2010 (8) TMI 1159 - AT - Income Tax

2011 (1) TMI 1558 - AT

Issues Involved:
1. Disallowance of liquidated damages.
2. Inclusion of various incomes in business profits for computing deduction under section 80HHC.
3. Inclusion of servicing & commissioning income and excise modvat in business profits for computing deduction under section 80HHC.
4. Exclusion of excise duty and sales tax from total turnover for computing deduction under section 80HHC.

Detailed Analysis:

1. Disallowance of Liquidated Damages:
The Revenue appealed against the deletion of disallowance of Rs. 4,48,136/- on account of liquidated damages by the CIT(A). The AO disallowed the claim, considering it a penalty for breach of contract and not an ordinary business expense. The CIT(A) allowed the claim, following earlier Tribunal decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, noting that similar claims had been allowed in previous years and the expenditure was towards contractual obligations. Therefore, ground no.1 was dismissed.

2. Inclusion of Various Incomes in Business Profits for Computing Deduction under Section 80HHC:
The AO excluded 90% of receipts from interest, servicing & commissioning, packing & forwarding, and GST set off from business profits, arguing they were not derived from export business. The CIT(A) included these receipts in business profits, following earlier decisions. The Tribunal found no specific findings by the CIT(A) on the nature of these receipts or their relation to export business. The Tribunal referred to the Supreme Court's decision in K. Ravindranathan Nair, which held that independent incomes with no nexus to export turnover should be excluded from business profits. The Tribunal vacated the CIT(A)'s findings and remanded the matter for reconsideration with directions to ascertain the nature of these receipts and their relation to export activities. Thus, ground nos. 2 & 3 were disposed of with these directions.

3. Inclusion of Servicing & Commissioning Income and Excise Modvat in Business Profits for Computing Deduction under Section 80HHC:
Similar to the above issue, the CIT(A) included servicing & commissioning income and excise modvat in business profits. The Tribunal found that the CIT(A) did not provide specific findings on the nexus of these receipts with export business. The Tribunal remanded the matter for reconsideration, directing the CIT(A) to ascertain the nature of these receipts and their relation to export activities, following the Supreme Court's decision in K. Ravindranathan Nair. Thus, ground nos. 2 & 3 were disposed of with these directions.

4. Exclusion of Excise Duty and Sales Tax from Total Turnover for Computing Deduction under Section 80HHC:
The AO included excise duty and sales tax in total turnover for computing deduction under section 80HHC, relying on section 145A and various decisions. The CIT(A) excluded these amounts, following Tribunal decisions. The Tribunal upheld the CIT(A)'s decision, referring to the Supreme Court's ruling in Lakshmi Machine Works, which held that excise duty and sales tax should not be included in total turnover as they do not have any element of turnover. Thus, ground no.4 was dismissed.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for reconsideration on the inclusion of various incomes in business profits for computing deduction under section 80HHC. The Tribunal upheld the CIT(A)'s decision on the exclusion of excise duty and sales tax from total turnover. Ground nos. 5 & 6 were dismissed as mere prayers.

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