2015 (6) TMI 572 - AT - Income Tax

Assessee's Tax Exemption & Deductions Analysis: Key Points and Rulings

M/s. Yodeva Plastics Private Limited And Others Versus Dy. Commissioner of Income Tax, Circle -3 (3), Hyderabad And Others

M/s. Yodeva Plastics Private Limited And Others Versus Dy. Commissioner of Income Tax, Circle -3 (3), Hyderabad And Others - [2015] 41 ITR (Trib) 712 ... Issues Involved:1. Exemption under Section 10B of the Income Tax Act.2. Deduction under Section 80IC of the Income Tax Act.3. Inclusion of foreign exchange gains in eligible profits.4. Adjustment of export turnover for amounts not received in India.5. Inclusion of interest income in the computation of deduction under Section 80IC.6. Eligibility of scrap sales for deduction under Section 80IC.7. Inclusion of profit on sale of assets in export turnover.8. Inclusion of amortization and development charges in export turnover.9. Deduction of freight and insurance charges from export turnover.Detailed Analysis:1. Exemption under Section 10B of the Income Tax Act:The assessee's eligibility for exemption under Section 10B was accepted by the Assessing Officer (AO). However, certain receipts were excluded from the eligible export profit, including sale proceeds not received in India, freight and insurance, amortization income, profit on sale of assets, and development charges. The AO also excluded foreign exchange gains from eligible profits and export turnover, arguing they were not attributable to the manufacturing activity. The CIT (A) upheld the AO's decision, distinguishing the case from CIT v. Gem Plus Jewellery India Ltd., and aligning it with CIT v. Shah Originals.2. Deduction under Section 80IC of the Income Tax Act:The AO reduced the interest on fixed deposits from the eligible income for deduction under Section 80IC, arguing it had no nexus with the manufacturing activity. The CIT (A) was directed to examine the nature of the interest and decide accordingly.3. Inclusion of Foreign Exchange Gains in Eligible Profits:The AO excluded foreign exchange gains from eligible profits, arguing they were not derived from the manufacturing activity. The CIT (A) upheld this decision, distinguishing it from the Gem Plus Jewellery case. However, the ITAT directed the AO to re-examine the issue, allowing the assessee to substantiate its claim.4. Adjustment of Export Turnover for Amounts Not Received in India:The AO reduced the export turnover by Rs. 2,61,844, which was not received in India within the specified time. The CIT (A) upheld this decision, emphasizing the requirement of bringing foreign exchange into India for Section 10B benefits. The ITAT agreed, referencing CIT v. McLeod Russel (India) Ltd.5. Inclusion of Interest Income in the Computation of Deduction under Section 80IC:The AO reduced the interest income from the eligible income for deduction under Section 80IC. The ITAT directed the AO to consider only the net amount of such interest while deducting it from the eligible income.6. Eligibility of Scrap Sales for Deduction under Section 80IC:The AO excluded the sale of scrap from the eligible income for deduction under Section 80IC, arguing it was not derived from the manufacturing activity. The CIT (A) upheld this decision. However, the ITAT allowed the assessee's claim, citing cases that supported the inclusion of scrap sales in eligible income for deduction under Section 80IC.7. Inclusion of Profit on Sale of Assets in Export Turnover:The AO excluded the profit on sale of assets from the eligible export turnover, arguing it was not derived from the manufacturing activity. The CIT (A) reversed this decision, stating the cost of moulds was part of the business expenditure and the recovery of its cost was part of the export turnover. The ITAT upheld the CIT (A)'s decision.8. Inclusion of Amortization and Development Charges in Export Turnover:The AO excluded amortization income and development charges from the eligible export turnover, arguing they were not related to the manufacturing activity. The CIT (A) reversed this decision, stating these amounts were part of the sale price and should be included in the export turnover. The ITAT upheld the CIT (A)'s decision.9. Deduction of Freight and Insurance Charges from Export Turnover:The AO deducted freight and insurance charges from the export turnover for the purpose of Section 10B. The CIT (A) reversed this decision, stating the receipts towards freight and insurance did not form part of the export turnover. The ITAT upheld the CIT (A)'s decision.Conclusion:- Assessee's appeals in ITA No.1156/Hyd/2013 and ITA No.1157/Hyd/2013 were partly allowed and allowed respectively.- Revenue's appeals in ITA No.1234/Hyd/2013 and ITA No.1235/Hyd/2013 were dismissed.Order Pronounced in the Open Court on 17th June, 2015.