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TMI Blog2015 (6) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... [2010 (3) TMI 1054 - ITAT AHMEDABAD] relating to assessment year 2004-05 (preceding assessment year) has already decided the very issue of netting of the interest income against the Revenue. There is no distinction on facts or law being pointed out. We affirm the CIT(A) findings in these circumstances.- Decided against revenue. Exchange rate difference - includible in the profits eligible for deduction u/s.80IB as per CIT(A) - Held that:- A coordinate bench in assessee’s case (supra) holds that foreign exchange rate fluctuation gains bear the character of income derived from export sales to be treated as part and parcel of export profits only. No distinction on facts or law is being pointed out at the Revenue’s behest so as to adopt different approach in the impugned assessment year. We affirm the CIT(A) findings - Decided against revenue. Exclusion of scrap income from the profit eligible for deduction u/s.80IB - CIT(A) treats the scrap in question to have been generated from its manufacturing process having direct relation to the source of business income - Held that:- The hon’ble jurisdictional High Court in DCIT vs. Harjivandas J. Zaveri [1999 (12) TMI 5 - GUJARAT High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hayenderi units excluded from eligible profits for u/s.80IB deduction - Held that:- The lower authorities have not adverted to the assessee’s books to find out as to whether the impugned balances stem from its revenue account or not for the purpose of granting section 80IB deduction. We feel that this issue requires re-examination in Assessing Officer’s hands. We order accordingly. - Decided in favour of assessee for statistical purpose. Excess production of refills - AO as well as the CIT(A) hold this sum as its profits not eligible for section 80IB deduction - Held that:- There is a difference between refills consumed and pot flasks manufactured to the tune of 6149 units. The Revenue treats the assessee to have sold the raw material (supra) by way of indulging in a trading activity. Its notes and other material on record has nowhere been rejected. Nor is there any evidence of any such activity forthcoming from the case file. The Assessing Officer has proceeded on this assumption without quoting any evidence on record. The assessee is already a manufacturer otherwise entitled for section 80IB deduction. That being the case, we see no reason to agree with lower authorities treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at Dadra and Bhayender. It filed return on 31.10.2005 declaring total income of ₹ 1,28,67,263/-. The Assessing Officer took up scrutiny . He inter alia noticed the assessee s claim of section 80IB deduction for its Dadar unit. There is no dispute that its manufacturing activity commenced in August, 2003. Much before 31st of March, 2004. It applied for factory license on 9.2.2006. The Assessing Officer observed in assessment order dated 31.12.2007 that the assessee had neither applied nor obtained a valid factory license before commencing its manufacturing. He was of the view that its manufacturing was not lawful as per Section 80IB(4) in the relevant accounting period from 1.4.2004 to 31.3.2005. Assessee s pleadings claiming liberal interpretation of the deduction provision etc stood rejected resulting in the impugned disallowance/addition of ₹ 3,82,20,953/- being made accordingly. 4. The CIT(A) has agreed with the assessee s contentions. He inter alia holds that section 80IB is a deduction provision to be liberally construed as per a catina of case law, non obtaining of an approval license under the Factories Act is not a ground to deny the impugned deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the fact that it has not been derived from the manufacturing activity of the undertaking. A coordinate bench in assessee s case (supra) holds that foreign exchange rate fluctuation gains bear the character of income derived from export sales to be treated as part and parcel of export profits only. No distinction on facts or law is being pointed out at the Revenue s behest so as to adopt different approach in the impugned assessment year. We affirm the CIT(A) findings. The Revenue s ground is rejected. 8. The Revenue s fourth ground assails the CIT(A) order granting relief to the assessee with regard to exclusion of scrap income of ₹ 13,25,610 from the profit eligible for deduction u/s.80IB of the Act without considering the ratio laid down by the Hon ble M.P. High Court in the case of D.P. Agrawal Vs. CIT 272 ITR 118 (MP) wherein it has been held by the Hon ble Court that scrap income will not be eligible for deduction u/s.80IB of the Act. 9. The Assessing Officer noticed the assessee s impugned scrap sales income of ₹ 13,25,610/- and held it as not to have been derived from normal business operation. The CIT(A) treats the scrap in question to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to other grounds of appeal, the notional income by way of DEPB credits, DFRC receipts or other export incentives credited in the Profit and Loss Account be not considered as income liable for tax during the year in accordance with the decision of the Hon ble Supreme Court in the case of CIT vs. Excel Industries Ltd. reported in 38 Taxman.com 100 (SC). 2. On appreciation of the facts and circumstances of the case and without prejudice to other grounds of appeal, the exclusion of DEPB credits, DFRC receipts or other export incentives for the purpose of calculating the profits eligible for deduction u/s.80IB of the Act shall be restricted to the net benefit after netting out the cost of obtaining the said benefit as specified and observed by the hon ble Supreme Court in the case of Topman Exports vs. CIT (342 ITR 49) The Revenue objects admissibility of the assessee s alternative/ additional ground. The assessee quotes law settled by the hon ble apex court in Excel Industries and Topman Exports (supra) propounding computation of notional income from DEPB credits/DFRC receipts/other export incentives accrues not in the year of export; but in the one corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of trading sales of ₹ 85,063/- excluded for the purpose of computing eligible profits relevant for section 80IB deduction. It does not press for the same in the course of hearing. We reject this ground accordingly for non prosecution. 16. This leaves us with the assessee s last ground regarding excess production of refills amounting to ₹ 8,90,590/-. The Assessing Officer as well as the CIT(A) hold this sum as its profits not eligible for section 80IB deduction. 17. The Assessing Officer sought for assessee s quantitative details of raw materials and finished goods. He noticed consumption of 59706 refills for manufacturing 65848 units of pot flasks (assessee s manufactured product). This resulted in a difference of 6142 refills. The assessee pleaded against bottom line matching of raw material and finished goods in question. It attributed this difference to work in progress as well as availability of opening material in the form of semi finished goods. The Assessing Officer treated it to be only a general explanation. He sought for excise records. The assessee allegedly failed to produce the same. The Assessing Officer observed in these circumstances that its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the available opening material in hand in the form of Work In progress / semi finished goods. However the AO was of the view that the WIP statement submitted by the appellant was not specific and only mentioned 'Pot Flask' and the capacity of the pot flask as to whether it was 1000ml or 500 ml was not mentioned in the statement. Thus according to the AO the, appellant must have got these excess pot flasks 1000 ml 6142 units as finished product. The AO observed that the explanation given by the appellant was only about WIP and could not be substantiated. In reality the said product was produced on an assembly line, therefore once raw materials were put in injection molding machine; the subsequent steps were on a continuous assembly line. The AO also observed that the time required for all steps was very short and all these steps had to be performed when it was hot and therefore, there was no possibility of WIP. The AO further observed that the appellant had no capacity to produce the raw materials like Pot Flask 1000 ml Refill. Thus according to the AO the sale of raw materials was a trading activity not eligible for deduction U/s. 80IB of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord has nowhere been rejected. Nor is there any evidence of any such activity forthcoming from the case file. The Assessing Officer has proceeded on this assumption without quoting any evidence on record. The assessee is already a manufacturer otherwise entitled for section 80IB deduction. That being the case, we see no reason to agree with lower authorities treating it as a trader in sale of refills in question. Therefore, we accept assessee s relevant ground and hold it to have manufactured the refills entitled for section 80IB deduction qua this sum of ₹ 8,90,590/-. The assessee succeeds in the corresponding ground. The assessee s appeal ITA 1143/Ahd/2009 is partly allowed. Assessment year 2006-07 Revenue s appeal ITA 942/Ahd/2010 20. The Revenue raises following substantive grounds: 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing deduction u/s.80IB of the IT Act not granted on the basis of not having factory license for the particular year. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the income of sale of scrap of ₹ 17,73,316/- from the profit elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. Assessee s appeal ITA 1583/Ahd/2010 24. The assessee s sole substantive ground reads as under: 3. On appreciation of the facts and circumstances of the case, the additions made by the ld. Joint Commissioner of Income Tax (Learned Assessing Officer) and confirmed by the learned CIT(A) are contrary to law and based on erroneous understanding of the facts. Interest Income 11,91,876 Export incentives 39,88,113 Exchange Rate Difference 1,467 It has filed additional/alternative grounds in tune with those decided in preceding assessment year 2005-06 hereinabove. There is no change in facts and circumstances. Therefore, we follow our said findings in the impugned assessment year as well and accept the assessee s additional/alternative grounds for statistical purposes. These two alternative/additional issues are remitted back to the Assessing Officer for fresh decision as per law in view of the hon ble apex court decisions rendered in Excel Industries and Topman Export (supra). 25. Now we come to the issue of exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t eligible for deduction u/s.80IB Interest income 16,59,946 Export Incentives 33,57,405 The assessee-appellant has also filed alternative/ additional grounds praying for qua the interest income as well that arising from export incentives in tune with those words in preceding assessment years decided hereinabove. We admit the same in tune with our order on identical issues in ITA 1143/Ahd/2009 for assessment year 2005-06 remit these issues back to Assessing Officer for afresh adjudication as per law in view of the hon ble apex court s decisions in Excel Industries and Topman Exports (supra). The assessee s main grounds fail and additional/alternative grounds are allowed for statistical purposes accordingly. The assessee appeal ITA 3336/Ahd/2010 is partly allowed for statistical purposes. Assessment year 2008-09 Revenue s appeal ITA 2678/Ahd/2011 28. The Revenue s substantive pleadings read as follows: 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the claim of deduction u/s.80IB amounting to ₹ 4,93,10,032/- w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit eligible for deduction u/s.80IC of the Act. The action of the ld. CIT(A) is contrary to the facts and circumstances of the case and law and deserves to be deleted. 4. On appreciation of the facts and circumstances of the case, case the ld. CIT(A) has erred in confirming the action of the ld. Assessing Officer in excluding the following items of income from the profit eligible for deduction u/s.80IB Export incentives-DEPB received 47,35,634 Sundry Balance Written Back 86,475 5. On appreciation of the facts and circumstances of the case, the ld. CIT(A) has erred in confirming the action of the ld. Assessing Officer in excluding the following items of income from the profit eligible for deduction u/s.80IB Other Misc. Income 22,090 Sundry Balance Written Back 6,764 The assessee does not press for its ground no.2 being general in nature. 29. Relevant facts qua ground no.3 are that the assessee had claimed section 80IC deduction of ₹ 1,70,91,825/- in respect of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -IC as regards to a particular Unit, the income/loss of that Unit has to be treated independently. Therefore, the b/f business loss or depreciation of that Unit has to be adjusted accordingly before allowing the benefit u/s, 80-IC. The Ld. AH relied upon the observation of Honorable Delhi High Court in the case of CIT V/s. Dewan Kraft System (P) Ltd (2007) 297 ITR 305 (Delhi.) wherein it was held that in view of the overriding provisions of sub-sec. (7) of sec.801A, deduction u/s.8oIA cannot be restricted by adjusting the profits of the eligible Unit against the losses of other Units of the Assessee . There is no dispute on the decision of the above referred case. In that case, the AO had set off loss of another Unit which the Hon'ble HG rightly pointed that the adjustment of other unit cannot be made. The findings of the AO was also supported by the decision of Honorable ITAT Ahmedabad Special bench in the ease of ACIT V/s. Goldmine Shares Finance (P) Ltd. 113 ITR 229. As regards the observation of the AO that that notional losses of earlier years has to be deducted from the current year's profit eligible for deduction U/s. 801C of the Act. In view of the above, 1 am no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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