2004 (2) TMI 293 - AT - Income Tax

Summary

Issues:
1. Deduction under section 80-O of the Income Tax Act.
2. Disallowance of prior period expenses.

Analysis:

Issue 1: Deduction under section 80-O of the Income Tax Act
The appeal was against the order of the CIT(A) regarding the deduction under section 80-O. The AO had restricted the deduction claimed by the assessee, leading to a dispute. The AO calculated the deduction based on a Mumbai Bench decision, deducting proportionate expenses from the total convertible foreign exchange. The AO allowed only a portion of the claimed deduction, leading to further disallowance. The CIT(A) upheld the AO's decision, relying on various judgments, including a Special Bench decision. The Tribunal considered the arguments of both sides. The assessee claimed that only net earnings should be considered for deduction, while the Departmental Representative argued that the deduction should be based on net income earned from foreign convertible exchange. The Tribunal found that the assessee did not provide sufficient evidence of maintaining separate project accounts. Therefore, the Tribunal set aside the CIT(A) order and directed the AO to re-compute the deduction after verifying the maintenance of independent project accounts.

Issue 2: Disallowance of prior period expenses
The assessee did not press the ground related to disallowance of prior period expenses during the appeal hearing. As a result, this ground was rejected without further consideration.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, directing the AO to re-calculate the deduction under section 80-O after ensuring proper verification of independent project accounts.