Tax appeal allows deductions for specific incomes under Sections 80IB and 10B. Head office expenses apportioned based on turnover.

The appeal was partly allowed in favor of the assessee regarding deductions under Sections 80IB and 10B. Certain incomes like foreign exchange fluctuation gains were considered eligible for deduction, while others such as interest received were excluded. The apportionment of head office expenses was upheld, with some expenses being reallocated based on turnover. The additional ground for deductions under Sections 10B(7A) and 80IB(12) without recalculating the quantum was dismissed. The decision was pronounced in Open Court on March 31, 2016.

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Issues Involved:
1. Deduction under Section 80IB
2. Deduction under Section 10B
3. Apportionment of Head Office expenses
4. Additional ground regarding calculation of deductions under Sections 10B(7A) and 80IB(12)

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB:
The assessee claimed a deduction of Rs. 8,52,865 under Section 80IB, which was restricted to Rs. 6,089 by the AO. The AO excluded certain incomes such as freight export received, interest received, DEPB received, and foreign exchange fluctuation, stating they were not derived from the industrial undertaking. The CIT(A) upheld this decision, citing the Liberty India and Sterling Foods judgments, which required a direct nexus between the income and the industrial undertaking.

Freight Export Received:
The assessee did not press this part of the ground, and hence, it was dismissed.

Interest Received:
The interest earned on income tax refund, fixed deposits, water charges deposits, delayed collection, and bank guarantee was considered not directly related to the industrial undertaking. The ITAT upheld the CIT(A)'s decision, dismissing this part of the ground.

DEPB Received:
The DEPB received during the course of export was also not considered as derived from the industrial undertaking. The ITAT followed the Bombay High Court's decision in CIT vs. Rachana Udhyog and dismissed this part of the ground.

Foreign Exchange Fluctuation:
The ITAT allowed this part of the ground, citing the Bombay High Court's decision in Rachana Udyog, which held that foreign exchange fluctuation gains are directly related to export activities and hence eligible for deduction under Section 80IB.

2. Deduction under Section 10B:
The assessee claimed a deduction of Rs. 33,52,127 under Section 10B, which was restricted to Rs. 11,13,460 by the AO. The AO excluded incomes such as freight export received, interest received, DEPB received, foreign exchange fluctuation, and miscellaneous income.

Freight Export Received:
The assessee withdrew this part of the ground, and it was dismissed.

Interest Received:
The ITAT dismissed this part of the ground, maintaining that the interest on fixed deposits had no direct nexus with the industrial undertaking.

DEPB Received:
The ITAT allowed this part of the ground, following the Special Bench decision in Maral Overseas Ltd. and the Delhi High Court's approval in Hritnik Export Pvt. Ltd., which held that DEPB is part of business income and eligible for deduction under Section 10B.

Foreign Exchange Fluctuation:
The ITAT allowed this part of the ground, citing the Bombay High Court's decision in Badridas Gauridu (P) Ltd., which held that foreign exchange fluctuation gains are intimately connected to the export business.

Miscellaneous Income:
The ITAT dismissed this part of the ground, stating that there was no evidence to show that the miscellaneous income had any bearing on the business income of the undertaking.

3. Apportionment of Head Office Expenses:
The AO reallocated certain expenses based on the turnover of each unit, which reduced the eligible profit for deductions under Sections 80IB and 10B. The CIT(A) upheld this apportionment.

Director's Remuneration:
The ITAT upheld the apportionment of Director's remuneration based on the turnover of the three units, as Directors are responsible for all units.

Travelling Expenses:
The ITAT held that travelling expenses related to export activities should be allocated to the relevant units. For Unit Vaav, which participated in an exhibition, the allocation was justified, but no allocation was required for Unit G-Three-M, which had no such expenses.

Other Expenses:
The ITAT directed that other expenses such as staff training and recruitment should not be reallocated and should remain debited to the head office.

4. Additional Ground Regarding Calculation of Deductions:
The assessee raised an additional ground claiming that deductions under Sections 10B(7A) and 80IB(12) should be allowed without recalculating the quantum. The ITAT dismissed this ground, stating that these provisions do not mandate granting deductions without considering the merits of the claim.

Conclusion:
The appeal was partly allowed, with certain parts of the grounds being dismissed and others being allowed in favor of the assessee. The order was pronounced in the Open Court on March 31, 2016.

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