2010 (3) TMI 870 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of profits for deduction u/s 80-IA due to notional rebate and interest.
2. Reduction of interest income from bank deposits for deduction u/s 80-IA.
3. Reduction of DEPB credit for deduction u/s 80-IA.
4. Disallowance of foreign travel expenses.
5. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC.
6. Deduction u/s 80-IA on interest income from customers for late payment.

Summary:

1. Reduction of profits for deduction u/s 80-IA due to notional rebate and interest:
The assessee contested the reduction in the claim of deduction u/s 80-IA by invoking sub-section (10) on the grounds of purchasing goods from a sister concern at reduced prices, thereby increasing profits. The Tribunal found no agreement indicating a 20% rebate on purchases and no material evidence showing that the rates were lower than market rates. It was also noted that the intention to transfer profits for higher deduction was not substantiated. Therefore, the addition made by the authorities was deleted, and this ground of the assessee was allowed.

2. Reduction of interest income from bank deposits for deduction u/s 80-IA:
The assessee's claim for deduction u/s 80-IA on interest from bank deposits was disallowed by the Assessing Officer and upheld by the CIT(A), as the interest income was not derived directly from the business of the industrial undertaking. The Tribunal confirmed this view, citing the Supreme Court's interpretation of "derived" in similar contexts, and rejected this ground of the assessee.

3. Reduction of DEPB credit for deduction u/s 80-IA:
The assessee's claim for deduction u/s 80-IA on DEPB credit was rejected, following the Supreme Court's decision in Liberty India v. CIT, which held that DEPB/Duty drawback incentives are ancillary profits and not derived from the industrial undertaking. Therefore, this ground of the assessee was rejected.

4. Disallowance of foreign travel expenses:
The disallowance of Rs. 87,216 for foreign travel expenses of a non-doctor spouse was contested by the assessee. The Tribunal found the distinction made by the authorities between doctor and non-doctor spouses to be artificial and unreasonable. It was held that the business purpose served by the travel of non-doctor spouses was not disproven. Hence, the claim of the assessee was allowed.

5. Exclusion of excise duty and sales tax from total turnover for deduction u/s 80HHC:
The Revenue's appeal against the exclusion of excise duty and sales tax from total turnover for calculating deduction u/s 80HHC was rejected, following the Supreme Court's decision in CIT v. Laxmi Machine Works.

6. Deduction u/s 80-IA on interest income from customers for late payment:
The Revenue's appeal against the deduction u/s 80-IA on interest income from customers for late payment was rejected, following the Gujarat High Court's decision in Nirma Industries Ltd. v. Dy. CIT.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.