Depreciation, transfer pricing tolerance, and section 80HHC turnover rules shape tax computation and remand issues
Depreciation was allowed on vehicles registered in directors' names because beneficial ownership with the assessee was accepted. The transfer pricing adjustment was remanded for fresh examination since the record did not clearly show whether the variation exceeded the five per cent tolerance under section 92C. In computing deduction under section 80HHC, sales tax and excise duty were excluded from total turnover because items unrelated to export activity could not distort the formula. Interest from customers was treated as part of business profits, while scrap sales and insurance claim receipts required further factual verification and were remanded.
Issues: (i) Whether depreciation was allowable on vehicles purchased in the names of the directors; (ii) whether the transfer pricing adjustment required reconsideration in light of the five per cent tolerance under section 92C; (iii) whether sales tax and excise duty were to be excluded from total turnover while computing deduction under section 80HHC; and (iv) whether interest from customers, insurance claim and scrap sales were to be treated as business profits for section 80HHC.
Issue (i): Whether depreciation was allowable on vehicles purchased in the names of the directors.
Analysis: The claim was treated as covered by the assessee's beneficial ownership of the vehicles, and the earlier view in the assessee's own case was followed.
Conclusion: The issue was decided in favour of the assessee and against the revenue.
Issue (ii): Whether the transfer pricing adjustment required reconsideration in light of the five per cent tolerance under section 92C.
Analysis: The material on record did not clearly establish whether the price variation exceeded the statutory tolerance. The second proviso to section 92C deems the declared transaction price to be the arm's length price where the variation does not exceed five per cent, and the matter required proper factual examination.
Conclusion: The issue was remanded to the Assessing Officer for fresh consideration.
Issue (iii): Whether sales tax and excise duty were to be excluded from total turnover while computing deduction under section 80HHC.
Analysis: The formula under section 80HHC was required to be read schematically, and items having no nexus with export activity could not be included in total turnover if that would make the formula unworkable. Sales tax and excise duty were treated as outside the relevant turnover computation.
Conclusion: The issue was decided in favour of the assessee and against the revenue.
Issue (iv): Whether interest from customers, insurance claim and scrap sales were to be treated as business profits for section 80HHC.
Analysis: Interest from customers was treated as part of sale proceeds and therefore as eligible for the deduction computation. For scrap sales and insurance claim, the factual details had not been properly examined, and the character of the receipts needed verification before a final inclusion decision could be made.
Conclusion: The issue was partly decided in favour of the assessee, while the parts relating to scrap sales and insurance claim were remanded for fresh examination.
Final Conclusion: The revenue's appeal did not succeed on the main legal questions regarding depreciation and computation under section 80HHC, but the transfer pricing and certain receipt-related aspects were sent back for reconsideration, leaving the appeal only partly successful from the revenue's perspective.
TaxTMI 
AI Drafter ✕
TaxTMI 
