2009 (11) TMI 901 - AT - Income Tax

Summary

Issues Involved:
1. Computation of deduction u/s 80HHC.
2. Treatment of DEPB entitlements.
3. Inclusion of excise duty and sales tax in total turnover.
4. Disallowance of business promotion expenses.

Summary:

1. Computation of Deduction u/s 80HHC:
The Assessee challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] directing the Assessing Officer (AO) to recompute the deduction u/s 80HHC. The AO had disallowed the deduction on the grounds of negative business profit and non-compliance with the third and fourth provisos of section 80HHC(3). The CIT(A) partially allowed the appeal, directing the AO to rework the deduction considering the amended provisions and specific components of export incentives.

2. Treatment of DEPB Entitlements:
The AO disallowed the deduction related to DEPB entitlements, stating the Assessee did not satisfy the conditions specified in the third and fourth provisos of section 80HHC(3). The CIT(A) upheld this disallowance but directed the AO to consider the sale value of export entitlements either brought forward from the earlier year or received during the current year. The ITAT restored the issue to the AO for fresh adjudication in light of the Mumbai Special Bench decision in Topman Exports Vs. Income-tax officer, which held that the profit on sale of DEPB is assessable in the year of actual sale.

3. Inclusion of Excise Duty and Sales Tax in Total Turnover:
The CIT(A) directed the AO to exclude only the net amount of other export entitlements such as sales tax and excise duty refund for computation of deduction u/s 80HHC. The ITAT found no error in the CIT(A)'s direction and upheld the order, requiring the AO to verify the necessary contra entries and rework the deduction accordingly.

4. Disallowance of Business Promotion Expenses:
The AO disallowed 25% of business promotion expenses on an ad-hoc basis due to lack of supporting evidence. The CIT(A) deleted the disallowance, noting that the expenditure was reasonable considering the turnover and volume of business. The ITAT upheld the CIT(A)'s order, finding no specific error pointed out by the Departmental Representative.

Conclusion:
The appeal of the Assessee was allowed for statistical purposes, and the appeal of the Revenue was dismissed. The ITAT directed the AO to re-adjudicate the issues afresh, considering the observations and decisions mentioned.