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2019 (1) TMI 1275 - BOMBAY HIGH COURTDeduction u/s 80IB - income not directly ‘derived from’ the manufacturing activity of the assessee - exclude the interest income from the profits eligible for deduction - assessee argued that disallowance of interest income for such deduction should be the net of the interest and not gross - Tribunal by the impugned judgment accepted the assessee’s contention holding that the disallowance from the deduction of interest can be only be of the net of the interest income - Held that:- No error in the view of the Tribunal. It is undisputedly that the interest income earned by the assessee cannot be said to have been derived from its export business. However, when the question of disallowance comes, the revenue cannot ignore the assessee’s interest expenditure and disallow the entire interest earned by the assessee without netting if to off. Revenue cannot give different treatment to interest income and interest expenditure. Income earned by the assessee on account of foreign exchange rate fluctuation - revenue submitted that income cannot be stated to have been derived from the assessee’s export business - Held that:- CIT Appeals while granting the relief to the assessee had recorded that the additional income earned by the assessee on account of the fluctuation of foreign exchange rate was out of its receipts for exported goods. This is not a case where the assessee after completing the exports and receipt of the sale consideration, realized the same in rupee turns after a gap of time and in the meantime, the foreign exchange rate having fluctuated favourably, the assessee earned additional income. We are therefore, of the opinion that the Tribunal correctly confirmed the view of the CIT appeals and granted the benefit to the assessee. Claim of deduction of income arising out of sale of scrap - revenue argues that such income cannot be stated to have been derived from the assessee’s export business - Held that:- we notice that the Commissioner appeals while granting the relief to the assessee had come to factual finding that the assessee was engaged in manufacturing activity. During the course of such manufacturing activity scrap was generated out of use of various raw materials till the finished goods are produced. Such scrap was sold which generated receipts which in turn reduced the costs of manufacturing. It can thus be seen that scrap was generated in the course of assessee’s manufacturing activity and the income generated out of sale of such scrap was adjusted to the cost of manufacturing of the product itself. Such additional income thus was clearly derived out of the assessee’s activity of manufacturing and export of such manufactured goods. Claim of deduction pertaining to benefits of DEPB and duty drawback - Held that:- Upon perusal of the impugned judgment of the Tribunal, we notice that the assessee had raised an alternative contention of disallowance of net of the benefits and not gross. The Tribunal while upholding revenue’s objection to the assessee’s principal claim of deduction accepted the alternative contention and held that such disallowance would be restricted to the net of the benefit and not gross. Here also we do not find any error in view of the Tribunal. Even if the benefits of the DEPB and duty drawback were to be excluded from the purview of deduction for the assessee’s export business, the costs incurred for receiving such benefits must be accounted for. Addition on account of setting off the loss - computation of claim of deduction under Section 80IC - Held that:- Question to be concluded against the revenue by virtue of the judgment of this Court in case of Hercules Hoists Ltd.(2017 (6) TMI 1125 - BOMBAY HIGH COURT) as allowing the deduction of the profit u/s 80IB(5) of the Act without deducting the losses of the earlier years. In the result, all the tax appeals are dismissed.
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