2010 (5) TMI 851 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of liquidated damages.
2. Inclusion of excise duty and sales tax in total turnover for deduction u/s 80HHC.
3. Exclusion of various incomes from business profits for deduction u/s 80HHC.

Summary:

1. Disallowance of Liquidated Damages:
The issue pertains to the disallowance of liquidated damages amounting to Rs. 42,06,346/-. The Assessing Officer (A.O.) disallowed the amount, considering it a penalty not incurred wholly and exclusively for business purposes. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, referencing previous favorable decisions for the appellant by CIT(A) and the ITAT, Ahmedabad. The Tribunal upheld the CIT(A)'s decision, noting that the amounts were deducted due to delays inherent in the business and were allowable as business expenditure, supported by the case of Sardar Prit Inder Singh v/s. CIT 160 ITR 493.

2. Inclusion of Excise Duty and Sales Tax in Total Turnover for Deduction u/s 80HHC:
The A.O. included excise duty of Rs. 2,99,66,653/- and sales tax of Rs. 1,20,95,809/- in the total turnover for calculating deduction u/s 80HHC. The CIT(A) directed the A.O. to exclude these elements, following the Supreme Court decisions in Laxmi Machine Works (290 ITR 667) and Catapharma India (292 ITR 641). The Tribunal confirmed this, citing the Special Bench decision in IFB Agro Industries Ltd. Vs. DCIT 83 ITD 968(Cal.), which held that sales tax and excise duty are not part of the total turnover for u/s 80HHC computation.

3. Exclusion of Various Incomes from Business Profits for Deduction u/s 80HHC:
The A.O. excluded interest income of Rs. 3,94,774/-, GST set off of Rs. 12,98,202/-, write-off payment received of Rs. 1,15,767/-, and technical drawings income of Rs. 28,00,156/- from business profits for u/s 80HHC deduction. The CIT(A) included these incomes in business profits, referencing previous favorable decisions for the appellant. The Tribunal upheld the inclusion of GST set off and write-off payments, following the decision in Mazda Controls Ltd. For interest income, the Tribunal remanded the matter to the A.O. for verification of net interest income after setting off interest expenditure. Regarding technical drawings income, the Tribunal confirmed it as business income integral to the appellant's main business, dismissing the revenue's appeal on this part.

Conclusion:
The appeal of the revenue is partly allowed, with specific directions for verification and inclusion of certain incomes in business profits for the purpose of deduction u/s 80HHC. The Tribunal's decision aligns with established precedents and the inherent business nature of the expenses and incomes involved.