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2016 (6) TMI 743 - HC - Income TaxComputing deduction u/s 80IA - inclusion of income from lab sample test - Held that - The appellant company has apparently disclosed the Lab Sample Test income only I unit-I whereas the deduction u/s.80IA has been allowed on Unit-II and Unit-III. While computing the business profit in these units, the A.O. has adopted the net profit as per the P&L account of that unit and has reduced other income being Lab Sample Test therefrom. As find that the said income has not been included in the first place in the Net Profit as per the P&L Account and therefore, the A.O. was not justified in reducing the same while computing the deduction u/s. 80IA. - Decided in favour of assessee Deduction u/s 80HHC - exclusion of sales tax and excise duty from the total turnover - Held that - Excise duty and sales tax also cannot form part of the total turnover under Section 80HHC(3), otherwise the formula becomes unworkable. In our view, sales tax and excise duty also do not have any element of turnover which is the position even in the case of rent, commission, interest etc. It is important to bear in mind that excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under Section 80HHC would become unworkable. The view which we have taken is in the light of amendments made to Section 80HHC from time to time. See Commissioner of Income Tax Versus Pogagen Amp Nagarsheth Powertronics Ltd. 2014 (3) TMI 934 - GUJARAT HIGH COURT - Decided in favour of assessee
Issues Involved
1. Inclusion of income from lab sample tests for computing deduction under Section 80IA of the Income Tax Act. 2. Exclusion of sales tax and excise duty from total turnover for the purpose of deduction under Section 80HHC of the Income Tax Act, despite the insertion of Section 145A. Detailed Analysis Issue 1: Inclusion of Income from Lab Sample Tests for Deduction under Section 80IA The first issue pertains to whether the income from lab sample tests should be included for the purpose of computing the deduction under Section 80IA. The Court reviewed the reasoning provided by the CIT (Appeals), which stated: "7.3. In the grounds of Appeal, it has been mentioned that the Lab Sample Test income has not been included by the appellant company in the profit of unit-II and unit-III and therefore, the A.O. was not justified in reducing such income while making the computation for deduction u/s. 80IA. I have considered the grounds of appeal. The appellant company has apparently disclosed the Lab Sample Test income only in unit-I whereas the deduction u/s.80IA has been allowed on Unit-II and Unit-III. While computing the business profit in these units, the A.O. has adopted the net profit as per the P&L account of that unit and has reduced 'other income' being Lab Sample Test therefrom. I find that the said income has not been included in the first place in the Net Profit as per the P&L Account and therefore, the A.O. was not justified in reducing the same while computing the deduction u/s. 80IA." The CIT (Appeals) directed the A.O. to increase the net profit in Unit-II by ?9,30,592 while computing the 30% deduction under Section 80IA. Consequently, the total deduction was recalculated as follows: - Net profit as computed: ?6,43,03,778 - Add back Lab Sample Test Income: ?9,30,592 - Total: ?6,52,34,370 - Deduction u/s 80IA 30% of above: ?1,95,70,311 The deduction for Unit-III made by the A.O. was confirmed at ?1,88,83,724, making the total deduction under Section 80IA ?3,84,54,035. The Court agreed with the Tribunal's findings and answered this issue in favor of the assessee. Issue 2: Exclusion of Sales Tax and Excise Duty from Total Turnover under Section 80HHC The second issue concerns whether the Appellate Tribunal was correct in excluding sales tax and excise duty from the total turnover for the purpose of deduction under Section 80HHC, despite the insertion of Section 145A. The Court noted that this issue was covered by the decision in Tax Appeal No.884/2006 and allied matters, dated 03.12.1994, where it was observed: "We are of the opinion that the substantial question of law raised in the present tax appeals is now not res integra and the same is squarely covered against the Revenue by the decisions of the Hon'ble Supreme Court in the cases of Lakshmi Machine Works (Supra) and Shiva Tex Yarn Ltd. (Supra)." The Supreme Court in the Lakshmi Machine Works case held that: "Excise duty and sales tax do not have any element of 'turnover'. They are indirect taxes recovered by the assessee on behalf of the Government. Therefore, if they are made relatable to exports, the formula under Section 80HHC would become unworkable." This interpretation was followed even after the insertion of Section 145A, as confirmed in the Shiva Tex Yarn Ltd. case. Thus, the Court concluded that sales tax and excise duty should be excluded from the total turnover for the purpose of Section 80HHC deduction. This issue was also answered in favor of the assessee. Conclusion The Court affirmed the Tribunal's decision on both issues, ruling in favor of the assessee. The income from lab sample tests should be included for computing the deduction under Section 80IA, and sales tax and excise duty should be excluded from the total turnover for the purpose of deduction under Section 80HHC.
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