TMI Blog2019 (3) TMI 1741X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case of Metrochem Industries Ltd. [ 2016 (7) TMI 1374 - GUJARAT HIGH COURT] Deduction u/s 80IB(4) in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The captioned appeals have 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) furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sales have not made the following deductions: a) Cost of Standard bought out components used in the manufacture of the products b) Landed cost of imported components c) Packing Charges 6.2. In view of the above, the assessee claimed that if the elements above are considered in working out the rate of royalty, the assessee is paying royalty at less than 3% of 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) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that in ITA No. 2363/Ahd/2008 for A.Y.2004-05, similar issue was decided by the Co-ordinate Bench of 1TAT in favour of the assesee and the addition was deleted following the order in Revenue's appeal for A.Y.2003-04 in ITA No.2281/Ahd/2007, while deciding the Revenue's appeal, the issue was decided by holding as under: 36. We have considered rived submissions and perused the material on record, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.3. In compliance with it, the assessee submitted that the provision for warranty is made on the sale of the air conditioner to the party. As such, the sale price of the air conditioner comprises the warranty expenses. The provision for the warranty was made on a scientific basis which is accordingly allowable as held by the Hon ble Apex Court in the case of Rotork Controls India Pvt. Ltd. vs. CIT reported in 314 ITR 62. 12.4. Without 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 Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se dated 30.04.2015 for assessment year 2011-12 indicates that there is no such disallowance made at the Revenue s behest. The assessee is assessed at the same rate throughout. All the above narrated facts therefore make it crystal clear that the assessee has satisfied the relevant conditions for claiming the impugned warranty provisions as deduction as envisaged in hon ble apex court s decision(supra). We accordingly accept assessee s substantive ground seeking to claim the impugned 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee before the Ld. CIT(A) submitted that the Assessing Officer had accepted such kind of gain as business income in respect of other units of the assessee. Thus, the Assessing Officer has taken a contrary view by holding such gain as income from other sources. 21.1. The assessee also submitted that it has been showing such gain as business income from the last several years consistently. As such, in the subsequent year, it has incurred a loss on account of exchange fluctuation amounting to ₹ 4,20,47,705/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowing the deduction u/s 80IB(4) of the Act for ₹ 5,83,00,000/- in respect of Jammu Units. 27. At the outset, we find that the assessee has filed an application dated 28/06/2018 under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 claiming that the excise duty refund should be treated as capital receipts. 28. The assessee during the year has claimed to have received a refund of excise duty amounting to ₹ 5,83,00,000/- which was shown as business income. Accordingly, the assessee claimed the deduction u/s. 80IB(4) of the Act 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2008 has taken a similar view and decided the issue in favour of the assessee. In view of the above mentioned discussion and the judicial pronouncements it is held that the excise duty referred is entitled for deduction under section 80IB. The disallowance made by the A.O. is directed to be deleted. 31. Aggrieved by order of the Ld. CIT(A), the Revenue is in appeal before us. 32. The Ld. DR vehemently supported the order of Assessing Officer. 33. On the other hand, the Ld. AR submitted that the excise duty refund is directly linked with his business activities. Therefore, the 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 jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received the refund of excise duty in terms of Notification No. 56/2002 and 57/2002 dated 14.11.2002 which has been held as capital subsidy by the judgment of Hon ble High Court of Jammu Kashmir in the case of Shree Balaji Alloys vs. CIT reported in 333 ITR 335, wherein it was held as under: 30. For all what has been said above, the finding of the Tribunal on the first issue that the Excise Duty Refund, Interest Subsidy and Insurance Subsidy were Production Incentives, hence revenue Receipt, cannot be sustained, being against the law laid down by Hon'ble Supreme Court of India in Sahney Steel Press Works Ltd.'s case (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue raised by the assessee in the application under Rule 27 of ITAT Rules is allowed. Revenue s appeal in ITA No.2286/Ahd/2014 for AY 2009-10 48. The Revenue has raised the following grounds of appeal: 1. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 98,58,674/- made on account of upward adjustment for royalty payment made to the AE, without properly appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 2,44,01,506/- made on account of warranty expenses, without properly appreciating the facts of the case and the material brought on record. 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Therefore, in our considered view, there is no need to make any addition in the book profit under section 115JB of the Act. Hence the ground of appeal of the Revenue being consequential in nature is dismissed. 55. Ground Nos.3, 5 6 are similar to Ground Nos. 2, 4 5 of Revenue s appeal in ITA No.2399/Ahd/2013 for AY 2008-09(supra). For the parity of reasons noted above, our view in ITA No.2399/Ahd/2013 for AY 2008-09 above shall apply mutatis mutandis to the grounds captioned above. Thus, ground Nos. 3, 5 6 raised by the Revenue in its appeal are dismissed. 56. Ground No.4 of Revenue s appeal for the addition of warranty expenses in the book profit is connected with the disallowance of the warranty expenses under normal computation of income 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 dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the disallowance of the deduction u/s.80IB on the warranty expenses this issue is similar to that of the previous assessment year, following the finding given for AYrs. 2009-10 2008-09 the same is deleted. Thus the sub ground No.4.2 is allowed in favour of the appellant The learned CIT(A) ought to have upheld the appellant s aforesaid ground in a categorical manner so as not to leave any doubt about the same having been decided in the appellant s favour. 3.2. Without prejudice to the foregoing, in law and in the facts and circumstances of the appellant s case, the learned CIT(A) ought to have appreciated that any addition or disallowance that was made while computing the appellant s income under the head Profits and Gains of Business or Profession in respect of which the appellant 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 circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to deduction under section 80-IB of the Act. 61.1. There is no dispute that the assessee is eligible for deduction under section 80 IB of the Act. Thus if any disallowance is made on account of the expenses claimed by the assessee then the income of the assessee shall increase with the corresponding amount. However, the assessee will be eligible for deduction under section 80 IB of the Act on the income enhanced due to such disallowance. Regarding this, we find relevant to reproduce the necessary portion of Circular No.37 of 2016 issued by CBDT dated 02.11.2016 which is reproduced below:- 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 61.2. In view of the above, we are of the view that even the amount disallowed then the assessee would be eligible for deduction u/s 80IB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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