2006 (2) TMI 63 - HC - Income Tax

Deduction - Two question arises (i) Whether excise duty and customs duty on closing stock includible In total turnover while computing deduction u/s 80HHC (ii) Whether deduction of tax at source in respect interest on the foreign bills u/s 40(a)(i) is valid - Held (i) no(ii) no

Summary

Issues:
1. Whether excise duty and customs duty on closing stock should be included in total turnover for computing income under section 80HHC of the Income-tax Act, 1961.
2. Whether disallowance made under section 40(a)(i) in respect of interest on foreign bills is valid.

Analysis:

Issue 1:
The court referred to a previous case where it was held that excise duty liability arises when the manufacturing process is complete, and such liability cannot be considered part of the assets held by the assessee. The liability for payment of duty should be deductible to calculate profits, and only then can it be added to the value of the closing stock. Following this precedent, the court ruled that excise duty and customs duty on closing stock should not be included in total turnover for computing income under section 80HHC of the Act.

Issue 2:
Regarding the disallowance made under section 40(a)(i) for interest on foreign bills, it was noted that the interest was not related to a loan but was a compensation for delayed payments on goods supplied. Since the interest was not on a loan, the deduction of tax at source was not applicable. The court found that the decisions of the Commissioner of Income-tax (Appeals) and the Tribunal were in line with the provisions of section 40(a)(i) of the Act. As a result, the court concluded that there was no error in the Tribunal's order, and no substantial questions of law arose for consideration. Therefore, the tax case appeals were dismissed.