ACIT Vs Gujarat Ambuja Exports Ltd. (ITAT Ahmedabad)
The ld.counsel for the assessee at the very outset submitted that as far as amounts mentioned under the head interest on NSC and interest on staff loan is concerned they are not in dispute. The deduction claimed under section 80IC with regard to both these items have not been granted by the ld.CIT(A), and the assessee is not challenging the finding of the ld.CIT(A). The Revenue is challenging the grant of deduction with regard to income earned on interest on electricity deposits, recovery from transporters and sundry balance of vendors written off. He submitted that issue in dispute is squarely covered by the decision of Hon’ble Supreme Court in the case of CIT Vs. Meghalaya Steel Ltd., 383 ITR 217 (SC). He further relied upon the judgment of Hon’ble Madras High Court in the case of CIT Vs. Seshasayee Papers & Board Ltd., 243 ITR 0421 (Mad) which has been considered by the ld.CIT(A) in the finding extracted (supra). On the strength of these decisions, he submitted that the ld.CIT(A) has rightly granted deduction to the assessee. On the other hand, the stand of the Revenue is that the income under these heads was not earned by the assessee directly from the manufacturing process, and therefore, they deserves to be excluded.
We have duly considered rival submissions and gone through the record carefully. There is no dispute with regard to the proposition that deduction under section 80IC is admissible where the gross total income of an assessee includes any profit and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2) of section 80IC of the Act; sub-section (2) further contemplates that this section applies to an undertaking or enterprise which has begun or begins to manufacture or produce any article or things. There is no dispute that the assessee has begun to manufacture any article or thing. The question whether the alleged income sub-divided by the AO has nexus with the manufacturing activity or not. As far as interest income on fixed deposits made with electricity department is concerned, it has direct nexus with the manufacturing activity. Unless an electricity connection is there, no manufacturing activity would commence and for taking electricity connection, it is mandatory to give deposits. Similarly, the assessee had made recoveries from transporters on account of loss of material on transit. Therefore, it has a direct nexus with the manufacturing process. The goods manufactured or raw-materials purchased by it were lost in transit, which were compensated by the transporter. It has a direct nexus. Similarly, if the assessee get certain discount from the supplier, then it would reduce the purchase price of the material, which will enhance the profit, and therefore, deduction on such higher profit will be admissible. The ld.CIT(A) has rightly appreciated this aspect and granted the deduction to the assessee. We do not find any error in the order of the ld.CIT(A), and therefore, this ground of appeal is rejected in both the years.
On going through the above, it is abundantly clear that the basis on which the Ld. CIT(A) had allowed the assessee’s claim of deduction u/s. 80IC in relation to income being Interest on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off, being the order of the Ld. CIT(A) for Assessment Year 2012-13 & 2013-14,the same has been upheld by the ITAT. We have noted that the ITAT with respect to the very same nature of incomes as in the impugned order had held that such incomes has affirmed the findings of the Ld.CIT(A) that they are derived from the manufacturing activity and therefore were eligible to claim deduction of profits earned thereon u/s. 80IC of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The present appeal has been filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad, (in short referred to as CIT(A), dated 28-04-2017, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2014-15.
2. At the outset itself, it was pointed out by the Ld. Counsel for the assessee that the Ld. CIT(A) had granted relief to the assessee following the order of the Ld. CIT(A) in the case of the assessee for assessment years 2012-13 & 2013-14 which order he pointed out stood confirmed by the ITAT in its order in ITA No. 3233/Ahd/2015 and ITA No. 2037/Ahd/2016 dated 23.08.2019 for assessment year 2012-13 and 2013-14 respectively. Copy of the said order was placed before us.
Having noted the same, we shall now proceed to adjudicate the issues raised by the Revenue before us. Ground No. 1 reads as under:
1. The Ld. CIT(A) has erred in law and on facts in restricting the disallowance 80IC to Rs. 49,110/- without properly appreciating the facts of the case and the material brought on record.
3. As emanates from the order of the authorities below, the grievance of the revenue in this ground relates to the allowance of claim of deduction u/s. 80IC by the Ld. CIT(A) on incomes pertaining to Interest on Electricity Deposit, Recovery from Transporters and Sundry Balances of Vendors written off, which had been denied by the Assessing Officer (A.O.) holding that they were not in the nature of incomes derived from the business of the assessee for the purposes of being eligible to claim deduction of profits thereon. The quantum in relation to the said incomes is as under:
(a) Interest on Electricity Deposit 16,18,184/-
(b) Recovery from Transporters 11,37,585/-
(c) Sundry Balances of Vendors written off 22,28,062/-
4. As pointed out at the outset itself by the Ld. Counsel for the assessee, the Ld.CIT(A) had allowed the assessee’s claim of deduction of these incomes following the CIT(A)’s order for Assessment Year 2012-13 & 2013-14. The relevant findings of the Ld. CIT(A) at Para 2.3 to 2.7 is as under:
2.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has disallowed the claim of deduction u/s. 80IC of I. T. Act, 1961 in respect of the following income derived by the appellant in the year under consideration:-
