2012 (8) TMI 37 - AT - Income Tax

Disallowance of Professional fees - that the expenditure either falls u/s 14A or was incurred for earning income taxable under the head capital gain - assessee claimed exemption u/s Section 28(va)(ii)- Held that - Disallowance of professional fees includes Rs.45 lacs paid as consultancy fees for investment advisory services - the assessee company has invested in fixed assets, debentures, advances, ICD and bank deposits, immovable property and shares and mutual funds etc and therefore, it cannot be said that the services rendered by these two persons is in respect of investment in shares - no income is reported by the assessee under the head income from other sources being on account of investment other than investment in shares for which this payment of professional fee was said to have been paid by the assessee - the entire payment of professional fee has to be considered towards earning of dividend income in the absence of any other income from any other investment being shown by the assessee - in favour of assessee. Inclusion of Sales Tax and Excise Duty in total turnover for the purpose of computation of deduction u/s 80HHC - Held that - As decided in Commissioner of Income-Tax Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT excise duty and sales tax were includible in the total turnover , which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - direction of CIT(A) for excluding it thus warranted - against revenue. Reduction of export shortage from the turnover - Held that - The export turnover can be verifiable from the report in Form No.l0 CCAC & assessee has also provided invoice wise FOB value realized for the whole year - this proves that the claim of shortage is further paid as compensation which makes the cost of exports higher, but actually does not reduce the export turnover. In fact, this is a normal business practice in all trades where shortage in handling is compensated by payment, but does not mean that the goods were not cleared or payment not received for the full amount of export turnover - against revenue.

Summary

Issues Involved:
1. Inclusion of Sales Tax and Excise Duty in total turnover for deduction computation under Section 80HHC.
2. Reduction of export shortage from turnover.
3. Deduction of village development expenses from total income.
4. Allowability of deduction of Rs. 5,84,391/- as revenue expenditure.
5. Allowability of 100% depreciation on pollution control equipment.
6. Deletion of addition of Rs. 28,920/- made on advances written off.
7. Taxability of Rs. 34,62,21,122/- received as compensation under Section 28(va).
8. Disallowance of Professional fees of Rs. 45,00,000/-.

Detailed Analysis:

1. Inclusion of Sales Tax and Excise Duty in Total Turnover for Deduction Computation Under Section 80HHC:
The tribunal referenced its own decision in the assessee's case for the assessment year 2000-01, which followed the Supreme Court judgment in CIT Vs Laxmi Machine Works (290 ITR 667). It was decided that Sales Tax and Excise Duty should not be included in the total turnover for computing the deduction under Section 80HHC. Consequently, this ground of the revenue was rejected.

2. Reduction of Export Shortage from Turnover:
The tribunal cited its earlier decision in the assessee's case for the assessment year 2000-01, concluding that export shortages should not be reduced from the total turnover. It was held that the shortage compensated by payment does not reduce the export turnover. Thus, this ground of the revenue was also rejected.

3. Deduction of Village Development Expenses from Total Income:
The tribunal upheld the CIT(A)'s decision to allow the deduction of village development expenses based on its previous ruling for the assessment year 2000-01. No new facts were presented to alter this decision, and therefore, this ground was rejected.

4. Allowability of Deduction of Rs. 5,84,391/- as Revenue Expenditure:
This issue was also previously decided in favor of the assessee for the assessment year 2000-01. The tribunal saw no reason to deviate from this precedent, and the revenue's ground was rejected.

5. Allowability of 100% Depreciation on Pollution Control Equipment:
Following its earlier decision for the assessment year 2000-01, the tribunal upheld the allowance of 100% depreciation on pollution control equipment. The revenue's ground was again rejected due to the lack of new facts.

6. Deletion of Addition of Rs. 28,920/- Made on Advances Written Off:
The tribunal referenced its decision in C.O. No.266/Ahd/2004, which favored the assessee. Since no contrary evidence was provided, the tribunal confirmed the CIT(A)'s order, rejecting the revenue's ground.

7. Taxability of Rs. 34,62,21,122/- Received as Compensation Under Section 28(va):
The tribunal agreed with the CIT(A)'s detailed reasoning that the compensation received for cessation of CFC production constituted a capital receipt and was not taxable. The tribunal noted that Section 28(va) was effective from 01.04.2003 and not applicable to the present year. Thus, this ground was rejected.

8. Disallowance of Professional Fees of Rs. 45,00,000/-:
The tribunal reversed the CIT(A)'s decision, concluding that the professional fees paid were not allowable for computing capital gains as they were neither a cost of acquisition nor a cost of improvement or transfer. The tribunal restored the Assessing Officer's order, allowing the revenue's additional ground.

Conclusion:
The appeal was partly allowed, with the tribunal rejecting most of the revenue's grounds but allowing the disallowance of professional fees. The detailed analysis of each issue reflects adherence to previous tribunal decisions and relevant judicial precedents.