2008 (8) TMI 383 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance of guest house maintenance expenses.
2. Direction for allowing exemption u/s 10B.
3. Deletion of disallowance made under rule 6B.

Summary:

1. Deletion of disallowance of guest house maintenance expenses:
The first ground concerns the deletion of disallowance of Rs. 3,39,093 for guest house maintenance expenses. The ld. DR submitted that this issue is covered in favor of the revenue by the Hon'ble Supreme Court judgment in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. The ld. A.R. conceded this position. Consequently, this ground is allowed as the expenses towards rents, repairs, maintenance, and depreciation of premises/accommodation used for guest house purposes were to be disallowed u/s 37(4) of the Act.

2. Direction for allowing exemption u/s 10B:
The second and main ground is against the direction given by the ld. CIT(A) for allowing exemption u/s 10B amounting to Rs. 2,63,24,448. The assessee, engaged in the business of execution of turnkey projects and consultancy services, claimed exemption on the profits of its Export Oriented Unit (EOU). The Assessing Officer denied the exemption, arguing that the assessee was not engaged in the manufacture or production of any article or thing as required by sub-section (2) of section 10B. The ld. CIT(A) called for a spot enquiry, and the Assessing Officer's remand report suggested that the assessee's activities fell under the expanded scope of section 10BB, which includes processing or management of electronic data. The Tribunal concluded that the assessee was engaged in the management of electronic data, thus satisfying the conditions for exemption u/s 10B read with section 10BB.

3. Deletion of disallowance made under rule 6B:
The third ground concerns the deletion of disallowance of Rs. 17,700 made under rule 6B. The Assessing Officer disallowed the expenditure, considering it as advertisement expenses. The ld. CIT(A) deleted the addition, relying on the Tribunal's orders in earlier years. The Tribunal upheld the impugned order, noting that similar issues were decided in the assessee's favor in previous assessment years, and no distinguishing features were pointed out for the current year.

Conclusion:
The appeal is partly allowed, with the deletion of disallowance of guest house maintenance expenses being upheld, the exemption u/s 10B being granted, and the deletion of disallowance under rule 6B being sustained.