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2015 (6) TMI 600 - ITAT AHMEDABAD

2015 (6) TMI 600 - ITAT AHMEDABAD - TMI - Eligibility 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 manufa .....

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ble 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 differe .....

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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 ar .....

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es 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 profi .....

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ing 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 .....

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unt 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 asses .....

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ader 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 .....

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/Ahd/2010, 2802/Ahd/2011 - Dated:- 9-6-2015 - Shri Pramod Kumar and Shri S.S. Godara,JJ. For the Petitioner: Shri Subhash Bains, CIT-D.R. For the Respondent : Shri M.K. Patel, A.R. ORDER PER S.S. GODARA, JUDICIAL MEMBER This is a batch of 8 cross appeals i.e. four each filed by the Revenue and assessee. These appeals have arisen from different orders of CIT(A), Valsad dated 12.1.2009, 18.11.2009, 28.9.2010, 26.08.2011 passed in cases no. CIT(A)/VLS/236/07-08, 265/08-09, 249/09-10, 273/10-11, for .....

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appeal. Its first grievance challenges the CIT(A) order allowing u/s.80IB deduction of ₹ 3,82,20,953/- without considering the fact that the assessee failed to obtain a factory license to run its unit on or before the cut off date 31.03.2004, i.e., u/s. 80IB(4) of the Act. 3. The assessee-company manufactures pot flasks in its units situated at Dadra and Bhayender. It filed return on 31.10.2005 declaring total income of ₹ 1,28,67,263/-. The Assessing Officer took up scrutiny . He in .....

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in the relevant accounting period from 1.4.2004 to 31.3.2005. Assessee s pleadings claiming liberal interpretation of the deduction provision etc stood rejected resulting in the impugned disallowance/addition of ₹ 3,82,20,953/- being made accordingly. 4. The CIT(A) has agreed with the assessee s contentions. He inter alia holds that section 80IB is a deduction provision to be liberally construed as per a catina of case law, non obtaining of an approval license under the Factories Act is no .....

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ut 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 the hon ble Bombay high court (jurisdictional high court for Dadra Union Territory u/s. 269 of the Act) in Income Tax Appeal (L) No.1622 of 2012 CIT vs. Jolly Polymers has turned down a similar argument of the Revenue by approving the tribunal s order holding that such a .....

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jurisdictional ITAT in the case of Neptune Steel Processor and Auro Stamping P. Ltd. has held that section 80IA deduction is to be allowed by excluding gross [and not merely net] amount of interest from the profits of undertaking eligible for deduction u/s.80IB. Perusal of the case file reveals that a co-ordinate bench of the tribunal in assessee s own case ITA 2438/Ahd/2007 decided on 26.3.2010 relating to assessment year 2004-05 (preceding assessment year) has already decided the very issue of .....

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activity of the undertaking. 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. The Revenue s ground is rejected. 8. The Revenue s fourth ground assails the CIT(A) ord .....

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nd held it as not to have been derived from normal business operation. The CIT(A) treats the scrap in question to have been generated from its manufacturing process having direct relation to the source of business income. The hon ble jurisdictional High Court in DCIT vs. Harjivandas J. Zaveri 258 ITR 785 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 Lo .....

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deduction u/s. 35(1)(iii) of ₹ 1,87,500/- without considering the fact that the assessee did not file any certificate. 11. 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. Paper book pages 44 to 46 contain two receipts of ₹ 50,000/- and 1 lac relating to M/s. Venda .....

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6,51,472/- from profits eligible for section 80IB deduction. The case file indicates that the assessee has also filed alternative / additional grounds vis-à-vis its first substantive ground by filing a petition dated 24.2.2015 reading as under: In regard to the captioned appeal proceedings before your honours, we would like to humbly request to permit us to raise the following additional ground before your honour as under. 1. On appreciation of the facts and circumstances of the case and .....

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DEPB credits, DFRC receipts or other export incentives for the purpose of calculating the profits eligible for deduction u/s.80IB of the Act shall be restricted to the net benefit after netting out the cost of obtaining the said benefit as specified and observed by the hon ble Supreme Court in the case of Topman Exports vs. CIT (342 ITR 49) The Revenue objects admissibility of the assessee s alternative/ additional ground. The assessee quotes law settled by the hon ble apex court in Excel Indus .....

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n in the interest of justice. 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 require 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 gr .....

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balances as not directly related to the assessee s business being in the nature of incidental income. He treats these balances as the ones not derived from normal business operations. The reasoning adopted is on identical lines as done in case of interest issue decided in the Revenue s appeal hereinabove. The CIT(A) affirms the Assessing Officer s findings and quotes assessee failure in producing specific details to prove that the impugned balances are related to its revenue expenses. 14. We hav .....

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lowed for statistical purpose. 15. The assessee s third substantive ground raises issue of trading sales of ₹ 85,063/- excluded for the purpose of computing eligible profits relevant for section 80IB deduction. It does not press for the same in the course of hearing. We reject this ground accordingly for non prosecution. 16. This leaves us with the assessee s last ground regarding excess production of refills amounting to ₹ 8,90,590/-. The Assessing Officer as well as the CIT(A) hold .....

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ilability of opening material in the form of semi finished goods. The Assessing Officer treated it to be only a general explanation. He sought for excise records. The assessee allegedly failed to produce the same. The Assessing Officer observed in these circumstances that its pot flasks were produced on an assembly line. And once the raw material was put in injection modeling machine, subsequent steps were on a continuous assembly line, the time required for all these steps was very short since .....

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ed the Assessing Officer s findings as follows: The next ground of appeal is regarding the action of the AO in not granting deduction U/s. 80IB of the IT Act on profits earned out of sale of raw material. The appellant during the course of assessment proceedings, submitted quantitative details of finished goods and raw materials. The appellant had a finished good item called "Pot Flask 1000 ml." and the refill required for Pot Flask 1000 ml called as "Pot Flask ml. Refill". T .....

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When the appellant was asked to explain the discrepancy, the appellant stated that there was an intermediate stage of Work In Progress (WIP). Any issue of RM from RM stores was accounted as issue of RM to shop floor (i.e. WIP). So, the FG production declared would be the outcome of processed material from opening WIP and issues of RM during the year. Hence the difference of FG manufactured and RM issued was on account of the available opening material in hand in the form of Work In progress / se .....

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ity the said product was produced on an assembly line, therefore once raw materials were put in injection molding machine; the subsequent steps were on a continuous assembly line. The AO also observed that the time required for all steps was very short and all these steps had to be performed when it was hot and therefore, there was no possibility of WIP. The AO further observed that the appellant had no capacity to produce the raw materials like Pot Flask 1000 ml Refill. Thus according to the AO .....

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work in progress was given to the AO along with letter dated 28.12.2007 in which it was explained that the work in progress represented semi finished goods. It was also submitted that this was also converted into finished goods in the assembly line along with raw material issues. I have considered the submissions. The AO has stated that there was no WIP in the scheme of production undertaken by the appellant. After examining WIP statement the AO concluded that he is unable to gather the exact q .....

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he basis of cost of the items as per books of accounts and as furnished before the AO. Refill produced 65848 Refill Consumed 59706 Difference 6142 Wtd Average rate ₹ 145/- Value of 6142 pcs. (6142 x ₹ 145/-) ₹ 8,90,590/- The AO is directed to work out the disallowance accordingly and this ground of appeal is partly allowed. 19. Heard both sides. Orders of both the lower authorities stand perused. Undisputed facts pertaining to this issue have been narrated in the preceding para .....

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r 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 of ₹ 8,90,590/-. The assessee succeeds in the corresponding ground. The assessee s appeal ITA 1143/Ahd/2009 is partly allowed. Assessment year 2006-07 Revenue s appeal ITA 942/A .....

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f the case and in law, the ld. CIT(A) has erred in allowing the software expenses to the tune of ₹ 8,89,125/- treating it as revenue expenditure even though it is capital in nature. It is to be seen that the Revenue s first two grounds are identical to those raised in assessment year 2005-06 ITA 988/Ahd/2009 decided hereinabove. No distinguishing features are noticed. Therefore, we reject the Revenue s first two grounds in the light of our findings in preceding assessment year. The CIT(A) .....

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software and disallowed/added the impugned claim amount. 22. In lower appellate proceedings, the assessee submitted to have paid the sum in question as advance to a Pune based firm for development of its logistics softwares. And the said payee could not implement its assignment. It claimed to have written off this sum as an expenditure incurred for the purpose of business. The CIT(A) went through the case record and agreed with the assessee s submissions he held the impugned expenditure to have .....

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. Abdul Razak (1982) 136 ITR 825 (Guj.). 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. The Revenue s ground is rejected. The Revenue s appeal ITA 942/Ahd/2010 is dismissed. Assessee s appeal ITA 1583/Ahd/2010 24. The assessee s sole substantive ground reads as under: 3. On appreciation of the facts and circumstances of the case, the additions made .....

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ar as well and accept the assessee s additional/alternative grounds for statistical purposes. These two alternative/additional issues are remitted back to the Assessing Officer for fresh decision as per law in view of the hon ble apex court decisions rendered in Excel Industries and Topman Export (supra). 25. Now we come to the issue of exchange rate difference of ₹ 1,467/- held as profit not eligible for section 80IB deduction by the lower authorities. The assessee does not press for the .....

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uction u/s.80IB amounting to ₹ 7,61,77,024/- without considering the facts that assessee did not had factory license as on 31.03.2004, the cutoff date for starting the industrial undertaking u/s.80IB(4) of the IT. Act, 1961. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in holding that the income from exchange rate difference of ₹ 3,07,377/- is eligible for deduction u/s.80IB, without considering fact that it has not direct or immediate nexus with .....

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ve. We have already held that violation of factory license or absence thereof does not disentitle a deduction claim u/s.80IB of the Act. We have also concluded that income from exchange rate and scrap sale are eligible for the impugned deduction. Therefore, we affirm the CIT(A) findings and reject the Revenue s grounds extracted hereinabove. The Revenue s appeal ITA 3305/Ahd/2010 is dismissed. Assessee s appeal ITA 3336/Ahd/2010 27. The assessee s substantive grievance is pleaded as follows: 3. .....

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inabove. We admit the same in tune with our order on identical issues in ITA 1143/Ahd/2009 for assessment year 2005-06 remit these issues back to Assessing Officer for afresh adjudication as per law in view of the hon ble apex court s decisions in Excel Industries and Topman Exports (supra). The assessee s main grounds fail and additional/alternative grounds are allowed for statistical purposes accordingly. The assessee appeal ITA 3336/Ahd/2010 is partly allowed for statistical purposes. Assessm .....

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n law, the ld. CIT(A) has erred in holding that the income from exchange rate difference of ₹ 11,70,181/- is eligible for deduction u/s.80IB, without considering fact that it has not direct or immediate nexus with the manufacturing activity of the assessee. 3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in holding that the income from scrap sales of ₹ 13,90,852/- pertaining to Dadra undertaking is eligible for deduction u/s.80IB, without considerin .....

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ion 80IB deduction to the assessee despite not having obtained factory license, qua income from exchange rate difference and scrap sales generated from Dadra and Haridwar undertakings; respectively. We have already decided the very issues in the assessee s favour in assessment year 2005-06 ITA 988/Ahd/2009. The Revenue fails to point out any exception involved in the impugned assessment year. Thus, the CIT(A) findings under challenge are affirmed. The Revenue s appeal ITA 2673/Ahd/2011 is dismis .....

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g to the Haridwar Unit, incurred in A.Y. 2007-08 amounting to ₹ 110,79,284/- against the profits of the Haridwar unit eligible for deduction u/s.80IC of the Act. The action of the ld. CIT(A) is contrary to the facts and circumstances of the case and law and deserves to be deleted. 4. On appreciation of the facts and circumstances of the case, case the ld. CIT(A) has erred in confirming the action of the ld. Assessing Officer in excluding the following items of income from the profit eligib .....

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o.3 are that the assessee had claimed section 80IC deduction of ₹ 1,70,91,825/- in respect of its Haridwar Unit. It had also incurred a loss of ₹ 1,10,79,284/- in preceding assessment year absorbed against other incomes. The Assessing Officer in assessment order dated 23.12.2010 quoted section 80IA(5) of the Act and disallowed its claim by holding that the aforesaid losses had to be notionally brought forward and set off against the deduction profits in the impugned assessment year a .....

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duction, for 10 years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial expansion, in the state of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. The Section also provides that in computing the total income of the assessee, no deduction will be allowed under any other section contained in Chapter-VIA or in sec.10A or 10B, in relation to the profits and gains of the undertakings or enterprise. In the case of Scoop Ind .....

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d is the one and only source of income possessed by the assessee. It is clear that while computing the deduction u/s.8o- 1A, the profits and gains of a Unit X for the purpose of determining the quantum of deduction u/s, 8o-1A(5) is to be computed if such eligible business of the said unit is the only source of the assessee. Thus, the X unit being the only unit of the assessee eligible for deduction u/s. 8o-IA is to be treated as an: independent Unit. That means during the operation of sec.8o-IC .....

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e restricted by adjusting the profits of the eligible Unit against the losses of other Units of the Assessee". There is no dispute on the decision of the above referred case. In that case, the AO had set off loss of another Unit which the Hon'ble HG rightly pointed that the adjustment of other unit cannot be made. The findings of the AO was also supported by the decision of Honorable ITAT Ahmedabad Special bench in the ease of ACIT V/s. Goldmine Shares & Finance (P) Ltd. 113 ITR 229 .....

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n narrated in the preceding paragraphs. The authorities below rely on section 80IA(5) and hold that assessee s losses pertaining to preceding assessment year already set off have to be notionally brought forward to be set off once again against the profit of the Haridwar Unit in question. We find that hon ble Madras high court in Velayudhasamy Spinning Mills Case 340 ITR 477 holds that such losses cannot be notionally brought forward for being set off against eligible profits. This overrules tri .....

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