TaxTMI 
TaxTMI 
2015 (6) TMI 600
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....peal ITA 988/Ahd/2009 2. The Revenue raises 5 substantive grounds in its appeal. Its first grievance challenges the CIT(A) order allowing u/s.80IB deduction of Rs. 3,82,20,953/- without considering the fact that the assessee failed to obtain a factory license to run its unit on or before the cut off date 31.03.2004, i.e., u/s. 80IB(4) of the Act. 3. The assessee-company manufactures pot flasks in its units situated at Dadra and Bhayender. It filed return on 31.10.2005 declaring total income of Rs. 1,28,67,263/-. The Assessing Officer took up 'scrutiny'. He inter alia noticed the assessee's claim of section 80IB deduction for its Dadar unit. There is no dispute that its manufacturing activity commenced in August, 2003. Much before 31st of March, 2004. It applied for factory license on 9.2.2006. The Assessing Officer observed in assessment order dated 31.12.2007 that the assessee had neither applied nor obtained a valid factory license before commencing its manufacturing. He was of the view that its manufacturing was not lawful as per Section 80IB(4) in the relevant accounting period from 1.4.2004 to 31.3.2005. Assessee's pleadings claiming liberal interpretation of the deduction ....
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....e against the Revenue. There is no distinction on facts or law being pointed out. We affirm the CIT(A) findings in these circumstances. The Revenue's corresponding ground stands rejected. 7. The Revenue's third substantive ground challenges the CIT(A) order holding that exchange rate difference of Rs. 21,81,641/- is includible in the profits eligible for deduction u/s.80IB without allegedly considering the fact that it has not been derived from the manufacturing activity of the undertaking. A coordinate bench in assessee's case (supra) holds that foreign exchange rate fluctuation gains bear the character of income derived from export sales to be treated as part and parcel of export profits only. No distinction on facts or law is being pointed out at the Revenue's behest so as to adopt different approach in the impugned assessment year. We affirm the CIT(A) findings. The Revenue's ground is rejected. 8. The Revenue's fourth ground assails the CIT(A) order granting relief to the assessee with regard to exclusion of scrap income of Rs. 13,25,610 from the profit eligible for deduction u/s.80IB of the Act without considering the ratio laid down by the Hon'ble M.P. High Court in the ca....
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....-à-vis its first substantive ground by filing a petition dated 24.2.2015 reading as under: "In regard to the captioned appeal proceedings before your honours, we would like to humbly request to permit us to raise the following additional ground before your honour as under. 1. On appreciation of the facts and circumstances of the case and without prejudice to other grounds of appeal, the notional income by way of DEPB credits, DFRC receipts or other export incentives credited in the Profit and Loss Account be not considered as income liable for tax during the year in accordance with the decision of the Hon'ble Supreme Court in the case of CIT vs. Excel Industries Ltd. reported in 38 Taxman.com 100 (SC). 2. On appreciation of the facts and circumstances of the case and without prejudice to other grounds of appeal, the exclusion of DEPB credits, DFRC receipts or other export incentives for the purpose of calculating the profits eligible for deduction u/s.80IB of the Act shall be restricted to the net benefit after netting out the cost of obtaining the said benefit as specified and observed by the hon'ble Supreme Court in the case of Topman Exports vs. CIT (342 ITR 49)" T....
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....ose of granting section 80IB deduction. We feel that this issue requires re-examination in Assessing Officer's hands. We order accordingly. The issue shall now be adjudicated as per the assessee's books and other details. The corresponding ground is allowed for statistical purpose. 15. The assessee's third substantive ground raises issue of trading sales of Rs. 85,063/- excluded for the purpose of computing eligible profits relevant for section 80IB deduction. It does not press for the same in the course of hearing. We reject this ground accordingly for non prosecution. 16. This leaves us with the assessee's last ground regarding excess production of refills amounting to Rs. 8,90,590/-. The Assessing Officer as well as the CIT(A) hold this sum as its profits not eligible for section 80IB deduction. 17. The Assessing Officer sought for assessee's quantitative details of raw materials and finished goods. He noticed consumption of 59706 refills for manufacturing 65848 units of pot flasks (assessee's manufactured product). This resulted in a difference of 6142 refills. The assessee pleaded against bottom line matching of raw material and finished goods in question. It attributed thi....
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....ar. Hence the difference of FG manufactured and RM issued was on account of the available opening material in hand in the form of Work In progress / semi finished goods. However the AO was of the view that the WIP statement submitted by the appellant was not specific and only mentioned 'Pot Flask' and the capacity of the pot flask as to whether it was 1000ml or 500 ml was not mentioned in the statement. Thus according to the AO the, appellant must have got these excess pot flasks 1000 ml 6142 units as finished product. The AO observed that the explanation given by the appellant was only about WIP and could not be substantiated. In reality the said product was produced on an assembly line, therefore once raw materials were put in injection molding machine; the subsequent steps were on a continuous assembly line. The AO also observed that the time required for all steps was very short and all these steps had to be performed when it was hot and therefore, there was no possibility of WIP. The AO further observed that the appellant had no capacity to produce the raw materials like Pot Flask 1000 ml Refill. Thus according to the AO the sale of raw materials was a trading acti....
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....ng any evidence on record. The assessee is already a manufacturer otherwise entitled for section 80IB deduction. That being the case, we see no reason to agree with lower authorities treating it as a trader in sale of refills in question. Therefore, we accept assessee's relevant ground and hold it to have manufactured the refills entitled for section 80IB deduction qua this sum of Rs. 8,90,590/-. The assessee succeeds in the corresponding ground. The assessee's appeal ITA 1143/Ahd/2009 is partly allowed. Assessment year 2006-07 Revenue's appeal ITA 942/Ahd/2010 20. The Revenue raises following substantive grounds: 1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing deduction u/s.80IB of the IT Act not granted on the basis of not having factory license for the particular year. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the income of sale of scrap of Rs. 17,73,316/- from the profit eligible for deduction u/s.80IB. 3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the software expenses to the tune of Rs. 8,89,125/- treating it as revenue ....
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....come Tax (Learned Assessing Officer) and confirmed by the learned CIT(A) are contrary to law and based on erroneous understanding of the facts. Interest Income 11,91,876 Export incentives 39,88,113 Exchange Rate Difference 1,467" It has filed additional/alternative grounds in tune with those decided in preceding assessment year 2005-06 hereinabove. There is no change in facts and circumstances. Therefore, we follow our said findings in the impugned assessment year as well and accept the assessee's additional/alternative grounds for statistical purposes. These two alternative/additional issues are remitted back to the Assessing Officer for fresh decision as per law in view of the hon'ble apex court decisions rendered in Excel Industries and Topman Export (supra). 25. Now we come to the issue of exchange rate difference of Rs. 1,467/- held as profit not eligible for section 80IB deduction by the lower authorities. The assessee does not press for the same keeping in mind the smallness of the amount involved. We affirm the CIT(A) findings with a rider that the same shall not be treated as a precedent against the assessee. The relevant ground is rejected. Assessee's ap....
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....year 2005-06 remit these issues back to Assessing Officer for afresh adjudication as per law in view of the hon'ble apex court's decisions in Excel Industries and Topman Exports (supra). The assessee's main grounds fail and additional/alternative grounds are allowed for statistical purposes accordingly. The assessee' appeal ITA 3336/Ahd/2010 is partly allowed for statistical purposes. Assessment year 2008-09 Revenue's appeal ITA 2678/Ahd/2011 28. The Revenue's substantive pleadings read as follows: "1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in allowing the claim of deduction u/s.80IB amounting to Rs. 4,93,10,032/- without considering the facts that assessee did not had factory license as on 31.03.2004, the cutoff date for starting the industrial undertaking u/s.80IB(4) of the IT Act, 1961. 2 On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in holding that the income from exchange rate difference of Rs. 11,70,181/- is eligible for deduction u/s.80IB, without considering fact that it has not direct or immediate nexus with the manufacturing activity of the assessee. 3. On the facts and circumstances of t....
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....in confirming the action of the ld. Assessing Officer in excluding the following items of income from the profit eligible for deduction u/s.80IB Other Misc. Income 22,090 Sundry Balance Written Back 6,764" The assessee does not press for its ground no.2 being general in nature. 29. Relevant facts qua ground no.3 are that the assessee had claimed section 80IC deduction of Rs. 1,70,91,825/- in respect of its Haridwar Unit. It had also incurred a loss of Rs. 1,10,79,284/- in preceding assessment year absorbed against other incomes. The Assessing Officer in assessment order dated 23.12.2010 quoted section 80IA(5) of the Act and disallowed its claim by holding that the aforesaid losses had to be notionally brought forward and set off against the deduction profits in the impugned assessment year as well. As per case law ACIT Ahmedabad vs. Goldmine Shares and Finance Pvt. Ltd. 113 ITD 229 (SB) was also referred. 30. The CIT(A) has affirmed the Assessing Officers findings as under: "6-3 DECISION :- I have considered carefully the observations of the AO in the assessment order as well as the contentions raised by the AR of the appellant. The moot question is that whether the b/f ....
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....f other unit cannot be made. The findings of the AO was also supported by the decision of Honorable ITAT Ahmedabad Special bench in the ease of ACIT V/s. Goldmine Shares & Finance (P) Ltd. 113 ITR 229. As regards the observation of the AO that that notional losses of earlier years has to be deducted from the current year's profit eligible for deduction U/s. 801C of the Act. In view of the above, 1 am not inclined to interfere in the findings of the AO. Thus, the addition made by the AO in this ground is confirmed. Accordingly, this ground of appeal is dismissed." We have heard both sides. Orders of the lower authorities have also been perused. There is no dispute about the factual position narrated in the preceding paragraphs. The authorities below rely on section 80IA(5) and hold that assessee's losses pertaining to preceding assessment year already set off have to be notionally brought forward to be set off once again against the profit of the Haridwar Unit in question. We find that hon'ble Madras high court in Velayudhasamy Spinning Mills Case 340 ITR 477 holds that such losses cannot be notionally brought forward for being set off against eligible profits. This overr....