ITAT rules in favor of assessee on deductions under sections 80HHC and 145A.

The ITAT allowed both appeals in favor of the assessee. Regarding the disallowance of deduction under section 80HHC on the sale of DEPB, the ITAT directed the Assessing Officer to grant relief to the assessee based on a Supreme Court ruling. In the case of disallowance under section 145A for closing stock valuation, the ITAT directed the AO to restrict the addition and align with consistent practices, ultimately allowing the appeal for AY 2007-08.

---

---

Issues:
1. Disallowance of deduction u/s 80HHC on sale of DEPB.
2. Disallowance under section 145A for closing stock valuation.

Issue 1: Disallowance of deduction u/s 80HHC on sale of DEPB:
The assessee, engaged in the pharma business, appealed against the disallowance of deduction u/s 80HHC on DEPB sale. Initially, the DEPB license income was excluded from profits eligible for deduction u/s 80HHC, and the appeal to CIT(A) was dismissed. The Tribunal restored the matter to the Assessing Officer, who maintained the original findings. The assessee cited a Bombay High Court decision in their favor, but the CIT(A) upheld the disallowance. The assessee then appealed to ITAT, presenting a Supreme Court decision favoring their case. ITAT, noting the similarity of facts and the absence of contrary evidence, directed the Assessing Officer to grant relief to the assessee based on the Supreme Court ruling, allowing the appeal.

Issue 2: Disallowance under section 145A for closing stock valuation:
In the appeal for AY 2007-08, the assessee challenged the addition made by the AO under section 145A for closing stock valuation. The CIT(A) had dismissed a similar ground in AY 2005-06, citing the inclusion of excise duty liability in inventory valuation. The matter was taken to ITAT, which had previously decided in favor of the assessee for AY 2005-06. The ITAT directed the AO to restrict the addition and delete a portion of it, aligning with the principle that adjustments in stock valuation affect both opening and closing stock. The ITAT found the AO erred in disallowing the adjustment under section 145A and directed the AO to restrict the addition based on consistent practices followed for preceding years, ultimately allowing the appeal.

In conclusion, both appeals were allowed by ITAT based on the legal discussions and precedents cited, providing relief to the assessee in both cases.

---