2004 (6) TMI 255 - AT - Income Tax

Summary

Issues Involved:
1. Valuation of goods for export in transit.
2. Addition out of telephone expenses at the director's residence.
3. Disallowance of director's wives' foreign traveling expenses.
4. Disallowance out of deduction under Section 80M.
5. Disallowance of deduction under Section 80HHC.
6. Exclusion of items from profits of business while calculating deduction under Section 80HHC.
7. Deduction of loss in respect of export of traded goods from deduction under Section 80HHC.
8. Disallowance of expenses for articles for presentation.
9. Addition on account of interest-free loans.
10. Disallowance of expenses on shaguns to dealers.
11. Valuation of closing stock of stores, spares, and tools.

Detailed Analysis:

1. Valuation of Goods for Export in Transit:
The Tribunal decided in favor of the assessee, confirming that the valuation of goods for export in transit should be at FOB value rather than cost, following its earlier orders for the assessment year 1991-92.

2. Addition out of Telephone Expenses at Director's Residence:
The Tribunal followed its previous decision for the assessment year 1991-92, deciding in favor of the assessee and against the Revenue, confirming that telephone expenses at the director's residence should not be added.

3. Disallowance of Director's Wives' Foreign Traveling Expenses:
The Tribunal decided in favor of the assessee, following its earlier order for the assessment year 1991-92, and confirmed that the disallowance of director's wives' foreign traveling expenses was not justified.

4. Disallowance out of Deduction under Section 80M:
The Tribunal partially accepted the ground, agreeing to a reasonable disallowance of Rs. 70,000 on account of proportionate management expenses for the purpose of deduction under Section 80M, instead of the total disallowance of Rs. 4,08,698.

5. Disallowance of Deduction under Section 80HHC:
The Tribunal decided in favor of the assessee and against the Revenue on several sub-issues:
- Carriage outward, central sales-tax/sales-tax/excise duty, interest, and royalty were not considered part of the total turnover for calculating deduction under Section 80HHC.
- Interest received on late payments from customers was not to be deducted from eligible profits under Section 80HHC.
- The Tribunal followed its earlier decision and the Special Bench's decision in favor of the assessee.

6. Exclusion of Items from Profits of Business while Calculating Deduction under Section 80HHC:
The Tribunal decided in favor of the assessee, confirming that royalty, 90% of interest income, 90% of rent, and IPRS should not be excluded from the profits of the business while calculating deduction under Section 80HHC.

7. Deduction of Loss in Respect of Export of Traded Goods from Deduction under Section 80HHC:
The Tribunal partly allowed the ground, confirming that the manufacturing profit should be set off against the loss in respect of export trading goods, following the Supreme Court's decision in IPCA Laboratory Ltd. However, the Tribunal directed that export incentives should not be set off against the loss in respect of traded goods.

8. Disallowance of Expenses for Articles for Presentation:
The Tribunal decided in favor of the assessee, following its earlier order for the assessment year 1991-92, confirming that expenses for articles for presentation should not be treated as entertainment expenses.

9. Addition on Account of Interest-Free Loans:
The Tribunal decided in favor of the assessee, confirming that interest-free loans given to Majestic Auto Ltd. and Gujarat Cycles Ltd. should not be added, following its earlier order for the assessment year 1991-92.

10. Disallowance of Expenses on Shaguns to Dealers:
The Tribunal decided in favor of the assessee, confirming that expenses on shaguns to dealers should not be disallowed, following its earlier order for the assessment year 1991-92.

11. Valuation of Closing Stock of Stores, Spares, and Tools:
The Tribunal decided in favor of the assessee, confirming that the addition on account of valuation of closing stock of stores, spares, and tools should not be made, following its earlier order for the assessment year 1994-95.

Conclusion:
The Tribunal's consolidated order largely favored the assessee on most issues, adhering to its earlier decisions and relevant case laws, while also partially allowing some grounds with reasonable adjustments. The Revenue's appeal was dismissed, and the assessee's appeals were partly allowed.