Per Explanation (Baa) To Section 8O0Hhc Of The Act, Despite This Income Having Not Been Earned In The Course Of Export And When The Details Of The Same Had Not v. Cit (2006 204 Ctr (Sc) 182?

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24 DAY OF JUNE 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE M.NAGAPRASANNA. LT.A. NO.420 OF 2012 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TAX LTU, JSS TOWERS, BSK III STAGE BANGALORE. 2 |THE ADDL. COMMISSIONER OF INCOME-TAX. RANGE-8(1), MUMBAT. 3JOINT COMMISSIONER OF INCOME-TA 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 ROADANDHERI, MUMBAI|PAN NO.AAACA 38 34B .. 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} NO.6612/MUM/2002, FOR THE ASSESSMENT YEAR 1995-96,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:(1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (II) ALLOW THE APPEAL AND SET ASIDE THE ORDERSPASSED BY THE ITAT BEARING ITA NO.6612/MUM/2002 DATED|25/05/2012 AND CONFIRM THE ORDER OF THE APPELLATE|COMMISSIONER CONFIRMING THE ORDER PASSED BY THE|DEPUTY COMMISSIONER OF INCOME TAX, SPECIAL RANGE-1,|MUMBAL. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax| Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 1995-96.The appeal was admitted by a bench of this Court videorder dated 23.01.2013 on the following substantialquestions of law:| (I)Whether the tribunal was correct [nNholdingthatthetravelexpensesincurred by employees of the assessee|computedbasedOP)dVeragebasissnould be upneld and not on trip vise|basis as contemplated under Rule 6D of| the I.T. Rules as held by JurisdictionalBombay High Court as the order was|passed by the assessing officer inMumbeal[Bombay High Court as the order was|passed by the assessing officer inMumbeal[ (iI)Whether the Tribunal was correct [nNholding that|cashcompensatoryassistance and duty drawback Is liable|to tax on receipt basis and not on the)accrual basis contrary to the view.expressed by it in tne case of the)assessee for the Assessment year 1994-95 and recorded a perverse finding?holding that|cashcompensatoryassistance and duty drawback Is liable|to tax on receipt basis and not on the)accrual basis contrary to the view.expressed by it in tne case of the)assessee for the Assessment year 1994-95 and recorded a perverse finding? (iI)Whether the tribunal was correct [nNholding that the payments made by the|assessee in cash exceeding Rs.10,000/-.cannotbedisallowedby applyingSection 40(A)(3) of the Act, as the)SafnewerepaidIn|exceptionalcircumstances|when|theexceptions|claimed by the assessee does not fall)under Rule 6 DD (j) of the Rules andrecorded a perverse finding?holding that the payments made by the|assessee in cash exceeding Rs.10,000/-.cannotbedisallowedby applyingSection 40(A)(3) of the Act, as the)SafnewerepaidIn|exceptionalcircumstances|when|theexceptions|claimed by the assessee does not fall)under Rule 6 DD (j) of the Rules andrecorded a perverse finding? (iI)Whether the tribunal was correct [nNholding that the payments made by the|assessee in cash exceeding Rs.10,000/-.cannotbedisallowedby applyingSection 40(A)(3) of the Act, as the)SafnewerepaidIn|exceptionalcircumstances|when|theexceptions|claimed by the assessee does not fall)under Rule 6 DD (j) of the Rules andrecorded a perverse finding?holding that the payments made by the|assessee in cash exceeding Rs.10,000/-.cannotbedisallowedby applyingSection 40(A)(3) of the Act, as the)SafnewerepaidIn|exceptionalcircumstances|when|theexceptions|claimed by the assessee does not fall)under Rule 6 DD (j) of the Rules andrecorded a perverse finding? (iv)Whether the tribunal was correct [nNholding that the 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|computingprofits|ofbusiness as per Explanation (baa) to.Section 8SOHHC of the Act, despite thisincome having not been earned in the)course of export and when the details of|the same had not been furnished by the|aSSeSSECe?holding that the 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|computingprofits|ofbusiness as per Explanation (baa) to.Section 8SOHHC of the Act, despite thisincome having not been earned in the)course of export and when the details of|the same had not been furnished by the|aSSeSSECe? (v)Whether the tribunal was correct [n-noiding that net interest income shouldbe reduced by 90% when computingprofits of business for the purpose ofallowing|deduction UnderSectionSOHHC of the Act and not gross interestincome?noiding that net interest income shouldbe reduced by 90% when computingprofits of business for the purpose ofallowing|deduction UnderSectionSOHHC of the Act and not gross interestincome? (vi)Whetner tne tribunal was correct innoiding that the income from technicalservices cannot be reduced by 90%.when computing profits of business asnoiding that the income from technicalservices cannot be reduced by 90%.when computing profits of business as per Explanation (baa) to Section 8O0HHCof the Act, despite this income having|not been earned in the course of export|and when the details of the same hadnot been furnished by the assessee? (vil)Whether the tribunal was correct [nNNolding that Rs.8,84,75,000/- being|customs duty paid and included in the)closing stock Is allowable in view ofSection 45B of the Act, when the same|was not verified by the assessing Officer|as it was not claimed in the return ofincome or In the revised return as held.by the Apex Court in M/s Goetze India|Ltd., vs. CIT (2006 204 CTR (SC) 182?Nolding that Rs.8,84,75,000/- being|customs duty paid and included in the)closing stock Is allowable in view ofSection 45B of the Act, when the same|was not verified by the assessing Officer|as it was not claimed in the return ofincome or In the revised return as held.by the Apex Court in M/s Goetze India|Ltd., vs. CIT (2006 204 CTR (SC) 182? (vill)Whether the tribunal was correct [nNnolding that order under Section 201(1) IS|manaatoryforlevyingofcompensatory interest under Section|201(1A) of the Act, for delay inremittance of [DS deducted?nolding that order under Section 201(1) IS|manaatoryforlevyingofcompensatory interest under Section|201(1A) of the Act, for delay inremittance of [DS deducted? 2 |Facts leading to filing of the appeal briefly stated are that the assessee filed return of Income on 30.11.1995 declaring an income of Rs.55,60,86,982/-,.which was accompanied by an audited profit and lossaccount, balance sheet and tax audit report in Form3CD. It was processed under Section 143(1) and anintimation was issued on 29.03.1996. The assessingofficer by an order dated 28.02.1998 inter alia held asUnder:| (vill)Whether the tribunal was correct [nNnolding that order under Section 201(1) IS|manaatoryforlevyingofcompensatory interest under Section|201(1A) of the Act, for delay inremittance of [DS deducted?nolding that order under Section 201(1) IS|manaatoryforlevyingofcompensatory interest under Section|201(1A) of the Act, for delay inremittance of [DS deducted? 2 |Facts leading to filing of the appeal briefly stated are that the assessee filed return of Income on 30.11.1995 declaring an income of Rs.55,60,86,982/-,.which was accompanied by an audited profit and lossaccount, balance sheet and tax audit report in Form3CD. It was processed under Section 143(1) and anintimation was issued on 29.03.1996. The assessingofficer by an order dated 28.02.1998 inter alia held asUnder:| ($The assessee had aggregated all the.trips made by various employees. In.accordance with Rule 6D of the Income.Tax Rules, the computation has to be.made trip basis of each employee.Tnerefore, a sum of Rs.94,912/- wasdisallowed.trips made by various employees. In.accordance with Rule 6D of the Income.Tax Rules, the computation has to be.made trip basis of each employee.Tnerefore, a sum of Rs.94,912/- wasdisallowed. (($Tne assessee nad not deciared casn.compensatoryassistanceanaduty drawback on the ground that same isliable to tax on receipt basis. Theassessing officer rejected the same andincluded in the total income on accrual|basis and completed the assessment.compensatoryassistanceanaduty drawback on the ground that same isliable to tax on receipt basis. Theassessing officer rejected the same andincluded in the total income on accrual|basis and completed the assessment. ((($The assessee paid a sum exceedingRs.10,000/- in cash to various parties.In all, a sum of Rs.1,87,442/- was paid.and no evidence was adduced by the.assessee for exceptional circumstancesto attract Rule 6DD(j) of the Rules and.was disallowed under Section 40(A)(3)_of the Act.Rs.10,000/- in cash to various parties.In all, a sum of Rs.1,87,442/- was paid.and no evidence was adduced by the.assessee for exceptional circumstancesto attract Rule 6DD(j) of the Rules and.was disallowed under Section 40(A)(3)_of the Act. (?$The assessing officer held that 90% ofthe interest received on bank deposits,.interest|fromemployeesandcustomers, income from commission,rental income, income on commission.from.technical serviceshas.been|excluded for the purposes of computingprofitsofthebuSINeSSas|Def.Explanation (baa) to Section 8O0HHC ofthe Act.the interest received on bank deposits,.interest|fromemployeesandcustomers, income from commission,rental income, income on commission.from.technical serviceshas.been|excluded for the purposes of computingprofitsofthebuSINeSSas|Def.Explanation (baa) to Section 8O0HHC ofthe Act. ?$The claim with regard to a sum ofRs.8,84,75,000/-, which was claimedas custom duty paid and included in.closing stockK and was made by way ofrectification application was rejected.Rs.8,84,75,000/-, which was claimedas custom duty paid and included in.closing stockK and was made by way ofrectification application was rejected. ?($The assessee deducted Tax at Source.and the same was not remitted within.the due date. Therefore, assessing.officer levied compensatory interest for.delay in remittance under Section.201(1A) of the Act.and the same was not remitted within.the due date. Therefore, assessing.officer levied compensatory interest for.delay in remittance under Section.201(1A) of the Act. ?$The claim with regard to a sum ofRs.8,84,75,000/-, which was claimedas custom duty paid and included in.closing stockK and was made by way ofrectification application was rejected.Rs.8,84,75,000/-, which was claimedas custom duty paid and included in.closing stockK and was made by way ofrectification application was rejected. ?($The assessee deducted Tax at Source.and the same was not remitted within.the due date. Therefore, assessing.officer levied compensatory interest for.delay in remittance under Section.201(1A) of the Act.and the same was not remitted within.the due date. Therefore, assessing.officer levied compensatory interest for.delay in remittance under Section.201(1A) of the Act. 3.Being aggrieved, the assessee preferred anappealbeforetheCommissioner|ofIncome.Tax(Appeals). The Commissioner of Income Tax (Appeals)by an order dated 27.09.2008 upheld the finding of theassessing officer insofar as it pertains to disallowance ofa sum of Rs.94,912/- as the expenses were not incurredtrip wise as per Rule 6D of the Rules. The finding of theassessing officer that a sum of Rs.1,59,99,078/- of a.Cash Compensatory Assistance and duty drawback isliable for tax on accrual basis was also upheld. Thedisallowance of claim under Section 40(A)(3) of the Actwas also upheld. The finding with regard to allowingdeduction under Section 80HHC of the Act was upheld.In the result, the appeal was dismissed.(Appeals). The Commissioner of Income Tax (Appeals)by an order dated 27.09.2008 upheld the finding of theassessing officer insofar as it pertains to disallowance ofa sum of Rs.94,912/- as the expenses were not incurredtrip wise as per Rule 6D of the Rules. The finding of theassessing officer that a sum of Rs.1,59,99,078/- of a.Cash Compensatory Assistance and duty drawback isliable for tax on accrual basis was also upheld. Thedisallowance of claim under Section 40(A)(3) of the Actwas also upheld. The finding with regard to allowingdeduction under Section 80HHC of the Act was upheld.In the result, the appeal was dismissed. 4The assessee filed an appeal before theIncome Tax Appellate Tribunal. The tribunal by an orderdated 25.05.2012 inter alia held that travel expensesshould be computed on average basis and not trip wise.basis by placing reliance on a decision rendered by abench of this court. It was also held that finding withregard to cash compensatory assistance and dutydrawback is contrary to the view expressed by thetribunal in case of assessee for Previous year 1994-95.It was also held that payment of cash exceedingRs.10,000/- were made in exceptional circumstancesand the same were admissible. It was also held that nopart of income for technical services be excluded forcomputing deduction under Section 8OHHC of the Act. Itwas further held that claim of Rs.8,84,75,000/- beingcustom duty paid and included in closing stock isallowable in view of Section 43B of the Act and levy ofinterest under Section 201(1A) of the Act was also set aside. In the aforesaid factual background, the revenue.has approached this court. 5.|Learned.counsel.for.therevenuewhile|inviting the attention of this court to Section 28(iiib) ofthe Act submitted that any cash assistance received orreceivable by any person against exports under anyscheme of the Government Of India is chargeable toIncome Tax under the head ‘Profits and Gains ofBusiness or Profession’. It is also pointed out thatassessee in the instant case is adopting mercantilesystem of accounting under which the cash receivablehas to be treated as business income. However, theaforesaid aspect of the matter has not been appreciatedby the Income Tax Appellate Tribunal. It is furtherSubmitted that income from technical services has to be|reduced by 90% as the same is an independent incomeand has no nexus with the export and therefore, has tobe treated as business income. It is also urged that the.tribunal ought to have appreciated that claim for deduction can be made only by way of revised returnand in fact a claim for deduction should be made in the|return. It is further submitted that the tribunal could nothave dealt with the claim for deduction in the light ofSection 43B of the Act for the first time as it Is not apure question of law and the matter should have beenremitted to the assessing officer as the same was raised.for the first time before the assessing officer. In Supportof aforesaid submissions, reliance has been placed ondecision of the supreme court in °GOETZE (INDIA)LTD. VS. COMMISSIONER OF INCOME-TAX’, (2006)157 TAXMAN 1 (SC).6.|On the other hand, learned counsel for theassessee has submitted that substantial question of lawNo.2 as framed is misconceived as the tribunal hasallowed the deduction on accrual basis only. It is furthersubmitted that explanation (baa) to Section 80HHC doesnot refer to export turnover and therefore, before areceipt is liable to be excluded to the extent of 90% it must be a receipt of nature similar to brokerage,commission, interest, rent or charges. It is also pointedoutthat|thedecisionIn|theCASCofCIT,JSHIRUVANATHAPURAM V, K.RAVINDRANATH NAIR(2007) 295 ITR 228 (SC)does not deal with the Issueof business profits but with total turnover. It is furthersubmitted that a receipt for rendering technical services|does not fall within the scope of exclusion contemplatedby clause (baa) of the explanation to Section 80HHC andthe aforesaid position was conceded in case of assesseefor the subsequent year I.e., 1997-98 by the revenue. —In this connection, attention has been invited to orderdated 05.04.2017 passed by the Income Tax AppellateTribunal in I.T.A.No.2714/Mum/2003. It is also pointedout that claim with regard to deduction in view ofSection 43B of the Act was made before the assessingofficer as well as Commissioner of Income Tax(Appeals), which was rejected by Commissioner ofIncome Tax (Appeals) in paragraph 4 of the order passed by it. Therefore, the contention of the revenuethat the aforesaid claim was raised for the first timebefore the Income Tax Appellate Tribunal is factuallyincorrect. It is further submitted that in any case noloss has been caused to the revenue. In support ofaforesaid submissions, reliance has been placed ondecisions itn CIT VS. EXCEL INDUSTRIES LTD,(2013) 38 TAXMANN.COM 100 (SC), ‘CIT VS.SRIYANSHKNITTERS(P.) LTD.’,|(2011)127TAXMANN,.COM187,‘CITANDANR.VS,SYNDICATE BANK’, ITA NO.98/2010, ° ORDERDATED25.09.2006INITANOS, 2484AND2396/BOM/93, °° ORDER DATED 23.04.2008 INM.P.NO.226/M/2007INDITANOS, 2484AND2396/BOM/93, ITA NO.1027/2010, ‘ORDER DATED12.12.2014 IN ITA NO.1027/2010, ‘CIT ANDANOTHER|VS,MOTORINDUSTRIESCOMPANYLTD.,", ITA NO.28/2005, ‘CIT AND ANOTHER VS.ROBERT BOSCH (INDIA) LTD.,’, ITA NO.507/2007, “INGERSOLL-RANDINDIALTD.VS,CIT|AND|ANOTHER,ITANO.6/2011,ITANO.6611/Mum/2002, ‘ITA NO.2554/Mum/2003,"BERGER PAINTS INDIA LTD. VS. CIT’, (2004) 135TAXMAN 586 (SC), RADGASAOMI SATSANG VS.CIT’, (1992) 60 TAXMAN 248 (SC). J |We have considered the submissions madeon botn the sides. From perusal of substantial questionof law Nos.1 and 3, we find that the findings on the.issues covered by the aforesaid substantial questions oflaw are based on proper appreciation of evidence onrecord. The aforesaid findings of fact can neither betermed as either perverse or arbitrary. In our consideredopinion, no substantial questions of law are involved asframed by this court in the aforesaid questions of lawand the same are questions of fact. Therefore, it is notnecessary to answer the same as issues covered underthe aforesaid questions of law are pure finding of fact. —From close scrutiny of the order passed by the tribunal, J |We have considered the submissions madeon botn the sides. From perusal of substantial questionof law Nos.1 and 3, we find that the findings on the.issues covered by the aforesaid substantial questions oflaw are based on proper appreciation of evidence onrecord. The aforesaid findings of fact can neither betermed as either perverse or arbitrary. In our consideredopinion, no substantial questions of law are involved asframed by this court in the aforesaid questions of lawand the same are questions of fact. Therefore, it is notnecessary to answer the same as issues covered underthe aforesaid questions of law are pure finding of fact. —From close scrutiny of the order passed by the tribunal, it is axiomatic that 4[9/]substantial question of law doesnot arise for consideration as it is held against theassessee by the tribunal. The 5[9/]and 8[9/]supbstantialiquestions of law have been answered against therevenue by the Supreme Court In -ACG ASSOCIATEDCAPSULES (P) LTD. VS. CIT’, 343 ITR 89 SCand|COMMISSIONER OF INCOME TAX, NEW DELHIVS.ELI LILLY & CO. (INDIA) (P.) LTD.’, 312 ITR225 (SC)respectively. Accordingly, the same are|answered against the revenue and in favour of theaSSeSSAE., 8.|Substantial question of law Nos.2, 6 & /Survive for consideration in this appeal. Insofar asSubstantial question of law No.2 is concerned fromperusal of paragraph 12 of the order passed by theIncome Tax Appellate Tribunal, it is evident that thetribunal has permitted deduction on accrual basis andhas held that an amount would be receivable only when.the income accrues to the assessee and income would| accrue to the assessee only when the assessee getssuch a right to receive the income. It has further beenheld that assessee would get a right to receive theamount only when it is sanctioned to the assessee bythe custom authorities and not when the assesseemakes a claim of the same. It was also held that since,the amount of cash compensatory assistance and dutydrawback during the relevant year was not sanctioned tothe assessee therefore, the income has not accrued tothe assessee. Thus, in fact the tribunal has allowed thededuction on accrual basis only. Therefore, the 2[67]Substantial question of law is answered against therevenue and in favour of the assessee. 9 |So far as 6[9/]substantial question of law is-concerned, this court in‘COMMISSIONER OF INCOME|TAX VS. MOTOR INDUSTRIES CO. LTD.,’, (2011)337ITTR79(KARNATAKA) aswell.as(6“COMMISSIONER OF INCOME TAX VS. M/S ROBERTBOSCH(INDIA)LTD.,’,DATED|10.10.2013 RENDERED IN ITA NO.507/2007while taking into|account.thedecisionoftheSupreme.CourtIn|RAVINDRANATHAN NAIR supra as well as decision of theBombay High Court in.‘COMMISSIONER OF INCOMETAX VS. PFIZER LTD.’, (2011) 330 ITR 62 (Bom.)has held that if any income is derived from the export byway of foreign exchange, such income is not deductible.and the benefit of that income has to be given to theassessee. The expression ‘any receipt of a_ similarnature’ has to be understood in the context of the wordspreceding such expression viz., brokerage, commission,interest, rent or charges. It has further been held thatsuch receipts have no nexus with the income earned byway of foreign exchange and every receipt is not anincome and every income would not necessarily includeelement of export turnover. Similar view was taken bythis Dencn in decision dated 11.03.2020 rendered in tne|case of ‘INGERSOLL-RAND (INDIA) LIMITED VS.|THE COMMISSIONER OF INCOME-TAX [I in ITA NO.6/2011 AND CONNECTED CASES.In view of|aforesaid well settled legal position, 6th substantialquestion of law is also answered against the revenueand in favour of the assessee. NO.6/2011 AND CONNECTED CASES.In view of|aforesaid well settled legal position, 6th substantialquestion of law is also answered against the revenueand in favour of the assessee. 10. So far as /[9/]substantial question of law is-concerned, from perusal of paragraph 4 of the orderpassed by the Commissioner of Income Tax (Appeals),we find that ground was taken with regard to deductionUnder Section 43B of the Act before Commissioner ofIncome Tax (Appeals) and the same was also takenbefore the Income Tax Appellate Tribunal. Therefore, itCannot be said that the assessee raised the aforesaid|issue for the first time before the Income Tax AppellateTribunal. The Supreme Court in BERGER PAINTS (INDIA)LTD., supra has quoted with approval the observationmade by the special bench of Income Tax AppellateTribunal in INDIAN COMMUNICATION P. LTD., IAC,(1994) 206 ITR 96 to the effect that whether fulldeduction was allowed in one year or partly in one year and partly in the next, since, the assessee is a companyand the rate of tax is uniform the gain to one and loss toother is illusory, since, what is referred is one yearwould have to be discharged in the next. It was furtherheld that in that sense, nobody has won and nobody haslost. In other words, no loss has been caused torevenue. For the aforementioned reasons, the /[9/]substantial question of law is alSo answered against therevenue and in favour of tne assessee. In view of the preceding analysis, we do not find)any merit in this appeal. The same fails and is herebydismissed. Sd/-JUDGE. Sd/-JUDGE.