2006 (5) TMI 413 - AT - Income Tax

Issues Involved:
1. Exclusion of excise duty and sales tax from total turnover for computing deductions under section 80HHC.
2. Reduction of gross job work receipts versus net job work receipts for deduction under section 80HHC.
3. Deduction of 90% scrap sales from profit for deduction under section 80HHC.
4. Computation of total income under section 115JB and the deduction under section 80HHC.

Issue-wise Detailed Analysis:

1. Exclusion of Excise Duty and Sales Tax from Total Turnover:
The CIT(A) directed the Assessing Officer to exclude excise duty of Rs. 60,79,328 and sales tax of Rs. 21,44,732 from the total turnover in computing the deductions under section 80HHC. The learned DR admitted that this issue is covered in favor of the assessee by the judgment of the Hon'ble Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 7691 (Bom). Therefore, this ground of revenue was dismissed by the Tribunal.

2. Reduction of Gross Job Work Receipts versus Net Job Work Receipts:
The Assessing Officer excluded gross job receipts of Rs. 20,32,000 from the business profit in terms of Explanation (baa) to section 80HHC(4C). The CIT(A) allowed the deduction on net job receipts of Rs. 1,01,600, relying on the decision of the Hon'ble Bombay High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 ITR 2712. The learned DR argued that gross receipts should be deducted, citing the Hon'ble Madras High Court decision in CIT v. V. Chinnapandi [2006] 153 Taxman 233. The learned AR contended that job receipts should be treated as operational income, referring to the Tribunal's earlier decision in the assessee's own case. The Tribunal found that the CIT(A) was wrong in applying the judgment of Bangalore Clothing Co. for netting purposes and restored the issue back to the Assessing Officer for fresh consideration, allowing the net receipts to be excluded but requiring the nexus between job receipts and business to be established.

3. Deduction of 90% Scrap Sales from Profit:
The Assessing Officer excluded 90% of scrap sales amounting to Rs. 2,71,224 from the business profit, treating it as miscellaneous income in terms of Explanation (baa) to section 80HHC. The CIT(A) directed the Assessing Officer not to exclude 90% of the same from the deduction allowable under section 80HHC. The learned DR argued that since scrap sales are local sales and not export sales, the Assessing Officer rightly excluded 90% of the same. The Tribunal found that the Assessing Officer rightly deducted 90% of scrap sales from the business profit but wrongly deducted the same from the export turnover. The issue was restored back to the Assessing Officer to compute the deduction under section 80HHC afresh.

4. Computation of Total Income under Section 115JB:
The question involved whether in the computation of book profit under section 115JB, the deduction under section 80HHC should be allowed based on the book profit or as per the computation under section 80HHC(3). The Assessing Officer found the assessee's entitlement of deduction under section 80HHC to be nil and allowed nil deduction in the computation of book profit. The CIT(A) relied on the judgment of the Hon'ble Supreme Court in Appollo Tyres and CBDT Circular No. 680, allowing the deduction based on the Profit and Loss Account figure. The Tribunal noted that the language of Explanation to section 115JB explicitly allows only the amount computed under section 80HHC(3) clauses a, b, c. Therefore, the Tribunal held that the Assessing Officer was justified in rejecting the assessee's computation and allowed the revenue's ground.

Conclusion:
The appeal was allowed partly, with specific directions for fresh consideration and computation by the Assessing Officer on certain issues.

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