2006 (3) TMI 548 - AT - Income Tax

Summary

Issues Involved:

1. Inclusion of "interest received from customers" in the total turnover.
2. Deletion of sales tax and excise duty from the total turnover for computing deduction under section 80HHC.
3. Deletion of addition on account of debt written off.
4. Allocation of common expenses of the head office to respective units claiming deductions under section 80IA/80IB.

Issue-wise Detailed Analysis:

1. Inclusion of "Interest Received from Customers" in Total Turnover:

The revenue challenged the inclusion of interest received from customers in the total turnover instead of reducing 90% of the same from the profit of the business as per explanation (baa) of section 80HHC(4B). The CIT(A) had decided in favor of the assessee, relying on decisions from the Jabalpur and Jodhpur Benches of the Tribunal. However, the Tribunal noted that interest received on delayed payments does not have a direct and immediate nexus with the industrial undertaking. Citing judicial precedents, including the Privy Council and the Supreme Court, it was held that such interest cannot be considered as income "derived from" the industrial undertaking. Consequently, this ground was decided against the assessee, and the CIT(A)'s order was reversed.

2. Deletion of Sales Tax and Excise Duty from Total Turnover:

The revenue contested the deletion of sales tax and excise duty from the total turnover for computing the deduction under section 80HHC. The Tribunal upheld the CIT(A)'s order, stating that sales tax and excise duty cannot form part of the total turnover. Including these items would artificially inflate the total turnover and reduce the benefit the assessee is entitled to. Reliance was placed on the decision of the Bombay High Court in CIT v. Sudarshan Chemical Industries Ltd. This ground was dismissed, favoring the assessee.

3. Deletion of Addition on Account of Debt Written Off:

The revenue objected to the deletion of Rs. 3,31,660 added by the Assessing Officer on account of debt written off, ignoring section 36(2) provisions. The assessee claimed the amount represented excise duty paid on material intended for export but damaged and not exported, thus written off as non-recoverable. The Tribunal found the facts unclear regarding the nature of the amount and remanded the issue to the Assessing Officer for fresh adjudication, giving the assessee an opportunity to substantiate its claim.

4. Allocation of Common Expenses of Head Office to Respective Units:

The revenue disputed the non-allocation of common expenses of the head office to units claiming deductions under section 80IA/80IB. The assessee argued that the head office expenses were part of the parent unit's accounts and had already allocated expenses to units claiming deductions. The Tribunal noted the lack of reasoning in the CIT(A)'s order and remanded the issue to the Assessing Officer to ascertain the expenses and decide if they were proportionately claimed by the units. This ground was allowed for statistical purposes and sent back for fresh adjudication.

Conclusion:

Grounds 5 and 6 were merely prayers and required no deliberation. The appeal of the revenue was partly allowed, with some issues decided against the assessee and others remanded for further examination.