2011 (1) TMI 42 - AT - Income Tax

Reference to TPO u/s 92CA - Computation u/s 80HHC - direction of CIT to AO to exclude the amount of sales-tax and excise duty from the total turnover for the purpose of computation of deduction u/s.80HHC of the Act relying upon the decision of the Bombay High Court in the case of Sudarshan Chemicals Industries Ltd. (2000 -TMI - 15014 - BOMBAY High Court) - Held that - Issue on direction of CIT decided against revenue in view of decision of the Hon ble Apex Court in the case of Laxmi Machine Works (2007 -TMI - 6557 - SUPREME Court) - issue pertained to exclusion of 90% of the receipts in terms of clause (baa) of Sec.80HHC (4C) - matter remitted back to ascertain the nature of expenses Associated Enterprises (AE) - Transfer Pricing Officer (TPO) - clearly the price paid by the assessee in respect of these items is on higher side and TPO has correctly determined the arms length price and accordingly we confirm the addition in respect of this item. Decisions of Apex court in Ipca Laboratories Ltd. vs. Dy. CIT (2004 - TMI - 6141 - SUPREME Court266 ITR 521) and CIT vs. Shirke Construction Equipment Ltd. (2007 -TMI - 6560 - SUPREME Court) followed

Summary

Issues:
1. Revenue's appeal on exclusion of sales-tax and excise duty from total turnover for deduction u/s.80HHC.
2. Revenue's appeal on exclusion of 90% of miscellaneous receipts for deduction u/s.80HHC.
3. Assessee's appeal on adjustment of excess price compared to Arm's length price.
4. Assessee's appeal on re-computation of deduction u/s.80HHC(3)(a) after setting off business loss.

Issue 1 - Revenue's Appeal - Exclusion of Sales-tax and Excise Duty:
The Revenue appealed the CIT (A)'s order directing the exclusion of sales-tax and excise duty from total turnover for deduction u/s.80HHC. The ITAT Mumbai referred to the decision in Laxmi Machine Works case by the Supreme Court, emphasizing that items like excise duty and sales tax cannot be part of "total turnover" under section 80HHC. The ITAT ruled against the Revenue, following the Supreme Court's interpretation.

Issue 2 - Revenue's Appeal - Exclusion of 90% of Miscellaneous Receipts:
The Revenue also contested the exclusion of 90% of miscellaneous receipts for deduction u/s.80HHC. The ITAT noted that this issue is now in favor of the Revenue based on the Supreme Court's decision in the case of K. Ravindranathan Nair. However, considering the lack of detailed examination by lower authorities on the nature of expenses, the ITAT remanded the issue to the AO for re-examination in light of relevant judicial decisions.

Issue 3 - Assessee's Appeal - Adjustment of Excess Price:
The Assessee challenged the adjustment made for excess price compared to Arm's length price. The ITAT reviewed various transactions and upheld the addition for certain items where the price paid was higher without sufficient justification. However, for specific items like Luwax OA Pastille and Amdea 05, where the price difference was within 5%, the ITAT deleted the addition following the second proviso to sec. 92C(2).

Issue 4 - Assessee's Appeal - Re-computation of Deduction:
Regarding the re-computation of deduction u/s.80HHC(3)(a) after setting off business loss, the ITAT found in line with the Supreme Court decisions that deduction under section 80HHC can only be allowed if there is a positive profit. The ITAT ruled against the Assessee, emphasizing the overriding effect of sec.80AB and the necessity to set off unabsorbed business losses before granting the deduction.

In conclusion, the ITAT partly allowed both the Revenue's and Assessee's appeals based on the detailed analysis of each issue and relevant legal precedents, ensuring a fair and just decision in accordance with the Income Tax Act.