2005 (3) TMI 423 - AT - Income Tax

Summary

Issues:
Deduction under s. 80HHC regarding dyeing charges exclusion from total turnover and profit element exclusion.

Analysis:
The appeal before the Appellate Tribunal ITAT MADRAS-D pertains to the assessment year 1996-97, specifically focusing on the deduction under section 80HHC. The primary contention revolves around the treatment of dyeing charges in the computation of the deduction. The first appellate authority had directed the Assessing Officer to exclude the dyeing charges from the total turnover and only exclude the profit element of these charges from the business's profit for the purpose of calculating the deduction under section 80HHC. It was acknowledged that the dyeing charges were received during the manufacturing activity of goods exported, establishing a clear nexus between the charges and the exported goods.

The Tribunal noted that despite the nexus between the dyeing charges and the assessee's business, the assessee did not challenge the first appellate authority's decision before the Tribunal. Consequently, the Tribunal found no merit in the Revenue's appeal. Additionally, the Tribunal referenced a judgment of the Bombay High Court in the case of CIT vs. Bangalore Clothing Co., highlighting that when dyeing charges are excluded from the total turnover along with the profit element, the Revenue may not have grounds for grievance. The Tribunal emphasized that had the assessee appealed against the first appellate authority's decision or filed a cross-objection, the outcome might have differed. However, since the assessee accepted the initial decision, the Tribunal dismissed the Revenue's appeal.

Ultimately, the Tribunal upheld the decision of the first appellate authority and dismissed the appeal filed by the Revenue. This judgment underscores the importance of challenging unfavorable decisions at the appropriate legal stages and the significance of establishing a clear nexus between income elements and relevant business activities to support deduction claims under the Income Tax Act.