2009 (12) TMI 411 - HC - Income Tax

Export- Special deduction- Whether the Tribunal was correct in holding that the excise duty paid by the assessee on goods manufactured but not sold during the year and reflected as closing stock during the year is liable to be allowed as an expenditure during the current year itself ? (2) Whether the Tribunal was correct in holding that in view of section 43B of the Act the excise duty paid is liable to be allowed despite the clear mandate of the provision not being understood in the proper perspective ? Held that- the excise duty paid by the assessee on goods manufactured but not sold during the year and reflected as closing stock during the year was liable to be allowed as an expenditure during the current year itself. Whether the Tribunal was correct in holding that excise duty, sales tax and scrap sales are not includible in the total turnover for the purpose of deduction under sections 80HHC and 80HHE of the Act ? Held that- while computing the total turnover for the purpose of section 80HHC, the Assessing Officer is required to consider the value received by the sale of scrap also, as it cannot be excluded as the sale of scrap amount to a turnover in the domestic market. The excise duty paid by assessee for selling scrap has to be excluded.

Issues:
1. Interpretation of excise duty as an allowable expenditure.
2. Application of section 43B of the Act.
3. Inclusion of excise duty, sales tax, and scrap sales in total turnover for deduction under sections 80HHC and 80HHE.

Issue 1 - Excise Duty as an Allowable Expenditure:
The Revenue challenged the order of the Income-tax Appellate Tribunal regarding the excise duty paid on goods manufactured but not sold during the year and reflected as closing stock. The Tribunal allowed the excise duty as an expenditure during the current year itself. The court noted that the Assessing Officer did not accept the deduction claimed by the assessee for the amount realized from the sale of scrap and excise duty paid thereon. The Commissioner of Income-tax (Appeals) affirmed this decision. However, the Income-tax Appellate Tribunal granted relief to the assessee, stating that the amount realized from the sale of scrap cannot be included in the total turnover. The court ultimately remanded the matter to the Assessing Officer for quantification of the deduction under section 80HHC, excluding the excise duty paid for selling scrap.

Issue 2 - Application of Section 43B of the Act:
The court did not delve into this issue as it was already considered in a previous case. Questions 1 and 2 were answered in favor of the assessee in a previous judgment, and hence, the court did not consider these questions again.

Issue 3 - Inclusion of Excise Duty, Sales Tax, and Scrap Sales in Total Turnover:
The main contention revolved around whether the value received by the assessee from selling scrap should be included in the total turnover for computing deductions under sections 80HHC and 80HHE. The Revenue argued that the value of scrap should be included as part of the total turnover. However, the court analyzed the definitions of export turnover and total turnover under section 80HHC and concluded that they are distinct. The court held that the value received from selling scrap in the domestic market constitutes turnover and should be included in the total turnover. The court disagreed with the judgments relied upon by the assessee, stating that those judgments did not consider the definitions of export turnover and total turnover. Consequently, the court answered the question of law in favor of the Revenue and remanded the matter to the Assessing Officer for quantification of the deduction under section 80HHC, specifically excluding the excise duty paid for selling scrap.

This detailed analysis of the judgment provides insights into the court's reasoning and decision-making process regarding the issues raised in the case.

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