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2022 (3) TMI 919 - AT - Income TaxDisallowance on deduction of foreign exchange gain under 80IC - assessee claimed 80IC deduction on such foreign exchange gain on the ground that these had a direct and first degree nexus with the manufacturing activity of the assessee and accordingly eligible for deduction - As per AO foreign exchange gains do not satisfy the “derived from business” condition that the gains do not have immediate and direct nexus with the manufacturing activity of the assessee and hence the same are not eligible for deduction - HELD THAT:- We are in agreement with the submissions of the assessee that foreign exchange gains are inextricably linked to export of goods and hence have a direct and first degree nexus with the manufacturing activity. The assessee is accordingly eligible for deduction u/s. 80IC on such foreign exchange gain. In the case of Quadrant EPP Surlon Uttranchal (P.) Ltd. [2017 (11) TMI 1767 - ITAT DELHI] 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. - Decided against revenue. Disallowance of deduction of export benefits u/s. 80IC - assessee during the year had received export benefit which are in the nature of excise duty refund, as its Baddi unit is eligible for outright excise duty exemption and same do not constitute independent source of income - HELD THAT:- The Supreme Court in the case of CIT vs. Meghalaya Steel Ltd. [2016 (3) TMI 375 - SUPREME COURT] has given a categorical finding that where assessee received (a) transport subsidy; (b) interest subsidy; (c) power subsidy; and (d) insurance subsidy which were reimbursements of manufacturing cost incurred by assessee, deduction of said subsidies was allowed under sections 80-IB and 80-IC Accordingly, in our view, in the facts of the present case and in light of various decisions cited before us, the CIT(A) has not erred in granting 80IC deduction to the assessee in respect of its export benefits representing refund of excise duty paid u/s. 80IC of the Act. We therefore hold that the assessee is eligible for deduction on export benefits on account of refund of excise duty under section 80IC of the Act. Deduction of scrap value u/s. 80IC - HELD THAT:- In the case of Reckitt Benckiser Healthcare (I) Ltd. [2015 (2) TMI 506 - CALCUTTA HIGH COURT] has held that profits and gains from scraps resulting in manufacturing process were eligible for deduction u/s. 80IC. Again, the Gujarat High Court in the case of CIT vs. Shreeram Tech Ltd. [2013 (10) TMI 306 - GUJARAT HIGH COURT] has held that compensation received by industrial undertaking from insurance companies on account of loss raw materials and finished products in fire, would be eligible for deduction u/s. 80IA of the Act. In view of the above, we do not find any infirmity on the order of ld. CIT(A) in allowing the claim of deduction u/s. 80IC of the Act on scrap income. We accordingly hold that the assessee is eligible for deduction u/s. 80IC of the Act on income from sale of scrap. Addition of expenses disallowed u/s. 40(a)(ia) - assessee has claimed deduction u/s. 80IC of the Act on expenditure disallowed u/s. 40(a)(ia) - HELD THAT:- In view of the circular no. 37/2016 dated 2nd Nov, 2016 and the decision in the case of DCIT vs. Ascendum Solutions Pvt. Ltd. [2017 (10) TMI 419 - ITAT AHMEDABAD] has held that where disallowance results in an enhancement of business profit, but such an enhancement is revenue neutral in as much as relates to business profits are eligible for disallowance under chapter VI. In view of the above and the language of CBDT Circular No. 37 dated 2nd Nov, 2016, we are of the view that CIT(A) has not erred in deleting the addition made on account of disallowance u/s. 40(a)(ia) of the Act. Accordingly, the ground no. 6 of the Revenue is dismissed. We are of the view that the assessee is eligible to claim deduction u/s. 80IC of the Act in respect of disallowance made u/s. 40(a)(ia) of the Act on account of non-deduction of TDS.
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