2010 (2) TMI 1320 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of deficit and excess consumption of raw materials.
2. Exclusion of 90% of interest income while quantifying business profits u/s 80HHC.
3. Exclusion of 90% of income from the sale of advance license while quantifying business profits u/s 80HHC.
4. Levy of interest u/s 234A, 234B, and 234C.
5. Initiation of penalty u/s 271(1)(c).

Summary:

1. Addition on account of deficit and excess consumption of raw materials:
The first issue pertains to the addition of Rs. 44,22,659/- for deficit and Rs. 1,53,44,220/- for excess consumption of raw materials compared to Standard Input Output Norms prescribed by the Government of India. The Tribunal referred to the assessee's own case in ITA No.554 and 997/Ahd/2006, where it was held that the CIT(A) wrongly relied on the input-output consumption ratio. The Tribunal found that the assessee demonstrated better consumption than the prescribed norms and deleted the addition, allowing the assessee's appeal on this issue.

2. Exclusion of 90% of interest income while quantifying business profits u/s 80HHC:
The next issue involves the exclusion of 90% of interest income amounting to Rs. 1,89,975/- from business profits while quantifying deduction u/s 80HHC. The Tribunal cited the decision of the Hon'ble Delhi High Court in CIT v Shri Ram Honda Power Equip 289 ITR 475 (Delhi), which mandates that only net interest (gross interest less expenditure incurred to earn such interest) should be excluded. The issue was restored to the AO to decide as per this decision, allowing the assessee's appeal for statistical purposes.

3. Exclusion of 90% of income from the sale of advance license while quantifying business profits u/s 80HHC:
The issue of excluding 90% of income from the sale of advance license amounting to Rs. 1,92,500/- was addressed by referring to the Mumbai Special Bench decision in Topman Exports v. ITO (2009) 318 ITR (AT) 87 (Mum) (SB). The Tribunal directed the AO to re-verify the issue in light of this decision, allowing the assessee's appeal for statistical purposes.

4. Levy of interest u/s 234A, 234B, and 234C:
The grounds related to the levy of interest u/s 234A, 234B, and 234C were not pressed by the assessee and were dismissed accordingly.

5. Initiation of penalty u/s 271(1)(c):
The appeal against the order of CIT(A) confirming the levy of penalty u/s 271(1)(c) was allowed since the quantum appeal on the variation of consumption of raw materials was already decided in favor of the assessee.

Conclusion:
Both appeals of the assessee were partly allowed, with specific issues being resolved in favor of the assessee and others being remanded for further verification. The order was pronounced in Open Court on 25/02/2010.