2010 (9) TMI 784 - AT - Income Tax

Tribunal upholds AO's calculation method for deduction under section 80HHF, emphasizes statutory compliance and holistic tax approach.

Sri Adhikari Bros. Television Networks Ltd. Versus Assistant Commissioner of Income-tax, Circle 11(1), Mumbai

Sri Adhikari Bros. Television Networks Ltd. Versus Assistant Commissioner of Income-tax, Circle 11(1), Mumbai - TMI Issues Involved:1. Computation of deduction under section 80HHF.2. Inclusion of unrealized export turnover in total turnover.3. Allowance of depreciation on office premises.4. Charging of interest under sections 234B and 234C.Detailed Analysis:1. Computation of Deduction under Section 80HHF:The primary issue revolves around the computation of the deduction under section 80HHF. The assessee, engaged in the business of making television software, claimed a deduction of Rs. 11.53 crores under section 80HHF as export profits. The Assessing Officer (AO) observed discrepancies between the total turnover and the export turnover figures provided by the assessee. The AO proposed a proportionate calculation of the deduction, which significantly reduced the claim to Rs. 2.86 crores. The assessee contended that the export business was distinct and maintained separate books of account, thus deserving the entire claimed deduction. The Commissioner of Income-tax (Appeals) [CIT(A)] sided with the assessee, allowing a deduction of Rs. 10.52 crores based on the separate books of account and allocation of indirect expenses. However, the Tribunal upheld the AO's method, emphasizing that the business of producing and purchasing TV serials, whether for export or domestic market, constituted a single composite business. The Tribunal clarified that the computation of deduction under section 80HHF must follow the formula provided in subsection (3), involving the proportionate calculation based on total turnover, rejecting the notion of treating the export business as separate.2. Inclusion of Unrealized Export Turnover in Total Turnover:The AO excluded Rs. 4.45 crores from the export and total turnover, representing unrealized export debtors without RBI certification for extension. The CIT(A) included Rs. 4.41 crores in the total turnover based on additional evidence provided by the assessee. The Tribunal remanded this issue back to the AO for re-evaluation, directing a fresh examination of the includible amount in the export and total turnover as per law, ensuring a fair opportunity for the assessee to present their case.3. Allowance of Depreciation on Office Premises:The assessee claimed depreciation on office premises acquired from WRPL, which included payments for shares and construction contribution. The AO disallowed the depreciation, treating the premises as stock-in-trade of WRPL. The CIT(A) allowed depreciation on the construction contribution but not on the share consideration. The Tribunal, however, concluded that the total payment of Rs. 4.44 crores (including shares and construction contribution) was aimed at acquiring, using, and occupying the premises, thus entitling the assessee to depreciation on the entire amount. The Tribunal emphasized that the assessee's right to use and occupy the premises, akin to ownership, justified the depreciation claim under section 32(1).4. Charging of Interest under Sections 234B and 234C:The issue of charging interest under sections 234B and 234C was deemed consequential and disposed of accordingly, depending on the final tax liability after the re-computation of deductions and adjustments as directed by the Tribunal.Conclusion:The Tribunal's judgment provided a detailed analysis of the computation of deductions under section 80HHF, emphasizing the need for proportionate calculation based on total turnover. It also addressed the inclusion of unrealized export turnover, allowing for a re-evaluation by the AO. The Tribunal granted depreciation on the entire amount paid for office premises, recognizing the assessee's right to use and occupy the premises. The issue of interest under sections 234B and 234C was treated as consequential. The judgment underscores the importance of adhering to statutory provisions and the holistic view of business activities in tax computations.