Income Tax Appellate Tribunal - Ahmedabad
Mitsu Ind. Ltd,, Vapi vs Assessee on 11 June, 2004
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D"
(BEFORE S/SHRI T K SHARMA AND P K BANSAL)
ITA No.2470/Ahd/2004
(Assessment Year: 2001-02)
M/s Mitsu Limited, V/s The Assistant
Bilakhia House, Commissioner of Income-
Muktanand Marg, Chala, tax, Vapi Circle, Ajith
Vapi, Gujarat Nagar, Chala, Vapi,
District: Valsad, Gujarat
[Appellant] [Respondent]
ITA No.2453/Ahd/2004
WITH
[C O No.275/Ahd/2004 filed by Assessee]
(Assessment Year: 2001-02)
The Assistant V/s M/s Mitsu Limited,
Commissioner of Income- Bilakhia House,
tax, Vapi Circle, Ajith Muktanand Marg, Chala,
Nagar, Chala, Vapi, Vapi, Gujarat
District: Valsad, Gujarat
[Appellant] [Respondent]
Assessee by :- Shri Mehul K Patel
Department by:- Shri Y K Batra, CIT
ORDER
Per P K Bansal (Accountant Member): These cross appeals and cross objection filed by the assessee are arising out of the order of the CIT(A) dated 11-06-2004. Since certain grounds involved in these appeals are common and inter-connected, the 1 cross appeals and cross objections were heard together and are being disposed of by this combined order for the sake of convenience.
ITA No.2470/Ahd/2004 By Assessee:2 In this appeal filed by the assessee, Ground Nos.1, 2, 11 and 12 are general in nature. The following effective grounds [Ground Nos.3 to 10] survive for adjudication, which are as under:
3 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO in disallowing staff welfare expenses to the tune of Rs.1,31,880/-. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.
4 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO in disallowing contributions to the tune of Rs.880/- to PF/ESI. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.
5 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in upholding the action of the Learned AO in not considering the export benefit receivable to the tune of Rs.3,95,05,367/- as income from business for the purpose of computing deduction u/s 80HHC. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.
6 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO in not considering interest income to the tune of Rs.6,04,462/- as income business for the purpose of computing deduction u/s 80HHC. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.2
7 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO of not granting deduction to the appellant company u/s 80HHC of the Income-tax Act correctly as per law.
8 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in upholding the action of the Learned AO in not considering the export benefit receivable to the tune of Rs.3,95,05,367/- as income derived from industrial undertaking and eligible for deduction u/s 80IB. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.
9 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in upholding the action of the Learned AO in not considering the interest income to the tune of Rs.13,37,366/- as income derived from industrial undertaking and eligible for deduction u/s 80IB. The action of the Learned CIT(A) is contrary to the facts and law and deserves to be deleted.
10 On appreciation of the facts and circumstances of the case and law, the Learned CIT(A) has erred in confirming the action of the Learned AO of not granting deduction to the appellant company u/s 80IB of the Income tax act correctly as per law.ITA No.2453/Ahd/2004:
3 In this appeal filed by the Revenue, Ground Nos.1, 2, 3 and 14 are general in nature. The following effective grounds [Ground Nos.4 to 13] survive for adjudication, which are as under:
4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of sales promotion expenses amounting to Rs.8,381/- without appreciating the fact that no complete set of details with the supporting 3 evidences were filed by the assessee-company despite sufficient time given to it.
5 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Foreign Traveling Expenses amounting to Rs.7,32,290/- without appreciating the fact that no complete set of details with the supporting evidences were filed by the assessee-company despite sufficient time given to it and assessee-company failed to substantiate its claim that the expenditure was incurred wholly, necessarily and exclusively for the business purpose only and not for personal purpose.
6 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Misc.
expenses amounting to Rs.14,628/- without appreciating the fact that no complete set of details with the supporting evidences were filed by the assessee-company despite sufficient time given to it as also assessee-company failed to justify its claim that the expenses were incurred wholly for the business purposes.
7 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Advance written off amounting to Rs.7,47,181/- without appreciating the fact that no complete set of details with the supporting evidences were filed by the assessee-company despite sufficient time given to it. The assessee-company failed to substantiate its claim with regard to purpose for giving the advances i.e. whether for business purpose or otherwise, actions taken for recovering the advances etc. 7.1 The learned CIT(A) has erred in granting relief to the assessee-
company relying upon the decision of Hon'ble Gujarat High Court in the case of CIT v Girish Bhagwat Prasad [256 ITR 772], as the said judgment is on bad debts written off and not advances written off.
8 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Legal & Professional expenses amounting to Rs.35,000/- without appreciating the fact that no complete set of details with the 4 supporting evidences were filed by the assessee-company despite sufficient time given to it.
9 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of Excise refund receivable amounting to Rs.1,71,50,151/- without considering the facts discussed in the following judicial decisions delivered by the various Courts on the issue:
a. CIT v Thirumalaiswamy Naidu & Sons [1998] 230 ITR 534 [SC] b. CIT v Chowranghee Sales Bureau 87 ITR 542 [SC] c. CIT v Sinclaire Murray & Co. 97 ITR 615 d. CIT v T Naggi Reddy [1993] 202 ITR 253 [SC] e. J Narsimharao & Co. v CIT [1993] 200 ITR 588 [SC] f. Navjivan Udyog Mandir Ltd. v CIT [1994] 207 ITR 40 [Guj] g. Kedarnath Jute Mfg. Co. Ltd. v CIT [1971] 82 ITR 363 h. Polyflex [India] P. Ltd. v CIT 257 ITR 343
10 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the appeal of the assessee-company and directing the AO to exclude the excise duty and sales tax from the total turnover for working out the deduction u/s 80HHC of the Act.
10.1 The earned CIT(A) has granted the relief to the assessee-company without appreciating the fact that in the case of Mc Dowell & Co. Ltd., reported in 154 ITR 148, it has been held by the Hon'ble Supreme Court that the sales tax and excise duty etc. are part of trading receipt and accordingly the total turnover would obviously include the sales tax and excise duty.
10.2 The learned CIT(A) has granted the relief to the assessee-company without appreciating the fact that the Sales-tax as well as Excise duty form part of the trading receipt, irrespective of the method of accounting followed by the assessee i.e. even if the assessee is not crediting this tax as part of sales but is showing them separately, as held by the Hon'ble Courts in the case of Chowranghee Sales Bureau P Ltd. v CIT [1997] 87 ITR 542 [SC] and Synclaire Murray & Co. 97 ITR 615 [SC].
510.3 The learned CIT(A) has granted the relief to the assessee-company without appreciating the fact that the sales-tax and excise duty is part of the total turnover as held by the learned CIT(A)-I, Surat in the case of sister concern of the assessee-company viz. M/s Bilag Industries P Ltd. - AY 2000-01, relying upon the decision of the ITAT, Ahmedabad in the case of Gujarat Fluro Chemicals Ltd. [2006] 76 TTJ (Ahd) 313.
11 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the appeal of the assessee-company to include the following items while calculating the profits of the business for deduction u/s 80HH:
1) Exchange Gain Rs.40,33,509/-
2) Cash discount Rs.05,04,556/-
3) Misc. Income Rs.00,51,676/-
11.1 The learned CIT(A) has granted relief to the assessee-company without appreciating the fact that where the item of income has no nexus to the exports made by the assessee, then same is to be excluded both from the total turnover as well as from the profits of the business as held by the following courts:
1) Tanna Exports [Mumbai Tribunal]
2) Nathani Steels [57 ITD 584] [Mumbai Tribunal]
3) CIT v Sterling Foods [237 ITR 579] [SC] 11.2 The learned CIT(A) has granted relief to the assessee-company without appreciating the fact that any receipt by way of brokerage, commission, interest, rent charges or any other receipt of similar nature included in such profit is not exhaustive but is illustrative in nature as held by the Hon'ble Cochin Tribunal in the case of G Gangadharan Nair 54 ITD 15.
12 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in allowing the appeal of the assessee-company to include the following items while calculating the profits of the business for deduction u/s 80IA:
1) Exchange Gain Rs.40,33,509/-
2) Cash discount Rs.05,04,556/-
3) Misc. Income Rs.00,51,676/-
6
12.1 The learned CIT(A) has granted the relief to the assessee-company without appreciating the fact that the AO's action to exclude the export benefits receivable amounting to Rs.3,95,05,367/-, interest income of Rs.13,37,366/- and rental income of Rs.28,500/- while calculating the profits of the business for deduction u/s 80IA has been confirmed by the CIT(A) following the decision of the Hon'ble Supreme Court in the case of CIT v Sterling Foods 237 ITR 579 and hence the learned CIT(A) has erred and contradicted himself in granting relief on the similar issues such as exchange gain, cash discount and misc. income which could not be said to be "derived from" the industrial undertaking as held by the Hon'ble Supreme Court in the case of CIT v Sterling Foods 237 ITR 579.
13 On the facts and in the circumstances of the case in law, the learned CIT(A) ought to have upheld the assessment order of the assessing officer passed u/s 143(3) of the Act.ITA No.2470/Ahd/2004 By Assessee:
3.1 Ground No.3 in the assessee's appeal relates to disallowance of staff welfare expenses amounting to Rs.1,31,880/-. The brief facts of the case are that the assessee- company has debited Rs.8,72,031/- under the head "Staff Welfare Expenses" for which details were called for. According to the AO, the assessee did not furnish any details in support of its claim. He therefore made an addition of Rs.1,31,880/- on the ground that the expenditure is purely in the nature of gifts. When the matter went before the CIT(A), the CIT(A) confirmed the disallowance.
3.2 It was submitted by the learned AR that the assessee ha given incentive to the staff on auspicious occasion amounting to Rs.1,31,880/- in the form of refrigerator to the main staff 7 members to boost their productivity and secure their loyalty. This type of expenditure is normally incurred by almost all companies, so as to increase the productivity of their employees. A refrigerator is required to enable them to have an organized lifestyle with convenience, which will enhance their work efficiency. The learned DR, on the other hand, supported the order of the CIT(A).
3.3 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. In our opinion, the expenditure so incurred by the assessee cannot be regarded to be the staff welfare expenditure. The plea of the assessee is that the assessee has given the refrigerator to the staff on auspicious occasion. It is not the plea of the assessee that the refrigerator has been given to the staff for the purpose of business. Under section 37(1) only the expenditure which has been incurred wholly and exclusively for the purpose of business, if it is not a capital expenditure or a personal expenditure, can be allowed. The refrigerator has been given by the assessee voluntarily on the auspicious occasion which cannot be the business purpose. We accordingly confirm the disallowance. Thus, this ground stands dismissed.
4. Ground No.4 in the assessee's appeal relates to disallowance out of contribution to PF / ESI amounting to Rs.880/-. We have heard the rival submissions and carefully considered the same. We have also gone through the order of the tax authorities below. We find that the issue is duly covered in 8 favour of the assessee by the decision of the Hon'ble Supreme Court in the case of CIT v Vinay Cement Ltd. 213 CTR 268 (SC), in which it has been held that the payment made by the assessee after the due date prescribed under the Employees' Provident Fund Act and the Rules made there-under but before the date of filing of return, could not be disallowed u/s 43B of the Act. In view of the above decision, we reverse the order of the CIT(A). Thus, this ground taken by the assessee stands allowed.
5 Ground No.5 in the assessee's appeal relating to not considering export benefit - Rs.3,95,05,367/- was not pressed by the learned AR at the time of hearing, as the computation of assessee is accepted. Therefore, the ground stands dismissed, as not pressed.
6 Ground No.6 in the assessee's appeal relates to exclusion of interest income to the tune of Rs.6,04,462/- for deduction u/s 80HHC of the Act. The brief facts of the case are that the assessee has received interest amounting to Rs.13,37,366/- out of which an amount of Rs.7,32,904/- has been deducted by the assessee from the business income and is shown as income from other sources. 90% of the balance interest of Rs.6,04,462/- was reduced as per Explanation (baa) u/s 80HHC to arrive at the deduction u/s 80HHC. This interest has also been assessed by the AO under the head "Income from business". The only plea of the learned AR before us is that 90% of the net interest should be deducted as per Explanation (baa) in view of the decision of the Hon'ble Delhi High Court in the case of CIT v 9 Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi). The learned DR, on the other hand, relied on the order of the authorities below.
7 We have carefully considered the rival submissions and perused the material on record along with the order of the tax authorities below. We have also gone through the decision of the Hon'ble Delhi High Court in the case of CIT v Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi). This is an admitted fact that in this case the interest income amounting to Rs.6,04,462/- has been assessed by the AO as business income, not the income from other sources. The Hon'ble High Court in the case of CIT v Shri Ram Honda Power Equip (2007) 289 ITR 475 (Delhi) has clearly laid down that the word "interest" in clause (baa) of the Explanation connotes "net interest" and not "gross interest" and, therefore, we accordingly direct the AO to exclude 90% of the net interest and not of the gross profit provided the assessee proves that the assessee has incurred the expenditure for the purpose of earning of such interest. We accordingly set aside the order of the CIT(A) and restore it to the file of the AO to re-compute the deduction u/s 80HHC by excluding 90% of the net interest provided the assessee proves that the assessee has incurred the expenditure for earning of this interest of Rs.4,04,562/-. Accordingly, this ground is allowed for statistical purpose.
8 Ground No.7 in the assessee's appeal relating to not granting deduction u/s 80HHC was not pressed by the learned AR 10 at the time of hearing. Therefore, the same stands dismissed, as not pressed.
9 Ground No.8 in the assessee's appeal relates to not considering the export benefit receivable to the tune of Rs.3,95,05,367/- as income from industrial undertaking and eligible for deduction u/s 80IB of the Act. The brief facts relating to this ground are that the AO while computing the deduction u/s 80IB excluded the Export Benefit amounting to Rs.3,95,05,367/- holding that the benefit received under DEPB cannot be regarded to have been derived from the Industrial Undertaking. The immediate source of amount received against sale of advance license is the Export Policy of the Government of India and not the Industrial Undertaking. The assessee went in appeal before the CIT(A). The CIT(A), relying on the decision of the Hon'ble Supreme Court in the case of CIT v Sterling Foods 237 ITR 579 (SC), dismissed the ground of the assessee, by observing as under:-
"44 I have carefully considered the submission of the learned counsel with reference to the export benefit receivable for allowing deduction u/s 80IB of the Act. It has to be seen whether the income has been derived from the industrial undertaking of the assessee. There should be a direct and immediate nexus of he income with that of the assessee's industrial undertaking. The issue regarding export entitlement to be a part of the business income has been decided by the Hon'ble Supreme Court in the case of CIT v Sterling Foods 237 ITR 579 (SC). The finding of the Supreme Court is as under:-
"We do not think that the source of the export entitlements can be said to be the industrial undertaking of the assessee. The source of the export entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government whereunder the export 11 entitlements become available. There must be, for the application of the words "derived from" a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea foods by reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to export entitlements."
45. After considering the above finding in the case of Sterling Foods, it is amply clear that the export benefit receivable has no direct nexus with the profits and gains of the industrial undertaking and the nexus is only incidental. I do not agree with the learned counsel that deduction u/s 80IB is available on the export benefit receivable. The case of Pratibha Syntext Ltd. (supra) is entirely on different issue and the appellant can not derive support from that case. In the case of United Phosphorus Ltd. (supra), the finding has been re-produced by the learned counsel but he could not bring to my notice, the facts of the case on the basis on which the above decision was rendered by the Ahmedabad Tribunal. It could not be proved by him that the facts of case are identical to that of the case of the appellant and therefore, appellant can not derive support from the decision in the case of United Phosphorus Ltd. Relying on the decision of the Hon'ble Supreme Court in the case of CIT v Sterling Foods (supra), I have given a finding in the case of Hindustan Inks & Resins Ltd. for the Asstt. Year 2000-01 vide appellate order 24-2-2004, that export benefit receivable is not entitled for deduction u/s 80IB of the Act. Since, the facts are exactly similar, therefore, relying on the above referred decision of the Hon'ble Supreme Court, it is held that the deduction u/s 80IB will not be available to the export benefit receivable as it was not derived from the industrial undertaking of the appellant."
10 Before us, the learned AR contended that no Custom Duty is chargeable on inputs used for the manufacturing of the goods meant for exports. If a unit utilizes duty paid raw materials to manufacture goods exported out of the country, the Export Policy provides for refund of such duties paid to make available raw materials at international prices to the Indian manufacturers so that they can compete with the foreign competitors in the 12 foreign market. The company has estimated the duty on raw materials that can be imported based on the export performance of the company and credited the same as a notional income in the Profit & Loss Account in compliance with the Accounting Standards. If the company was able to import the raw materials in time within accounting year, such notional entry would not have been reflected in the Profit & Loss Account. If the raw material prices go up in the international market, the company may not import the raw material and there may not be any benefit to the company. In order to enable timely production, the assessee used local raw materials on which Excise Duty was paid but by availing of the Import Entitlement, the assessee get compensated loss of extra Excise Duty paid on local purchases. In fact, the Excise Duty so paid is adjustable against the notional income booked by the assessee so that the cost of the raw materials can be reduced. Reliance was placed in this regard on the decision of the Hon'ble Gujarat High Court in the case of CIT v India Gelatine & Chemicals Ltd. [2005] 275 ITR 284(Guj) for the proposition of law that duty drawback is specifically to reduce the cost of manufacturing of the goods and, therefore, this is income which is derived from the Industrial Undertaking. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of CIT v Eltek SGS P Ltd. 300 ITR 6 (Delhi) for the proposition of law that the assessee would be entitled for a special deduction u/s 80IB in respect of Custom Duty Drawback. Reliance was also placed on the decision of this Tribunal in the case of ACIT v Polycom Associates [ITA No.3801/Ahd/2003] which relates to DEPB, wherein it was held 13 that the assessee will be entitled for the deduction u/s 80IB of the Act.
11 The learned DR, on the other hand, supported the order of the CIT(A) and relied on the decision of the Hon'ble Supreme Court in the case of Sterling Foods (supra).
12 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We have also gone through the case law as has been cited before us. The issue before us is whether the income from export incentive in the form of DEPB will be eligible for deduction u/s 80IB or not during the assessment year under consideration.
13 Section 80IA was inserted by the Finance Act (No.2), 1991 w.e.f. 1-4-2000 and later on amended by the Finance Act, 1992, 1993,1994, 1995, 1996, 1997, Income-tax (Amendment) Act, 1998 and Finance (No.2) Act, 1998. Later on section 80IA was substituted by the Finance Act, 1999 with effect from 1-4- 2000 by section 80IA and 80IB.
14 After the substitution of section 80IA into section 80IA and 80IB, the language of sections 80IA and 80IB has been changed. The earlier section 80IA reads as under:-
"Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking.... To which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, ...."14
Section 80IA as amended with effect from 1-4-2000 reads as under:-
"80IA(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking ...."
Section 80IB(1) reads as under:-
"Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-section (3) to [(11) ...."
From the perusal of these sections it is apparent that prior to Assessment Year 2000-01 the assessee was entitled for the deduction if his gross total income includes any profits and gains derived from any business of any industrial undertaking ..."
With effect from Assessment Year 2000-01 u/s 80IB the assessee is entitled for the deduction if the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (11), (11A) and (11B)..."
Section 80IA with effect from 1-4-2000 allows deduction where the gross total income of an assessee includes any profits and gains derived by an industrial undertaking or an enterprise from any business referred to in sub-section (4).
15 There is no dispute that in the case of the assessee, the assessee has claimed deduction u/s 80IB and the AO has accepted that the assessee is an eligible undertaking u/s 80IB. The 15 assessee, in our opinion, will be entitled for the deduction for the exports benefit if the assessee proves that the said benefit is derived from the eligible business. If this benefit is not derived from the eligible business, the assessee will not be entitled for the deduction.
16 We have gone through the decision of the Hon'ble Supreme Court as relied upon by the learned DR. We noted that in that case the question was relating to the deduction u/s 80HH on the income earned by the assessee from import entitlement granted by the Central Government under Export Promotion Scheme. The language of section 80HH at the relevant time reads as under:-
"Section 80HH. Deduction in respect of profits and gains from newly established industrial undertaking or hotel business in backward areas. - (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof."
From the said language it is apparent that if the profits and gains is derived from the eligible industrial undertaking, only then it can be entitled for the deduction u/s 80HH. While interpreting the language of section 80HH, the Hon'ble Supreme Court has held as under:-
"We do not think that the source of the export entitlements can be said to be the industrial undertaking of the assessee. The source of the export entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the 16 Central Government whereunder the export entitlements become available. There must be, for the application of the words "derived from" a direct nexus between the profits and gains and the industrial undertaking. In the instant case, the nexus is not direct but only incidental. The industrial undertaking exports processed sea foods by reason of such export, the export promotion scheme applies. Thereunder, the assessee is entitled to export entitlements."
If We compare the language of section 80HH with the language of section 80IB, we noted that it has been substituted with the words "derived from any business referred to" in place "derived from an industrial undertaking or the business...". This means if the income is derived from the business referred to in sub- sections (3) to (11), (11A) and (11B), the assessee will be entitled for the deduction on such income.
The case before the Hon'ble Supreme Court relates to the income earned from the import entitlement, while the case before us relates to any profits on the transfer of duty entitlement, passbook scheme under the Export Import Policy formulated and announced u/s 5 of the Foreign Trade (Development & Regulation) Act, as claimed by the learned AR. The profits on the sale of a license which the assessee entitled due to the Export Performance is not connected with the cost of the product but it is an incentive attached with the export and the immediate source of such profits is the exports and, therefore, it cannot be said to have been derived from the industrial undertaking as has been held by the Hon'ble Supreme Court.
17 We have also gone through the decision of the Hon'ble Gujarat High Court in the case of CIT v India Gelatine 17 & Chemicals Ltd. [2005] 275 ITR 284(Guj), where the Hon'ble Jurisdictional High Court has held as under:-
"Having heard learned counsel for the parties, we are of the view that the 17 question under consideration is an interesting one. While the duty drawback scheme may certainly be a part of the larger fiscal scheme of exports assistance and export incentives formulated by the Government for the development of foreign markets for Indian products and commodities, the duty drawback scheme which is embodied in the relevant provisions of the Customs Act and the Excise Act stands on a different footing from the other cash incentives under the executive instructions. Section 75(1) of the Customs Act, 1962 contains the following scheme of duty drawback:
"75. Drawback on imported materials used in the manufacture of goods which are exported. - (1) Where it appears to the Central Government that in respect of goods of any class or description manufactured in India being goods which have been entered for export and in respect of which an order permitting the clearance and loading thereof for exportation has been made under section 61 by the proper officer, a drawback should be allowed for duties of customs chargeable under this Act on any imported material of a class or description used in the manufacture of such goods, the Central Government may, by notification in the Official Gazette direct that drawback shall be allowed in respect of such goods in accordance with, and subject to, the rules made under sub-section (2)."
Similar provisions are there in section 36 of the Central Excise Act, 1944. 18 The object of the duty drawback scheme is to reimburse exporters for 19 tariffs paid on the imported raw materials and intermediates and Central Excise duties paid on domestically produced inputs which enter into export production. Customs duties and excise duties on inputs raise the cost of production in industries and thereby affect the competitiveness of exports. Therefore, exporters need to be assisted for neutralizing the escalation in their costs attributable to such customs and excise duties. Duty drawback is, therefore, intended to reduce the cost of production. Hence, duty drawback is an integral part of the pricing of the goods and, therefore, part of the cost of production of the industrial undertaking and, therefore, duty drawback has to be treated as "derived from" the industrial undertaking."
18The decision of the Jurisdictional High Court has clearly laid down that the Customs Duties and Excise Duties are an integral part of the cost of production and any receipt by way of reimbursement of such duties are inextricably linked with the cost of production which has to be reflected in the Profits and Loss Account of the assessee.
18 The case before us relates to the DEPB. We have also gone through the decision of this Tribunal in the case of ACIT v Polycom Associates [ITA No.3801/Ahd/2003] in which vide order dated 01-02-2008, this Tribunal, following the decision of the Jurisdictional High Court in the case of CIT v India Gelatine & Chemicals Ltd. [2005] 275 ITR 284(Guj), took the view that the export incentive is the income derived from the eligible undertaking. Even though the learned DR referred to the decision of the Punjab & Haryana High Court in the case of Liberty India v CIT [2007] 293 ITR 520 (P&H) and compared the language of section 80IB(1) with section 80HH which was the issue before the Hon'ble Supreme Court in the case of Sterling Foods (supra), the Tribunal since bound to follow the decision of the Jurisdictional High Court, took the view in favour of the assessee. Once the benefit by way of incentive is credited to the raw material consumed instead of crediting it in a separate account, this will reduce the cost of production of the business in which the assessee is engaged and ultimate effect will be that the profits and gains derived from the eligible industrial undertaking will get increased. The nature of the benefit under a DEPB is to 19 compensate the assessee for the loss of extra Excise Duty paid on the local purchases. Therefore, in our view, the profit earned by way of DEPB is connected with the business of the assessee and can be said to have been derived from the eligible business. We accordingly direct the AO to allow the deduction to the assessee u/s 80IB after ascertaining the true nature of DEPB received by the assessee. Thus, this ground is allowed.
19 Ground No.9 relates to the claim of the assessee on the interest income amounting to Rs.13,37,366/- u/s 80IB of the Act. The facts relating to this ground are that the assessee has received the interest amounting to Rs.13,37,366/- out of which Rs.7,32,904/- was shown by the assessee under the head "Income from other sources. It is only the balance amounting to Rs.6,04,462/-was shown by the assessee as business income. The AO did not allow the deduction u/s 80IB. When the matter went before the CIT(A), the CIT(A) confirmed the order of the AO.
20 The learned AR before us contended that the interest was basically received from the bank on the margin money, FD which was kept for opening L/Cs, loan given to the employees and on a H/C but no break-up was given before us. In our opinion, this issue is no more res integra in view of the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v CIT [2003] 262 ITR 278 (SC), in which the Hon'ble Supreme Court while interpreting the words "derived from"
denied the deduction in respect of interest earned on the deposits made with the Electricity Board, by observing as under:-20
"The words "derived from" in section 80HH of the Income-tax Act, 1961, must be understood as something which has a direct or immediate nexus with the assessee's industrial undertaking. Although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking.
Held accordingly, that interest derived by the industrial undertaking of the assessee on deposits made with the Electricity Board for the supply of electricity for running the industrial undertaking could not be said to flow directly from the industrial undertaking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under section 80HH."
Respectfully following the aforesaid decision, in our opinion, the assessee cannot be allowed deduction u/s 80IB on the interest income. We find force in the plea of the learned AR that it is only the net interest out of the sum of Rs.6,04,462/- which was should be excluded while computing the deduction u/s 80IB, not the gross interest. We accordingly direct the AO to re-compute the interest and to allow assessee the deduction out of the sum of Rs.6,04,462/- if the assessee proves that the assessee had incurred the expenditure for earning of this interest income and the net interest so arrived be excluded along with the sum of Rs.7,32,904/- from the computation of deduction u/s 80IB of the Act. Thus, this ground stands dismissed.
21 Ground Nos.10 to 12 since not pressed, stands dismissed.
ITA No.2453/Ahd/2004 By the Department: 2122 Ground Nos.1, 2 and 3 in this appeal filed by the Department, are general in nature and do not require any adjudication.
23.1 Ground No.4 relates to disallowance of sales promotion expenses of Rs.8,381/-. The AO disallowed 1/5 t h of sales promotion expenses of Rs.41,907/- on the ground that the same were not wholly and exclusively for the purpose of business. When the matter went before the CIT(A), the CIT(A) deleted the disallowance by observing as under:-
"8 I have carefully considered the facts of the case and the submission of the learned counsel. The AO has not pin pointed the item of expenditure, which was not incurred for the business purposes. The claim of the expenditure can not be disallowed in such a summary manner. The expenditure was incurred for the customers and their representatives, which is allowable u/s 37 of the Act. For disallowances, the AO has to justify that it has not been incurred wholly and exclusively for the business purposes, which is absent in the order of the AO. Considering the appellate order of my predecessor and the above discussion, the disallowances are deleted."
23.2 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We noted that the expenditure has been incurred to build up and strengthen the contacts with the customers, which increased sales and profits and, therefore, in our opinion, the CIT(A) has rightly observed that the AO has to justify that it has not been incurred wholly and exclusively for the business purposes, which is absent in the order of the AO. We, therefore, do not find any infirmity in the order of the CIT(A) and accordingly we confirm the order of the CIT(A) in 22 this regard. Thus, this ground taken by the Revenue stands dismissed.
24.1 Ground No.5 relates to the disallowance of Rs.7,32,290/- out of foreign travel expenses. The AO disallowed the foreign travel expenses on the ground that the assessee has not given justification in respect of various visits to foreign countries and part of days stayed by different persons is not used for the business purpose of the assessee-company. When the matter went before the CIT(A), the CIT(A) deleted the disallowance by observing as under:-
"11 I have carefully considered the facts of the case and submission of the learned counsel. The AO resorted to Rule 6D of the IT Rules, which has been deleted long back. The AO has not pointed out which of the expenses are not for the purposes of business. He could not prove that the foreign travel was for a pleasure trip and the expenditure was personal in nature. The disallowance of expenditure in such a summary manner cannot be sustained. The learned CIT(A)-I has also deleted such disallowances in the appellant's case for the Asstt.Year 2000-01 vide para-3 of his appellate order dtd. 23.4.2003. Considering the facts of the case, the decision relied upon by the learned counsel and considering the appellate order for the Asstt.Year 2000-01, it is held that the disallowances were unjustified and the same are directed to be deleted."
24.2 We have heard the rival submissions and perused the material on record. We noted that the assessee-company is a leading manufacturer of Non-Synthetic Pyrethorid products and undertakes exports also. It's employees and Directors have undertaken foreign expenses during the year to the tune of Rs.36,61,451/- for which the details, explaining the purpose of visit were submitted during the course of assessment 23 proceedings. The AO has made the addition purely on the basis of presumptions and surmises without bringing on record any material on record. Further, in the earlier year, i.e., AY 2000- 01also, similar expenses incurred on foreign travel have been disallowed and the CIT(A) has deleted the disallowance. In our view, the CIT(A) has rightly held that disallowance of expenditure in such a summary manner cannot be sustained. We therefore do not find any infirmity in the order of the CIT(A) in deleting the disallowance. Thus, this ground stands dismissed.
25 Ground No.6 relates to deletion of the addition on account of Misc. expenses amounting to Rs.14,628/-. The assessee submitted the details of expenses incurred during the year. In these details there were certain expenses debited under the head miscellaneous expenses. The AO disallowed 1/5 t h of such expenses amounting to Rs.14,628/-. When the matter went before the CIT(A), the CIT(A) deleted the disallowance by holding that the expenditure has been incurred for the business purpose and the AO has not examined the expenses and for the sake of convenience, disallowed 1/5 t h of Rs.73,140/-. After carefully considering the rival submissions of both the parties, we agree with the view of the CIT(A) that the addition has been made by the AO on the basis of presumptions that such expenses were incurred for non-business purposes. We find that these expenses were posted in the books of accounts under the head miscellaneous expenses as is evident from the copy of accounts. We accordingly do not find any infirmity in the order of the 24 CIT(A) in this regard and confirm the order of the CIT(A). Thus, this ground raised by the Revenue stands dismissed.
26.1 Ground No.7 relates to deletion of the addition on account of Advance written off amounting to Rs.7,47,181/-. The facts are that the assessee has paid this sum as an advances for supply of materials / services. The company could not avail the services and it was not possible to recover the advances back . Accordingly the said advances were written off. The AO made the addition on the ground that the assessee-company failed to substantiate its claim with regard to purpose for giving the advances i.e. whether for business purpose or otherwise. When the matter went before the CIT(A), the CIT(A) deleted the addition by observing as under:-
"16 I have carefully considered the above submission of the learned counsel and the facts of the case. Once the debt is written off in the books, the AO can not enquire about the genuineness of debt. The same view has been taken by the Hon'ble Gujarat High Court in the case of CIT v Girish Bhagwati Prasad 256 ITR 772 (Guj). Considering the above and the relying on the decision of the Hon'ble Gujarat High Court and the on decision of the Mumbai Tribunal as referred to above, the addition made for Rs.7,47,181/- is deleted."
26.2 We have carefully considered the rival submissions and perused the material on record. We do not find any illegality or infirmity in the order of the CIT(A) in deleting the addition. The assessee had given identity and addresses of the parties and the AO has not brought any material on record to prove that the contentions of the assessee are incorrect. The CIT(A) has followed the decision of the Gujarat High Court in the case of 25 CIT v Girish Bhagwati Prasad 256 ITR 772 (Guj). We, therefore, uphold the order of the CIT(A) in this regard. Thus, this ground also stands dismissed.
27.1 Ground No.8 relates to deletion of addition of Rs.35,000/- made on account of legal and professional expenses. The facts are that the assessee-company has debited Rs.15,72,510/- as legal, professional and consultancy charges. The assessee submitted that the expenses are purely revenue in nature as far as product registration charges are concerned, the same is incurred for registering new products developed by the company with the proper authorities. The AO disallowed the expenditure holding that the explanations are general in nature and are not acceptable and the expenditure is capital in nature. He accordingly made the impugned addition of Rs.35,000/-. When the matter went in appeal before the CIT(A), the CIT(A) deleted the addition by observing as under:-
"18 I have carefully considered the above submission of the learned counsel and the facts of the case. I could notice that an amount of Rs.25,000/- have been incurred for production registration charges and Rs.10,000/- for consulting fees for transfer of registered office. The AO could not hold that how these expenses are capital in nature. No any asset of enduring nature have been came into existence on account of these expenses. The CIT(A)-I, Surat has also held registration expenses as revenue in nature in the appellant's case for the AY 2000- 01 vide para-8 of his appellate order dtd. 23.4.2003. The expenditure of Rs.10,000/- paid to the Company Secretary for complying with the procedure for transferring the registered office of the company from Selvass to Vapi, is certainly a part of revenue expenditure. Considering the appellate order of my predecessor and the above discussion, the addition of Rs.35,000/- does not deserve to be upheld. The same is hereby deleted."26
27.2 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We find that before us also the learned DR could not bring any material on record on the basis of which a different view from that of the CIT(A), can be taken. We agree with the view taken by the CIT(A) and do not find any infirmity in the order of the CIT(A). We accordingly confirm the order of the CIT(A) on this point. Thus, this ground taken by the Revenue stands dismissed.
28.1 Ground No.9 relates to deletion of the addition of Rs.1,71,50,151/- on account of Excise Refund receivable. The AO observed that this office has treated such excise refund receivable as income in the case of M/s Amoli Organics Ltd. and M/s Umedica Laboratories Ltd. The assessee submitted that the said item is not debited in the Profits and Loss Account or claimed as expenditure during the year under consideration or previous years. The AO treated the excise duty refund receivable as income in the hands of the assessee and made the addition. When the matter went before the CIT(A), the CIT(A), the CIT(A) deleted the addition by observing as under:-
"21 I have carefully considered the above submission of the learned counsel and also the facts of the case. This addition has been made by the AO for the first time in the case of the appellant though this item must have every year appearing in the balance-sheet of the appellant company. This addition has been made for the first time on a very absurd finding stating that "I agree with the AR of the assessee as regards the nature of accounting entry and transaction. Considering the additions made on this ground in the case of other assessee company by this office, the entire amount of excise duty refund receivable for Rs.1,71,50,151/- is treated as income in the hands of the assessee 27 company and added back to the total income of the assessee company". The action of the AO was totally against the provisions of the Act. Firstly, the addition was not warranted at all. When the deposits are made with the Excise Department, the same are not claimed as expenditure in profit and loss account. Therefore, when the amount is refunded to the appellant by the Excise Department, it can not be part of the income. Secondly, the AO has made this addition because such type of additions were made in the cases of Amoli Organics Ltd. and in the case of Umedica Laboratories. Though, such additions were made in the cases of the above companies but it was in the knowledge of the AO that such additions have been deleted by the CIT(A) in the case of both the companies in earlier years. Thus, on the basis of additions made in other cases also cannot hold good. The addition was made by the AO just to create a new issue for raising heavy demand in the case of the appellant company because, now this issue will be repetitive and will be raised in further appeals to the ITAT or to the High Courts. The AO has made a separate basis for repetitive addition.
22 I would like to refer to the finding given by the CIT(A) in the case of Umedica Laboratories Pvt. Ltd. for the AY 2000-01 which is as under:
"Thus, in view of the past history of the case and after going through the appellate orders for the AYs 1996-97, 98-99 and also directions of the Tribunal as spelt out in the order dtd.9.11.2000 for the AY 1996-97, I see no reason as to why the claim of the appellant regarding non- taxability of refund on excise duty should not be accepted. The factual position for the AY 2000-01 in respect of this issue is the same as in the earlier years including the AY 1996-97 and AY 1998-99. For the reasons discussed in my appellate orders for the AY 1996- 97 dtd. 20-10-2002, the addition made of Rs.88,67,803/- in respect of excise refund is held as not taxable for the year under consideration and this addition is accordingly deleted."
23 Following the same finding as referred to above, such additions were also deleted by me in the aforesaid case vide para 4 of the appellate order dtd. 5.4.2004 in Appeal No. CIT(A)/VLS/242/03-04 for the AY 2001-02.
2824 Considering the facts of the case and the finding given in the appellate orders of M/s Umedica Laboratories, I am of the considered opinion that excise refund receivable can not be a part of taxable income. The addition was not warranted and the same is hereby deleted."
28.2 We have carefully considered the rival submissions and, perused the material on record along with the order of the tax authorities below. We have also gone through the orders of the CIT(A) for AYs 1996-97 and 1998-99. For AY 2001-02, in the case of M/s Umedica Laboratories P Ltd., this Tribunal has held that excise refund is not taxable, if the assessee has not debited excise duty in its P&L Account in earlier year We find that the CIT(A) has rightly held that on the basis of additions made in the cases can not hold good. We do not find any illegality or infirmity in the order of the CIT(A). We accordingly uphold the order of the CIT(A). Thus, this ground stands dismissed.
29 Ground No.10 relates to exclusion of Excise Duty and Sales-tax from turnover for deduction u/s 80HHC. After hearing the rival submissions, we find that the issue is duly covered in favour of the assessee by the decision of the Hon'ble Supreme Court in the case of Laxmi Machine Works Ltd. 290 ITR 667 (SC), wherein it has been held that the sales-tax, octroi and excise duty should not form part of the turnover for the purpose of computation of deduction u/s 80HHC of the Act. We accordingly decide the issue in favour of the assessee and against the Department. Thus, this ground taken by the Revenue stands dismissed.
2930 Ground No.11 relates to the inclusion of the following items while calculating the profits of the business for deduction u/s 80HHC:-
1) Exchange Gain Rs.40,33,509/-
2) Cash discount Rs.05,04,556/-
3) Misc. Income Rs.00,51,676/-
The brief facts of the case are that the AO observed that as per clause (baa) of Explanation to section 80HHC 90% of the Export incentive as per section 28([iiia], [iiib] and [iiic] as well as any receipt by way of brokerage, commission, interest, rent, charges or any other receipts of similar nature is required to be excluded for arriving at Profit of the business. The AO held that in view of the detailed discussion held in earlier para in relation to exclusion of "Other Income" the following items are required to be excluded to the extent of 90% for the purpose of calculating the 'profit of business' for deduction u/s 80HHC:
[a] Interest received Rs. 13,37,366/-
[b[ Export benefit Rs.3,05,05,367/-
[c] Gain exchange rate diff. Rs. 40,33,509/-
[d] Misc. Income
Cash Discount (Income) Rs.504556/-
Misc. Income Rs. 51676/-
---------------
Rs. 5,56,232/-
--------------------
Total Rs.4,54,32,473/-
=============
The AO held that out of the above 90% of the export benefit of Rs.3,95,05,367/- is required to be excluded from profit of the 30 business for the purpose of deduction u/s 80HHC, which the assessee company excluded in its return of income. Balance amounting to Rs.59,27,106/- [4,54,32,473 - 3,95,05,367] is to be treated as other income and90% of the same is required to be reduced from the profit of the business for the purpose of deduction u/s 80HHC. The AO observed that the assessee company has excluded only 90% of Rs.19,99,943/- for the purpose of calculation of deduction u/s 80HHC. Hence balance of other income of Rs.39,27,163/- [59,27,106 - 19,99,943] is not related to export business and is required to be excluded in view of the specific mention of the word "charges" in sub clause [baa].
Thus, the AO has excluded 90% of Exchange Gain of Rs.40,33,509/-, Cash Discount of Rs.5,04,556/- and Misc. Income of Rs.51,676/- from the income chargeable under the head "Business" for computing the profit of the business for the purpose of computation of deduction u/s 80HHC. When the matter went before the CIT(A), the CIT(A) directed the AO not to exclude 90% of Exchange Gain of Rs.40,33,509/-, Discount from suppliers of Rs.4,75,924/-, rental income of Rs.28,500/- and Insurance claim of Rs.51,676/- by observing as under:-
"40 The net effect of the above discussion for Ground No.14 and 15 will be that deduction u/s 80HHC on the Export Benefit receivable will be given as per assessment order dated 5-12-2003. 90% of interest income of Rs.6,04,462/- will be reduced from the profit of the business. No part of the exchange gain of Rs.40,33,509/- will be reduced from the profit of the business. Likewise, no part of the discount from suppliers for Rs.4,75,924/-, rental income of Rs.28,500/- and insurance claim of Rs.51,676/- will be reduced from the business income for working out the business profit under Explanation (baa) given below section 80HHC(4B) of the Act. The 31 calculation of deduction u/s 80HHC will be worked out as per the directions given as above."
It may be mentioned that the sum of Rs.5,04,556/- shown as Cash Discount consists of discount from suppliers amounting to Rs.4,75,924/- and rental income of Rs.28,500/- while the Misc. Income of Rs.51,676/- represents the Insurance claim.
31 We have carefully considered the rival submissions and, perused the material on record. This issue, in our opinion, is no more res integra in view of the decision of the Jurisdictional High Court in the case of CIT v Amba Impex [2006] 282 ITR 144 (Guj), in which only Exchange Rate Difference of export realization is held to be the profit from the export business. The learned AR could not point out to us at the time of hearing whether this Exchange Rate Difference relates to the proceeds received within six months from the end of the Financial Year or within the permissible time u/s 80HHC(2). We, therefore, do not find any illegality in the order of the CIT(A) in directing the AO not to exclude 90% of the Exchange Rate Gain from the profits and gains under the head "Income from business" while computing the profit for the purpose of computation of deduction u/s 80HHC. But we restore this issue to the file of the AO only for the purpose of verification whether Exchange Rate Gain received is within six months or permitted period as per the provisions of section 80HHC(2). If this gain represents the consideration received within the permissible period u/s 80HHC(2), the assessee will be entitled for the deduction 32 otherwise the deduction will be limited only in respect of the Exchange Rate Difference received within the permissible time.
32 Coming to the issue relating to the Discount from the suppliers, we noted that the sum of Rs.5,04,556/- consists of two items, Rs.4,75,924/- Discount received from the suppliers and Rs.28,500/- rental income. 90% rental income is to be specifically excluded under Explanation (baa) while computing the profit of the assessee for the purpose of computation of deduction u/s 80HHC from the profits and gains of business or profession and we accordingly confirm the action of the AO of excluding 90% of rental income of Rs.28,500/- from the profit under the head "Income from business" while computing business profit eligible for deduction u/s 80HHC(3) of the Act. The discount received from the suppliers is nothing but discount received by the assessee on the purchase of raw material and is therefore part and parcel of the cost of goods purchased by the assessee and has to be reduced out of the cost o raw material consumed. This in turn will increase the profit from the business. This can not be regarded to be the other receipts of the nature as laid down under Explanation (baa)(i) of the Act. Therefore, we do not find any illegality or infirmity in the order of the CIT(A) in directing the AO not to exclude 90% of such discount while computing the profit of the business for the purpose of computation of deduction u/s 80HHC of the Act.
33 The other Misc. Income of Rs.51,676/- represents the Insurance claim. The Insurance claim has been received by the assessee for the damage of raw material and is therefore 33 inextricably connected with the business of the assessee and liable to reduce the cost of the raw material. This can not be regarded to be the income as described under Explanation (baa), of which 90% has to be excluded while computing the profit of the business for the purpose of computation of deduction u/s 80HHC. We accordingly confirm the direction of the CIT(A) in respect of Misc. Income representing the Insurance claim. Thus, Ground No.11 is partly allowed.
34 Ground No.12 relates to the relief given by the CIT(A) in directing the AO to include the following items in the profit of the business eligible for deduction u/s 80IA:-
Exchange Gain Rs.40,33,509
Cash Discount Rs. 4,75,924
Rental Income Rs. 28,500
Misc. Income Rs. 51,676
The facts relating to this ground that the AO while computing the deduction u/s 80IB excluded these income from the eligible profit along with the other income. When the matter went before the CIT(A), the CIT(A) directed the AO to allow the deduction to the assessee u/s 80IB in respect of these items.
35 We have heard the rival submissions and carefully considered the same. So far as the sum of Rs.40,33,509/- relating to the Gain due to the Exchange Rate Difference is concerned, this gain has arisen due to the realization of the sale proceeds from the foreign buyers, the difference in the Exchange Rate at the time when the assessee has raised the bills and at the time when the assessee has actually received the sale proceeds. The 34 source of this gain is the sale proceeds and is therefore part of the business income derived from the eligible undertaking. It cannot be said that the Exchange Gain so received is not derived from the eligible business of the assessee.
36 So far as the Discount received from the customers is concerned, the discount has been received by the assessee on the purchase of raw material. The assessee has shown this discount as its income separately in the P&L Account otherwise even as per the accounting principle this discount have to be reduced from the raw material consumed. This in turn will increase the business profit of the assessee. The assessee cannot be penalized merely due to the defects of the auditor's accountant who have wrongly credited the discount in the P&L Account separately although it is inextricably connected with the purchase of raw material and integral part of the cost of production. This discount therefore is derived from the eligible business and liable for deduction u/s 80IB.
37 Similar is the situation in respect of Insurance claim. As the assessee has received the Insurance claim on the damage of raw material, the assessee should have credited the Insurance claim so received to the raw material account but the assessee has credited it in a separate account being the Insurance claim receipt, this receipt will also increase the profit derived from the eligible undertaking and is therefore liable for deduction u/s 80IB.
3538 So far as the rental income of Rs.28,500/-is concerned, the immediate source is the eligible business and it can not be said to have been derived from the eligible business and accordingly the assessee will not be entitled for the deduction on the rental income u/s 80IB. We, therefore, direct the AO to allow the deduction u/s 80IB in respect of Exchange Gain Rs.40,33,509/-, Discount from the customers Rs. 4,75,924/- and Insurance claim of Rs.51,676/-. Thus, this ground is partly allowed.
39 Ground Nos.13 and 14 are general in nature and do not require any adjudication.
40 The Cross Objection filed by the assessee is merely supportive in nature and stands dismissed, as such.
41 In the result, both the appeals are partly allowed while the cross objection filed by the assessee is dismissed.
Order pronounced in the open court today on 21-08-2009 Sd/- Sd/-
(T K SHARMA) (P K BANSAL)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date : 21-08-2009
Copy of the order forwarded to :
1. M/s Mitsu Limited, Bilakhia House, Muktanand Marg, Chala, Vapi, Gujarat
2. The Assistant Commissioner of Income-tax, Vapi Circle, 36 Ajith Nagar, Chala, Vapi, District: Valsad, Gujarat
3. CIT concerned
4. CIT(A), Valsad
5. The DR, ITAT, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABA 37