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2015 (6) TMI 572 - AT - Income TaxNon eligibility for exemption u/s 10B - foreign exchange gain derived - Held that - The issue is squarely covered by the decision of CIT vs. Gem Plus Jewellery India Ltd (2010 (6) TMI 65 - BOMBAY HIGH COURT ) wherein the decision of CIT vs. Shah Originals (2010 (4) TMI 216 - BOMBAY HIGH COURT) has been clearly distinguished. However, the ld Counsel for the assessee submitted that foreign exchange gain before realization of sale price in convertible foreign exchange was ₹ 53,92,050 and loss on exchange fluctuation was credited to the P&L a/c i.e. the net amount accounted was ₹ 44,83,952 which we find from the account copy filed in the paper book. The foreign exchange gains/loss post receipt of sale is not income for the unit to be allowed deduction u/s 10B. In these circumstances, we set aside the issue to be examined by the AO and give an opportunity to the assessee to substantiate its claim. - Decided in favour of assessee for statistical purposes. Exclusion of an amount adjusted by the foreign customer from the eligible turnover for the purpose of computation of exemption u/s 10B - Held that - We find that ₹ 2,61,844/- has been equal to ₹ 4,132 Euros was reduced from the amount due to the assessee and the balance of the amount was remitted into India. We are of the opinion that ₹ 2,61,844 cannot considered as receipt into India as the amount was adjusted Following the decision in the case of CIT vs. McLeod Russel (India) Ltd (2014 (2) TMI 797 - CALCUTTA HIGH COURT), we hold that the amount claimed by the assessee is to be excluded from the export turnover - Decided against assessee. Computation of deduction u/s 80IC of Baddi unit - Held that - Once the income is assessed as business income, the corresponding expenditure is to be reduced and the balance to be excluded for the purpose of 80IC. Hence, we direct the AO to examine the nature of interest and decide this issue after giving an opportunity to the assessee. Determining the deduction claimed u/s 80IC - whether the amount derived by sale of scrap; interest income and other income were not derived by the manufacturing unit and that the same are not eligible for deduction u/s 80IC? - Held that - Sale of scrap has the effect of reducing the cost of production. Further, sale of scrap is eligible for deduction u/s 80IC. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deduction under section 80-IB. Respectfully following the decision in CIT vs. Sadhu Forgings Ltd, 2011 (6) TMI 9 - DELHI HIGH COURT the activities of the assessee in giving heat treatment for which it had earned labour charges and job-work charges, it can thus be said 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 - Decided in favour of assessee. Inclusion of profit on sale of assets as part of its export turnover - Held that - The cost of the moulds is not separately billed and the payments have not been separately made. Hence, we agree with the CIT (A) s view that the cost of moulds have become part of expenditure of the business and the entire amount of invoice price i.e sale consideration received represents the turnover on account of sale of plastic products is correct - Decided against revenue. Deduction u/s 10B relates to amortization of income and development charges - Held that - amortization is actually cost of mould apportioned on number of pieces likely to be produced from a particular mould. Development charges also pertain to mould development only. Hence, we confirm the order of the CIT (A) that there was no justification for the adjustment to the deduction u/s 10B on account of amortization and development charges. - Decided against revenue. Deduction u/s 10B pertains to freight and insurance - Held that - CIT (A) found the claim to be factually correct on an examination of the ledger account. Since the receipt towards freight and insurance do not form part of the export turnover in the first place, their deduction from the turnover is not justified. On an examination of the ledger account, the receipts towards freight and insurance charges does not form part of the export turnover and hence cannot be deducted from the turnover - Decided against revenue.
Issues Involved:
1. Exemption under Section 10B of the Income Tax Act. 2. Deduction under Section 80IC of the Income Tax Act. 3. Inclusion of foreign exchange gains in eligible profits. 4. Adjustment of export turnover for amounts not received in India. 5. Inclusion of interest income in the computation of deduction under Section 80IC. 6. Eligibility of scrap sales for deduction under Section 80IC. 7. Inclusion of profit on sale of assets in export turnover. 8. Inclusion of amortization and development charges in export turnover. 9. Deduction of freight and insurance charges from export turnover. Detailed Analysis: 1. Exemption under Section 10B of the Income Tax Act: The assessee's eligibility for exemption under Section 10B was accepted by the Assessing Officer (AO). However, certain receipts were excluded from the eligible export profit, including sale proceeds not received in India, freight and insurance, amortization income, profit on sale of assets, and development charges. The AO also excluded foreign exchange gains from eligible profits and export turnover, arguing they were not attributable to the manufacturing activity. The CIT (A) upheld the AO's decision, distinguishing the case from CIT v. Gem Plus Jewellery India Ltd., and aligning it with CIT v. Shah Originals. 2. Deduction under Section 80IC of the Income Tax Act: The AO reduced the interest on fixed deposits from the eligible income for deduction under Section 80IC, arguing it had no nexus with the manufacturing activity. The CIT (A) was directed to examine the nature of the interest and decide accordingly. 3. Inclusion of Foreign Exchange Gains in Eligible Profits: The AO excluded foreign exchange gains from eligible profits, arguing they were not derived from the manufacturing activity. The CIT (A) upheld this decision, distinguishing it from the Gem Plus Jewellery case. However, the ITAT directed the AO to re-examine the issue, allowing the assessee to substantiate its claim. 4. Adjustment of Export Turnover for Amounts Not Received in India: The AO reduced the export turnover by Rs. 2,61,844, which was not received in India within the specified time. The CIT (A) upheld this decision, emphasizing the requirement of bringing foreign exchange into India for Section 10B benefits. The ITAT agreed, referencing CIT v. McLeod Russel (India) Ltd. 5. Inclusion of Interest Income in the Computation of Deduction under Section 80IC: The AO reduced the interest income from the eligible income for deduction under Section 80IC. The ITAT directed the AO to consider only the net amount of such interest while deducting it from the eligible income. 6. Eligibility of Scrap Sales for Deduction under Section 80IC: The AO excluded the sale of scrap from the eligible income for deduction under Section 80IC, arguing it was not derived from the manufacturing activity. The CIT (A) upheld this decision. However, the ITAT allowed the assessee's claim, citing cases that supported the inclusion of scrap sales in eligible income for deduction under Section 80IC. 7. Inclusion of Profit on Sale of Assets in Export Turnover: The AO excluded the profit on sale of assets from the eligible export turnover, arguing it was not derived from the manufacturing activity. The CIT (A) reversed this decision, stating the cost of moulds was part of the business expenditure and the recovery of its cost was part of the export turnover. The ITAT upheld the CIT (A)'s decision. 8. Inclusion of Amortization and Development Charges in Export Turnover: The AO excluded amortization income and development charges from the eligible export turnover, arguing they were not related to the manufacturing activity. The CIT (A) reversed this decision, stating these amounts were part of the sale price and should be included in the export turnover. The ITAT upheld the CIT (A)'s decision. 9. Deduction of Freight and Insurance Charges from Export Turnover: The AO deducted freight and insurance charges from the export turnover for the purpose of Section 10B. The CIT (A) reversed this decision, stating the receipts towards freight and insurance did not form part of the export turnover. The ITAT upheld the CIT (A)'s decision. Conclusion: - Assessee's appeals in ITA No.1156/Hyd/2013 and ITA No.1157/Hyd/2013 were partly allowed and allowed respectively. - Revenue's appeals in ITA No.1234/Hyd/2013 and ITA No.1235/Hyd/2013 were dismissed. Order Pronounced in the Open Court on 17th June, 2015.
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