TMI Blog2020 (3) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... per to remit the issue back to the AO for considering the same in accordance with law. In view of the above, ground no.2 is allowed for statistical purposes. Excise duty refund as derived from the business of industrial undertaking and eligible for deduction u/s 80IB - HELD THAT:- Once the excise duty refunds has been held to be arising from manufacturing activity and is included in the profits eligible to be exempt u/.80IB of the Act, the grievance of the assessee that such receipts should have been treated as capital receipt is contradictory as by including in the P L account and allowing the benefit under s.80IB of the Act such refunds have already been held to be revenue in nature. An item of receipt can be treated as revenue as capital depending upon its nature. The same item cannot be said to be both revenue as well as capital in nature. Disallowance u/s 36(1)(iii) - HELD THAT:- CIT(A) has made a finding of fact that interest free funds during the year had increased from the earlier year and such funds were much more than interest free advances and CWIP investments were for the purpose of business. The learned CIT(A) has therefore rightly deleted the addition - I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de before the time limit for filing return of income u/s.139(1). 4. Additional grounds raised by the assessee read as under: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.6.2 of the appellant to treat excise duty refund as capital receipt. 2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act. ITA No. 583/Ahd/2017 A.Y. 2011-12 (Revenue s appeal) 5. Grounds of appeal raised by the Revenue read as under: 1. The Ld.CIT(A) has erred in law and on facts in deleting the upward adjustment made by the TPO amounting to ₹ 1,77,17,626/- without properly appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of capitalization of interest towards CWIP u/s.36(1)(iii) of the Act amounting to ₹ 19,65,643/- without properly appreciating the facts of the case and the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The Ld CIT(A) erred in law and on facts in treating the excise duty refund as a profit derived from business of industrial undertaking for the purpose of computation of deduction u/s 80IB of the IT Act 2.1 The Ld CIT(A) has erred in law and on facts by not appreciating that the ratio decidendi of the Hon'ble Supreme Court in the case of Liberty India Ltd (317 ITR 218) was fully applicable to the facts of the instant case. 2.2 The Ld CIT(A) has erred in law and on facts by not appreciating that the assessee had paid the Excise Duty and was refunded only because of the incentive scheme designed by the Government therefore such refund was not income derived from industrial undertaking. 2.3 The Ld CIT(A) has erred in law by placing reliance on the decision of the Hon'ble Delhi High Court in the case of Dharampal Premchand (supra) as this decision was rendered earlier to the decision of the Hon'ble Supreme Court in the case of Liberty India wherein the decision of the case of Eltek SGS Pvt Ltd and India Gelatine Chemicals Ltd (on which reliance has been placed) was specifically disapproved by the Hon'ble Supreme Court. ITA No. 2603/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JB of the Act. ITA No. 2527/Ahd/2017 A.Y. 2014-15 (Revenue s appeal) 13. Grounds of appeal raised by the Revenue read as under: 1 The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s. 80IB(4) of the Act of ₹ 1,43,61,380/- being the excise duty incentive received as a result of establishment of Industrial undertaking in an industrial backward state i.e Jammu Kashmir? 1.1 That the Ld. CIT(A) has failed to appreciate that the excise duty refund are incentives which flow from the scheme of the Government and are not profits derived from the eligible business u/s. 80IB 1.2 Whether the Ld. CIT(A) has grossly erred in law by not appreciating and applying the decision of the Hon'ble SC in the case of Liberty India vs. CIT (2009) 183 Taxmann 349 (SC) that such receipts do not form part of the net profit of the eligible business undertaking for the purpose of section 80IB of the Act. C.O. No. 54/Ahd/2019 A.Y. 2014-15 14. Grounds of appeal raised by the assessee read as under: 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the ground No.2.2 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the same also needs to be allowed in view of the judgment of Hon ble Gujarat High Court in the case of Claries Lifescience Ltd. 326 ITR 251 (Guj). 17. Arguing Ground No.3, the learned AR submitted that this ground is regarding employees contribution to ESI which is against the assessee therefore can be dismissed. 18. Arguing additional ground no.1 of appeal, the learned AR submitted that alternate Ground No.6.2 before the CIT(A) was to allow to treat excise duty refund as capital receipt which he did not adjudicate and in stead following his own order in ay 2008-09 and 2009-10, he deleted the addition on the first ground itself. The learned AR in this respect relied on the judgment of Ahmedabad Tribunal in the case of assessee itself for AYs. 2008-09 to 2010-11 where the Hon ble Tribunal had treated the receipt of excise duty as capital receipt. Therefore, it was argued that following the judgment in the case of assessee itself, the excise duty refund received by the assessee needs to be treated as capital receipt. 19. Arguing the Ground No.2 of additional ground, the learned AR submitted that since the refund of excise duty is a capital receipt, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest towards CWIP under s.36(1)(iii) of the Act, the learned AR submitted that assessee had surplus funds therefore the CIT(A) had rightly allowed relief to the assessee and reliance in respect was placed on the judgment of Hon ble Supreme Court in the case of Reliance Industries Ltd. 410 ITR 466 (SC) and on the judgment of Raghuvir Synthetics Ltd. 354 ITR 222 (Guj.). 29. As regards allowance of forex gain while calculating allowance under s.80IB of the Act, the learned AR stated that the learned CIT(A) has followed his own order for AY 2008-09. 30. As regards the eligibility of excise duty refund for deduction under s. 80IB of the Act, the learned CIT(A) has again followed his own order in AYs. 2008-09 2009- 10. 31. As regards assessee s appeal in ITA No.773/Ahd/2018 for AY 2012-13, the learned AR submitted that the only issue in this appeal is similar to ground no.1 in ITA No.454/Ahd/2017 for AY 2011-12 and additional ground nos. 1 2 are similar to additional ground nos. 1 2 in ITA No.454/Ahd/2017 and therefore his arguments will remain same. 32. As regards Revenue s appeal in ITA No. 895/Ahd/2018, the learned DR submitted that ground no.1 is similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led submissions regarding eligibility of the assessee to claim weighted deduction for such expenditure was made. The individual expenses regarding contract labour expenses, professional fees and GET salary were also explained and the provisions of Section 35(2AB) of the Act were relied. It was prayed that assessee was eligible for deduction of all expenditures, if the facility of in-house R D is approved, however, the learned CIT(A) dismissed this ground no.1 of the assessee that and held that assessee was not entitled to get the weighted deduction of R D in the deduction as no approval has been granted by DSIR. We however are not in agreement with the findings of learned CIT(A) as the Hon ble Gujarat High Court in the case of CIT vs. Claries Lifescience Ltd. [2010] 326 ITR 251 (Guj) has clearly held that once facility is approved, the entire expenditures so incurred in development of R D facility has to be allowed for weighted deduction as provided by Section 35(2AB) of the Act. For the sake of completeness, the findings of the Hon ble Gujarat High Court are reproduced below: 2. The brief facts giving rise to present appeal are that the assessee had set up inhouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome into force and, hence, expenditures incurred prior to that date are not to be allowed. She has submitted that in any case, there is a question regarding interpretation of section 35(2AB) of the Act, which certainly gives rise to the question of law and it has to be determined by this Court after formulating the said question. 5. We have considered the submissions made by the learned Standing Counsel appearing for (he revenue and we have also perused the orders passed by the authorities below. 6. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed, in the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in-house R D facility approved by the prescribed authorities has lo be allowed by deduction of expenditure so incurved. Meaning of these words is plain and clear that the facility is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hted expenditure, Since what is stated to be promoted was development of facility, intention of the Legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 8. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. Therefore, in view of the judgment of Hon ble Gujarat High Court, we allow ground no.1 of the appeal. 39. As regards ground no.2 relating to additional claim for domestic travel expenses under s.35(2AB) of the Act, we find that AO had not made any disallowance regarding this claim and first time the claim was made before the learned CIT(A). Therefore, we deem it proper to remit the issue back to the AO for considering the same in accordance with law. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O has held that the Excise Duly refund received by the appellant was not a profit derived from the business of industrial undertaking but it was a result of establishment of industrial undertaking in industrially backward area. He held that it was an incentive and not the profit derived from any business and accordingly, it was not eligible for deduction under section 80-lB. The appellant has submitted that the excise duty refund is an integral part of business activity and therefore, ii should be allowed deduction under section 80IB on the. same. After considering the facts it is noted (hat the appellant at the time of manufacturing arid clearing the goods pays the excise duty from its P . L account after taking the due credit of CENVAT which ix available on account of purchase of raw material. The excise Duty which cannot be adjusted from the credit available to it is paid by the company. The statement including the total excise duly, the credit taken for CENVAT and the excise duty paid is submitted to the excise authorities claiming the refund. The authorities after verifying the details grant the refund of the Excise Duty. Therefore, the whole process clearly show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for decision and the same are dismissed accordingly, 7.4. In view of the above facts of the case, following the finding given for A. Ys. 2009-10 2008-09 and considering the fact that identical issue on similar facts has been decided by this office in immediately preceding year, disallowance of deduction u/s. 80IB on the excise duty made by the AO is directed to be deleted. Alternative grounds of appeal therefore do not survive for decision and the same are dismissed accordingly. 42. The above findings clearly demonstrate that learned CIT(A) has treated the excise duty refund as derived from the business of industrial undertaking and eligible for deduction under s.80IB of the Act. The above findings of leaned CIT(A) has also been confirmed by Hon ble Tribunal in the case of assessee itself in AY 2008-09 to AY 2010-11. The findings of Hon ble Tribunal in AY 2008-09 are reproduced below: 35. We have heard the rival contentions and perused the materials available on record. In our considered view, the excise duty refund has a live link with the business activities of the assessee. Therefore, we hold that the excise duty refund is eligible u/s. 80IB(4) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty refunds has been held to be arising from manufacturing activity and is included in the profits eligible to be exempt under s.80IB of the Act, the grievance of the assessee that such receipts should have been treated as capital receipt is contradictory as by including in the P L account and allowing the benefit under s.80IB of the Act such refunds have already been held to be revenue in nature. An item of receipt can be treated as revenue as capital depending upon its nature. The same item cannot be said to be both revenue as well as capital in nature. 44. Therefore, in our considered opinion, the additional grounds taken by assessee, are not required to be adjudicated therefore, same are dismissed as infructuous. 45. In view of the above, the appeal filed by the assessee in ITA No.454/Ahd/2017 is partly allowed. ITA No. 583/Ahd/2017 A.Y. 2011-12 (Revenue s appeal) 46. Now coming to ITA No.583/Ahd/2017 filed by the Revenue, we find that ground no.1 of the appeal is covered against the Revenue by the order of Tribunal in AYs. 2008-09 to 2010-11 where the Hon ble Tribunal under similar facts and circumstances has dismissed the appeal of the Revenue by hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalty is less than the royalty paid by other AEs to Hitachi Limited i.e., parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex- factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the effective rate worked out is only 2.3% on sale, as against 3% paid by oilier group entities. This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue, and hence, on this aspect, we hold that no interference is called for in the order of the learned CIT(A), and accordingly, the ground no.5 of the Revenue is rejected. Since the facts in the year under appeal are identical to earlier years as admitted by both the parties, we find no reason to interfere with the order of the CIT( A) on this issue, and thus, this ground of the Revenue is dismissed. Respectfully following the decision of Co-ordinate Bench as cited above on identical facts and issue involved during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully considered the facts of the case, the assessment order and the written submission of the appellant. The A.O has made the addition on account of foreign exchange fluctuation gain earned by the appellant during the year. It has been held by him that the gain does not pertain to the business activity and was accordingly any income from other sources. Consequently the deduction under section 80 IB has been denied on the gain. The appellant has submitted that the action of the A.O was wholly unjustified as the foreign exchange fluctuation has accrued due to the business activity of the eligible unit and therefore it was entitled for deduction under section 80 IB. It is noted from the facts that, the Gain on foreign exchange fluctuation has arisen on transaction of import of raw materials and revaluation of working capital borrowing in foreign currency. Both these transactions have a direct bearing on the profit or the revenue of the appellant company. Consequently any gain / loss arising there-from. constitute revenue gain / loss. The fact that foreign exchange fluctuation gain has arise in on account of some item which is a capital nature is not there. It is an undisputed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the fact that identical issue on similar facts has been decided by CIT(A) - VIII, Ahmedabad in appellant's own case for A. Y. 2008-09, and following the said decision in the year under consideration, the ground of appeal for this year is allowed. 50. In view of the above facts and circumstances and in view of judicial precedents, ground no.3 is also dismissed. 51. Now coming to additional ground taken by Revenue, we find that Hon ble Tribunal in the case of assessee itself in AY 2008-09 vide order dated 04.03.2019 vide para 35 to 37 has already held the issue in favour of assessee. The findings of the Hon ble Tribunal has already been reproduced in para 41 of this order. 52. Therefore, following the order of Tribunal in the case of assessee itself the additional ground taken by Revenue is dismissed. 53. In view of the above, appeal of the Revenue in ITA No.583/Ahd/2017 for AY 2011-12 is dismissed. ITA No. 773/Ahd/2018 A.Y. 2012-13 (Assessee s appeal) 54. Now coming to assessee s appeal in ITA No.773/Ahd/2018 in AY 2012-13, we find that the only issue raised by the assessee vide ground no.1 is the action of the learned CIT(A) by wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the appellant u/s.35(2AB) of the I.T. Act, 1961 amounting to ₹ 3,09,000/- for the reason that the aforesaid expenditures were not approved by the DSIR in its certificate. 4.4. On going through the facts of the case, it is noted that similar issue on identical facts has been decided by this office in A. Y. 2011-12 vide appellate order dated 30/12/2016. The relevant findings given are reproduced hereunder:- 5.3. Decision : I have carefully considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the weighted deduction claimed by the appellant u/s. 35(2AB) of the . T. Act, 1961 amounting to ₹ 22,32,326/- for the reason that the aforesaid expenditures were not approved by the DSIR in its certificate. These expenditures included the expenditure pertaining to contract labour, professional fee and GET salary of which details are noted in Para 5.4 of the assessment order. It has also been noticed that the appellant has claimed the aforesaid expenditures for the full year, while the DSIR has given the approval only from 31/12/2010 to 31/03/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 15,57,333/- no approval has been granted by the DSIR and hence, the appellant is not entitled to get the weighted deduction as per the provisions of section 35(2AB) of the Act. It has also been noticed that the case laws relied upon by the appellant are not identical on facts with the case of appellant and hence, cannot be blindly applied. Thus, the appellant was not entitled to get the weighted deduction of the R D expenditure claimed by the appellant for which no approval has been granted by the DSIR although the claim was put up by the appellant for approval before it. Obviously, the DSIR has taken a considered view in view of the framework under the scheme and found not to be approved for weighted deduction u/s. 35(2ABJ of the Act, and therefore, the AO has rightly made the disallowance of the same. 5.7. In view of the above discussion, the disallowance of the weighted deduction made by the AO is found correct and justified and hence, the same is confirmed. The ground of appeal is dismissed. 62. The issue has already been decided by us and the findings of the learned CIT(A) in this respect has already been reversed by us in our order of even date for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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