TMI Blog2022 (3) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... n of foreign exchange rate was part of sale proceeds only, said fluctuation was eligible for section 80-IC deduction. We, therefore, find no infirmity in the order of the ld. CIT(A) whereby the disallowance on foreign exchange gain has been deleted. - Decided against revenue. Disallowance of deduction of export benefits u/s. 80IC - assessee during the year had received export benefit which are in the nature of excise duty refund, as its Baddi unit is eligible for outright excise duty exemption and same do not constitute independent source of income - HELD THAT:- The Supreme Court in the case of CIT vs. Meghalaya Steel Ltd. [ 2016 (3) TMI 375 - SUPREME COURT] has given a categorical finding that where assessee received (a) transport subsidy; (b) interest subsidy; (c) power subsidy; and (d) insurance subsidy which were reimbursements of manufacturing cost incurred by assessee, deduction of said subsidies was allowed under sections 80-IB and 80-IC Accordingly, in our view, in the facts of the present case and in light of various decisions cited before us, the CIT(A) has not erred in granting 80IC deduction to the assessee in respect of its export benefits representing refund o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YEAR 2009-10 This is an appeal against the order passed by Commissioner of Income Tax (Appeals)-9 in short CIT(A)-9 , Ahmedabad vide appeal No. CIT(A)- XI/166/ACIT.Cir-5/13-14 vide order dated 02-02-2015. The appeal has been filed at the instance of the Department. In the appeal before us, the Revenue has raised following grounds of appeal:- 1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 21,56,490/- made on account of product registration expense and not considering the findings of the AO. 2. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 30,08,17,258/- made on account of reduction of the claim u/s. 80IC of the Act. 3. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,32,64,686/- made on account of disallowance of deduction on foreign exchange gain u/s.80IC of the Act. 4. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 35,59,463/- made on account of disallowance of deduction on exports benefits u/s.80IC of the Act. 5. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 14,26,979/- ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the undertaking will include only those streams of income which have immediate and direct nexus with the undertaking. In appeal before the ld. CIT(A), he allowed the assessee s appeal and held as below:- 5.2 I have carefully considered the rival contentions. As regards, foreign rate fluctuations gains, it-is undisputed fact that the foreign rate fluctuation gain was earned by the assessee on the import in the course of business. When the purchase price of the product was reduced due to the application of rate fluctuation then it has a direct nexus with the business activity of the assessee undertaking and is eligible for deduction under section 80IC. In the case of ONGC V/s CIT (supra), the Hon. Supreme Court has held as under: 13. We are of the opinion that the ratio of the said decision with which we are in respectful agreement , squarely applied to the facts at hand, and therefore, the loss claimed by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balance sheet is allowable as expenditure under sect ion 37(1) of the Act In view of decisions of various courts in assesses favour I am inclined to agree with the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nn.com 768 (Chandigarh - Trib.) (UO) , the ITAT held that where foreign exchange fluctuations related to export activity carried out by assessee, income earned by assessee on account of foreign exchange fluctuations was to be treated as its trading receipts/receipts from manufacturing activity carried out by it and thereby entitling assessee to claim deduction under section 80-IC on same. Also, in the case of Quadrant EPP Surlon Uttranchal (P.) Ltd. v ITO [2017] 88 taxmann.com 261 (Delhi - Trib.) , the Tribunal held that since foreign exchange fluctuation arose on account of trading transactions and excess amount received due to upward revision of foreign exchange rate was part of sale proceeds only, said fluctuation was eligible for section 80-IC deduction. We, therefore, find no infirmity in the order of the ld. CIT(A) whereby the disallowance on foreign exchange gain has been deleted. 6. In the result, this ground of appeal of the revenue is dismissed. Ground No. 4 (deletion of disallowance of ₹ 35,59,463/- made on account of disallowance of deduction of export benefits u/s. 80IC of the Act) 7. The brief facts of this ground of appeal are that the assessee du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and against the revenue by the decision of Hon'ble Guwahati High Court in the case of CIT Vs. Meghalaya Steels Ltd. (2011) 332 ITR 91 (Gau) wherein it has been held as under: The Central Board of Excise and Customs in its circular dated December 19, 2002 clarified that the refund is not on account of excess payment of excise duty but is basically designed to give effect to the exemption and to operationalise the exemption given by the notifications. In that sense, the Central excise duty refund does not appear to bear the character of income since what is refunded to the assessee is the amount paid under the modalities provided by the Department of Revenue for giving effect to the exemption notifications. There is also nothing to suggest that the assessee has recovered or passed on the excise duty element to its customers. Even assuming the refund does amount to income in the hands of the assessee, it is a profit or gain directly derived by the assessee from its industrial activity. The payment of Central excise duty has a direct nexus with the manufacturing activity and similarly, the refund of the Central excise duty also has a direct nexus with the manufactuing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance subsidy reduce cost of production of an industrial undertaking, there is first degree nexus between said subsidy and profits and gains derived by industrial undertakings and therefore deduction u/s. 80IB and 80IC has to be granted in respect of subsidies so received. The said decision has been upheld by the Hon ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd. 67 taxmann.com 158 . The assessee further placed reliance on the case of CIT Vs. Dharampal 187 taxman 557 in support of his contentions. 9. We have heard rival contentions and perused the material on record. The Supreme Court in the case of CIT vs. Meghalaya Steel Ltd . (supra) has given a categorical finding that where assessee received (a) transport subsidy; (b) interest subsidy; (c) power subsidy; and (d) insurance subsidy which were reimbursements of manufacturing cost incurred by assessee, deduction of said subsidies was allowed under sections 80-IB and 80-IC Accordingly, in our view, in the facts of the present case and in light of various decisions cited before us, the CIT(A) has not erred in granting 80IC deduction to the assessee in respect of its export benefits representing refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of computing deduction under section 80IB. In view of several decisions relied upon by appellant, according to me there is no ambiguity in the law on this issue. Accordingly I direct AO to delete this disallowance on account of deduction under section 80IC on sale of scrap. 13. Before us, the ld. Departmental Representative placed reliance on the observations of the ld. Assessing Officer in the assessment order. In response thereto, the ld. Authorized Representative of the assessee placed reliance on the decisions of Hon ble Gujarat High Court in the cases of Shreeram Multi-Tech Ltd. (22 taxman.com 194) Nirma Industries Ltd. Vs. DCIT (283 ITR 402) . 14. We have heard the rival contentions and perused the material on record. We observed that the Calcutta High Court in the case of Reckitt Benckiser Healthcare (I) Ltd. reported in 56 taxmann.com 415 has held that profits and gains from scraps resulting in manufacturing process were eligible for deduction u/s. 80IC. Again, the Gujarat High Court in the case of CIT vs. Shreeram Tech Ltd. 33 taxmann.com 194 has held that compensation received by industrial undertaking from insurance companies on account of loss r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequential deduction u/s. 80IC of the Act is required to be enhanced to the extent of addition made. The assessee placed reliance on the CBDT circular No. 37/2016 dated 2nd Nov, 2016 wherein the CBDT has accepted that when profit of an eligible undertaking from business are enhanced due to disallowance of an expense u/s. 40(a)(ia) of the Act or any specific disallowance relates to the business activity of eligible undertaking or business, deduction under chapter VI-A is admissible on such enhanced profit. Accordingly, vide this circular the CBDT had directed the tax authorities not to file any further appeal on this issue and appeals already filed should be withdrawn or not to be pressed. The assessee further placed reliance on the case of Ahmedabad Tribunal in the case of DCIT vs. Ascendum Solution India (Pvt.) Ltd. 86 taxmann.com 114 and the Hon ble Mumbai Tribunal in case of ITO vs. Anthelio Business Technologies Pvt. Ltd. (78 taxmann.com 203) in support of his contention. 17. We have heard rival contentions and perused the material on record. In view of the circular no. 37/2016 dated 2nd Nov, 2016 and the decision in the case of DCIT vs. Ascendum Solutions Pvt. Ltd . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of ₹ 27,26,726/- made on account of disallowance of deduction on scrap value u/s. 80IC of the Act. 4. The ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,28,98,950/- made on account of disallowance of deduction u/s.80IC on expenses disallowed u/s,40(a)(ia) of the Act. 5. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 20. In the appeal before us, the Ahmedabad ITAT had earlier passed a consolidated order for assessment years 2008-09 to 2010-11 in ITA Nos. 1366 1780/Ahd/2015 in which ground nos. 1and 2 raised in the present appeal were considered but Hon ble ITAT did not consider ground nos. 3 4 raised in the present appeal. Subsequently, the assessee filed a Miscellaneous Application No. 41/Ahd/2019 pertaining to assessment year 2010-11 which was allowed vide order dated 27-05-2019 and now the matter has been recalled to consider ground nos. 3 to 4 referred to above. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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