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TMI Blog2019 (3) TMI 1741X X X X Extracts X X X X X X X X Extracts X X X X ..... ty provision qua both five years and one year (supra) as computed on scientific basis as per its forgoing experience. Deduction u/s 80IB(10) on account of Foreign Exchange Fluctuation gain in respect of its Jammu Unit - HELD THAT:- In the instant case, the assessee claimed that it had earned foreign exchange gain in connection with the raw-material imported and working capital borrowed in foreign currency and the Assessing Officer has not doubted this fact. Therefore, we can safely presume that assessee has earned foreign exchange gain from the activities carried out in connection with the business. The purchase of raw materials and working capital loan are an integral part and has direct nexus with the business. Therefore, any gain arising in the course of business are eligible for deduction u/s 80IB(10) It is also important to note that the assessee in the succeeding year has incurred a loss of ₹ 4,20,47,705/- which was accepted as a business loss by the Revenue. Therefore, we hold that the impugned gain is a business income and eligible for deduction u/s. 80IB(10) of the Act. In this regard, we find support and guidance from the judgment of Hon ble Gujarat High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed at the instance of the Revenue and Assessee (in ITA No.860/Ahd/2016 for AY 2010-11) against the separate orders of the Commissioner of Income Tax (Appeals) VIII, Ahmedabad [CIT(A) in short] dated 25/07/2013, 21/05/2014, 27/01/2016 relevant to Assessment Years (AYs) 2008-09, 2009-10 2010-11 respectively. 2. Since all these appeals are inter-connected, therefore these are being disposed of by way of this consolidated order for the sake of convenience. 3. To begin with, we shall address the Revenue s appeal in ITA No.2339/Ahd/2013 for AY 2008-09 as a lead case. 4. The Revenue raised the common ground of appeal which reads as under:- 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 71,57,055/- on account of upward adjustment of international transaction in respect of royalty payment. 2. The ld. CIT(A) has also erred in law and on facts in deleting the disallowance of ₹ 1,100,09,859/- made by the AO on account of provision for warranties without appreciating facts that this amount is a provision and a contingent, unascertained and non-crystallized liability. 3. The Ld. CIT(A) further erred in law and on facts in directing to allow dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net sales value. 6.3. However, the TPO disagreed with the submission of the assessee by observing that the assessee has failed to furnish the royalty agreement as well as the financial statements of the AEs. The TPO was of the view that in the absence of the evidence or details, it was not possible to verify the chart filed by the assessee as detailed above. 6.4. The TPO also noted that there was no detail furnished by the assessee depicting the cost of development of the technology by the AE and the basis of recovery of the same from the other AEs. Accordingly, the TPO disallowed the amount of royalty payment of ₹ 71,57,055/- out of the total royalty payment of ₹ 3,57,85,275/- and added to the total income of the assessee. 7. The aggrieved assessee preferred an appeal to the Ld. CIT(A) who deleted the addition made by the Assessing Officer by observing as under: 3.3 DECISION I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The addition has been made on account of upward adjustment of ₹ 71,57,055/- for Royalty paid to the AE. It has been pointed out by the appellant that while deciding the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and gone through the orders of the authorities below. We find that the issue regarding payment of royalty at the rate of3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from exfactory sale value of the concerned products. It was also explained before the learned CIT(A) that if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e., parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with exfactory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the effective rate worked out is only 2.3% on sale, as against 3% paid by oilier group entities. This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue, and hence, on this aspect, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prejudice to the above, the assessee also claimed that if the provision for warranty expense is disallowed, then the corresponding income booked in the form of sales should also be allowed as a deduction in its proportion. 12.5. However, the Assessing Officer disregarded the contention of the assessee by observing that the provision for the warranty has not been calculated on a scientific basis. As the assessee is following mercantile accounting system, then the expenses should be allowed in the year in which the liability of the same accrues. Accordingly, the Assessing Officer held that the provisions for the warranty of one year for AC should be allowed in proportion to nine months only in the year under consideration. Thus, the Assessing Officer worked out the provision for warranty expenses pertaining to three months for ₹ 73,09,760/- being ₹ 2,92,39,038 x 3 12. 12.6. Similarly, the Assessing Officer was of the view that the compressor warranty expenses for five years should be allowed only for one year. Accordingly, the Assessing Officer worked out the expenses of ₹ 27,00,099/- being ₹ 33,75,124 x 4 5. Thus, the sum of ₹ 1,00,09,859/- (₹ 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned warranty provision qua both five years and one year (supra) as computed on scientific basis as per its forgoing experience. Its identical substantive grounds in both cases ITA Nos. 2303 2304/Ahd/2015 as well as the main cases stand accepted whereas Revenue s corresponding substantive grounds are dismissed. Respectfully following the decision of Co-ordinate Bench as cited above we do not find any error in the decision of the Ld. CIT(A), therefore, the appeal of the revenue on this issue is dismissed. 17. As the issue involved in appeal on hand is identical to the issue as discussed above, therefore, respectfully following the same, we do not find any reason to interfere in the order of the Ld. CIT(A). Accordingly, we direct the Assessing Officer to delete the addition made by him. 17.1. We also note that the Revenue preferred an appeal against the order of ITAT which was decided by the Hon ble Gujarat High Court in the Tax Appeal No. 1236 of 2018, dated 09/10/2018, in favor of the assessee. The relevant extract is reproduced as under: 5. Quite apart from the Tribunal s observations on the issue of consistency which seem to be commencing, independently also we do not think tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- and accordingly it claimed less deduction u/s 80IB(10) of the Act. 22. The Ld. CIT(A) after considering the submissions of the assessee held that the impugned gain is arising to the assessee in the course of its business activities. Therefore, the same is eligible for deduction u/s 80IB (10) of the Act. 23. Being aggrieved by order of Ld. CIT(A), the Revenue is in appeal before us. 24. Both the parties relied upon the orders of the authorities below as favorable to them. 25. We have heard the rival contentions and perused the materials available on record. In the instant case, the assessee claimed that it had earned foreign exchange gain in connection with the raw-material imported and working capital borrowed in foreign currency and the Assessing Officer has not doubted this fact. Therefore, we can safely presume that assessee has earned foreign exchange gain from the activities carried out in connection with the business. The purchase of raw materials and working capital loan are an integral part and has direct nexus with the business. Therefore, any gain arising in the course of business are eligible for deduction u/s 80IB(10) of the Act. 25.1. It is also important to note t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct in respect of such refund of excise duty. 29. Without prejudice to the above, the assessee also claimed that refund of excise duty should be treated as a capital receipt which is not chargeable to tax. 29.1. However, the Assessing Officer was of the view that the refund of excise duty income is not arising from the activities of the business of the eligible unit. Therefore, the same is ineligible for deduction u/s 80IB(4) of the Act. The Assessing Officer was also of the view that the refund of excise duty income is in the nature of Revenue Receipts. Therefore, the same cannot be treated as a capital receipt in the hands of the assessee. 30. The aggrieved assessee preferred an appeal to the Ld. CIT(A) who has deleted the addition made by the Assessing Officer by observing as under: 8.3. DECISION I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has held that the Excise Duty refund received by the appellant was not a profit derived from the business of industrial undertaking but it was a result of establishment of industrial undertaking in industrially backward area. He held that it was an incentive and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same should be eligible for deduction u/s 80IB(4) of the Act. 34. Without prejudice to the above, the Ld. AR also submitted that the refund of excise duty should be treated as a capital receipt as it relates to the promotion of the industries in the backward area. 35. We have heard the rival contentions and perused the materials available on record. In our considered view, the excise duty refund has a live link with the business activities of the assessee. Therefore, we hold that the excise duty refund is eligible u/s. 80IB(4) of the Act. In this regard, we support and guidance from the judgment of Hon ble Supreme Court in the case of Meghalaya Steel Ltd. reported in 383 ITR 217, wherein it was held as under: Section 28(iii)(b)* specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head profits and gains of business or profession . If cash assistance received or receivable against exports schemes are included as being income under the head profits and gains of business or profession , it is obvious that subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase (supra) and Ponni Sugars Chemicals Ltd.'s case (supra). 31. The finding of the Tribunal that the incentives were Revenue Receipt is, accordingly, set aside holding the incentives to be Capital Receipt in the hands of the assessees. 38.1. We further note that the Hon ble Supreme Court upheld the above judgment of Hon'ble J K High Court in the case of CIT vs. Shree Balaji Alloy reported in 80 taxmann.com 239. 38.2. From the above, there remains no ambiguity that the amount of excise duty is capital receipt not chargeable to tax. 38.3. In view of the above, we do not find any reason to disturb the findings of the Ld. CIT(A), therefore the ground of appeal raised by the Revenue is dismissed, and the ground of appeal of the assessee in the application filed under Rule No. 27 of ITAT is allowed. 39. The last issue raised by the Revenue is that the Ld. CIT(A) erred in directing to allow MAT credit u/s 115JAA of the Act as increased by the amount of surcharge and education cess. 40. The assessee while working out the tax liability under the normal provisions of Act has claimed the credit of the tax paid under MAT along with the surcharge and education cess. However, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 3. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 4,62,45,307/- made u/s.80IB of the Act, without properly appreciating the facts of the case and the material brought on record. 49. So far as ground Nos.1 2 are concerned, the same are identical to the facts of ground Nos.1 2 in ITA No.2399/Ahd/2013 for AY 2008-09 of Revenue s appeal(supra). Since identical issues are involved in this year also, therefore, taking a consistent view and respectfully following the order passed in ITA No.2399/Ahd/2013, ground Nos.1 2 of Revenue s appeal are dismissed. 50. Likewise, ground No.3 is also identical to the facts of ground No.4 in ITA No.2399/Ahd/2013 for AY 2008-09 of Revenue s appeal (supra). Respectfully following the order passed in ITA No.2399/Ahd/2013, ground No.3 of Revenue s appeal is dismissed. 51. Remaining grounds are general in nature which requires no independent adjudication. Revenue s appeal in ITA No.931/Ahd/2016 for AY 2010-11 52. Revenue has raised following grounds of appeal: 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,59,20,901/- on account of upward adjustment of international traction in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which has already been deleted by us under normal computation of income vide Para No. 55 of this order. Therefore, in our considered view, there is no need to make any addition in the book profit under section 115JB of the Act on account of warranty expenses. Hence the ground of appeal of the Revene being consequential in nature is dismissed. 57. In the result, Revenue s appeal in ITA No.931/Ahd/2016 for AY 2010-11 is dismissed. Assessee s appeal in ITA No.860/Ahd/2016 for AY 2010-11 58. The Assessee has raised the following grounds of appeal: 1.1. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in partly upholding the disallowance on account of provision for warranty expenses amounting to ₹ 91,44,050 (out of total disallowance of ₹ 3,78,09,013) which pertained to providing five year warranty on the compressors used in the Air Conditioners sold during the present assessment year. He ought to have appreciated, inter alia, that the appellant s method for estimating such warranty expenses yielded a reliable estimate and in terms of the ratio of the Supreme Court decision in Rotork Controls (India) P.Ltd. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was eligible to deduction u/s.80IB was bound to result into a corresponding increase in the quantum of deduction to which the appellant was eligible under that provision and therefore, he ought to have decided the aforesaid Ground No.42 of the appellant s appeal before him in favour of the appellant and that too, in a categorical manner. 4. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in dismissing Ground No.8 of the appellant s appeal before him challenging the levy of interest u/s.234B. He ought to have appreciated, inter alia, that the appellant had challenged the very levy of this interest and, in the peculiar facts and circumstances of its case, even if the impugned disallowance came to be ultimately sustained, the ratio of the decision of the Gujarat High Court in Bharat Machinery and Hardware Mart s case (136 ITR 875) and of the decision of the ITAT, Delhi Bench in Haryana Warehousing Corporation v. DCIT [252 ITR (A.T.) 34] was attracted and the levy deserved to be cancelled. 4. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in dismissing Ground No.9 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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