2011 (6) TMI 885 - AT - Income Tax

Tribunal sides with taxpayer on deductions & expenses, upholding CIT (A) orders.

The Tribunal dismissed the Revenue's appeal and partly allowed the Cross Objections of the assessee. The decision favored the assessee on various issues, ... - Issues Involved:1. Deduction u/s 80HHC before reducing deductions u/s 80IA and 80G.2. Exclusion of Sales Tax and Excise Duty from total turnover for deduction u/s 80HHC.3. Disallowance of Rs. 20,72,017 u/s 80IA for captive power plant.4. Allocation of expenses for deduction u/s 80IB.5. Disallowance u/s 43B for unpaid superannuation fund.6. Disallowance of Rs. 2,67,319 u/s 14A.7. Deduction u/s 80HHC on DEPB Licenses and other incomes.Summary:Issue 1: Deduction u/s 80HHC before reducing deductions u/s 80IA and 80GThe Tribunal upheld the CIT (A)'s direction to allow deduction u/s 80HHC independently before reducing deductions u/s 80IA and 80G, following the precedent set in the case of M/s. Atul Intermediates vs. ITO. The Tribunal rejected the Revenue's appeal, favoring the assessee based on the Bombay High Court's decision in Associated Capsules P. Ltd. vs. DCIT and the principle that when two views are possible, the one favorable to the assessee should be followed.Issue 2: Exclusion of Sales Tax and Excise Duty from total turnover for deduction u/s 80HHCThe Tribunal found that the issue was covered in favor of the assessee by the Supreme Court's judgment in CIT vs. Lakshmi Machine Works, which held that sales tax and excise duty should not be included in the total turnover for the purpose of section 80HHC. The Tribunal declined to interfere with the CIT (A)'s order.Issue 3: Disallowance of Rs. 20,72,017 u/s 80IA for captive power plantThe Tribunal upheld the allocation of common headquarter expenses to the CPP unit, agreeing with the CIT (A) that such expenses should be apportioned. The Tribunal also noted that the issue of setting off losses from other units was of academic interest only, as the CIT (A)'s order on interest expense allocation had become final.Issue 4: Allocation of expenses for deduction u/s 80IBThe Tribunal upheld the allocation of salary, administrative, and general expenses to the Daman and Baddi units for computing deduction u/s 80IB, rejecting the assessee's contention that no part of common expenses should be allocated. The Tribunal found the allocation reasonable and supported by the CIT (A).Issue 5: Disallowance u/s 43B for unpaid superannuation fundThe Tribunal rejected the need for a specific direction to allow the deduction u/s 43B in the year of payment, noting that the provision itself mandates such allowance.Issue 6: Disallowance of Rs. 2,67,319 u/s 14AThe Tribunal remitted the matter back to the AO for fresh decision, considering the judgments of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT and the Kerala High Court in CIT vs. Catholic Syrian Bank Ltd. & Others.Issue 7: Deduction u/s 80HHC on DEPB Licenses and other incomesThe Tribunal remitted the issue back to the AO for fresh decision in light of the Bombay High Court's decision in CIT vs. Kalpataru Colours & Chemicals. The Tribunal also upheld the exclusion of 90% of service charges, miscellaneous income, and miscellaneous balance written off from business profit, following the Supreme Court's decision in CIT vs. K. Ravindranathan Nair. Regarding interest subsidy, the Tribunal directed that only the subsidy related to the present year should be reduced from interest expenses, while the subsidy related to earlier years should be excluded from business profit.Conclusion:The appeal of the Revenue was dismissed, and the Cross Objections of the assessee were partly allowed as per the detailed discussions above.