Income Tax Appellate Tribunal - Chennai
M/S. Ashok Leyland Ltd.,Chennai vs Dcit, Ncc-8(1), Ltu-Ii,, Chennai on 12 February, 2025
आयकर अपीलीय अिधकरण, 'बी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH: CHENNAI
ी एबी टी. वक , ाियक सद एवं
ी अिमताभ शु ा, लेखासद केसम
BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND
SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER
आयकरअपीलसं./ITA No. 2377/Chny/2024
िनधा रणवष /Assessment Year: 2017-18
M/s. Ashok Leyland Ltd., v. The DCIT,
No.1, Sardar Patel Road, NCC-8(1), LTU-II,
Guindy, Chennai-600 032. Chennai-600 034.
[PAN: AAACA 4651 L]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.R. Vijayaraghavan,
Advocate &
Mr. Vikram Vijayaraghavan,
Advocate
यथ क ओर से /Respondent by : Mr.Nathala Ravi Babu, CIT
सुनवाईक तारीख/Date of Hearing : 04.12.2024
घोषणाक तारीख /Date of Pronouncement : 12.02.2025
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This appeal has been preferred by the assessee-company against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as 'Ld.CIT(A)'), Delhi dated 19.07.2024 for the Assessment Year (hereinafter referred to as 'AY') 2017-18.
2. Ground No.1 raised by the assessee is general in nature, which was therefore not pressed by the Ld. AR and is therefore dismissed. ITA No. 2377/Chny/2024
(AY2017-18) M/s. Ashok Leyland Ltd.
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3. Ground No.2 raised by the assessee is against the disallowance of Rs.88,883/- made by the AO u/s 14A read with Rule 8D. Considering the smallness of the amount involved, the Ld. AR did not press this ground but at the same time requested that it should not be treated as a precedent. Therefore, we dismiss this ground of appeal as the assessee did not press this ground for the relevant year considering the smallness of the amount.
4. Ground No. 3 is against the action of the lower authorities denying the weighted ghted component of deduction claimed in respect of research & development expenditure incurred at the approved in-house in house R&D facility under Section 35(2AB) of the Act, which was not approved by the DSIR in Form 3CL.
4.1 The facts as discernible from records records is that, the assessee had incurred scientific research expenditure, both revenue & capital, at their approved in-house house R&D facility. The assessee had accordingly claimed weighted deduction of Rs.769,77,45,394/-
Rs.769,77,45,394/ being 200% of the expenditure u/s 35(2AB) off the Act, in terms of Form 3CLA issued by the auditor. The AO, in the course of assessment, required the assessee to file Form 3CL issued by the DSIR for the relevant AY 2017-18, 2017 18, which the assessee failed to provide as the DSIR, at that material time, had not yet issued the said Form. The AO accordingly, in absence of Form 3CL, denied the claim for ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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weighted deduction u/s 35(2AB) of the Act, but at the same time, allowed normal deduction @ 100% in terms of Section 35 of the Act. Hence, out of the total deduction ction claimed by the assessee of Rs.769,77,45,394/-, Rs.769,77,45,394/ the AO allowed normal 100% deduction to the extent of Rs.386,88,72,661/-
Rs.386,88,72,661/ and denied weighted component of 100% of Rs.3,86,88,72,661/-.
Rs.3,86,88,72,661/ Being aggrieved by the order of the AO, the assessee carried the matter mat in appeal before the Ld. CIT(A).
4.2 Before the Ld. CIT(A), the assessee firstly brought to his notice that the AO had made certain calculation errors in computing the disallowance which resulted in higher disallowance of Rs.1,99,99,964/-.
Rs.1,99,99,964/ Further, the assessee furnished the Form 3CL, which was issued by the DSIR, wherein the revenue and capital expenditure approved for weighted deduction was quantified at Rs.318,82,79,000/-
Rs.318,82,79,000/ and Rs.42,99,54,000/- respectively. The assessee accordingly prayed that atleast atleast the weighted component for the aforesaid certified amount ought to be allowed u/s 35(2AB) of the Act. After verifying the contents of Form 3CL as well as the calculations, the Ld. CIT(A) agreed with the assessee that there was a calculation error in AO's computation of disallowance and therefore directed deletion to the extent of Rs.1,99,99,964/-.
Rs.1,99,99,964/ . The Ld. CIT(A), further noted that, apart from expenditure aggregating to Rs.23,14,39,967/-, Rs.23,14,39,967/ , other expenses had been certified by DSIR in Form 3CL. Accordingly, the Ld. CIT(A) allowed the weighted deduction u/s 35(2AB) for the amount certified in Form 3CL and ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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restricted the denial of weighted component of deduction to the extent of expenses not approved by DSIR being Rs.23,14,39,967/ Rs.23,14,39,967/-. Being aggrieved by the disallowance llowance retained by the Ld. CIT(A), the assessee is now in appeal before us.
4.3 Having considered the submissions of the assessee,, in light of the findings of the lower authorities, we note that, Section 35(2AB) of the Act, provides that, an assessee shall shall be allowed weighted deduction in relation to expenditure incurred on the in-house in house R&D facility as approved by the prescribed authority, i.e. DSIR. Sub-clause Sub clause (4) of Clause (2AB) of Section 35 provides that, the prescribed authority, i.e. DSIR shall submit sub its report in relation to the approval of the research facility in such form as prescribed. Rule 6(7A)(b) of the Income-tax Income tax Rules,1962 as amended by the IT(10th Amendment) Rules, 2016 applicable with effect from01.07.2016 provides that, that the approval of expenditure under 35(2AB) of the Act shall be subject to the condition that, the prescribed authority, i.e. DSIR, shall submit itsreport in Form 3CL to the PCCIT or CCIT. The relevant Rule is reproducedhereunder:
"(7A) (7A) Approval of expenditure incurred on in-house house research and development facility by a company under sub-section sub section (2AB) of section 35 shall be subject to the following conditions, namely :--
:
(a)The facility should not relate purely to market research, sales promotion, quality control, testing, commercial commercial production, style changes, routine data collection or activities of a like nature;ITA No. 2377/Chny/2024
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(b)The The prescribed authority shall furnish electronically its report,--
report,
(i) in relation to the approval of in-house in house research and development facility in Part A of Form Fo No. 3CL;
(ii) quantifying the expenditure incurred on in-house in house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section sub section (2AB) of section 35 of the Act in Part B of Form No. 3CL;
(ba) The report in Form No. 3CL referred to in clause (b) shall be furnished electronically by the prescribed authority to the Principal Chief Commissioner of Income-tax Income tax or Chief Commissioner of Income-tax Income or Principal Director General of Income-tax Income or Director General of Income-
Income tax having jurisdiction over such company within one hundred and twenty days,--
(i) of the grant of the approval, in a case referred to in sub-clause sub (i) of clause (b);
(ii) of the submission of the audit report, in a case referred referre to in sub-
clause (ii) off clause (b);
(c) The company shall maintain a separate account for each approved facility; which shall hall be audited annually and a report of audit in Form No. 3CLA shall be furnished electronically to the Secretary, Department of Scientific ientific and Industrial Research on or before the due date specified in Explanation 2 to sub-section sub section (1) of section 139 of the Act for furnishing the return of income, i for each succeeding year."
4.4 In light of the above Rule, as introduced by the IT(10t IT(10th Amendment) Rules,2016 applicable with effect from 01.07.2016, the position of law as prevailing in AY 2017-18 is that, furnishing of Form 3CL by DSIR is a pre-requisite requisite to claim the weighted component of deduction u/s 35(2AB) of the Act. The reliance placed ced by the assessee on the decisions rendered by this Tribunal in their own case in earlier AY 2011- 2011 12 is found to be e distinguishable as the AY involved was prior tothe ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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insertion of the aforementioned Rule. Accordingly, due to the change in position of law,, the aforesaid decision is no longer applicable in the relevant AY 2017-18.
18. For the aforesaid reasons therefore, since the expenses to the tune of Rs.23,14,39,697/-
Rs.23,14,39,697/ was not approved by DSIR in Form 3CL, in light of the restriction set out in Rule 6(7A)(b) of the Income-tax tax Rules,1962, Rules,1962, the Ld. CIT(A) had rightly denied weighted deduction u/s 35(2AB) to the extent of Rs.23,14,39,967/--. We therefore see no reason to interfere with the order of Ld. CIT(A) on this aspect and hence confirm the same. This ground therefore stands dismissed.
5. Ground No.4 is regarding the disallowance of deduction claimed u/s 80-IC IC of the Act to the extent of Rs.23,99,06,451/-.
Rs.23,99,06,451/ 5.1 The facts as noted are that, the assessee had claimed deduction of Rs.235,18,59,051/- u/s 80-IC 80 of the e Act, in respect of the profits derived by its eligible unit at Pantnagar. Upon examination of the stand-alone stand accounts of the assessee, the AO noted that the assessee had inter alia apportioned and credited revenue from spare parts and Annual Maintenance Charges ('AMC') revenue including interest and other income aggregating to Rs.229.85 crores to the eligible unit and claimed deduction u/s 80-IC IC in relation thereto. According to the AO, these items of revenues could not be said to have been derived from the operations of the eligible undertaking and therefore held that they were not eligible for ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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deduction u/s 80-IC IC of the Act. The AO, accordingly, re-calculated re the eligible turnover of Pantnagar Unit (after excluding the aforesaid revenues) and worked out the eligible deduction u/s 80--IC at 9.5% of turnover at Rs.211,19,52,600/-.
Rs.211,19,52,600/ . Hence, the AO disallowed the deduction u/s 80-IC IC of the Act to the extent of Rs.23,89,06,451/-.
Rs.23,89,06,451/ . On appeal, the Ld. CIT(A) upheld the order of the AO. Now the assessee is in appeal before us.
5.2 We have heard both the parties and perused the material placed before us. From the order of the lower authorities, it is noted that the following items of income were excluded by the AO while computing the turnover/income of the eligible unit unit and accordingly, the eligible deduction u/s 80-IC IC of the Act was correspondingly reduced.
(i) Revenue from sale of spare parts Rs.126.49 crores
(ii) AMC Charges Rs.35 crores
(iii) Scrap sales Rs.18.5 crores
(iv) Freight recovery Rs.49.8 crores
(v) Interest income from investments Rs.8.13 crores
(vi) Other income (Marketing) Rs.12.47 crores Total Rs.229.85 crores 5.3 We shall deal with each of the above items of revenue separately.
From the facts available before us, it is noted that the assessee is an automotive manufacturer. It had set up a chassis manufacturing unit at Pantnagar. It was brought to our notice that all all the sales of the vehicles ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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manufactured in various units are identifiable by their chassis numbers, which contains an identification of the manufacturing unit. The assessee being a manufacturer of commercial vehicles, is therefore required to provide parts s and spares for smooth functioning of the vehicles sold, for their maintenance and upkeep. These spare parts supplied are quality checked and approved for usage in the vehicles, which comprises of bought out components and also certain manufactured in in-house components. The Ld. AR for the assessee pointed out that the sale of these spare parts to their customers is necessary and intrinsically linked with the sales as the assessee being a manufacturer is required to ensure that their products remain defect free free during their period of warranty and also to facilitate the replacement or removal of the defects through genuine spare parts to be made available during the lifetime of the vehicle. It was submitted that any inappropriate or spurious spare parts would result in damage of the vehicle parts or compromise the vehicle quality, which would resultantly cause consumer dissatisfaction, breach of warranty as well as consumer litigation. It was therefore contended before us that the supply and sale of these spare parts, both manufactured as well as bought out components, were intrinsically linked to the manufacture and sale of its commercial vehicles and therefore, the same was rightly apportioned in the ratio of the total turnover and credited in the stand-alone alone accounts of the eligible unit. The assessee has ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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therefore urged that the lower authorities were unjustified in not considering the aforesaid revenues as a part of the turnover of the eligible unit. The Ld. CIT, DR on the other hand supported the order of the t lower authorities.
5.4 Having considered the facts relating to this issue, it is an undisputed fact that the assessee is engaged in the business of manufacture and supply of commercial vehicles. During the year, the assessee had manufactured and sold 46181 46181 number of vehicles from its eligible Pantnagar Unit, which yielded revenue of Rs.7410.36 crores. Having regard to the nature of the product supplied, it is necessitated for the assessee to supply spare parts to the customers for the upkeep and maintenance ance of these vehicles. This supply is not only required to be made during the period of warranty but it is also required to be ensured by the assessee that these spare parts are readily available for their customers even post completion of the warranty period.
period. Reason being, unless and until the customers are ensured that the necessary genuine spare parts are available, which are inextricably linked to their use of the commercial vehicles, the sale of these vehicles would indeed be severely hampered. We are therefore in agreement with the assessee that they are required to manufacture these parts and also obtain and supply certain bought out components from genuine suppliers (which cannot be manufactured by them) in relation to these commercial vehicles ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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manufactured factured and sold by them. In our considered view therefore, the revenue derived from the sale of spare parts and bought out components in relation to the commercial vehicles sold by the eligible unit, indeed was intrinsically linked to the operations of the the eligible industrial undertaking and was therefore eligible for deduction u/s 80-IC 80 IC of the Act.
5.5 We find that somewhat similar issue was involved in the decision rendered by the Mumbai Bench of this Tribunal in the case of Mihir Engineers Limited vs JCIT J (112 TTJ 940), wherein the revenues derived from sale of bought out components, which were integral to the products manufactured by the assessee, was held to be eligible for deduction u/s 80-IC IC of the Act. The findings rendered in this decision, which are found to be relevant to the present case is as follows:
"27.
27. The issue of purchasing different components, different equipments and spare parts from various concerns and their assembly, fabrication and erection into plant known as ETP was considered at length by Delhi Bench of Tribunal in Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 and after deliberation at length on the facts, decision of Apex Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 4121 and various other judicial pronouncements of various various courts, it was held that the assessee was covered within the definition of manufacturing of an article or thing.
....
It was further held as under :
"In the instant case, the assessee was purchasing different components, different equipments and spare parts from various other parties and were assembling those components, equipments and accessories and thereby they were preparing fabricating and erecting a plant which was known as ETP. The ultimate end product which was prepared as a result of assembling of various components with the constant application of ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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technical know-howhow was the ETP. The ETP was obvi-ously obvi ously distinct and different plant than the various components, equip-
equip ments, purchased or got manufactured according to the tailor made requirement from fr the different suppliers. The activities carried out by the assessee were, therefore, clearly covered within the definition of manufacture of an article or thing.
...
31........The The situs of assembly of end-product end product being client's premises does not disentitle the assessee from its claim of deduction under section 80- 80 IA of the Act in respect of bought out components utilized for the erection of the said cooling towers. There is no merit in the contention of the learned DR that excise duty is paid only on manufactured manufactured items. The levy of Excise Duty is governed by Excise Laws. There is no merit in denial of exemption under section 80-IA 80 IA of the IT Act on bought out items as the same are not subjected to Excise Duty. The assessee prepares two different bills, one for excisable manufactures items and other for bought out components, both of which are utilized for the erection of cooling tower. The assessee raises separate bills for transportation, erection and service charges. The profits on sale of the manufactured itemsems and bought out components are eligible for deduction under section 80-IA 80 of the Act.
32. Thus, after considering the entire relevant material and decisions of the various High Courts and Tribunal, we are of the view that the assessee is entitled to the benefit of deduction under section 80-IA 80 of the Act both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter flow (CM series) cooling towers."
towers.
5.6 Likewise, we find that similar view has been been expressed by this Tribunal at Chandigarh in the case of BNAL Prefab vs Addln. CIT (ITA No. 1273/Chd/2010) dated 27.06.2012 and M/s Spray Engineering Devices Ltd. vs Addln. CIT (ITA No. 1130/Chd/2012) dated 11.06.2013,, wherein on similar facts, it was held hel that the revenues derived from sale of spares and bought out components was eligible for deduction u/s 80-IC 80 IC of the Act. For the foregoing reasons ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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therefore, we hold that, in the present case also, the revenue from spares parts of Rs.126.49 crores was inextricably inextricably linked with the sale of manufactured vehicles and hence is held to be eligible for deduction u/s 80-IC of the Act.
5.7 The next item of revenue is the revenue derived from service/AMC charges amounting to Rs.35 crores. It is the case of the assessee asse that such AMC charges are directly relatable to the business carried on by the assessee of manufacturing commercial vehicles in order to ensure that the vehicles supplied remain defect free and function not only for the committed warranty but also during during the lifetime of the product. The Revenue however has contended that such service charges cannot be said to be derived from the eligible business. Having considered the impugned issue, we find that this identical claim had come up before the Chandigarh Bench of this Tribunal in the case of Spray Engineering Devices Limited (supra) wherein, this Tribunal, following the decision of the Hon'ble Himachal Pradesh High Court, in the assessee's own case has allowed the deduction u/s 80-IC 80 IC on AMC charges received receive by the assessee. The relevant observations of the Tribunal reads as under:-
under:
"52.
52. The assessee has furnished on record communication with certain customers to whom it had supplied the cooling and condensing systems and Annual Maintenance Contract (AMC) of the said systems were to be carried out by the assessee at negotiated terms and conditions. The claim of the assessee was that it was providing AMC to only such cooling and condensing systems, which were manufactured by it and supplied to ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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the customers as the systems provided by the assessee were client based, depending on the size of the sugar mill and type of the existing sugar mill. The total AMC charges received by the assessee during the year were Rs.37,75,423/-.
Rs.37,75,423/ . We find that the Hon'ble Himachal Pradesh Prad High Court in assessee's own case in ITA No.39 of 2006 vide decision dated 7.11.2009 had held that the words 'derived from' in section 80IB of the Act were much narrower in connotation as compared to the words 'attributable to'. It was further laid down down that The Industrial Undertaking would be entitled to claim deductions under Section 80- 80-IB only if it shows that the profit is derived from the business of such Industrial Undertaking. The income should be derived from the operational profits of the business ess and the source of income should be business itself. The Hon'ble High Court after laying down the above said principles held that the assessee was entitled to claim deduction under section 80IB of the Act on MODVAT credit and also erection and commissioning commissioning charges, being directly relatable to the business and the source of the income being business itself. The Hon'ble High Court further held that When the assessee is engaged in the business of manufacture, the work 'manufacture' cannot be read so narrowly narrowly so as to limit the amount only to the price of the goods sold. If the manufacturer is required by the customer to erect and commission the machinery the amount received by it on this count is income derived from the business itself and therefore eligiblee for deduction under Section 80-IB. 80
53. Following the above said parity of reasoning and in view of the factual aspect brought on record by the assessee, we hold that AMC charges received by the assessee are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC of the Act. Ground No.3 raised by the assessee is allowed."
5.8 We further note that, the Hon'ble Hon'ble Bombay High Court in the case of CIT vs International Data Management Limited (261 ITR 177) has also held that, where the assessee derives income from rendering service and maintenance facilities to its clients in relation to the product supplied, then such service charges are entitled to deduction u/s 80-I 80 of the Act.
The relevant observations of the Hon'ble High Court, taken note of by us, is as follows:-
ITA No. 2377/Chny/2024
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"According According to the Assessing Officer, receipts by way of service and maintenance charges have been included in profits derived from manufacturing operations. That these receipts cannot form part of profits derived from industrial undertaking. Therefore, the Assessing Officer excluded receipt of service charges and maintenance charges from the eligible profits.
profits. In this case, the assessee is engaged in the business of manufacture and sale of data processing cards, ribbons and mini micro-based based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribunal Tribu in its orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between the impugned receipts and the the main business activity of the assessee. This is a finding of fact also recorded by the Tribunal. We do not see any reason to interfere with this finding of fact. Accordingly, we answer the question in the affirmative, i.e.,., in favour of the assessee and against the Department." "
5.9 Likewise, we find that the Hon'ble Gauhati High Court also in the case of Torsa Machines Ltd. vs CIT (389 ITR 377),
377), has held that the revenue from service charges is derived from the manufacturing activities of the eligible unitt and thus was entitled for deduction u/s 80-IC 80 of the Act. Respectfully following the decisions cited (supra), we hold that the assessee is entitled to deduction u/s 80-IC 80 IC on the AMC charges.
5.10 In relation to the revenue of Rs.18.50 crores derived from sale of scrap, it was brought to our notice that the foregoing receipts were generated from the operations of the eligible industrial undertaking.
undertaking Understandably, in any manufacturing operation, particularly that of vehicles in the present case, certain scrap materials are generated, which have saleable value. According to us, it would be improper to say that such scrap has no direct link or nexus with the manufacturing operations ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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of the eligible business. According to us therefore, revenue derived from sale of scrap materials is includible while working out the profits of the eligible unit. Our view finds support from the decision of the Hon'ble Calcutta lcutta High Court in the case of Reckitt Benckiser India Ltd Vs ACIT (231 Taxman 585) and Hon'ble Delhi High Court in the case of CIT Vs Sadhu Forgings Ltd (11 taxmann.com 322).
322). Gainful reference may also be made to the following findings rendered by the Hon'ble jurisdictional Madras High Court in the case of Fenner India Ltd Vs ACIT (125 Taxman 386),
386) which are as follows:-
"13. As already stated, in the industrial undertaking in the manufacture of V-Belts, Belts, oil seals, O-Rings O Rings and rubber moulded products, certain ce scrap materials resulted in, which has a saleable value. To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance, especially, on the facts and in the circumstances of the case. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such as V-Belts, Belts, oil seals, O-Rings O Rings and certain rubber moulded products, etc. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are derived from the industrial undertaking undertaking and includible in the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee."
5.11 In view of the above therefore, the AO is directed to include the revenues derived ved from sale of scrap of Rs.18.50 crores while working out the deduction of the eligible Pantnagar Unit u/s 80-IC 80 IC of the Act.
5.12 The next item of revenue is the recovery of the freight charges from the customers which was incurred on their behalf amounting to Rs. 49.8 ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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crores. It was brought to our notice that, the assessee incurs freight cost in the course of manufacture and sale of its commercial vehicles, which is recovered from the customers. The Ld. AR showed us that the freight costs was debited in the standalone accounts of the eligible unit at Pantnagar and therefore, the recovery of such freight cost from the customers which was shown by way of separate credit in the standalone accounts, effectively went on to reduce the overall freight cost of the eligible unit. According to the Ld. AR, only because the freight recoveries have been shown on the credit side of the standalone accounts, accounts, cannot be reason to hold that it was not intrinsically linked to the eligible business. On the other hand, the Ld. CIT, DR argued that the recoveries of freight cost did not arise from the manufacturing operations of the eligible unit and therefore e cannot be said to be 'derived' from the eligible business. 5.13 Having considered the rival submissions, we are in agreement with the Ld. AR that the freight recovered by the assessee was towards the freight cost incurred in the course of manufacture and an supply of commercial vehicles, which had already been debited to the standalone accounts of the eligible unit. Accordingly, the freight recoveries in a way has reduced its overall burden of freight cost. Hence, in that view of the matter, it would be imprudent imprudent to hold that the freight cost is relatable to the operations of the eligible business and is therefore required to be deducted while computing the eligible profits, but at the same time, the ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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freight recoveries cannot be treated as part of the same eligible eligible business.
In this regard, we find that the decision of this Tribunal at Chandigarh in the case of ACIT vs Nalagarh Steel Rolling Mill Pvt. Ltd. (ITA No. 93/Chd/2013) dated 02.08.2013 to be squarely applicable to the facts of the present case wherein, wherein, the recovery of freight cost was held to be relatable to the eligible business and therefore considered for the purposes of computing deduction u/s 80-IC 80 IC of the Act. The relevant findings of this Tribunal read as under:-
under:
"7.
7. After considering the rival submissions, we find that this issue has been adjudicated by Ld. CIT(A) in para 3.2, which is as under:-
under:
3.2 I have considered the submission of the Ld. Counsel. The freight charges shown by the appellant as income are, in fact, freight reimbursement against against which expenses have been debited to the profit and loss account. Freights are in relation to the purchase of raw materials and sale of finished goods and it is seen the fright charges are included in the sale bill. Only because the reimbursement have beenbeen shown on the credit side of the profit and loss account, it does not alter the nature of transactions. The net effect of freight charges being expenditure, disallowance u/s 80IC of the Act should not have been made. Hence, the disallowance of deduction u/s 80IC of the Act on freight charges is deleted.
8. The above clearly shows that freight has been earned on account of carriage of finished goods and raw material and freight has been received form customers. However, this is in the nature of reimbursement nt if the total expenditure on truck is considered which has already been debited to profit and loss account. If such expenditure is considered, then there is no income on account of freight. When the truck expenses are debited to profit and loss they lead to decrease in profits, therefore, freight charges would compensate such decrease.
Accordingly in our onion, the Ld. CIT(A) has correctly adjudicated the issue."
ITA No. 2377/Chny/2024
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5.14 Gainful reference in this regard may also be made to the decision of the Hon'ble Supreme Court in the case of CIT vs Meghalaya Steels Limited (238 taxman 559)wherein,
559)wherein, the freight subsidy received from the Government, which were essentially reimbursements towards t the freight costs incurred at the industrially backward districts, was held to be directly linked to the eligible business and hence allowed as deduction u/s 80-IC IC of the Act. In our considered view, the ratio decidendi laid down in this judgment qua a the freight subsidy would apply with equal force to the recovery of freight costs by the assessee from its customers, in the present case. Accordingly, the AO is directed to consider the freight cost recoveries of Rs.49.80 crores for the purposes of computing computing deduction u/s 80-IC of the Act.
5.15 Now on the issue as to whether the interest income of Rs.8.13 crores is includable or not for computing deduction u/s 80-IC 80 of the Act, we find that the action of lower authorities is squarely supported by the decision of the he Hon'ble jurisdictional Madras High Court in the case of Fenner (India) Ltd (supra) wherein it was held as under:
"14. The other part of the question is relatable to the interest earned by the industrial undertaking. This sort of a question arose ar for consideration in the case of CIT v. Pandian Chemicals Ltd. [1998] 147 CTR (Mad) 5: (1996) 10 MTCR 531 : TC S25.2556. The question relatable to the interest raised therein figured as question no. 3 and it runs as under:
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on deposit with the Tamil Nadu ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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Electricity Board should be treated as income derived from an industrial undertaking for the purpose of relief under s. 80HH?
15. The question so raised had been discussed in paras.7 to 15 therein by a Division Bench of this Court, which ultimately held that the Tribunal has committed an error of law holding that the interest earned on the deposit with the Tamil Nadu Electricity Board by the assessee assessee should be treated as income derived from industrial undertaking for the purpose of relief under s. 80HH of IT Act.
16. This decision, being that of a Division Bench of this Court, is binding on us and in this view of the matter, there is no other go for us, except to conclude that the interest earned by the industrial undertaking cannot at all be eligible to be included in the gross total income for claiming deduction of an amount equal to twenty per cent in the process of computation of the profits and and gains of the said industrial undertaking and this part of the question is, therefore, answered against the assessee."
5.16 Following the above, we find no infirmity in the order of the learned CIT(A) confirming the AO's action of excluding the interest income of Rs.8.13 crores, while computing the deduction u/s 80-IC 80 IC of the Act.
Act 5.17 With regard to other income of Rs.12.47 crores, the Ld. AR for the assessee submitted that this comprised of income earned from marketing which was apportioned, similar to marketing costs debited in the stand-
stand alone accounts, on the basis of matching concept of accounting. However, no specific details in this regard demonstrating as to how this income was intrinsically connected with the operations of eligible unit was brought brough before us or that it had a direct bearing on the marketing costs incurred by the eligible unit. In our considered view, this particular stream of marketing income was an independent source of income beyond the first- degree nexus between profits and the industrial industrial undertaking and ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd.
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therefore, the AO had rightly excluded the same while working out the eligible deduction u/s 80IC of the Act.
5.18 In light of the above findings therefore, the AO is accordingly directed to re-compute compute the turnover of the eligible eligible unit for working out the deduction u/s 80-IC IC after including the revenues derived from sale of spares of Rs.126.49 crores, AMC charges of Rs.35 crores, sale of scrap of Rs.18.5 and freight recovery of Rs.49.8 crores. The other items of income viz., interest erest income of Rs.8.13 crores and other marketing income of Rs.12.47 crores shall not be considered for the purposes of Section 80-IC. 80
With these directions, the AO is directed to accordingly re-
re-work and allow the deduction u/s 80-IC IC of the Act. Needless to say, the AO shall afford an opportunity of hearing to the assessee before finalizing the computation of deduction u/s 80-IC IC and shall pass a speaking order in this regard. Hence, this ground stands partly allowed.
6. In the result, the appeal of the assessee assessee is partly allowed.
Order pronounced on the 12th day of February, 2025,, in Chennai.
Sd/- Sd/
Sd/-
(अिमताभ शु
ा) (एबी टी.. वक )
(AMITABH SHUKLA) (ABY
ABY T. VARKEY)
VARKEY
लेखासद य/ACCOUNTANT MEMBER याियकसद य/JUDICIAL MEMBER
ITA No. 2377/Chny/2024
(AY2017-18)
M/s. Ashok Leyland Ltd.
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चे ई/Chennai,
दनांक/Dated: 12th February,
February 2025.
TLN, Sr.PS
आदेश क ितिलिप अ ेिषत/Copy
Copy to:
to
1. अपीलाथ /Appellant
2. थ /Respondent
3. आयकरआयु /CIT,, Chennai / Madurai / Salem / Coimbatore.
4. िवभागीय ितिनिध/DR
5. गाडफाईल/GF