2013 (12) TMI 533 - AT - Income Tax

ITAT decision on depreciation, interest disallowance, turnover exclusion, and DEPB for deduction under section 80HHC

The ITAT upheld the AO's computation of depreciation, disallowance of interest on borrowings, and exclusion of excise duty from total turnover. However, ... Disallowance of depreciation – Held that:- Following Plastiplends India Ltd. vs. ACIT [2009 (10) TMI 39 - BOMBAY HIGH COURT] - For the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under section 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation – Decided against assessee. Disallowance of interest on borrowings – Held that:- both the parties have separate submissions – The issue was restored to examine the issue in the light of fund flow statements and also on the basis of section 14A(2) to examine whether at all with the correctness of the cash flow statement, any disallowance could be made u/s 14A and then section 36(1)(iii) - The disallowance shall be looked into from both the angels, i.e. 36(1)(iii) and section 14A. Bad Debts – Held that:- If the bad debts are written off in the books of accounts, the claim is allowable – Assessee neednot prove irrecoverability of such debts - Decided against Revenue. Excise Duty – To be included in total turnover or not – Held that:- Following CIT vs. Sudarshan Chemicals Industries Ltd. [2000 (8) TMI 73 - BOMBAY High Court] - Sales tax and excise duties are levied under the separate enactments which have different objects. We are concerned with section 80HHC which is a separate code by itself. Hence, the general definition of the word turnover or the case law dealing with the said definition under the Sales Tax Act which is a State levy, cannot be imported into section 80HHC – Decided against Revenue. Amount received on sale of DEPB – whether represents profit u/s 80HHC - Held that:- Following Topman Export vs. CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] - Where DEPB accrues to the assessee in one previous year and it transfers the DEPB certificate in another previous year, only ninety per cent of the profits on the transfer of the DEPB covered under cl. (iiid) of s. 28 and not ninety per cent of the entire sale value including the face value of the DEPB has to be excluded to arrive at the 'profits of the business' under cl. (baa) of Explanation to s. 80HHC - The issue was restored for fresh decision. Issues:1. Depreciation claimed by the assessee2. Disallowance of interest on borrowings3. Exclusion of excise duty from total turnover4. Exclusion of DEPB from eligible profits for deduction u/s 80HHCIssue 1: Depreciation claimed by the assesseeThe assessee claimed depreciation at Rs. 25,90,00,918, but the AO computed it at Rs. 21,80,55,063. The CIT(A) sustained the AO's computation. The AR cited a Full Bench judgment of the Bombay High Court approving the AO's action, and the ITAT upheld the decision based on the precedent, rejecting the assessee's appeal.Issue 2: Disallowance of interest on borrowingsThe assessee claimed interest of Rs. 6,68,53,542 as business expense, but the AO disallowed it, alleging the funds were used for investments in shares. The CIT(A) upheld the AO's decision. The AR argued for consistency with past assessments and requested similar directions. The ITAT agreed and directed the AO to reexamine the issue considering fund flow statements and Section 14A, ensuring proper adjudication with adequate opportunity for the assessee.Issue 3: Exclusion of excise duty from total turnoverThe CIT(A) relied on a Bombay High Court decision stating that excise duty should not be part of total turnover. The ITAT, respecting the jurisdictional High Court's ruling, upheld the CIT(A)'s decision, rejecting the department's appeal on this ground.Issue 4: Exclusion of DEPB from eligible profits for deduction u/s 80HHCReferring to a Supreme Court judgment, the ITAT directed the AO to recompute the deduction u/s. 80HHC concerning DEPB license and other export incentives. Following the Supreme Court's decision, the ITAT treated the department's appeal as allowed for statistical purposes. The appeal filed by the department was allowed in part, and that of the assessee was partly allowed for statistical purposes.---