Sun Pharmaceuticals Ind. Ltd., Baroda vs Assessee

सुनवाई क तार ख/Date of Hearing : 30/01/2015 घोषणा क तार ख /Date of Pronouncement : 13/03/2015

आदे श/O RDER

PER MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER:-

These cross appeals for Assessment Year 2000-01 are emanating from the order of Ld. CIT(A)-IV, Ahmedabad dated 17.01.2003. These two appeals are consolidated and hereby decided by this common order.

ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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A. Assessee's Appeal (ITA No. 1400/Ahd/2003)

1. Ground No. 1 is reproduced below:

"1. Re: Reduction of amount of profits eligible for deduction u/s 80HHC from the book profits u/s 115JA.

1.1 The computation of the amount deductible u/s 80HHC for the purpose of computation of book profits under explanation to sec. 115JA(1) should be made with reference to the book profits and not the taxable profits."

1.1 The facts in brief, as emerging from the corresponding assessment order passed under section 143(3) dated 27.11.2002 were that the assessee-company was in the business of manufacturing and trading of pharmaceutical products. The pharmaceutical products have also been exported. In respect of the above grounds, the Assessing Officer has noted that while calculating the book profit u/s 115JA, the assessee has reduced an amount of Rs.10,05,31,321/- as 80HHC deduction. The Assessing Officer has objected the calculation of the assessee. According to the Assessing Officer, the said issue has already been decided by the ld. CIT(A) in assessee's own case for AY 1999-2000; hence, the deduction u/s 80HHC was curtailed to Rs.5,72,08,084/- for the purpose of calculation of profit u/s 115JA.

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1.2 The First Appellate Authority has repeated the earlier decision and affirmed the action of the Assessing Officer.

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1.3 Heard both the sides. This issue has already been decided by us while deciding the appeal for Assessment Year 1999-2000 bearing ITA ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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No.3047/Ahd/2002 by ITAT "D" Bench, Ahmedabad, wherein we have held as under:-

"1.3 Having heard the submissions of both the sides and after reading the cited decisions viz. Ajanta Pharma Ltd. 327 ITR 305 (S.C.) and Bhari Information Tech.Sys.P.Ltd. 340 ITR 593 ( S.C.) in the background of the facts of this case we are of the view that the decision of Syncome Formulations (I) Ltd. 292 ITR 144 (AT)(Mum.)(SB) has been approved by the Hon'ble Supreme Court in the case of Bhari Information Tech.Sys.P.Ltd.(supra). Therein it was held that the deduction u/s.80HHE of the Act in the case of Export of Computer Software has got to be worked out on the basis of adjusted book profits u/s.115JA of the Act and not on the basis computed under the regular provisions of law applicable to the computation of profits and gains of business. Further, an observation was made by the Hon'ble Court that once the law itself declares that the adjusted book profit is amenable for further deductions on specified grounds in a case where section 80HHC/80HHE of the Act is operations, it becomes clear that computation for the deduction under those sections need to be worked out on the basis of adjusted book profit. In the case of Syncome Formulations (I) Ltd. (supra), the Special Bench of the Tribunal came to the conclusion that deduction claimed by the assessee u/s.80HHC has to be worked out on the basis of adjusted book profit u/s.115JA of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. The view taken by the Special Bench was accordingly affirmed and the Special Leave Petition filed by the Revenue Department was dismissed. We have also noted that a decision of Hon'ble Bombay High Court in the case of Ajanta Pharma Ltd. 318 ITR 252 (Bom.) was in favour of the Revenue Department, however, that decision of the Bombay High Court was, later on, reversed by the Hon'ble Supreme Court cited as "327 ITR 305", wherein the Department has argued that both the "eligibility" as well as "deductibility" of the profit have got to be considered together for working out the deduction as mentioned in clause-(iv) of the Explanation to section 115JB of the Act. The Hon'ble Court has said that there was no merit in the said argument of the Revenue Department. The Court has made an observation as under:-

"10. ........... . If the dichotomy between "eligibility" of profit and "deductibility" of profit is not kept in mind then s. 115JB will cease to be a self-contained code. In s. 115JB, as in s. 115JA, it has been clearly ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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stated that the relief will be computed under s. 80HHC(3)/(3A), subject to the conditions under sub-cls. (4) and (4A) of that section. The conditions are only that the relief should be certified by the chartered accountant. Such condition is not a qualifying condition but it is a compliance condition. Therefore, one cannot rely upon the last sentence in cl. (iv) of Explanation to s. 115JB [subject to the conditions specified in sub-cls. (4) and (4A) of that section] to obliterate the difference between "eligibility" and "deductibility" of profits as contended on behalf of the Department.

11. For the above reasons, we set aside the impugned judgment of the High Court and restore the judgment of the Tribunal. Accordingly, the civil appeal of the assessee is allowed with no order as to costs."

1.4. Therefore, respectfully following the above precedents, we hereby hold that the AO is required to re-compute the taxable profit for the purpose of computation of book profit u/s.115JA of the Act in the light of the guide lines laid down by the Hon Courts as cited above. Thus, ground raised by the assessee is, therefore, allowed.

1.4 On the same lines, this ground of the assessee is allowed; however, the Assessing Officer is required to re-compute the taxable profit for the purpose of computation of book profit u/s 115JA of the Act.

2. Ground No. 2 is reproduced below:

"2. Re: Reduction of amount of profits derived by eligible industrial undertaking referred in s. 80IB [Old Section 80IA] from the book profits u/s 115JA.

2.1 The computation carried out by the Assessing Officer of the amount of profits derived by eligible industrial undertaking referred in S. 80IA for the purpose of computation of book profits under explanation to Sec. 115JA(1) should be made with reference to the book profits and not the taxable profits."

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2.1 The Assessing Officer has noticed that while calculating the book profit u/s 115JA, the assessee has reduced a sum of Rs.21,16,08,000/- u/s 80IA. That calculation was rejected by the Assessing Officer and curtailed the amount of deduction u/s 80IA to Rs.20,00,97,591/-. The First Appellate Authority has affirmed the action of the Assessing Officer.

2.2 This issue has already been decided by us in Assessment Year 1999-2000 (supra), in the following manner:-

"3.1. As per the Appellant the deduction U/s 80IA was at Rs. 40,13,40,021/-on Silvasa Unit, however the A.O. had allocated certain expenses and reduced the Profit to compute the deduction U/s 80IA at Rs. 38,23,04,924/-. Before us it is pleaded that this issue was not decided by Ld. CIT(A). We have also been informed that in the past for A.Y. 1998-99 this very issue was restored back to the file of Ld. CIT (A) in assessee's own case in ITA No. 363 & 692/Ahd/2002 vide order dated 7.1.2011.( ref. para 20 page 15 & para 22 page 16) Naturally, if the First Appellate Authority has not expressed a view how the Tribunal can comment on the correctness of the same, therefore, for this year as well this issue is restored back to be decided by Ld. CIT(A) as per law. This ground may be treated as allowed but for statistical purpose only." [

2.3 On the same lines, for this year as well, this ground may be treated as allowed but for statistical purposes only.

3. Ground No. 3 is reproduced below:

"3. Re: Deduction of Lease Equalisation Charge from Book Profits u/s 115JA.

3.1 The addition on account of Lease equalization charge in computing the Book Profits under explanation to sec. 115JA (1) should be deleted."

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3.1 The assessee was asked by the Assessing Officer to explain why the lease equalization charges should not be added to book profit u/s 115JA. The assessee's explanation was that the equalization charges were reduced from the gross lease rental. The lease equalization charges were stated to be created to ensure that in case of a lease, only the fair income is accounted as income of the lesser. The annual lease equalization charges represented the recovery of the fair value of the leased asset over the leased term. So this said charges were calculated by deducting the income for the period. The lease equalization account is transferred every year to the profit and loss account and disclosed separately as a deduction. However, the Assessing Officer was not in agreement and held that while working the total business income as per Chapter IV, the assessee has itself added back the lease equalization charges in the computation of income, but it has not done so while calculating the book profit u/s 115JA. According to the Assessing Officer, Section 115JA prescribes that the book profit means the net profit as shown in the profit and loss account which is to be increased by any reserves by whatever name called. In the opinion of the Assessing Officer, the lease equalization charges were nothing but reserves created by the assessee; hence, the same was added back for the purpose of calculating the book profit u/s 115JA(2) of the Income-tax Act. [

3.2 When the matter was carried before the First Appellate Authority, it was argued that the lease equalization charges were not in the nature of reserves; however, ld. CIT(A) has rejected the said contention and upheld the view taken by the Assessing Officer.

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3.3 We have heard both the sides. From the side of the Revenue, ld.CIT-DR has supported the action of the Assessing Officer and the CIT(A) and argued that the book profit means the net profit as shown in the profit and loss account; hence, the assessee has wrongly calculated the profit for the purpose of section 115JA.

3.4 On the other hand, from the side of the assessee, ld. Authorized Representative Shri S.N. Soparkar appeared and placed reliance on the decisions of TVS Finance & Services Ltd, 318 ITR 435 (Mad.) and GE Capital Transportation Financial Services Ltd, 113 ITD 22 (Delhi).

3.5 We have heard both the sides. As per the arguments and facts appearing from the assessment records, we have noted that the assessee has explained that where the annual lease charge is less than the minimum statutory depreciation, a lease equalization credit would arise. Further, it was explained that the lease equalization charge is equal to the annual lease charge less minimum statutory depreciation. Therefore, a separate lease equalization account was opened by the assessee in which there was a corresponding debit or credit to the lease adjustment account. The lease equalization amount was stated to be transferred every year to the profit and loss account and it was disclosed separately as a deduction from addition to the gross value of lease rental. The statutory depreciation was shown separately in the profit and loss account. Therefore, it was argued that the lease equalization charge was not in the nature of any reserve created by any way of appropriation of profit. Rather, it was a charge to profit and loss account just like in the nature of depreciation. Almost on identical facts in the case of GE ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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Capital Transportation Financial Services Ltd (supra), the question was whether a provision made by the assessee, a leasing company, for lease equalization charges in its books of accounts as per the guidance note on "accounting for leases" issued by ICAI cannot be regarded as an amount transferred to reserves as envisaged in Explanation (b) to Section 115JA(2). It was held that any adjustment made by the Assessing Officer by adding the amount of lease equalization charges while computing the book profit was unjustified. Likewise, in the case of TVS Finance & Services Ltd (supra), the Hon'ble Madras High Court has opined that the lease equalization charges over the period of lease is equal to the difference between the quantum of principal recovered and the residual value. The provision was made as per ICAI guidelines note, therefore, same is not contingent in nature. It was held that the lease equalization charges is not to be included in computing book profit u/s 115JA of the Income-tax Act. Since this legal issue now stood resolved in favour of the assessee; therefore, respectfully following these decisions, we hereby reverse the findings of the Revenue Authorities and direct to allow the claim. This ground of the assessee is hereby allowed.

4. Ground No. 4 is reproduced below:

"4. Re: Treatment of Exchange Rate Fluctuation of Rs.11,72,828/- as miscellaneous income forming part of total turnover for the purpose of deduction u/s 80HHC.

4.1 The Exchange Rate Fluctuation/Difference of Rs.11,72,828/- in respect of balances under EEFC Account should not be considered as miscellaneous trading receipt forming part of 'total turnover' for the purpose of computing the deduction u/s 80HHC of the Act.

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4.2 Without prejudice to the above the Exchange rate difference on the balances in the EEFC account ought to be treated as export turnover for the purpose of computing the deduction u/s 80HHC of the Act."

4.1 On perusal of break-up of various expenses debited to profit and loss account, it was noted by the Assessing Officer that the assessee had reduced a sum of Rs.11,72,828/- on account of exchange rate difference from miscellaneous expenses. According to the Assessing Officer, the assessee has reduced the miscellaneous expenses by the said income which resulted into grant of excess deduction u/s 80HHC. He has held that the said receipt being miscellaneous trading receipt would be part of total turnover of business if shown separately and further 90% of the same was reduced while working the eligible profit for deduction u/s 80HHC.

4.2 This issue has already been decided by us in Assessment Year 1999-2000 in ground No.3, wherein we have held as under:-

"3.3. With this factual back ground we have heard both the sides. At the outset we have been informed that now this issue is directly covered in favour of the assessee by an order of Honble Gujarat High Court in the case of CIT vs, Alps Chemicals Pvt Ltd 367 ITR 594. The Hon'ble Court has discussed decisions namely Sterling Foods 237 ITR 579 ( S.C.), wherein the legal proposition was that the source of the income was the export and earned the said income merely on account of fluctuation in foreign exchange. Also cited a decision of Shah Originals 327 ITR 19 ( Bom.) wherein as well held that an exporter had an option to keep certain percentage of export receipts in EEFC a/c. The assessee received higher amount in Indian rupees on such amount due to fluctuation in the foreign exchange rate. Conscious of the fact that the assessee had received the proceeds of the export transaction and gained due to fluctuation the court held that such gain cannot only be said to have been 'derived' from export business but the fluctuation gain arose subsequent to receiving the sale consideration hence part of the export sales . The gain was not due to ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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delayed realization of export proceeds. The issue was decided in favour of the assessee. Respectfully following the above cited precedents we hereby hold that the assessee is entitled to the claimed deduction. Ground allowed."

4.3 Following the above decision, we hereby hold that the issue is covered by few orders of the Hon'ble High Courts cited supra; therefore, the assessee is entitled for the deduction. This ground of the assessee is allowed.

5. Ground No. 5 is reproduced below:

"5. Re: Inclusion of Sale of scrap of Rs.47,14,326/- in total turnover for the purpose of deduction u/s 80HHC.

5.1 The scrap sales of Rs.47,14,326/- should not be considered to form part of total turnover for computing the deduction u/s 80HHC."

5.1 On perusal of P&L account, it was noted by the Assessing Officer that the assessee had included a receipt of Rs.47,14,326/- on account of sale of scrap generated from business. According to the Assessing Officer, the receipts on sale of scrap was earned in direct exercise of the business, therefore, to be treated as part of the total turnover. Following the earlier decision, the sale of scrap was included in the total turnover which was challenged.

5.2 Heard both the sides. This issue has also been dealt with by us while deciding ground No.4 for Assessment Year 1999-2000, wherein we have held as under:-

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"4.2. Having heard the submissions of both the sides and after considering the case law cited of Punjab Stainless Ltd. 364 ITR 144 (S.C.), wherein the assessee was claiming deduction u/s.80HHC of the Act and the issue was to decide the meaning of word "total turnover".

That assessee was a manufacturer and exporter of Stainless Steel Utensils. In the process of manufacturing, some portion of the Steel could not be used and it was treated as scrap. The assessee sold this scrap in the local market and income arising from sale was reflected in the Profit & Loss account. For the purpose of availing deduction u/s.80HHC, income from sale proceeds of sale scrap was not included in the "total turnover" but it was shown separately. The Revenue Department has accounted the sale proceeds from scrap in the "total turnover". The Hon'ble High Court was of the view that the proceeds generated from the sale of scrap would not be included in the "total turnover". On further appeal, The Hon'ble Supreme Court has expressed that the term "turnover" has not been defined in the Income Tax Act. According to the Hon'ble Court, a meaning of this term was given by ICAI which denotes that in normal parlance the word "turnover" would be total sales, and according to the Hon'ble Court said sales would not include scrap material. According to the Hon'ble Court, intention behind enactment of section 80HHC of the Act is to encourage export to earn Foreign Exchange. It was finally concluded that the proceeds generated from the sale of scrap would not be included in the "total turnover". 4.3. Respectfully following the aforesaid view expressed by the Hon'ble Supreme Court, we hereby direct to re-compute the turnover after excluding the sale amount of scrap. Resultantly, this ground is allowed.

5.3 Respectfully, following the above decision, we hereby direct to re- compute the turnover after excluding the sale amount of scarp. This ground of the assessee is allowed.

6. Ground No. 6 is reproduced below:

"6. Re: Reduction of unrealised export proceeds of Rs.71,09,340/- from export turnover for the purpose of deduction u/s 80HHC.

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6.1 The unrealised export proceeds of Rs.71,09,340/- should not be reduced from the export turnover for the purpose of computing the deduction u/s 80HHC.

6.2 Without prejudice to the above, the export realised till the date of completion of the assessment should be considered as export turnover for the purpose of computing the deduction u/s 80HHC. 6.3 Without prejudice to the above, the direct and indirect costs relatable to the unrealised trading export proceeds should be reduced while computing the trading export profits."

6.1 On perusal of Form No.10CCAC, it was noted by the Assessing Officer that the assessee-company had applied for extension of time for bringing the convertible foreign exchange of Rs.71,09,340/-. The assessee was asked to show-cause as to why this amount should not be reduced while calculating the deduction u/s 80HHC (2)(a) of the Income-tax Act. The Assessing Officer was of the view that the assessee should have brought the sale proceeds in convertible foreign exchange within the period of six months from the end of the previous year or the period as may be allowed. It was also noted that the RBI, the competent authority, had not granted extension of time. With the result, the unrealized amount of Rs.71,09,340/- was reduced for the calculation of deduction u/s 80HHC.

6.2 In the past i.e. Assessment Year 1999-2000, we have found that the assessee has preferred not to contest this ground. In the like manner, for this year as well, this ground is hereby dismissed being not pressed.

7. Ground No. 7 is reproduced below:

"7. Re: Considering the loss on Trading Exports for working out the deduction u/ 80HHC.

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7.1 The loss computed in respect of the trading turnover should be considered as nil for working out the overall deduction u/s 80HHC."

7.1 The assessee was asked to show-cause as to why the loss on export of trading goods and the profit on export of manufacturing goods was not to be clubbed for the purpose of calculation of deduction u/s 80HHC of Income-tax Act. It was found by the Assessing Officer that the assessee had incurred a loss on the export of trading goods. The assessee has earned profit on export of manufactured goods. While calculating the deduction u/s 80HHC, the assessee has treated the loss on export of trading goods as "Rs. Nil". The Assessing Officer has referred Section 80HHC(3) and held that where an assessee is engaged in export of trading goods and manufactured goods, then the profit of the two should be clubbed in the manner prescribed under the Act. Accordingly, deduction u/s 80HHC was recalculated by the Assessing Officer which was challenged.

7.2 Ld. CIT(A) has placed reliance on Ipca Laboratories Ltd, 251 ITR 401, and affirmed the calculation of the Assessing Officer. The said decision of the Hon'ble Bombay High Court was affirmed by the Hon'ble Supreme Court in the case titled as Ipca Laboratories Ltd, 266 ITR 521; wherein the Hon'ble Court was of the view that loss from business of export for the purpose of computing u/s 80HHC do not qualify because the opening words are "profit derived from such exports". Therefore, the view taken by the Hon'ble High Court was affirmed and the assessee's contention was dismissed. Respectfully following this decision of the Hon'ble Supreme Court, we find no force ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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in the arguments of the assessee and confirm the view taken by the Revenue Authorities. This ground of the assessee is, therefore, dismissed.

8. Ground No. 8 is reproduced below:

"8. Re: Disallowance of deduction u/s 80IB [Old Section 80IA] in respect of sale of DEPB of Rs.3,72,797/-

8.1 The sale of DEPB should be treated as profits derived by the new industrial undertaking for the computing the deduction u/s 80IB."

8.1 It was observed by the Assessing Officer that the assessee has shown DEPB sale in Silvasa Unit. A book profit of Rs.5,79,600/- was taken into account u/s 80IA of the said unit. The said amount was reduced by the Assessing Officer while computing the profit for the purpose of deduction u/s 80IA. The action of the Assessing Officer was confirmed by the ld. CIT(A). Now, the issue has been decided by us in Assessment Year 1999-2000 in assessee's own case while deciding Revenue's ground No.5 in paragraph 15.3 - the relevant portion is reproduced below:-

"15.3 With this back ground, we heard both the sides. We are not in agreement with the view taken by Ld. CIT(A), primarily because of the reason that now this issue is well settled by the Hon'ble S.C. in the case of Liberty India 317 ITR 218 wherein it was held that Duty Drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purpose of deduction U/s 80I / 80IA / 80IB. It was commented by S.C. that Sec. 80IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words 'derived from' is narrower as compared to that of the words ' attributable to.' By using the expression ' derived from' Parliament intended to cover sources not beyond the first ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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degree. Further Ld CIT(A) has also held that only the balance amount available after the amount taxed in the Block Assessment is to be to be taken into account. This finding is not required to be disturbed being covered by the decision of the jurisdictional high court. In the result this ground of the Revenue is allowed."

8.2 Respectfully following the decision of Liberty India (supra), we hereby dismiss this ground of the assessee. Ground dismissed.

9. Ground No. 9 is reproduced below:

"9. Re: Reduction of Exchange rate difference in computing the profits of the new industrial undertaking u/s 80IB [Old Section 80-IA]. 9.1 The reduction of exchange rate difference on EEFC balances from the miscellaneous expenses should be upheld for the purpose of computing the profits of the new industrial undertaking u/s 80IA."

9.1 In respect of exchange rate difference, a discussion has already been made above. The exchange rate difference was removed from the miscellaneous expenses. As per above paragraph, we have taken a decision that the gain was not due to delayed realization of export proceeds; therefore, the assessee was held as entitled for the claim of deduction. During the course of hearing, we have been informed that the issue in respect of deduction u/s 80IA pertaining to exchange rate difference was not discussed by the CIT(A). We, therefore, consider it justifiable to restore this ground back to the stage of ld. CIT(A) to be decided in light of the discussion made herein above. Resultantly, this ground of the assessee may be treated as allowed, but for statistical purposes only.

10. Ground No. 10 is reproduced below:

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"10. Re: Disallowance of share issue expenses of Rs.4,54,000/- u/s 35D:. 10.1 The expenses for increase in share capital on account of redeemable preference shares should be allowed as a deductible expenditure and without prejudice to the above on a pro rata basis over 3 years being the term of the preference shares."

10.1 On perusal of the Return of Income, it was observed by the Assessing Officer that the assessee had claimed a sum of Rs.4,54,000/- as amortization of share issue expenses u/s 35D of the Income-tax Act.

Following the past history, the same was disallowed. The First Appellate Authority has confirmed the disallowance.

10.2 This issue has already been dealt with by us in Assessment Year 1999-2000, wherein vide paragraph Nos. 10.3 to 10.5, we have referred the issue back to the file of the Assessing Officer with certain directions. The relevant portion is reproduced below:-

"10.3 Heard both the sides at some length. Sec. 35 D grants a deduction in respect of expenditure which may otherwise be disallowable on the ground that it is a 'capital expenditure' or is incurred prior to the setting up of the business, but in instalments in number of assessment years. This can also be interpreted, and naturally so, that an expenditure which is otherwise allowable as revenue expenditure cannot be brought within the purview of this section. Certain fine distinction had been made by Honble courts in respect of the Sub-sections of this section 35D, such as, that the fees paid for registration of the amendment of the memorandum of association for enhancement of authorised capital is held to be covered by sec. 35D (2) (c) (iv) . But expenditure on registration of a company is not covered as per sec 35D(2)(c)(iii). The undisputed factual position is that the filing fees to ROC and stamp duty, etc. was paid in connection of "preferential issue" which were redeemable after three years.

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10.4) As per the argument Ld CIT DR, this issue has been dealt with in the case cited as Brooke Bond India Ltd. 225 ITR 798 (SC). However in this case the provisions of Sec 35D were not under consideration. The only point to decide was whether a particular expenditure incurred was in the nature of capital expenditure or not. So it was held that the expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital, is directly related to the expansion of the capital base of the company, hence a capital expenditure. Likewise the other decision of Mihir Textiles Ltd.225 ITR 327 (Guj.) was dealing with issue in respect of the expenditure incurred by way of filing fees for increasing the authorised capital of the company, and it was held as capital expenditure. Both these decisions are not dealing the applicability of the provisions of Sec 35D. 10.5) As already mentioned above Sec. 35D would apply only in respect of expenditure which is otherwise not allowable under the law being a capital expenditure. This section subscribed or listed certain types of capital expenditure which can be amortised. But if those are not capital expenditure then the view is that after examining the nature and genuineness of the expenditure the same can be considered as Revenue Expenditure. To elaborate it further it can be said that after the insertion of Sec. 35D; the Act has not denied the allowability of Revenue Expenditure. There are few examples such as payment of stamp duty for issue of public subscription of debentures which was held as revenue expenditure U/s 37(1); even though after the insertion of Sec. 35D. Likewise other expenditure pertaining to issue of debenture is entitled U/s 37(1) and the provision of Sec. 35D are not going to effect such deduction. So the outcome of the above discussion is that the provision of amortisation is not intended to supersede any other provision of the income tax act under which such expenditure is otherwise admissible as a deduction . Under the fitness of circumstances it is therefore required to restore this issue back to A.O. to examine both the aspects i.e. Revenue Expenditure or Capital Expenditure and then decide the question of disallowance. Resultantly this ground is restored back for denovo adjudication hence to be treated as allowed for statistical purpose only."

10.3 Since this issue has been restored back for de novo consideration, hence this ground may be treated as allowed for statistical purpose only.

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11. Ground No. 11 is reproduced below:

"11. Re: Set Off brought forward losses of erstwhile Gujarat Lyka Organics Ltd.

11.1 The set off of brought business loss and unabsorbed depreciation of erstwhile Gujarat Lyka Organics Ltd should be upheld as claimed and computed by the Appellant."

11.1 From the side of the appellant, ld. Authorized Representative has expressed not to press this ground; hence, dismissed being not pressed.

12. In the result, the assessee's appeal is partly allowed.

B. Revenue's Appeal (ITA No. 1622/Ahd/2003)

13. Ground No. 1 is reproduced below:

"1. The Learned CIT(Appeals) erred in law and on facts in granting relief of Rs.18,17,251/- being interest payment to the Dadhas."

13.1 The assessee was asked to explain as to why the interest payment to Dadhas not to be disallowed, following the past history. The assessee's contention was that there was no evidence found through which it could be established that the interest was actually paid to Dadhas. According to the assessee, there was no paper which could indicate that the interest was paid in cash to Dadhas. However, the Assessing Officer has made an observation that in the past the impugned addition was deleted by ld. CIT(A), but the Revenue has filed an appeal before the Hon'ble ITAT. The Assessing Officer has, therefore, mentioned that to keep the matter alive the addition was repeated for ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

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the year under consideration. Accordingly, interest was calculated and taxed in the hands of the assessee.

13.2 When the matter was carried before the First Appellate Authority, the view already taken in the past was followed and the addition was deleted.

13.3 Heard both the sides. The issue of addition of interest payment to Dadhas was decided by us in ground No.3 of the Revenue's appeal for Assessment Year 1999-2000 (ITA No.3273/Ahd/2002), wherein we have followed the decisions of the Tribunal as under:-

"13.3. With this back ground we have heard both the sides. The issue is resolved vide a consolidated order for A.Y. 99-00,2000-2001, 01-02, 02- 03 & 03-04 of Aditya Medisales bearing ITA No. 3272/Ahd/2002 , ITA 1623/Ahd/2003, ITA 1353 & 2180/Ahd/2005 & ITA no. 08/Ahd/2007 dated 30/09/2010. In that order there was a reference of an another order of the Tribunal pertaining to Block Assessment of Aditya Medisales bearing IT(SS)A No.95/Ahd/2001 dated 31/05/2007 wherein vide paragraph no 28 (reproduced by the Tribunal) it was held as under:

"28. We have carefully considered the rival submissions. We find that the main reason for disallowance is that while interest was paid by the Assessee to its suppliers, the Assessee did not charge interest to the two parties. We find force in the contention of the Assessee that on account of amalgamation of TDPL with SPIL the Assessee would experience growth in its turnover and operations. Subsequent events and the figures of turnover of the Assessee vindicate this point in favour of the Assessee. On any such acquisition of business / amalgamation the acquirer would be keen to ensure that there is smooth integration of business across the entire line which include distribution channel also. In such circumstances as the sole distributor of SPIL the action of the Assessee in appointing the said firms as its distributor for the southern regions, at the behest of SPIL would be governed by business expediency. The Assessee has also demonstrated by documentary evidence before the lower authorities that the distribution had in fact happened through the said firms. The said firms had the necessary trade and other registrations for carrying on the said activity. The Assessing Officer has also acknowledged that there was savings in turnover tax in the state of TamilNadu as a result of the appointment by the said firms. The Assessing Officer having accepted in ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 20

part the business benefit of the appointment of the said firms, as distributors cannot in the same breadth question the other part Even otherwise, it is seen that the Assessing Officer has considered trade advances given by the Assessee to the individual members of the Dadha family as advances in the ordinary course of business. Thus, even if the advances were given in the guise of a trade advance, the same would still be considered as for the purpose of business. Further we noted that the decision of the Supreme Court in the case of S.A. Builders (supra) has clearly stated that if the business considerations require, interest free funds can be advanced. Since the commercial expediency cannot be doubted in the case of the Assessee. We find no reason to interfere with the order of the CIT(A) and accordingly we confirm the order of the CIT(A) on this ground."

13.4. Since in the past a consistent view had been taken that once the Revenue had accepted the business decision of appointment of the said firms then in the same breath could not question the assessee's other decision taken in the ordinary course of business. We therefore follow the view already taken by the respected coordinate benches and affirm the decision of CIT(A), hence this ground of the Revenue is dismissed.

13.4 Consistent with the view already taken in the past, for this year as well, we hereby affirm the deletion of the impugned addition. In the result, this ground of the Revenue is dismissed.

14. Ground No. 2 is reproduced below:

"2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.12,03,520/-, made on account of alleged unaccounted sale of spent solvents."

14.1 The Assessing Officer has followed the past history in respect of the addition on account of sale of solvents. This year he has added a sum of Rs.12,03,520/-, however, which was deleted by the ld. CIT(A).

14.2 The issue of alleged unaccounted sale of spent solvents was discussed by us for Revenue's appeal for Assessment Year 1999-2000 and vide ground No.4, it was decided in the following manner:-

ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 21

"14.4 Heard both the sides. First point from the side of the assessee is that the said Block Assessment had already been quashed by the Tribunal 'D' Bench in IT(SS) No.70/Ahd/2001 in assessee's own case vide order dated 25/09/2009 (supra) hence the impugned addition by that very reason did not survive. The second point of the assessee was that while deciding assessee's appeal in respect of Block Period 1988-1989 to 7.12.1998 by CIT(A) Baroda vide order dated 01/06/2001 (Appeal No. CAB/IV-166/2000-01) had not upheld such additions being not based upon some incriminating evidence. The third point for our consideration was that it was merely presumed by the A.O. that even for the post search period the Solvent might have been sold on the same rates. But the basic question is that when even for search period the impugned addition did not survive on account of lack of evidence then how such presumption could be approved for the post search period. The reasoning appears to be convincing especially when no contrary material is available on record form the side of the Revenue. This ground of the Revenue is therefore dismissed."

14.3 Since the year under consideration is also the post search period and in the financial year under consideration the Assessing Officer has simply presumed that the assessee might have sold the spent solvents;

therefore, following the past history of the case, we hereby hold that the addition merely based upon the presumption; hence, rightly deleted by ld. CIT(A). This ground of the Revenue is, therefore, dismissed.

[ 15. Ground No. 3 is reproduced below:

"3. The ld. CIT(A) has erred in law and on facts in deleting the compulsory depreciation allowance of Rs.1,72,02,764/-."

15.1 On perusal of depreciation chart, it was found by the Assessing Officer that the assessee had not claimed depreciation in respect of plant and machineries of Silvasa Unit. The assessee was otherwise eligible for depreciation @25%. The Assessing Officer was aware of the fact that in ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 22

the past this issue was decided by ld. CIT(A) in favour of the assessee; however, he has repeated the calculation of depreciation @ 25% and the profit was reduced by the said amount of depreciation. The Ld. CIT(A) has reversed the findings of the Assessing Officer.

15.2 In the past, for Assessment Year 1999-2000, we have decided this issue in Ground No.6 of the Revenue's appeal vide paragraph No. 16.3 which is reproduced below:- [

"16.3. Heard both the sides. The assessment Year under consideration is A.Y. 1999-2000. On this issue that whether the depreciation can be compulsorily foisted upon the assessee, an order of the Hon. Gujarat High Court pronounced in Assessee's own case bearing Tax Appeal No. 93 of 2000 dated 17.12.2014 titled as Dy.CIT vs Sun Pharmaceuticals Ind. Ltd. is cited wherein it was held that the Tribunal was right in law in holding that depreciation not claimed by the assessee could be deducted despite the introduction of the block-assets concept. One more order of Hon Guj. High Court is referred as Sakun Polymers Ltd. ( Tax Appeal No. 41 of 2007 with others order dated 23.12.2014) wherein for A.Y. 1995-96 it was held that the Tribunal was not right in law in holding that depreciation , whether claimed or not, has to be foisted upon the assessee even prior to insertion of Explanation 5 to Sec. 32(1) of the Act. Respectfully following these decisions, we hereby affirm the findings of Ld. CIT(A). This ground of the Revenue is dismissed."

15.3 On the same lines, we hereby hold that for the year under consideration, which is before the amendment took place, the depreciation cannot be foisted upon the assessee. Therefore, this ground of the Revenue is hereby dismissed.

16. Ground No. 4 is reproduced below:

"4. The Ld. CIT(A) has erred in law and on facts in deleting the inclusion of sales-tax & excise duty as part of total turnover for 80HHC purpose."

ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 23

16.1 The observation of the Assessing Officer was that the assessee has excluded the amount of sales-tax and excise duty from the total turnover. This issue was carried in appeal in the past as well, and after considering the provisions of the Act, vide ground No.7, for Assessment Year 1999-2000, we have held as under:-

"17.2. Now before us an order of Hon S.C. is cited, namely, Laxmi Machine Works 290 ITR 667 for the legal proposition that Excise Duty & Sales Tax are indirect taxes so do not involve any element of 'Turnover'. Respectfully following this precedent we hereby affirm the findings of CIT(A) and dismiss this ground of the Revenue."

16.2 Respectfully following the above decision, we hereby affirm the findings in the order of the ld. CIT(A) and dismiss this ground of the Revenue.

17. Ground No. 5 is reproduced below:

"5. The ld. CIT(A) has erred in law and on facts in deleting the inclusion of insurance claim as part of total turnover for 80HHC purpose."

17.1 On perusal of profit and loss account, it was observed by the Assessing Officer that under the head "Income" the assessee has included a receipt of Rs.35,70,361/- on account of insurance claim. According to Assessing Officer, the receipt in question was also part of the total turnover; hence, for the purpose of computation of deduction u/s 80HHC, the same was included in the total turnover. Being aggrieved, the matter was carried before the First Appellate Authority.

17.2 The First Appellate Authority has combined this issue of inclusion of insurance claim in the total turnover with the issue of scrap sales and ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 24

by following the decision of his predecessor of the earlier year, he has directed the Assessing Officer to delete the addition made on account of inclusion of insurance claim.

17.3 We have heard both the sides. As far as the past history is concerned, for Assessment Year 1999-2000, we have decided the issue of inclusion of sale of scrap in the total turnover in favour of the assessee by following the decision in the case of Punjab Stainless Steel Industries, reported in 364 ITR 144 (SC). Now before us, from the side of the assessee, an order of Hon'ble Bombay High Court pronounced in the case of CIT vs. Pfizer Ltd, 330 ITR 62, has been cited; wherein it was held that the insurance claim is not an independent income; therefore, not liable to be reduced to the extent of 90% while calculating the eligible profit u/s 80HHC of the Income-tax Act. Relevant extract from the held portion is reproduced below:-

"Held, (i) that if the stock-in-trade of the assessee were to be sold, the income that was received from the sale of goods would constitute the profits of the business as computed under the head of profits and gains of business or profession. The income emanating from the sale would not be liable to a reduction of ninety per cent for the simple reason that it would not constitute a receipt of a nature similar to brokerage, commission, interest, rent or charges. A contract of insurance was a contract of indemnity. The insurance claim in essence indemnifies the assessee for the loss of the stock-in-trade. The indemnification that was made to the assessee must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. In these circumstances, the insurance claim on account of the stock-in-trade did not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges. Hence, such a receipt would not be subject to a deduction of ninety per cent under clause (1) of Explanation (baa). In determining the profits of the business for the purposes of Explanation (baa), the income which were susceptible to a ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 25

reduction of ninety per cent were those incomes referred to in clauses (iiia), (iiib) and (iiic) of section 28 and receipts by way of brokerage, commission, interest, rent, charges or receipts of a similar nature included in such profits. Therefore, before a receipt was liable to be excluded to the extent of ninety per cent, it must be a receipt of a nature similar to brokerage, commission, interest, rent or charges. Therefore the claim on account of insurance for the stock-in-trade did not constitute a receipt of a similar nature within the meaning of Explanation (baa) and was therefore not liable to be reduced to the extent of ninety per cent. "

17.4 Another order of Hon'ble Kerala High Court has been cited namely CIT vs. Kar Mobiles Ltd, [2011] 333 ITR 478 (Ker); wherein it was observed that insurance receipts prima facie fall under the Explanation clause. If the claim received is on account of loss of goods which form part of the total turnover then it has to be treated as business profit and the corresponding turnover will form part of the total turnover in the computation of export profit for deduction.

17.5 Considering the above judgments, we are of the view that the whole exercise of sub-section (3) of section 80HHC is to determine the proportionate profit attributable to export business. The Section provides for a formula to determine the export profit by dividing the business profits by total turnover and by multiplying the same with export turnover. Obviously, the formula will work out realistically only if the business profit adopted is attributable to the turnover wherefrom it is derived. The exclusions under Explanation (baa) are items of income referred to in Section 28 such as brokerage, commission, interest and any other receipt of a similar nature. The fundamental condition is that exclusion of 90% from business profit arises only if such item of profit is included in business profit. Section 28 of the Act provides for inclusion ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 26

of certain items as business income because such items otherwise would not have fallen under "business profits" but for such specific inclusion. In the first place, the items covered by Explanation are items which got included in the 'Business Profit', by virtue of operation of three clauses of section 28. The said three items of income are not referable to any turnover of the assessee and if the items of income are included in the business profit by virtue of operation of Section 28, computation of export profit based on turnover formula will not be correct. So far as brokerage, commission, interest and rent are concerned, because these items of income are income derived from separate operations other than sale of goods; therefore, such items may not fall under the category of total turnover. In so far as the question of insurance receipt is concerned, an examination is required that whether it was on account of loss of goods so as to consider that the insurance receipt form part of the total turnover or not. Because of this reason, we hereby restore this ground back to the stage of the Assessing Officer to examine the nature of receipt and then decide according to law as discussed above. This ground of the Revenue is allowed for statistical purposes only.

18. Ground No. 6 is reproduced below:

"6. The ld. CIT(A) has erred in law and on facts in deleting the consideration of gross interest for computing 'Profit of the Business' for 80HHC purpose."

18.1 The Assessing Officer has raised a question during the assessment proceedings that why the whole amount of interest receipt should not be reduced while working the "eligible profits" for the purpose of claim of ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 27

deduction. The assessee has received gross interest of Rs.9.85 crores and paid interest of Rs.10.41 crores. The explanation of the assessee was that what is to be excluded was the 90% of the receipt by way of interest forming part of the profits and gains of the business. Therefore, it was the net interest income. According to the assessee, it was not in respect of gross income exclusion. However, the Assessing Officer was not convinced and held that the total interest receipts as credited in the profit and loss account are to be reduced from the profits of the business for the purpose of calculating the 80HHC deduction.

18.2 When the matter was carried before the First Appellate Authority, ld. CIT(A) has followed the decision already taken in the past years and the Assessing Officer was directed to give the proper benefit.

18.3 After hearing both the sides, we have noted that while deciding ground No.8 of the Revenue Department, we have followed ACG Associated Capsules Pvt. Ltd., reported in 343 ITR 89(SC) and Topman Exports, reported in 342 ITR 49 (SC); and thereupon arrived at the conclusion that 90% of the net interest which had been included in the profits of the business was required to be deducted as per Explanation (baa) of section 80HHC. On the same line, we hereby direct to compute the 80HHC deduction. Therefore, this ground of the Revenue is hereby dismissed.

19. Ground No. 7 is reproduced below:

"7. The ld. CIT(A) has erred in law and on facts in deleting the consideration of gross lease rent for computing 'Profit of the Business' for 80HHC purpose."

ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 28

19.1 While calculating "other income" for the purpose of 80HHC deduction, the assessee has included net lease rental income of Rs.34,00,127/-, whereas the gross lease rental income was at Rs.2,10,59,614/-. The objection of the Assessing Officer was that why the gross lease rental income is not taken for the purpose of calculation of deduction u/s 80HHC. Accordingly, the computation u/s 80HHC was reduced.

19.2 When the matter was carried before the First Appellate Authority, he has followed the past history and allowed the claim.

19.3 With this brief factual background, we have noted that while deciding ground No.9 of the Revenue Department, we have followed the decisions of ACG Associated Capsules Pvt. Ltd. (supra) and Topman Exports (supra) and held that net amount was to be taken into account for the purpose of claim of deduction u/s 80HHC. Following the above decision in assessee's own case for Assessment Year 1999-2000, the ground raised by the Revenue Department is hereby dismissed.

20. Ground No.8 is reproduced below:

"8. The ld. CIT(A) has erred in law and on facts in deleting the consideration of operational charges recovered for computing 'Profit of the Business' for 80HHC purpose."

[

20.1 It was noted by the Assessing Officer that the assessee had recovered operational charges of rs.4,63,755/- pertaining to financing activity. The objection of the Assessing Officer was that the operational ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 29

charges were not reduced from the profit while calculating the deduction u/s 80HHC of the Income-tax Act. The Assessing Officer has accordingly reduced the impugned amount while calculating the deduction u/s 80HHC.

20.2 Being aggrieved, the assessee has preferred an appeal before the First Appellate Authority who has followed the decision taken in the past by CIT(A) and directed the Assessing Officer to give necessary relief.

20.3 The issue of operational charges was decided by us in Ground No.10 for Assessment Year 1999-2000 while deciding the Revenue's appeal. We have held that the question of gross receipt or net receipt is stood covered by the decisions of Hon'ble Supreme Court as referred above. For this year as well, we decide accordingly and dismiss this ground of the Revenue.

21. Ground No.9 is reproduced below:

"9. The ld. CIT(A) has erred in law and on facts in deleting the adjustment of trading export profit for 80HHC purpose."

21.1 The Assessing Officer has asked the assessee to explain why the loss on export of trading goods not to be adjusted while calculating the deduction u/s 80HHC of the Income-tax Act. It was found by the Assessing Officer that there was a loss on the export of trading goods, whereas the assessee earned profit on export of manufactured goods. While calculating the deduction u/s 80HHC, the assessee has treated the ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 30

loss at Rs. Nil. According to the Assessing Officer, as per Section 80HHC(3), if the assessee is engaged in export of trading goods and manufactured goods, then the business result of both such activities were required to be clubbed. The Assessing Officer has quoted Ipca Laboratories, 251 ITR 401 (Bom) and held that the net result should be taken for the purpose of claiming the deduction u/s 80HHC. Accordingly, the Assessing Officer has recomputed the calculation of section 80HHC.

21.2 When the matter was carried before the First Appellate Authority, ld. CIT(A) has followed the decision in the case of Ipca Laboratories (supra) and the action of the Assessing Officer was confirmed.

21.3 On hearing the submissions of both the sides, we are of the view that the Revenue should not have any grievance because the ld. CIT(A) has followed the decision in the case of Ipca Laboratories (supra). In any case, while deciding the ground No.7 in assessee's appeal above, we have taken the view against the assessee. Thus, under the totality of the facts and circumstances of the case, the issue raised by the Revenue is decided against the assessee by allowing the contentions as raised in ground No.9 by the Revenue.

22. Ground No.10 is reproduced below:

"10. The ld. CIT(A) has erred in law and on facts in reducing the deduction under section 80IA."

ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd.

A.Y.2000-2001 31

22.1 While computing the deduction u/s 80IA, the Assessing Officer has disallowed the profit on sale of DEPB on the ground that the proceeds were not derived from manufacturing activity. We have noted that ld. CIT(A) has affirmed the action of the Assessing Officer and by following the earlier years decisions, decided the issue against the assessee. Once this issue has been decided by ld. CIT(A) in favour of the Revenue Department, then there was no legal requirement to raise this issue by the Revenue Department. It appears that this ground was inadvertently raised before us. Otherwise also, while deciding the ground No.12 in Assessment Year 1999-2000 in Revenue's appeal, we have decided the question of DEPB sales against the assessee. In the result, we hereby hold that this ground is covered by our decision of Assessment Year 1999-2000. Since ld. CIT(A) has not granted relief to the assessee, this ground of the Revenue has become redundant; therefore dismissed.

23. In the result, Revenue's appeal is partly allowed. [[

24. In the result, appeal of the Assessee as well as appeal of the Revenue, both are partly allowed.

Order pronounced in the Open Court on 13th March, 2015.

Sd/- Sd/-

(ANIL CHATURVEDI) (MUKUL Kr. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/03/2015 Biju T. ITA Nos. 1400 & 1622/Ahd/2003 Sun Pharmaceutical Industries Ltd. A.Y.2000-2001 32

आदे श क ूितिल$प अमे$षत/Copy षत of the Order forwarded to :

1. अपीलाथ' / The Appellant

2. ू(यथ' / The Respondent.

3. संबंिधत आयकर आयु* / Concerned CIT

4. आयकर आयु*(अपील) / The CIT(A)-IV, Ahmedabad

5. $वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड- फाईल / Guard file.

आदे शानुसार/ BY ORDER,

TRUE COPY

उप सहायक पंजीकार (Dy./Asstt.Registrar) उप/सहायक आयकर अपीलीय अिधकरण, अिधकरण अहमदाबाद / ITAT, Ahmedabad