2008 (12) TMI 260 - AT - Income Tax

Issues Involved:
1. Disallowance of interest on capital work-in-progress.
2. Disallowance of expenses for ERP Implementation.
3. Amortization of consultancy payment.
4. Exemption under section 10B for EOU Unit.
5. Levying of interest under section 234D of the Income-tax Act.
6. Relief under section 35D on Euro issue expenses.
7. Exclusion of duty and sales tax from 'total turnover' for computing relief under section 80HHC.
8. Allowance of 100% expenditure on concrete roads.
9. Prior period adjustment of Rs. 44,74,000.

Detailed Analysis:

Disallowance of Interest on Capital Work-in-Progress:
The Assessing Officer disallowed interest amounting to Rs. 17.99 lakhs as the Nasik Unit had not commenced production during the year. This issue was decided in favor of the assessee based on the Supreme Court decision in Dy. CIT v. Core Health Care Ltd., which held that deduction under section 36(1)(iii) is allowable even if the machinery was not used in the year of borrowing.

Disallowance of Expenses for ERP Implementation:
The assessee claimed Rs. 316.37 lakhs for ERP Implementation as revenue expenditure, though it was shown as work-in-progress. The Assessing Officer and CIT (Appeals) disallowed this claim. The Tribunal remitted the matter back to the Assessing Officer to examine the technical details of the ERP package and decide in accordance with the law.

Amortization of Consultancy Payment:
The assessee claimed Rs. 62.63 lakhs towards consultancy fees as revenue expenditure. The Assessing Officer and CIT (Appeals) treated it as capital expenditure. The Tribunal remitted the matter back to the Assessing Officer to determine whether the expenditure was for current business needs or for a new unit.

Exemption under Section 10B for EOU Unit:
The assessee claimed Rs. 2.88 crores as exempt under section 10B. The Assessing Officer denied the deduction as the domestic sales exceeded 25% of total sales. The Tribunal held that excise duty should be included in domestic sales, making the domestic sales 28.8%. The Tribunal directed the Assessing Officer to allow proportionate deduction under section 10B(4), despite the domestic sales exceeding 25%.

Levying of Interest under Section 234D:
The Tribunal admitted the additional ground and held that interest under section 234D is not chargeable for assessment year 2001-02, following the Delhi Special Bench decision in ITO v. Ekta Promoters (P.) Ltd.

Relief under Section 35D on Euro Issue Expenses:
The CIT (Appeals) directed the Assessing Officer to allow relief under section 35D, which was upheld by the Tribunal based on its earlier decision in the assessee's case.

Exclusion of Duty and Sales Tax from 'Total Turnover':
The Tribunal followed the Supreme Court decision in CIT v. Lakshmi Machine Works and held that excise duty and sales tax should be excluded from 'total turnover' for computing relief under section 80HHC.

Allowance of 100% Expenditure on Concrete Roads:
The Tribunal remitted the matter back to the Assessing Officer to re-examine whether the expenditure on concrete roads should be allowed under section 32 or section 37.

Prior Period Adjustment of Rs. 44,74,000:
The Tribunal remitted the matter back to the Assessing Officer to re-examine the details and decide the issue in accordance with the law.

Conclusion:
The appeals were partly allowed, with some issues decided in favor of the assessee and others remitted back to the Assessing Officer for further examination. The Tribunal provided detailed reasoning for each issue, ensuring compliance with relevant legal provisions and judicial precedents.

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