2010 (1) TMI 1277 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of deduction u/s. 80HHC of the Income-tax Act, 1961.
2. Addition of business expenditure of job-work charges.
3. Charging of interest u/s. 234B of the Income-tax Act, 1961.
4. Deletion of addition on account of disallowance of foreign buyer's agent commission.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction u/s. 80HHC of the Income-tax Act, 1961:
The assessee contested the disallowance of deduction u/s. 80HHC, arguing that the Commissioner of Income-tax (Appeals) [CIT(A)] misinterpreted the amendments made by the Taxation Laws (Amendment) Act, 2005. The Tribunal noted that this issue had been adjudicated by the Special Bench in the case of Topman Exports v. ITO, where it was held that only the profit element of the sale proceeds of the Duty Entitlement Pass Book (DEPB) is to be excluded for the purposes of computation of deduction u/s. 80HHC. Consequently, the Tribunal remitted the issue back to the Assessing Officer (AO) for re-examination in light of the Topman Exports case.

2. Addition of Business Expenditure of Job-Work Charges:
The AO disallowed job-work charges paid to three parties, concluding that the job charges bills issued were accommodative and not for actual job work. The CIT(A) upheld this disallowance. The assessee provided extensive documentary evidence, including job charges invoices, bank statements, TDS certificates, and confirmations from job parties. The Tribunal found that the job work was a common practice in the textile industry in Surat and that the assessee had discharged its onus by providing sufficient evidence. The Tribunal referred to a similar case involving a group concern of the assessee, where the addition was deleted. Consequently, the Tribunal allowed the assessee's claim, reversing the orders of the lower authorities.

3. Charging of Interest u/s. 234B of the Income-tax Act, 1961:
The charging of interest u/s. 234B was consequential to the disallowance of job work expenses. As the Tribunal allowed the assessee's claim regarding job work charges, it directed the AO to charge interest after giving effect to the Tribunal's order.

4. Deletion of Addition on Account of Disallowance of Foreign Buyer's Agent Commission:
The AO disallowed the foreign buyer's agent commission, treating the gross sales amount as the sales income of the assessee and the commission as an application of income. The CIT(A) admitted additional evidence in the form of confirmation letters from foreign agents and buyers, which confirmed that the commission was deducted from the sales invoices and the net amount was received by the assessee. The Tribunal upheld the CIT(A)'s decision to admit additional evidence and found that the commission payments were genuine and allowable as business expenditure. The Tribunal referred to several case laws, including a decision in the case of Shri Samir A. Batra, where similar additions were deleted. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

Conclusion:
The Tribunal allowed the assessee's appeals regarding the disallowance of deduction u/s. 80HHC and the addition of job-work charges, and directed the AO to reconsider the interest charged u/s. 234B. The Tribunal also dismissed the Revenue's appeals regarding the disallowance of foreign buyer's agent commission, upholding the CIT(A)'s decision.