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The taxpayer was a company incorporated under Hong Kong laws. It filed its return of income declaring total income of INR 196 million. AO noticed that the taxpayer had not offered for tax the amount received toward reimbursement of expenses, which included custom duty and accordingly the income was assessed at INR 197.2 million. Aggrieved by the same, the taxpayer filed an appeal before the CIT(A). The Ld. CIT(A) held that the customs duty paid in importing the equipment for services cannot form part of the amount taxable under Section 44BB of the Act. The Tribunal upheld the view of the CIT(A).  Aggrieved by the same, the revenue authorities filed an appeal before the High Court.

The High Court held that, reimbursement toward the customs  duty, paid by the assessee, being statutory in nature, cannot form part of amount for the purposes of deemed profits unlike the other amounts received toward reimbursement. Hence, the various decisions relied by the revenue could not be applied  here as al  of them were on the issue of reimbursement of expenses e.g., fuel charges, mobilization charges etc. Therefore  CIT(A) and Tribunal were correct in not including the amount  of reimbursement toward custom duty in the receipts for determining income under Section 44BB of the Act.

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