2016 (7) TMI 1050 - AT - Income Tax

Allowing deduction u/s 80IE - technical services receipts treated by assessee itself as income from other sources - Held that - Undisputedly, there is no dispute that amount relates to manufacturing of eligible article or thing. The revenue has not doubted or placed any material on record suggesting that what the assessee has manufactured is not eligible or the undertaking is not eligible for the benefit of deduction as provided under section 80IE of the Act. The only objection of the revenue is that the assessee itself has taken such receipts as Income from other sources. Since the source of these receipts is manufacturing, the revenue has not placed any material on record to demonstrate that these receipts do not pertain to the manufacturing of the undertaking. In the absence of such specific material, we are of the considered view that the AO was not justified in declining the deduction as available u/s 80IE of the Act. - Decided in favour of assessee Deduction u/s 80IE in respect of foreign currency fluctuation - Held that - Assessee is a JV concern, which sources its raw materials locally and also imports a substantial part from international market. For imported raw materials, payments are being made in foreign currencies, which are quite volatile, there is no dispute in this regard. The foreign currency gain is the part of raw material there is nothing wrong in this claim. Assessee is entitled for deduction u/s 80IE of the Act, on this also.The revenue has not rebutted these findings by placing any contrary material on record. It is also not the case of the revenue that the raw material as imported by the assessee was not utilized in the manufacturing process. Therefore, we do not see any reason to interfere into the order of ld. CIT (A) in allowing claim - Decided in favour of assessee Addition on account of disallowance of deduction by the income earned by way of excess provision written back - Held that - The amount written off pertains to sundry creditors. It s an excess provision made for some expenses, not made in the current year but booked excess in earlier years and once it is reversed i.e. written back, assessee has to offer for taxation. This is perfectly correct as per accountancy principle. As such, this is the expenditure, which has been booked in excess in earlier year and by this amount the deduction u/s 80IE has been reduced in the said year since the deduction is available for the unit for consecutive 10 years. AO s action in treating the excess provision written back as income cannot be justified, hence deleted.- Decided in favour of assessee

Summary

Issues:
1. Allowance of deduction u/s 80IE for technical services receipts treated as income from other sources.
2. Allowance of deduction u/s 80IE for foreign currency fluctuation.
3. Deletion of addition made on account of disallowance of deduction for income earned through excess provision written back.

Analysis:

Issue 1:
The case involved the Revenue appealing against the order of the ld. CIT(A) regarding the allowance of deduction u/s 80IE for technical services receipts treated as income from other sources. The AO had made an addition of a specific amount as income from other sources, denying the deduction claimed by the assessee under section 80IE of the Act. The ld. CIT(A) allowed the appeal of the assessee, stating that the income derived from the manufacturing unit was eligible for deduction under section 80IE. The Tribunal upheld the decision, emphasizing that the source of the receipts was manufacturing, and since there was no evidence to suggest otherwise, the AO was not justified in denying the deduction. The Tribunal affirmed the order of the ld. CIT(A) and rejected the Revenue's appeal.

Issue 2:
The second issue revolved around the allowance of deduction u/s 80IE for foreign currency fluctuation. The ld. CIT(A) directed the AO to allow the deduction, stating that the foreign currency gain was part of the raw material costs, and since the raw materials were utilized in the manufacturing process, the deduction was justified. The Tribunal found no reason to interfere with this decision, as the revenue did not provide any contrary material to challenge the findings of the ld. CIT(A). Therefore, the Tribunal rejected the Revenue's appeal on this ground as well.

Issue 3:
The final issue concerned the deletion of an addition made due to the disallowance of a deduction for income earned through excess provision written back. The ld. CIT(A) explained that the excess provision pertained to sundry creditors and was correctly treated as an expenditure. The reversal of this excess provision and its inclusion as income was in line with accounting principles. The Tribunal noted that the revenue did not present any contrary evidence to challenge this finding. Consequently, the Tribunal upheld the decision of the ld. CIT(A) and dismissed the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal on all grounds, affirming the decisions of the ld. CIT(A) in allowing the deductions under section 80IE for various items and deleting the additions made by the AO.