TaxTMI 
TaxTMI 
2015 (6) TMI 572
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....he 100% EOU at Hyderabad is exempt u/s l0B of the I.T. Act and the income derived at Baddi is eligible for deduction u/s 80IC of the I.T Act. Separate books of account are maintained for all the units together. The aggregate of the receipts from various units during the previous year amounted to Rs. 26,34,54,758/-. The income before tax of all the units amounted to Rs. 2,81,27,850/-. After adjustments, the gross total income before depreciation and tax amounted to Rs. 4,89,12,109. The assessee claimed deduction u/s 80IC of Rs. 1,63,08,828 and exemption u/s 10B of Rs. 1,05,60,996. The net profit after claiming deduction of depreciation amounted to Rs. 39,15,526. This was admitted in the return of income filed by the assessee. 3. The Assessing Officer converted the case to scrutiny and issued notice u/s 143(2) on 2.8.2010. The assessee submitted all the details before the Assessing officer. The Assessing officer sought for explanations with regard to exemption u/s l0B and deduction u/s 80IC of the I.T. Act. The assessee submitted all such details. The Assessing officer completed the assessment u/s 143(3) on 5.12.2011 determining the total income at Rs. 1,25,38,317. While doing so he....
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.... bank. The sale price is credited based on the rate of exchange at the time of raising the invoice. The amount is received in the foreign exchange as per the invoice and is credited to the bank account of the assessee. The assessee would be paid the Indian currency based on the exchange rate on the date of withdrawal. There may be either a gain or a loss in the process and such gain or loss is to be treated as a pat of the sale consideration of the goods manufactured. Therefore, the amount represents the sale price and is eligible for exemption u/s 10B of the I.T. Act. The said amount also forms part of the export turnover. In this regard the assessee relied on the following decisions. * The decision of the ITAT, Chennai B-Bench in the case of ACIT vs. P.S.Apparels reported in 101 TTJ 29 * The decision of Hon'ble Karnataka High Court in the case of Motor Industries Co.Ltd., vs. CIT reported in 291 ITR 269. * The decision of ITAT, Mumbai-E Bench in the case of Shah Originals vs. ACIT reported in 112 TTJ 754. * The decision of ITAT, Chennai - A-Bench in the case of Changepond Technologies (P) Ltd., vs. ACIT reported in 119TTJ18 * The decision of Hon'ble Supreme Court in the case....
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....r of his option. The exchange fluctuation in the EEFC account arises after the completion of the export activity and does not bear a proximate and direct nexus with the export transaction so as to fall within the expression "derived" by the assessee in sub-section (1) of section 80HHC". In the present case, the assessee has realized a larger amount in terms of Indian rupees as a result of a foreign exchange fluctuation that took place in the course of the export transaction". 6.4 The gains to the appellant arise from deposits made in the EEFC account. On facts, therefore, it is the decision in the case of Shah Originals that is applicable to the appellant and not that of Gem Plus Jewellery India Ltd. These gains are, therefore, held as not derived from the export business and the decision of the AO is upheld on this issue". 9. On appeal before us, assessee raised Ground Nos. 2 & 3 which are as under: "2. The ld CIT (A) erred in holding that the foreign exchange gain derived by the appellant is not eligible for exemption u/s 10B of the I.T. Act. The ld CIT (A) ought to have seen that the said gain is a part of the turnover and is eligible for exemption u/s 10B of the Act. 3. Th....
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....61,844/- also is to be considered as receipt into India particularly in view of the fact that it was adjusted towards the amount due to the said company for purchase of moulds used in the plastic industry. 14. Therefore, before the CIT (A) it was argued that the Assessing officer is not justified in reducing the income attributable to EOU from any of the above mentioned items. 15. The CIT (A) stated that issue relating to deduction u/s 10B pertains to a sum of Rs. 2,61,844 excluded from the export turnover by the AO since the amount was not received in India within the specified time. The CIT (A) observed that the AR has submitted that this sum was adjusted for purchase of rotation drive unit of duck cap from Lubeckert who is the customer of the assessee and the sale proceeds were remitted to the assessee after adjusting this amount. 16. The CIT (A) further stated that Explanation 2(iii) to sec.10B defines 'export turnover' as 'the consideration in respect of export received in or brought into, India in convertible foreign exchange'. The CIT (A) pointed out that The emphasis on the remittance of the foreign exchange into India is understandable in view of the fact that since the....
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.... the Commissioner of Income-Tax (Appeals) to allow the appeal as prayed for. 21. We heard both parties. We are of the opinion that once the income is assessed as business income, the corresponding expenditure is to be reduced and the balance to be excluded for the purpose of 80IC. Hence, we direct the AO to examine the nature of interest and decide this issue after giving an opportunity to the assessee. 22. In the result, appeal in ITA No.1156/Hyd/2013 is partly allowed for statistical purposes. ITA No.1157/Hyd/2013 - AY. 2010-11 (Assessee's Appeal): 1. The first ground is general in nature. The second and third grounds are as follows: "2. The ld CIT (A) erred in confirming the action of the AO in determining the deduction claimed u/s 80IC by the AO". "3. The ld CIT (A) erred in holding that the amount derived by sale of scrap; interest income and other income were not derived by the manufacturing unit and that the same are not eligible for deduction u/s 80IC of the Act". 2. Before the CIT (A) the AR submitted that the customer M/s Hindustan Unilever Ltd supplied the raw material and the required chemicals in drums and corrugated bags etc., to the assessee, that after use of....
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.... the sale price. Therefore, the same is eligible for deduction u/s 80IC of the I.T. Act. 7. The ld Counsel for the Assessee pointed that the AO relied in the decision in the case of CIT vs. Sterling Foods (SC) (237 ITR 579) which is not applicable to the facts of the assessee's case. In the said case, the Apex Court was considering the question whether the profit/gain derived from the sale of import entitlement would be eligible for exemption or not. 8. It was further argued that AO relied on the decision in the case of Liberty India vs. CIT (317 ITR 218). This judgment also is not applicable to the facts of the assessee's case as the said judgment was with regard to the question of allowability of deduction u/s 80IB in respect of profits from DEPB and Duty Draw Back Schemes. 9. It was contended by the ld Counsel that the CIT (A) did not consider the submissions of the assessee and had not distinguished the case of the assessee from that of the cases relied on by the AO. The CIT (A) further did not appreciate that the sale of scraps emanating from the supply of raw materials, has the effect of reduction in the sale price since there was a direct nexus with the manufacturing act....
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....-IB could not be allowed on sale of scrap, job work and labour charges as the same were attributable to the business carried on by the assessee, but not derived from the profits of industrial undertaking. On appeal, the Commissioner (Appeals) allowed deduction under section 80-IB on the scrap sales holding that the scrap generation at various stages of manufacturing process was part of the manufacturing activity of an industrial unit and, thus, profits and gains derived on that account were from the industrial undertaking. However, with regard to the claim of deduction on job work and labour charges, the Commissioner (Appeals) disallowed the appeal of the assessee and held that the job charges and labour charges not derived from the exports, were to be categorized as independent income and had to be deducted from gross profits to calculate profits derived from the exports. On second appeal, the Tribunal allowed deduction under section 80-IB on job work charges and labour charges also holding that job works/labour charges income received by the assessee, by utilizing its plant and machinery installed in the undertaking, gave rise to income which had a direct nexus with the assessee&....
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....mmaterial that the assessee was doing the job of forging also for customers and was charging them on job-work basis or on the basis of labour charges. It would still be qualified as carrying eligible business under section 80-IB. [Para 12] Keeping in view the activities of the assessee in giving heat treatment for which it had earned labour charges and job-work charges, it could, thus, be said that the assessee had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. Those receipts could not be said to be independent income of the manufacturing activities of the undertakings of the assessee and, thus, could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB. Those were gains derived from industrial undertakings and, so, entitled for the purpose of computing deduction under section 80-IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parce....
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....te business activity. There is no gain in the process of sale of moulds and whatever the amount received from the foreign company is towards sale of the products which includes the cost of manufacture and the cost of purchase of the moulds required. Therefore, the Assessing Officer is not justified in excluding the gain on sale of moulds for the purpose of deduction u/s 10B of the I.T. Act. 3. The CIT (A) held as under: "7.3 It is seen from the copies of the invoices that the appellant is correct in its claim that the cost of moulds is not separately billed nor is the payment for it separately made. I therefore, agree with the appellant that the cost of the moulds has become a part of the expenditure of the business and the recovery of its cost from the customers and the resultant profit therefrom is part of the turnover of the export business. The appeal is allowed on this issue". 4. Aggrieved, Revenue is in appeal before us and raised the following grounds: Ground No.2 "The ld CIT (A) erred in law and on fact by holding that sale of assets was export revenue receipt and hence eligible for deduction without appreciating the fact that the sale of assets cannot be eligible for d....
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....s. 7,08,756 Profit on sale of mould Rs. 12,11,433 10. It was pointed out that the above three items are similar to profit on sale of assets and they also represent the cost of moulds, the cost of development of moulds included in the sale consideration. 11. It was further submitted that the assessee would be incurring the expenditure (against the income of Development Charges of Rs. 7,08,756 and gain on mould sale Rs. 12,11,433) under following heads: a) Travelling expenses Rs. 1,44,396/- a) Salary of the personnel involved in mould development Rs. 15,89,082/- b) Cost of samples - freight Rs. 1,87,422/- 12. On considering the expenditure incurred under the above heads; there will not be any profit and the assessee is not carrying on this activity for sake of deriving any profit on the sale of moulds or development expenses, but such activity is taken up to improve the marketing of the plastic products manufactured by the assessee company. 13. The CIT (A) held that from the invoices that the amounts are billed without reference to amortization and development charges whereas in the books of account, the invoice value is recorded after splitting into sales, amortization and d....