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2015 (6) TMI 600 - AT - Income TaxEligibility of deduction u/s 80IB - The assessee failed to obtain a factory license to run its unit on or before the cut off date 31.03.2004 - CIT(A) allowed claim - Held that:- The assessee’s manufacturing activity commenced in August, 2003 i.e. before the cut off date 31.3.2004. It applied for a factory license on 9.2.2006. The same stood granted well after the impugned assessment year. The Assessing Officer perceives it to be a case of unlawful manufacturing u/s.80IB(4). We find in CIT vs. Jolly Polymers [2015 (6) TMI 610 - BOMBAY HIGH COURT] has turned down a similar argument of the Revenue by approving the tribunal’s order holding that such a violation under the Factories Act does not disentitle a deduction claimed under Section 80IB. The Revenue fails to quote any case law to the contrary. - Decided against revenue. Benefit of “netting out” - CIT(A) holding that the net interest income only to be excluded from the profits eligible for deduction u/s.80IB - Held that:- Perusal of the case file reveals that a co-ordinate bench of the tribunal in assessee’s own case [2010 (3) TMI 1054 - ITAT AHMEDABAD] relating to assessment year 2004-05 (preceding assessment year) has already decided the very issue of netting of the interest income against the Revenue. There is no distinction on facts or law being pointed out. We affirm the CIT(A) findings in these circumstances.- Decided against revenue. Exchange rate difference - includible in the profits eligible for deduction u/s.80IB as per CIT(A) - Held that:- A coordinate bench in assessee’s case (supra) holds that foreign exchange rate fluctuation gains bear the character of income derived from export sales to be treated as part and parcel of export profits only. No distinction on facts or law is being pointed out at the Revenue’s behest so as to adopt different approach in the impugned assessment year. We affirm the CIT(A) findings - Decided against revenue. Exclusion of scrap income from the profit eligible for deduction u/s.80IB - CIT(A) treats the scrap in question to have been generated from its manufacturing process having direct relation to the source of business income - Held that:- The hon’ble jurisdictional High Court in DCIT vs. Harjivandas J. Zaveri [1999 (12) TMI 5 - GUJARAT High Court] deals with a case of sale of empty bottles/plastic waste in case of an assessee involved in manufacturing activity and holds that the same are directly connected with the said activity. Their Lordships assumed a hypothetical situation that in case there is no industrial/manufacturing activity, there would not be any scrap generated. The Revenue has not been able to distinguish operation of the same. We also follow suit and hold that the CIT(A) has rightly included scrap income as profits eligible for Section 80IB deduction. - Decided against revenue. Deduction u/s. 35(1)(iii) - CIT(A)allowed claim - Held that:- It transpires from the case file that the Assessing Officer had disallowed this deduction for want of necessary certificates. The CIT(A) in lower appellate order observes that the assessee had placed on record necessary acknowledgements/donation receipts with its return. This takes care of the Revenue’s technical pleas in the instant proceedings. The CIT(A) appears to have verified the same as well. - Decided against revenue. Exclusion of export incentives of Dadra and Bayenderi units from profits eligible for section 80IB deduction - Held that:- The Revenue objects admissibility of the assessee’s alternative/ additional ground rejected. The assessee also fails to controvert the lower authorities’ action excluding the above sums from the purview of section 80IB deduction in principle. The fact also remains that these alternative pleadings quoting law settled in Excel Industries [2013 (10) TMI 324 - SUPREME COURT] and Topman Exports (2012 (2) TMI 100 - SUPREME COURT OF INDIA a) propounding computation of notional income from DEPB credits/DFRC receipts/other export incentives accrues not in the year of export; but in the one corresponding to the imports and also devising ‘netting’ formula to be adopted in excluding face value of the above credits for computing profits eligible for section 80IB deduction; respectivelyrequire examination of new facts and details for the purpose of computation of notional income from export incentives as well as net profits in view of abovestated case law. Thus, we reject the assessee’s main ground in principle and accept additional/alternative grounds for statistical purposes and remit the same back to the Assessing Officer for adjudication afresh as per law. Debits/credits written off regarding Dadra and Bhayenderi units excluded from eligible profits for u/s.80IB deduction - Held that:- The lower authorities have not adverted to the assessee’s books to find out as to whether the impugned balances stem from its revenue account or not for the purpose of granting section 80IB deduction. We feel that this issue requires re-examination in Assessing Officer’s hands. We order accordingly. - Decided in favour of assessee for statistical purpose. Excess production of refills - AO as well as the CIT(A) hold this sum as its profits not eligible for section 80IB deduction - Held that:- There is a difference between refills consumed and pot flasks manufactured to the tune of 6149 units. The Revenue treats the assessee to have sold the raw material (supra) by way of indulging in a trading activity. Its notes and other material on record has nowhere been rejected. Nor is there any evidence of any such activity forthcoming from the case file. The Assessing Officer has proceeded on this assumption without quoting any evidence on record. The assessee is already a manufacturer otherwise entitled for section 80IB deduction. That being the case, we see no reason to agree with lower authorities treating it as a trader in sale of refills in question. Therefore, we accept assessee’s relevant ground and hold it to have manufactured the refills entitled for section 80IB deduction qua this sum - Decided in favour of assessee. Software expenses disallowance - CIT(A) allowed claim - Held that:- The Revenue is unable to dispute the CIT(A) findings regarding assessee’s act in writing off the software advances. It could not purchase the software. The assessee also raises an alternative plea of business loss qua the very amount to have been arisen from its activity incidental to the main business as per case law of CIT vs. Abdul Razak (1981 (2) TMI 27 - GUJARAT High Court). However, once we express agreement with the CIT(A) holding the impugned expenditure allowable u/s.37 of the Act, the assessee’s alternative plea of business loss has been rendered infrastructure. - Decided in favour of assessee.
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