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TMI Blog2015 (6) TMI 1193X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us in order to compel us to disturb the estimate made by the AO. Accordingly, we confirm the order of Ld CIT(A) on this issue. Computation of deduction u/s 10B in respect of Pune Unit and also the disallowance of loss declared by the Nashik Unit - HELD THAT:- In the instant case, has assessed the interest income under the head Income from other sources. On the contrary, the coordinate bench of Mumbai Tribunal, in the case of Larsen Toubro Infotech Ltd [ 2012 (9) TMI 292 - ITAT MUMBAI] has expressed the view that the other income having no direct nexus with export of articles or things are not eligible for deduction u/s 10A of the Act. Accordingly, we confirm the reduction of profit eligible for deduction u/s 10B of the Act by the amount of interest income. Rejection of deduction u/s 10-B of the Act relating to sub-contract works - AO the reduced the deduction u/s 10B of the Act to the extent of profit attributable to subcontracting works - HELD THAT:- A perusal of the provisions of sec. 10B(1) would show that the deduction prescribed therein is allowed to profits and gains as are derived by a hundred per cent export-oriented undertaking from export of articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 10B of the Act. It declared loss in Nashik unit. In the assessment proceedings, the AO drastically reduced the deduction claimed by the assessee u/s 10B of the Act for various reasons. The AO also rejected claim of loss incurred in Nashik unit. The Ld CIT(A) also confirmed the same. Aggrieved, the assessee has filed this appeal before us. 3. The first issue relates to the rejection of Gross Profit declared by the assessee for its Nashik Unit and instead estimating the same at 10% of the sales. The assessee declared sales of ₹ 56,38,296/- in its Nashik unit and the Cost of goods sold was shown at ₹ 94,51,030/-. Accordingly, the Gross loss was shown at ₹ 38,12,734/-. The AO noticed that most of the exports were made to its sister concern named M/s Renfro Europe and Renfro Corporation. Since the assessee did not justify the Gross loss, the AO rejected the claim of Gross loss and instead estimated the Gross profit at ₹ 5,63,830/-, i.e. @ 10% of the sales reported by the assessee. The Ld CIT(A) also confirmed the same. 4. The Ld A.R submitted that the Sales made to associated enterprises have been held to be at Arms Length by the TPO. He fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it by making corresponding increase of Profit in Pune unit. Accordingly, he transferred the loss of Nashik Unit to Pune unit. Further the profit declared by the Pune unit included interest income of ₹ 5,40,312/-. The AO held that the said interest income is not eligible for deduction u/s 10B, since the same was not derived from export of articles or things. Accordingly, the AO recomputed the business profit of Pune unit by deducting the loss of ₹ 47,27,616 (supra) of Nashik Unit and interest income of ₹ 5,40,312/-. Accordingly the profit of Pune unit was arrived at by the AO at ₹ 39,22,420/-. 9. The AO went a step further and held that the profit attributable to sub-contracting works is not eligible for deduction u/s 10B of the Act, i.e., according to the AO, the assessee should generate profits by undertaking manufacturing works on its own. Accordingly, the AO computed the profit relating to manufacturing activity of Pune unit at ₹ 16,36,483/- out of the Profit of ₹ 39,22,420/-, referred in the immediately preceding paragraph. After reducing the proportionate profit pertaining to domestic sales at ₹ 17,822/-, the AO allowed the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest income cannot be considered to the profit derived from export of goods or articles. The Ld A.R placed reliance on the decision rendered by Kolkatta bench of Tribunal in the case of Hindustan Gum Chemicals (23 SOT 143). However, the said decision shall not be applicable in the present case, since the AO, in the instant case, has assessed the interest income under the head Income from other sources. On the contrary, the coordinate bench of Mumbai Tribunal, in the case of Larsen Toubro Infotech Ltd (2012)(19 ITR(T) 361), has expressed the view that the other income having no direct nexus with export of articles or things are not eligible for deduction u/s 10A of the Act. Accordingly, we confirm the reduction of profit eligible for deduction u/s 10B of the Act by the amount of interest income. 14. The next controversy in this issue relates to the rejection of deduction u/s 10-B of the Act relating to sub-contract works. The AO entertained the view that the assessee itself should indulge in manufacturing activity. Since the assessee had carried out manufacturing works by sub-contracting the same, the AO held that the profit attributable to such sub-contract works i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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