2010 (9) TMI 1083 - AT - Income Tax

Validity of CIT order passed u/s 263 - Computation of deduction u/s 80HHC - Inclusion of the turnover of the 10B - Principle of parity between export turnover and total turnove r - assessee is engaged in the business of manufacture and sale. Further, it has a 100 per cent Export-Oriented Unit ( EOU ) situated at the aforesaid manufacturing facility. The return of income declaring a total income and claiming deduction u/s 10B in respect of its profits from EOU unit and u/s 80HHC in respect of the profits of non-EOU business. Subsequently, the assessee filed revised return of income declaring total income and revising its claim for deduction on account of deduction u/s 80HHC. The claim of the assessee was rejected by the AO, held that the turnover of the 10B unit had to be excluded from the export turnover as well as the total turnover of the assessee. HELD THAT - The provisions of section 80HHC grant deduction on the basis of proportionate profits attributable to the export turnover vis-a-vis total turnover. The provisions of section 80HHC(3)(a) also refer to the total turnover of the business carried on by the assessee. Therefore, total turnover should include all sales where there is an element of profit embedded therein. Inclusion of the turnover of the 10B unit in the export turnover for allowing deduction u/s 80HHC, we find that the decisions in the context of freight insurance, sales tax and excise duty, where there is no element of profit embedded. This aspect has been made very clear in the decision of the Special Bench of ITAT in the case of SAK Soft Ltd. 2009 (3) TMI 243 - ITAT MADRAS-D . The Special Bench referred to the decision of the Hon ble Supreme Court in the case Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT , wherein the issue was with regard to excise duty and sales tax, whether should form part of the turnover. The Court has specifically held excise duty and sales tax do not have an element of turnover as they were recovered by the assessee on behalf of the Government. The principle of parity between export turnover and total turnover was accepted in the aforesaid context.ame proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. The expression such before the expression Export turnover only means that the export turnover referred to is the turnover of the goods manufactured whose profits are being computed under section 80HHC(3)(a). We cannot therefore ignore the intention of the Legislature expressed in such clear terms. Profits of business should be increased by adding profits of 10B units also, we are of the view that the profits of 10B unit fall under Chapter-III of the Act under the head Income which do not form part of the total income. Therefore, the profits of 10B unit will not enter the computation of total income at all. The said profits cannot therefore form part of the profits under the head Profits and gains of business or profession . For all the above reasons we are of the view that the order of CIT directing the Assessing Officer to include export turnover also as part of the total turnover was correct and does not call for any interference. Claim of depreciation - 80 per cent on renewable energy devices - whether the items of machineries on which depreciation was claimed at 80 per cent was renewable energy device or not cannot - As rightly held by the CIT in the order u/s 263 it was not possible for the AO to conclude as to whether a device is an energy device or a particular item of plant and machinery used in making renewable energy devices, without proper enquiry or submission by the assessee. In any event he ought to have been called for details from the assessee. The decision of the Hon ble Supreme Court in the case of Smt. Tara Devi Aggarwal 1972 (11) TMI 2 - SUPREME COURT clearly supports the stand of the revenue before us. Thus none of the decisions relied upon by the ld. counsel for the assessee support the plea raised on behalf of the assessee. We are of the view that the exercise of jurisdiction by the CIT in the given facts and circumstances of the present case was proper and the order of the CIT in this regard does not call for any interference. Consequently the order under section 263 is upheld and the appeal by the assessee is dismissed.

Summary

Issues Involved:
1. Computation of deduction under section 80HHC of the Income-tax Act, 1961.
2. Claim of depreciation on renewable energy devices.

Issue-wise Detailed Analysis:

1. Computation of Deduction under Section 80HHC:

The assessee, engaged in the manufacture and sale of solar cells and related products, filed a return claiming deductions under sections 10B and 80HHC of the Income-tax Act, 1961. The primary issue was the computation of the total turnover for the purpose of deduction under section 80HHC. The assessee excluded the turnover of its Export-Oriented Unit (EOU) from the total turnover, arguing that the deduction under section 80HHC was claimed only for non-EOU business profits. The CIT, however, contended that the total turnover should include the EOU turnover, as per the Profit and Loss Account, leading to a higher deduction under section 80HHC and a loss to the revenue. The assessee argued that if the EOU turnover is included in the total turnover, it should also be included in the export turnover and profits of the business. The Tribunal upheld the CIT's view, stating that the total turnover should include all sales with an element of profit and that the turnover of the 10B unit cannot be excluded from the total turnover while computing deduction under section 80HHC.

2. Claim of Depreciation on Renewable Energy Devices:

The second issue involved the claim of depreciation at 80% on certain machineries, which the assessee classified as renewable energy devices. The CIT issued a show-cause notice under section 263, questioning the classification and the rate of depreciation. The assessee argued that the machineries were integral to the manufacturing process of solar products and thus qualified for higher depreciation. The CIT found that the Assessing Officer did not properly examine the technical aspects or seek expert opinion before allowing the depreciation claim. The Tribunal upheld the CIT's decision, stating that the failure to make necessary enquiries warranted the exercise of jurisdiction under section 263. The Tribunal cited the decision of the Hon'ble Supreme Court in Smt. Tara Devi Aggarwal v. CIT, emphasizing that lack of proper enquiry by the Assessing Officer rendered the order erroneous and prejudicial to the interest of the revenue.

Conclusion:

The Tribunal dismissed the appeal by the assessee, upholding the CIT's order under section 263 on both issues. The total turnover for the purpose of section 80HHC should include the EOU turnover, and the claim for depreciation on renewable energy devices required further examination by the Assessing Officer.