TMI Blog2016 (5) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee following that very decision of Bombay High Court pronounced in the case of Rachana Udyog (supra) wherein it was observed that when the sale proceeds of goods exported are received in India in convertible foreign exchange the rupee equivalent of the sale proceed is liable to vary, consequent upon the fluctuation in the rate of foreign exchange. The Court has, therefore, held that the exchange rate fluctuation was directly related to the export of goods, hence eligible for deduction u/s 80IB Deduction U/s. 10B - Held that:- DEPB while calculating deduction u/s 10B stood covered in favour of the assessee Foreign exchange fluctuation gain is intimately connected to the export business. As a result, this part of the ground is allowed in favour of the assessee. “Miscellaneous income” - in the absence of any evidence on record that such type of alleged income had any bearing with the business income of the undertaking therefore, the Revenue authorities were justified in not granting deduction u/s 10B on this income. Even if it was related to the cenvat credit, as alleged by the assessee, the same is required to be adjusted against the excise duty payment. Otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamated then the provisions of section 10B shall as far as may be, applied to the resulting amalgamated company. It is clearly prescribed that the provisions would apply as it is to the resulting company as if the amalgamation had not taken place. Even in section 80IB(12), the Statute had drafted the same language. This is not a case that the Revenue Department had not granted claim u/s 10B or u/s 80IB on the ground of amalgamation taken place. There was no such objection of the AO that due to the amalgamation the amalgamated company should not get the benefit of those deductions. Rather as seen from the above foregoing discussion, it is very much evident that the merits of the deduct ions were duly deliberated upon by the AO and only re-captured the quantum of deduction. It appears that the provisions of the Act have not been correctly interpreted. Therefore, the additional ground raised is not as per law that the Revenue Authorities are bound by law to allow the claim of deduction u/s.10B or u/s.80IB without considering the merits or demerits as well as the correctness of the claim. - I.T.A. No. 141/Nag/2013 - - - Dated:- 31-3-2016 - Shri Mukul K. Shrawat, Judicial Member And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the assessee had spent ₹ 28,82,195/- and recovered ₹ 11,07,196/- from the customers by charging in the bill. Therefore, learned CIT(Appeals) has held that the recovery of freight export expenses were not the income of the assessee eligible for the deduction. 3.1 In respect of the interest received , the details as mentioned by learned CIT(Appeals) were as under : That the details of interest earned by the Assessee are as follows :- On income tax refund Rs. . 6,392/- On fixed deposits Rs. .15,039/- On water charges deposits Rs. . 346/- (200/-+ 146) For delayed collection Rs. . 28/- On bank guarantee Rs. .18,336/- 3.2 Submission of the assessee in respect of the claim of interest was as under : That all these interest are earned by the assessee in the regular course of business for running a plant and also for carrying out export activity. The deposits are precondition for running a business and also for exporting go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order. However, in respect of freight export earned, he has directed that the amount was required to be adjusted from the sale value. Hence the eligible business would stand reduced accordingly. Since the learned CIT(Appals) has not granted relief in respect of the above mentioned receipts for the purpose of computation of deduction u/s 80IB, therefore, the assessee is in appeal. 7. From the side of the appellant, learned A.R. Shri A.G. Pimparkhede appeared and from the side of the respondent, learned D.R. Mr. Narendra Kane appeared. Both the sides were heard and the case record was perused. In respect of the Freight Export received of ₹ 2,63,331/- learned A.R. has expressed not to press this part of the ground as noted in the written submission as well. Since the learned A.R. has withdrawn this part of the ground, hence the same is hereby dismissed. 7.1 In respect of interest received of ₹ 39,995/- , we have seen from the above details that the same constituted the interest on income-tax return, interest on fixed deposit, interest on bank guarantee etc. In the case of Motorola India Electronics 98 DTR 81 (Kar.) the Hon ble Karnataka High Court has considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent upon the fluctuation in the rate of foreign exchange. The Court has, therefore, held that the exchange rate fluctuation was directly related to the export of goods, hence eligible for deduction u/s 80IB. As a result, this part of the ground is allowed in favour of the assessee. 8. To sum up, ground No. 1 is partly allowed. 9. Ground No. 2 The Ld. CIT is not correct and justified in confirming the order of Addl. CIT of the ₹ 11,63,295.38/- other income while calculating deduction U/s. 10B. This consist of freight received ₹ 8,43,865/-, interest ₹ 146/-, DEPB received ₹ 48,245/- foreign exchange fluctuation ₹ 2,37,713/- and Miscellaneous income ₹ 33,326/-. All these incomes are earned from the export activity of the assessee and eligible for the deduction U/s.10B. The observation of the AO, as discussed above, was that Vaav Engineers Products Pvt. Ltd was claiming deduction u/s 10B of I.T. Act. The AO has raised the objection in respect of following income which according to him were not eligible for the claim : VAAV Freight export received 843865.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om export. Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100% EOU. Section 10B (4) lays down special formula for computing the profits derived by the undertaking from export. Thus, sub-section (4) of section 10B stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not with-standing the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court pronounced in the case of Badridas Gauridu (P) Ltd. 261 ITR 256 (Bom) wherein it was held that the foreign exchange fluctuation gain is intimately connected to the export business. As a result, this part of the ground is allowed in favour of the assessee. 16. As far as the question of miscellaneous income of ₹ 33,326/- is concerned, we are of the view that in the absence of any evidence on record that such type of alleged income had any bearing with the business income of the undertaking therefore, the Revenue authorities were justified in not granting deduction u/s 10B on this income. Even if it was related to the cenvat credit, as alleged by the assessee, the same is required to be adjusted against the excise duty payment. Otherwise also a Cess cannot form a part of the business profit of an undertaking. As a result, no interference is required in the finding of the revenue authorities and this part of the ground is dismissed. 17. To conclude, ground No. 2 is partly allowed. 18. Ground No. 3: The Ld. CIT Appeal is not correct and justified in confirming the order of Addl. CIT of distributing the Head Office expenses of ₹ 12,67,740/- and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nveyance expenditure of 100% EOU and held that there was no justification to apportion the expenditure specially when it was established that the travelling and conveyance was debited to a separate account and travelling was not required in respect of 100% EOU. 20.1 In the light of these decisions, we hereby conclude that the Director s remuneration was debited to an amount of ₹ 54 lakhs in Excel Controlinkage Pvt. Ltd. and ₹ 4,80,000/- debited to G-Three-M Technologies but no amount at all was debited to Vaav Engineers Products Pvt. Ltd. Directors are responsible to look after the business activity of all the three units, therefore, their remuneration is required to be allocated as per the turnover of the three units. As a result, this part of the contention of the assessee is rejected. 20.2 Likewise in the case of travelling expenses of Directors to foreign country, the unit which is in export business is required to share the burden of travelling expenses. In respect of that unit only the travelling expenses (foreign) is required to be allocated on the basis of the turnover. However, in respect of the other unit, no such allocation is required. The reason behin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue Department had not granted claim u/s 10B or u/s 80IB on the ground of amalgamation taken place. There was no such objection of the AO that due to the amalgamation the amalgamated company should not get the benefit of those deductions. Rather as seen from the above foregoing discussion, it is very much evident that the merits of the deduct ions were duly deliberated upon by the AO and only re-captured the quantum of deduction. It appears that the provisions of the Act have not been correctly interpreted. Even the decision cited of ACIT vs. M/s. Rishabhdev Technocable (ITA No.388/M/2010 A.Y.2006-07 dt. 31.08.2010) is on the issue of claim of deduction beyond 10 years in case of amalgamation. The other decision of M/s. Grig Ley India Pvt. Ltd., (ITA No. 5224/Del./2010 A.Y.2006-07 dt.05.08.2011) is also misplaced because the issue in that appeal was about the entitlement of benefit for the unexpired period of a deduction in case of amalgamation. Therefore, the additional ground raised is not as per law that the Revenue Authorities are bound by law to allow the claim of deduction u/s.10B or u/s.80IB without considering the merits or demerits as well as the correctness of th ..... 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