2008 (2) TMI 408 - HC - Income Tax

Deduction u/s 80HHC Machining Charges ITAT held that the machining charges are not to be excluded for the purposes of determining the profits of the business as defined in clause (baa) of the Explanation to sub-section (4B) of section 80HHC of the Act Held that when the Tribunal had been taking inconsistent view for different assessment years matter remanded to ITAT

Summary

Issues:
Interpretation of section 80HHC of the Income-tax Act, 1961 regarding exclusion of machining charges from business profits for deduction purposes.

Analysis:
The High Court heard an appeal under section 260A of the Income-tax Act, 1961, filed by the Revenue against the order of the Income-tax Appellate Tribunal for the assessment years 1995-96 and 1996-97. The main question for adjudication was whether the machining charges arising from the manufacturing or processing-cum-supply activity of the assessee could be excluded from the profits of the business for computing deduction under section 80HHC of the Act. The respondent-assessee, engaged in the manufacture and supply of precision products, including job work basis manufacturing, disputed the exclusion of machining charges.

The Tribunal had previously taken inconsistent views on the exclusion of machining charges in different assessment years. In some cases, 90% of the charges were excluded, while in others, a different approach was taken. Due to this inconsistency, the High Court decided to set aside all the orders passed by the Tribunal for the relevant assessment years and remit the matters for fresh adjudication. The Court believed that affording both parties an opportunity to present their arguments before the Tribunal would help clarify the interpretation of the law applicable to the facts and legal aspects of the cases.

The High Court refrained from deciding on the question of law framed in the appeal and chose to remand the matters to the Tribunal for de novo hearing on the merits. The Court emphasized that it had not delved into the merits of the case, allowing both parties to present their contentions before the Tribunal for a comprehensive consideration in accordance with the law. The decision aimed to ensure that justice was served and that the controversy surrounding the exclusion of machining charges for deduction purposes under section 80HHC was properly addressed at the Tribunal level.