1996 (9) TMI 169 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80-O on net income vs. gross income.
2. Accounting method for engineering consultancy income.
3. Cross-objection regarding deduction u/s 80-O for specific fees.

Summary:

1. Deduction u/s 80-O on Net Income vs. Gross Income:
The revenue contended that the deduction u/s 80-O should be allowed on the net income brought into India in convertible foreign exchange, not on the gross amount. The CIT(A) accepted the assessee's contention, following the Tribunal's previous orders, that the deduction should be on the gross amount of income brought into India without deducting any expenses in India. The Tribunal upheld this decision, dismissing the revenue's appeal, citing the Tribunal's order in ITA No. 1827 (Cal.) of 1990 and ITA No. 2284 (Cal.) of 1990 for the assessment year 1985-86.

2. Accounting Method for Engineering Consultancy Income:
The ITO added Rs. 14,28,09,131 to the assessee's business income, arguing that the income should be accounted for as and when the assessee gets the right to receive it under the mercantile system. The CIT(A) agreed with the ITO. However, the Tribunal found that the assessee's method of accounting, based on the 'percentage of completion' method as per Accounting Standards 7 & 9 of the ICAI, was appropriate. The Tribunal held that primacy should be given to the method of accounting adopted by the assessee, which had been consistently followed and accepted by the revenue authorities for the past thirty years. The Tribunal deleted the addition of Rs. 14,28,05,131, upholding the assessee's method.

3. Cross-Objection Regarding Deduction u/s 80-O for Specific Fees:
The assessee's cross-objection concerned the CIT(A)'s failure to decide the claim for deduction u/s 80-O for fees amounting to Rs. 3,61,827 received from P.T. Ispat Sponge, Indonesia. The Tribunal directed the CIT(A) to consider this ground on its merits, thus partly allowing the cross-objection.

Further Direction:
The Tribunal also issued a consequential direction that the assessee would not be entitled to any deduction pursuant to the CIT(A)'s order dated 23-7-1995, in light of the Supreme Court judgment in Kapurchand Shrimal v. CIT [1981] 131 ITR 451, as the addition itself had been deleted.