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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 ..... erred in law and on facts in deleting the disallowance of Rs.35,59,463/- made on account of disallowance of deduction on exports benefits u/s.80IC of the Act?" [C] Whether the Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs.14,26,979/- made on account of disallownance of deduction on scrap value u/s.89IC of the Act?" 3 We have heard Mrs.Kalpana Raval, learned Senior Standing Counsel assisted by Mr.Karan Sanghani, learned advocate for the appellant and Mr.Dhinal Shah, 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by it and thereby entitling assessee to claim deduction under section 80-IC on same. Also, in the case of Quadrant EPP Surlon Uttranchal (P.) Ltd. v ITO [2017] 88 taxmann.com 261 (Delhi - Trib.), the Tribunal held that since foreign exchange fluctuation arose on account of trading transactions and excess amount received due to upward revision of foreign exchange rate was part of sale proceeds only, said fluctuation was eligible for section 80-IC deduction. We, therefore, find no infirmity in 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If this is so, any fluctuation thereof also must be said to have arisen out of the export business. Mere period of time and the vagaries of rate fluctuation in international currencies cannot divest the income from the character of the income from assessee's export business. In that view of the matter, the Revenue's contention that such income cannot be said to have been derived from the export business must fail. If this is the position when the remittance is made during the same year 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 insof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported in [1999] 237 ITR 579, the Court held that the facts were that the assessee was engaged in the processing of prawns and sea food and exporting it. In the process the assessee earned import entitlements granted by the Government of India under Export Promotion Scheme. The assessee could use such import entitlements itself or sell the same to others. The assessee sold such entitlements and earned income and included such income for relief under section 80HHC of the Act. The 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action so as to fall within the expression "derived" by the assessee in subsection (1) of section 80HHC. Both the Assessing Officer and the Commissioner of Incometax (Appeals) have made a distinction, which merits emphasis. The exchange fluctuation, as both those authorities noted, arose subsequent to the transaction of export. In other words, the exchange fluctuation was not on account of a delayed realization of export proceeds. The deposit of the receipts in the EEFC account 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion claimed were in respect of the export benefits representing the refund of excise duty paid under the 80IC Act and the same, therefore, would not represent the income with the first degree of nexus with the manufacturing profit. 13 We notice that the CIT(Appeals), while considering this issue, has, in detail, examined the judicial precedence, where in one of the judgements of the DCIT vs. Coromandel International Ltd. (53 taxmann.com 111), it had held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on the Delhi High Court decision in CIT vs. Sadhu Forgings Ltd, 57 DTR 194, where the Delhi High Court had held that the activity of forging was the treatment of material to produce automobile parts, which amounts to manufacturing and, hence, the labour charges and job work charges earned by the assessee for doing job of forging are gains withheld from the industrial undertakings and are entitled for deduction 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 deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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