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2008 (2) TMI 451 - AT - Income TaxDeduction u/s 80IB - sale of only spare parts and components - Computation of deduction under s. 80HHC - Total turnover - warranty claims expression 'profit derived from the industrial undertaking' - Provision written back - Principle of ejusdem generis - Levy of interest under s. 234B - Deduction u/s 80IB - sale of only spare parts and components - manufacture of spare parts being undertaken along with the manufacture of machine product, namely, 'harvester combines' - HELD THAT:- A trader merely purchases the goods which have already been manufactured by others and then sells them as it is. No further manufacturing process is being applied if the assessee is merely a trader. However, in the present case, it is seen that after purchasing some of the parts from outside suppliers, the assessee applies its own further processes to finish the same and to make them marketable. Even the technology and specifications/drawings are supplied by the assessee to the outside manufacturer of components. In a way, it can be said that the assessee as a manufacturer exercises complete control over the components manufactured outside and only after applying its own further processes sells the same. It is not necessary for claiming deduction under s. 80-IB that sale should be only of the final product and not of the intermediary product. What all sub-s. (3) provides is that the profits should be derived from the industrial undertaking and there is no denying fact that the entire sale in respect of main product as well as other spare parts were by the industrial undertaking itself. Thus, the assessee cannot be called a trader simpliciter so as to deny deduction in respect of sale of only spare parts. The manufacture of spare parts being undertaken along with the manufacture of machine product, namely, 'harvester combines' will entitle the assessee to claim deduction under s. 80-IB. We accordingly direct the AO to consider the sale of spares and components for the purpose of computing deduction under s. 80-IB. Computation of deduction under s. 80HHC - Total turnover - warranty claims and scrap sale as part of total turnover - The turnover means the value of goods purchased/sold in the course of carrying of business. The business of assessee is manufacture and sale of harvester combine and its spares. The scrap generated during the manufacturing process is sold as such. The assessee is not engaged in the business of sale of scrap. Thus, the scrap, generated and which is sold only goes to reduce the cost of material consumed in the manufacturing process. Accordingly, the same cannot be considered as part of turnover of the business carried on by the assessee. We, therefore, direct the AO to exclude the amount realized on sale of scrap from the total turnover adopted for computing deduction under s. 80HHC. Warranty claim - Sec. 80-I do not define the expression 'profit derived from the industrial undertaking' and hence, there is need to interpret the expression 'profit derived from industrial undertaking for the purpose of computing deduction under s. 80-I. However in s. 80HHC, the expression 'profits of business' has been defined specifically and hence, there is no need to artificially compute the profits of the business for the purpose of computing deduction under s. 80HHC. Accordingly, 90 per cent of interest income was rightly excluded from the profits of the business for the purpose of computing deduction under s. 80HHC. Provision written back - Applying the principle of ejusdem generis, the receipts in the nature of miscellaneous income or receipts not connected with the business of export is to be excluded while computing profits of the business. However, in respect of provisions written back, the same cannot be considered of the nature like miscellaneous income or interconnected with the business of the exports. Earlier when the assessee anticipated certain expenditure, the same were debited to P&L a/c and claimed as business expenditure. The provision no longer required merely reduces the expenditure and is not a receipt or income simpliciter. Such provision written back merely reduces the expenditure claimed and hence, cannot be excluded while computing profits of the business under cl. (baa) of Explanation to s. 80HHC. We, therefore, direct the AO not to exclude 90 per cent of the provision written back for the purpose of computing profits of business in arriving at deduction under s. 80HHC. Levy of interest under s. 234B - The assessee does not deny its liability to pay advance tax. Thus, charging of interest under s. 234B is consequential in nature and may be charged as per law after giving effect to this order. In the result, the appeal is partly allowed.
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