Surplus on redemption of treasury bills taxable under Capital Gains: ITAT Mumbai

Bajaj Auto Ltd. Vs DCIT (ITAT Mumbai)

ITAT Mumbai held that surplus on redemption of treasury bills is taxable under the head Capital Gains and not under the head ‘Profits and Gains of Business’.

Facts- The return of income declaring total income of 592,90,19,690/- was filed on 29.12.1999. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued and served upon the assessee. The assessment u/s 143(3) of the Act was finalized on 11.03.2002 and total income was assessed at Rs.654,33,13,860/- after making various additions and disallowances of expenses. Being aggrieved, the present appeal is filed.

Conclusion- The co-ordinate bench of the ITAT in the case of the assesseee itself after following the decision of the Hon’ble Supreme Court in the case of CIT v/s Grace Collis (2001) (248 ITR 232 (SC)) that surplus on redemption of treasury bills is to be taxed under the head Capital Gains. Therefore, AO directed to assessee the same as capital gains.

Held that the assessee has made payment for the various expenses as referred above to the non-residents who were having no business connection in India, therefore, no tax was deducted for such payments. Therefore, disallowance u/s. 40(a)(i) in respect of such expenditure incurred in foreign currency unjustified.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. All these appeals filed by the assessee and revenue are interconnected and based on identical issue and facts, therefore, for the sake of convenience these appeal are adjudicated together by vide this common order by taking the ITA No. 2125/Mum/2005 of assessee’s appeal and ITA No. 1933/Mum/2005 of revenue’s as a lead case and the findings of the same will be applied to the other appeals filed by the assessee and revenue mutatis mutandis wherever it is applicable.

ITA No. 2125/Mum/2005 and for A.Y. 1999-2000 Appeal of assessee.

2. The fact in brief is that the return of income declaring total income of 592,90,19,690/- was filed on 29.12.1999. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued and served upon the assessee. The assessment u/s 143(3) of the Act was finalized on 11.03.2002 and total income was assessed at Rs.654,33,13,860/- after making various additions and disallowances of expenses. Further, facts of the case are discussed while adjudicating the grounds of appeal filed by the assessee and revenue as follows:

3. Assessee’s Appeal ITA No. 2125/Mum/2015

Ground No.1– Taxability surplus on redemption of securities under the head Capital Gain of Rs.6,04,15,151/-

4. During the course of assessment the AO noticed that a sum of Rs.6,04,15,151/- being surplus on redemption of treasury bills etc. has not been offered to tax under the head ‘Capital Gains’. The assessee claimed that the amount was not liable to tax on the ground that redemption does not amounting to transfer, resulting in capital gain after relying on the decision of the Hon’ble Supreme Court in the case of Vaniya Silk Mils Pvt. Ltd. Vs CIT 191 ITR 647. However, the AO has not agreed with the submission of the assessee, after referring the decision of the Hon’ble Supreme Court in the case of Grace Collins v/s CIT [248 ITR 323] wherein held that extinguishment of the assets itself is also covered by the term transfer which would result in Capital Gain. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) after following the decision of the Hon’ble Supreme Court in the case of Grace Coils as referred above held that the surplus on redemption is liable to tax under the head Capital Gain.

5. Heard both the sides and perused the material on record. We find that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of assessee itself in favour of the revenue for assessment year 1995-1996 and 1996­1997 vide ITA No. 3144/Mum/1999 dated 20.01.2021 and vide ITA No. 1781/Mum/2000 dated 20.06.2022.

6. We find that coordinate bench of the ITAT in the above referred decisions have decided the issue in favour of the revenue. Therefore, following the decisions of Co-ordinate Bench assessee as referred above, we do not find any merit in this appeal. This Ground of appeal of the assessee stand dismissed.

Ground No.2 Taxability of surplus on redemption of Treasury bills  under the head ‘Profits and Gains of Business’.

7. During the assessment year, the AO noticed that the assessee has received surplus on redemption of Treasury bills of Rs.19,26,772/- during the year under consideration. The AO discussed at Para 1.8 of the assessment order that the treasury bills were sold by the Reserve Bank of India on behalf of the Central Government. The difference between the amount payable on maturity and the discounted value of the treasury bills at the time of issue was treated as interest on securities. The AO has relied upon the decision of the Hon’ble Bombay High Court in the case of British Bank of Middle East v/s CIT [233 ITR 251].

8. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.

9. Heard both the sides and perused the material on record. We find that the Hon’ble Bombay High Court in the case of British Bank of Middle East v/s CIT (233 ITR 251) held that the difference Between the amount payable on maturity and discounted value of the treasury bills at the time of issue is interest on securities. The ITAT, Mumbai in the case of the assessee itself for the A.Y. 1998-99 and A.Y. 1997-98 vide ITA No. 9564/Mum/2004 & 5030/Mum/2005 has decided the issue in favour of the assessee. The co-ordinate bench of the ITAT in the case of the assesseee itself after following the decision of the Hon’ble Supreme Court in the case of CIT v/s Grace Collis (2001) (248 ITR 232 (SC)) that surplus on redemption of treasury bills is to be taxed under the head Capital Gains. Therefore, following the decision of Coordinate Bench, We direct the AO to assessee the same as capital gains. Therefore, this ground of appeal is allowed.

Ground No. 3- Deduction of the cost of Dies and moulds leased to Job Workers Rs.12,62,77,761/-

10. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No. 4 – Reduce the cost of the assets by the Penalty charges recovered for the purpose of granting depreciation : Rs.86,65,552/-

11. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No.5 Rejecting the claim of deduction of expenditure incurred with respect to Masala Grinder and toaster of Rs.48,485/-

12. During the course of assessment the AO noticed that the assessee has incurred expenditure on Masala Grinder and toaster aggregating to Rs.48,845/-. The AO has disallowed the same by treating as capital expenditure. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has dismissed the appeal of the assessee.

13. Heard both the sides and perused the material on record. The aforesaid amount was shown as capital expenditure in the tax audited report and same was also disallowed in the return of income. Therefore, we find that the disallowance of this expenditure is not justified, therefore, we direct the AO to delete addition made towards expenditure of Masala Grinder and Toaster after verification of the claim of the assessee.

Ground No. 6 Disallowance of Fines and Penalties of Rs.55,500/-.

14. During the year the assessee incurred expenditure in respect of fines and penalties aggregating to 55,500/-. The AO has disallowed the claim of this expenditure and the Ld. CIT(A) has sustained the disallowance.

15. After hearing both the sides and perusal of material on record, we find that similar claim of expenses was decided against the assessee by the co-ordinate bench of ITAT in the case of the assessee itself vide ITA No. 9564/Mum/2004 (A.Y. 1998-99), ITA No. 5030/Mum/2005 (A.Y. 1997-98). Following the decision of the co-ordinate benches this ground of appeal of the assessee stand dismissed.

Ground No. 7 – Deduction in respect of Wealth Tax paid Rs.12,96,152/-

16. During the course of assessment the AO disallowed the assessee’s claim of deduction of wealth tax paid during the relevant financial year amounting to 12,56,152/-

17. The Ld. CIT(A) has sustained the addition. The assessee has submitted that similar issue on identical facts in the case of the assessee from A.Y. 1995-96 to A.Y. 1998-99 have been decided in favour of the assessee. We have perused the decision of the ITAT in the case of the assesee for A.Y. 1998-99 wherein vide ITA No. 9564/Mum/2004 dated 22.08.20223 at Para 8 of the order after following the decision of the co-ordinate benches held that wealth tax paid by the assessee is not liable to the disallowed. After following the decisions of the co-ordinate benches the AO is directed to delete the disallowance.

Ground No.8 – Exclusion of job work receipts from total turnover while computing deduction under section 80HHC; Rs.26,04,680/-

18. The assessee has not pressed this ground of appeal, therefore, this ground of appeal stand dismissed.

Ground No.9 – Exclusion of cost which have been incurred for the  purpose of manufacturing while computing indirect expenses in respect of traded goods for deduction under section 80HHC.

19. The assessee has not pressed this ground of appeal, therefore, this ground of appeal stand dismissed.

Ground No. 10 – Allowing deduction u/s 80 IA of the Act on profits after deducting depreciation under section 32 of the Act from the profit of eligible undertaking.

20. The assessee has arrived at eligible profit for deduction without considering the depreciation. During the course of assessment the AO computed deduction allowable u/s 80 IA of the Act, after deducting depreciation from the profits of eligible undertakings. The AO considered that depreciation was of the nature of expense therefore same required to be considered for arriving at the correct income. Therefore, after placing reliance on the ratio laid down by the Hon’ble Supreme Court in Mother India Refrigeration Industries Pvt. Ltd. Vs CIT [155 ITR 711] the eligible profit was worked out after considering the depreciation allowable as per Income Tax Act.

21. After hearing both the sides and perusal of all the material on record, we find that identical issue on similar fact in the cases of the assessee itself has been decided against the assessee by the co-ordinate benches of ITAT the A.Y. 1993-94 to 1998-99 vide ITA No. 3493/Mum/1999, 1781/Mum/2000, 5030/Mum/2001, 9564/Mum/2004. Following the decision of the co-ordinate bench as referred above, this ground of appeal of the assessee stand dismissed.

Ground No. 11- Disallowing of deduction under Section 80-O of the Act, in respect of royalty received of Rs.19,292/-

During the year under consideration the assessee has received a sum of Rs.38,585/- being royalty under technical knowhow agreement made with M/s Auto Technicia Ltd. Colombia. The assessee has claimed deduction u/s 80-O of the Act on the aforesaid amount received. However the AO had disallowed the claim of deduction stating that it was not in the nature of drawing, design, invention, patent and trademarks, therefore, the same was not allowed for deduction u/s 80-O of the Act. The Ld. CIT(A) has sustained the disallowance made by the AO.

22. Heard both the sides and perused the material on record. We find that identical issue on similar fact in the case of the assessee itself has been adjudicated by the co-ordinate bench of ITAT in the favour of the assessee for the A.Y. 1998-99 vide ITA No. 9564/Mum/2004. In the above referred decision it was noticed that in accordance with the agreement that assessee has given license to assemble its scooters models. The assessee permits the same and accordingly supplied the drawings relating to those parts and collects technical knowhow fee. The co­ordinate bench held that the technical knowhow fee received by the assessee would fall under the category of “Royalty” as defined in sec. 80-O of the Act and it is eligible for deduction u/s 80-O. Following the decision of ITAT as referred above, this ground of appeal of the assessee is allowed. The AO is directed to allow the claim of deduction u/s 80-O of the Act.

Ground No. 12 Exclusion of surrender of tenancy rights while  computing the book profit as per the provision of section 115JA.  Rs.8,76,68,577/-

23. This ground of appeal has not been pressed by the assessee, therefore, this ground of appeal stand dismissed.

Additional Ground No. 1: While computing indirect cost attributable to export of trading goods for the purpose of computing deduction under section 80HHC, expenses attributable to other income and export incentive estimated at 10% thereof ought to be excluded.

24. In respect of aforesaid claim of the assessee, the Ld. Counsel has submitted that the identical issue on similar fact has been adjudicated in favour of the assessee by co-ordinate bench of ITAT vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision is reproduced as under:

93. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year vide ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995-96, held as under: –

5.3 In additional ground No.2 of the appeal the assessee has assailed exclusion of certain expenses le. indirect cost” attributable to export of trading goods for the purpose of deduction u/s 80HHC of the Act. In first appellate proceedings the CIT(A) directed the Assessing Officer to exclude expenses attributable to other Income and export incentive, estimated at 10%. We find that similar issue had come up before the Co-ordinate Bench in assessee’s own case for the Assessment Year 1995-96 (supra). The Tribunal after examining the issue placed reliance on the decision of Hon’ble Supreme Court of India in the case of Hero Exports vs. CIT 295 ITR 454 and the decision of Special Bench of the Tribunal in the case of Surendra Engineering Corporation vs. ACIT, 86 ITD 121 and decided the issue in favour of assessee. For the sake of brevity the findings of the Co-ordinate Bench are not reproduced hereunder. The Revenue could not controvert the findings of Co- ordinate Bench on the issue. Following the decision of Tribunal in assessee’s own case for the immediately preceding Assessment Year, the additional ground No.2 of the appeal is allowed.”

94. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed, accordingly, ground raised by the assessee is allowed.

Following the decision of the co-ordinate bench as referred above, this ground of appeal is allowed.

Additional Ground of appeal 2- Common Expenditure not specifically incurred towards the tax incentive unit ought not to be considered for computing the deduction under section 80HH and 80-IA

25. In support of its claim, the ld. Counsel has referred following decisions of coordinate benches wherein similar issue on identical fact has been decided in favour of the assessee vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision is reproduced as under :

97. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995­96, held as under:

“8. The learned Counsel for the assessee submitted that as only income “derived from the undertaking is included for the purpose of computing deduction u/s 80HH and 801 of the Act, following the same analogy the expenditure which has no nexus with the undertaking ought not to be considered. The Id. Authorized Representative for the assessee painted that similar issue had come up before the Tribunal in assessee’s own case in ITA No.3144/Mum/1999(supra). The Tribunal after considering the judgment rendered in the case of Zandu Pharmaceuticals Ltd. vs. CIT 350 ITR 356(Bom), CIT vs. Hindustan Unilever Ltd., 72 taxmann.com 325 (Bom) and CHT vs. Hindustan Lever Ltd., 42 taxmann.com 132(Mad) decided the issue in favour of the assessee.

8.1 The Id. Departmental Representative fairly conceded that the issue has been decided by the Tribunal in immediately preceding Assessment Year in favour of the

8.2 In the case of Zandu Pharmaceuticals Ltd. vs CIT(supra) it has been held that while computing profits and gains of the concerned undertaking only expenses relating thereto can be deducted. The expenses attributable to other unit or head office expenses which have no relevance to the Industrial undertaking cannot be deducted in respect of the said undertaking while computing profit and gains of the said undertaking for the purpose of computing deduction u/s 80HH, 801 and 80IA of the Act. The Co-ordinate Bench in assessee’s own case for Assessment Year 1995 96 following the ratio laid down in the case of Zandu Pharmaceuticals Ltd.(supra) allowed identical ground raised in the appeal before the Tribunal. Since, there has been no change in the facts and legal position in impugned assessment year, the additional ground No.3 of the appeal is decided in favour of the assessee.

26. Following the decision of the co-ordinate bench, we restore this issue to the file AO for deciding afresh as per the direction of the co-ordinate bench. Therefore, this ground of appeal is allowed for statistical purpose.

Addition Ground of appeal no. 3 Duty Drawback and interest received ought to be included while computing deduction under section 80HH and 80IA

27. During the course of assessment, in support of its claim the ld. Counsel submitted that similar issue on identical facts has been decided by the co-ordinate bench of ITAT in favour of the assessee in the case of assessee itself vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98).

28. In the above referred decision the issue was decided in favour of the assessee after following the decision in favour of the assessee after following the decision of the co-ordinate bench on the basis of the decision of the Hon’ble Supreme Court in the case of CIT v/s Meghalaya Steels Ltd. (2016) (383 ITR 217) SC. Following the decision of the co-ordinate bench, we direct the AO to allow deduction u/s 80 IA of the Act in respect duty draw back and interest income.

Additional Ground No. 4 – If duty Drawback and interest is excluded while computing deduction under section 80HH and 80 IA, then only the net interest and net drawback should be excluded

29. Since additional ground No.3 is allowed, therefore, this ground of appeal become infructuous and the same stand dismissed.

Additional Grounds of appeal No. 5 Addition on account of provision for doubtful debt Rs.11,75,80,143/-:

30. In support of its contention that there is no requirement to correspondingly square up the debtor account, the Ld. Counsel has submitted that identical issue on similar fact in the case of the assessee itself has been adjudicated by the co-ordinate benches of ITAT, Mumbai for the A.Y. 1994 to1998 vide ITA No. 3493/Mum/1999 (1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (1997-98). The relevant extract of the decision of the ITAT for A.Y. 1997-98 vide ITA No. 5030/Mum/2021 is reproduced as under :-

102. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995­96, held as under: –

19. A perusal of the assessment order shows that in computation of total income the Assessing Officer has added provision for bad and doubtful debts Rs.2,85,47,483/-. However, the Assessing Officer has not given any reasoning for adding provision for doubtful debts. In the first appellate proceedings the CIT(A) has directed the Assessing Officer to allow deduction of the aforesaid amount. Against this the Revenue is in appeal before the Tribunal. We find that in assessment year 1995­96 the Assessing Officer in identical manner had added provision for doubtful debts. The CIT(A) directed the Assessing Officer to delete the addition. The Revenue carried the issue in appeal before the Tribunal. The Tribunal following the decision rendered in the case of Vijaya Bank vs. CIT, 323 ITR 166 (SC) upheld the findings of CIT(A) and dismissed the ground raised by the Revenue. In the impugned assessment year there is no change in the facts. Consequently, the ground No.6 raised in the appeal by the Revenue is dismissed.

103. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed, accordingly, ground raised by the assessee is allowed.

29. Following the decision of the co-ordinate bench, we restore this issue to the file of AO for deciding a fresh as per the direction laid down by the co-ordinate bench in the aforesaid decision.

Therefore, this ground of appeal is allowed for statistical purpose.

Additional Ground of Appeal No. 6: Deduction on account of provision for doubtful debts in the year of actual write-off, if the same is not allowed in the year of provision:

30. Since we have adjudicated the additional ground no. 5 as supra therefore, this ground of appeal become infructuous and same stand dismissed.

Revenue appeal ITA No. 1933/Mum/2005

Ground No. 1 Deduction under section 35D in respect of GDR issue expenses: Rs.11,71,99,600/-

31. During the course of assessment the AO has disallowed the expenses amounting to 11,71,99,600/- incurred in connection with the issue GDR of USD 109,999,983 million relevant to A.Y. 1995-96. The Ld. CIT(A) allowed the appeal of the assessee. The Ld. CIT(A) held that expenditure of Rs.11,71,99,600/- was covered u/s 35D and the assessee was entitled to pro deta deduction u/s 35D in that assessment year.

32. Heard both the sides and perused the material on record. We find that similar issue on identical fact has been adjudicated in favour of the assessee by the co-ordinate bench of ITAT vide ITA No. 8952/Mum/2004, ITA No. 5030/Mum/2001 for A.Y. 1998­99 and A.Y. 1997-98. The relevant extract of the decision is reproduced as under :

14.0 The Ground no.1 raised by the revenue relates to the disallowance of Rs.43,43,676/- relating to GDR issuing expenses. The assessee had issued GDR of USD 109,999,983 in the financial year relevant to AY 1995- 96. The expenses incurred to the rune of Rs.11,71,99,600/- was claimed by the assessee u/s 37(1) in AY 1995-96, which was rejected. In the alternative, the assessee claimed the same as deduction u/s 35D of the Act. The said claim was not considered, since the expansion of undertaking was not completed in that year. In AY 1997-98, in ITA No.5030/Mum/2021 dated 13-04-2023, the co-ordinate bench allowed the claim of the assessee following the decision rendered by Ahmedabad bench of Tribunal in the case of Gujarat Narmada Valley Fertilisers Co. Ltd vs. DCIT (ITA No.1463/ Ahd/2007), i.e., it was held that the assessee is eligible for deduction u/s 35D of the Act in respect of this expenditure. U/s 35D of the Act, this expenditure is allowable in installments. Hence the assessee has claimed proportionate amount in this year. Since the co-ordinate bench has held it to be allowable u/s 351 of the Act, following the said decision of co-ordinate bench, we direct the AO to allow eligible amount relatable to this year as deduction u/s 35D of the Act in this year.

30. Following the decision of co-ordinate bench as referred above, we do not find any infirmity in the decision of Ld. CIT(A), therefore, this ground of appeal of the revenue is dismissed.

Ground No. 2. Depreciation in respect of sale and lease back transaction with JCT Limited : Rs.85,17,592/-

31. During the assessment the AO noticed that the asses see has claimed depreciation in respect of sale lease back transaction with JCIT Ltd. for Rs.85,17,592/-. The AO has disallowed the claim of depreciation stating that arrangement with the above party was a financing transaction and not a lease transaction. The Ld. CIT(A) has allowed the claim.

32. Heard both the sides and perused the material on record. It is noticed that the co-ordinate bench of ITAT on similar issue on identical fact has allowed the claim of depreciation on lease back transaction vide ITA No. 8952/Mum/2004, ITA 5030/Mum/2001 for A.Y. 1998-99 and A.Y. 2997-98. The relevant extract of the decision of the ITAT for A.Y. 1998-99 vide ITA No. 5952/Mum/2004 is reproduced as under :-

15.3 We heard the parties on this issue and perused the record. We notice that the AO had disallowed the claim of depreciation only on the ground that it was not a genuine lease transaction, i.e., it is a finance transaction entered under the garb of lease transaction. The above said view of the AO has since been rejected by Ld CIT(A) and Tribunal in AY 1996-97 and 1997-98. Hence the basis on which the disallowance of depreciation made by the AO has already been reversed. The ld D.R has raised a new contention that the Explanation 4A should be applied to this lease transaction, which is not the case of the AO. Accordingly, we do not find it necessary to consider the new contention raised by Ld D.R. Accordingly, following the decision render d by the co­ordinate benches in the assessee’s own case, we confirm the order passed by Ld CIT(A) on this issue.

33. Therefore, following the decision of ITAT as above, we do not find any merit in this ground of appeal of the Revenue and the same stand dismissed.

Ground No. 3 – Allowing deduction in respect of expenditure incurred on dies and mould as revenue expenditure Rs.28,04,53,641/-

34. During the course of assessment, the AO has disallowed the deduction of expenditure incurred on dies and moulds as revenue expenditure to the amount of ₹ 28,04,53,641/-. The Ld. CIT(A) has allowed the claim of the assessee. We consider that similar issue on identical fact has been adjudicated by the co­ordinate bench of ITAT in the case of the assessee itself vide ITA No. ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99). The relevant extract of the decision of the ITAT for A.Y. 1997-98 vide ITA No. 8952/Mum/2004 is reproduced as under :-

16.0 Ground No.3 raised by the revenue relates to the disallowance of expenses incurred on Dies and Moulds amounting to Rs.30.47 crores. The assessee treated the above said expenses as Capital in nature in the books of account, but claimed the same as revenue expenditure for income tax purposes. This is a recurring issue. The co-ordinate bench has decided this issue in favour of the assessee by confirming the decision rendered by Ld CIT(A) in holding that the expenditure incurred in purchase of dies and moulds are allowable as revenue expenditure in AY 1990-91. The said decision is being followed year after year. In AY 1997-98 also in ITA No.5030/Mum/2001 dated 13.04.2023, the Tribunal has upheld the identical decision taken by Ld CIT(A). Consistent with the view taken by the co-ordinate benches year after year, we confirm the order passed by Ld CIT(A) in holding that the expenditure incurred on Dies and Moulds is allowable as deduction.

35. Therefore, following the decision of ITAT, we do not find any infirmity in the CIT(A) order. Therefore, this ground appeal of the revenue stand dismissed.

Ground No. 4 Allowing penalty charges recovered from suppliers of capital goods as capital receipts and therefore not chargeable to tax: Rs.85,65,552/-

36. The assessee claimed that penalty charges recovered from capital good supplier was not revenue receipt because it is connected with the capital goods. The ld. CIT(A) has deleted the addition. We find that similar issue on identical fact has been adjudicated by the coordinate bench of ITAT in the case of assessee itself vide ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99). The relevant extract of the decision vide ITA No. 8952/Mum/2004 for A.Y. 1998-99 is reproduced as under :-

7.0 Ground no.4 urged by the revenue relates to decision of Ld CIT(A) in holding that the penalty charges received from machinery suppliers amounting to Rs.30,06,738/- is capital receipt. This is also a recurring issue. In AY 1997-98 (supra), the Tribunal has followed the decision rendered in AY 1995-96, wherein it was held that the penalty charges received from machinery suppliers is capital in nature. In this regard, the Tribunal has followed the decision rendered in AY 1993-94, wherein it was decided in favour of the assessee following the decision rendered by Hon’ble Andhra Pradesh High Court in the case of Barium and Chemicals Ltd (168 ITR 164). Consistent with the view taken in the earlier year, we uphold the decision rendered by Ld CIT(A) on this issue.

37. Following the decision of mentioned above, we do not find any error in the decision of Ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed.

Ground No. 5- Allowing deduction of expenditure incurred in respect of jigs and fixtures as revenue expenditure: Rs.10,02,67,640/-

38. During the course of assessment the AO treated the expenses incurred by the assessee in respect of jigs and fixtures as capital asset and disallowed the claim of the revenue expenditure made by the Assessee. The Ld. CIT(A) has allowed the appeal of the assessee. We find that similar issue on identical fact has been constantly decided by the co-ordinate bench in favour of the assessee vide ITA No 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998-99).

39. Therefore, following the decision of co-ordinate bench, we do not find any merit in the appeal of the revenue, therefore, this ground of appeal of the revenue stand dismissed.

Ground No. 6- Allowing deduction in respect of proportionate premium on leasehold land: Rs.7,42,135/-

40. The assessee claim annual rent payable as per the lease agreement as deduction which was not allowed by the AO. However, the Ld. CIT(A) allowed the claim of the assessee. We find that similar issue on identical fact has been decided by the co-ordinate bench of ITAT in the case of assessee itself vide ITA No. 3493/Mum/1999 (A.Y. 1995-96), 1781/Mum/2000 (1996-97), 5030/Mum/2001 (A.Y. 1997-98), 8952/Mum/2004 (1998­99).

41. Following the decision, we do not find any merit in the appeal of the revenue. Therefore, this ground of appeal of the revenue stand dismissed.

Ground No. 7 Allowing corresponding adjustment in the opening stock under section 145A of the Act.

46. During the course of assessment the assessing officer has made adjustment on account of modvat credit as per provision of Sec. 145A of the Act amounting to Rs.2,49,55,431/-.

47. In the appeal, the ld. CIT(A) held that corresponding opening stock should also be adjusted. He also referred the decision of Hon’ble Supreme Court in the case of CIT Vs. British Paint 188 ITR 44 (SC) and CIT Vs. Agrawal Enterprise 235 ITR 412 that real income can be ascertained on the basis of the real value of opening and closing stock. The ld. CIT(A) has also referred the decision of Hon’ble Supreme Court in the case of Sampath Ram Vs. CIT (1953) 24 ITR 481 (SC) and CIT Vs. Indo Nippon Chemicals Company Ltd. 164 CTR (Bom) 78 wherein it is held that closing inventory is to be adjusted by tax then a corresponding effect has to be given in the opening inventory too.

Therefore, the ld. CIT(A) held that while making addition of unused modvat credit corresponding adjustment in the opening stock should also be made.

48. Heard both the sides and perused the material on record. During the course of appellate proceedings before us the ld. Counsel has also referred the decision of Hon’ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works (P) Ltd. (2009) 318 ITR 116 (Bom). After considering the judicial pronouncements referred by the ld. Counsel and the judicial pronouncements relied upon by the ld. CIT(A) in his finding we don’t find any reason to interfere in the decision of ld. CIT(A) holding that while making addition of unused modvat credit corresponding adjustment in the opening stock should also be made. Therefore, this ground of appeal of the revenue is dismissed.

Ground No. 8 Allowability of deduction in respect of foreign travelling expenses of wife of Managing Director : Rs.5,43,184/-

49. During the course of assessment, the AO noticed that expenditure pertaining to foreign travel of wife of Managing Director was claimed as deduction. The AO stated that same was not incurred for the purpose of business, therefore, claim of expenditure in respect of foreign travel of wife of Managing Director of Rs. 5,43,184/- was disallowed.

50. The Ld. CIT(A) has allowed the claim of expenses. We consider that the assessee has explained that the foreign travel expenses of the wife were relevant to the business of the assessee because of social needs in the business of the assessee.

51. Heard both the sides and perused the material on record. We find that identical issue on similar fact has been adjudicated by the ITAT Mumbai, in the case of the assessee itself against the assessee vide ITA No.8952/Mum/2004 for assessment year 1998-99. The relevant operating part of the decision is reproduced as under:

“25.2 We heard the parties on this issue and perused the record. We notice that the Hon’ble jurisdictional High Court in the case of Alfa Laval (I) Ltd has upheld the deletion of disallowance of expenses incurred on the foreign trips of company’s President only for the reason that there was concurrent finding of both Ld CIT(A) and the Tribunal that it has been incurred for the purposes of business. However, the jurisdictional high court has clarified that the case needs to be decided on its own facts primarily considering the business expediency. It was further held that this kind of claim is to be allowed only if it is connected with the business of the assessee.

25.3 In the instant case, we notice that the Managing director Shri Rahul Bajaj has visited Netherland & UK for attending India Growth fund Board Meeting. The Board resolution with regard to the expenses to be incurred on wife of Shri Rahul Bajaj reads as under:-

“Further Resolved that air-fare and other expenses in connection with the above visit (including those of Smt. Bajaj) be and are hereby authorized to be borne by the Company.”

We notice that the Board resolution did not bring out any business expediency. Further, the assessee has also not proved existence of any commercial or business expediency in incurring the foreign travel expenses of wife of M D except producing copy of Board resolution, in which also, no reason was given. There should not be any doubt that this is a factual aspect and the facts prevailing in each foreign trip has to be examined. Accordingly, the decision taken by the Tribunal in AY 1986-87 may not be relevant. We notice that the Ld CIT(A) has also not brought out the business or commercial expediency in incurring expenses on foreign trips of wife of M D, but deleted the addition on the basis of quantum of expenditure, status of the M D and approval by Board. These are not the proper reasons for allowing this type of expenditure, as held by the jurisdictional High Court. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and confirm the disallowance made by the AO.”

52. After following the decision of coordinate bench on the similar facts and issue as referred above find merit in this ground of appeal of the revenue, therefore, this ground of appeal of Revenue is allowed.

Ground No. 09 Deleting disallowance of proportionate interest expense attributable to earning exempt income Rs.1,07,79,990/-:

53. This is undisputed fact that the assessee company was having sufficient own interest free fund which were more than investment made on which exempt income was earned. However, during the course of assessment the AO has disallowed the interest expenses amounting to 1,07,79,990/- and treated as attributable to earning exempt income.

54. The Ld. CIT(A) has deleted the addition. After hearing both the sides and perusal of the material on record we find that the same issue on identical fact has been decided in favour of the assessee itself by the coordinate of ITAT for the A.Y. 1998-99 (ITA No. 8952/Mum/2004). The relevant extract of the decision of ITAT is reproduced as under:

“24.0 Ground no.11 raised by the revenue relates to disallowance of interest expenses relatable to exempt income. The AO noticed that the assessee has borrowed funds and paid interest thereon. The assessing officer took the view that common funds have been used to make investments and accordingly disallowed proportionate interest expenses. The ld CIT(A) noticed that own funds available with the assessee was more than the value of investments. Accordingly, he held no disallowance out of interest expenses is called for.

24.1 We heard the parties and perused the record. We notice that the view taken by Ld CIT(A) gets support from the decision rendered by Hon’ble Bombay High Court in the case of HDFC Bank Ltd (366 ITR 505)(Bom). The jurisdictional Bombay High Court has held in the above said case that the interest disallowance u/r 8D(2)(ii) of I T Rules is not called for when the own funds available with the assessee is in excess of the value of investments. In our view, the ratio of the said decision shall apply to the facts of the present issue. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.”

55. Since, the assessee was having more interest free funds then the amount of investment made on which the exempt income was earned, therefore, following the decision of coordinate bench on the identical issue on similar fact as discussed supra we don’t find any merit in this ground of appeal the revenue, therefore, this ground of appeal of the revenue is dismissed.

Ground No. 10 Allowing deduction for Prior period of expenses Rs.2,29,71,289/-:

56. During the course of assessment assessee claimed expenditure amounting of Rs.2,29,71,289/- pertaining to assessment year 1998-99 debited in assessment year 1999-2000. The AO has rejected the claim of deduction on the ground that these expenditure was not pertaining to the year under consideration. The ld. CIT(A) has allowed the claim of the assessee following the earlier years orders on the basis of which similar claim of expenditure were allowed.

57. During the course of appellate proceedings before us the ld. Counsel submitted that these expenditure pertaining to assessment year 1998-99 were crystalized during the year under consideration, therefore, the same was correctly debited to the profit and loss account. The ld. Counsel has also submitted that identical issue on similar fact has also been adjudicated by the ITAT for assessment year 1998-99 vide ITA No. 8952/Mum/2004. We have perused the decision of ITAT as referred above wherein the claim of such expenses pertaining to assessment year 1997-98 were allowed during the assessment year 1998-99 on the ground that same were crystallized during the assessment year 1998-99. Following the decision of ITAT and considering the fact that impugned expenses were crystallised during the year under consideration we don’t find any infirmity in the decision of ld. CIT(A) on this issue, therefore, this ground of appeal of the revenue is dismissed.

Ground No. 11:

58. During the course of assessment the assessing officer has reduced 90% of the following items from the profit of the business while computing the deduction u/s 80HHC.

“a. b. c. d. e. f.

Technical know-how: Insurance claims: Miscellaneous receipts: Sundry Credit Balance: Bill Discounting: Provision no longer required:

Rs.4,57,7,672 Rs.37,89,316 Rs.50,77,36,264 Rs.19,18,654 Rs.1,21,32,226 Rs.15,66,62,368

However, the ld. CIT(A) has excluded the aforesaid items while computing the profit of the business holding that these items have direct nexus with the business activity of the assessee and are not specifically mentioned in explanation (baa), after following his order for assessment year 1998-99. During the course of appellate proceedings before us the ld. Counsel submitted that identical issue on similar fact for assessment year 1995-96 to 1998-99 has been adjudicated by the ITAT in favour of the assessee by the following pronouncements:

a. ITAT- AY 1998-99 (ITA No.8952/Mum/2004 para 19,page 11)

b. ITAT-AY 1997-98 (ITA No. 5030/Mum/2001, para no 31-34 pag no. 22 to 26)

c. ITAT-AY 1996-97 (ITA No. 1781/Mum/2000, para no. 18, pg. no. 14­16)

d. ITAT-AY 1995-96 (ITA No. 3493/Mum/1999, para no. 7 pg. no.5)

Respectfully, following the decision of ITAT as referred supra this ground of appeal of revenue is dismissed.

ITA No. 573/Mum/2007 & C.O. No. 119/Mum/2007

60. Both the appeal of the revenue and cross objection filed by the assessee are pertained to the issue on levied of penalty u/s 271(1)(c) of the Act, therefore, both these appeals are adjudicated together as follows:

ITA No.573/Mum/2007

61. The assessing officer vide order u/s 271(1)(c) of the Act dated 27.03.2006 as levied penalty of Rs.6,72,67,079/- in respect of the following additions made in the assessment order under the following heads:

a) Surplus on redemption on securities

b) GDR issues expenses

c) Capital expenditure (Jigs & Fixtures)

d) Fines and penalties

e) Wealth tax payment

f) Excess claim of deduction under section 80HHC

g) Deduction under Section 80-O

62. The ld. CIT(A) has deleted the penalty levied on all the above issue vide order dated 16.10.2006.

63. However, the revenue has filed appeal against the order of ld. CIT(A) in deleting the penalty levied u/s 271(1)(c) of a sum of Rs.160,11,024/- in respect of excess deduction claimed by the assessee u/s 80HHC of the Act and against penalty levied of Rs.26,015/- for claiming deduction u/s 80-O of the Act.

64. The assessing officer has levied penalty on the difference between the returned income and the assessed income on account of issue pertaining to reduction of deduction u/s 80HHC of the Act. During the course of penalty proceedings ld. CIT(A) has deleted the impugned penalty holding that neither the assessee has concealed particulars of income nor furnished inaccurate particulars of income.

65. Heard both the side and perused the material on record. During the course of assessment the assessing officer has recomputed the claim of deduction u/s 80HHC of the Act after making various adjustment. However, the ld. CIT(A) has deleted all the adjustment except inclusion of sale of scrap and other miscellaneous receipt while computing turnover and computation of indirect cost. Thereafter the AO has levied penalty u/s 271(1)(c) on the difference in the amount of deduction claimed in the return of income and the amount allowed to the assessee as per assessment the order. After hearing both the side and perusal of material on record, we find that assessee has claimed deduction u/s 80HHC of the Act on the basis of the separate audit report furnished u/s 80HHC(4) of the Act and certified by the auditor as per the tax audit report. The ld. CIT(A) has deleted the penalty on the reason that merely that the AO included or excluded certain items within the term indirect cost that should not be a basis for levying penalty u/s 271(1)(c) for concealing particulars of income or furnishing inaccurate of income thereof. We find that the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products Ltd. (SC) (2010) 322 ITR 158 held that a mere making a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars in respect of income of the assesse. Considering the above facts and findings we find no infirmity in the decision of ld. CIT(A) in deleting the impugned penalty therefore this ground of appeal of the revenue is dismissed.

Deleting penalty for claiming deduction u/s 80-O of Rs.26,015/-:

66. During the course of assessment the assessing officer has levied penalty u/s 271(1)(c) amounting to Rs.26,015/- for disallowing the claim of deduction u/s 80-O of Rs.26,015/-.

67. The ld. CIT(A) has deleted the said penalty holding that the claim made by the assessee was a bonafide claim and there was no concealment of particular of income or furnishing inaccurate particulars of income.

68. Heard both the sides and perused the material on record. We find that in support of its claim of deduction u/s 80-O the assessee has furnished form no. 10HA certified by the tax auditor in the tax audit report. It was also pointed out that in the earlier assessment year i.e 1997-98 the similar claim of deduction has been granted to the assessee in respect of royalty received. In view of the above fact we consider that assessing officer has not brought any material to substantiate that assessee has concealed the particulars of income or furnished inaccurate particulars of income. Therefore, considering the similar facts and finding as given above for deleting the penalty levied of claim of deduction u/s 80HHC we don’t find any merit in this appeal of the revenue, therefore, this ground of appeal of the revenue is dismissed.

C.O. 119/Mum/2007

69. In the Cross Objection the assesse submitted that ld. CIT(A) has not adjudicated the ground of levy of penalty u/s 271(1)(c) of Act amounting to Rs.672,67,079/-. As discussed supra the ld. CIT(A) has already adjudicated ground of appeal of the assessee vide order dated 16.10.2006 holding that penalty levied u/s 271(1)(c) has been deleted on all the issued, therefore, this Cross Objection filed by the assessee has become infructuous the same stand dismissed.

ITA No. 3055/Mum/2005

Ground No. 1: Taxability on surplus on redemption of securities as Capital Gains Rs.1,94,19,926:-

70. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 1 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is also dismissed.

Ground No. 2: Taxability on surplus on redemption of treasury bills as business income and not as Income from other sources Rs.25,80,519/-:

71. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 2 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is allowed.

Ground No. 3: Deduction of the cost of Dies and moulds leased to Job Workers: Rs.7,82,95,505/-:

72. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No.4: Reduce the cost of the assets by the Penalty charges recovered for the purpose of granting depreciation: Rs.38,09,457/-:

73. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No. 5: Rejecting the claim for deduction of expenditure incurred with respect of masala grinder and toaster: Rs.13,936/-:

74. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 5 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is allowed.

Ground No. 6: Disallowance of fines and penalties: Rs.23,600/-:

75. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 6 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee dismissed.

Ground No. 7: Deduction in respect of wealth tax paidRs.15,53,672/-:

76. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 7 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is allowed.

Ground No. 8: Exclusion of Miscellaneous receipts from total turnover while computing deduction under section 80HHC: Rs.30,94,18,261/-:

77. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No.9: Exclusion of cost which have been incurred for the purpose of manufacturing while computing indirect expenses in respect of traded goods for deduction under section 80HHC:

78. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No.10 & 11: Exclusion of deduction u/s 80-IB for the purpose of computing deduction u/s 80HHC with respect to profit on traded goods: Rs.18,78,052/-: & Without prejudice to Ground No. 10, CIT(A) erred in not giving finding on the alternative plea that the assessing officer erred in taking profit of plant II at Rs. 92,75,35,870 instead of Rs.77,97,32,447/-:

79. During the course of assessment the assessing officer has reduced an amount for Rs.18,78,952/- on the ground that for similar amount deduction has been claimed u/s 80-IB of the Act, therefore, the same lead to double deduction.

80. The ld. CIT(A) has upheld the finding of the assessing officer.

81. Heard both the sides and perused the material on record. During the course of appellate proceedings before us the ld. Counsel referred the decision of Hon’ble jurisdictional Bombay High Court in the case of Associated Capsules (P) Ltd. Vs. DCIT, Mumbai (2011) 197 taxman 84 (Bom) wherein it is held that after allowing of deduction computed under various provisions under heading C of chapter VI-A do not exceed 100% of profit of business of the assessee then deduction computed under other provisions under heading C of chapter VI-A has to be restricted the profit of business that remain after excluding profit allowed as deduction u/s 80IA, so that total deduction allowed under heading C of chapter VI-A does not exceed profit of business. In view of the above facts and finding we restore this issue to the file of the assessing officer for deciding afresh after taking into consideration the decision of Hon’ble Bombay High Court as referred above, therefore this ground of appeal of the assessee is allowed for statistical purposes.

82. Since, we have adjudicated ground no. 10 therefore ground no.11 become infructuous and the same stand dismissed.

Ground No. 12: Deduction under section 80-IB computed after deducting deduction u/s 32:

83. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 10 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee dismissed.

Ground No.13: Exclusion of miscellaneous receipt, interest, duty drawback and profit on traded goods while computing deduction u/s 80-IB:

84. During the course of assessment the assessing officer had considered the following item as other income and reduced the same for the purpose of working deduction u/s 80IB of the Act.

a. Receipts – Rs.44,83,316

b. Interest – Rs.8,73,623

c. Duty Draw Back – Rs.2,76,72,060

d. Profit on traded goods Rs.49,97,702

85. The assessee filed before the ld. CIT(A). The ld. CIT(A) has dismised the claim of the assessee.

86. The ld. CIT(A) after following the decision of Hon’ble Supreme Court in the case of Pandian Chemicals & Sterling Foods held that such income like interest, duty drawback and profit and traded goods are not derived from the eligible unit and held that same cannot be included for the purpose of computing eligible profit and accordingly, upheld the computation made by the assessing officer.

87. During the course of appellate proceedings before us in respect of duty drawback and interest the identical issue on similar fact has been decided by the ITAT in favour of the assessee vide the following ITA Number:

a. ITAT – AY 1998-99 (ITA No. 9564/Mum/2004, Para 7 page no. 3)

b. ITAT AY 1997-98 (ITA No. 5030/Mum/2001, para no. 23 to 26, pg. no. 16 to 19

With the assistance of ld. representative we have perused the decision of ITAT the relevant extract of the decision is reproduced as under:

“7.0 Ground No.4 and 5 urged by the assessee relate to the deduction claimed u/s 80IA of the Act, wherein the question is whether the duty drawback and interest income are eligible for deduction u/s 80IA of the Act. The co-ordinate bench has dealt with identical issues in the assessee’s own case in AY 1997-98 in ITA No.5030/Mum/2001 (Revenue’s appeal) and the Tribunal has held that the assessee is eligible for deduction u/s 80IA in respect of both the income referred above. In this regard, the co-ordinate bench has followed the decision rendered by Hon’ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd (2016)(383 ITR 217)(SC). Following the order passed by the co-ordinate bench, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80IA of the Act in respect of duty draw and interest income.”

Following the decision of ITAT as referred above we direct the AO to allow the deduction u/s 80IA in respect of duty drawback and interest income. Therefore, this ground of appeal of the assessee is partly allowed.

Ground No. 14: Disallowing deduction under section 80-O of the Act in respect of royalty received: Rs.26,015/-:

88. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 11 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is also allowed.

Ground No. 15: Exclusion of profit on sale of investment premium on surrender of tenancy rights and surplus on redemption of securities while computing the book profit as per the provision of section 115JA:

89. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No. 16: Taxability of premium on surrender of Rs.1,94,19,926:

90. This ground of appeal is not pressed by the assessee. Therefore, this ground of appeal stand dismissed.

Ground No. 17: Short Granting of interest under Sec. 244A:

91. During the course of appellate proceedings before us the assessee submitted that interest on refund was only granted up to date of passing the intimation, however, the assessee is liable for refund up to the date of refund order. In order to grant refund up to the date of refund order, we restore this case to the file of the assessing officer for deciding afresh after verification of the supporting documents to be furnished by the assessee. Therefore, this ground of appeal is allowed for statistical purpose.

Additional Ground No. 1: Addition on account of provision for doubtful debts: Rs.6,24,12,712/-:

92. Since the facts and the issue involved in this additional ground of appeal is similar to the facts and issue involved in the additional ground no. 5 of appeal vide ITA No. 2125/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 2125/Mum/2005 as mutatis mutandis this ground of appeal of the assessee is also allowed for statistical purpose.

Additional Ground No. 2: Deduction on account of provision for doubtful debts in the year of actual write-off, if the same is not allowed in the year of provision:

93. Since, we have adjudicated the Additional Ground No.1 as supra therefore this ground of appeal stand dismissed.

ITA No.2655/Mum/2005

Ground No. 1: Deduction under Section 35D in respect of GDR issue expenses Rs.3,45,06,99,697/-:

94. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 1 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is also dismissed.

Ground No. 2: Depreciation in respect of sale and lease back transaction with JCT Limited Rs.1,13,56,789/-:

95. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 2 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 3: Allowing deduction in respect of expenditure incurred on dies and moulds as revenue expenditure: Rs.35,29,43,838/-:

96. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 3 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 4: Taxability of penalty charges received from suppliers of capital goods: Rs.38,09,457/-:

97. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 4 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No.1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No.5: Allowing deduction of expenditure incurred in respect of jigs and fixture as revenue expenditure:Rs.9,17,65,375/-:

98. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 5 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No.6: Allowing of fines and penalties Rs.19,73,600/-

99. During the F.Y. relevant to the year under consideration the assessee has incurred expenditure in respect of fines and penalties to the amount of Rs.19,73,600/-. In the return of income while computing the total income the said amount was added back out of abundant caution. In the note no. 4 of the notes to computation of total income it was submitted that such expenditure was incidental to carrying on the business and after referring the decision of Hon’ble Supreme Court in the case of Prakash Cotton Mills Ltd. (201 ITR 684) submitted that the amount which are compensatory in nature to be allowed. However, the assessing officer has disallowed such claim treating the same as panel in nature.

100. The ld. CIT(A) has allowed the claim in respect of fines paid u/s 112(a) and 125 of the Custom Act 1962 holding that same were venial in nature. The ld. CIT(A) has also considered the decision of Hon’ble High Court and Hon’ble Supreme Court in the case of CIT Vs. N.M. Parthasarathy (212 ITR 105) (Mad) & in the case of CIT Vs. Ahmedabad Cotton Imfg. Co. Ltd. (2015 ITR 163)(SC) and held that the item expenditure paid u/s 125 of the Custom Act, 1962 amounting to Rs.19,50,000/- were allowable after relying on the decision of Hon’ble Madras High Court as referred above.

101. Heard both the sides and perused the material on record. During the course of appellate proceedings before us the ld. D.R has not brought any material in contradictory to the findings of ld. CIT(A), therefore, we don’t find any merit in this appeal of the revenue the same stand dismissed.

Ground No. 7: Allowing deduction in respect of proportionate premium on leasehold land: Rs.24,73,932/-:

102. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 6 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 8: Allowability of deduction in respect of foreign travelling expenses of wife of Managing Director: Rs.5,84,925/-:

103. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 8 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 9: Deleting disallowance of proportionate interest expense attributable to earning exempt income:Rs.14,92,755/-:

104. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 9 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No. 1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 10: Inclusion of excise duty from total turnover for the purpose of computation of deduction u/s 80HHC:

105. During the course of assessment the assessing officer has included the excise duty as part of total turnover for the purpose of computation of deduction u/s 80HHC of the Act. However, the ld. CIT(A) has excluded the same while computing total turnover after following the decision of Hon’ble Bombay High Court in the case of CIT VS. Sudarshan Chemicals Industries Ltd. (245 ITR 679).

106. Heard both the sides and perused the material on record. We find that identical issue on similar ground has been decided by the coordinate bench of the ITAT in favour of the assessee:

a. ITAT – AY 1996-97- para 5 (Pg-4)

b. ITAT – AY 1995-96 – para 10-14 (Pg. 5-12)

c. ITAT – AY 1997-98 – Para 27-30 (Pg. 19-21)

The relevant of extract of the decision of ITAT for A.Y. 1997-98 vide ITA No. 5030/Mum/2001 assessment year 1997-98 is reproduced as under:

“5. The first issue raised by the assessee in appeal is against the exclusion of excise duty and sales tax from total turnover for the purpose of computing deduction u/s 80HHC of the Act. A perusal of the assessment order and the order of CIT(A) would show that perse assessee’s eligibility to claim deduction u/s 80HHC is not disputed. It is only some of the components of total income from exports on which the assessee has claimed benefit of deduction u/s 80HHC of the Act that have been excluded by the Assessing Officer while computing the deduction. In Assessment Year 1995-96 similar ground was raised by the assessee before the Tribunal assailing exclusion of excise duty and sales tax from the total turnover while computing deduction u/s 80HHC of the Act. The Coordinate Bench in appeal by the assessee in ITA No.3144/Mum/1999(supra) decided this issue in favour of the assessee by placing reliance on the judgment rendered by Hon’ble Supreme Court of India in the case of CIT vs. Laxmi Machine Works, 290 ITR 667. The facts germane to the issue raised the present appeal are admittedly identical to the facts in Assessment Year 1995-96, therefore, following the decision of Co-ordinate Bench the ground No.1 raised in the appeal is allowed for parity of reasons.”

Following the decision of ITAT as supra we don’t find any merit in this ground of appeal, therefore, the same stand dismissed.

Ground No. 11: Exclusion of 90% of the following from the profits of the business while computing deduction under section 80HHC:-

a. Technical know how: Rs.4,38,66,301

b. Insurance claims: Rs.1,05,09,269

c. Miscellaneous receipts: RS.17,38,04,358

d. Sundry Credit Balance: Rs.40,06,317

e. Bad Debts recovered: Rs.32,858

f. Provision no longer required: Rs.11,21,94,570

107. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in the ground no. 11 of appeal vide ITA No. 1933/Mum/2005 as adjudicated supra in this order, therefore, applying the finding of ITA No.1933/Mum/2005 as mutatis mutandis this ground of appeal of the revenue is dismissed.

Ground No. 12: While computing trading export profit, 10% of other income and export incentive ought not to be excluded:

108. During the course of appellate proceeding before us at the outset the ld. Counsel submitted that identical issue and similar fact has been adjudicated by the ITAT in favour of the assessee in the preceding assessment year as under:

a. ITAT – AY 1995-96 (ITA No. 3493/Mum/1999, para no. 19-22, page nos. 16-18

b. ITAT – AY 1996-97 (ITA No. 1781/Mum/2000, para no. 5.3, page no. 5)

c. ITAT – AY 1997-98 (ITA No. 5030/Mum/2001, para no. 93

The relevant decision of ITAT vide ITA No. 5030/Mum/2001 is reproduced as under:

“93. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1996-97. While deciding the issue, the Coordinate Bench of the Tribunal in the immediately preceding assessment year in ITA. No. 1781/Mum/2000 dated 20.06.2022 following the decision in assessee’s own case for the A.Y. 1995-96, held as under: –

“5.3 In additional ground No.2 of the appeal the assessee has assailed exclusion of certain expenses i.e. “indirect cost” attributable to export of trading goods for the purpose of deduction u/s 80HHC of the Act. In first appellate proceedings the CIT(A) directed the Assessing Officer to exclude expenses attributable to other Income and export incentive, estimated at 10%. We find that similar issue had come up before the Co­ordinate Bench in assessee’s own case for the Assessment Year 1995-96 (supra). The Tribunal after examining the issue placed reliance on the decision of Hon’ble Supreme Court of India in the case of Hero Exports vs. CIT 295 ITR 454 and the decision of Special Bench of the Tribunal in the case of Surendra Engineering Corporation vs. ACIT, 86 ITD 121 and decided the issue in favour of assessee. For the sake of brevity the findings of the Co-ordinate Bench are not reproduced hereunder. The Revenue could not controvert the findings of Coordinate Bench on the issue. Following the decision of Tribunal in assessee’s own case for the immediately preceding Assessment Year, the additional ground No.2 of the appeal is allowed.”

94. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 1996-97 is respectfully followed, accordingly, ground raised by the assessee is allowed.”

Following the decision of the ITAT we don’t find any merit therefore, this ground of appeal of the revenue stand dismissed. Ground No. 13: Allowance of deduction u/s 40(a)(i) in respect of expenditure incurred in foreign currency: Rs.26,69,904/-:

109. During the year under consideration the assessee has incurred expenditure in foreign currency amounting to Rs.194.85 lacs and tax at source had been deducted wherever applicable and in some cases no tax was deducted. The assessing officer has disallowed the amount of Rs.26,62,904/- u/s 40(a)(i) in respect of the following expenditure:

Sr. No.	Particulars	Rs.
1.	Research and development expenses	13,04,852
2.	Motor Car Expenses	34,354
3.	Truck Van Expenses	39,838
4.	Books and periodicals	2,84,291
5.	Subscription fees	9,99,569
	Total	26,62,904

110. The ld. CIT(A) had allowed the claim of the aforesaid expenses after verification that payment for the purchases were made from the non-residents having no business connection in India and same was not in nature of income that arise or accrued in India.

111. Heard both the sides and perused the material on record. After perusal of the nature of expenditure and finding of the ld. CIT(A) given at page no. 19 to 21 of the order of CIT(A) holding that the assessee has made payment for the various expenses as referred above to the non-residents who were having no business connection in India, therefore, no tax was deducted for such payments. During the course of appellate proceedings before us revenue has not brought any material contrary to the finding given by the ld. CIT(A), therefore, we don’t find any merit in this ground of appeal of the revenue and the same stand dismissed. Ground No. 14: Deletion of interest u/s 234B Rs.2,65,90,857/-:

112. As per the assessment order an amount of Rs.20,38,63,233/-including interest u/s 234B of the Act was determining as payable by the assessee.

113. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) after verification found that there was no shortfall in the advance tax paid by the assessee and directed the AO to delete the impugned interest amounting to Rs.265,90,857/-.

114. Heard both the sides and perused the material on record. During the course of appellate proceedings before us the assessee submitted that it has paid the total advance tax of Rs.204,00,00,000/- whereas assessed tax comes to Rs.195,36,36,406/- and 90% of the assessed tax comes to Rs.175,82,72,765/-, therefore, there was no shortfall in payment of advance tax. During the course of appellate proceedings before us revenue has not brought any material contrary to the submission and finding of the ld. CIT(A) therefore, this ground of appeal of the revenue also stand dismissed.

115. In the result, the appeals filed by the assesse are partly allowed and the appeals filed by the revenue are dismissed.

Order pronounced in the open court on 28.11.2023