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THE COMMISSIONER OF INCOME TAX-II Versus ELECTROTHERM (INDIA) LTD

Calculation of deduction under Section 80IA - forfeiture of advance - income ‘derived from’ from the running of eligible industrial undertaking - Held that:- Advances were taken from the customers and on receipt of advance deposit, the assessee company commences manufacturing of such specific equipments for which expenditure in excess of the advance deposit received has to be incurred by the assessee company. In case, when the customer fails to take the delivery due to his inability to pay the b .....

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nce. Further, the decisions which have been relied upon by learned advocate for the revenue will not apply in the facts of the present case since the amount which has been received by the assesse is for the same unit of which they have commenced manufacturing. - Having heard learned advocates for the revenue and the question posed for consideration for us reproduced hereinabove and considering the decisions cited, the question which is raised in the present appeal is required to be answered .....

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ar 1995-1996, the revenue has preferred the present Tax Appeal. 2. This appeal was admitted on 07.08.2008 for consideration of the following substantial question of law: B. Whether the Appellate Tribunal is right in law and on facts in holding that deduction under Section 80IA was allowable in respect of an amount of ₹ 46,18,021/- which was towards forfeiture of advance ? C. Whether the Appellate Tribunal is right in law and on facts in holding that while calculating the deduction under Se .....

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the assessee, the CIT(A) confirmed the disallowance. 4. Being aggrieved by the order of the first appellate authority, the assessee preferred appeal before the ITAT and the ITAT vide impugned order directed the assessing officer to allow deduction u/s 801A in respect of the amount of ₹ 46,81,021/- which was in respect of forfeiture of advance. The Appellate Tribunal restored the matter to the file of the assessing officer to decide this issue after verifying from the accounts and related .....

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ion Nos.1, 4, 8, 10 and 11 are concerned, they have a common element, namely, whenever certain income is to be excluded for the purpose of deduction under section 80I, 80IA and 80HH, etc. gross income is to be excluded or only the net thereof is the question. In a separate order passed by us today in Tax Appeal No.810 of 2013, we have rejected the Revenues appeal making following observations: The question is when certain income of the assessee is excluded from the claim of deduction under secti .....

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ceived by the assessee on sale of DEPB credit, but the sale value of less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee. Heavy reliance was placed in the case of Topman Exports v. CIT, 342 ITR 49 (SC). Extending such logic, it was further held that even other amounts, such as, interest or rent when are to be excluded for the purpose of explanation (baa) to section 80HHC of the Act. Ninety per cent of not the gross rent or gross interest, but the .....

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e assessee as computed under the head Profits and gains of business or profession, ninety per cent of such quantum of the receipt of rent or interest will not be deducted under clause (1) of Explanation (baa) to section 80HHC. In other words, ninety per cent of not the gross rent or gross interest but only the net interest or net rent, which has been included int eh profits of business of the assessee as computed under the head Profits and gains of business or profession, is to be deducted under .....

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xclusion from the claim of deduction relates to section 80HH or section 80I of the Act. He strenuously urged that the language used in both the sets of provisions are different. Section 80HHC is also vitally different and that therefore the concept of netting may not be automatically applied to deduction under section 80HH and 80I of the Act. He submitted that number of tax appeals have been admitted by this Court on this issue and this appeal may also be likewise admitted. He drew our attention .....

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raising such a question came to be dismissed relying on the decision in the case of ACG Associated Capsules Pvt. Ltd. (supra). The counsel also relied on a decision of the Delhi High Court in the case of Essel Shyam Communication Ltd. v. Commissioner of Income tax, (2012) 28 taxmann.com 243 (Delhi), in which in detailed consideration, relying on the decision of the Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. (supra), exclusion was approved for deduction under section 80IA of .....

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on and also provides for complex formula for deriving for the eligible profit for deduciton under different situations depending on whether the exporter is also engaged in the local business or not. However, this distinction would not be material insofar as central question of exclusion of certain profit from the activity which is not eligible for deduction under section 80HH and 80I are concerned. The logic being when the profit is being excluded form the claim of deduction, not the gross profi .....

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aring on the controversy on hand. However, the entire focus of the order of the Court was regarding applicability of the decision of the Supreme Court in the case of Topman Exports (supra) and not on the question of netting. In any case, therein, the decision in the case of ACG Associated Capsules Pvt. Ltd was not noticed. 6. The learned advocate for the revenue therefore, submitted that in view of the aforesaid decision, the same is not required to be conteted. 7. As far as issue no. [B] is con .....

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undertaking. Learned advocate for the revenue further relied upon the decision of the Delhi High Court in case of Liberty India versus Commissioner of Income Tax[ 2009] 317 ITR 218(SC) wherein in para 13 which reads as under: 13. Before analyzing section 801B, as a prefatory note, it need to be mentioned that the 1961 Act broadly provides for two types of tax incentives, namely, investmentlinked incentives and profit linked incentives. Chapter VIA which provides for incentives in the form of tax .....

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tract section 80IB( 6). It is the profits arising from the business of a ship which attracts subsection (6). in other words, deduction under subsection (6) at the specified rate has linkage to the profits derived from the shipping operations. This is what we mean in drawing the distinction between profit linked tax incentives and investment linked tax incentives. Ii is for this reason that Parliament has confined the deduction to profits derived from eligible business in subsections (3) to (11A) .....

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ngineers Ltd. [ 2012] 341 ITR 518 ( Delhi). More particularly he relied upon the paragraph no. 23 and 24 which read as under: 23. After having considered the matter, we are of the view that the order of the AO as upheld by the CIT (A) on this aspect is correct in law. Having regard to the aforesaid judgment of the Supreme Court, the amount was to be treated as trading receipt and therefore, it has to be added as income of the assessee. The transferring of this amount to the capital reserve accou .....

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the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time-barred and the amount attained a totally different quality. It became a definite trade surplus. In Jay‟s case it was pointed out that in Tattersall‟s case (1939) 7 ITR 316 (CA) no trading asset was created. Mere change of method of book-keeping had taken place. But, where a new asset came into being automatically by operation of law, common sense demanded that the amount should .....

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should be treated as income of the assessee." 24 Once it is treated as business income, the question is as to whether deduction could be claimed under Section 80IA of the Act. Here again, we find that CIT (A) rightly held that it was not derived from any goods or services produced by the said unit and it arose from the absence of any goods having been produced and supplied by Daman Unit. Ratio of liberty would, therefore, be applied squarely. 10. Learned advocate appearing for the responde .....

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