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2016 (5) TMI 953 - ITAT NAGPUR

2016 (5) TMI 953 - ITAT NAGPUR - TMI - Deduction u/s. 80IB - whether the other income consist of freight export received, interest, DEPB received and foreign fluctuation are definitely derived from the Industrial undertaking on which assessee is eligible for deduction U/s. 80IB? - Held that:- In respect of “interest received" while considering the factual matrix of the case the assessee has not proved the direct nexus with the eligible activity, hence we hereby affirm the finding of learned CIT( .....

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ecision, this part of the ground is dismissed.

For “foreign exchange fluctuation" this issue is to be decided in favour 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 Co .....

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ce 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.

Distribution of Head Office expenses in the ratio of turno .....

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result, this part of the contention of the assessee is rejected.

For 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 behind this view is that the facts of the case have revealed that ‘Unit .....

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e expenditure such as staff training, recruitment, pollution control, miscellaneous expenses have rightly been debited to the account of Excel Controlinkage Pvt. Ltd. being the head office. We direct not to reallocate these expenses to the other units.

Non calculation of deduction u/s 10B of the I.T. Act sub section 7A - according to which the learned authorities are bound by law to allowed the deduction in case of amalgamation of the companies and the authorities has no right to reca .....

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on 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 upo .....

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ember For the Appellant : Shri A.G. Pimparkhede For the Respondent : Shri Narendra Kane ORDER Per Mukul K. Shrawat, J.M. This is an appeal filed by the assessee emanating from an order of learned CIT(Appeals)-16, Mumbai (Camp at Nagpur), order dated 11-02-2013. The grounds raised are hereby decided as follows : 2. Ground No. 1: The Ld. CIT Appeal is not correct and justified in confirming the order of Ld. Addl. CIT of restricting the claim of assessee u/s. 80IB to ₹ 6,089/- as against S .....

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arth moving spares. The observation of the AO was that the assessee was having three units, namely, a) Excel Controlinkage Pvt. Ltd., b) Vaav Engineers Products Pvt. Ltd., c) G-three-M Technologies India Pvt. Ltd. It has also been mentioned by the AO that the assessee was claiming deduction u/s 10B of ₹ 33,52,127/- for the business of Unit Vaav Engineers Product Pvt. Ltd. The assessee is claiming deduction u/s 80IB of ₹ 8,52,865/- in respect of Unit G-three-M Technologies India Pvt. .....

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IT(Appeals) in respect of freight export receipt 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 follo .....

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s hence it cannot be said that the interest is not derived from export activity and hence the assessee is eligible for deduction u/s. 80IB and u/s.10B on these incomes. Reliance was placed on Shiva Shankar Granites Pvt. Ltd., Vs. ITO 2002 (81) ITD 106. 4. In respect of DEPB received by the assessee the contention of the assessee was as under : That the DEPB received is earned by the Assessee, during the course of export of the goods. As per scheme frame by the Govt. Of India the Assessee is enti .....

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he DEPB should not be deducted whild calculating deduction u/s. 80IB & 10B. Reliance was placed on B. Deshraj Va. CIT 2008 (301) ITR 439(SC) & Saraf Seasoning Udyog Vs. ITO 2009(317) ITR 202 (Raj), CIT Vs. Sharda Gum & Chemicals 2007 (288) ITR 116 (Raj), Shah Originals Vs. ACIT (202) 112 TTI (Mumbai) 754. 5. In respect of foreign exchange fluctuation the submission of the assessee was as under : That the Foreign Exchange Fluctuation is received by the assessee on account of fluctuati .....

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erty India 317 ITR 278 and Sterling Foods 237 ITR 579 and has held that the proximate as well as immediate source of interest received, DEPB received, foreign exchange fluctuation received were not derived from the business undertaking of the assessee. There was no direct nexus between the profits and gains of the industrial undertaking. He has held that the action of the AO was in order. However, in respect of freight export earned, he has directed that the amount was required to be adjusted fr .....

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e 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 El .....

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ly cited this decision while arguing the eligibility of a deduction u/s 80IB of I.T. Act. In the context of the provisions of section 80IB our attention has been drawn on a decision of ITAT, Lucknow Bench, order pronounced in the case of Arvind Footware P. Ltd. ITA No. 363/Luk/2010, order dated 27th August, 2015 wherein the relevant precedents have been discussed but the matter was restored back to examine whether there was a direct nexus with the eligible business or not. Although the decision .....

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has been dawn on a decision of Hon ble Bombay High Court pronounced in the case of CIT vs. Rachana Udhyog 230 CTR 72 wherein it was held that the law declared by the Hon ble Supreme Court in the case of Liberty India 317 ITR 218 the deduction u/s 80IB in respect of duty draw back is not entitled for claim of deduction u/s 80IB. Respectfully following this decision, this part of the ground is dismissed. 7.3 The next issue is in respect of foreign exchange fluctuation amounting to ₹ 2,05,090 .....

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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 rece .....

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were not eligible for the claim : VAAV Freight export received 843865.35 Interest received 146.00 DEPB received 48245.00 Foreign Exchange Fluctuation 237713.03 Misc. Income 33326.00 Total 1163295.38 10. Since the AO has restricted the claim of deduction u/s 10B to ₹ 11,13,460/- as against the deduction claimed by the assessee of ₹ 33,52,127/-, therefore, the assessee had gone in appeal. The learned CIT(Appeals) has affirmed the computation of the AO and dismissed the ground. Only in .....

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st received of ₹ 146/- a view has already been expressed by us that the interest on fixed deposit had no nexus, hence claim was not admissible as per law. This part of the ground is dismissed. 13. In respect of DEPB received of ₹ 48,245/- the argument of learned A.R. is that the decisions as cited by the Revenue authorities were delivered in respect of the provisions of section 80IB and section 80HH. Those decisions were not in respect of the provisions of section 10B of I.T. Act. Le .....

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ng of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4), of the Act stipulates specific formula for computing the profit derived by the undertaking from 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) o .....

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he 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 undertaking, there is no further mandate in the provisions .....

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the Delhi High Court while dealing this issue in the case of Hritnik Export Pvt. Ltd. (Appeal No. 219 & 239/2014 dated 13-11-2014). The Delhi Tribunal has opined that in a situation when the order of the Special Bench stood approved by the Delhi High Court then it is binding to all Division Benches of ITAT. The Tribunal has finally held as under : Issue in question related to allowability of the duty drawback stand squarely covered in favour of the assessee by the order of the jurisdictional .....

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or profession. Their lordship further held that the said provision has to be given full effect to and this means that the duty drawback or duty benefits would be deemed to be a part of business income and this will be treated as profit derived from business of the undertaking and the same cannot be excluded. 14. From the side of the appellant, few more decisions have also been cited. However, considering the totality of the precedents quoted before us, we hereby hold that the issue of DEPB whil .....

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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 t .....

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740/- and ₹ 21,45,405/- in the ratio of turnover and thereby restricting the claim of the Assessee U/s. 80IB to ₹ 6,089/- and 10B to ₹ 11,13,460/-. The objection of the AO was that the assessee had debited the expenditure in the account of Excel Controlinkage Pvt. Ltd., the unit which was not claiming any deduction either u/s 80IB or u/s 10B of I.T. Act. The AO has placed on record a chart to demonstrate that certain expenditure such as, Director s remuneration, travelling expe .....

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as held that common expenses ought to be apportioned in the ratio of the turnover of the three units. He has further expressed that Director s remuneration, travelling expenses were for the purpose of looking after the work of the three unit, therefore, the apportionment in the ratio of turnover of the three units was in order. 20. We have heard both the sides at some length. We have perused the orders of the authorities below. Although it is correct that ITAT, Pune Bench in the case of Khinvasa .....

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o relevance to the industrial undertaking, cannot be deducted in respect of the said undertaking while computing the profits and gains of the undertaking. Unless and until the expenditure incurred relates to the undertaking the same cannot be apportioned. We have also perused the decision of Hindustan Gum & Chemical Ltd. 23 SOT 143 (Kol) wherein an opinion was expressed in respect of travelling and conveyance expenditure of 100% EOU and held that there was no justification to apportion the e .....

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fter 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 .....

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lace reliance on the judgment of Zandu Pharmaceuticals 80 DTR 322 (Bom.). As a consequence this part of the ground is partly allowed. Rest of the expenditure such as staff training, recruitment, pollution control, miscellaneous expenses have rightly been debited to the account of Excel Controlinkage Pvt. Ltd. being the head office. We direct not to reallocate these expenses to the other units. 21 As a result, this ground of the assessee is partly allowed. 22. Before we part with one more ground .....

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tion 12 according to which the learned authorities are bound by law to allowed the deduction in case of amalgamation of the companies and the authorities has no right to recalculate the deduction u/s 80IB sub section 12. 22.1 At the very threshold we hereby express that this ground is misconceived. It appears that the relevant provisions of the Act have been misunderstood, therefore, incorrectly raised this ground. 22.2 Reason for dismissing this ground is that there is no mandate u/s 10B(7A) to .....

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