2001 (2) TMI 257 - AT - Income Tax

Summary

Issues:
1. Disallowance of remuneration to three sons of the Karta of the assessee.
2. Deduction under section 80HHC of the Income Tax Act.

Issue 1: Disallowance of Remuneration to Three Sons:
The appeal was directed against the disallowance of remuneration to three sons of the assessee by the Dy. CIT(A) for the assessment year 1991-92. The AO disallowed the increased remuneration of Rs. 2,000 per month to each son, reducing it to Rs. 1,500 per month, resulting in an addition of Rs. 18,000 to the assessee's income. The assessee argued that the sons helped in the business due to a drop in sales turnover and that the remuneration was reasonable. The Tribunal held that sales turnover alone should not determine remuneration and found no evidence that the sons did not contribute effectively. Consequently, the disallowance was deemed unreasonable, and the addition was deleted, allowing the appeal.

Issue 2: Deduction under Section 80HHC:
The second ground of appeal related to the denial of deduction under section 80HHC of the Income Tax Act for profits on sales made to foreign buyers against foreign exchange. The AO denied the deduction citing Explanation (aa) to section 80HHC. The assessee contended that a Tribunal decision favored the deduction based on sales to foreign buyers against foreign exchange. The Tribunal agreed with the assessee, holding that such sales qualified as export sales eligible for deduction under section 80HHC. However, the issue was remanded to the AO to verify if the goods purchased by foreign buyers had indeed left India. The Tribunal directed the AO to seek evidence from the assessee if necessary. Consequently, the appeal was partly allowed, with the issue being sent back to the AO for further verification.

In conclusion, the appellate tribunal ITAT Agra ruled in favor of the assessee on both issues. The disallowance of remuneration to the three sons of the assessee was deemed unreasonable and deleted, while the deduction under section 80HHC for profits on sales to foreign buyers against foreign exchange was allowed, subject to verification by the AO regarding the export of goods.