1996 (9) TMI 205 - AT - Income Tax

Summary

Issues Involved:
1. Computation of claim u/s 80HHC regarding inclusion of excise duty and sales-tax in total turnover.
2. Inclusion of dividend income in 'profits of business' u/s 80HHC.
3. Computation of income u/s 115J concerning the method of providing depreciation.
4. Exclusion of fluctuation loss in foreign exchange from P&L account u/s 115J.
5. Adjustment of claim u/s 80HHC in computing book profit u/s 115J.

Summary:

1. Computation of claim u/s 80HHC regarding inclusion of excise duty and sales-tax in total turnover:
The primary issue was whether 'turnover' in sub-section (3) of section 80HHC includes excise duty and sales-tax. The assessee excluded these from total turnover, but the Assessing Officer included them. The Tribunal held that excise duty and sales-tax should not form part of the total turnover as they do not have an element of profit and are statutory levies. This interpretation aligns with the objective of section 80HHC to promote exports by computing real profits derived from export activities. The Tribunal decided this issue in favor of the assessee.

2. Inclusion of dividend income in 'profits of business' u/s 80HHC:
The question was whether dividend income should be included in 'profits of business' for computing relief u/s 80HHC. The assessee included dividend income, but the Assessing Officer excluded it, and the CIT(A) confirmed this exclusion. The Tribunal upheld the CIT(A)'s decision, stating that dividend income is assessable under 'Income from other sources' and cannot be included in 'profits of business' for section 80HHC purposes.

3. Computation of income u/s 115J concerning the method of providing depreciation:
The issue was whether the assessee could change the method of providing depreciation for computing book profit u/s 115J. The assessee switched from the straight-line method to the written down value method for assets acquired after 2-4-1987, resulting in lower profits. The Assessing Officer and CIT(A) disallowed this change. The Tribunal held that the assessee must prepare the profit and loss account for section 115J using the same method as for corporate accounting. The Tribunal decided this issue against the assessee.

4. Exclusion of fluctuation loss in foreign exchange from P&L account u/s 115J:
The question was whether fluctuation loss in foreign exchange could be excluded from the P&L account prepared u/s 115J. The Assessing Officer excluded this loss, considering it capital in nature, and the CIT(A) confirmed. The Tribunal found merit in the assessee's contention, stating that the P&L account must be prepared per the Companies Act, and no adjustments other than those specified in the Explanation to section 115J are allowed. The Tribunal decided this issue in favor of the assessee.

5. Adjustment of claim u/s 80HHC in computing book profit u/s 115J:
This issue was consequential to the previous decisions. The Assessing Officer was directed to adjust the amount worked out u/s 80HHC in accordance with the Tribunal's order.

Conclusion:
The appeal was partly allowed, with decisions favoring the assessee on issues 1, 4, and 5, and against the assessee on issues 2 and 3.