Commissioner of Income Tax vs Coimbatore Twisters (P.) Ltd.

K. Raviraja Pandian, J.—This appeal is at the instance of the Revenue against the order of the income tax Appellate Tribunal dated June 28, 2004 made in I. T. A. No. 1544 (Mds)/97. The assessment year is 1991-92. The facts are : The assessee filed its return of income on December 29, 1991 admitting nil income. The Assessing Officer, while computing the assessment, found that the assessee had not taken into account the conversion charges received in the total turnover. The assessee contended that the conversion charges were only job work receipts which could not be considered as turnover. The Assessing Officer held that the receipts had the character of turnover and, therefore, included the conversion charges in the total turnover, by relying on the order of the Commissioner of income tax (Appeals) for the earlier assessment year and recomputed the deduction including conversion charges in the total turnover. Subsequent to this, the Assessing Officer issued a notice u/s 154 of the Act proposing to rectify the assessment in respect of certain mistakes in the computation of deduction under sections 80-I and 80HHC of the Act. Regarding section 80HHC of the Act, the Assessing Officer observed that by mistake the gross receipts of conversion charges were not included in the total turnover, but only the net receipts under the head were included. The Assessing Officer finding that the conversion charges to be adopted for the purpose of inclusion in the total turnover, in respect of twisting charges, weaving conversion charges, doubling charges and reeling charges, received from different textile mills totalled to Rs. 5,34,54,058, added the said amount to the total turnover and rectified the computation made in the original assessment. Aggrieved by the rectification, the assessee preferred an appeal before the Commissioner of income tax (Appeals), who allowed the assessee''s appeal by deleting the inclusion of conversion charges in the total turnover. The Revenue, aggrieved by that order, took the matter on appeal to the Tribunal. The Tribunal dismissed the Revenue''s appeal by following the judgment of a Division Bench of this court in the case of CIT v. Madras Motors Ltd./M. M. Forgings Ltd. [2002] 257 ITR 60 (Mad). Aggrieved by the order, the Revenue is before us.

This appeal was admitted on June 13, 2005, on the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in holding that conversion charges received by the assessee from other textile mills could not be included in the total turnover for the purpose of computation of deduction u/s 80HHC of the Act?

Heard the learned counsel on either side and perused the materials available on record.

Learned counsel for the Revenue submits that the issue involved in this case is squarely covered by a judgment of the Division Bench of this court, against the Revenue in the case of Commissioner of Income Tax Vs. Metal Power Co. Ltd., , wherein it was held that conversion charges have to be excluded from the turnover for the purpose of calculation of deduction u/s 80HHC of the Act. Following the decision cited supra and for the reasons stated therein, we answer the question of law in favour of the assessee and against the Revenue. The appeal is dismissed. No costs.