2014 (1) TMI 1720 - AT - Income Tax

Computation of deduction u/s 80HHC(3) - claim of assessee for allowance of 10% Duty Draw Back out of indirect expenses for the purpose of computation of deduction u/s 80HHC(3) - Held that - AO should have examined the claim of the appellant pertaining to the 10% of Duty Draw Back as direct overhead expenses for earning such export incentives before ascertaining the total indirect cost attributable to the exports, in the light of decision of the Special Bench in the case of Surendra Engineering Corporation 2002 (12) TMI 199 - ITAT BOMBAY-H and Rang International (2004 (7) TMI 275 - ITAT AHMEDABAD-A ) and should have decided to what extent the claim of deduction by the appellant was allowable on the basis of proportionate expenditure. However, from the order passed by the AO it appears that the AO has not at all considered these aspects and not complied with the directions of the ITAT while giving effect to their order. Therefore, the grievance of the appellant is genuine which needs to be addressed. The AO should have examined the issue in the light of the above decisions and any other later decisions, if any, delivered by the other Courts and then through a speaking order, should have decided whether or not to allow any indirect expenses attributable to Duty Draw Back out of the total indirect expenditure attributable to the exports. However, the order of the AO is silent on this issue. 8. Keeping the above lacuna in the order passed by the AO and the specific directions given by the ITAT on this issue, the AO is directed to comply with the ITAT s directions and pass a consequential order by addressing the above issue in speaking manner so as to give proper effect to the order of ITAT.

Summary

Issues:
- Compliance with ITAT directions for computation of deduction u/s 80HHC(3) of the Income-tax Act.

Analysis:
The appeal before the Appellate Tribunal ITAT RAJKOT concerned the compliance with the ITAT's directions for the Assessment Year 1994-95. The Assessing Officer had given effect to the ITAT's order but repeated the same computation of income, including the deduction u/s 80HHC(3), ignoring the ITAT's direction regarding the claim of allowance of 10% Duty Draw Back out of indirect expenses. The ld. CIT(A) directed the Assessing Officer to comply with the ITAT's directions and pass a consequential order addressing the issue raised by the Tribunal. The Revenue appealed, arguing that the AO had complied with the ITAT's directions and considered relevant judicial pronouncements. However, the ld. CIT(A) found that the AO had not examined the claim properly and had not complied with the ITAT's directions. The Tribunal upheld the ld. CIT(A)'s directions, emphasizing the need for a speaking order to give proper effect to the ITAT's order.

The ld. Departmental Representative contended that there was no need for further directions to the Assessing Officer as compliance with the ITAT's directions had been achieved. However, upon reviewing the order of the ld. CIT(A), the Tribunal found that the AO had not adequately considered the appellant's claim regarding Duty Draw Back as direct overhead expenses. The Tribunal noted that the AO had not addressed the issue in line with the ITAT's directions and relevant judicial decisions. Therefore, the Tribunal agreed with the ld. CIT(A)'s directions, emphasizing the importance of a speaking order to address the issue properly and allow for proportionate expenditure deduction. The Tribunal dismissed the Revenue's appeal, affirming the fairness and reasonableness of the ld. CIT(A)'s directions.

In conclusion, the Tribunal upheld the ld. CIT(A)'s directions for compliance with the ITAT's directions regarding the computation of deduction u/s 80HHC(3) of the Income-tax Act. The Tribunal emphasized the necessity of a speaking order to address the issue raised by the ITAT and ensure proper effect to the ITAT's order. The Tribunal declined to interfere with the ld. CIT(A)'s directions, ultimately dismissing the Revenue's appeal.