2016 (12) TMI 1764 - AT - Income Tax

Disallowance of deduction u/s 80IC on the manufacturing activity undertaken by it - Held that - No change in the fact situation has been brought to our notice by the revenue we are an agreement with the order of the CIT( appeal) in this regard, and uphold the assessee s claim to deduction under section 80 IC on the manufacturing activity carried out by it in this year also. This ground of appeal raised by the revenue is therefore dismissed. Deduction u/s 80IC on income from job work more so when the activity been carried out by the assessee was nothing but packaging - Held that - As decided in 2005-2006, 2007-2008, 2008-2009 and 2011-2012 allowed the claim of deduction under section 80IC of the Act on job work charges. Further deduction u/s 80IC was also allowed on insurance claim received and scrap sale, holding the same to be directly attributable to the activities of the business unit. Appeal filed by the revenue allowed the claim of deduction under section 80IC of the Act both on manufacturing, job work charges, insurance claim and scrap sale. Deduction u/s 80IC on other income such as scrap sale, insurance claim, foreign exchange fluctuation and credit balance when these incomes were not derived in true sense from the business of the eligible undertaking - Held that - The assessee s claim having been allowed from year to year there is no merit in the present ground raised by the revenue vis a vis claim of deduction under section 80IC on scrap sales and insurance claim received by the assessee - the amount received on scrap sale, the credit balance written off of parties, insurance claim received towards material damage during transit is directly attributable to the activities of the industrial unit and hence eligible for deduction under section 80IC of the Act. However, the assessee is not entitled to the deduction claimed under section 80IC of the Act on the misc. income received being refund of security deposit and the insurance claim on machinery repairs. In view thereof we direct the Assessing Officer to recompute the deduction allowable under section 80IC of the Act. Deduction under section 80 IC on foreign exchange fluctuation received - Held that - It is not disputed that the foreign exchange fluctuations relate to the export activity carried out by the assessee, the foreign exchange fluctuation earned by the assessee is to be treated as its trading receipts/receipts from the manufacturing activity carried out by it and thereby entitling the assessee to claim deduction under section 80IC on the same. In view of the above we find no infirmity in the order of the CIT(A)allowing the assessee s claim of deduction under section 80IC on the foreign exchange fluctuation received. In view of the above we hold that the assessee is entitled to claim deduction under section 80IC on scrap sales, insurance claim, credit balances written back and foreign exchange fluctuations earned.

Summary

Issues Involved:
1. Deduction under section 80IC on manufacturing activity.
2. Deduction under section 80IC on income from job work.
3. Deduction under section 80IC on other income such as scrap sale, insurance claim, foreign exchange fluctuation, and credit balance written back.

Comprehensive, Issue-Wise Detailed Analysis:

1. Deduction under Section 80IC on Manufacturing Activity:
The Revenue challenged the allowance of deduction under section 80IC for the assessee's manufacturing activities, arguing that the assessee's activities did not qualify as manufacturing. The assessee, engaged in the manufacturing of Coolant, PVC compound, and Expansion Bottle Kits, had claimed deductions under section 80IC following substantial expansion of its facilities. The Assessing Officer (AO) disallowed the deduction, stating that the activities did not constitute manufacturing. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, referencing the ITAT's decision in the assessee's favor for the previous year. The ITAT upheld the CIT(A)'s decision, noting that the assessee's claim had been consistently allowed in prior years and no changes in the fact situation were presented by the Revenue.

2. Deduction under Section 80IC on Income from Job Work:
The Revenue also contested the deduction under section 80IC for income from job work, claiming it was merely packaging and did not involve manufacturing. The AO denied the deduction, citing previous years' disallowances and ongoing appeals in higher courts. The CIT(A) allowed the deduction, following the ITAT's earlier decisions. The ITAT upheld the CIT(A)'s decision, reiterating that the assessee's claim had been consistently allowed in prior years and no new facts were presented by the Revenue to warrant a different conclusion.

3. Deduction under Section 80IC on Other Income:
The Revenue disputed the deduction under section 80IC for other income, including scrap sale, insurance claim, foreign exchange fluctuations, and credit balance written back, arguing these were not derived from the business of the eligible undertaking. The AO denied the deductions, maintaining consistency with previous years' assessments. The CIT(A) allowed the deductions, referencing the ITAT's decisions in the assessee's favor for previous years. The ITAT upheld the CIT(A)'s decision, noting that the deductions for scrap sales, insurance claims, and credit balances written back had been consistently allowed in prior years. For foreign exchange fluctuations, the CIT(A) followed the ITAT's decision in the case of JCBL India Pvt. Ltd., which was based on the Bombay High Court's ruling in CIT vs. Rachna Udyog, affirming that foreign exchange fluctuations related to export activities are eligible for deduction under section 80IC.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decisions to allow deductions under section 80IC for the assessee's manufacturing activities, income from job work, and other income including scrap sales, insurance claims, foreign exchange fluctuations, and credit balances written back. The ITAT emphasized the consistency of these allowances in prior years and the absence of any changes in the fact situation presented by the Revenue. The order was pronounced in the open court.