2008 (6) TMI 256 - AT - Income Tax

Summary

Issues Involved:
1. Calculation of profit for deduction under s. 80HHC based on DEPB receipts.
2. Disallowance of commission expenses paid to auto drivers.
3. Disallowance of car maintenance, depreciation, and telephone expenses.

Issue 1:
The Appellate Tribunal considered whether the entire DEPB receipt or only the profit on transfer of DEPB should be reduced from the profit of the business for the purpose of deduction under s. 80HHC. It was held that only the profit on transfer of DEPB should be excluded. The Tribunal noted that DEPB is accounted for as income even if not yet transferred, as per accounting standards. In the case at hand, as there was a loss on the sale of DEPB licenses, no amount was to be reduced for the deduction under s. 80HHC. The Tribunal emphasized that the cost of DEPB is the value of the license, and any amount received above this value constitutes profit to be considered for deduction under s. 80HHC.

Issue 2:
Regarding the disallowance of commission expenses paid to auto drivers, the Tribunal upheld the disallowance of 50% of the amount paid to various auto-rickshaw drivers as the payments were not fully verifiable. The Tribunal found that only payments with proper documentation and tax deductions were acceptable, while payments to auto drivers without proper verification were subject to disallowance.

Issue 3:
The Tribunal addressed the disallowance of car maintenance, depreciation, and telephone expenses. It was held that a 10% disallowance for car maintenance was appropriate, considering the size of the business. However, the claim for depreciation on the car was allowed as it is a statutory provision not dependent on personal use. The disallowance of telephone expenses was partly upheld, with the Tribunal finding the amount reasonable and not warranting further interference based on the lack of a register to track personal use of the telephones.

In conclusion, the appeal was partly allowed, with decisions made on each issue in relation to the calculation of profit for deduction under s. 80HHC, disallowance of commission expenses, and disallowance of car maintenance, depreciation, and telephone expenses.