2022 (7) TMI 1051 - AT - Income Tax

Deduction u/s. 10B - fluctuation in the rate of foreign exchange as on the date of balance sheet - HELD THAT - As far as foreign exchange fluctuation rate is concerned, this issue has been settled by the jurisdictional High Court in the assessee s own case for the Assessment Year 2008-09 and also in the case of CIT vs. M/s. Pentasoft Technologies Ltd. 2010 (7) TMI 75 - MADRAS HIGH COURT - Respectfully following the above judicial precedents, we have no hesitation in holding that fluctuation in the rate of foreign exchange as on the date of balance sheet is an item of expenditure allowable u/s. 37(1) of the Act and the assessee is eligible for deduction under 10B as well as u/s. 80IA of the Act respectively. Scrap sales and claim of deduction u/s. 10B - As has been rightly argued by the ld. A.R., the assessee being engaged in the business of dies and chemicals, normal wear and tear used to happen on the machineries used for its manufacturing activities, which requires regular replacement. As it can been seen from the invoice, the purchaser s TIN Number. is reflected and mode of transport is also said to be through Local Truck and the Vehicle No. is also reflected in the invoice for removing of 4890 KG of loose Heavy MS Scrape. AO simply rejected the invoice on the ground that the scrap is not generated from the EOU unit. The Assessing Officer has not made any attempt to verify the buyer of the scrap namely M/s. Hanuman Traders, whose full address is being given in the invoice with TIN Number and proper VAT tax and Additional VAT taxes were collected on the above sales. Thus, the Assessing Officer without making proper enquiry simply denied the claim of scrap sales eligible for deduction u/s. 10B of the Act, which is in our considered view is not proper in law and unjustified. Therefore, the A.O. is directed to grant the claim of deduction under 10B of the Act on the sale of scraps.

Summary

Issues Involved:
1. Deduction under Section 10B for foreign exchange fluctuation on foreign currency loan.
2. Deduction under Section 10B for income from the sale of scrap.
3. Deduction under Section 80IA for foreign exchange fluctuation income from the Wind Mill Unit.

Issue-wise Detailed Analysis:

1. Deduction under Section 10B for foreign exchange fluctuation on foreign currency loan:
The assessee claimed a deduction under Section 10B for foreign exchange fluctuation of Rs. 36,16,223/- on a foreign currency loan availed exclusively for the business of CPC Blue Division, a 100% Export Oriented Unit (EOU). The Assessing Officer (A.O.) denied this claim, asserting that the loan was taken for acquiring capital goods, thus not eligible for deduction under Section 10B. The CIT(A) upheld this disallowance. However, the Tribunal referred to the jurisdictional High Court's decision in the assessee's own case, which held that foreign exchange gains arising from export business are eligible for deduction under Section 10B. The Tribunal concluded that the fluctuation in exchange rates should be considered as arising from the export business and allowed the deduction under Section 10B.

2. Deduction under Section 10B for income from the sale of scrap:
The assessee claimed a deduction under Section 10B for Rs. 1,06,232/- from the sale of scrap generated from the EOU unit. The A.O. denied this claim, arguing that the scrap pertained to machinery and was not proven to be generated from manufacturing activities. The CIT(A) confirmed this disallowance. The Tribunal, however, reviewed the evidence, including the ledger account and invoice for the scrap sale, which indicated that the scrap was indeed generated from manufacturing activities. The Tribunal found that the A.O. had not made any effort to verify the buyer or the transaction details and thus directed the A.O. to grant the deduction under Section 10B for the sale of scrap.

3. Deduction under Section 80IA for foreign exchange fluctuation income from the Wind Mill Unit:
The assessee claimed a deduction under Section 80IA for Rs. 30,27,488/- being foreign exchange fluctuation income from the Wind Mill Unit. The A.O. and CIT(A) denied this claim without providing specific findings or justification. The Tribunal referred to the jurisdictional High Court's decision, which held that foreign exchange fluctuation income arising from export business is eligible for deduction. The Tribunal concluded that the foreign exchange fluctuation income from the Wind Mill Unit is an intrinsic part of the business income and thus allowed the deduction under Section 80IA.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, granting deductions under Sections 10B and 80IA for foreign exchange fluctuation income and income from the sale of scrap. The Tribunal emphasized the need for proper verification and adherence to judicial precedents in deciding such matters. The order was pronounced in the open court on 22-07-2022.