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TMI Blog2023 (1) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IC - AO disallowed the claim holding that the excess duty refund did not represent the income with first degree of nexus with the manufacturing profits - HELD THAT:- As in the case of Meghalaya Steels Ltd [ 2016 (3) TMI 375 - SUPREME COURT] has given a categorical finding that whenever the assessee received transport subsidy, interest subsidy, power subsidy, insurance subsidy which are reimbursement of manufacturing cost incurred by the assessee, the deduction of the said subsidies are allowed under sections 80IB and 80IC. Therefore, it held that CIT(A) was not wrong when it granted 80IC deduction to the assessee in respect of its export benefit representing refund of excise duty paid u/s 80IC - It held, therefore, that the assessee is eligible for deduction on export benefit on account of the refund of excise duty. There does not appear to be any error in understanding the ratio laid down by the Apex Court in the case of Meghalaya Steels Ltd (supra). Both the CIT(Appeals) and the Tribunal have rightly followed the decisions of Dharam Pal Prem Chand [ 2008 (11) TMI 231 - DELHI HIGH COURT] as well as Meghalaya Steels Ltd (supra) which held that the subsidies, which had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah, learned advocate assisted by Mr.Raviraj Singh for the respondent. 4 The return of income for the Assessment Year 2009- 10 was filed by the assessee declaring the total income of Rs.14,66,29,789/- and the book profit under section 115JB of the Act of Rs.64,90,33,459/-. The assessee furnished its Transfer Pricing Report under section 92E read with Rule 10D in Form No.3CEB on 30.09.2009. Notice under section 143(2) of the Act had been issued. 5 Miscellaneous income of the assessee comprised of scrap income generated during the manufacturing process. The income from scrap sale generated through production process, since reduced the cost of production, the same was held to be in direct nexus with the business income of the eligible unit. It was urged that miscellaneous income is eligible for deduction under section 80IC of the Act. The Assessing Officer did not accept the contentions put forth by the assessee, where it claimed the exchange difference of Rs.1,32,64,686/-, which was disallowed, while computing the deduction under section 8OIC of the Act on the ground that foreign exchange did not satisfy the income derived from business condition. The gain did not have immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the ld. CIT(A) whereby the disallowance on foreign exchange gain has been deleted. 8 The issue is covered by the decision of this Court rendered in the case of Commissioner of Income-tax vs. ALPS Chemicals (P.) Ltd., [2015] 55 taxmann.com 388 (Gujarat), where this Court has held thus: Question {B} has two facets one pertains to income arising out of sale of DEPB license for the purpose of deduction under Section 80IA of the Act, in view of the decision of Supreme Court in case of Liberty India v. Commissioner of IncomeTax, reported in (2009) 317 ITR 218 (SC) holding this issue in favour of the Department and against the assessee. The second aspect of Question is foreign exchange fluctuation for the purpose of deduction under Section 80IA of the Act. This issue would be covered by the judgment of this Court in Tax Appeal No. 1468 of 2006 and connected appeals. It is true that the said decision was rendered in the background of Section 80HHC of the Act. Counsel for the Revenue would contend that Section 80IA of the Act would stand on a different footing since the requirement is that the profit must have been derived from the eligible business. We had, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the export, we fail to see what material change can it bring about if within the time permitted under subsection(2) of section 80HHC, the remittance is made but in the process accounting year has changed. To our mind mere change in the accounting year can have no real impact on the nature of the receipt. The conclusion of the Assessing Officer that since the year during which such sale proceeds were received by the assessee export was not made, would not in any manner change the situation. The assessee being engaged in the business of export and having made the export, mere fact of the remittance being made after 31st of March of the year when export was made, would not change the situation insofar as, relation of such income to the assessee s export business is concerned. Clause (baa) to the Explanation to section 80HHC provides for exclusion of certain incomes for computation of export profit under section 80HHC. Subclause (1) of clause (baa) thereof pertains to 90% of the sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court held that such income cannot be said to have been derived from assessee s industrial undertaking. In the present case, however, we find that the source of the income of the assessee was the export. On the basis of accrual, income was already reflected in the assessee s account on the date of the export on the prevailing rate of exchange. Further income was earned merely on account of foreign exchange fluctuation. Such income, therefore, was directly related to the assessee s export business and cannot be said to have been removed beyond the first degree. In case of Commissioner of Incometax vs. Shah Originals reported in [2010] 327 ITR 19 (Bom), the Bombay High Court considered a case where the assessee, an exporter, was given an option to keep a specified percentage of the receipts on account of the export in its Exchange Earners Foreign Currency (EEFC) Account. The assessee realized the full amount on account of the export but kept the portion thereof in EEFC Account. The assessee received higher amount in Indian rupees on such amount so set apart due to the fluctuation in the foreign exchange rate. Conscious of the fact that the assessee had received the entire pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount and the exchange fluctuation which has arisen therefrom cannot be regarded as being part of the profits derived by the assessee from the export of goods or merchandise. In the result, Appeal is allowed in part to the extent Tribunal s decision relates to Section 80IA of the Act. With respect to deduction under Section 80IA of the Act on sale of DEPB licence, the same is reversed. Appeal stands allowed in part. 9 No interference is required, as no substantial question of law arises for consideration of this Court. 10 On the ground of disallowance of Rs.35,59,453/- made on account of disallowance of deduction on export benefit under section 80IC of the Act, the assessee, during the year, received the export benefits, which were in the nature of excise duty refund, as its Baddi Unit was eligible for outright excise duty exemption and the same did constitute independent source of income. The assessee had claimed deduction under section 80IC of the export benefit of Rs.35.59 lakhs (rounded off), representing refund of excise duties paid on material and other items purchased for manufacturing purpose for its Baddi Unit. 11 The Assessing Officer disallowed the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only refund of the amount already paid by the assessee had been reduced from the sale price while computing the profit, therefore, when the assessee gets the refund of an expenditure already incurred, the same shall have to be deemed to be the profit and gain of the business or profession carried on by the assessee and, hence, the excise duty refund received by the assessee shall need to be treated as part of the business profit. It also distinguished the Liberty India (supra), where the Apex Court was considering the profit derived from the sale of transfer of DEPB/ Duty Drawback Benefits. It was under the scheme framed under the Customs Act and it is transferable. This being a marketable commodity, profits derived from the sale and transfer of DEPB was not found to be equitable with the excise duty refund, which is neither marketable commodity nor transferable. It is only the refund of expenditure already incurred by the assessee. The CIT(Appeals) held that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of Meghalaya Steels Ltd (supra). 14 The Court went to an extent of saying that even assuming that the refund does not amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee s business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error. 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable. 23. We are of the view that the judgment in Merino Ply Chemicals Ltd. and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. XXX XXX XXX XXX XXX XXX 27. A Delhi High Court judgment was also cited before us being CIT v. Dharampal Premchand Ltd., 317 ITR 353 from which an SLP preferred in the Supreme Court was dismissed. This judgment also concerned itself with Section 80-IB of the Act, in which it was held that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act. 28. It only remains to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 80IB. The Revenue challenged the same before the appellate Tribunal, which dismissed the appeal on the ground that the assessee is eligible under section 80IC from the sale of scrap. 20 The decision of Deputy Commissioner of Income-tax vs. Harjivandas Juthabhai Zaveri and another , when taken into consideration, it endorses the view of the assessee and has held against the Revenue this-wise. So far as question No.5 is concerned, learned counsel, Mr. Soparkar, drew our attention to section 80-I of the Act and submitted that this section is meant for deduction in respect of profits and gains from industrial undertakings. With regard to the question raised by the Revenue that the amount received on sale of jute bags, barrels, etc., ought to have been deducted from the cost of the material, Mr. Soparkar, the learned advocate for the assessee, submitted that it would not make any difference if the amount received by the sale of empty barrel or bardan (jute bags) is deducted from the cost of the raw material. He submitted that if the cost is reduced by deducting the sum so received, the profit will increase and, ultimately, the total would be the same. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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