TaxTMI 
TaxTMI 
2026 (10) TMI 337
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....ed in upholding the reduction of the eligible profits of the Baddi Unit by INR 87,22,463 (comprising of insurance claim INR 13,62,038; penalty on vendors INR 5,13,538; provision for doubtful debts INR 47,30,545; provision for advance to sundry creditors INR 21,16,342), and consequently restricting the deduction under Section 80-IC to INR 1,34,29,388 as against the claim of INR 1,60,46,127. Ground 3- On facts and circumstances of the case and in law, the Ld. CIT(A) erred in treating insurance claim and loading/ unloading recovery which are pure pass-through reimbursements recovered from customers in the ordinary course of eligible manufacturing operations as "not derived from" the eligible undertaking, and in excluding the same from eligible profits. Ground 4 - On facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that "Penalty on vendors/ customers" represented operational recoveries on account of delayed/ defective supplies intimately connected with the procurement and production cycle of the eligible unit and hence form part of business profits "derived from" the undertaking. Ground 5 - On facts and circumstances of the ....
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....nd without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforementioned grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Ld. AO." 2. Rival submissions of both the parties have been heard and record perused. Ground No. 1 is general. Ground No. 2 to 8 relates exclusion of certain receipts from profit of eligible business receipts. The learned authorised representative (ld. AR) of the assessee submits that assessee is a Private Limited Company and engaged in the manufacturing of Cleanroom partitions doors, Cleanroom equipment and fire-rated doors. The assessee has its manufacturing unit at Baddi in Himachal Pradesh, which is eligible undertaking for claiming benefit of deduction under section 80IC. Assessment year (AY) 2014-15 is the 7th year of claim under section 80IC. The assessee, while filing return of income claim deduction under section 80IC of eligible unit at Rs. 4.47 crore, 30% of which was Rs. 1.60 crore. The assessing officer (A) while passing the assessment order disallowed certain items of eligible income which includes of insurance claim of Rs.13....
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....aken. The insurance claims and transit insurance claimed from the customers as per term of purchase order. Further, the vender's penalty comprises charged to A.K Creative Outsourcing Service Private Limited for wrong work and performed at the site and the balance represent cheque bouncing/ recovery charges from the scrap vendor. The Hon'ble Supreme Court in Plasticblends India Private Limited (supra) and in Meghalaya Steel Limited (1999) 383 ITR 217 (SC) held that where receipt reimburses or reduced operational cost connected with the manufacture or sale such receipt is to be included in the eligible profit. In case of assessee the insurance reimbursement is not an independent or incidental receipt. It is a transit insurance reimbursement charged on the supply value under purchase order terms for supplies of the Baddi Unit. Transit insurance is a part of manufacturing and supply chain by which cleanroom partition and doors manufactured at Baddi Unit. Similarly, vender's penalty /recoveries are not received from external sources. They arose from wrong work performed at site, fault performance of obligation, incorrect material, late delivery, cheque bouncing and recovery charges conn....
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....es. We find that Ground No.1 is general and needs no adjudication and is dismissed. Ground No. 2 to 8 relates to exclusions of various receipts from the income of eligible business. We find that before us, the assessee has claimed benefits of four receipts, which includes Insurance receipts, penalty on vendors, provisions for doubtful debts and provision for advance to sundry creditors. The AO disallowed the claim of assessee that similar receipts were not included in the eligible profit of section 80IC in earlier years. The ld CIT(A) confirmed the action of AO. We find that the assessee claimed that Insurance claim represents transit insurance claimed from the customers as per purchase order. We find that such proceeds are received against the loss or damage of operational assets and directly related with the manufacturing process, which is eligible for Section 80-IC deduction, as has been held in the landmark decision of Supreme Court in CIT v. Meghalaya Steels Ltd. (Supra), that operational subsidies (including insurance, power, interest, and transport subsidies) serve to reimburse the cost of manufacturing/selling. Thus, they directly reduce manufacturing costs and form part of....