1988 (6) TMI 73 - AT - Income Tax

Summary

Issues:
1. Claim of weighted deduction u/s 35B for staff salaries related to quality control and inspection.
2. Claim of weighted deduction for service charges paid to State Trading Corporation.
3. Interpretation of turnover for deduction under section 80HHC.

Analysis:

Issue 1:
The appellant claimed weighted deduction under Rule 6AA for salaries of staff involved in quality control and inspection. The CIT(A) denied the deduction, stating that in-house facilities for quality control are not eligible. The ITAT clarified that expenditure must be directly related to promoting sales outside India to qualify for deduction. The ITAT held that ordinary production expenses are not eligible, only extra expenses ensuring exportable quality qualify. The ITAT affirmed the CIT(A)'s decision, as the appellant failed to prove the specialized nature of the expenditure. Therefore, the deduction for staff salaries was disallowed.

Issue 2:
The appellant contested the rejection of weighted deduction for service charges paid to the State Trading Corporation (STC). The ITAT found that the STC provided services aligning with section 35B(1)(b) clauses, entitling the appellant to a deduction. Citing a previous case, the ITAT ruled that 50% of the service charges were eligible for weighted deduction under section 35B. Consequently, the ITAT directed the ITO to allow the deduction on 50% of the service charges paid to the STC.

Issue 3:
Regarding the deduction under section 80HHC, the appellant disputed the exclusion of certain amounts from turnover. The ITAT examined the export process involving the STC and concluded that certain expenses did not belong to the appellant. The ITAT upheld the exclusion of foreign buyer's agent commission, hidden defects rebate, and inspection charges from turnover calculation. The ITAT reasoned that these amounts were not received by the appellant directly and, therefore, should not be included in turnover for the deduction under section 80HHC.

Conclusion:
The appeal was dismissed as the appellant failed to establish eligibility for weighted deductions and turnover calculation under relevant sections. The ITAT upheld the decisions of the lower authorities on these matters. Grounds 7 and 8, which were not contested, were rejected. No other issues were raised during the proceedings.