TaxTMI 
TaxTMI 
2011 (1) TMI 128
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....m under section 80-IC could not exceed the amount of claim made by the appellant under that section amounting to Rs. 10,79,096; 4. That the confirmation of the order of the assessing officer by the CIT (Appeals) in disallowing a sum of Rs. 1,05,09,877 as against the actual claim of Rs. 10,79,096 is based on misapplication of mind by the CIT (Appeals) and grossly wrong in law and on facts; 5. That the CIT (Appeals) ought to have held that the sum of Rs. 1,05,09,877 has been derived from the business of manufacturing activities and therefore was eligible for computing the claim under section 80-IC of the Income-tax Act; 6. That the reliance by the CIT (Appeals) on the decision of the Hon'ble Supreme Court in the case of Liberty India Ltd. v. CIT is erroneous and in fact, the decision of the Supreme Court should have been interpreted in favour of the assessee; 7. That the ld. CIT (Appeals) has grossly erred in upholding the charging of interest under section 234-B of the Income-tax Act. " 3. The first issue for consideration relates to confirming the addition of Rs. 1,05,09,877 on account of claim under section 80-IC of the I.T. Act, 1961. The facts of the case stated i....
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....ale decreased from normatic level and selling prices reduced when sale increased than the normatic production. Therefore, the standing charges are paid under a mechanism to increase and decrease the selling price to cover the fixed expenses. Hence, the nature of standing charges could be said as part of selling price of the product manufactured to cover the fixed cost incurred by the company while there was drop in normatic production volume. It was also submitted that standing charges were in the nature of reimbursement of fixed cost of production in relation to unit which could not be recovered due to drop in production volume from stipulated normatic level and therefore, the amount received on this account amounts to reduction of expenses and instead of showing in the income side, it could have been credited to respective expenses account, but on the basis of accounting principle and practice it has been shown on the income side in the profit and loss account. Therefore, the assessee was entitled to deduction under section 80-IC of the Act. The AO was, however, of the opinion that standing charges were not on account of sale, but were on account of compensation for less than min....
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....the profit belongs to the category of ancillary profit and not a direct profit from the manufacturing which is envisaged under section 80-IC. In the case under consideration it is an admitted fact that the appellant was receiving standing charges from Hindustan Lever Ltd. which are in the nature of compensation for "idle time" and "conversion cost". Thus, the payment received on account of standing charges by no stretch of imagination can be said to be derived from manufacturing. The AO has given cogent reason for making the disallowance. The Hon'ble Apex court in the case of Liberty India v. CIT (supra) has held that in order to be eligible for deduction under section 80-IA/80-IB, there has to be first degree income which is directly derived from the manufacturing. The ITAT Jodhpur Bench in the case of Income Tax Officer v. VJ Home (P.) Ltd. (supra) has held that any incentive cannot be treated as having been derived from eligible undertaking. The decision in the case of CIT v. Arvind Construstion Ltd. and CIT v. Sportking India Ltd. (supra) cited by the ld. AR are not applicable to the facts of the appellant's case as they were decided on altogether different facts. In view of th....
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..... The contention of the assessee is that standing charges received are in the nature of first degree income and, therefore, in view of decision of Hon'ble Supreme Court in the case of Liberty India (supra) the assessee is eligible for deduction under section 80-IC of the Act. There is no dispute that the assessee is eligible for deduction under section 80-IC. The only dispute is whether the standing charges have been derived from any business referred to in sub-section (2) of section 80-IC. Sub-section (2) applies to any undertaking or enterprise, which has begun to manufacture or produce any article or thing, not being any article or thing specified in thirteenth schedule or which manufactures or produces any article or thing, not being any article or thing specified in the said schedule and undertakes substantial expansion during the period specified in sub-clauses (i), (ii) and (iii) of clause (a) of sub-section (2) of section 80-IC of the Act. Clause (b) of sub-section (2) applies to industrial undertaking or enterprise, which has begun or begins to manufacture or produce any article or thing specified in fourteenth schedule or commences any operation specified in fourteenth sc....