THE COMMISSIONER OF INCOME TAX vs. KLOCKNER DESMA MACHINERY (P) LTD.

Facts

The Revenue has appealed against the order dated 8.9.2006 passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench "C", for Assessment Year 2001-02. The assessee, Klockner Desma Machinery (P) Ltd., filed its return of income declaring a total income of Rs. 22,13,440/-. The return was processed under Section 143(1) and later selected for limited scrutiny, leading to assessment proceedings. The assessee appealed to the CIT(Appeals), which was partly allowed. The Revenue then appealed to the ITAT, which dismissed the Revenue's appeal. The Revenue is now before the High Court challenging the ITAT's order.

Held

The High Court answered the first question in favour of the assessee and against the Revenue. It held that the Appellate Tribunal was correct in excluding excise duty, sales tax, modvat, and CST from the total turnover for the purpose of calculating deduction under Section 80HHC. This decision was based on the ratio laid down by the High Court in Commissioner of Income-Tax v. Kalpataru Power Transmission Co. Ltd., which in turn relied on Supreme Court decisions in Lakshmi Machine Works and Shiva Tex Yarn Ltd. Regarding the second question, the High Court held that the Appellate Tribunal was not right in law and on facts in holding that duty drawbacks of Rs. 6,01,734/- are income eligible for deduction under Section 80IA. This was concluded by the Supreme Court's decision in Liberty India v. Commissioner of Income Tax. Consequently, the Tax Appeal was partly allowed.

Key Issues

The High Court framed two substantial questions of law: 1. Whether the Appellate Tribunal was right in law and on facts in holding that for the purpose of calculating total turnover for deduction under Section 80HHC, the amounts of excise duty, sales tax, modvat, and CST should be excluded? 2. Whether the Appellate Tribunal was right in law and on facts in holding that duty drawbacks of Rs. 6,01,734/- are income of the industrial undertaking eligible for deduction under Section 80IA? The Revenue contended that excise duty, sales tax, modvat, and CST should be included in the total turnover for Section 80HHC deduction. The assessee argued for their exclusion. For the second issue, the assessee contended that duty drawbacks are eligible for deduction under Section 80IA, while the Revenue argued otherwise.