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2021 (4) TMI 1017 - AT - Income TaxDisallowance of claim made u/s.10B - Whether appellant is carrying out manufacturing activity as defined u/s. 2(29BA)? - even if the activity does not fall within the meaning of the term 'manufacture', it would fall within the meaning of the term 'production' for the purposes claiming the deduction u/s.10B - HELD THAT:- Whether activities carried out by the assessee amounts to manufacture or production of goods or article or thing which qualifies for deduction u/s.10B of the Act is a highly debatable issue. If we go by the judicial precedents, various courts have held that even processing of frozen fish or marine products amounts to manufacture or production. Therefore, when an issue is debatable and if two views can be taken on the issue, then the AO cannot deny beneficial deduction allowed under Income Tax provisions to deny deductions by taken one of the view. This principle is supported by the decision of the Hon’ble Supreme Court in the case of Bajaj Tempo Ltd., vs. CIT [1992 (4) TMI 4 - SUPREME COURT] where it was held that A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Since a provision intended for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it. Under clause (i) of sub-section (2) of section 15C formation of the undertaking by splitting up or reconstruction of an existing business by transfer to the undertaking of building, raw material or plant used in any previous business results in denial of the benefit contemplated under sub-section. In this case, on perusal of facts available on record, we find that there is no change in facts prevailing at the time when deduction was allowed to the assessee in the assessment year 2004-05 and in the assessment year 2009-10 when deduction was denied. Therefore, we are of the considered view that unless there is change in facts, the AO cannot take a different view for denying deduction claimed u/s.10B of the Act. Hence, we are of the considered view that the assessee is entitled for deduction u/s.10B of the Act in respect of profit derived from 100% export oriented undertakings and accordingly, direct the AO to allow benefit of deduction. Computation of deduction u /s 10B - exchange gain / loss fluctuation is part of export turnover or not? - HELD THAT:- No doubt, exchange fluctuation whether it is gain or loss is attributable to exports effected and ultimately goes to increase or reduce figure of export turnover recorded initially by the assessee in its books of accounts and hence, it is definitely part of export turnover which qualifies for deduction u/s.10B of the Act. But, the fact remains that whether gain or loss incurred by the assessee on account of exchange fluctuation is attributable to export effected by the assessee or not needs to be examined by the AO. Moreover, the ld.CIT(A) has not adjudicated the issue although the assessee has taken a specific ground challenging the findings of the AO. Therefore, we are of the considered view that the issue needs to go back to file of the ld.CIT(A) for reconsideration of the issue and hence, we set aside the issue to file of the ld.CIT(A) and direct him to reconsider the claim of the assessee in light of decision of ITAT, Chennai bench in the case of Changepond Technologies (P) Ltd. [2008 (2) TMI 486 - ITAT MADRAS-A] Deduction u/s.10B in respect of expenses disallowed and added back to total income - AO has denied deduction u/s.10B of the Act in respect of various additions made towards provision written back, disallowance of expenses u/s.37 of the Act and disallowance of expenses u/s.40A(7) of the Act - HELD THAT:- Whether enhanced profit on account of disallowance of expenses is eligible for deduction under deduction / exemption provisions of the Act is no longer res-integra. Various high courts have taken a consistent view that enhanced profit on account of disallowance of various expenses goes to increase business profit and to that extent would be eligible for deduction under deduction / exemption provisions of the Act. The Hon’ble High Court of Bombay in the case of CIT vs. Gem Plus Jewellery India Ltd., [2010 (6) TMI 65 - BOMBAY HIGH COURT] has considered an identical issue and held that enhanced profit on disallowance of expenses is eligible for deduction u/s.10B or 10A of the Act. The CBDT has accepted legal position and issued a Circular No.37/2016 dated 02.11.2016, where it was clarified that enhanced profit on account of disallowance of expenses is eligible for deduction under exemption / deduction provisions by various section of IT Act, 1961. Therefore, we are of the considered view that assessee is entitled for deduction towards enhanced profits. But, fact remains that the issue has not been adjudicated by the ld.CIT(A) and hence, the issue has been set aside to the file of the CIT(A) and direct him to reconsider the issue in light of our findings given herein above. Exclusion of expenses from export turnover and total turnover - HELD THAT:- We find that the issue of exclusion of expenses from export turnover and total turnover is squarely covered in favour of the assessee by decision of Hon’ble Supreme Court in the case of CIT vs. HCL Technologies Ltd.,[2018 (5) TMI 357 - SUPREME COURT] as held that export turnover is a numerator and also forms a constituent element of the denomination in as much as it forms part of the total turnover. Hence, the export over as numerator must have the same meaning as the export turnover which is a constituent element of the total turnover in the denominator and hence, needs to be excluded from total turnover. Therefore, we are of considered view that the AO is erred in not excluding expenses from total turnover for computing deduction u/s.10B of the Act. But, fact remains that the issue has not been considered by the ld.CIT(A) and hence, assessee has filed a petition u/s.154 of the Act and said petition is pending for adjudication. Therefore, the issue has been set aside to the file of the ld.CIT(A) and direct him to reconsider the issue in light of decision of Hon’ble Supreme Court in the case of CIT vs. HCL Technologies Ltd.
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