COMMISSIONER OF INCOME TAX vs. ATLAS DYE CHEM INDUSTRIES

Facts

The Revenue has appealed against the order of the Income-Tax Appellate Tribunal (ITAT), Ahmedabad Bench, dated April 26, 2005, for Assessment Year 1994-95. The assessee, Atlas Dye Chem Industries, filed a return of income declaring Rs. 17,43,666. The assessee, engaged in manufacturing and exporting dyes and chemicals, claimed a deduction of Rs. 95,80,033 under Section 80HHC. The assessment order was passed after scrutiny, which was then challenged before the Commissioner of Income-tax (Appeals). The CIT(A) partly allowed the appeal, and the Revenue's subsequent appeal to the ITAT was dismissed. This led to the present Tax Appeal by the Revenue before the High Court.

Held

The High Court addressed the two framed questions of law. For the first question, concerning the exclusion of sales-tax and excise duty from total turnover for Section 80HHC deduction, the Court answered against the Revenue and in favour of the assessee, acknowledging that the Revenue's counsel conceded this point, stating it was covered by the Supreme Court's decision in CIT v. D & H Secheron Electrodes Ltd. (290 ITR 697). Regarding the second question, which pertains to the treatment of Central Excise set-off and Sales Tax set-off under Section 28(iiic) and their addition back under Section 80HHC, the Court held that the matter needed to be remanded to the Assessing Officer. This was based on the Supreme Court's decision in CIT v. K. Ravindranathan Nair (295 ITR 228), requiring an examination of actual deduction on actual turnover. The Tax Appeal was disposed of accordingly.

Key Issues

The High Court had to decide two substantial questions of law: 1. Whether the Appellate Tribunal was correct in upholding the CIT(A)'s order to exclude sales-tax and excise duty when computing total turnover for the purpose of deduction under Section 80HHC of the Income-Tax Act. 2. Whether the Appellate Tribunal was correct in holding that Central Excise set-off and Sales Tax set-off, being similar to Customs & Excise duty drawback, are receipts covered under Section 28(iiic) and should be proportionately added back under the proviso to sub-section 3 of Section 80HHC. Arguments: Assessee: The judgment does not record specific arguments made by the assessee. The Revenue's counsel conceded on the first question. Revenue: For question 1, the Revenue argued that the issue is covered by the Supreme Court decision in CIT v. D & H Secheron Electrodes Ltd. For question 2, the Revenue relied on the Supreme Court decision in CIT v. K. Ravindranathan Nair.