2014 (1) TMI 73 - AT - Income Tax

Deletion of Disallowance on account of excess claim of Deduction u/s 10B of the Act Held that - Both section 80HHC & 10B deal with computation of deduction of total income on account of export profits - The manner of computation of export profit for the purpose of section 10B is given in section 10B(4) for the exports of 100% export oriented units while it is given in section 80HHC(3)(a) for exports by others Following C.I.T. vs. Lakshmi Machine works 2007 (4) TMI 202 - SUPREME Court - the excise duty and sales tax have be excluded from the total turnover - the export turnover does not include excise duty, so the total turnover should also not include excise duty - section 145A(1) requires that the excise duty should be taken into account for determination of income and not for the purpose of computation of export profit. It cannot be construed as apparent mistake liable to be rectified u/s. 154 of the I.T. Act - Relying upon T.S. Balram, ITO vs. Vokart Brothers & Others 1971 (8) TMI 3 - SUPREME Court - a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions Decided against Revenue. Deletion of Disallowance on account of depreciation on plant and machinery of non-functional units Held that - Following Commissioner of Income Tax Versus Oswal Agro Mills Ltd. & Oswal Chemicals and Fertilizers Ltd. 2010 (12) TMI 947 - Delhi High Court - As per amended s. 32, deduction is to be allowed in the case of any block of assets, such percentage on the WDV thereof as may be prescribed as per Circular No. 469, dt. 23rd Sept., 1986 - the depreciation was allowable on the basis of concept of block of assets - The Revenue is not put to any loss by adopting such method and allowing depreciation on a particular asset, forming part of the block of assets even when that particular asset is not used in the relevant assessment year - Whenever such an asset is sold, it would result in short term capital gain which would be exigible to tax and for this reason, we say that there is no loss to Revenue either Decided against Revenue.

Summary

Issues:
1. Disallowance of excess claim of deduction u/s. 10B of the I.T. Act.
2. Disallowance of depreciation on plant and machinery of non-functional units.

Issue 1: Disallowance of excess claim of deduction u/s. 10B of the I.T. Act:

The case involved an appeal by the Revenue against the deletion of disallowance made by the Assessing Officer regarding the excess claim of deduction u/s. 10B of the I.T. Act. The Assessing Officer contended that the deduction claimed by the assessee was excessively allowed. The dispute centered around the treatment of excise duty in the calculation of total turnover for the purpose of claiming deduction u/s. 10B. The Ld. Commissioner of Income Tax (A) held that the provisions of Section 10B(4) were similar to those in Section 80HHC(3)(a) and relied on the judgment of the Hon'ble Supreme Court in Lakshmi Machine Works. It was concluded that excise duty on indigenous sales should not be included in the total turnover for computing eligible profits. The Tribunal agreed with this interpretation, citing similar provisions and judicial precedents. It was held that excise duty should not be included in export turnover or total turnover for calculating deductions under section 10B.

Issue 2: Disallowance of depreciation on plant and machinery of non-functional units:

The second issue revolved around the disallowance of depreciation on plant and machinery of non-functional units by the Assessing Officer. The Revenue contended that since the units were not functional, depreciation should not be allowed on the assets. However, the Ld. Commissioner of Income Tax (A) ruled in favor of the assessee, drawing parallels with a case involving Oswal Agro Mills Ltd. The Ld. Commissioner held that the concept of block of assets allowed for depreciation even if a particular asset within the block was not actively used. The Tribunal concurred with this reasoning, emphasizing that user of each asset within a block was not essential for claiming depreciation. The decision was supported by the judgment in C.I.T. vs. Oswal Agro Mills Ltd., which clarified that maintaining details of each asset separately was not required for allowing depreciation on a block of assets. Consequently, the Tribunal upheld the Ld. Commissioner's order, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed both appeals filed by the Revenue, affirming the decisions of the Ld. Commissioner of Income Tax (A) in both issues. The judgments and precedents cited in the analysis provided a solid legal basis for the decisions rendered.