2010 (10) TMI 738 - AT - Income Tax

Depreciation on intangible assets - held that - the assessee was entitled to claim depreciation on business information under the category of other identifiable intangibles goodwill As regard to the CIT(A) s stand in directing the AO to exclude the cost of scraps from the total turnover for the purposes of deduction u/s 80HHC of the Act - It is clear that the raw material is not actually sold. The amount is credited in case the sub-contractor supplies less quantity of manufactured product and the account of sub-contractor is debited. This is actually a recovery representing the deficit on account of receipt of less quantity of manufactured parts. Looking to the definition of the turnover as contained in the Sales-tax Act it cannot be treated as sales. As regards the 90% of fees received from Robert Bosch from the business profits for the purpose of deduction u/s 80HHC of the Act - the Hon ble High Court of Bombay in the case of CIT v. Bangalore clothing Co. (2003 -TMI - 12071 - BOMBAY High Court ) on the issue of computation of special deduction u/s 80HHC and effect of Explanation (baa) found the labour charges to be part of operational income and not to be excluded under Explanation (baa) to section 80HHC. The Explanation (baa) to section 80HHC of the Act was inserted by the Finance No.2) Act 1991 with effect from 1.4.2 - Decided in favour of assessee. As regard to the CIT(A) s stand in directing the AO to exclude 90% of net interest receipts from the business profits for the purposes of deduction u/s 80HHC of the Act - The Ld. Delhi High Court in the case of Shri Ram Honda Power Equip (2007 -TMI - 2891 - HIGH COURT DELHI) has held that the word interest in clause (baa) of Explanation connotes net interest and not gross interest. If the AO has treated the interest receipts as business income then deduction in terms of Explanation (baa) should be with reference to net interest - Decided in favour of assessee.

Issues Involved:
1. Exclusion of the cost of scraps from the total turnover for deduction u/s 80HHC.
2. Exclusion of the cost of raw materials from the total turnover for deduction u/s 80HHC.
3. Exclusion of 90% of fees received from Robert Bosch from business profits for deduction u/s 80HHC.
4. Exclusion of 90% of net interest receipts from business profits for deduction u/s 80HHC.
5. Allowance of depreciation on intangible assets.

I. A.Y. 2002-03:

1. Exclusion of Cost of Scraps:
- Assessment Officer's (AO) Stand: Included the cost of sale of scraps in the total turnover based on Board's Circular No.621.
- CIT(A)'s Decision: Directed AO to exclude the cost of scraps, conforming to the Tribunal's earlier decision in the assessee's case.
- Tribunal's Decision: Followed the jurisdictional High Court ruling which stated that amounts received from the sale of scraps in the domestic market are includible in the total turnover for purposes of s. 80HHC. Issue decided in favor of the Revenue.

2. Exclusion of Cost of Raw Materials:
- AO's Stand: Included the cost of raw materials in the total turnover for deduction purposes.
- CIT(A)'s Decision: Directed AO to exclude the cost of raw materials, based on the Tribunal's earlier decision in the assessee's case.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the Tribunal's earlier decisions that the sale of raw materials should not be included in the total turnover.

3. Exclusion of 90% of Fees from Robert Bosch:
- AO's Stand: Included 90% of fees received from Robert Bosch in business profits for deduction purposes.
- CIT(A)'s Decision: Directed AO to exclude 90% of the fees, based on earlier Tribunal decisions.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the jurisdictional High Court's ruling that such fees, having a direct nexus with export activities, should not be excluded from business profits.

4. Exclusion of 90% of Net Interest Receipts:
- AO's Stand: Included 90% of net interest receipts in business profits for deduction purposes.
- CIT(A)'s Decision: Directed AO to exclude 90% of net interest receipts, based on earlier Tribunal decisions.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the jurisdictional High Court's ruling that only net interest should be considered for exclusion.

II. A.Y. 2003-04:

1. Allowance of Depreciation on Intangible Assets:
- AO's Stand: Disallowed depreciation on intangible assets, specifically goodwill.
- CIT(A)'s Decision: Allowed depreciation on intangible assets, following Tribunal's earlier decision for AY 2004-05.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the Tribunal's earlier decision that the assessee was entitled to claim depreciation on intangible assets.

2. Exclusion of Cost of Scraps:
- AO's Stand: Included the cost of sale of scraps in the total turnover.
- CIT(A)'s Decision: Directed AO to exclude the cost of scraps.
- Tribunal's Decision: Decided in favor of the Revenue, following the same reasoning as for AY 2002-03.

3. Exclusion of 90% of Fees from Robert Bosch:
- AO's Stand: Included 90% of fees received from Robert Bosch in business profits.
- CIT(A)'s Decision: Directed AO to exclude 90% of the fees.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the same reasoning as for AY 2002-03.

4. Exclusion of 90% of Net Interest Receipts:
- AO's Stand: Included 90% of net interest receipts in business profits.
- CIT(A)'s Decision: Directed AO to exclude 90% of net interest receipts.
- Tribunal's Decision: Upheld CIT(A)'s direction, following the same reasoning as for AY 2002-03.

Conclusion:
The Tribunal partly allowed the Revenue's appeals for the assessment years 2002-03 and 2003-04, deciding some issues in favor of the Revenue and others in favor of the assessee.

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