2011 (2) TMI 925 - AT - Income Tax

Disallowance - contribution to organizations of political nature - the AO noticed that in Note 17 to the Accounts that it had been mentioned that the assessee had paid certain contribution to organizations of political nature.- t it is not the case of the assessee that the deduction is being claimed under section 80 GGB of the Act. The assessee claims that it was for the purpose of business but no details whatsoever have been furnished - Decided against assessee. Deduction under section 80-I/80-IA/80-IB - The Hon ble Court held that DEPB/Duty drawback are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act,1962. Incentive profits are not profits derived from eligible business under section 80-IB they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression profits derived from industrial undertaking under section 80-IB - Decided against of assessee. Netting of interest income - As per the Hon ble Court further held that in Shri Ram Honda Power Equip 289 ITR 475 the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed - Hence, the claim of the Assessee for netting of interest income for exclusion under clause (baa) of Explanation to Sec.80-HHC of the Act, is rejected. Deduction u/s 80HHC - Under section 28(iiid) covers only the profit (difference between sale consideration and face value of the DEPB credit) and that the face value is assessable u/s 28(iiib) is not correct - The entire amount received on transfer of the DEPB credit is profits and falls under s. 28(iiid) - There was no basis or justification for the Tribunal to hold that the face value of the DEPB credit can be reduced from the sale consideration. It is not permissible to bifurcate the proceeds of the DEPB into face value and excess of face value - The approach of the Tribunal is misconceived and unsustainable. As the assessee had an export turnover exceeding Rs.10 crores and did not fulfill the conditions set out in the third proviso to s. 80HHC (3), it was not entitled to a deduction u/s 80HHC on the amount received on transfer of DEPB - Decided against of assessee.

Summary

Issues:
1. Delay in filing the appeal by the assessee.
2. Disallowance of miscellaneous expenses to organizations of political nature.
3. Disallowance of Duty Drawback and DEPB benefits for deduction under sections 80-I/80-IA/80-IB.
4. Netting of interest income for deduction under section 80HHC.
5. Claim for deduction under section 80 IA in respect of DEPB/Advance license.

Issue 1: Delay in filing the appeal by the assessee
The appeal was filed 31 days late due to the Chartered Accountant's preoccupation with penalty proceedings and religious ceremonies. The reasons for the delay were deemed acceptable by the Tribunal, and the delay was condoned as the assessee was not at fault.

Issue 2: Disallowance of miscellaneous expenses to organizations of political nature
The AO disallowed the deduction claimed by the assessee for contributions to political organizations due to lack of receipts for claiming under section 80GGB. The CIT(A) upheld the disallowance, stating the expenses were not incurred for business purposes and no details were provided by the assessee. The Tribunal dismissed Ground No.1 raised by the assessee.

Issue 3: Disallowance of Duty Drawback and DEPB benefits for deduction under sections 80-I/80-IA/80-IB
The Tribunal referred to the Supreme Court's decision in Liberty India Ltd., stating that Duty Drawback and DEPB benefits do not form part of net profits for deductions under sections 80-I/80-IA/80-IB. The Court clarified that these benefits are ancillary profits and not derived from the eligible business, thus not eligible for deductions.

Issue 4: Netting of interest income for deduction under section 80HHC
The Tribunal rejected the plea for netting interest income for exclusion under the clause of Explanation to Section 80-HHC, citing the decision of the Bombay High Court in CIT vs. Asian Star Co. The Court emphasized that legislative provisions must be followed as enacted by Parliament, and the claim for netting interest income was dismissed.

Issue 5: Claim for deduction under section 80 IA in respect of DEPB/Advance license
The Tribunal rejected the claim for deduction under section 80 IA related to DEPB/Advance license based on the Bombay High Court's decision in CIT vs. Kalpataru Colours and Chemicals. The Court clarified that DEPB sale proceeds cannot be bifurcated into profits and face value, and the entire amount is considered profits for deduction purposes.

In conclusion, the appeal of the assessee was dismissed due to the lack of merit in the grounds raised, including the disallowance of expenses, Duty Drawback and DEPB benefits, netting of interest income, and deduction under section 80 IA related to DEPB/Advance license. The Tribunal based its decision on relevant legal precedents and legislative provisions.