2012 (12) TMI 598 - AT - Income Tax

Deduction u/s 80HHC - AO to recompute the deduction u/s 80 HHC by reducing the 90% of the net amount and not gross amount of interest & rent income Held that - Following the decision in case of ACG Capsules (P) Ltd. (2012 (2) TMI 101 - SUPREME COURT OF INDIA) wherein it has been held that ninety percent of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head PGBP , was to be deducted under clause (1) of Explanation (baa) to section 80 HHC for determining the profits of the business. Appeal allow in favour of assessee & issue remand back to AO Adjustment in Profit for claiming deduction u/s 80HHC Whether insurance claim received by the assessee on stock in trade is liable to be reduced to the extent of 90% received while calculating the eligible profits Held that - As the insurance claim received on damage of goods/raw material and has direct nexus with the business income. Therefore, insurance claim received by the assessee on stock in trade is not liable to be reduced to the extent of 90% received while calculating the eligible profits. Issue decides in favour of assessee. Adjustment of VAT refund in computing eligible profit u/s 80HHC Whether Sales Tax remission/refund has been included as business profits it is eligible for deduction u/s 80 HHC - VAT refund received are on revenue account and routed through profit and loss account Held that - Following the decision in case of Alfa Laval India Ltd. (2003 (9) TMI 43 - BOMBAY HIGH COURT) The expenses on these accounts have earlier inflated the cost of purchases / production cost and, therefore, these receipts are nothing but abatement of purchase / production cost and is thus integral part of the manufacturing operations and has to be assessed under the head PGBP. Appeal decides in favour of assessee.

Summary

Issues Involved:
1. Computation of deduction under section 80HHC based on company as a whole vs. each business unit separately.
2. Exclusion of export turnover and total turnover of a specific unit while computing deduction under section 80HHC.
3. Treatment of interest income and insurance claim in computing deduction under section 80HHC.
4. Reduction of business receipts like VAT refund while computing profits for section 80HHC.

Analysis:

1. Computation of Deduction under Section 80HHC:
The appellant contested the order confirming the Assessing Officer's computation of deduction under section 80HHC based on the entire company instead of each business unit separately. The Tribunal referred to the appellant's separate books of accounts for different businesses. However, it was noted that no separate unit-wise allocation was shown in Form 10CCAC. Consequently, the Tribunal dismissed this ground due to the lack of unit-wise accounts presented.

2. Exclusion of Turnover for Specific Unit:
The appellant challenged the exclusion of export turnover and total turnover of a specific unit while computing deduction under section 80HHC. Citing relevant judicial decisions, the Tribunal decided to restore this issue to the Assessing Officer for recomputing the deduction in line with the law, allowing the appellant a reasonable opportunity of hearing. This ground was allowed for statistical purposes.

3. Treatment of Interest Income and Insurance Claim:
Regarding the treatment of interest income, the Tribunal directed the Assessing Officer to reduce 90% of the net amount, not the gross amount, while computing deduction under section 80HHC. This decision aligned with a Supreme Court ruling emphasizing the deduction of the net interest amount. Additionally, the Tribunal held that insurance claims received on stock in trade should not be reduced by 90% while calculating eligible profits under section 80HHC. The Tribunal allowed this ground, emphasizing the direct nexus of insurance claims with business income.

4. Reduction of Business Receipts:
The appellant contested the reduction of business receipts like VAT refund while computing profits for section 80HHC. Relying on relevant decisions, the Tribunal allowed this claim, stating that VAT refunds, being integral to manufacturing operations, should be treated as income derived from such operations. The Tribunal allowed this ground, considering the submissions made by the appellant and the absence of any contradictory facts.

In conclusion, the Tribunal partially allowed the appeal, addressing various issues related to the computation of deduction under section 80HHC, exclusion of turnover for specific units, treatment of interest income and insurance claims, and reduction of business receipts like VAT refunds. The decisions were based on relevant legal precedents and considerations of the direct impact on the appellant's business operations.