2000 (6) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs.6,22,41,119 on account of notional debit of customs duty on imported goods.
2. Deduction under section 80HHC.
3. Addition of Rs.2,40,000 for raising share capital.
4. Levy of interest u/s 234B.

Summary:

1. Addition of Rs.6,22,41,119 on account of notional debit of customs duty on imported goods:
The assessee challenged the addition of Rs.6,22,41,119, arguing that the credit entry of customs duty benefit was accepted as income while the corresponding debit entry was disallowed. The Tribunal noted that the assessee followed a consistent method of accounting export benefits, which was accepted in earlier years. The Tribunal held that the debit entry of Rs.6,22,41,119 was an integral part of the accounting method and not an isolated transaction. The Tribunal found the method in conformity with accounting standards and rejected the Revenue's argument that the liability was contingent and disallowable u/s 43B. The Tribunal allowed the deduction under section 37(1) and held that the payment was not hit by section 43B.

2. Deduction under section 80HHC:
The assessee claimed deduction u/s 80HHC, which the Assessing Officer allowed but noted that if the customs duty debited to the Purchase Account was allowed, the assessee would not be entitled to any deduction under section 80HHC. The Tribunal held that the export benefit of Rs.7,00,24,935 is covered under section 28(iiib) and the computation of deduction under section 80HHC should include this amount. The Tribunal rejected the Revenue's argument that the proviso to section 80HHC(3) should not be applied when there is a loss from the export business. The Tribunal upheld the assessee's method of computation, which was consistent with earlier Tribunal decisions and pending adjudication before the Gujarat High Court.

3. Addition of Rs.2,40,000 for raising share capital:
The assessee admitted that the expenditure was of a capital nature and not allowable. However, the Tribunal restored the matter to the Assessing Officer to verify if the amount was claimed as a deduction. If claimed, the disallowance would be maintained.

4. Levy of interest u/s 234B:
The Tribunal restored the matter to the Assessing Officer for fresh consideration and decision in accordance with law, in light of the retrospective amendments in the Finance Bill, 2001.

Cross-Objection by the Revenue:
The Revenue's cross-objection reiterated their stance on the disallowance of customs duty and deduction u/s 80HHC. The Tribunal dismissed the cross-objection, upholding the assessee's method of accounting and computation of deduction under section 80HHC.

In conclusion, the Tribunal allowed the assessee's appeal on the main issues and dismissed the Revenue's cross-objection.