2011 (1) TMI 936 - HC - Income Tax

Disallowance - job work expenses - Held that - The Tribunal in the impugned order concurred with the findings recorded by the Commissioner Appeals and was of the opinion that insofar as the disallowance of labour expenses is concerned if the Assessing Officer had any doubt with respect to the genuineness of the particulars of vouchers he should have made disallowance on that basis only. It was however found that no serious defect had been pointed out by the Assessing Officer so as to warrant disallowance of the job work charges - Thus both Commissioner Appeals as well as the Tribunal have recorded concurrent findings of fact to the effect that there was no adverse material to conclude that the job charges paid were not genuine. Deduction under section 80HHC(3)(a) - The assessee is engaged in the business of manufacturing and trading goods. The assessee has purchased both finished goods as well as raw material for the purpose of manufacturing goods - However there is no separate record of goods traded and manufactured by the assessee - Held that - However since the assessee has in fact purchased raw material and manufactured goods which it has exported the assessee is entitled to the benefit of deduction under section 80HHC(3)(a) by treating the said exports as export of goods manufactured by the assessee - In the circumstances in the absence of any record as regards the goods traded and the goods manufactured by the assessee the Tribunal has adopted a practical approach and directed to compute the export of traded goods and manufactured goods in the ratio of purchases of finished goods to the purchase of raw material as mentioned in Schedule annexed to the audit report - The approach adopted by the Tribunal is a reasonable balanced and practical approach and cannot be faulted with.

Summary

Issues:
1. Disallowance of job work expenses.
2. Deduction under section 80HHC for export of goods.

Analysis:

Issue 1: Disallowance of job work expenses
The appellant-revenue challenged the deletion of disallowance of Rs. 8,17,812/- out of job work expenses by the Income Tax Appellate Tribunal (the Tribunal). The Assessing Officer disallowed 20% of the total job charges due to defects in vouchers. However, the Commissioner [Appeals] and the Tribunal found that the payments were genuine as the defects were explained by the assessee. The payments were made through proper channels and no adverse material was presented to prove otherwise. It was noted that no disallowance had been made in earlier years on similar grounds. Both the Commissioner [Appeals] and the Tribunal concurred that the job charges were genuine, leading to the deletion of the disallowance.

Issue 2: Deduction under section 80HHC for export of goods
The Assessing Officer rejected the claim for full deduction under section 80HHC for export of goods manufactured and traded by the assessee. The Commissioner [Appeals] allowed the deduction as claimed by the assessee, considering the additional value added to goods through processing activities. The Tribunal directed the computation of export of traded and manufactured goods based on the ratio of purchases of finished goods to raw material. The Tribunal observed that the assessee did not maintain separate records for traded and manufactured goods, thus adopting a practical approach for computation. Since the assessee exported goods manufactured by it, the Tribunal's approach was deemed reasonable and balanced. The Tribunal's decision was upheld as it did not raise any substantial question of law for interference.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the Commissioner [Appeals] and the Tribunal regarding the disallowance of job work expenses and the computation of deduction under section 80HHC for export of goods.