TaxTMI 
TaxTMI 
2007 (11) TMI 281
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.... right in law in upholding the addition of Rs. 15,15,667 made to closing stock by the Assessing Officer? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing to exclude the amount of Rs. 81,33,667 from the book profits as defined in section 32AB(3) of the Income-tax Act, 1961? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest from customers, sales tax set-off and other refunds, claims, etc., do not form part of the business profit for calculating deduction under section 80HHC ?" The assessee is a public limited company engaged in the business of manufacture, designing and commissioning of complete plants for dairy and food processing industry. Question No.1: In the assessment year in question, the assessee had written off a sum of Rs. 28,00,000 under the head manufacturing and other expenses. The assessee explained that the write off is mainly on account of obsolete items which were not moving for the last three years, in view of the change in designs or specifications due to its technological upgradation. Accordingly, the assessee had valued the closing....
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....e not moving for the last three years, the Assessing Officer was justified in taking the realisable value of the obsolete items at 50 per cent. of the cost. In the present case, there is no dispute that the duly certified auditor's report placed before the Assessing Officer clearly justified valuation of obsolete items at 10 per cent. of cost. There is no dispute that the assessee is entitled to value the closing stock at market value or at cost whichever is lower. It is also not in dispute that the value of the closing stock has been taken as the value of the opening stock in the subsequent year. Moreover, it is also not disputed that the obsolete items were in fact sold in the subsequent year at a price less than 10 per cent. of the cost. Under the circumstances, it could not be said that the valuation of the obsolete items done by the assessee and certified by the auditors was not proper or arbitrary. The Assessing Officer in fact has arbitrarily valued the items in question at 50 per cent. of the cost without disclosing the basis of such valuation. The Assessing Officer had not doubted the correctness of the certificate of the auditors regarding the valuation of obsolete ite....
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....from the book profits while computing profits of business eligible for deduction under section 32AB of the Act. Mr. Inamdar, learned senior advocate for the assessee, submitted that the Tribunal committed a fundamental error in misconstruing the amount "written back" as the amount "written off". Referring to note 6 to the account (page 93 of the paper book) Mr. Inamdar submitted that in the earlier years the depreciation was provided as per specified life determined according to the rules of depreciation prescribed under the Income-tax Rules. In compliance with the circulars of the Company Law Board, the assessee had reworked the depreciation on the straight line method on the basis of specified life determined in accordance with the provisions of the Companies Act, 1956, for the respective years in which the assets were added/installed up to December 31, 1987. He submitted that the resulting higher depreciation provided up to December 31, 1987, amounting to Rs. 81,33,607 has been adjusted from the current period's depreciation charge in the profit and loss account. This change in method of providing depreciation, he submitted, has resulted in reduced depreciation/increased prof....
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....and loss account, on account of reworking of the depreciation, as per the circulars of the Company Law Board, could not be reduced from the profits eligible for relief under section 32AB of the Income-tax Act. There was neither double relief nor writing off of the depreciation as held by the Tribunal. Once the reworking of the depreciation as per the Board circular is found to be in accordance with the provisions of the Companies Act, 1956, the Tribunal could not have held that the assessee has erroneously increased the profit. The increased profits arising on account of implementation of the circulars of the Company Law Board were not excludible from the book profits for the purpose of relief under section 32AB of the Income-tax Act. Accordingly, we answer question No.2 in the negative that is in favour of the assessee and against the Revenue. Question No.3: Although the third question framed by the assessee pertains to the interest from customers, sales tax set off and other refunds, claims, etc., being not treated as part of the business profit, at the hearing of the appeal, Mr. Inamdar submitted that the claim is restricted only to the interest from customers and sales ta....
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....the interest from customers, sales tax set off, claims, refunds, etc., under the caption "other income" have been assessed under the head "Profits and gains of business or profession". Once these incomes are treated as part of business income and computed under the head "Profits and gains of business or profession", the same cannot be excluded from the business profits while computing deduction under section 80HHC of the Act. Relying upon the decision of this court in the case of CIT v. Bangalore Clothing CO. [2003] 260 ITR 371, Mr. Inamdar submitted that the amounts in question being part of operational income, the same could not be excluded for the purposes of deduction under section 80HHC of the Act. Mr. Desai, learned counsel for the Revenue, on the other hand, submitted that the income shown under the caption "Other income" had no nexus with the business of the assessee. He submitted that there is nothing on record to show that the income from portfolio management shown under caption "Other income" was related to the business of the assessee. He relied upon the decisions of this court in the cases of Sudarshan Chemicals [2000] 245 ITR 769; S.G. Jhaveri Consultancy Ltd. [200....