2010 (8) TMI 985 - AT - Income Tax

Summary

Issues Involved:
1. Reduction of 90% of certain incomes from business profits for computing deductions under section 80HHC.
2. Deduction eligibility under section 80IA for various incomes.
3. Application of amended provisions of section 10B.
4. Disallowance of prior period expenses.
5. Charging of interest under sections 234B and 234D.
6. Initiation of penalty proceedings under section 271(1)(c).
7. Exclusion of excise duty and sales tax from total turnover for computing deduction under section 80HHC.
8. Exclusion of lease rent and other incomes from business profits for computing deduction under section 80HHC.
9. Disallowance of bad debts.
10. Disallowance of excise duty.
11. Deletion of addition on account of expenditure treated as capital expenditure.

Detailed Analysis:

1. Reduction of 90% of Certain Incomes from Business Profits for Computing Deductions under Section 80HHC:
The Tribunal restored the issue regarding interest from bank on margin money to the AO for reconsideration in light of the Supreme Court decision in Karnal Co-op. Sugar Mills Ltd. The Tribunal confirmed the exclusion of interest on inter-corporate deposits and insurance claims from business profits for computing deductions under section 80HHC, following previous decisions.

2. Deduction Eligibility under Section 80IA for Various Incomes:
The Tribunal confirmed the AO's decision to exclude interest from bank on margin money, interest on ICD, and interest on IDBI Omni Bonds from income eligible for deduction under section 80IA, following previous decisions. However, the insurance claim and income from operations were decided in favor of the assessee, recognizing them as part of business profits eligible for deduction under section 80IA.

3. Application of Amended Provisions of Section 10B:
The Tribunal rejected the assessee's argument that conditions imposed by subsequent amendments are not required to be examined by the AO. It held that the assessee must satisfy the conditions laid down in the relevant assessment year for claiming exemption under section 10B. The Tribunal confirmed the AO's decision that the assessee was not entitled to exemption under section 10B as it did not bring convertible foreign exchange into India.

4. Disallowance of Prior Period Expenses:
The Tribunal dismissed the assessee's grounds related to prior period expenses, considering the amounts involved as petty and not seriously contested.

5. Charging of Interest under Sections 234B and 234D:
The Tribunal held that interest under section 234D is chargeable from the assessment year 2004-05 and cannot be charged for earlier years. It followed the decision of the ITAT Special Bench in ITO vs. Ekta Promoters P. Ltd. for this conclusion. Charging of interest under section 234B was deemed consequential.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal noted that the issue of initiating penalty proceedings under section 271(1)(c) is premature at this stage and hence rejected it.

7. Exclusion of Excise Duty and Sales Tax from Total Turnover for Computing Deduction under Section 80HHC:
The Tribunal decided this issue in favor of the assessee, following the Supreme Court decision in CIT vs. Laxmi Machine Works, which held that excise duty and sales tax should be excluded from total turnover for computing deduction under section 80HHC.

8. Exclusion of Lease Rent and Other Incomes from Business Profits for Computing Deduction under Section 80HHC:
The Tribunal restored the issue of lease rent on lease of assets manufactured by the assessee to the CIT(A) for fresh consideration. It confirmed the exclusion of income from operations from business profits while computing deduction under section 80HHC, following previous decisions.

9. Disallowance of Bad Debts:
The Tribunal restored the matter to the AO to verify whether the amount has been actually written off and then decide the issue in accordance with the Supreme Court decision in TRF Ltd. vs. CIT.

10. Disallowance of Excise Duty:
The Tribunal restored the issue to the AO for reconsideration, directing the AO to give the assessee an opportunity to show the effect on the profit and loss account if this excise duty is considered on an exclusive method.

11. Deletion of Addition on Account of Expenditure Treated as Capital Expenditure:
The Tribunal confirmed the CIT(A)'s decision to allow the claim as revenue expenditure, holding that the expenditure was incurred for preserving and maintaining the already existing asset and no new asset was created.

Conclusion:
The Tribunal's judgment addressed multiple issues across various assessment years, providing detailed rulings on each issue, often referring to previous decisions and higher court rulings. The judgment involved restoring certain issues to the AO or CIT(A) for fresh consideration, confirming some decisions, and rejecting others based on established legal principles and precedents.