2010 (3) TMI 1054 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of belated payments of PF and ESIC.
2. Exclusion of excise and sales tax from total turnover for deduction u/s 80HHC.
3. Netting of interest for deduction u/s 80-IB.
4. Deduction u/s 80HHC for foreign exchange gains.
5. Deduction u/s 80HHC on profit and gains as reduced by deduction u/s 80-IB or 80-IA.
6. Deduction u/s 80-IB on the amount of profit of DEPB.
7. Disallowance of expenses for product development, repair & maintenance, and preliminary expenses.

Summary:

1. Disallowance of belated payments of PF and ESIC:
The CIT(A) deleted the disallowance made by the Assessing Officer on account of belated payments of PF and ESIC amounting to Rs. 24,034/-. The Tribunal found that the payments were made within the due date of filing returns and followed the decision of the Hon'ble Delhi High Court in the case of P.M. Electronics Ltd., which considered the Supreme Court's decision in Vinay Cement. Thus, the Tribunal dismissed this issue of the Revenue's appeal.

2. Exclusion of excise and sales tax from total turnover for deduction u/s 80HHC:
The CIT(A) directed the Assessing Officer to exclude excise and sales tax while computing the deduction u/s 80HHC. The Tribunal found this issue covered by the Supreme Court's decision in CIT vs. Lakshmi Machine Works, which held that excise duty and sales tax do not form part of the "total turnover" under section 80HHC(3). Consequently, the Tribunal dismissed this issue of the Revenue's appeal.

3. Netting of interest for deduction u/s 80-IB:
The CIT(A) allowed the netting of interest for deduction u/s 80-IB. The Tribunal upheld this decision, referencing the Delhi High Court's decision in CIT v. Shri Ram Honda Power Equip and the Delhi Tribunal's Special Bench decision in Lalson Enterprise v. DCIT. Thus, this issue of the Revenue's appeal was dismissed.

4. Deduction u/s 80HHC for foreign exchange gains:
The CIT(A) included gains on cancellation of forward cover contracts within the term "profits from business" while computing deduction u/s 80HHC. The Tribunal agreed, noting that such gains are derived from export sales and are part of export profits, referencing the Tribunal's decision in ACIT v. M/s. Mitsu Ltd. Consequently, this issue of the Revenue's appeal was dismissed.

5. Deduction u/s 80HHC on profit and gains as reduced by deduction u/s 80-IB or 80-IA:
The Tribunal followed the Special Bench decision in ACIT v. Hindustan Mint & Agro Products (P) Ltd., which held that deduction u/s 80HHC is to be allowed on profits as reduced by deductions u/s 80-IB/80-IA. Thus, the Tribunal set aside the CIT(A)'s order and restored the AO's order, allowing this issue of the Revenue's appeal.

6. Deduction u/s 80-IB on the amount of profit of DEPB:
The Tribunal followed the Supreme Court's decision in Liberty India v. CIT, which held that DEPB benefits do not fall within the expression "profits derived from industrial undertaking" u/s 80-IB. Therefore, the Tribunal allowed this issue of the Revenue's appeal.

7. Disallowance of expenses for product development, repair & maintenance, and preliminary expenses:
The CIT(A) allowed depreciation on product development and design charges and repair & maintenance of furniture, treating them as capital in nature. The Tribunal found no reason to interfere with this finding. For preliminary and pre-operative expenses, the CIT(A) found that the expenses did not fall within the scope of Section 35D. Thus, these grounds of the assessee's CO were dismissed.

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