1992 (11) TMI 136 - AT - Income Tax

Issues Involved:
1. Eligibility of receipts from cash compensatory support and sale of import licenses for relief under sections 80HHA and 80-I.
2. Inclusion of duty drawback in profits for deductions under sections 80HHA and 80-I.
3. Treatment of unabsorbed deductions under section 80VVA.
4. Nature of testing charges of the boiler as capital or revenue expenditure.
5. Disallowance of expenditure on rent and taxes for personal use by directors.
6. Disallowance of damages for breach of contract payable to a foreign buyer.
7. Disallowance of foreign travel expenses of directors.
8. Computation of relief under sections 80HHA and 80-I.
9. Simultaneous deductions under sections 80J and 80-I.
10. Restriction of total deduction to 70% of total income under section 80VVA.
11. Chargeability of interest under sections 217 and 139(8).

Detailed Analysis:

1. Eligibility of Receipts from Cash Compensatory Support and Sale of Import Licenses for Relief under Sections 80HHA and 80-I:
The Tribunal examined whether receipts from cash compensatory support (Rs. 3,34,739) and income from the sale of import licenses (Rs. 3,66,063) qualify as income derived from an industrial undertaking for deductions under sections 80HHA and 80-I. The Tribunal referred to previous decisions and concluded that cash compensatory support and income from the sale of import licenses do not qualify as profits derived from an industrial undertaking. The Tribunal upheld the CIT (Appeals)'s order denying the relief on these receipts.

2. Inclusion of Duty Drawback in Profits for Deductions under Sections 80HHA and 80-I:
The Tribunal noted that the issue of duty drawback was covered by an earlier order in the assessee's own case, where it was held that duty drawback receipts are profits from the industrial undertaking. Following this precedent, the Tribunal upheld the CIT (Appeals)'s order to include duty drawback in the profits for deductions.

3. Treatment of Unabsorbed Deductions under Section 80VVA:
The Tribunal observed that no argument was raised regarding unabsorbed deductions for adjustment in the succeeding assessment year under section 80VVA. Since there was no evidence of unabsorbed deductions in the orders of the authorities below, the Tribunal rejected the ground.

4. Nature of Testing Charges of the Boiler as Capital or Revenue Expenditure:
The Tribunal agreed with the CIT (Appeals) that the testing charges of the boiler (Rs. 38,040) were of a revenue nature. The Tribunal noted that the expenditure was routine and not capital in nature, and thus upheld the CIT (Appeals)'s deletion of the addition.

5. Disallowance of Expenditure on Rent and Taxes for Personal Use by Directors:
The Tribunal upheld the CIT (Appeals)'s deletion of the disallowance of 1/4th of the expenditure on rent and taxes for personal use by directors. The Tribunal noted that the revenue did not challenge the CIT (Appeals)'s order for earlier years on this point and found no evidence of personal use by directors.

6. Disallowance of Damages for Breach of Contract Payable to a Foreign Buyer:
The Tribunal examined the liability for damages payable to a foreign buyer (Rs. 7,93,793) and concluded that the liability was contingent upon the approval of the Reserve Bank of India and the actual purchase of goods by the buyer. The Tribunal held that the liability did not accrue in the relevant year and restored the disallowance made by the Assessing Officer.

7. Disallowance of Foreign Travel Expenses of Directors:
The Tribunal upheld the CIT (Appeals)'s deletion of the disallowance of foreign travel expenses of directors (Rs. 12,944). The Tribunal noted that the Assessing Officer did not provide specific evidence of personal expenditure and found no justification for the disallowance.

8. Computation of Relief under Sections 80HHA and 80-I:
The Tribunal reversed the CIT (Appeals)'s direction to exclude the Head Office loss and unabsorbed loss of the preceding year from the computation of relief under sections 80HHA and 80-I. The Tribunal held that reliefs are admissible only on the net income computed according to the provisions of the Act, following the Tribunal's order for the earlier year.

9. Simultaneous Deductions under Sections 80J and 80-I:
The Tribunal agreed with the revenue's contention that deductions under sections 80J and 80-I are not simultaneously available. The Tribunal noted that the assessee started production after 1-4-1981, making it eligible for relief under section 80-I but not under section 80J. The Tribunal set aside the CIT (Appeals)'s direction to grant relief under section 80J.

10. Restriction of Total Deduction to 70% of Total Income under Section 80VVA:
The Tribunal noted that the CIT (Appeals) did not quantify the reliefs, and since the assessee is not entitled to relief under section 80J, the contingency of exceeding 70% does not arise. The Tribunal clarified that the Assessing Officer may restrict the relief within the limits prescribed by section 80VVA.

11. Chargeability of Interest under Sections 217 and 139(8):
The Tribunal upheld the CIT (Appeals)'s cancellation of the levy of interest under sections 217 and 139(8). The Tribunal noted that ITNS-150 is for tax calculation and does not equate to an order charging interest. The Tribunal found that the ITO did not apply his mind to the facts and circumstances of the case, making the levy of interest invalid.

Separate Judgment by the Accountant Member:
The Accountant Member disagreed with the Judicial Member on the inclusion of cash compensatory support and income from the sale of import licenses in eligible profits for deductions under sections 80HHA and 80-I. The Accountant Member argued that these receipts should be included as they are part of the business income derived from the industrial undertaking, especially considering the retrospective amendments by the Finance Act, 1990.

Third Member's Opinion:
The Third Member sided with the Accountant Member, holding that cash compensatory support and income from the sale of import licenses should be included in eligible profits for deductions under sections 80HHA and 80-I. The Third Member emphasized the need to interpret fiscal statutes in favor of the assessee when two views are possible and considered the amendments and judicial precedents supporting the inclusion of these receipts.

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