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2012 (10) TMI 814 - AT - Income TaxDeduction u/s 80 IB - whether conversion charges, testing charges and interest income would be eligible for deduction? Held that - Assessee has two activities, the first is where it purchases raw material and converts the same into finished products and secondly where raw material is supplied by the customer and the same is used for manufacturing of finished products and then given to the customer on payment of conversion charges. As far as conversion charges is concerned, there is no dispute that the assessee is entitled for claim of deduction under Section 80 IB as that the appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking & gains derived from industrial undertakings and so entitled for the purpose of computing deduction under Section 80IB as decided in CIT III Versus Sadhu Forging Ltd. 2011 (6) TMI 9 - DELHI HIGH COURT - FAA was right in holding that the assessee is entitled to deduction of conversion and testing charges earned by the assessee for doing job work on the facts and circumstances of the case - against revenue. Interest received from customers for delayed payments - exclusion of only net interest income - Held that - As decided in Nirma Industries Limited Versus Deputy Commissioner of Income-Tax 2006 (2) TMI 92 - GUJARAT HIGH COURT while computing deduction under section 80-I interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be stated to have been derived from the business of the industrial undertaking - directed to tribunal to examine the factual matrix of the present case including the balance sheet and accounts of the assessee, to decide the question - in favour of assessee for statistical purposes.
Issues:
1. Eligibility of conversion charges, testing charges, and interest income for deduction under Section 80 IB. 2. Interpretation of sub-sections 1 and 2(iii) of Section 80 IB. 3. Establishing manufacturing or production in relation to conversion and testing activities. 4. Adequacy of details provided for purported delayed payments (interest) received from customers. Issue 1 - Eligibility of Conversion Charges, Testing Charges, and Interest Income for Deduction under Section 80 IB: The appellant, engaged in manufacturing non-ferrous metal alloys, claimed a deduction under Section 80 IB. The Assessing Officer disallowed the claim on conversion/testing charges and interest income. The First Appellate Authority allowed the deduction for conversion charges and interest income from delayed payments by customers but disallowed it for interest on fixed deposits. The ITAT upheld the decision, citing precedents and the nature of the activities undertaken by the appellant. Issue 2 - Interpretation of Sub-sections 1 and 2(iii) of Section 80 IB: The dispute revolved around the interpretation of sub-sections 1 and 2(iii) of Section 80 IB, focusing on whether the deduction is available only to industrial undertakings that manufacture or produce articles. The ITAT held that the appellant was entitled to the deduction for conversion and testing charges based on the activities undertaken, in line with relevant court judgments. Issue 3 - Establishing Manufacturing or Production in Relation to Conversion and Testing Activities: The ITAT analyzed the appellant's activities, distinguishing between manufacturing from raw materials and job work for outside parties. It concluded that the appellant's conversion and testing charges were eligible for deduction under Section 80 IB, as supported by High Court precedents. Issue 4 - Adequacy of Details Provided for Delayed Payments (Interest) Received from Customers: The ITAT addressed the lack of details provided by the appellant regarding purported delayed payments (interest) received from customers. Despite this, it held that the interest received for delayed payments was eligible for deduction under Section 80 IB, citing relevant court decisions. In conclusion, the ITAT dismissed the Revenue's appeal and allowed the Cross Objection by the assessee for statistical purposes. The judgment clarified the eligibility criteria for deduction under Section 80 IB concerning conversion charges, testing charges, and interest income, providing a detailed analysis of each issue raised during the proceedings.
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