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2022 (3) TMI 919 - AT - Income TaxDisallowance on deduction of foreign exchange gain under 80IC - assessee claimed 80IC deduction on such foreign exchange gain on the ground that these had a direct and first degree nexus with the manufacturing activity of the assessee and accordingly eligible for deduction - As per AO foreign exchange gains do not satisfy the derived from business condition that the gains do not have immediate and direct nexus with the manufacturing activity of the assessee and hence the same are not eligible for deduction - HELD THAT - We are in agreement with the submissions of the assessee that foreign exchange gains are inextricably linked to export of goods and hence have a direct and first degree nexus with the manufacturing activity. The assessee is accordingly eligible for deduction u/s. 80IC on such foreign exchange gain. In the case of Quadrant EPP Surlon Uttranchal (P.) Ltd. 2017 (11) TMI 1767 - ITAT DELHI the Tribunal held that since foreign exchange fluctuation arose on account of trading transactions and excess amount received due to upward revision of foreign exchange rate was part of sale proceeds only, said fluctuation was eligible for section 80-IC deduction. We, therefore, find no infirmity in the order of the ld. CIT(A) whereby the disallowance on foreign exchange gain has been deleted. - Decided against revenue. Disallowance of deduction of export benefits u/s. 80IC - assessee during the year had received export benefit which are in the nature of excise duty refund, as its Baddi unit is eligible for outright excise duty exemption and same do not constitute independent source of income - HELD THAT - The Supreme Court in the case of CIT vs. Meghalaya Steel Ltd. 2016 (3) TMI 375 - SUPREME COURT has given a categorical finding that where assessee received (a) transport subsidy; (b) interest subsidy; (c) power subsidy; and (d) insurance subsidy which were reimbursements of manufacturing cost incurred by assessee, deduction of said subsidies was allowed under sections 80-IB and 80-IC Accordingly, in our view, in the facts of the present case and in light of various decisions cited before us, the CIT(A) has not erred in granting 80IC deduction to the assessee in respect of its export benefits representing refund of excise duty paid u/s. 80IC of the Act. We therefore hold that the assessee is eligible for deduction on export benefits on account of refund of excise duty under section 80IC of the Act. Deduction of scrap value u/s. 80IC - HELD THAT - In the case of Reckitt Benckiser Healthcare (I) Ltd. 2015 (2) TMI 506 - CALCUTTA HIGH COURT has held that profits and gains from scraps resulting in manufacturing process were eligible for deduction u/s. 80IC. Again, the Gujarat High Court in the case of CIT vs. Shreeram Tech Ltd. 2013 (10) TMI 306 - GUJARAT HIGH COURT has held that compensation received by industrial undertaking from insurance companies on account of loss raw materials and finished products in fire, would be eligible for deduction u/s. 80IA of the Act. In view of the above, we do not find any infirmity on the order of ld. CIT(A) in allowing the claim of deduction u/s. 80IC of the Act on scrap income. We accordingly hold that the assessee is eligible for deduction u/s. 80IC of the Act on income from sale of scrap. Addition of expenses disallowed u/s. 40(a)(ia) - assessee has claimed deduction u/s. 80IC of the Act on expenditure disallowed u/s. 40(a)(ia) - HELD THAT - In view of the circular no. 37/2016 dated 2nd Nov, 2016 and the decision in the case of DCIT vs. Ascendum Solutions Pvt. Ltd. 2017 (10) TMI 419 - ITAT AHMEDABAD has held that where disallowance results in an enhancement of business profit, but such an enhancement is revenue neutral in as much as relates to business profits are eligible for disallowance under chapter VI. In view of the above and the language of CBDT Circular No. 37 dated 2nd Nov, 2016, we are of the view that CIT(A) has not erred in deleting the addition made on account of disallowance u/s. 40(a)(ia) of the Act. Accordingly, the ground no. 6 of the Revenue is dismissed. We are of the view that the assessee is eligible to claim deduction u/s. 80IC of the Act in respect of disallowance made u/s. 40(a)(ia) of the Act on account of non-deduction of TDS.
Issues Involved:
1. Deletion of disallowance of ?21,56,490/- on account of product registration expense. 2. Deletion of addition of ?30,08,17,258/- on account of reduction of the claim u/s. 80IC of the Act. 3. Deletion of addition of ?1,32,64,686/- on account of disallowance of deduction on foreign exchange gain u/s. 80IC of the Act. 4. Deletion of addition of ?35,59,463/- on account of disallowance of deduction on export benefits u/s. 80IC of the Act. 5. Deletion of addition of ?14,26,979/- on account of disallowance of deduction on scrap value u/s. 80IC of the Act. 6. Deletion of addition of ?54,42,994/- on account of disallowance of deduction u/s. 80IC on expenses disallowed u/s. 40(a)(ia) of the Act. Detailed Analysis: Issue 1: Product Registration Expense The judgment does not provide specific details on this issue within the provided text. Therefore, no detailed analysis can be offered. Issue 2: Reduction of Claim u/s. 80IC The judgment does not provide specific details on this issue within the provided text. Therefore, no detailed analysis can be offered. Issue 3: Foreign Exchange Gain u/s. 80IC The assessee claimed a deduction of ?1,32,64,686/- on foreign exchange gains, arguing that these gains had a direct and first-degree nexus with the manufacturing activity. The Assessing Officer (AO) disallowed this, citing that foreign exchange gains do not satisfy the "derived from business" condition as per the Supreme Court decision in Liberty India. The CIT(A), however, allowed the claim, stating that foreign exchange fluctuation gains have a direct nexus with the business activity. The Tribunal agreed with the CIT(A), referencing similar decisions in other cases, such as DCIT v. Ansysco and Quadrant EPP Surlon Uttranchal (P.) Ltd., which supported the eligibility of foreign exchange gains for deduction u/s. 80IC. Issue 4: Export Benefits u/s. 80IC The assessee received export benefits in the form of excise duty refunds and claimed a deduction of ?35,59,463/-. The AO disallowed this, referencing the Liberty India case, arguing that excise duty refunds do not have a first-degree nexus with manufacturing profits. The CIT(A) allowed the deduction, citing the Gauhati High Court decision in CIT vs. Meghalaya Steels Ltd., which held that excise duty refunds have a direct nexus with manufacturing activity. The Tribunal upheld the CIT(A)'s decision, agreeing that the refund is directly linked to the manufacturing activity and eligible for deduction u/s. 80IC. Issue 5: Scrap Value u/s. 80IC The assessee claimed a deduction of ?14,26,979/- on income from scrap generated during the manufacturing process. The AO disallowed this, stating that scrap income does not have a first-degree nexus with manufacturing profits. The CIT(A) allowed the deduction, referencing the Delhi High Court decision in CIT v. Sadhu Forgings Ltd., which held that income from scrap sales is derived from manufacturing activities and eligible for deduction. The Tribunal upheld the CIT(A)'s decision, citing similar judgments from other high courts that supported the eligibility of scrap income for deduction u/s. 80IC. Issue 6: Expenses Disallowed u/s. 40(a)(ia) u/s. 80IC The assessee claimed a deduction of ?54,42,994/- on expenses disallowed u/s. 40(a)(ia). The AO disallowed this, referencing a previous ITAT decision that the deeming fiction of section 40(a)(ia) cannot be imported into section 80IC. The CIT(A) allowed the deduction, citing CBDT Circular No. 37/2016, which accepted that disallowances resulting in enhanced business profits are eligible for deductions under Chapter VI-A. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee is eligible for deduction u/s. 80IC on expenses disallowed u/s. 40(a)(ia). Conclusion The Tribunal dismissed all grounds of appeal raised by the Revenue, upholding the CIT(A)'s decisions to allow the various deductions claimed by the assessee under section 80IC of the Act. The judgments were consistent with legal precedents and CBDT circulars supporting the assessee's claims.
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