are not includible in 'total turnover'. Similarly, excise duty and sales tax, being indirect taxes collected on behalf of the government and not originating from the 'turnover' itself, should also be excluded. The Court found that even with the insertion of Section 145A, the ratio of the Supreme Court decisions remained applicable. Therefore, the Tribunal was correct in holding that excise duty and sales tax do not form part of the sale proceeds for the purpose of Section 80HHC.

The High Court of Gujarat held that it did not have jurisdiction to entertain the Tax Appeal. Applying the ratio laid down by the Delhi, Karnataka, and Punjab and Haryana High Courts in the cited cases, the Court found that given the location of the assessee's business and the Assessing Officer's office at Nani Daman, the appeal should have been preferred before the Bombay High Court. Consequently, the Tax Appeal was dismissed without entering into the merits of the case or expressing any opinion on the merits. The appellant was granted liberty to prefer an appeal before the appropriate High Court, i.e., the Bombay High Court, and if such proceedings were initiated, they would be considered in accordance with law and on merits.

The High Court of Gujarat held that it did not have the jurisdiction to entertain the Tax Appeal. This decision was based on the ratio laid down by the Delhi High Court in Sheth Banarsi Pass Gupta vs. CIT, Karnataka High Court in Commissioner of Income Tax vs. Madanlal Co., and Punjab and Haryana High Court in CIT vs. Motoroal India Limited. These decisions, according to the High Court, indicated that the appeal should have been preferred before the Bombay High Court, given that the Assessing Officer's office and the assessee's business were located at Nani Daman. Consequently, the appeal was dismissed on the ground of lack of jurisdiction, without entering into the merits of the case. The appellant was granted liberty to prefer an appeal before the appropriate High Court, i.e., the Bombay High Court.

The High Court of Gujarat held that it did not have jurisdiction to entertain the Tax Appeal. This conclusion was based on the location of the Assessing Officer's office and the assessee's business operations at Nani Daman. The court relied on the ratio laid down in the decisions of the Delhi, Karnataka, and Punjab and Haryana High Courts, which established that appeals should be filed before the High Court having territorial jurisdiction over the place where the Assessing Officer's office is situated. Consequently, the appeal was dismissed on the ground of lack of jurisdiction, without entering into the merits of the case. The appellant was granted liberty to prefer the appeal before the appropriate High Court, which was identified as the Bombay High Court.