2007 (9) TMI 443 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of carry forward of unabsorbed investment allowance.
2. Deduction of 90% of receipts like interest, labor charges, and commission from business profits under section 80HHC.
3. Restriction of claim of deduction under sections 80HH, 80-I, and 80-IA.
4. Exclusion of excise duty and sales tax from total turnover while computing deduction under section 80HHC.
5. Deletion of disallowance out of interest paid attributable to interest-free advance given to a sister concern.

Detailed Analysis:

1. Disallowance of Carry Forward of Unabsorbed Investment Allowance:
The assessee challenged the CIT(A)'s decision to disallow the carry forward of unabsorbed investment allowance of the erstwhile AKSF for the assessment year 1997-98. The Assessing Officer (AO) held that the investment allowance from the assessment year 1988-89 could only be carried forward for eight years, lapsing in 1996-97. The CIT(A) upheld this view, stating that the period for carry forward should be computed from the year the investment allowance was first claimed, not from the year of amalgamation. The Tribunal agreed, noting that Section 32A(6) of the Income-tax Act limits the carry forward period to eight years from the original assessment year, thus disallowing the claim for 1997-98.

2. Deduction of 90% of Receipts from Business Profits under Section 80HHC:
The assessee contested the deduction of 90% of receipts like interest, labor charges, and commission from business profits while calculating the deduction under section 80HHC. The Tribunal set aside the CIT(A)'s order and directed the AO to re-examine the issue in light of the jurisdictional High Court's judgment in the case of Bangalore Clothing Co., which provides relevant guidance on this matter.

3. Restriction of Claim of Deduction under Sections 80HH, 80-I, and 80-IA:
The assessee claimed deductions under sections 80HH, 80-I, and 80-IA, but the AO restricted the claim to Rs. 4,02,06,950, allocating expenses of the Head Office and non-manufacturing branches on a turnover basis. The CIT(A) upheld this method, and the Tribunal agreed, stating that the allocation on a turnover basis was appropriate and the method adopted by the AO was correct.

4. Exclusion of Excise Duty and Sales Tax from Total Turnover:
The revenue's appeal against the exclusion of excise duty and sales tax from the total turnover while computing the deduction under section 80HHC was dismissed. The Tribunal confirmed the CIT(A)'s order, citing the jurisdictional High Court's decision in Sudarshan Chemicals Industries Ltd. and the Supreme Court's approval in Lakshmi Machine Works, which held that turnover should only include receipts with an element of profit.

5. Deletion of Disallowance Out of Interest Paid:
The revenue's appeal against the deletion of disallowance of interest paid amounting to Rs. 18,22,631, attributable to interest-free advances to a sister concern, was also dismissed. The Tribunal noted that similar disallowances in previous years (1993-94, 1995-96, and 1996-97) were deleted by the CIT(A) and had attained finality as no appeal was preferred by the revenue. Thus, the Tribunal found no infirmity in the CIT(A)'s order.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on the key issues, confirming the appropriateness of the methods and interpretations applied by the AO and CIT(A).