CHENNAI, NOV 07, 2007 : THERE are several issues involved in this order covering several appeals and cross objections.

1. Disallowance of travel by employees: the assessee had calculated the disallowance under Rule 6D with total number of travels undertaken by each employee during the year. This means that the disallowance was worked after setting off disallowables on one trip against the deficit in another trip in respect of each employee. However, the Assessing Officer observed that this disallowance under Rule 6D has to be computed with respect to each travel and ultimately, made an addition of Rs.2,00,000/ – which was confirmed by the ld. CIT(A). The High Court had held that” the intent of the rule clearly is that the computation required to be made under the rule is to be made separately for each travel undertaken by the employee and the amount that can be claimed as deduction for the year is the aggregate of the amount so calculated separately for each travel undertaken by the employee.” Following this decision, this issue is decided against the assessee.

2. Inclusion of scrap sales in the total turnover for the purpose of computing deduction under Section 80HHC. This issue is squarely covered against the assessee by the decision of the Tribunal in the case of JCIT v. Virudhunagar Textiles Mills Ltd, whereby it was held that once there was an element of profit, then such scrap sales have to be included in the total turnover. The ITAT held that scrap sales would be included in the total turnover for the purpose of calculating deduction under Section 80HHC.

3. exclusion of miscellaneous income, rent receipts, commission receipts and insurance compensation from business income for the purpose of calculating deduction under Section 80HHC. Rent receipts have to be excluded from business profits under clause (baa) of Explanation to sub-section (4C) of Section 80HHC; . Similarly, commission can also not to be said to be part of business profits and 90% of the same has also to be excluded from the business profits; if insurance compensation is received in respect of fixed assets, etc., then such compensation cannot be made eligible for deduction under Section 80HHC.

4. Disallowance of expenditure incurred against dividend income. Transactions entered into by the assessee-company for sale and purchase of securities are only an arrangement to avoid tax which is not permitted in law and it is merely a colourable device which should not be and had not been correctly accepted by the Department.

5. Denial of exemption from interest income from tax-free securities – the assessee had not complied with the requirements of the exemption provision of Section 10(15)(iv)(h) of the Act. Therefore, lower authorities have correctly denied the exemption under this clause.

Issues raised by Revenue:

1. profits from sale of office waste and scrap – part of business profits for the purpose of computing the deduction under Sec.80HHC – such waste generated during normal business operation does not involve any element of profit. Therefore, it has to be treated as business income and accordingly deduction under Section 80HHC would be available.

2. depreciation for 200 buses claimed to be leased out to AA/s MSRTC. The assessee had leased out certain vehicles to MSRTC on which depreciation was claimed. This issue had come up for consideration of the Tribunal for earlier assessment in I.T.A. No. 1774/Mds/99 and others and was decided in favour of the assessee since vehicles were actually leased out. The counsel for the assessee had also pointed out that the order of the Tribunal in this respect for earlier years have already been confirmed by the jurisdictional High Court. Therefore, this issue is decided against the Revenue.

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