2010 (6) TMI 668 - HC - Income Tax

Whether Tribunal was justified in granting relief u/s. 80HHC on the issue of gain on forward currency contract without appreciating the fact that the gain on exchange difference is nothing but speculation profit and not related to the business of the assessee ? - Whether Tribunal was justified in directing AO not to exclude this income from the profits eligible for deduction U/s. 80HHC without appreciating that when the assessee enters into a forward contract assessee stands to benefit by the fluctuations in foreign exchange irrespective of the fact whether the trade agreement exists or not ? - Held that - Tribunal after appreciating the evidence on record and the submissions advanced on behalf of the respective parties has given sufficient cogent and convincing reasons for holding that the the transaction in question was not a speculative transaction and that the foreign exchange contract was entered into by the assessee only with a view to realize the amount due on sale of goods. In the circumstances no infirmity is found in the reasoning adopted by the Tribunal in holding that the gain on forward currency contract is related to the business of the assessee. In the circumstances no question of law can be stated to arise qua the said ground. Whether the Appellate Tribunal was justified in granting relief to assessee without appreciating the fact that the provisions/liability written off and shown as income of the year was not earned during the year and was duly considered while working out the deduction U/s.80HHC in the relevant A.Y. in which such expenditure/creditors existed ? - Held that - Commissioner (Appeals) found that writing back of provisions/liability for expenses payable was merely a reversal of liabilities created in the previous year as a result of which manufacturing profit of the previous year got reduced. Accordingly it should also be treated as part of manufacturing profits eligible for deduction under section 80HHC. The Tribunal upon appreciating the evidence on record has concurred with the findings recorded by Commissioner (Appeals). Thus in light of the concurrent findings of fact recorded by Commissioner (Appeals) and the Tribunal no question of law can be stated to arise as proposed or otherwise in relation to the said ground.

Issues Involved:
1. Disallowance under section 43B for belated payment of PF & ESIC
2. Granting relief under section 80HHC for gain on forward currency contract
3. Exclusion of certain income from profits eligible for deduction under section 80HHC
4. Treatment of recovery of bad debts and excess provisions under section 80HHC
5. Exclusion of income earned from sale of scrap from deduction under section 80HHC
6. Inclusion of excise duty and sales tax in total turnover for deduction under section 80HHC
7. Interpretation of relevant legal provisions and case laws in relation to the issues

Analysis:
1. The appellant challenged the Tribunal's decision to delete the disallowance made under section 43B for belated payment of PF & ESIC. The Tribunal justified its decision by citing precedents and legal provisions, leading to the issue being deemed academic.

2. The appellant contested the Tribunal's grant of relief under section 80HHC for gain on forward currency contract, arguing that such income was speculative and not directly related to the manufacturing business. However, the Tribunal upheld its decision, emphasizing that the transaction was part of a risk management mechanism under FEMA of 1999 and was essential for realizing export proceeds.

3. The issue of excluding certain income from profits eligible for deduction under section 80HHC was raised. The Tribunal found that recovery of bad debts and provisions written back were integral to the business profit, thus eligible for deduction. The Tribunal's decision aligned with the Commissioner (Appeals) findings, leading to no legal question arising from this ground.

4. The Tribunal's decision to exclude income earned from the sale of scrap from deduction under section 80HHC was not entertained due to the insignificance of the amount involved, allowing the revenue to challenge it in a more suitable case.

5. The appellant raised concerns about the inclusion of excise duty and sales tax in the total turnover for deduction under section 80HHC. The Tribunal admitted this issue for further consideration to determine whether the exclusion of such taxes was justified despite the insertion of section 145A of the Act.

6. The judgment extensively analyzed legal provisions, case laws, and the factual context of each issue to arrive at reasoned conclusions. The Tribunal's decisions were supported by detailed explanations and considerations of relevant laws, ensuring a comprehensive evaluation of the appellant's concerns.

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