2001 (5) TMI 945 - AT - Income Tax

Summary

Issues Involved:
1. Under valuation of closing stock.
2. Disallowance of foreign travel expenses.
3. Inclusion of excise duty in turnover for deduction u/s 80HHC.

Summary of Judgment:

1. Under Valuation of Closing Stock:
The CIT(A) upheld the addition of Rs. 68,89,089 made by the Assessing Officer on account of alleged under valuation of the closing stock. The Assessing Officer concluded that the assessee had not properly valued the closing stock by not including certain items of cost. The assessee argued that it had been consistently using the "Direct Costing Method" for years, which was a recognized method of valuation. The Tribunal noted that the "Direct Costing Method" is recognized by the Institute of Chartered Accountants of India and has not been disapproved by any notification by the Central Government. The Tribunal found that the assessee had correctly excluded fixed overheads and certain other costs from the valuation of stock under this method. Therefore, the addition of Rs. 68,89,089 was not justified and was directed to be deleted.

2. Disallowance of Foreign Travel Expenses:
The CIT(A) upheld the disallowance of Rs. 2,73,682 on account of foreign travel expenses. The Tribunal noted that the expenditure was incurred for the inspection of machinery, which was subsequently purchased by the assessee. The Tribunal held that the expenditure was capital in nature and should be capitalized u/s 43(1) as part of the actual cost of the machinery. The Tribunal relied on the decisions of the jurisdictional High Court in McGaw Ravindra Laboratories v. CIT and Shree Digvijay Woollen Mills Ltd. v. CIT to adjudicate this issue in favor of the Revenue.

3. Inclusion of Excise Duty in Turnover for Deduction u/s 80HHC:
The CIT(A) upheld the action of the Assessing Officer in including the excise duty paid in the computation of turnover for the purpose of working out the deduction allowable to the assessee u/s 80HHC. The Tribunal, however, referred to the decision of the Pune Bench in Sudarshan Chemical Industries Ltd. v. Dy. CIT, which held that statutory levies like excise duty and sales tax should not be included in the turnover as they do not have an element of profit. Therefore, the Tribunal held that the Departmental authorities were not justified in including the excise duty in the turnover for the purpose of calculating the deduction u/s 80HHC and adjudicated this issue in favor of the assessee.

Conclusion:
The appeal was partly allowed with the Tribunal deleting the addition of Rs. 68,89,089 for under valuation of closing stock and holding that excise duty should not be included in the turnover for deduction u/s 80HHC, while upholding the disallowance of foreign travel expenses as capital expenditure.