2009 (11) TMI 922 - AT - Income Tax

Issues Involved:
1. Deduction under Section 80HHC on DEPB licenses.
2. Exclusion of Sales tax and Excise duty from total turnover.
3. Exclusion of Excise Duty refund and Sales tax refund for computation of profits.
4. Inclusion of late payment receipts from customers in business profits.
5. Inclusion of commission and clearing charges in business profits.
6. Computation of deduction under Section 80HHC for DEPB entitlements.
7. Addition to closing stock of finished goods on account of excise duty element.
8. Disallowance of housekeeping charges under Section 40A(2)(b).

Detailed Analysis:

1. Deduction under Section 80HHC on DEPB Licenses:
The assessee contested the denial of deduction under Section 80HHC on DEPB licenses. The Tribunal referred to the Special Bench decision in Topman Exports Vs. ITO, which held that only the profit element on the transfer of DEPB should be considered under Section 28(iiid), not the entire sale proceeds. The Tribunal restored the matter to the Assessing Officer to compute the deduction under Section 80HHC in accordance with this judgment.

2. Exclusion of Sales Tax and Excise Duty from Total Turnover:
The Revenue's appeal contested the exclusion of Sales Tax and Excise Duty from total turnover for calculating deduction under Section 80HHC. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court decisions in CIT Vs. Catapharma India Private Ltd. and CIT Vs. Laxmi Machine Works, which support the exclusion of these elements from total turnover.

3. Exclusion of Excise Duty Refund and Sales Tax Refund:
The Tribunal upheld the CIT(A)'s decision not to exclude 90% of Excise Duty refund and Sales Tax refund for computation of profits of the business. It was noted that these refunds were contra entries and did not affect the net profit of the business.

4. Inclusion of Late Payment Receipts from Customers:
The Tribunal held that interest received from customers for late payments should be included as business receipts. However, it rejected the assessee's claim for netting, as there was no evidence of interest expenditure incurred to earn such income. This decision was in line with the Special Bench decision in ACIT Vs. Ashima Syntex Ltd.

5. Inclusion of Commission and Clearing Charges:
The Tribunal confirmed the CIT(A)'s decision to include commission and clearing charges in business profits for the purpose of deduction under Section 80HHC. These receipts were considered part of the trading activity and directly related to the business of the assessee.

6. Computation of Deduction under Section 80HHC for DEPB Entitlements:
The Tribunal directed the Assessing Officer to recompute the deduction under Section 80HHC for DEPB entitlements in accordance with the decision in Topman Exports Case. This issue was allowed for statistical purposes.

7. Addition to Closing Stock of Finished Goods on Account of Excise Duty Element:
The Tribunal upheld the CIT(A)'s decision to delete the addition made to the closing stock of finished goods on account of excise duty element. It was found that no excise duty was payable on finished goods lying in the factory and no liability was debited in the profit and loss account.

8. Disallowance of Housekeeping Charges under Section 40A(2)(b):
The Tribunal agreed with the CIT(A) that the Assessing Officer had not proved that excessive payment was made to an associate concern for housekeeping services. The genuineness of the transactions was not in dispute, and the calculation of fair value of services provided by the assessee was accepted. The disallowance was therefore not sustainable.

Conclusion:
The Tribunal's decision addressed multiple issues related to the computation of deductions under Section 80HHC, the inclusion and exclusion of various elements in business profits, and the treatment of housekeeping charges. The matters were largely resolved in favor of the assessee, with specific directions given to the Assessing Officer for recomputation in line with established legal precedents.

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