2010 (11) TMI 1049 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80HHC on DEPB licence income.
2. Deduction u/s 80HHC on exchange rate difference.
3. Levy of interest u/s 234B & 234C.
4. Initiation of penalty u/s 271(1)(c).

Summary:

Issue 1: Deduction u/s 80HHC on DEPB licence income

The Revenue contended that the CIT(A) erred in allowing the deduction u/s 80HHC by reducing Rs. 2,53,683/- as DEPB licence income instead of Rs. 49,76,752/-. The Assessing Officer (AO) noted that the assessee's export turnover exceeded Rs. 10 crores, thus DEPB income should not be considered for deduction u/s 80HHC. The CIT(A) relied on a Mumbai Tribunal decision and allowed 90% of DEPB income for deduction. The Tribunal reversed the CIT(A)'s decision, citing amendments in Section 28(iiia), 28(iiid), and 28(iiie) and the case of Intas Exports vs. ACIT, concluding that the assessee did not fulfill the requisite conditions for the deduction.

Issue 2: Deduction u/s 80HHC on exchange rate difference

The AO denied the deduction u/s 80HHC for exchange rate difference due to lack of evidence on the receipt date. The CIT(A) allowed the deduction, stating the foreign exchange rate difference had a direct nexus with export sales and was received within the allowed time. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not correctly appreciate the facts and the assessee provided sufficient evidence, including bank certificates and compliance with Accounting Standard 11.

Issue 3: Levy of interest u/s 234B & 234C

The assessee argued that interest u/s 234B & 234C was levied without an opportunity to be heard, citing ITAT Ahmedabad's decision in Vikshara Trading & Investment (P) Ltd. vs. DCIT. The Tribunal directed the AO to recalculate the interest, considering the assessee was unaware of the amendments at the time of filing returns, following the precedent set in Intas Exports vs. ACIT.

Issue 4: Initiation of penalty u/s 271(1)(c)

The assessee's ground challenging the initiation of penalty u/s 271(1)(c) was dismissed as premature, as no substantial grievance was caused by merely initiating penalty proceedings.

Conclusion:

Both the Revenue's appeal and the assessee's cross-objection were partly allowed. The Tribunal reversed the CIT(A)'s decision on DEPB licence income, upheld the CIT(A)'s decision on exchange rate difference, directed recalculation of interest u/s 234B & 234C, and dismissed the premature penalty initiation challenge.