TMI Blog2010 (1) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer be directed not to add the amounts of Sales Tax and Excise Duty in total turnover for computing deduction under Section 80HHC. 3. The Learned Commissioner (Appeals) erred in confirming disallowance of Rs.3,41,65,845/- in respect of expenditure on diversification expenses. Your appellant submits that the disallowance is not justified and prays that the same be deleted. 4. The order of the Learned Commissioner (Appeals) erred in confirming disallowance of Rs.41,30,126/- being principal amount of Inter Corporate Deposit written off and Rs.14,91,125/- being unrealized interest written off. Your appellant submits that the disallowance is not justified and prays that the same be deleted. 5. The learned Commissioner (Appeals) erred in confirming following adjustments for computing deduction under Section 80HH. i) Exclusion of interest and dividend amounting to Rs.6,74,91,647/- from profits derived from industrial undertaking. ii) Alternatively and without prejudice to above, determination of expenses for earning such income at only 2.5% of the income (compared to Rs.63,85,641/- calculated @ 10% by the appellant and Rs.5,10,415/- by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. Just as commission received by the assessee is relatable to exports and yet it cannot form part of turnover for the purposes of section 80HHC, excise duty and sales tax also cannot form part of turnover . Just as interest, commission, etc., do not emanate from the turnover so also excise duty and sales tax do not emanate from such turnover. Since excise duty and sales tax did not involve any such turnover such taxes had to be excluded. Commission, interest, rent, etc., do yield profits, but they do not partake of the character of turnover and therefore they are not includible in the total turnover . If so, excise duty and sales tax also cannot form part of the total turnover under section 80HHC(3). One cannot interpret the words total turnover with reference to the definition of the word turnover in other laws like the Central sales tax or as defined in accounting principles. Excise duty and sales tax are indirect taxes. They are recovered by the assessee on behalf of the Government. By the Court : The principal reason for enacting a formula in section 80HHC of the Income-tax Act, 1961, is to disallow a part of the concession thereunder when the entire deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ? What are the terms of the relevant agreement or understanding between the contracting parties? If the work is indeed incomplete or inchoate as at the year-end, why would it be not appropriate to carry forward the expenditure incurred in the current year, representing the cost of the work undertaken, and for which the same stands incurred, to the subsequent period, and whereat only the income or loss arising there from could be ascertained? Or, if the contract admits of revenue recognition as at the year-end, on the parameters of reasonable certainty, both as to valuation, and realizability, the revenue, and which could be at a figure of loss as well, could well be computed for the current year as well. As afore-stated, the facts in relation to the computation of the loss from the said business, which the assessee states to have carried on during the current year (and which it works at a loss equal to the amount of expenditure incurred during the year), being not clear, and which only can justify or explain the same, we, set-aside the matter back to the file of the A.O. for re-adjudication of this issue in accordance with law, per a speaking order, after allowing proper opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the computation of income of the appellant and hence as per the provisions of section 36(2) , such amount cannot be allowed even if written off in the books of accounts. The decision of Supreme Court in the case of T B Bhadrarao Koteshwar Co. will not apply to this case as the facts are different. In that case, the assessee had taken over its predecessor s business with all assets and liabilities. It was accounting for interest on debts due to its predecessors. There was a settlement with such debtors and assessee accepted part of the debts and wrote off balance amount which was held to be allowable. In that case, the controversy revolved round the issue that the debt related to the old firm and hence the department was of the view that the same cannot be allowed in the assessee s case as it was not his debt. The Supreme Court said that the interest on such debt has been accounted for by the assessee and hence related debt has also to be considered to be allowable, if the same is written off. The other conditions of section 36(2) were satisfied in that case and as such these were not raised before any appellate authority or court. It also appears that the debt related to tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derived from industrial undertaking and this has not been challenged by the assessee. 15. After considering the rival submissions, we restore the matter to the file of the Assessing Officer to provide an opportunity to the assessee to show as to how interest and dividend is derived from industrial undertaking. This aspect was not considered by the Tribunal in the earlier year in the case of the assessee and therefore this decision would not be applicable. In any case issue is directly covered against the assessee by the decision of Hon ble Supreme Court in Pandian Chemicals case which decision was apparently not considered by the Tribunal while disposing of the matter in the Assessment Year 1998-99. In this regard we may refer to para 8 from that order of ITAT as under: We have heard the learned AR of the assessee and learned DR. the parties, and perused the material on record. The A.O., though proceeded by allocating the common expenditure, we consider, faltered in equating the income component in respect of the two turnovers/receipts, i.e. by way of interest income, and the regular receipts, as is implicit in his working, so that the same would bear expenditure in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved that they were for business purposes. 20. After hearing the parties, we decline to interfere for the reason that assessee was not able to show that entire expenditure were incurred for business purpose or that they were actually incurred. Hence, this ground is rejected. 21. Ground Nos. 7 and 8 relate to Rs. 2,58,464/- for presentation articles and of Rs. 18,959/- for garden maintenance expenditure respectively. For the reasons mentioned while disposing of Ground No.6, we uphold the disallowance and reject these grounds of the assessee. 22. Ground No.9 relates to disallowance of Rs. 4,61,489/- being incentive receipt in respect of investment. The ld. CIT(A) the assessee sought exemption from taxation in respect of this receipt by holding that this represented only lesser amount of investment and hence a capital receipt. The ld. CIT(A) noted that assessee invested Rs. 200 lakhs in UTI, Bond Funds etc. out of which it received commission from brokers. The assessee is getting commission from brokers and is therefore not a reduction in investment as this amount is not received from UTI or other investing funds. 23. Ld. AR submitted that this issue is covered by the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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