2008 (2) TMI 945 - AT - Income Tax

Summary

Issues Involved:
1. Addition of prior period expenses.
2. Calculation of relief u/s 80HHC considering exchange rate fluctuation.
3. Deduction u/s 80HHC regarding DEPB receipts.
4. Inclusion of job charges and insurance claims in business income for u/s 80HHC.
5. Reduction of gross vs. net interest for u/s 80HHC.
6. Calculation of book profits u/s 115JB.
7. Deletion of addition on account of commission.
8. Deletion of addition on account of interest relatable to capital work in progress.
9. Exclusion of excise duty from total turnover for u/s 80HHC.
10. Exclusion of DEPB receipts from total turnover for u/s 80HHC.

Summary:

1. Addition of Prior Period Expenses:
The assessee's appeal against the addition of Rs. 3,08,533 on account of prior period expenses was dismissed as the assessee failed to furnish any evidence to support the claim.

2. Calculation of Relief u/s 80HHC Considering Exchange Rate Fluctuation:
The assessee's appeal was allowed. The Assessing Officer was directed to exclude the negative effect of exchange rate fluctuation from both total turnover and export turnover while computing the deduction u/s 80HHC.

3. Deduction u/s 80HHC Regarding DEPB Receipts:
The issue was partly allowed. The matter regarding DEPB utilized by the assessee was remitted to the Assessing Officer for fresh consideration. However, the entire proceeds from the transfer of DEPB were considered profit as there was no cost to the assessee.

4. Inclusion of Job Charges and Insurance Claims in Business Income for u/s 80HHC:
The issue of job charges was remitted to the Assessing Officer for fresh consideration in light of the Supreme Court decision in CIT v. K. Ravindranathan Nair. The insurance claim of Rs. 7.59 lacs was excluded from business income, following the principle laid down by the Punjab & Haryana High Court in CIT v. Khemka Container (P.) Ltd.

5. Reduction of Gross vs. Net Interest for u/s 80HHC:
The assessee's appeal was dismissed. The exclusion of gross interest was upheld, following the jurisdictional High Court decisions in Rani Paliwal v. CIT and CIT v. Liberty Footwear Co.

6. Calculation of Book Profits u/s 115JB:
The assessee's appeal was allowed. The deduction u/s 80HHC was to be computed with reference to book profits, not actual deduction, following the Special Bench decision in Dy. CIT v. Syncome Formulations (P) Ltd.

7. Deletion of Addition on Account of Commission:
The revenue's appeal was dismissed. The Commissioner of Income-tax (A) was justified in deleting the addition of Rs. 38,00,000 as the Assessing Officer failed to bring any evidence against the genuineness of the commission paid.

8. Deletion of Addition on Account of Interest Relatable to Capital Work in Progress:
The revenue's appeal was dismissed. The Commissioner of Income-tax (A) rightly deleted the addition of Rs. 1,53,82,000 as the borrowed funds were not utilized for the work in progress and the interest was deductible u/s 36(1)(iii).

9. Exclusion of Excise Duty from Total Turnover for u/s 80HHC:
The revenue's appeal was dismissed. The exclusion of excise duty from total turnover was upheld, following the Supreme Court decision in CIT v. Lakshmi Machine Works.

10. Exclusion of DEPB Receipts from Total Turnover for u/s 80HHC:
The revenue's appeal was dismissed. The Commissioner of Income-tax (A) was justified in excluding DEPB receipts from total turnover as per the proviso to clause (ba) of Explanation to section 80HHC.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was dismissed.