2011 (1) TMI 1305 - AT - Income Tax

Issues Involved:
1. Rejection of revised return.
2. Exchange rate fluctuation/difference as part of total turnover for deduction u/s 80HHC.
3. Sales of scrap as part of total turnover for deduction u/s 80HHC.
4. Reduction of unrealized export turnover for computing deduction u/s 80HHC.
5. Deduction u/s 80HHC for computation of book profits under sec. 115JA.
6. Deduction u/s 80IA for computation of book profits under sec. 115JA.
7. Allocation of expenses to Silvassa unit for deduction u/s 80IA.
8. Disallowance of revenue expenses as pre-operative expenses.
9. Disallowance of depreciation u/s 32.
10. Weighted deduction u/s 35(2AB) for R&D expenses.
11. Exclusion of insurance claim from total turnover for deduction u/s 80HHC.
12. Exclusion of sales tax and excise duty from total turnover for deduction u/s 80HHC.
13. Exclusion of net interest income from profits of business for deduction u/s 80HHC.
14. Exclusion of net lease rent from profits of business for deduction u/s 80HHC.
15. Treatment of operational charges for computing deduction u/s 80HHC.
16. Bifurcation of overseas promotional expenses for computing export trading profits for deduction u/s 80HHC.

Detailed Analysis:

1. Rejection of Revised Return:
The assessee's revised returns were filed within the stipulated time under section 139(5) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) [CIT(A)] concluded that there was no adverse impact on the assessee as the computation of income was based on the second revised return. The issue was deemed academic and dismissed.

2. Exchange Rate Fluctuation/Difference:
The CIT(A) upheld the inclusion of exchange rate fluctuation in the total turnover for computing deduction u/s 80HHC. However, the Tribunal found that such receipts do not have an element of turnover and should not form part of total turnover. The appeal was allowed in favor of the assessee.

3. Sales of Scrap:
The CIT(A) treated sales of scrap as part of total turnover for computing deduction u/s 80HHC. The Tribunal disagreed, stating that scrap sales do not have an element of turnover and should not be included in the total turnover. The appeal was allowed in favor of the assessee.

4. Reduction of Unrealized Export Turnover:
The assessee did not press this ground. Accordingly, it was dismissed.

5. Deduction u/s 80HHC for Book Profits:
The CIT(A) upheld the computation based on taxable profits. The Tribunal directed the AO to allow deduction u/s 80HHC based on adjusted book profits, following the Supreme Court decision in Ajanta Pharma Ltd. The appeal was allowed in favor of the assessee.

6. Deduction u/s 80IA for Book Profits:
The CIT(A) did not adjudicate this ground. The Tribunal directed the CIT(A) to adjudicate the issue after allowing sufficient opportunity to both parties.

7. Allocation of Expenses to Silvassa Unit:
The CIT(A) did not decide this ground. The Tribunal directed the CIT(A) to adjudicate the issue after allowing sufficient opportunity to both parties.

8. Disallowance of Revenue Expenses:
The CIT(A) upheld the AO's disallowance of expenses as pre-operative. The Tribunal found that complete facts were not evident and remanded the matter to the CIT(A) for a fresh decision.

9. Disallowance of Depreciation:
The CIT(A) allowed the assessee's claim that depreciation cannot be thrust upon them. The Tribunal vacated the CIT(A)'s findings and directed the AO to allow depreciation and compute deductions u/s 80IA accordingly. The appeal was allowed in favor of the Revenue.

10. Weighted Deduction u/s 35(2AB):
The CIT(A) allowed the deduction based on the prescribed authority's approval. The Tribunal upheld this decision, finding no reason to interfere. The appeal was dismissed.

11. Exclusion of Insurance Claim:
The CIT(A) directed the exclusion of insurance claims from total turnover. The Tribunal upheld this decision, finding no reason to interfere. The appeal was dismissed.

12. Exclusion of Sales Tax and Excise Duty:
The CIT(A) directed the exclusion of sales tax and excise duty from total turnover. The Tribunal upheld this decision based on the Supreme Court's ruling in Lakshmi Machine Works. The appeal was dismissed.

13. Exclusion of Net Interest Income:
The CIT(A) directed to exclude 90% of net interest income. The Tribunal vacated the CIT(A)'s findings and remanded the issue for fresh adjudication in light of judicial pronouncements. The appeal was disposed of with directions.

14. Exclusion of Net Lease Rent:
The CIT(A) directed to exclude 90% of net lease rent. The Tribunal vacated the CIT(A)'s findings and remanded the issue for fresh adjudication. The appeal was disposed of with directions.

15. Treatment of Operational Charges:
The CIT(A) held that the entire operational charges were business income. The Tribunal vacated the CIT(A)'s findings and remanded the issue for fresh adjudication. The appeal was disposed of with directions.

16. Bifurcation of Overseas Promotional Expenses:
The CIT(A) accepted the assessee's bifurcation of expenses. The Tribunal upheld this decision, finding no reason to interfere. The appeal was dismissed.

Conclusion:
Both appeals were partly allowed for statistical purposes, with directions for fresh adjudication on certain issues.

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