2012 (2) TMI 594 - AT - Income Tax

Summary

Issues Involved:
1. Nature of Compensation Received
2. Disallowance of Expenditure on Gifts and Presentation Articles
3. Disallowance of Sales Commission
4. Disallowance of Telephone Expenses
5. Disallowance of Vehicle Expenses
6. Additional Grounds on Profit on Sale of Operating Assets and Capital Gains on Transfer of Trademark
7. Validity of Reopening of Assessment
8. Exclusion of Sales Tax, Excise Duty, Rent, Miscellaneous Receipt, and Exchange Fluctuation Receipt from Total Turnover for Deduction u/s 80HHC

Summary of the Judgment:

Issue 1: Nature of Compensation Received
The Tribunal addressed whether the compensation of Rs. 4,53,86,124 received by the assessee under a settlement with AIK Germany was a capital receipt not liable to income tax. The Tribunal noted that the compensation was awarded due to non-fulfillment of contractual obligations by AIK, which prevented the assessee from implementing its project. The Tribunal concluded that the compensation was a capital receipt, as it was for the sterilization of the profit-earning source of the assessee. The Tribunal relied on several judicial pronouncements, including CIT Vs. Bombay Burmah Trading Corporation and CIT Vs. Barium Chemicals Ltd., to support its decision.

Issue 2: Disallowance of Expenditure on Gifts and Presentation Articles
The assessee's claim of Rs. 46,040 as expenditure on gifts and presentation articles was disallowed by the A.O. and upheld by the CIT(A) due to lack of proper distribution records. The Tribunal upheld the disallowance, noting that the assessee failed to provide sufficient evidence to support the claim.

Issue 3: Disallowance of Sales Commission
The A.O. disallowed Rs. 6,92,595 out of the sales commission due to lack of documentary evidence. The CIT(A) upheld this disallowance. The Tribunal found that the assessee failed to discharge its onus to establish the genuineness of the claim and upheld the disallowance.

Issue 4: Disallowance of Telephone Expenses
The A.O. disallowed Rs. 11,829 out of telephone expenses, which was upheld by the CIT(A). The Tribunal found no reason to interfere with the disallowance, as the assessee could not improve its case before the Tribunal.

Issue 5: Disallowance of Vehicle Expenses
The assessee raised an additional ground regarding the disallowance of Rs. 65,854 out of vehicle expenses, which was not entertained by the CIT(A). The Tribunal did not entertain the contention as the assessee failed to show when this prayer was raised as an additional ground before the CIT(A).

Issue 6: Additional Grounds on Profit on Sale of Operating Assets and Capital Gains on Transfer of Trademark
The Tribunal allowed the additional grounds for adjudication, noting that the issues were legal in nature and did not require fresh material outside the record. The CIT(A) had directed the assessment of profit on the sale value of Rs. 19,40,000 of operating assets u/s 41(2) and taxed the capital gains on the transfer of the trademark. The Tribunal upheld the CIT(A)'s decision on capital gains but directed the A.O. to verify the claim regarding the sale value being lesser than the WDV of the block.

Issue 7: Validity of Reopening of Assessment
The Tribunal upheld the validity of reopening the assessment proceedings u/s 147 by issuing notice u/s 148. The Tribunal found that the A.O. had reasonable belief that income chargeable to tax had escaped assessment, justifying the initiation of reopening proceedings.

Issue 8: Exclusion of Sales Tax, Excise Duty, Rent, Miscellaneous Receipt, and Exchange Fluctuation Receipt from Total Turnover for Deduction u/s 80HHC
The Tribunal upheld the CIT(A)'s decision to exclude sales tax, excise duty, rent, miscellaneous receipt, and exchange fluctuation receipt from the total turnover for the purpose of calculating deduction u/s 80HHC. The Tribunal relied on the decision of the Hon'ble Supreme Court in CIT Vs. Laxmi Machine Works, which held that excise duty and sales tax cannot form part of turnover as they do not emanate from such turnover.

Conclusion:
The Tribunal allowed the appeal partly in favor of the assessee on certain grounds while dismissing other grounds and the appeal preferred by the revenue. The Tribunal upheld the CIT(A)'s decisions on various issues and provided directions to the A.O. for verification and reassessment where necessary.