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2012 (5) TMI 313 - AT - Income TaxDeduction u/s 80HHC - Whether Explanation (e) to sub-sec. (3) to section 80HHC can override the clause (b) to section 80HHC(3) of the Income-tax Act, 1961 - held that - only indirect costs attributable to export have to be reduced for computing the deduction u/s 80HHC in respect of export of trading goods and not all costs other than direct costs. In other words, first, attribution of indirect costs to the export of trading goods is to be made and then only scaling down in proportion is to be resorted to.
Issues Involved:
1. Validity of the reference to the Transfer Pricing Officer (TPO) under section 92C(4) of the Income-tax Act, 1961. 2. Computation of deduction under section 80HHC for export of trading goods. 3. Deduction under section 80HHC on DEPB income. 4. Disallowance under section 43B for delayed deposit of employer's contribution to EPF. 5. Levy of interest under section 234D. Issue-wise Detailed Analysis: 1. Validity of the Reference to the TPO: The assessee challenged the addition of Rs. 23.72 lacs made by the Assessing Officer (AO) based on the TPO's report, arguing the reference was invalid as per Instruction No. 3 of 2003 by CBDT, which mandates such reference only if the value of international transactions exceeds Rs. 5 crores. The Tribunal found no merit in this argument, stating the Instruction does not restrict the AO's power to refer cases below Rs. 5 crores to the TPO. The Tribunal cited the Delhi High Court's decision in Sony India (P.) Ltd., which upheld the AO's discretion in making such references. The Tribunal also noted that the threshold limit was regulatory and aimed at managing the TPO's workload, which was later removed. The Tribunal concluded that the AO acted within his jurisdiction and the reference to the TPO was valid. 2. Computation of Deduction under Section 80HHC for Export of Trading Goods: The Tribunal addressed the issue of whether certain expenses should be treated as direct or indirect costs for computing the deduction under section 80HHC. The assessee argued that expenses like EPF/ESI contributions, bonus, and interest should be considered direct costs. The Tribunal referred to its earlier decision in Dy. CIT v. Kerala Nut Food Co., which held that such expenses should be treated as direct manufacturing expenses if related to factory workers. The Tribunal restored the matter to the AO for factual determination, directing that only indirect costs attributable to the export of trading goods should be allocated. Separate Judgments: There was a difference of opinion between the Judicial Member and the Accountant Member on the method of allocating indirect costs. The Judicial Member held that only indirect costs attributable to trading goods should be considered, while the Accountant Member opined that all indirect costs should be allocated proportionately. The Third Member concurred with the Judicial Member, emphasizing that only costs attributable to trading goods should be considered, and the matter was restored to the AO for re-computation. 3. Deduction under Section 80HHC on DEPB Income: The assessee's challenge to the denial of deduction on DEPB income due to retrospective amendment in law was not pressed. The Tribunal noted that the Revenue applied the law as in force, and any challenge to the constitutionality of the provision should be made before the High Court. The ground was dismissed. 4. Disallowance under Section 43B for Delayed Deposit of Employer's Contribution to EPF: The Tribunal found that the issue, though raised before the CIT(A), was not adjudicated. The Tribunal restored the matter to the CIT(A) for adjudication on merits in accordance with law. 5. Levy of Interest under Section 234D: The assessee conceded that the issue of interest under section 234D was decided in favor of the Revenue by the jurisdictional High Court in CIT v. Kerala Chemicals and Proteins Ltd. The ground was dismissed. Conclusion: The appeal was partly allowed for statistical purposes, with specific issues remanded to the AO and CIT(A) for re-examination. The Third Member's opinion resolved the difference of opinion on the allocation of indirect costs, favoring the Judicial Member's approach.
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