Tribunal decision: 100% depreciation allowed for VFBD, cess deletion, export turnover review. Section 80HHC deduction dispute dismissed.

The Tribunal allowed the appeal in part, directing 100% depreciation on the Vibro Fluid Bed Drier (VFBD), deleting the addition to closing stock for cess, and restoring the matter of 'export turnover' to the AO for further examination. However, the Tribunal dismissed the assessee's grievance regarding the calculation of Section 80HHC deduction after apportioning income under Rule 8.

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Issues Involved:
1. Depreciation on Vibro Fluid Bed Drier (VFBD)
2. Addition to closing stock on account of cess
3. Calculation of Section 80HHC deduction after apportioning income under Rule 8
4. Exclusion of commission paid to sales agents for determining 'export turnover' under Section 80HHC

Issue-wise Detailed Analysis:

1. Depreciation on Vibro Fluid Bed Drier (VFBD):
The assessee claimed 100% depreciation on the VFBD, which was restricted to 25% by the AO. The CIT(A) upheld this restriction, stating that only specialized boilers and furnaces, or waste heat recovery equipment, are eligible for 100% depreciation under the IT Rules, 1962. However, the Tribunal found that this issue was covered by earlier decisions, including the case of Dy. CIT vs. Assam Brook Ltd., which held that VFBD is eligible for 100% depreciation. Therefore, the Tribunal directed the AO to allow 100% depreciation on the VFBD, allowing the assessee's grounds on this issue.

2. Addition to Closing Stock on Account of Cess:
The AO added Rs. 5,16,493 to the closing stock for cess on green leaf, which was upheld by the CIT(A). The assessee argued that cess payment does not form part of the cost of production as it was not debited to the P&L account. The Tribunal noted that cess is an integral part of production cost and should be included in the closing stock valuation. However, considering the provisions of Section 43B, which allows deduction of cess paid, the Tribunal allowed the assessee's alternate plea for deduction of the cess component in the relevant previous year. Thus, the addition made by the AO was deleted, allowing the assessee's grounds on this issue.

3. Calculation of Section 80HHC Deduction after Apportioning Income under Rule 8:
The CIT(A) held that Section 80HHC deduction should be worked out after apportioning income under Rule 8, which the assessee contested. The Tribunal noted that the insertion of Clause 4B in Section 80HHC, effective from 1st April 1992, mandates excluding any income not chargeable to tax for Section 80HHC purposes. The memorandum explaining the Finance Bill, 1999, clarified that the deduction under Section 80HHC should not include the agricultural income component of a tea-producing company. The Tribunal found no merit in the assessee's grievance and upheld the CIT(A)'s decision, dismissing this ground of appeal.

4. Exclusion of Commission Paid to Sales Agents for Determining 'Export Turnover' under Section 80HHC:
The AO excluded the commission paid to sales agents from the 'export turnover' as it was not brought into India. The CIT(A) upheld this decision. The assessee argued that such exclusion was an empty formality and relied on the Supreme Court's judgment in J.B. Boda & Co. (P) Ltd. vs. CBDT, which held that two-way traffic of money is unnecessary. The Tribunal agreed with the assessee, stating that the expression 'export turnover' should include the commission and brokerage paid to agents abroad, subject to necessary verifications, including RBI approvals. The matter was restored to the AO for examination, allowing the assessee's grounds on this issue in principle.

Conclusion:
The appeal was partly allowed, with the Tribunal directing 100% depreciation on VFBD, deleting the addition to closing stock for cess, and restoring the matter of 'export turnover' to the AO for further examination. The assessee's grievance regarding Section 80HHC deduction calculation was dismissed.

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