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TMI Blog2003 (9) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... right in law in holding that interest from customers, sales tax set-off and other refunds, claims, etc., do not form part of the business profit for calculating deduction under section 80HHC ?" The assessee is a public limited company engaged in the business of manufacture, designing and commissioning of complete plants for dairy and food processing industry. Question No.1: In the assessment year in question, the assessee had written off a sum of Rs. 28,00,000 under the head manufacturing and other expenses. The assessee explained that the write off is mainly on account of obsolete items which were not moving for the last three years, in view of the change in designs or specifications due to its technological upgradation. Accordingly, the assessee had valued the closing stock of obsolete items at 10 per cent. of the cost. The Assessing Officer held that the assessee has neither furnished the list of obsolete items nor produced any records to show that the items were not moving. The Assessing Officer took the realisable value of obsolete items at 50 per cent. of the cost and accordingly added back Rs. 15,15,656. On appeal filed by the assessee, the Commissioner of Income-tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at market value or at cost whichever is lower. It is also not in dispute that the value of the closing stock has been taken as the value of the opening stock in the subsequent year. Moreover, it is also not disputed that the obsolete items were in fact sold in the subsequent year at a price less than 10 per cent. of the cost. Under the circumstances, it could not be said that the valuation of the obsolete items done by the assessee and certified by the auditors was not proper or arbitrary. The Assessing Officer in fact has arbitrarily valued the items in question at 50 per cent. of the cost without disclosing the basis of such valuation. The Assessing Officer had not doubted the correctness of the certificate of the auditors regarding the valuation of obsolete items. The summary of the obsolete items was before the Assessing Officer. There is nothing on record to show that the assessee was called upon to furnish the list of obsolete items or that the assessee was called upon to establish that the items were not moving for three years. Under these circumstances, it could not be said that the assessee has failed to furnish list of obsolete items and failed to establish that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided as per specified life determined according to the rules of depreciation prescribed under the Income-tax Rules. In compliance with the circulars of the Company Law Board, the assessee had reworked the depreciation on the straight line method on the basis of specified life determined in accordance with the provisions of the Companies Act, 1956, for the respective years in which the assets were added/installed up to December 31, 1987. He submitted that the resulting higher depreciation provided up to December 31, 1987, amounting to Rs. 81,33,607 has been adjusted from the current period's depreciation charge in the profit and loss account. This change in method of providing depreciation, he submitted, has resulted in reduced depreciation/increased profit before tax amounting to Rs. 81,33,607 for the above period. Mr. Inamdar submitted that the depreciation write back was necessitated on account of implementing the circulars issued by the Company Law Board. Therefore, the amount written back could not be read as the amount written off so as to reduce the same from the profits for working out the relief under section 32AB of the Act. Mr. Desai, learned senior advocate for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1956, the Tribunal could not have held that the assessee has erroneously increased the profit. The increased profits arising on account of implementation of the circulars of the Company Law Board were not excludible from the book profits for the purpose of relief under section 32AB of the Income-tax Act. Accordingly, we answer question No.2 in the negative that is in favour of the assessee and against the Revenue. Question No.3: Although the third question framed by the assessee pertains to the interest from customers, sales tax set off and other refunds, claims, etc., being not treated as part of the business profit, at the hearing of the appeal, Mr. Inamdar submitted that the claim is restricted only to the interest from customers and sales tax set off. Therefore, the question to be considered is, whether the Tribunal was justified in holding that the interest from customers and sales tax set off do not form part of the business profit for calculating deduction under section 80HHC? In the assessment year in question, the assessee made a claim of Rs. 1,20,51,817 under section 80HHC of the Act, based on the profits as per the return of income. The profits computed under the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of this court in the case of CIT v. Bangalore Clothing CO. [2003] 260 ITR 371, Mr. Inamdar submitted that the amounts in question being part of operational income, the same could not be excluded for the purposes of deduction under section 80HHC of the Act. Mr. Desai, learned counsel for the Revenue, on the other hand, submitted that the income shown under the caption "Other income" had no nexus with the business of the assessee. He submitted that there is nothing on record to show that the income from portfolio management shown under caption "Other income" was related to the business of the assessee. He relied upon the decisions of this court in the cases of Sudarshan Chemicals [2000] 245 ITR 769; S.G. Jhaveri Consultancy Ltd. [2000] 245 ITR 854 and the decision of this court in the case of CIT v. K.K. Doshi and Co. [2000] 245 ITR 849 and submitted that the amounts in question were not part of the operational income and hence not includible for computing deduction under section 80HHC of the Income-tax Act. In our opinion, the submissions made on behalf of the assessee deserve to be accepted. In the present case, the Assessing Officer has computed the income by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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