2014 (2) TMI 797 - HC - Income Tax

Entitlement for depreciation - Whether the Tribunal was justified in law in holding that Vibro Bed Drier is an item covered Under Appendix-1/H-III/(3)(III) of the Income Tax Rule 1962 and is entitled for 100% depreciation Held that - The instrument is a waste heat recovery equipment and is also energy economiser enabling a saving of over 40% as compared to conventional dryer the Tribunal held that the energy efficient instrument was considered to fall within the relevant entry of the schedule and therefore 100% depreciation was allowed - The question is a mixed question of fact and law - The department did not try to lead any evidence to show that the instrument in question cannot be brought within entry 3B or 3C of the schedule thus, the order of the Tribunal upheld Decided against Revenue. Valuation of Closing stock Deduction u/s 43B of the Act - Whether the Tribunal was justified in law in holding that valuation of closing stock is to be made ignoring the amount of cess paid when the same was debited, and the net effect will be nil on deduction of the same has to be allowed from the income of next year Held that - The decision in Berger Paints India Ltd. Versus Commissioner of Income-Tax 2004 (2) TMI 4 - SUPREME Court and Lakhanpal National Limited Versus Income-Tax Officer 1986 (3) TMI 42 - GUJARAT High Court followed - The entire amount of excise duty/customs duty paid by the assessee in a particular accounting year was an allowable deduction in respect of that year irrespective of the amount of excise duty/customs duty which was included in the valuation of the assessee s closing stock at the end of the accounting year Decided against Revenue. Deduction u/s 80HHC of the Act Export turnover - Whether the Tribunal was justified in holding that the export turnover should be the total of the amount brought to India and the amount paid as brokerage/commission outside India ignoring the fact that the amount paid as brokerage/commission was not made by appropriate remittances from India Held that - The amount of commission or brokerage paid outside India was never received or brought into the country by the exported - The money spent on account of brokerage or commission was deducted from the price of the goods and the balance amount even according to the assessee was received in the country in foreign exchange thus, the view taken by the revenue is correct - Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Income Tax Rule 1962 regarding 100% depreciation for Vibro Bed Drier.
2. Valuation of closing stock with regard to cess paid.
3. Calculation of export turnover considering brokerage/commission paid outside India.

Issue 1: Interpretation of Income Tax Rule 1962 regarding 100% depreciation for Vibro Bed Drier:
The first issue in this case revolved around whether Vibro Bed Drier qualifies for 100% depreciation under Appendix-1/H-III/(3)(III) of the Income Tax Rule 1962. The Appellate Tribunal allowed the depreciation based on the reduction in electricity consumption by 40%, considering it as a waste heat recovery equipment. The Tribunal relied on expert opinions and previous judgments to support its decision. The High Court upheld the Tribunal's decision, stating that the instrument fell within the relevant entry of the schedule, and the department failed to provide evidence to the contrary. The Court found no fault with the Tribunal's views, emphasizing the mixed question of fact and law involved.

Issue 2: Valuation of closing stock with regard to cess paid:
The second issue dealt with the valuation of closing stock concerning the amount of cess paid. The revenue argued that the cess paid should be included in the closing stock valuation based on a Supreme Court judgment. However, the assessee relied on a different judgment to support their position. The High Court analyzed the conflicting judgments and concluded that the revenue's contention would lead to disallowance of deduction under Section 43B in the subsequent year. Therefore, the Court ruled in favor of the assessee, allowing the deduction related to cess paid in the closing stock valuation.

Issue 3: Calculation of export turnover considering brokerage/commission paid outside India:
The third issue focused on the calculation of export turnover, specifically regarding brokerage/commission paid outside India. The revenue argued that only amounts received and brought into India should be considered for benefits under Section 80 HHC. The assessee, on the other hand, cited judgments to support including commission paid outside India in the turnover calculation. The High Court analyzed the relevant legal provisions and judgments cited, ultimately ruling against the assessee. The Court held that the commission paid outside India cannot be treated as received or brought into the country, aligning with the language of Explanation (b) to Section 80 HHC.

In conclusion, the High Court's judgment addressed the intricate legal issues surrounding depreciation eligibility, stock valuation, and export turnover calculation, providing detailed analysis and reasoning for each issue.