The Commissioner of Income-tax, LTU, Bangalore / The Addl. Commissioner of Income-tax, Range - 8(1), Mumbai/Joint Commissioner of Income-tax, LTU, Bangalore v. Asea Brown Boveri Ltd
[Citation -2020-LL-0624-19]

Citation 2020-LL-0624-19
Appellant Name The Commissioner of Income-tax, LTU, Bangalore / The Addl. Commissioner of Income-tax, Range - 8(1), Mumbai/Joint Commissioner of Income-tax, LTU, Bangalore
Respondent Name Asea Brown Boveri Ltd.
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 24/06/2020
Assessment Year 1995-96
Judgment View Judgment
Keyword Tags profits and gains of business or profession • mercantile system of accounting • rectification application • disallowance of claim • compensatory interest • computing deduction • technical services • commission income • expenses incurred • foreign exchange • levy of interest • export turnover • interest income • gross interest • receipt basis • rental income • duty drawback • accrual basis • closing stock • tax at source • custom duty • travel expense
Bot Summary: Facts leading to filing of the appeal briefly stated are that the assessee filed return of income on 6 30.11.1995 declaring an income of Rs.55,60,86,982/-, which was accompanied by an audited profit and loss account, balance sheet and tax audit report in Form 3CD. It was processed under Section 143(1) and an intimation was issued on 29.03.1996. The assessing officer held that 90 of the interest received on bank deposits, interest from employees and customers, income from commission, rental income, income on commission from technical services has been excluded for the purposes of computing profits of the business as per Explanation to Section 80HHC of the Act. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax. The assessee filed an appeal before the Income Tax Appellate Tribunal. Insofar as substantial question of law No.2 is concerned from perusal of paragraph 12 of the order passed by the Income Tax Appellate Tribunal, it is evident that the tribunal has permitted deduction on accrual basis and has held that an amount would be receivable only when the income accrues to the assessee and income would 16 accrue to the assessee only when the assessee gets such a right to receive the income. So far as 6th substantial question of law is concerned, this court in COMMISSIONER OF INCOME TAX VS. MOTOR INDUSTRIES CO. LTD., , 331 ITR 79 as well as in COMMISSIONER OF INCOME TAX VS. M/S ROBERT BOSCH LTD., , DATED 10.10.2013 17 RENDERED IN ITA NO.507/2007 while taking into account the decision of the Supreme Court in RAVINDRANATHAN NAIR supra as well as decision of the Bombay High Court in COMMISSIONER OF INCOME TAX VS. PFIZER LTD. , 330 ITR 62 has held that if any income is derived from the export by way of foreign exchange, such income is not deductible and the benefit of that income has to be given to the assessee. So far as 7th substantial question of law is concerned, from perusal of paragraph 4 of the order passed by the Commissioner of Income Tax, we find that ground was taken with regard to deduction under Section 43B of the Act before Commissioner of Income Tax and the same was also taken before the Income Tax Appellate Tribunal.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 24TH DAY OF JUNE 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE M.NAGAPRASANNA I.T.A. NO.420 OF 2012 BETWEEN: 1. COMMISSIONER OF INCOME-TAX LTU, JSS TOWERS, BSK III STAGE BANGALORE. 2. ADDL. COMMISSIONER OF INCOME-TAX RANGE-8(1), MUMBAI. 3. JOINT COMMISSIONER OF INCOME-TAX LTU, JSS TOWERS, BSK III STAGE, BANGALORE. ... APPELLANTS (By Sri K V ARAVIND ADV.,) AND: M/S. ASEA BROWN BOVERI LTD., 22A, SHAH INDUSTRIAL ESTATE OFF VEERA DESAI ROAD ANDHERI, MUMBAI PAN NO.AAACA3834B. ... RESPONDENT (By Sri. T SURYANARAYANA, ADV A/W V VINAY GIRI, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 25/05/2012 PASSED IN ITA 2 NO.6612/MUM/2002, FOR ASSESSMENT YEAR 1995-96, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (II) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT BEARING ITA NO.6612/MUM/2002 DATED 25/05/2012 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY DEPUTY COMMISSIONER OF INCOME TAX, SPECIAL RANGE-1, MUMBAI. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by revenue. subject matter of appeal pertains to Assessment year 1995-96. appeal was admitted by bench of this Court vide order dated 23.01.2013 on following substantial questions of law: (i) Whether tribunal was correct in holding that travel expenses incurred by employees of assessee computed based on average basis should be upheld and not on trip vise basis as contemplated under Rule 6D of 3 I.T. Rules as held by jurisdictional Bombay High Court as order was passed by assessing officer in Mumbai? (ii) Whether Tribunal was correct in holding that cash compensatory assistance and duty drawback is liable to tax on receipt basis and not on accrual basis contrary to view expressed by it in case of assessee for Assessment year 1994- 95 and recorded perverse finding? (iii) Whether tribunal was correct in holding that payments made by assessee in cash exceeding Rs.10,000/- cannot be disallowed by applying Section 40(A)(3) of Act, as same were paid in exceptional circumstances when exceptions claimed by assessee does not fall under Rule 6 DD (j) of Rules and recorded perverse finding? 4 (iv) Whether tribunal was correct in holding that interest received on bank deposits, interest from employees and customers, commission income, rental income, commission income on technical services cannot be reduced by 90% when computing profits of business as per Explanation (baa) to Section 80HHC of Act, despite this income having not been earned in course of export and when details of same had not been furnished by assessee? (v) Whether tribunal was correct in holding that net interest income should be reduced by 90% when computing profits of business for purpose of allowing deduction under Section 80HHC of Act and not gross interest income? (vi) Whether tribunal was correct in holding that income from technical services cannot be reduced by 90% when computing profits of business as 5 per Explanation (baa) to Section 80HHC of Act, despite this income having not been earned in course of export and when details of same had not been furnished by assessee? (vii) Whether tribunal was correct in holding that Rs.8,84,75,000/- being customs duty paid and included in closing stock is allowable in view of Section 43B of Act, when same was not verified by assessing officer as it was not claimed in return of income or in revised return as held by Apex Court in M/s Goetze India Ltd., vs. CIT (2006 204 CTR (SC) 182? (viii) Whether tribunal was correct in holding that order under Section 201(1) is mandatory for levying of compensatory interest under Section 201(1A) of Act, for delay in remittance of TDS deducted? 2. Facts leading to filing of appeal briefly stated are that assessee filed return of income on 6 30.11.1995 declaring income of Rs.55,60,86,982/-, which was accompanied by audited profit and loss account, balance sheet and tax audit report in Form 3CD. It was processed under Section 143(1) and intimation was issued on 29.03.1996. assessing officer by order dated 28.02.1998 inter alia held as under: (i) assessee had aggregated all trips made by various employees. In accordance with Rule 6D of Income Tax Rules, computation has to be made trip basis of each employee. Therefore, sum of Rs.94,912/- was disallowed. (ii) assessee had not declared cash compensatory assistance and duty drawback on ground that same is liable to tax on receipt basis. assessing officer rejected same and included in total income on accrual basis and completed assessment. 7 (iii) assessee paid sum exceeding Rs.10,000/- in cash to various parties. In all, sum of Rs.1,87,442/- was paid and no evidence was adduced by assessee for exceptional circumstances to attract Rule 6DD(j) of Rules and was disallowed under Section 40(A)(3) of Act. (iv) assessing officer held that 90% of interest received on bank deposits, interest from employees and customers, income from commission, rental income, income on commission from technical services has been excluded for purposes of computing profits of business as per Explanation (baa) to Section 80HHC of Act. (v) claim with regard to sum of Rs.8,84,75,000/-, which was claimed as custom duty paid and included in closing stock and was made by way of rectification application was rejected. 8 (vi) assessee deducted Tax at Source and same was not remitted within due date. Therefore, assessing officer levied compensatory interest for delay in remittance under Section 201(1A) of Act. 3. Being aggrieved, assessee preferred appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 27.09.2008 upheld finding of assessing officer insofar as it pertains to disallowance of sum of Rs.94,912/- as expenses were not incurred trip wise as per Rule 6D of Rules. finding of assessing officer that sum of Rs.1,59,99,078/- of Cash Compensatory Assistance and duty drawback is liable for tax on accrual basis was also upheld. disallowance of claim under Section 40(A)(3) of Act was also upheld. finding with regard to allowing deduction under Section 80HHC of Act was upheld. In result, appeal was dismissed. 9 4. assessee filed appeal before Income Tax Appellate Tribunal. tribunal by order dated 25.05.2012 inter alia held that travel expenses should be computed on average basis and not trip wise basis by placing reliance on decision rendered by bench of this court. It was also held that finding with regard to cash compensatory assistance and duty drawback is contrary to view expressed by tribunal in case of assessee for Previous year 1994-95. It was also held that payment of cash exceeding Rs.10,000/- were made in exceptional circumstances and same were admissible. It was also held that no part of income for technical services be excluded for computing deduction under Section 80HHC of Act. It was further held that claim of Rs.8,84,75,000/- being custom duty paid and included in closing stock is allowable in view of Section 43B of Act and levy of interest under Section 201(1A) of Act was also set 10 aside. In aforesaid factual background, revenue has approached this court. 5. Learned counsel for revenue while inviting attention of this court to Section 28(iiib) of Act submitted that any cash assistance received or receivable by any person against exports under any scheme of Government Of India is chargeable to Income Tax under head Profits and Gains of Business or Profession . It is also pointed out that assessee in instant case is adopting mercantile system of accounting under which cash receivable has to be treated as business income. However, aforesaid aspect of matter has not been appreciated by Income Tax Appellate Tribunal. It is further submitted that income from technical services has to be reduced by 90% as same is independent income and has no nexus with export and therefore, has to be treated as business income. It is also urged that tribunal ought to have appreciated that claim for 11 deduction can be made only by way of revised return and in fact claim for deduction should be made in return. It is further submitted that tribunal could not have dealt with claim for deduction in light of Section 43B of Act for first time as it is not pure question of law and matter should have been remitted to assessing officer as same was raised for first time before assessing officer. In support of aforesaid submissions, reliance has been placed on decision of supreme court in GOETZE (INDIA) LTD. VS. COMMISSIONER OF INCOME-TAX , (2006) 157 TAXMAN 1 (SC). 6. On other hand, learned counsel for assessee has submitted that substantial question of law No.2 as framed is misconceived as tribunal has allowed deduction on accrual basis only. It is further submitted that explanation (baa) to Section 80HHC does not refer to export turnover and therefore, before receipt is liable to be excluded to extent of 90% it 12 must be receipt of nature similar to brokerage, commission, interest, rent or charges. It is also pointed out that decision in case of CIT, THIRUVANATHAPURAM V. K.RAVINDRANATH NAIR (2007) 295 ITR 228 (SC) does not deal with issue of business profits but with total turnover. It is further submitted that receipt for rendering technical services does not fall within scope of exclusion contemplated by clause (baa) of explanation to Section 80HHC and aforesaid position was conceded in case of assessee for subsequent year i.e., 1997-98 by revenue. In this connection, attention has been invited to order dated 05.04.2017 passed by Income Tax Appellate Tribunal in I.T.A.No.2714/Mum/2003. It is also pointed out that claim with regard to deduction in view of Section 43B of Act was made before assessing officer as well as Commissioner of Income Tax (Appeals), which was rejected by Commissioner of Income Tax (Appeals) in paragraph 4 of order 13 passed by it. Therefore, contention of revenue that aforesaid claim was raised for first time before Income Tax Appellate Tribunal is factually incorrect. It is further submitted that in any case no loss has been caused to revenue. In support of aforesaid submissions, reliance has been placed on decisions in CIT VS. EXCEL INDUSTRIES LTD , (2013) 38 TAXMANN.COM 100 (SC), CIT VS. SRIYANSH KNITTERS (P.) LTD. , (2011) 12 TAXMANN.COM 187, CIT AND ANR. VS. SYNDICATE BANK , ITA NO.98/2010, ORDER DATED 25.09.2006 IN ITA NOS.2484 AND 2396/BOM/93, ORDER DATED 23.04.2008 IN M.P.NO.226/M/2007 IN ITA NOS.2484 AND 2396/BOM/93, ITA NO.1027/2010, ORDER DATED 12.12.2014 IN ITA NO.1027/2010, CIT AND ANOTHER VS. MOTOR INDUSTRIES COMPANY LTD., , ITA NO.28/2005, CIT AND ANOTHER VS. ROBERT BOSCH (INDIA) LTD., , ITA NO.507/2007, 14 INGERSOLL-RAND INDIA LTD. VS. CIT AND ANOTHER , ITA NO.6/2011, ITA NO.6611/Mum/2002, ITA NO.2554/Mum/2003, BERGER PAINTS INDIA LTD. VS. CIT , (2004) 135 TAXMAN 586 (SC), RADGASAOMI SATSANG VS. CIT , (1992) 60 TAXMAN 248 (SC). 7. We have considered submissions made on both sides. From perusal of substantial question of law Nos.1 and 3, we find that findings on issues covered by aforesaid substantial questions of law are based on proper appreciation of evidence on record. aforesaid findings of fact can neither be termed as either perverse or arbitrary. In our considered opinion, no substantial questions of law are involved as framed by this court in aforesaid questions of law and same are questions of fact. Therefore, it is not necessary to answer same as issues covered under aforesaid questions of law are pure finding of fact. From close scrutiny of order passed by tribunal, 15 it is axiomatic that 4th substantial question of law does not arise for consideration as it is held against assessee by tribunal. 5th and 8th substantial questions of law have been answered against revenue by Supreme Court in ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT , 343 ITR 89 SC and COMMISSIONER OF INCOME TAX, NEW DELHI VS.ELI LILLY & CO. (INDIA) (P.) LTD. , 312 ITR 225 (SC) respectively. Accordingly, same are answered against revenue and in favour of assessee. 8. Substantial question of law Nos.2, 6 & 7 survive for consideration in this appeal. Insofar as substantial question of law No.2 is concerned from perusal of paragraph 12 of order passed by Income Tax Appellate Tribunal, it is evident that tribunal has permitted deduction on accrual basis and has held that amount would be receivable only when income accrues to assessee and income would 16 accrue to assessee only when assessee gets such right to receive income. It has further been held that assessee would get right to receive amount only when it is sanctioned to assessee by custom authorities and not when assessee makes claim of same. It was also held that since, amount of cash compensatory assistance and duty drawback during relevant year was not sanctioned to assessee therefore, income has not accrued to assessee. Thus, in fact tribunal has allowed deduction on accrual basis only. Therefore, 2nd substantial question of law is answered against revenue and in favour of assessee. 9. So far as 6th substantial question of law is concerned, this court in COMMISSIONER OF INCOME TAX VS. MOTOR INDUSTRIES CO. LTD., , (2011) 331 ITR 79 (KARNATAKA) as well as in COMMISSIONER OF INCOME TAX VS. M/S ROBERT BOSCH (INDIA) LTD., , DATED 10.10.2013 17 RENDERED IN ITA NO.507/2007 while taking into account decision of Supreme Court in RAVINDRANATHAN NAIR supra as well as decision of Bombay High Court in COMMISSIONER OF INCOME TAX VS. PFIZER LTD. , (2011) 330 ITR 62 (Bom.) has held that if any income is derived from export by way of foreign exchange, such income is not deductible and benefit of that income has to be given to assessee. expression any receipt of similar nature has to be understood in context of words preceding such expression viz., brokerage, commission, interest, rent or charges. It has further been held that such receipts have no nexus with income earned by way of foreign exchange and every receipt is not income and every income would not necessarily include element of export turnover. Similar view was taken by this bench in decision dated 11.03.2020 rendered in case of INGERSOLL-RAND (INDIA) LIMITED VS. COMMISSIONER OF INCOME-TAX I in ITA 18 NO.6/2011 AND CONNECTED CASES. In view of aforesaid well settled legal position, 6th substantial question of law is also answered against revenue and in favour of assessee. 10. So far as 7th substantial question of law is concerned, from perusal of paragraph 4 of order passed by Commissioner of Income Tax (Appeals), we find that ground was taken with regard to deduction under Section 43B of Act before Commissioner of Income Tax (Appeals) and same was also taken before Income Tax Appellate Tribunal. Therefore, it cannot be said that assessee raised aforesaid issue for first time before Income Tax Appellate Tribunal. Supreme Court in BERGER PAINTS (INDIA) LTD., supra has quoted with approval observation made by special bench of Income Tax Appellate Tribunal in INDIAN COMMUNICATION P. LTD., IAC, (1994) 206 ITR 96 to effect that whether full deduction was allowed in one year or partly in one year 19 and partly in next, since, assessee is company and rate of tax is uniform gain to one and loss to other is illusory, since, what is referred is one year would have to be discharged in next. It was further held that in that sense, nobody has won and nobody has lost. In other words, no loss has been caused to revenue. For aforementioned reasons, 7th substantial question of law is also answered against revenue and in favour of assessee. In view of preceding analysis, we do not find any merit in this appeal. same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss Commissioner of Income-tax, LTU, Bangalore / Addl. Commissioner of Income-tax, Range - 8(1), Mumbai/Joint Commissioner of Income-tax, LTU, Bangalore v. Asea Brown Boveri Ltd
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