Intas Pharmaceuticals Ltd., Ahmedabad vs Assessee

2. DCIT 2. Intas Pharma- Circle-4 ceuticals Ltd. Ahmedabad Ahmedabad थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACI 5120 L (अपीलाथ# /Appellants) .. ($%यथ# / Respondents)

Assessee by : Shri S.N. Soparkar, AR Revenue by : Shri M.K.Singh, Sr.DR

ु वाई क( तार)ख / सन Date of Hearing 25/03/2015 घोषणा क( तार)ख /Date of Pronounce ment 10/04/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

These cross-appeals by the Assessee and the Revenue are directed against the order of the Ld.Commissioner of Income Tax(Appeals)-VIII, ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -2-

Ahmedabad ('CIT(A)' in short) dated 25/01/2007 pertaining to Assessment Year (AY) 2003-04.

2. Briefly stated facts are that this is second round of litigation. In earlier round, this Tribunal vide order dated 06/08/2010 had dismissed the Assessee's appeal and allowed the Revenue's appeal. Subsequently, the assessee filed Miscellaneous Application Nos.9 & 10/Ahd/2014 in ITA Nos.1591 & 1601/Ahd/2007 for AY 2003-04. The MAs so filed by the assessee were allowed by this Tribunal (ITAT 'C' Bench Ahmedabad) vide order dated 16/05/2014, by recalling the Tribunal's order dated 06/08/2010(supra) passed in Assessee's appeal in respect of the issue related to deduction u/s.80HHC on DEPB receivables & accruals and deduction u/s.80HHC on 90% of other income and in Revenue's appeal the issue related to insurance claim received of Rs.39,78,429/- and C&F Stockist interest at Rs.5,77,309/- from the profit of the business for the purpose of computation of deduction u/s.80HHC of the I.T.Act.

3. First, we take up the Assessee's appeal in ITA No.1591/Ahd/2007 for AY 20033-04. The assessee has raised the following grounds of appeal:-

1. The learned CIT(A) has erred in disallowing deduction u/s.80HHC on DEPB receivables and accruals of Rs.251.43 lacs and treating recognition of DEPB income in the year of realization of sale proceeds and not on accrual basis.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -3-

2. The learned CIT(A) has erred in disallowing deduction u/s.80HHC on 90% of other income being (i) Interest income (FDR) Rs.21,88,854 (ii) Interest income of Rs.1,63,618 (iii) Rent income Rs.12,70,000 (iv) other misc.income Rs.14,18,854/-.

3 The assessee reserves right to add, or alter any grounds of appeal till the disposal of appeal.

4. Apropos to ground No.1, the ld.counsel for the assessee submitted that the ld.CIT(A) erred in disallowing deduction u/s.80HHC on DEPB receivables and accruals of 251.43 lacs and treating recognition of DEPB income in the year of realization of sale proceeds and not on accrual basis. The ld.counsel for the assessee reiterated the submissions as were made in the MA Nos.9 & 10/Ahd/2014. The submissions are reproduced hereinbelow for the sake of clarity:

"3. With regard to Ground No. 1, the Hon'ble Tribunal observed that third Proviso to Section 80HHC(3) of the Income-tax Act was introduced by the Taxation Laws (Second Amendment) Act, 2005 with retrospective effect from 1.4.1998. At para 5.2 the Hon'ble Tribunal observed that the learned CIT(A) recorded a finding that the assessee company did not fulfill the two conditions laid down in the aforesaid third Proviso. The Hon'ble Tribunal has thereafter observed that no evidence was produced by the assessee company before the Tribunal to show that the conditions of the third Proviso have been fulfilled. The Hon'ble Tribunal has also referred to the finding of the learned CIT(A) that DEPB income accruing in the year of sale of DEPB entitlement would be considered and the provision for DEPB receivables and accruals on notional basis would not be considered as income for this purpose. It is further observed that the learned AR of the assessee company did not refer to any material to controvert the findings of the ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -4-

learned CIT(A). In these facts the Ground No. 1 of the assessee's appeal was dismissed.

4. On this issue it is respectfully submitted that the retrospectivity of the amendment of Section 80HHC(3) has been struck down by the Hon'ble Gujarat High Court in the case of Avani Exports v. CIT (348 ITR 391). This Gujarat High Court judgment has been followed by the Hon'ble Bombay High Court in the vase of Vijaya Silk House (Bangalore) Ltd. v. Union of India (349 ITR 566). In its judgment the Hon'ble Bombay High Court has reproduced the following findings recorded by the Hon'ble Gujarat High Court in the case of Avani Exports (supra) on page 568 of the Report:

"On consideration of the entire materials on record, we, therefore, find substance in the contention of the learned counsel for the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessments have already been concluded. In other words, in this type of substantive amendment, retrospective operation can be given only if it is for the benefit of the assessees but not in a case where it affects even a fewer section of the assessees.

We, accordingly, quash the impugned amendment only to this extent that the operation of the said section could be given effect from the date of the amendment and not in respect of earlier assessment years of the assessees whose export turnover is above Rs. 10 crores. In other words, the retrospective amendment should not be detrimental to any of the assessees."

5. It is respectfully submitted that the foresaid finding recorded by the Hon'ble jurisdictional High Court has resulted into reversal of the legal position and, therefore, now the twin conditions of the third ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -5-

Proviso to Section 80HHC(3) have no applicability to A.Y. 2003-04 which is the subject matter of this Miscellaneous Application. It is humbly submitted that this gives rise to a mistake apparent from record which requires rectification. Further the question of DEPB income vis- a-vis Section U 80HHC of the Income-tax Act read with clause (baa) of the Explanation has to be reconsidered and decided in consonance with the legal position in this regard laid down by the Hon'ble Supreme Court in the case of Top Man Exports v. CIT (342 ITR 49).

4.1. On the contrary, the ld.DR has fairly conceded the legal position in view of the judgement of Hon'ble Apex Court rendered in the case of Topman Exports vs. CIT reported at (2012) 342 ITR 49 (SC) and the judgement of Hon'ble Jurisdictional High Court rendered in the case of Avani Exports vs. CIT reported at 348 ITR 391 (Guj.).

5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The Hon'ble Apex Court in the case of Topman Exports vs. CIT(supra) has held as under:-

"12. It will be clear from the aforesaid provisions of s. 28 that under cl. (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India is by itself income chargeable to income-tax under the head "Profits and gains of business or profession". DEPB is a kind of assistance given by the Government of India to an exporter to pay customs duty on its imports and it is receivable once exports are made and an application is made by the exporter for DEPB. We have, therefore, no doubt that DEPB is "cash assistance" receivable by a person against exports under the scheme of the Government of India and falls under cl. (iiib) of s. 28 and is chargeable to income-tax ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -6- under the head "Profits and gains of business or profession" even before it is transferred by the assessee.

13. Under cl. (iiid) of s. 28, any profit on transfer of DEPB is chargeable to income- tax under the head "Profits and gains of business or profession" as an item separate from cash assistance under cl. (iiib). The word "profit" means the gross proceeds of a business transaction less the costs of the transaction. To quote from Black's Law Dictionary (Fifth Edition) :

"Profit. Most commonly, the gross proceeds of a business transaction less the costs of the transaction, i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures."

This Court in E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 27 (SC) has quoted the following observations of Lord Justice Fletcher Moulton in The Spanish Prospecting Company Ltd. (1911) I Ch. 92 on the meaning of the word "profits" :

".... 'Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates."

'Profits', therefore, imply a comparison of the value of an asset when the asset is acquired with the value of the asset, when the asset is transferred and the difference between the two values is the amount of profit or gain made by a person. As DEPB has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessees over and above the DEPB on transfer of the DEPB would represent profit on the transfer of DEPB.

14. We are, thus, of the considered opinion that while the face value of the DEPB will fall under cl. (iiib) of s. 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under cl. (iiid) of s. 28 of the Act and the High Court was not right in taking the view in the impugned judgment that the entire sale proceeds of the DEPB realized on transfer of the DEPB and not just the difference between the sale value and the face value of the DEPB represent profit on transfer of the DEPB.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -7-

15. We may now point out the errors in the impugned judgment of the High Court. The first reason given by the High Court is that cl. (iiia) of s. 28 treats profits on the sale of an import license as income chargeable to tax and when the license is sold, the entire amount is treated as profits of business under cl. (iiia) of s. 28 and thus there is no justification to treat the amount which is received by an exporter on the transfer of the DEPB any differently than the profits which are made on the sale of an import license under cl. (iiia) of s. 28 of the Act. In taking the view that when the import license is sold the entire amount is treated as profits of business, the High Court has visualized a situation where the cost of acquiring the import license is nil. The cost of acquiring DEPB, on the other hand, is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB which accrues to a person against exports has a cost element in it. Accordingly, when DEPB is sold by a person, his profit on transfer of DEPB would be the sale value of the DEPB less the face value of DEPB which represents the cost of the DEPB. The second reason given by the High Court in the impugned judgment is that under the DEPB Scheme, DEPB is given at a percentage of the FOB value of the exports so as to neutralize the incidence of customs duty on the import content of the export products, but the exporter may not himself utilize the DEPB for paying customs duty but may transfer it to someone else and therefore the entire sum received on transfer of DEPB would be covered under cl. (iiid) of s. 28. The High Court has failed to appreciate that DEPB represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB is not utilized by the exporter but is transferred to another person, the DEPB continues to remain as a cost to the exporter. When, therefore, DEPB is transferred by a person, the entire sum received by him on such transfer does not become his profits. It is only the amount that he receives in excess of the DEPB which represents his profits on transfer of the DEPB.

16. The High Court has sought to meet the argument of double taxation made on behalf of the assessees by holding that where the face value of the DEPB was offered to tax in the year in which the credit accrued to the assessee as business profits, then any further profit arising on transfer of DEPB would be taxed as profits of business under s. 28(iiid) in the year in which the transfer of DEPB took place. This view of the High Court, in our considered opinion, is contrary to the language of s. 28 of the Act under which "cash assistance" received or receivable by any person against exports such as the DEPB and "profit on transfer of the DEPB" are treated as two separate items of income under cls. (iiib) and (iiid) of s. 28. If accrual of DEPB and profit on transfer of DEPB are treated as two separate items of income chargeable to tax under cls. (iiib) and (iiid) of s. 28 of the Act, then DEPB will be chargeable as ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -8- income under cl. (iiib) of s. 28 in the year in which the person applies for DEPB credit against the exports and the profit on transfer of the DEPB by that person will be chargeable as income under cl. (iiid) of s. 28 in his hands in the year in which he makes the transfer. Accordingly, if in the same previous year the DEPB accrues to a person and he also earns profit on transfer of the DEPB, the DEPB will be business profits under cl. (iiib) and the difference between the sale value and the DEPB (face value) would be the profits on the transfer of DEPB under cl. (iiid) for the same assessment year. Where, however, the DEPB accrues to a person in one previous year and the transfer of DEPB takes place in a subsequent previous year, then the DEPB will be chargeable as income of the person for the first assessment year chargeable under cl. (iiib) of s. 28 and the difference between the DEPB credit and the sale value of the DEPB credit would be income in his hands for the subsequent assessment year chargeable under cl. (iiid) of s. 28. The interpretation suggested by us, therefore, does not lead to double taxation of the same income, which the legislature must be presumed to have avoided.

......

20. Explanation (baa) under s. 80HHC states that "profits of the business" in the aforesaid formula means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by (1) ninety per cent of any sum referred to in cls. (iiia), (iiib), (iiic), (iiid) and (iiie) of s. 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature including any such receipts and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situated outside India. Thus, ninety per cent of the DEPB which is "cash assistance" against exports and is covered under cl. (iiib) of s. 28 will get excluded from the "profits of the business" of the assessee if such DEPB has accrued to the assessee during the previous year. Similarly, if during the same previous year, the assessee has transferred the DEPB and the sale value of such DEPB is more than the face value of the DEPB, the difference between the sale value of the DEPB and the face value of the DEPB will represent the profit on transfer of DEPB covered under cl. (iiid) of s. 28 and ninety per cent of such profit on transfer of DEPB certificate will get excluded from "profits of the business".

But, where the DEPB accrues to the assessee in the first previous year and the assessee transfers the DEPB certificate in the second previous year, as appears to have happened in the present batch of cases, only ninety per cent of the profits on transfer of DEPB covered under cl. (iiid) and not ninety per cent of the entire sale value including the face value of the DEPB will get excluded from the "profits of the business". Thus, where the ninety per cent of the face value of the ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04 -9- DEPB does not get excluded from "profits of the business" under Expln. (baa) and only ninety per cent of the difference between the face value of the DEPB and the sale value of the DEPB gets excluded from "profits of the business", the assessee gets a bigger figure of "profits of the business" and this is possible when the DEPB accrues to the assessee in one previous year and transfer of the DEPB takes place in the subsequent previous year. The result in such case is that a higher figure of "profits of the business" becomes the multiplier in the aforesaid formula under sub-s.

(3)(a) of s. 80HHC for arriving at the figure of profits derived from exports.

21. To the figure of profits derived from exports worked out as per the aforesaid formula under sub-s. (3)(a) of s. 80HHC, the additions as mentioned in first, second, third and fourth provisos under sub-s. (3) are made to profits derived from exports. Under the first proviso, ninety per cent of the sum referred to in cls. (iiia), (iiib) and (iiic) of s. 28 are added in the same proportion as export turnover bears to the total turnover of the business carried on by the assessee. In this first proviso, there is no addition of any sum referred to in cl. (iiid) or cl. (iiie). Hence, profit on transfer of DEPB or DFRC are not to be added under the first proviso. Where therefore in the previous year no DEPB or DFRC accrues to the assessee, he would not be entitled to the benefit of the first proviso to sub-s. (3) of s. 80HHC because he would not have any sum referred to in cl. (iiib) of s. 28 of the Act. The second proviso to sub-s. (3) of s. 80HHC states that in case of an assessee having export turnover not exceeding Rs. 10 crores during the previous year, after giving effect to the first proviso, the export profits are to be increased further by the amount which bears to ninety per cent of any sum referred to in cls. (iiid) and (iiie) of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The third proviso to sub-s. (3) states that in case of an assessee having export turnover exceeding Rs. 10 crores, similar addition of ninety per cent of the sums referred to in cl. (iiid) of s. 28 (sic) only if the assessee has the necessary and sufficient evidence to prove that (a) he had an option to choose either the duty drawback or the DEPB Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the DEPB Scheme, being the Duty Remission Scheme. Therefore, if the assessee having export turnover of more than Rs. 10 crores does not satisfy these two conditions, he will not be entitled to the addition of profit on transfer of DEPB under the third proviso to sub-s. (3) of s. 80HHC.

22. The aforesaid discussion would show that where an assessee has an export turnover exceeding Rs. 10 crores and has made profits on transfer of DEPB under cl.

(d) [sic.-(iiid)] of s. 28, he would not get the benefit of addition to export profits ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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under third or fourth proviso to sub-s. (3) of s. 80HHC, but he would get the benefit of exclusion of a smaller figure from "profits of the business" under Expln. (baa) to s. 80HHC of the Act and there is nothing in Expln. (baa) to s. 80HHC to show that this benefit of exclusion of a smaller figure from "profits of the business" will not be available to an assessee having an export turnover exceeding Rs. 10 crores. In other words, where the export turnover of an assessee exceeds Rs. 10 crores, he does not get the benefit of addition of ninety per cent of export incentive under cl. (iiid) of s. 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not (sic) have the export turnover exceeding Rs. 10 crores and as the assessee did not fulfill the conditions set out in the third proviso to s. 80HHC(3), the assessee was not entitled to a deduction under s. 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under s. 28(iiid) would not include the face value of the DEPB. It is a well- settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in Expln. (baa) to s. 80HHC read with the words used in cls. (iiid) and (iiie) of s. 28, the assessee was entitled to a deduction under s. 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee."

6. The Revenue could not controvert the legal position by placing of any contrary later judgement of Hon'ble Apex Court. Therefore, this ground is restored to the file of AO to decide it afresh in the light of judgement of Hon'ble Gujarat High Court rendered in the case of Avani Exports vs. CIT(supra) and the judgement of Hon'ble Apex Court in the case of Topman Exports vs. CIT (supra). This ground of assessee's appeal is allowed for statistical purposes.

7. Now, we take up the ground No.2 of the Assessee's appeal that reads as under:-

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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The learned CIT(A) has erred in disallowing deduction u/s.80HHC on 90% of other income being (i) Interest income (FDR) Rs.21,88,854 (ii) Interest income of Rs.1,63,618 (iii) Rent income Rs.12,70,000 (iv) other misc.income Rs.14,18,854/-.

7.1. At the outset, the ld.counsel for the assessee submitted that this issue is squarely covered by the judgement of Hon'ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT reported at 343 ITR 89(SC). Ld.Counsel reiterated the submissions as were made in the Misc.Application No.10/Ahd/2014. For the sake of clarity, the relevant contents are reproduced hereinbelow:-

"3. .... . This Ground has been dealt with and adjudicated by the Hon'ble Tribunal at para 8 of the order. It has been held by the Hon'ble Tribunal that in respect of the other incomes referred to in the aforesaid Ground No. 4, 90% of the gross income is required to be excluded under clause (baa) of the Explanation u/s. 80HHC of the Income-tax Act. The Hon'ble Tribunal has referred to its decision with regard to a similar Ground of Appeal raised in assessee's appeal where the Hon'ble Tribunal relied on the Hon'ble Bombay High Court decision in the case of CIT v. Asian Star Co. Ltd. (326 ITR 56). At para 6.9 the Hon'ble Tribunal has observed that in consonance with the aforesaid Bombay High Court judgment 90% of the receipts referred to in Ground No. 2 of the assessee have to be excluded under clause (baa) of the Explanation. It is further observed that to take care of any expenditure which may have been incurred in earning this income, an ad hoc deduction of 10% has been allowed by the Legislature and as per the Bombay High Court judgment no further deduction is permissible.

4. It is respectfully submitted that the Hon'ble Bombay High Court decision in the case of Asian Star Co. (supra) has been overruled by the Hon'ble Supreme Court in the case of ACG Associated Capsules Pvt.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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Ltd. (343 ITR 89). The Head Note of this judgment is reproduced below for ready reference:

"Under clause (1) of Explanation (baa) to section 80HHC of the Act, ninety per cent, of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head "Profits and gains of business or profession".

The expression "included any such profits" would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business as computed under the head "Profits and gains of business or profession". Therefore, if any quantum of the receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature is allowed as expenses under sections 30 to 44D of the Act and is not included in the profits of business as computed under the head "Profits and gains of business or profession", ninety per cent, of such quantum of receipts cannot be reduced under clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent, of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the pro-fits of the assessee for determining "profits of the business" of the assessee under Explanation (baa) to section 80HHC.

Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in it, the words "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits" will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head "Profits and gains of business or profession" referred to in the first part of Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head "Profits and gains of business or profession", ninety per cent, of such quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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Held, accordingly, that ninety per cent, of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head "Profits and gains of business or profession", was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business.

Decision of the Bombay High Court reversed.

Decision of the Delhi High Court affirmed.

Distributors (Baroda) P. Ltd. v. Union of India [1985] 155 ITR 120 (SC) relied on.

CIT v. Shri Ram Honda Power Equip [2007] 289 ITR 475 (Delhi) approved.

CIT v. Asian Star Co. Ltd. [2010] 326 ITR 56 (Bom) impliedly overruled."

5. From the above it may kindly be appreciated that 90% of only net income can be excluded under clause (baa) of the Explanation to Section 80HHC while determining the profits of the business eligible for deduction. This judgment has been rendered by larger Bench of the Hon'ble Supreme Court comprising of three Judges and they have also followed the earlier Supreme Court decision in the case of Topman Exports v. CIT (342 ITR 49)."

7.2. Ld.Sr.DR fairly conceded the legal position as enunciated in the above referred judgement of the Hon'ble Supreme Court rendered in the case of ACG Associated Capsules (P) Ltd. vs. CIT (supra).

7.3. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. It is contended by the ld.Sr.Counsel for the assessee that the issue is covered by the judgement of Hon'ble Apex Court in the case of ACG ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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Associated Capsules Pvt.Ltd.(supra), wherein the Hon'ble Supreme Court held that ninety percent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of the business of the assessee as computed under the head "profits and gains of business or profession" is to be deducted under clause(1) of Explanation (baa) to section 80HHC for determining the profits of business. Therefore, respectfully following the ration laid down by the Hon'ble Apex Court, we hereby restore the issue to the file of the AO for re-computation of deduction u/s.80-HHC in the light of the judgement of Hon'ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd.(supra). Accordingly, this ground of assessee's appeal is allowed for statistical purposes.

8. As a result, Assessee's appeal is allowed for statistical purposes.

9. Now, we take up the Revenue's appeal in ITA No.1601/Ahd/2007 for AY 2003-04. The Revenue has raised the following grounds of appeal:-

1. The Ld.CIT(A) erred in law and on the facts of the case in directing the A.O. to delete the disallowance of Rs.2,30,067/- made out of total staff welfare expenses of Rs.46,01,342/- for want of verification of complete bills and vouchers, etc.

2. The Ld.CIT(A) has erred in law and on the facts of the case in directing the A.O. to delete the disallowance of Rs.41,13,604/- made ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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out of total selling & distribution expenses of RS.822.72 lacs for want of verification of complete details.

3. The Ld.CIT(A) has erred in law and on the facts of the case in directing the A.O. to delete the disallowance of Rs.1,13,19,049/- made on account of Deferred Revenue Expenditure relating to marketing of the products of the company spread over in the books of accounts to 5 years whereas for the Income-tax purpose it was claimed as revenue expenditure in the same year.

4. The Ld.CIT(A) has erred in law and on the facts of the case in directing the A.O. not to exclude 90% of other incomes comprising of (i) Insurance claim received of Rs.39,78,429/- and (ii) C&F Stockist interest at Rs.5,77,309/- from the Profit of the business for the purpose of computation of deduction u/s.80HHC of the I.T.Act.

5. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer.

6. It is, therefore, prayed that the order of the Ld.CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect.

9.1. At the outset, ld.Sr.counsel for the assessee Shri S.N.Soparkar pointed out that in MA No.10/Ahd/2014, the Tribunal has recalled its order in view of the change in legal position. He submitted that the issue is now squarely covered by the decision of Hon'ble Jurisdictional High Court rendered in the case of Milton Laminates Ltd. vs. ACIT reported at (2014) 43 taxmann.com 93 (Guj.) and also the judgement of Hon'ble Supreme Court rendered in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT (2012) 343 ITR 89.

9.2. Ld.Sr.DR fairly conceded the legal position as enunciated in the above referred case-laws.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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9.3. We have heard the rival contentions of the respective representatives of the parties, perused the material available on record and gone through the orders of the authorities below. So far as ground Nos.1 to 3 are concerned, this Tribunal had dismissed the same and need no fresh adjudication. Therefore, the ground Nos.1 to 3 of the Revenue's appeal are dismissed. Ground Nos.5 & 6 are general in nature need no separate adjudication.

9.4. Apropos to Ground No.4, the contention of ld.Sr.counsel for the assessee is that the issue is covered by the judgement of Hon'ble Gujarat High Court rendered in the case of Milton Laminates Ltd. vs. ACIT (43 taxmann.com 93) and the judgement of Hon'ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT (343 ITR 89). This Tribunal in earlier round of litigation has held as under:-

"7. As is apparent from the facts narrated in the impugned orders in the instant case, there is nothing to suggest that the aforesaid receipts on account of interest(including on FDRs), rent, other misc. income, insurance claim and interest from C & F stockists have any nexus or relation with the export business or turnover of the assessee or were not independent incomes. In the light of view taken in the aforesaid decisions of Hon'ble Apex Court, especially in the case of K. Ravindranathan Nair(supra) as also by the Hon'ble Bombay High Court in Asian Star Co. Ltd. (supra) & Dresser Rand India Pvt. Ltd. (supra) , we have no hesitation in upholding the findings of the Id. CIT(A) in excluding of 90% of the receipts on ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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account of interest(including on FDRs), rent and other misc. income while computing profits of the business in terms of explanation(baa) to sec. 80HHC of the Act. Therefore, ground no. 2 in the appeal of the assessee is dismissed.

8. As regards exclusion of 90% the receipts on account of insurance and interest from C& F stockists, in the light of view taken in the aforesaid decisions, including the view taken by the Hon'ble jurisdictional High Court in Alembic Chemical Works Ltd.(supra) , we are of the opinion that the Id. CIT(A) was not justified in including these amounts in the profits of the business, there being no evidence that these amounts were in any manner related to export activities or turnover of the assessee . Therefore, we have no hesitation in reversing the findings of the Id. CIT(A) in so far as these receipts are concerned and accordingly, conclude that the AO was perfectly justified in excluding 90% of these receipts while computing profits of the business in terms of explanation (baa) to sec. 80HHC of the Act. Therefore, ground no.4 in the appeal of the Revenue is allowed."

9.5. The Hon'ble High Court of Gujarat in the case of Milton Laminates Ltd. vs. ACIT(supra) had formulated the following substantial question of law:-

"(i) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that mistake in the assessment order was apparent on record and was an obvious and patent mistake and that the view taken by the Assessing Officer in the order passed under Section 154 of the Income-tax Act, 1961 was not debatable at all?

(ii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in excluding 90% of the ' Other Income' viz. Interest, Misc. Income and Insurance Claim from the profits of the Business while calculating the deduction u/s. 80HHC of the Act?

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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(iii) Whether, in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the "Netting Off of interest income against interest expenditure?"

9. 6. We find that the Hon'ble High Court answered the above questions by holding as under:-

"3. Heard Shri S.N. Soparkar, learned Senior Advocate for the assessee and Shri MR Bhatt, learned Senior advocate for the revenue.

4. At the outset it is required to be noted that so far as question Nos. 2 and 3 are concerned, they are squarely covered by the decision of the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.)Ltd. CIT [2012] 343 ITR 89/205 Taxman 136 (Mag.)/l 8 taxmann.com 137 in favour of assessee. Under the circumstances, the aforesaid issues / questions are now not res integra. In the case of ACG Associated Capsules (P.) Ltd (supra) it is held by the Hon'ble Supreme Court in the said decision that 90% of not the gross interest but only the net interest, which has been included in the profits of the business of the assessee as computed under the heads "Profits and gains of business or profession" is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining AT profits of business.

5. Applying the law laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd. (supra) the aforesaid questions are held in favour of the assessee and order passed by the ITAT in ITA No.2053/Ahd/2004 for AY 1997-98 is hereby quashed and set aside. Now, the AO to recompute the deduction under Section 80HHC of the Income-tax Act considering the law ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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laid down by the Hon'ble Supreme Court in the case of ACG Associated Capsules (P.) Ltd (supra) which is reproduced hereinabove.

6. In the decision on merits with respect to question Nos. 2 and 3, question No.1 become academic and therefore, the same is not dealt with.

7. With this, present appeal is allowed to the aforesaid extent."

9.7. The Hon'ble Apex Court in the case of ACG Associated Capsules Pvt.Ltd. vs. CIT (supra) has held as under:-

"In our considered opinion, it was not necessary to refer to the explanatory Memorandum when the language of Explanation (baa) to Section 80HHC was clear that only ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits computed under the head profits and gains of business of an assessee could be deducted under clause (1) of Explanation (baa) and not ninety per cent of the quantum of any of the aforesaid receipts which are allowed as expenses and therefore not included in the profits of business of the assessee."

9.8. Therefore, respectfully following the judgement of Hon'ble Gujarat High Court in the case of Milton Laminates Ltd.(supra), we hereby dismiss this ground of the Revenue's appeal. In the result, appeal of the Revenue is dismissed.

ITA No.1591/Ahd/2007 (by Assessee) and ITA No.1601/Ahd/2007 (by Revenue) Intas Pharmaceuticals Ltd. vs. DCIT Asst.Year -2003-04

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10. In the combined result, the appeal of the Assessee in ITA No.1591/Ahd/2007 is allowed for statistical purposes, whereas the appeal of the Revenue in ITA No.1601/Ahd/2007 is dismissed.

Order pronounced in the Court on Friday, the 10th day of April, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 10/ 04 /2015 ट).सी.नायर, व. न.स./T.C. NAIR, Sr. PS आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to : 1. अपीलाथ# / The Appellant 2. $%यथ# / The Respondent. 3. संब3ं धत आयकर आय5 ु त / Concerned CIT 4. आयकर आय5 ु त(अपील) / The CIT(A)-VIII, Ahmedabad

5. 6वभागीय $ त न3ध, आयकर अपील)य अ3धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड: फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या6पत $ त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 27.3.2015 (dictation-pad 4-pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..31.3.2015

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......10.4.15

7. Date on which the file goes to the Bench Clerk.....................10.4.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................