TaxTMI 
TaxTMI 
2026 (5) TMI 1192
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.... "1. Ground No 1- Upward adjustment of INR 8,70,342 in respect of notional interest on outstanding receivable. 1.1. On the facts and in the circumstances of the case and in low, the Hon'ble CIT(A) has erred in confirming the upward adjustment of INR 8,70,362 to the total income of the Appellant proposed by the learned Transfer Pricing Officer (learned "TPO') in respect of notional interest on outstanding receivables from Associated Enterprises ('AES'). 1.2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/learned TPO has erred in not appreciating the fact that outstanding receivable is not an international transaction, per se, under section 92B of the Act but an integral part of the primary transaction of sale of goods to AEs and cannot be seen in isolation. 1.3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT (A) / learned TPO has erred in re-characterizing outstanding receivable as loan financing transactions. 1.4. On the facts and in the circumstances of the case and in law, the Hon'ble CTT(A)/learned TPO has erred in facts and circumstances of the case and in l....
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.... 1.5. On the facts and in the circumstances of the case and in law, the Hon'ble CTT(A)/learned AO has erred in facts and circumstances of the case and in law, in disregarding the fact that working capital adjustment takes into account the impact of outstanding receivables on the profitability and therefore, no further imputation of interest is warranted. 1.6. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/learned AO has erred in not appreciating the fact that charging interest on the outstanding receivables amounts to levying notional income and not real income. 1.7. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/learned AO has erred in not appreciating the fact that the Appellant is a debt free company and hence adjustment of notional interest income is unwarranted. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before hearing of the appeal. All the grounds of appeal stated above are without prejudice to each other." ITA No. 1847/Ahd/2025 (A.Y. 2016-17) "1. Ground No 1- Upward adjustment of INR 52,48,817 i....
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....ated above are without prejudice to each other." ITA No. 1848/Ahd/2025 (A.Y. 2017-18) "1. Ground No 1- Upward adjustment of INR 25,80,516 in respect of notional interest on outstanding receivable. 1.1. On the facts and in the circumstances of the case and in low, the Hon'ble CIT(A) has erred in confirming the upward adjustment of INR 25,80,516 to the total income of the Appellant proposed by the learned Assessing Officer (learned "AO') in respect of notional interest on outstanding receivables from Associated Enterprises ('AES'). 1.2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in not adjudicating the ground of appeal wherein the Appellant contended that the Transfer Pricing adjustment made by the learned AO is without jurisdiction, as the learned AO is not vested with the authority to determine the Arm's Length Price of an international transaction. 1.3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/learned TPO has erred in not appreciating the fact that outstanding receivable is not an international transaction, per se, under section 92B of th....
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....y and other connected transactions. Upon examination of the aging analysis of receivables, the Transfer Pricing Officer observed that receivables arising from export sales and royalty transactions remained outstanding beyond the stipulated credit period allowed to Associated Enterprises. The Transfer Pricing Officer formed a view that excessive delay in realization of sale proceeds effectively amounted to financing arrangement or loan advanced by the assessee to its Associated Enterprises without charging arm's length interest. Accordingly, invoking the provisions of section 92B of the Act read with Explanation inserted by the Finance Act, 2012 with retrospective effect from 01.04.2002, the Transfer Pricing Officer treated delayed receivables as a separate international transaction distinct from the principal transaction of sale of goods. The Transfer Pricing Officer thereafter benchmarked the said transaction independently by adopting LIBOR-based interest rates with additional mark-up towards credit and foreign exchange risks and proposed an upward transfer pricing adjustment of Rs. 8,70,362/- on account of notional interest receivable from Associated Enterprises. The Assessing Of....
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....sive technical documentation, scientific analysis, bio-equivalence studies, product validation reports and compliance procedures, which according to him resulted in creation of valuable commercial and intangible rights. The Assessing Officer was therefore of the view that the expenditure was capital in nature since it conferred enduring business benefit upon the assessee and could not be regarded as routine operational expenditure incurred wholly and exclusively for the purposes of business. Accordingly, the Assessing Officer disallowed the product registration expenditure of Rs. 5,27,000/- claimed by the assessee as revenue expenditure under section 37(1) of the Act. 7. The principal dispute in the assessment proceedings pertained to the deduction claimed by the assessee under section 80-IC of the Act in respect of profits derived from its manufacturing undertaking situated at Baddi, Himachal Pradesh. The assessee had claimed deduction under section 80-IC on the profits disclosed by the said eligible industrial undertaking on the premise that the undertaking was engaged in the manufacture and sale of eligible products and satisfied all statutory conditions prescribed under Chap....
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....ablished brand names enjoying considerable consumer loyalty and market acceptance. According to the Assessing Officer, such brand-driven profitability resulted in substantial premium realization in the market and therefore the profits disclosed by the eligible undertaking were inflated due to intangible assets and commercial rights owned outside the industrial undertaking. The Assessing Officer was therefore of the opinion that allowing deduction under section 80-IC on the entire profits disclosed by the Baddi Unit would effectively result in extending tax incentives not only to manufacturing profits but also to profits attributable to marketing intangibles, brand exploitation and centralized commercial functions carried out outside the notified area. Proceeding on the aforesaid reasoning, the Assessing Officer invoked the underlying principles embedded in sections 80IA(8) and 80IA(10) of the Act and formed a view that the profits of the eligible undertaking required reasonable recomputation so as to exclude profits attributable to non-manufacturing and non-eligible functions. The Assessing Officer observed that where transactions between eligible and noneligible units or business ....
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....ed that the assessee had included scrap income of Rs. 75,39,057/- as part of profits eligible for deduction under Chapter VI-A. During the course of assessment proceedings, the Assessing Officer analyzed the scope of the expression "profits and gains derived from" occurring in section 80-IC and formed a view that the Legislature intended to grant deduction only in respect of profits having direct and immediate nexus with the manufacturing activities carried out by the eligible industrial undertaking. According to the Assessing Officer, although the scrap may have emerged during the course of manufacturing operations, the income generated from sale of scrap could not be regarded as profits directly "derived from" the industrial undertaking inasmuch as such receipts were merely incidental or ancillary to the main manufacturing activity and not the primary operational output of the undertaking. The Assessing Officer was of the view that the expression "derived from" used in section 80-IC has a narrow and restrictive connotation as interpreted by judicial precedents and requires first degree nexus between the income and the manufacturing activity of the eligible undertaking. Proceeding....
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....um Health Care (P.) Ltd. v. Assistant Commissioner of Income-tax wherein it was held that once working capital adjustment is granted under TNMM, separate adjustment on account of delayed receivables is generally unwarranted. The assessee further contended that trade receivables arising during the ordinary course of business cannot automatically be recharacterized as unsecured loans merely because realization exceeded stipulated credit period. It was argued that receivables are intrinsically linked to the principal transaction of sale and therefore separate benchmarking of receivables distorts the aggregation principle recognized under Rule 10A(d) and Rule 10B of the Income-tax Rules. Reliance was also placed upon the judgment of the Delhi High Court in Commissioner of Income-tax v. EKL Appliances Ltd. to contend that transfer pricing provisions do not permit tax authorities to disregard actual commercial transactions and substitute them with hypothetical financing arrangements. 13. The ld. CIT(Appeals), however, after considering the assessment order, Transfer Pricing Officer's findings and submissions of the assessee, upheld the transfer pricing adjustment of Rs. 8,70,362/-. Th....
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.... Court in Commissioner of Income-tax v. Smifs Securities Ltd., the ld. CIT(Appeals) directed the Assessing Officer to allow depreciation on goodwill and accordingly granted relief to the assessee. 15. In relation to product registration expenses, the CIT(Appeals) held that product registration expenditure did not create any transferable capital asset or enduring proprietary right. The ld. CIT(Appeals) observed that such expenditure was recurring in nature and incurred as part of the regulatory framework governing sale of healthcare products. It was further observed that the expenditure merely enabled the assessee to carry on its existing business operations more effectively and therefore constituted allowable business expenditure under section 37(1) of the Act. Relying upon judicial precedents including the decision in Commissioner of Income-tax v. Cadila Healthcare Ltd. and earlier appellate orders in assessee's own case, the ld. CIT(Appeals) held that product registration expenditure was revenue in nature and allowable under section 37(1) of the Act. Accordingly, the disallowance made by the Assessing Officer on account of product registration expenses was deleted. Accordingly....
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....market penetration and consumer goodwill, no material had been brought on record to establish that the eligible undertaking had either paid inadequate consideration for use of brands or that any arrangement existed between eligible and non-eligible units resulting in artificial inflation of profits of the Baddi Unit. The ld. CIT(Appeals) specifically noted that no comparable data, industry analysis, third-party agreements or scientific valuation exercise had been undertaken by the Assessing Officer to justify adoption of notional royalty and brand usage charges at 15% of sales. According to the ld. CIT(Appeals), the percentage adopted by the Assessing Officer was entirely ad hoc, arbitrary and unsupported by empirical evidence. The ld. CIT(Appeals) further analyzed the applicability of sections 80IA(8) and 80IA(10), principles of which had indirectly been invoked by the Assessing Officer while reallocating profits of the eligible undertaking. The ld. CIT(Appeals) observed that these provisions can be invoked only where there exists close connection or arrangement between eligible and noneligible entities resulting in more than ordinary profits to the eligible undertaking. However, ....
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....dology adopted by the Assessing Officer lacked statutory sanction, factual foundation and objective comparability analysis and therefore the recomputation of deduction under section 80-IC was unsustainable in law. Accordingly, the ld. CIT(Appeals) deleted the reduction made by the Assessing Officer and directed that deduction under section 80-IC be allowed on the profits disclosed by the eligible industrial undertaking as claimed by the assessee. 19. On the separate issue relating to scrap income, the assessee contended that scrap generated during manufacturing operations had direct nexus with industrial activity carried out by the eligible undertaking and therefore scrap income formed part of profits derived from industrial undertaking eligible for deduction under section 80-IC. The ld. CIT(Appeals) accepted the contention of the assessee and observed that generation of scrap is an inevitable incident of manufacturing operations and therefore scrap income bears direct and immediate nexus with industrial activity carried out at the Baddi Unit. Accordingly, following settled judicial principles governing the expression "derived from", the ld. CIT(Appeals) directed inclusion of sc....
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....sessment Year 2014-15. 26. We have carefully considered the rival submissions, perused the assessment order, transfer pricing order, appellate findings and the judicial precedents relied upon by the ld. counsel for the assessee. Upon detailed consideration of the issue from the perspective of transfer pricing jurisprudence and the Statutory scheme embodied under Chapter X of the Act, we are of the considered view that the impugned additions are liable to be deleted. 27. At the outset, it is necessary to appreciate the true nature and character of receivables arising from international transactions. Under transfer pricing law, a distinction is required to be maintained between an independent financing transaction and a trade receivable arising in the ordinary course of business from the principal transaction of sale or rendering of services. Receivables are not standalone commercial arrangements divorced from the underlying sale transaction but constitute integral and incidental components thereof. Once the principal international transaction has been benchmarked under TNMM and the tested party's margins are found to be at arm's length vis-à-vis comparable uncontrolled ....
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....arables and therefore any subsequent addition by imputing notional interest on receivables would necessarily lead to duplication of transfer pricing adjustment. The Tribunal in Milacron India Pvt. Ltd. (supra) further held that trade receivables are not standalone financing arrangements but are incidental and intrinsically linked to the principal international transaction of sale or provision of services. Rejecting the Revenue's attempt to artificially segregate receivables from the principal transaction, the Tribunal observed in clear terms: "Outstanding receivables are not independent transactions divorced from the principal transaction of sale. Once working capital adjustment is granted while benchmarking the operating margins under TNMM, the impact of receivables already stands factored into the comparability analysis and therefore separate transfer pricing adjustment by imputing notional interest would amount to duplication." 31. The Tribunal further held: "The purpose of working capital adjustment is precisely to neutralize differences arising from varying credit periods, receivables and payables between the tested party and comparable companies. Therefor....
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.... been accepted to be at arm's length." 35. The aforesaid principle has subsequently been reaffirmed by the Ahmedabad Bench in Assistant Commissioner of Income-tax, Central v. Intas Pharmaceuticals Ltd. 183 taxmann.com 697 (Ahmedabad - Trib.) wherein the Revenue's appeal challenging deletion of adjustment on delayed receivables was dismissed. The Tribunal again reiterated that where working capital adjustment has already been granted and overall margins satisfy arm's length test, separate transfer pricing adjustment on receivables is not warranted. The Tribunal held that receivables arising from trading transactions cannot be viewed in artificial isolation from the principal international transaction itself. 36. We note that the Ahmedabad Bench in Effective Teleservices (P.) Ltd. v. Deputy Commissioner of Income-tax 152 taxmann.com 389 (Ahmedabad - Trib.) approached the issue from another equally important angle, namely, the financial position of the assessee and absence of any actual financing cost. The Tribunal noted that the assessee was a debt-free company operating entirely through own funds and had not incurred any interest expenditure on borrowed capital. In such circum....
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....Delhi Bench of the Tribunal in Orange Business Services India Solutions (P.) Ltd. v. Deputy Commissioner of Income-tax 141 taxmann.com 167 (Delhi - Trib.) wherein it was held that working capital adjustment inherently accounts for differences in receivables, payables and inventory levels between tested party and comparables and therefore separate adjustment on delayed receivables would result in duplication. 44. The Delhi Bench of the Tribunal in Bechtel India Pvt. Ltd. v. Deputy Commissioner of Income-tax ITA No.1478/Del/2015 held that once the tested party's margins under TNMM are accepted to be at arm's length after working capital adjustment, separate addition on delayed receivables is unsustainable. Significantly, the judgment of the Tribunal was affirmed by the Hon'ble Delhi High Court in Principal Commissioner of Income-tax v. Bechtel India Pvt. Ltd. and the Special Leave Petition filed by the Revenue came to be dismissed by the Hon'ble Supreme Court of India in Principal Commissioner of Income-tax v. Bechtel India Pvt. Ltd. The consistent affirmation of the principle across appellate hierarchy significantly fortifies the assessee's contention. 45. We further find meri....
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....f the appeal." ITA No. 1868/Ahd/2025 "(a) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on goodwill amounting to Rs. 2,79,24,41,761/- made by the AO. (b) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of with respect to product registration expense amounting to Rs. 1,84,360/-as a capital expenditure made by AO. (c) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of deduction claimed under section 801C of the Act of Rs. 75,14,32,261/- by restricting the deduction under section 80IC of the Act to Rs. 1,41,24,04,137/- made by the AO. (d) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of deduction under section 80IC in respect of scrap income of Rs. 2,30,52,380/-, made by the AO. (e) The appellant craves leave to add, alter and/or to amend all or any the ground before the final hearing of the appeal." ITA No. 1869/Ahd/2025 "(a) The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on goodwill amounting to Rs. 2,09,43,31,320/- made by the AO. (b) The Ld.C....
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....udicial precedents as well as the orders passed by the Tribunal in assessee's own case. Aggrieved by the relief granted by the ld. CIT(Appeals), the Revenue is in appeal before us. 51. We have carefully considered the rival submissions and perused the material available on record. We have also gone through the orders passed by the Coordinate Bench of the Ahmedabad Tribunal in assessee's own case for Assessment Years 2012-13, 2013-14, 2020-21 and 2022-23 in ITA Nos.1245 to 1248/Ahd/2025 relied upon by the ld. counsel for the assessee. 52. Upon careful consideration of the issue from the perspective of section 32(1)(ii) of the Act and the settled jurisprudence governing depreciation on goodwill arising on amalgamation, we are of the considered view that no infirmity can be found in the order passed by the ld. CIT(Appeals). 53. At the outset, it is important to appreciate the true nature of goodwill arising on amalgamation. In commercial accounting as well as tax jurisprudence, goodwill represents the excess of consideration paid over the net value of identifiable tangible assets and liabilities acquired pursuant to business acquisition or amalgamation. Such excess considerat....
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....quarely covered in favour of the assessee by the decision of the Ahmedabad Bench of the Tribunal in assessee's own case for Assessment Years 2012-13, 2013-14, 2020-21 and 2022-23 in Assessee's Own Case. The Coordinate Bench, after examining the scheme of amalgamation, accounting treatment adopted under pooling of interest method and the ratio laid down by the Hon'ble Supreme Court in Smifs Securities Ltd. (supra), upheld the claim of depreciation on goodwill arising on merger. 59. The Tribunal in assessee's own case specifically observed: "The excess consideration paid on amalgamation represents acquisition of valuable business and commercial rights including distribution network, market reputation, customer relationships and business synergies and therefore falls within the ambit of goodwill eligible for depreciation under section 32(1)(ii) of the Act." 60. The Coordinate Bench further held: "Merely because the amalgamation has been accounted for under the pooling of interest method, the same does not obliterate the existence of goodwill arising on amalgamation for the purpose of section 32(1)(ii) of the Act." 61. The Tribunal further observed: ....
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....ore find no merit in Ground No.1 raised by the Revenue. The same is accordingly dismissed. 67. Since this Ground of Appeal relating to depreciation on goodwill applies to assessment years 2015-16, 2016-17 and 2017-18, as well where the facts are identical, this ground of the Department is dismissed in light of the above observations. We shall now take up Ground No. 2 raised by the Revenue relating to product registration expenses: 68. We shall now take up the next issue arising in the Revenue's appeal relating to deletion of disallowance made by the Assessing Officer in respect of product registration expenses claimed by the assessee as revenue expenditure under section 37(1) of the Act. The Assessing Officer had treated the expenditure incurred towards product registrations, regulatory approvals, technical compliances, licenses and statutory permissions obtained from various healthcare and pharmaceutical regulatory authorities as capital expenditure on the ground that such expenditure resulted in enduring commercial benefit and facilitated long-term exploitation of products in domestic as well as overseas markets. According to the Assessing Officer, the registration proce....
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....nt conduct of existing business operations. 72. In the present case, the expenditure incurred by the assessee towards product registrations and regulatory approvals does not result in acquisition of ownership rights over any new source of income or independent intangible asset capable of being transferred or exploited separately from the business itself. The registrations merely permit the assessee to conduct business in accordance with statutory regulatory requirements imposed by healthcare authorities. Such expenditure therefore remains intrinsically linked to carrying on of business operations and cannot be elevated to the status of capital expenditure merely because regulatory approvals may remain valid for a certain period. 73. We further note that the very same issue now stands squarely covered in favour of the assessee by a consistent line of decisions rendered by the Ahmedabad Bench of the Tribunal in assessee's own case for earlier years. 74. In Assessee's Own Case pertaining to Assessment Years 2008-09 to 2010-11 (ITA Nos. 3098/Ahd/2013, 126/Ahd/2014, 1272/Ahd/2015, 1547/Ahd/2015, 1366/Ahd/2015 & 1780/Ahd/2015), the Coordinate Bench of the Ahmedabad Tribunal exam....
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....ordinate Bench, following the earlier decisions rendered in assessee's own case, upheld the allowability of product registration expenditure as revenue expenditure. The Tribunal observed: "The nature of expenditure incurred towards product registration and regulatory approvals remains identical to earlier years and therefore respectfully following the decisions rendered in assessee's own case, the expenditure is allowable as revenue expenditure under section 37(1) of the Act." 81. The Tribunal further observed: "The expenditure does not result in acquisition of any independent capital asset but merely facilitates the assessee in carrying on its pharmaceutical business in accordance with statutory regulatory requirements." 82. Having regard to the entirety of facts, the settled legal position governing distinction between capital and revenue expenditure and the consistent decisions rendered by the Ahmedabad Bench of the Tribunal in assessee's own case for Assessment Years 2008-09 to 2010-11 in ITA Nos.3098/Ahd/2013, 126/Ahd/2014, 1272/Ahd/2015, 1547/Ahd/2015, 1366/Ahd/2015 & 1780/Ahd/2015, Assessment Year 2011-12 in ITA Nos.1184/Ahd/2018 & 1225/Ahd/2018 and A....
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....14-15, the Assessing Officer reduced the deduction claimed under section 80-IC by attributing such portion of profits towards alleged nonmanufacturing and brand-related functions performed outside the eligible undertaking. 87. The ld. CIT(Appeals), however, deleted the aforesaid disallowance / reduction by following the decisions rendered by the Coordinate Bench of the Ahmedabad Tribunal in assessee's own case for earlier assessment years. Aggrieved by the relief granted by the ld. CIT(Appeals), the Revenue is in appeal before us. 88. We have carefully considered the rival submissions, perused the assessment order, appellate findings and the judicial precedents relied upon by the ld. counsel for the assessee. 89. We have also gone through the orders passed by the Ahmedabad Bench of the Tribunal in assessee's own case for Assessment Years 2008-09 to 2010-11 in ITA Nos.3098/Ahd/2013, 126/Ahd/2014, 1272/Ahd/2015, 1547/Ahd/2015, 1366/Ahd/2015 & 1780/Ahd/2015, for Assessment Year 2011-12 in ITA Nos.1184/Ahd/2018 & 1225/Ahd/2018 and for Assessment Years 2012-13, 2013-14, 2020-21 and 2022-23 in ITA Nos.1245 to 1248/Ahd/2025. Upon careful examination of the issue from the perspect....
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....ted either by statutory provision or by actual commercial arrangement. 93. We further find that the identical issue now stands squarely covered in favour of the assessee by the consistent decisions rendered by the Ahmedabad Bench of the Tribunal in assessee's own case for earlier years. 94. In Assessee's Own Case pertaining to Assessment Years 2008-09 to 2010-11, the Coordinate Bench examined the very same controversy relating to reduction of deduction under section 80-IC by attributing profits towards marketing intangibles and brand functions. The Tribunal categorically rejected the Revenue's approach and held that once manufacturing activity is genuinely carried out by the eligible undertaking and profits arise from sale of products manufactured therein, deduction under section 80-IC cannot be artificially curtailed by imputing hypothetical brand royalty or marketing charges. 95. The Tribunal in the aforesaid decision observed: "The profits derived by the eligible undertaking from manufacture and sale of products cannot be artificially bifurcated by allocating notional brand usage charges in absence of any actual payment or legal obligation for such payment." ....
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.... eligible undertaking by imputing hypothetical brand royalty or marketing charges when no such expenditure has actually been incurred by the eligible unit." 104. The Tribunal further observed: "The profits earned by the Baddi Unit arise directly from manufacturing operations carried out by the eligible industrial undertaking and therefore qualify for deduction under section 80-IC in entirety." 105. We find that the Revenue has not brought any distinguishing feature on record to demonstrate that the factual matrix involved in the present assessment year differs from the earlier years already adjudicated upon by the Coordinate Bench. The principle of consistency therefore strongly supports the assessee's claim. 106. We also find merit in the observation of the Coordinate Bench in earlier years that the Revenue itself had accepted the manufacturing character and eligibility of the Baddi Unit for deduction under section 80-IC of the Act. Once that fundamental position stands accepted, profits derived from sale of products manufactured by such undertaking cannot be artificially diluted merely because the assessee as a corporate entity possesses valuable brands or marke....
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....ts and gains derived from" used in section 80-IC requires existence of direct and immediate nexus between the eligible profits and manufacturing activity carried on by the industrial undertaking. According to the Assessing Officer, although scrap may have arisen during the manufacturing process, the receipts generated from sale of scrap represented merely incidental or ancillary income and not profits directly derived from manufacturing operations. Proceeding on the aforesaid reasoning, the Assessing Officer excluded scrap income from the eligible profits while computing deduction under section 80-IC. 113. The ld. CIT(Appeals), however, deleted the disallowance made by the Assessing Officer by following the decisions rendered by the Coordinate Bench of the Ahmedabad Tribunal in assessee's own case for earlier years. Aggrieved by the relief granted by the ld. CIT(Appeals), the Revenue is in appeal before us. 114. We have carefully considered the rival submissions, perused the assessment order, appellate findings and the judicial precedents relied upon by the ld. counsel for the assessee. We have also gone through the orders passed by the Ahmedabad Bench of the Tribunal in asse....
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....al income directly linked with industrial activity and therefore qualifies for deduction under section 80-IC. 121. The Tribunal specifically observed: "Scrap income generated during the course of manufacture cannot be excluded from eligible profits merely because such receipts arise from sale of residual or by-product material." 122. The Tribunal further held: "The immediate source of scrap income is the manufacturing activity itself and therefore the necessary nexus contemplated under section 80-IC stands fully satisfied." 123. We further note that the identical issue again came up before the Ahmedabad Bench in assessee's own case for Assessment Years 2012-13, 2013-14, 2020-21 and 2022-23 in Assessee's Own Case. The Coordinate Bench, after considering the earlier decisions rendered in assessee's own case, upheld the allowability of deduction under section 80-IC on scrap income generated by the Baddi Unit. 124. The Tribunal observed: "The scrap generated by the eligible undertaking is an inseparable incident of the manufacturing process and therefore income arising from sale thereof forms part of profits derived from the industrial undertaking....
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....period and rate of deduction. 130. The facts emerging from the assessment records show that the assessee company had claimed deduction under section 80-IC in respect of profits derived from its eligible industrial undertaking situated at Baddi. During the course of assessment proceedings, the Assessing Officer observed that the assessee had already availed deduction under section 80-IC in the earlier years at the rate of 100% and therefore, according to him, upon expiry of the first five years, the assessee was entitled only to deduction at the reduced rate of 30% in terms of the then prevailing legal position laid down by the Hon'ble Supreme Court in CIT v. Classic Binding Industries 96 taxmann.com 405 (SC). 131. The Assessing Officer noted that relying upon the aforesaid judgment in Classic Binding Industries (supra), the assessee itself had restricted its claim of deduction during the assessment proceedings to Rs. 55,44,65,939/- being 30% of the profits derived from the eligible undertaking. However, the assessee simultaneously reserved its right to seek deduction at the rate of 100% depending upon the outcome of the review petitions and proceedings pending before the Hon'....
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....he larger Bench of the Hon'ble Supreme Court had itself acknowledged the error in the earlier decision rendered in Classic Binding Industries (supra) and had clarified that there can be more than one "initial assessment year" within the overall ten-year period contemplated under section 80-IC. 136. The Hon'ble Supreme Court in Aarham Softronics (supra) specifically observed: "13. Learned counsel appearing for the assessee's pointed out before us that clause (v) of sub-section (8) of Section 80-IC is the concerned provision which provides definition of 'initial assessment year', for the purpose of this very Section, i.e., Section 80-IC, which was not noticed while pronouncing the judgment in CIT v. Classic Binding Industries [2018] 96 taxmann.com 405/257 Taxman 324 (SC) case. We find substance in this submission of the assessee's. We have no hesitation to accept this mistake which occurred in the aforesaid judgment." 137. The Hon'ble Supreme Court further held: "19. Having examined the scheme in the aforesaid manner, we arrive at the conclusion that the definition of 'initial assessment year' contained in clause (v) of sub-section (8) of Section 80-IC can lea....