M/S EXCEL CONTROLINKAGE PRIVATE LIMITED, Nagpur V. ADDL. CIT, RANGE-I, Nagpur

ITA 141/NAG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3097 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 80IB; 10B

Judgement Text

1 ITA NO. 141/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 141/NAG/2013 ASSESSMENT YEAR : 2008 - 09 M/S EXCEL CONTROLINKAGE PVT. LTD., ADDL. COMMISSIONER OF INCOME - TAX, NAGPUR. VS. RANGE - I, NAGPUR. PAN AAACE3400B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.G. :PIMPARKHEDE. RESPONDENT : SHRI NARENDRA KANE. DATE OF HEARING : 26 - 02 - 2016 DATE OF PRONOUNCEMENT : 31 ST MARCH, 2016. O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATING FROM AN ORDER OF LEARNED CIT(APPEALS) - 16, MUMBAI (CAMP AT NAGPUR), ORDER DATED 11 - 02 - 2013. THE GROUNDS RAISED ARE HEREBY DECIDED AS FOLLOWS : 2. GROUND NO. 1: THE LD. CIT APPEAL IS NOT CORRECT AND JUSTIFIED IN CONFIRMING THE ORDER OF LD. ADDL. CIT OF RESTRICTING THE CLAIM OF ASSESSEE U/S. 80IB TO RS.6,089/ - AS AGAINST RS.8,52,865/ - AS CLAIMED BY THE ASSESSEE. THE OTHER INCOME CONSIST OF FREIGHT EXPORT RECEIVED RS.2,63,331/ - , INTER EST RS.39,995/ - , DEPB RECEIVED RS.10,46,433/ - AND FOREIGN FLUCTUATION RS.2,05,091/ - ARE DEFINITELY DERIVED FROM THE INDUSTRIAL UNDERTAKING ON WHICH ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IB. AN ASSESSMENT WAS MADE U/S 143(3) DATED 28 - 12 - 2010. THIS I S A CASE OF A COMPANY AND THE BUSINESS IS MANUFACTURING OF CONTROL CABLES, RUBBER PRODUCTS 2 ITA NO. 141/NAG/2013 AND TRADING OF HEAVY EARTH MOVING SPARES. THE OBSERVATION OF THE AO WAS THAT THE ASSESSEE WAS HAVING THREE UNITS, NAMELY , A) EXCEL CONTROLINKAGE PVT. LTD., B) VAAV E NGINEERS PRODUCTS PVT. LTD., C) G - THREE - M TECHNOLOGIES INDIA PVT. LTD. IT HAS ALSO BEEN MENTIONED BY THE AO THAT THE ASSESSEE WAS CLAIMING DEDUCTION U/S 10B OF RS.33,52,127/ - FOR THE BUSINESS OF UNIT VAAV ENGINEERS PRODUCT PVT. LTD. THE ASSESSEE IS CLAIMIN G DEDUCTION U/S 80IB OF RS.8,52,865/ - IN RESPECT OF UNIT G - THREE - M TECHNOLOGIES INDIA PVT. LTD.. THE CLAIM OF DEDUCTION U/S 80IB WAS RESTRICTED BY THE AO TO RS. 6088/ - . ACCORDING TO THE AO THE FOLLOWING RECEIPTS/INCOME WERE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING, THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 80IB : G - THREE - M FREIGHT EXPORT RECEIVED 263331.25 INTEREST RECEIVED 39995.00 DEPB RECEIVED 1046433.00 FOREIGN EXCHANGE FLUCTUATION 205090.70 MISC. INCOME - TOTAL 15,54,849.95 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE OBSERVATION OF THE LEARNED CIT(APPEALS) IN RESPECT OF FREIGHT EXPORT RECEIPT WAS THAT THE ASSESSEE HAD SPENT RS.28,82,195/ - AND RECOVERED RS.11,07,196/ - FROM THE CUSTOMERS BY CHARGING IN THE BILL. THEREFORE, LEARNED CIT(APPEALS) HAS HELD THAT THE RECOVERY OF FREIGHT EXPORT EXPENSES WERE NOT THE INCOME OF THE ASSESSEE ELIGIBLE FOR THE DEDUCTION. 3.1 IN RESPECT OF THE INTEREST RECEIVED , THE DETAILS AS MENTIONED BY LEARNED CIT(APPEALS) WERE AS UNDER : 3 ITA NO. 141/NAG/2013 THAT THE DETAILS OF INTEREST EARNED BY THE ASSESSEE ARE AS FOLLOWS : - ON INCOME TAX REFUND . 6,392/ - ON FIXED DEPOSITS .15,039/ - ON WATER CHARGES DEPOSITS . 346/ - (200/ - + 146) FOR DELAYED COLLECTION . 28/ - ON BANK GUARANTEE .18,336/ - 3.2 SUBMISSION OF THE ASSESSEE IN RESPECT OF THE CLAIM OF INTEREST WAS AS UNDER : THAT ALL THESE INTEREST ARE EARNED BY THE ASSESSEE IN THE REGULAR COURSE OF BUSINESS FOR RUNNING A PLANT AND ALSO FOR CARRYING OUT EXPORT ACTIVITY. THE DEPOSITS ARE PRECONDITION FOR RUNNING A BUSINESS AND ALSO FOR EXPORTING GOODS HENCE IT CANNOT BE SAID TH AT THE INTEREST IS NOT DERIVED FROM EXPORT ACTIVITY AND HENCE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80IB AND U/S.10B ON THESE INCOMES. RELIANCE WAS PLACED ON SHIVA SHANKAR GRANITES PVT. LTD., VS. ITO 2002 (81) ITD 106. 4. IN RESPECT OF DEPB RECEIVED BY THE ASSESSEE THE CONTENTION OF THE ASSESSEE WAS AS UNDER : THAT THE DEPB RECEIVED IS EARNED BY THE ASSESSEE, DURING THE COURSE OF EXPORT OF THE GOODS. AS PER SCHEME FRAME BY THE GOVT. OF INDIA THE ASSESSEE IS ENTITLED FOR DEPB WHEN HE EXPORTS THE GOODS AND SOME PART OF EXPORT DUTY IS REFUNDED BY THE GOVT. OF INDIA. BY MAKING THE EXPORT DURING THE YEAR ASSESSEE WAS ENTITLE FOR DEPB TOTALLING TO .10,94,678/ - WHICH IS CREDITED TO THE P&L ACCOUNT AS OTHER INCOME. IF THE ASSESS EE HAS NOT EXPORTED GOODS HE WOULD NOT HAVE ENTITLE FOR REFUND OF EXCISE DUTY IN THE NAME AND STYLE AS DEPB ENTITLEMENT. HENCE IT CANNOT BE SAID THAT THE DEPB RECEIVED BY THE ASSESSEE IS NOT DERIVED FROM EXPORT ACTIVITY. HENCE THE DEPB SHOULD NOT BE DEDUCT ED WHILD CALCULATING DEDUCTION U/S. 80IB & 10B. RELIANCE WAS PLACED ON B. DESHRAJ VA. CIT 2008 (301) ITR 439(SC) & SARAF SEASONING UDYOG VS. ITO 2009(317) ITR 202 (RAJ), CIT VS. SHARDA GUM & CHEMICALS 2007 (288) ITR 116 (RAJ), SHAH ORIGINALS VS. ACIT (202) 112 TTI (MUMBAI) 754. 5. IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION THE SUBMISSION OF THE ASSESSEE WAS AS UNDER : THAT THE FOREIGN EXCHANGE FLUCTUATION IS RECEIVED BY THE ASSESSEE ON ACCOUNT OF FLUCTUATION OF THE INDIAN CURRENCY WITH RESPECT TO FORE IGN CURRENCY AS ON THE DATE OF RECEIPTS OF PAYMENT. THE ASSESSEE MAKES BILLS AT THE CURRENCY RATE PREVAILING ON THE DATE OF THE SALE AND WHEN ASSESSEE ACTUALLY RECEIVES THE PAYMENT THE RATE MAY GO UP OR REDUCED. HENCE ASSESSEE RECEIVES MORE OR LESS MONEY T HAN THE 4 ITA NO. 141/NAG/2013 ACTUAL BILL AMOUNT. RELIANCE WAS PLACED ON ACIT VS. DHARAMPAL PREMCHAND LTD., (2008) 113 TTJ (DEL) 290. 6. HOWEVER, LEARNED CIT(APPEALS) WAS NOT IN AGREEMENT BY REFERRING THE DECISION OF LIBERTY INDIA 317 ITR 278 AND STERLING FOODS 237 ITR 579 AN D HAS HELD THAT THE PROXIMATE AS WELL AS IMMEDIATE SOURCE OF INTEREST RECEIVED, DEPB RECEIVED, FOREIGN EXCHANGE FLUCTUATION RECEIVED WERE NOT DERIVED FROM THE BUSINESS UNDERTAKING OF THE ASSESSEE. THERE WAS NO DIRECT NEXUS BETWEEN THE PROFITS AND GAINS O F THE INDUSTRIAL UNDERTAKING. HE HAS HELD THAT THE ACTION OF THE AO WAS IN ORDER. HOWEVER, IN RESPECT OF FREIGHT EXPORT EARNED, HE HAS DIRECTED THAT THE AMOUNT WAS REQUIRED TO BE ADJUSTED FROM THE SALE VALUE. HENCE THE ELIGIBLE BUSINESS WOULD STAND REDUCED ACCORDINGLY. SINCE THE LEARNED CIT(APPALS) HAS NOT GRANT E D RELIEF IN RESPECT OF THE ABOVE MENTIONED RECEIPTS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80 I B, THEREFORE, THE ASSESSEE IS IN APPEAL. 7. FROM THE SIDE OF THE APPELLANT, LEARNED A.R. SHRI A.G. PIMPARKHEDE APPEARED AND FROM THE SIDE OF THE RESPONDENT, LEARNED D.R. MR. NARENDRA KANE APPEARED. BOTH THE SIDES WERE HEARD AND THE CASE RECORD WAS PERUSED. IN RESPECT OF THE FREIGHT EXPORT RECEIVED OF RS.2,63,331/ - LEARNED A.R. HAS EXPRESSED NOT TO PRESS THIS PART OF THE GROUND AS NOTED IN THE WRITTEN SUBMISSION AS WELL. SINCE THE LEARNED A.R. HAS WITHDRAWN THIS PART OF THE GROUND, HENCE THE SAME IS HEREBY DISMISSED. 7.1 IN RESPECT OF INTEREST R ECEIVED OF RS.39,995/ - , WE HAVE SEEN FROM THE ABOVE DETAILS THAT THE SAME CONSTITUTED THE INTEREST ON INCOME - TAX RETURN, INTEREST ON FIXED DEPOSIT, INTEREST ON BANK GUARANTEE ETC. IN THE CASE OF MOTOROLA INDIA ELECTRONICS 98 DTR 81 (KAR.) THE HONBLE KARN ATAKA HIGH COURT HAS CONSIDERED THE DECISIONS OF PANDIAN CHEMICALS 262 ITR 278 AND LIBERTY INDIA 317 ITR 218 AND STERLING FOODS 237 ITR 579 AND THEREUPON CAME TO THE CONCLUSION THAT THE INTEREST FROM FIXED DEPOSITS AND THE INTEREST FROM LOANS ADVANCED TO SISTER 5 ITA NO. 141/NAG/2013 CONCERN WAS TO BE CONSIDERED AS PROFITS AND GAINS FROM EXPORT. THIS DECISION REVOLVE AROUND THE PROVISIONS OF SECTION 10B OF I.T. ACT. THEREFORE, WE HEREBY EXPRESS THAT THE LEARNED A.R. HAS WRONGLY CITED THIS DECISION WHILE ARGUING THE ELIGIBILITY O F A DEDUCTION U/S 80IB OF I.T. ACT. IN THE CONTEXT OF THE PROVISIONS OF SECTION 80IB OUR ATTENTION HAS BEEN DRAWN ON A DECISION OF ITAT, LUCKNOW BENCH, ORDER PRONOUNCED IN THE CASE OF ARVIND FOOTWARE P. LTD. ITA NO. 363/LUK/2010, ORDER DATED 27 TH AUGUST, 2 015 WHEREIN THE RELEVANT PRECEDENTS HAVE BEEN DISCUSSED BUT THE MATTER WAS RESTORED BACK TO EXAMINE WHETHER THERE WAS A DIRECT NEXUS WITH THE ELIGIBLE BUSINESS OR NOT. ALTHOUGH THE DECISION WAS REVOLVING AROUND THE DUTY DRAW BACK RECEIPTS BUT THE CORE ISS UE WHICH WAS DECIDED BY THE TRIBUNAL WAS IN RESPECT OF THE FIRST DEGREE NEXUS WITH THE INDUSTRIAL UNDERTAKING. WE HEREBY HOLD THAT CONSIDERING THE FACTUAL MATRIX OF THE CASE THE ASSESSEE HAS NOT PROVED THE DIRECT NEXUS WITH THE ELIGIBLE ACTIVITY, HEN C E WE HEREBY AFFIRM THE FINDING OF LEARNED CIT(APPEALS) AND DISMISS THIS PART OF THE GROUND. 7.2 NEXT IS THE ISSUE OF DEPB RECEIVED OF RS.10,46,433/ - . ON THIS ISSUE OUR ATTENTION HAS BEEN DAWN ON A DECISION OF HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF CIT VS. RACHANA UD H YOG 230 CTR 72 WHEREIN IT WAS HELD THAT THE LAW DECLARED BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218 THE DEDUCTION U/S 80IB IN RESPECT OF DUTY DRAW BACK IS NOT ENTITL E D FOR CLAIM OF DEDUCTION U/S 80IB. RESP ECTFULLY FOLLOWING THIS DECISION, THIS PART OF THE GROUND IS DISMISSED. 7.3 THE NEXT ISSUE IS IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION AMOUNTING TO RS.2,05,090/ - . ON EXAMINATION OF THE FACTS AND THE PRECEDENT CITED OF DHARAMPAL PREMCHAND 113 TTJ 290 (DEL.) WE ARE OF THE OPINION THAT THIS ISSUE IS TO BE DECIDED IN FAVOUR OF THE ASSESSEE FOLLOWING THAT VERY DECISION OF BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF RACHANA UDYOG (SUPRA) 6 ITA NO. 141/NAG/2013 WHEREIN IT WAS OBSERVED THAT WHEN THE SALE PROCEEDS OF GOODS EXPORTE D ARE RECEIVED IN INDIA IN CONVERTIBLE FOREIGN EXCHANGE THE RUPEE EQUIVALENT OF THE SALE PROCEED IS LIABLE TO VARY, CONSEQUENT UPON THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE. THE COURT HAS, THEREFORE, HELD THAT THE EXCHANGE RATE FLUCTUATION WAS DIRE CTLY RELATED TO THE EXPORT OF GOODS, HENCE ELIGIBLE FOR DEDUCTION U/S 80IB . AS A RESULT, THIS PART OF THE GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. 8. TO SUM UP, GROUND NO. 1 IS PARTLY ALLOWED. 9. GROUND NO. 2 THE LD. CIT IS NOT CORRECT AND JUSTIFIED IN CONFIRMING THE ORDER OF ADDL. CIT OF THE RS.11,63,295.38/ - OTHER INCOME WHILE CALCULATING DEDUCTION U/S. 10B. THIS CONSIST OF FREIGHT RECEIVED RS.8,43,865/ - , INTEREST RS.146/ - , DEPB RECEIVED RS.48,245/ - FOREIGN EXCHANGE FLUCTUATION RS.2,37,713 / - AND MISCELLANEOUS INCOME RS.33,326/ - . ALL THESE INCOMES ARE EARNED FROM THE EXPORT ACTIVITY OF THE ASSESSEE AND ELIGIBLE FOR THE DEDUCTION U/S.10B. THE OBSERVATION OF THE AO, AS DISCUSSED ABOVE, WAS THAT VAAV ENGINEERS PRODUCTS PVT. LTD WAS CLAIMING DEDUCTION U/S 10B OF I.T. ACT. THE AO HAS RAISED THE OBJECTION IN RESPECT OF FOLLOWING INCOME WHICH ACCORDING TO HIM WERE NOT ELIGIBLE FOR THE CLAIM : VAAV FREIGHT EXPO RT RECEIVED 843865.35 INTEREST RECEIVED 146.00 DEPB RECEIVED 48245.00 FOREIGN EXCHANGE FLUCTUATION 237713.03 MISC. INCOME 33326.00 TOTAL 1163295.38 10. SINCE THE AO HAS RESTRICTED THE CLAIM OF DEDUCTION U/S 10B TO RS.11,13,460/ - AS AGAINST THE DEDUCTION CLAIMED BY THE ASSESSEE OF RS.33,52,127/ - , THEREFORE, THE ASSESSEE HAD GONE IN APPEAL. THE LEARNED 7 ITA NO. 141/NAG/2013 CIT(APPEALS) HAS AFFIRMED THE COMPUTATION OF THE AO AND DISMISSED THE GROUND. ONLY IN RESPECT OF FREIGHT EXPORT RECEIVED, DIRECTION WAS GIVEN TO ADJUST FROM THE SALE VALUE. 11. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES IN THE LIGHT OF THE COMPILATION FILED. IN RESPECT OF THE FREIGHT EXPORT RECEIVED, LEA RNED A.R. HAS SUBMITTED IN WRITING THAT DUE TO THE REASON THAT A PART RELIEF WAS GRANTED REGARDING FREIGHT EARNED ON EXPORT, THEREFORE, NEED NOT BE CONTESTED, HENCE WITHDRAWN. SINCE THIS PART OF THE GROUND HAS NOT BEEN PRESSED, CONSEQUENTLY DISMISSED. 12. IN RESPECT OF INTEREST RECEIVED OF RS.146/ - A VIEW HAS ALREADY BEEN EXPRESSED BY US THAT THE INTEREST ON FIXED DEPOSIT HAD NO NEXUS, HENCE CLAIM WAS NOT ADMISSIBLE AS PER LAW. THIS PART OF THE GROUND IS DISMISSED. 13. IN RESPECT OF DEPB RECEIVED OF RS.48,245/ - THE ARGUMENT OF LEARNED A.R. IS THAT THE DECISIONS AS CITED BY THE REVENUE AUTHORITIES WERE DELIVERED IN RESPECT OF THE PROVISIONS OF SECTION 80IB AND SECTION 80HH. THOSE DECISIONS WERE NOT IN RESPECT OF THE PROVISIONS OF SECTION 10B OF I.T. AC T. LEARNED A.R. HAS CONTESTED THAT AS PER THE PROVISIONS OF SECTION 10B(4) THE DEDUCTION IS TO BE COMPUTED BY APPORTIONING PROFIT OF THE BUSINESS OF AN UNDERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURNOVER. ACCORDING TO HIM, SUB - SECTION (4) DOES NOT R EQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF AN UNDERTAKING. THE CASE LAW RELIED UPON WAS MARAL OVERSEAS LTD. 146 TTJ 129 (INDORE) (S.B.) THE EXTRACT OF THE HELD PORTION IS WORTH REPRODUCTION : IT IS CLEAR FROM THE PLAIN READING OF SECTION 10B(1) OF THE ACT THAT THE SAID SECTION ALLOWS DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU. FURTHER, SECTION 10B(4), OF THE ACT STIPULATES SPECIFIC FORMULA FOR COMPUTING THE PROFIT DERIVED BY THE UNDERTAKING FROM EXP ORT. SECTION 10B SUB - SECTION (1) ALLOWS DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU. SECTION 10B (4) LAYS DOWN SPECIAL FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UNDERTAKING FROM EXPORT. THUS, SUB - SECTION (4) OF SECTION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE 8 ITA NO. 141/NAG/2013 UNDERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURNOVER. THUS, NOT WITH - STANDING THE FACT THAT SUB - SECTION (1) OF SECTION 10B REFERS THE PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB - SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE ENTIRE PROFITS OF THE BUSINESS ARE TO BE TAK EN WHICH ARE MULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BUSINESS. SUB - SECTION (4) DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS O F THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING, THERE IS NO FURTHER MANDATE IN THE PROVISIONS OF SECTION 10B TO EXCLUDE THE SAME F ROM THE ELIGIBLE PROFITS. ACCORDINGLY, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B(1) READ WITH SECTION 10B94). LIBERTY INDIA AND OTHERS VS. CIT: 317 ITR 218, DISTINGUISHED. 13.1 IT IS ALSO WORTH TO MENTION THAT THE ITAT DELHI BENCH IN THE CASE OF ITO VS. SHASHI SADH 42 CCH PAGE 76 HAS OPINED THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF MARAL OVERSEAS (SUPRA) HAS BEEN UPHELD BY THE DELHI HIGH COUR T WHILE DEALING THIS ISSUE IN THE CASE OF HRITNIK EXPORT PVT. LTD. (APPEAL NO. 219 & 239/2014 DATED 13 - 11 - 2014) . THE DELHI TRIBUNAL HAS OPINED THAT IN A SITUATION WHEN THE ORDER OF THE SPECIAL BENCH STOOD APPROVED BY THE DELHI HIGH COURT THEN IT IS BINDING TO ALL DIVISION BENCHES OF ITAT. THE TRIBUNAL HAS FINALLY HELD AS UNDER : ISSUE IN QUESTION RELATED TO ALLOWABILITY OF THE DUTY DRAWBACK STAND SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. HRITNIK EXPORT (P) LTD., WHEREIN THEIR LORDSHIPS SPEAKING FOR THE JURISDICTIONAL HIGH COURT OF DELHI AFTER CONSIDERING AND APPROVING THE RATIO OF THE DECISION OF SPECIAL BENCH IN THE CASE OF MARAL OVERSEAS LTD., HAVE HELD THAT AS PER SECTION 28 , CLAUSE (IIIC) OF THE ACT ANY DUTY OF CUSTOM AND EXCISE REPAYABLE AS DRAWBACK TO A PERSON AGAINST EXPORT UNDER CUSTOM AND CENTRAL EXCISE DUTY DRAWBACK RULES,1971 IS DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEIR LORDSHIP FURTHER HELD THAT THE SAID PROVISION HAS TO BE GIVEN FULL EFFECT TO AND THIS MEANS THAT THE DUTY DRAWBACK OR DUTY BENEFITS WOULD BE DEEMED TO BE A PART OF BUSINESS INCOME AND THIS WILL BE TREATED AS PROFIT DERIVED FROM BUSINESS OF THE UNDERTAKING AND THE SAME CANNOT BE EXCLUDED. 14. FROM THE SIDE OF THE APPELLANT, FEW MORE DECISIONS HAVE ALSO BEEN CITED. HOWEVER, CONSIDERING THE TOTALITY OF THE PRECEDENTS QUOTED BEFORE US, WE HEREBY HOLD THAT THE ISSUE OF DEPB WHILE CALCULATING DEDUCTION U/S 10B STOOD COVERED 9 ITA NO. 141/NAG/2013 IN FAVOUR OF THE ASSESSEE. AS A RESULT, THIS PART OF THE GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. 15. IN RESPECT OF THE FOREIGN EXCHANGE FLUCTUATION WE HAVE ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. MOREOVER OUR ATTENTION HAS ALSO BEEN DRAWN ON A DECISION OF HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF BADRIDAS G AURIDU ( P ) LTD. 261 ITR 256 (BOM) WHEREIN IT WAS HELD THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN IS INTIMATELY CONNECTED TO THE EXPORT BUSINESS. AS A RESULT, THIS PART OF THE GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. 16. AS FAR AS THE QUESTION OF MISCELLANEOUS INCOME OF RS.33,326/ - IS CONCERNED, WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY EVIDENCE ON RECORD THAT SUCH TYPE OF ALLEGED INCOME HAD ANY BEARING WITH THE BUSI NESS INCOME OF THE UNDERTAKING T HEREFORE, THE REVENUE AUTHORITIES WERE JUSTIFIED IN NOT GRANTING DEDUCTION U/S 10B ON THIS INCOME. EVEN IF IT WAS RELATED TO THE CENVAT CREDIT, AS ALLEGED BY THE ASSESSEE, THE SAME IS REQUIRED TO BE ADJUSTED AGAINST THE EXCI SE DUTY PAYMENT . OTHERWISE ALSO A CESS CANNOT FORM A PART OF THE BUSINESS PROFIT OF AN UNDERTAKING. AS A RESULT, NO INTERFERENCE IS REQUIRED I N THE FINDING OF THE REVENUE AUTHORITIES AND THIS PART OF THE GROUND IS DISMISSED. 17. TO CONCLUDE, GROUND NO. 2 IS PARTLY ALLOWED. 18. GROUND NO. 3: THE LD. CIT APPEAL IS NOT CORRECT AND JUSTIFIED IN CONFIRMING THE ORDER OF ADDL. CIT OF DISTRIBUTING THE HEAD OFFICE EXPENSES OF RS.12,67,740/ - AND RS.21,45,405/ - IN THE RATIO OF TURNOVER AND THEREBY RESTRICTING THE CLAIM OF THE ASSESSEE U/S. 80IB TO RS.6,089/ - AND 10B TO RS.11,13,460/ - . THE OBJECTION OF THE AO WAS THAT THE ASSESSEE HAD DEBITED THE EXPENDITURE IN THE ACCOUNT OF EXCEL CONTROLINKAGE PVT. LTD., THE UNIT WHICH WAS NOT CLAIMING ANY DEDUCTION EITHER U/S 80IB OR U/S 10B OF I.T. ACT. THE AO HAS 10 ITA NO. 141/NAG/2013 PLACED ON RECORD A CHART TO DEMONST RATE THAT CERTAIN EXPENDITURE SUCH AS, DIRECTORS REMUNERATION, TRAVELLING EXPENSES TO FOREIGN COUNTRIES, ELECTRICITY CHARGES, STAFF TRAINING ETC. HAVE BEEN DEBITED TO THE ACCOUNT OF EXCEL CONTROLINKAGE PVT. LTD. THE AO HAS REALLOCATED THOSE EXPENDITURE BA SED UPON A TURNOVER OF EACH UNIT. AS A RESULT, THE ELIGIBLE PROFIT FOR CLAIM OF DEDUCTION U/S 80IB AND U/S 10B IN RESPECT OF UNIT G - THREE - M AND UNIT VAAV HAVE BEEN ACCORDINGLY ADJUSTED , SO CONSEQUENTLY THE DEDUCTION HAD GONE DOWN. 19. WHEN THE MATTER WA S CARRIED BEFORE THE FIRST APPELLATE AUTHORITY , LEARNED CIT(APPEALS) HAS HELD THAT COMMON EXPENSES OUGHT TO BE APPORTIONED IN THE RATIO OF THE TURNOVER OF THE THREE UNITS. HE HAS FURTHER EXPRESSED THAT DIRECTORS REMUNERATION, TRAVELLING EXPENSES WERE FOR THE PURPOSE OF LOOKING AFTER THE WORK OF THE THREE UNIT, THEREFORE, THE APPORTIONMENT IN THE RATIO OF TURNOVER OF THE THREE UNITS WAS IN ORDER. 20. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ALTHOUGH IT IS CORRECT THAT ITAT, PUNE BENCH IN THE CASE OF KHINVASARA INVESTMENTS (P) LTD. 110 ITD 198 HAS OPINED THAT THE HEAD OFFICE EXPENSES AND DIRECTORS REMUNERATION SHOULD BE ALLOCATED ON THE BASIS OF THE TURNOVER OF THE TWO UNITS AND BECAUSE THAT WAS HELD TO BE A RATIONAL WAY TO ALLOCATE THE EXPENSES BUT WE HAVE ALSO CONSIDERED THE OTHER DECISION OF BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF ZANDU PHARMACEUTICALS WORKS LTD. 350 ITR 366. THE HONBLE HIGH COURT HAS HELD THAT THE EXPENSES ATTRIBUTABLE TO ANY OTHER UNIT OR HEAD OFFICE EXPENSES WHICH HAVE NO RELEVANCE TO THE INDUSTRIAL UNDERTAKING, CANNOT BE DEDUCTED IN RESPECT OF THE SAID UNDERTAKING WHILE COMPUTING THE PROFITS AND GAINS OF THE UNDERTAKING. UNLESS AND UNTIL THE EXPENDITURE INCURRED RELATES TO THE UNDERTAKING THE SAME CANNOT BE APPORTIONED. WE HAVE ALSO PERUSED THE DECISION OF HINDUSTAN GUM & CHEMICAL LTD. 23 SOT 143 (KOL) WHEREIN AN OPINION WAS EXPRESSED IN RESPECT OF TRAVELLING AND 11 ITA NO. 141/NAG/2013 CONVEYANCE EXPENDITURE OF 100% EOU AND HELD THAT THERE WAS NO JUSTIFICATION TO APPORTION THE EXPENDITURE SPECIALLY WHEN IT WAS ESTABLISHED THAT THE TRAVELLING AND CONVEYANCE WAS DEBITED TO A SEPARATE ACCOUNT AND TRAVELLING WAS NOT REQUIRED IN RESPECT OF 100% EOU. 20.1 IN THE LIGHT OF THESE DECISIONS, WE HEREBY CONC LUDE THAT THE DIRECTORS REMUNERATION WAS DEBITED TO AN AMOUNT OF RS.54 LAKHS IN EXCEL CONTROLINKAGE PVT. LTD. AND RS.4,80,000/ - DEBITED TO G - THREE - M TECHNOLOGIES BUT NO AMOUNT AT ALL WAS DEBITED TO VAAV ENGINEERS PRODUCTS PVT. LTD. DIRECTORS ARE RESPONSI BLE TO LOOK AFTER THE BUSINESS ACTIVITY OF ALL THE THREE UNITS, THEREFORE, THEIR REMUNERATION IS REQUIRED TO BE ALLOCATED AS PER THE TURNOVER OF THE THREE UNITS. AS A RESULT, THIS PART OF THE CONTENTION OF THE ASSESSEE IS REJECTED. 20.2 LIKEWISE IN THE CASE OF TRAVELLING EXPENSES OF DIRECTORS TO FOREIGN COUNTRY, THE UNIT WHICH IS IN EXPORT BUSINESS IS REQUIRED TO SHARE THE BURDEN OF TRAVELLING EXPENSES. IN RESPECT OF THAT UNIT ONLY THE TRAVELLING EXPENSES (FOREIGN) IS REQUIRED TO BE ALLOCATED ON THE BASI S OF THE TURNOVER. HOWEVER, IN RESPECT OF THE OTHER UNIT, NO SUCH ALLOCATION IS REQUIRED. THE REASON BEHIND THIS VIEW IS THAT THE FACTS OF THE CASE HAVE REVEALED THAT UNIT VAAV HAD PARTICIPATED IN AN EXHIBITION AT AMSTERDAM, THEREFORE ALLOCATION IS JUSTI FIABLE. HOWEVER, IN THE UNIT G - THREE - M ONLY REGULAR SALES; AS PER PAST YEARS, HAVE BEEN EXECUTED FOR WHICH NO TRAVELLING WAS CLAIMED TO HAVE BEEN UNDERTAKEN. WE, THEREFORE, HOLD THAT ALLOCATION IS REQUIRED IN UNIT EXCEL AND UNIT VAAV. IN SUPPORT WE PLACE RELIANCE ON THE JUDGMENT OF ZANDU PHARMACEUTICALS 80 DTR 322 (BOM.). AS A CONSEQUENCE THIS PART OF THE GROUND IS PARTLY ALLOWED. REST OF THE EXPENDITURE SUCH AS STAFF TRAINING, RECRUITMENT, POLLUTION CONTROL, MISCELLANEOUS EXPENSES HAVE RIGHTLY BEEN DEBITED TO THE ACCOUNT OF E XCEL CONTROLINKAGE PVT. LTD. BEING THE HEAD OFFICE. WE DIRECT NOT TO REALLOCATE THESE EXPENSES TO THE OTHER UNITS. 21 AS A RESULT, THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 12 ITA NO. 141/NAG/2013 22. BEFORE WE PART WITH ONE MORE GROUND RAISED AS ADDITIONAL GROUND IS YET TO BE DECIDED, WHICH READS AS UNDER: 1. THE LD. AO AND THE LD. CIT(APPEALS) HAS NOT CALCULATED THE DEDUCTION U/S 10B OF THE I.T. ACT SUB SECTION 7A ACCORDING TO WHICH THE LEARNED AUTHORITIES ARE BOUND BY LAW TO ALLOWED THE DEDUCTION IN CASE OF AMALGAMATION OF THE COMPANIES AND THE AUTHORITIES HAS NO RIGHT TO RECALCULATE THE DEDUCTION U/S 10B SUB SECTION 7A. 2. THE LD. AO AND THE LD. CIT(APPEALS) HAS NOT CALCULATED THE3 DEDUCTION U/S 80IB OF THE I.T. ACT SUB SECTION 12 ACCORDING TO WHICH THE LEARNED AUTHORITIES ARE BOUND BY LAW TO ALLOWED THE DEDUCTION IN CASE OF AMALGAMATION OF THE COMPANIES AND THE AUTHORITIES HAS NO RIGHT TO RECALCULATE THE DEDUCTION U/S 80IB SUB SECTION 12. 22.1 AT THE VERY THRESHOLD WE HEREBY EXPRESS THAT THIS GROUND IS MISCONCEIVED. IT APPEARS THAT THE RELEVANT PROVISIONS OF THE ACT HAVE BEEN MISUNDERSTOOD, THEREFORE, INCORRECTLY RAISED THI S GROUND. 22.2 REASON FOR DISMISSING THIS GROUND IS THAT THERE IS NO MANDATE U/S 10B(7A) TO GRANT DEDUCTION U/S 10B WITHOUT LOOKING INTO THE MERITS OF THE CLAIM. THIS SUB SECTION (7A) ONLY PROVIDES THAT WHERE AN UNDERTAKING IS AMALGAMATED THEN THE PROVISI ONS OF SECTION 10B SHALL AS FAR AS MAY BE, APPLIED TO THE RESULTING AMALGAMATED COMPANY. IT IS CLEARLY PRESCRIBED THAT THE PROVISIONS WOULD APPLY AS IT IS TO THE RESULTING COMPANY AS IF THE AMALGAMATION HAD NOT TAKEN PLACE. EVEN IN SECTION 80IB(12), THE ST ATUTE HAD DRAFTED THE SAME LANGUAGE. THIS IS NOT A CASE THAT THE REVENUE DEPARTMENT HAD NOT GRANTED CLAIM U/S 10B OR U/S 80IB ON THE GROUND OF AMALGAMATION TAKEN PLACE. THERE WAS NO SUCH OBJECTION OF THE AO THAT DUE TO THE AMALGAMATION THE AMALGAMATED COMP ANY SHOULD NOT GET THE BENEFIT OF THOSE DEDUCTIONS. RATHER AS SEEN FROM THE ABOVE FOREGOING DISCUSSION, IT IS VERY MUCH EVIDENT THAT THE MERITS OF THE DEDUCT IONS WERE DULY DELIBERATED UPON BY THE AO AND ONLY RE - CAPTURED THE QUANTUM OF DEDUCTION. IT APPEAR S THAT 13 ITA NO. 141/NAG/2013 THE PROVISIONS OF THE ACT HAVE NOT BEEN CORRECTLY INTERPRETED. EVEN THE DECISION CITED OF ACIT VS. M/S. RISHA BHDEV TECHNOCABLE (ITA NO.388/M/2010 A.Y.2006 - 07 DT. 31.08.2010) IS ON THE ISSUE OF CLAIM OF DEDUCTION BEYOND 10 YEARS IN CASE OF AMALGAMATION. THE OTHER DECISION OF M/S. GRIG LE Y INDIA PVT. LTD., (ITA NO. 5224/ DEL./2010 A.Y.2006 - 07 DT.05.08.2011) IS ALSO MISPL ACED BECAUSE THE ISSUE IN THAT APPEAL WAS ABOUT THE ENTITLE MENT OF BENEFIT F OR THE UNEXP I RED PERIOD OF A DEDUCTION IN CASE OF AMALGAMATION. THEREFORE, THE ADDITIONAL GROUND RAISED IS NOT AS PER LAW THAT THE REVENUE AUTHORITIES ARE BOUND BY LAW TO ALLOW THE CLAIM OF DEDUCTION U/S. 10B OR U/S.80IB WITHOUT CON SIDERING THE MERITS OR DEMERITS AS WELL AS THE CORRECTNESS OF THE CLAIM. THIS GROUND IS THEREFORE DISMISSED. 2 3 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2016. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DA TED: 31 ST MARCH, 2016. 14 ITA NO. 141/NAG/2013 COPY FORWARDED TO : 1. M/S EXCEL CONTROLINKAGE PRIVATE LIMITED, W68, MIDC AREA, HINGNA ROAD, NAGPUR - 440016. 2. A DDL. C.I.T., RANGE - 1, NAGPUR. 3. COMMISSIONER OF INCOME - TAX - ,NAGPUR. 4. CIT(APPEALS) - , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.