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2008 (9) TMI 621 - AT - Income Tax


Issues Involved:
1. Allowability of advances written off as capital or revenue expenditure.
2. Computation of export turnover and total turnover under section 10A of the Income-tax Act for the assessment year 2004-05.

Detailed Analysis:

1. Allowability of Advances Written Off as Capital or Revenue Expenditure:
The revenue appealed against the CIT(A)'s decision allowing advances written off, which were considered capital in nature, amounting to Rs. 25.74 lakhs. The Assessing Officer (AO) had initially allowed Rs. 21,06,726 as revenue expenditure but disallowed Rs. 25,74,009 as capital expenditure. The assessee argued that all advances were towards revenue expenditure and relied on past ITAT decisions and the Bombay High Court's ruling in I.B.M. World Trade Corpn. v. CIT [1990] 186 ITR 412. The CIT(A) allowed the appeal, treating the advances as revenue expenses. The Tribunal noted that the AO had not provided detailed reasons for treating certain advances as capital expenditures and remitted the issue back to the AO for a detailed examination. The Tribunal upheld that advances for acquiring capital assets are not allowable as trading losses, referencing CIT v. Motiram Nandram [1940] 8 ITR 132 and CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649.

2. Computation of Export Turnover and Total Turnover Under Section 10A:
The assessee's appeal concerned the calculation of export turnover by reducing 50% of communication charges and entire technical service charges. The AO had excluded these expenses from the export turnover but not from the total turnover, leading to a reduced deduction under section 10A. The CIT(A) upheld the AO's decision, stating that the definition of total turnover in section 10A does not necessarily align with sections 80HHE or 80HHC. The Tribunal, however, disagreed, referencing the Supreme Court's decision in CIT v. Lakshmi Machine Works [2007] 290 ITR 667, which held that items excluded from export turnover should also be excluded from total turnover to maintain consistency. The Tribunal cited multiple cases, including Tata Elxsi Ltd. v. Asstt. CIT [2008] 155 TTJ 423, supporting the principle that total turnover should be computed in a manner consistent with export turnover. The Tribunal directed the AO to exclude the expenses from both export and total turnover, effectively allowing the assessee's appeal.

Conclusion:
- The appeal by the revenue for the assessment year 2000-01 was allowed for statistical purposes, requiring further examination by the AO.
- The appeal by the assessee for the assessment year 2004-05 was partly allowed, with the Tribunal directing the AO to exclude the disputed expenses from both export and total turnover, ensuring the correct computation of the deduction under section 10A.

 

 

 

 

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