AI Insights
The case involves M/s. Ashok Leyland Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2017-18. The primary issues revolved around the disallowance of certain deductions claimed under Section 35(2AB) for research and development expenditures, and deductions under Section 80-IC related to profits derived from its eligible unit at Pantnagar. The Tribunal examined various grounds including the disallowance of deductions for research and development expenditures not approved by the DSIR, and the exclusion of certain incomes from the computation of eligible profits under Section 80-IC. The Tribunal's decision involved a detailed analysis of the linkage between the incomes and the eligible business activities, leading to a nuanced decision on what should be included or excluded in the computation of deductions.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 107209 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-02-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Assessment Year
2017-2018
Judgement Text
"आयकर अपीलीय अिधकरण, ‘बी’\u0001यायपीठ, चे\tई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI \u0001ी एबी टी. वक , \u000bाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखासद\tक ेसम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No. 2377/Chny/2024 िनधा\u000eरणवष\u000e/Assessment Year: 2017-18 M/s. Ashok Leyland Ltd., No.1, Sardar Patel Road, Guindy, Chennai-600 032. v. The DCIT, NCC-8(1), LTU-II, Chennai-600 034. [PAN: AAACA 4651 L] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.R. Vijayaraghavan, Advocate & Mr. Vikram Vijayaraghavan, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr.Nathala Ravi Babu, CIT सुनवाईक\u001aतारीख/Date of Hearing : 04.12.2024 घोषणाक\u001aतारीख /Date of Pronouncement : 12.02.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This appeal has been preferred by the assessee-company against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)‘), Delhi dated 19.07.2024 for the Assessment Year (hereinafter referred to as ‘AY‘) 2017-18. 2. Ground No.1 raised by the assessee is general in nature, which was therefore not pressed by the Ld. AR and is therefore dismissed. 3. Ground No.2 raised by the assessee is against the disallowance of Rs.88,883/- made by the AO u/s 14A read with Rule 8D. Considering the smallness of the amount involved, the Ld. AR did not press this ground but at the same time requested that it should not precedent. Therefore, we dismiss this ground of appeal as the assessee did not press this ground for the relevant year considering the smallness of the amount. 4. Ground No. 3 is against the action of the lower authorities denying the weighted component of deduction claimed in respect of research & development expenditure incurred at the approved in under Section 35(2AB) of the Act, which was not approved by the DSIR in Form 3CL. 4.1 The facts as discernible from record incurred scientific research expenditure, both revenue & capital, at their approved in-house R&D facility. The assessee had accordingly claimed weighted deduction of Rs.769,77,45,394/ u/s 35(2AB) of the Act, in terms of Form 3CLA issued by the auditor. The AO, in the course of assessment, required the assessee to file Form 3CL issued by the DSIR for the relevant AY 2017 to provide as the DSIR, at that material time, had Form. The AO accordingly, in absence of Form 3CL, denied the claim for ITA No. M/s. Ashok Leyland Ltd. ::2 :: Ground No.2 raised by the assessee is against the disallowance of made by the AO u/s 14A read with Rule 8D. Considering the smallness of the amount involved, the Ld. AR did not press this ground but at the same time requested that it should not be treated as a precedent. Therefore, we dismiss this ground of appeal as the assessee did not press this ground for the relevant year considering the smallness is against the action of the lower authorities denying ghted component of deduction claimed in respect of research & development expenditure incurred at the approved in-house R&D facility under Section 35(2AB) of the Act, which was not approved by the DSIR in The facts as discernible from records is that, the assessee had incurred scientific research expenditure, both revenue & capital, at their house R&D facility. The assessee had accordingly claimed weighted deduction of Rs.769,77,45,394/- being 200% of the expenditure f the Act, in terms of Form 3CLA issued by the auditor. The AO, in the course of assessment, required the assessee to file Form 3CL issued by the DSIR for the relevant AY 2017-18, which the assessee failed to provide as the DSIR, at that material time, had not yet issued the said Form. The AO accordingly, in absence of Form 3CL, denied the claim for ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. Ground No.2 raised by the assessee is against the disallowance of made by the AO u/s 14A read with Rule 8D. Considering the smallness of the amount involved, the Ld. AR did not press this ground be treated as a precedent. Therefore, we dismiss this ground of appeal as the assessee did not press this ground for the relevant year considering the smallness is against the action of the lower authorities denying ghted component of deduction claimed in respect of research & house R&D facility under Section 35(2AB) of the Act, which was not approved by the DSIR in s is that, the assessee had incurred scientific research expenditure, both revenue & capital, at their house R&D facility. The assessee had accordingly claimed being 200% of the expenditure f the Act, in terms of Form 3CLA issued by the auditor. The AO, in the course of assessment, required the assessee to file Form 3CL 18, which the assessee failed not yet issued the said Form. The AO accordingly, in absence of Form 3CL, denied the claim for weighted deduction u/s 35(2AB) of the Act, but at the same time, allowed normal deduction @ 100% in terms of Section 35 of the Act. Hence, out of the total deduction claimed by the assessee of Rs.769,77,45,394/ AO allowed normal 100% deduction to the extent of Rs.386,88,72,661/ and denied weighted component of 100% of Rs.3,86,88,72,661/ aggrieved by the order of the AO, the assessee carried the mat appeal before the Ld. CIT(A). 4.2 Before the Ld. CIT(A), the assessee firstly brought to his notice that the AO had made certain calculation errors in computing the disallowance which resulted in higher disallowance of Rs.1,99,99,964/ assessee furnished the Form 3CL, which was issued by the DSIR, wherein the revenue and capital expenditure approved for weighted deduction was quantified at Rs.318,82,79,000/ assessee accordingly prayed that atleas aforesaid certified amount ought to be allowed u/s 35(2AB) of the Act. After verifying the contents of Form 3CL as well as the calculations, the Ld. CIT(A) agreed with the assessee that there was a calculation error in AO’s computation of disallowance and therefore directed deletion to the extent of Rs.1,99,99,964/ expenditure aggregating to Rs.23,14,39,967/ certified by DSIR in Form 3CL. Accordingly, weighted deduction u/s 35(2AB) for the amount certified in Form 3CL and ITA No. M/s. Ashok Leyland Ltd. ::3 :: weighted deduction u/s 35(2AB) of the Act, but at the same time, allowed normal deduction @ 100% in terms of Section 35 of the Act. Hence, out ction claimed by the assessee of Rs.769,77,45,394/ AO allowed normal 100% deduction to the extent of Rs.386,88,72,661/ and denied weighted component of 100% of Rs.3,86,88,72,661/ aggrieved by the order of the AO, the assessee carried the mat appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee firstly brought to his notice that the AO had made certain calculation errors in computing the disallowance which resulted in higher disallowance of Rs.1,99,99,964/ assessee furnished the Form 3CL, which was issued by the DSIR, wherein the revenue and capital expenditure approved for weighted deduction was quantified at Rs.318,82,79,000/- and Rs.42,99,54,000/- respectively. The assessee accordingly prayed that atleast the weighted component for the aforesaid certified amount ought to be allowed u/s 35(2AB) of the Act. After verifying the contents of Form 3CL as well as the calculations, the Ld. CIT(A) agreed with the assessee that there was a calculation error in computation of disallowance and therefore directed deletion to the extent of Rs.1,99,99,964/-. The Ld. CIT(A), further noted that, apart from expenditure aggregating to Rs.23,14,39,967/-, other expenses had been certified by DSIR in Form 3CL. Accordingly, the Ld. CIT(A) allowed the weighted deduction u/s 35(2AB) for the amount certified in Form 3CL and ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. weighted deduction u/s 35(2AB) of the Act, but at the same time, allowed normal deduction @ 100% in terms of Section 35 of the Act. Hence, out ction claimed by the assessee of Rs.769,77,45,394/-, the AO allowed normal 100% deduction to the extent of Rs.386,88,72,661/- and denied weighted component of 100% of Rs.3,86,88,72,661/-. Being aggrieved by the order of the AO, the assessee carried the matter in Before the Ld. CIT(A), the assessee firstly brought to his notice that the AO had made certain calculation errors in computing the disallowance which resulted in higher disallowance of Rs.1,99,99,964/-. Further, the assessee furnished the Form 3CL, which was issued by the DSIR, wherein the revenue and capital expenditure approved for weighted deduction was respectively. The t the weighted component for the aforesaid certified amount ought to be allowed u/s 35(2AB) of the Act. After verifying the contents of Form 3CL as well as the calculations, the Ld. CIT(A) agreed with the assessee that there was a calculation error in computation of disallowance and therefore directed deletion to the . The Ld. CIT(A), further noted that, apart from , other expenses had been the Ld. CIT(A) allowed the weighted deduction u/s 35(2AB) for the amount certified in Form 3CL and restricted the denial of weighted component of deduction to the extent of expenses not approved by DSIR being Rs.23,14,39,967/ aggrieved by the disallowance retained by the Ld. CIT(A), the assessee is now in appeal before us. 4.3 Having considered the submissions of the findings of the lower authorities, we note that, Act, provides that, an assessee sh relation to expenditure incurred on the in by the prescribed authority, i.e. DSIR. Sub Section 35 provides that, the its report in relation to the approval of the as prescribed. Rule 6(7A)(b) of the Income by the IT(10th Amendment) Rules, 2016 applicable with effect from01.07.2016 provides that 35(2AB) of the Act shall authority, i.e. DSIR, shall submit itsreport in Form 3CL to the PCCIT or CCIT. The relevant Rule is reproducedhereunder: “(7A) Approval of expenditure incurred on development facility by a company under sub 35 shall be subject to the following conditions, namely : (a) The facility should not relate purely to market research, sales promotion, quality control, testing, c changes, routine data collection or activities of a like nature; ITA No. M/s. Ashok Leyland Ltd. ::4 :: restricted the denial of weighted component of deduction to the extent of expenses not approved by DSIR being Rs.23,14,39,967/ llowance retained by the Ld. CIT(A), the assessee is now in appeal before us. Having considered the submissions of the assessee, in light of the of the lower authorities, we note that, Section 35(2AB) of the provides that, an assessee shall be allowed weighted deduction in expenditure incurred on the in-house R&D facility as approved authority, i.e. DSIR. Sub-clause (4) of Clause (2AB) of Section 35 provides that, the prescribed authority, i.e. DSIR shall sub its report in relation to the approval of the research facility in such form as prescribed. Rule 6(7A)(b) of the Income-tax Rules,1962 as amended by the IT(10th Amendment) Rules, 2016 applicable with effect from01.07.2016 provides that, the approval of expenditure under 35(2AB) of the Act shall be subject to the condition that, the prescribed authority, i.e. DSIR, shall submit itsreport in Form 3CL to the PCCIT or CCIT. The relevant Rule is reproducedhereunder: (7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :— The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. restricted the denial of weighted component of deduction to the extent of expenses not approved by DSIR being Rs.23,14,39,967/-. Being llowance retained by the Ld. CIT(A), the assessee is , in light of the Section 35(2AB) of the all be allowed weighted deduction in house R&D facility as approved clause (4) of Clause (2AB) of prescribed authority, i.e. DSIR shall submit research facility in such form tax Rules,1962 as amended by the IT(10th Amendment) Rules, 2016 applicable with effect expenditure under be subject to the condition that, the prescribed authority, i.e. DSIR, shall submit itsreport in Form 3CL to the PCCIT or house research and section (2AB) of section The facility should not relate purely to market research, sales ommercial production, style changes, routine data collection or activities of a like nature; (b)The prescribed authority shall furnish electronically its report, (i) in relation to the approval of in facility in Part A of Fo (ii) quantifying the expenditure incurred on in development facility by the company during the previous year and eligible for weighted deduction under sub the Act in Part B of Form No. 3CL; (ba) The report in Form No. 3CL referred to in clause (b) shall be furnished electronically by the prescribed authority to the Principal Chief Commissioner of Income Principal Director General of Income tax having jurisdiction over such company within one hundred and twenty days,— (i) of the grant of the approval, in a case referred to in sub clause (b); (ii) of the submission of the audit report, in a case referre clause (ii) of clause (b); (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and No. 3CLA shall be furnished electronically to the Secretary, Department of Scientific and Industrial Research on or before the due date specified in Explanation 2 to sub furnishing the return of i 4.4 In light of the above Rule, as introduced by the IT(10t Amendment) Rules,2016 applicable with effect from 01.07.2016, the position of law as prevailing in AY by DSIR is a pre-requisite to claim u/s 35(2AB) of the Act. decisions rendered by this Tribunal in their own case in earlier AY 2011 12 is found to be distinguishable as the AY ITA No. M/s. Ashok Leyland Ltd. ::5 :: The prescribed authority shall furnish electronically its report, in relation to the approval of in-house research and development facility in Part A of Form No. 3CL; quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL; The report in Form No. 3CL referred to in clause (b) shall be furnished electronically by the prescribed authority to the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income Principal Director General of Income-tax or Director General of Income tax having jurisdiction over such company within one hundred and of the grant of the approval, in a case referred to in sub of the submission of the audit report, in a case referre f clause (b); The company shall maintain a separate account for each approved hall be audited annually and a report of audit in Form No. 3CLA shall be furnished electronically to the Secretary, Department ientific and Industrial Research on or before the due date specified in Explanation 2 to sub-section (1) of section 139 of the Act for furnishing the return of income, for each succeeding year.” In light of the above Rule, as introduced by the IT(10t Amendment) Rules,2016 applicable with effect from 01.07.2016, the position of law as prevailing in AY 2017-18 is that, furnishing of Form 3CL requisite to claim the weighted component of u/s 35(2AB) of the Act. The reliance placed by the assessee on the rendered by this Tribunal in their own case in earlier AY 2011 e distinguishable as the AY involved was ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. The prescribed authority shall furnish electronically its report,— house research and development house research and development facility by the company during the previous year and section (2AB) of section 35 of The report in Form No. 3CL referred to in clause (b) shall be furnished electronically by the prescribed authority to the Principal Chief tax or Chief Commissioner of Income-tax or Director General of Income- tax having jurisdiction over such company within one hundred and of the grant of the approval, in a case referred to in sub-clause (i) of of the submission of the audit report, in a case referred to in sub- The company shall maintain a separate account for each approved a report of audit in Form No. 3CLA shall be furnished electronically to the Secretary, Department ientific and Industrial Research on or before the due date specified section (1) of section 139 of the Act for In light of the above Rule, as introduced by the IT(10th Amendment) Rules,2016 applicable with effect from 01.07.2016, the is that, furnishing of Form 3CL the weighted component of deduction ced by the assessee on the rendered by this Tribunal in their own case in earlier AY 2011- was prior tothe insertion of the aforementioned Rule. position of law, the aforesaid decision is no longer applicable in the relevant AY 2017-18. For the aforesaid reasons therefore, since the expenses to the tune of Rs.23,14,39,697/ Form 3CL, in light of the restriction set out in Rule Income-tax Rules,1962 deduction u/s 35(2AB) see no reason to interfere with the order of Ld. CIT(A) on this aspect and hence confirm the same. This ground 5. Ground No.4 is regarding the disallowance of deduction claimed u/s 80-IC of the Act to the extent of Rs.23,99,06,451/ 5.1 The facts as noted are that, the assessee had claimed deduction of Rs.235,18,59,051/- u/s 80 by its eligible unit at Pantnagar. Upon examination of the stand accounts of the assessee, the AO noted that the assessee had apportioned and credited revenue from spare parts and Annual Maintenance Charges (‘AMC’) revenue including interest and other income aggregating to Rs.229.85 crores to the eligible unit and claimed deduction u/s 80-IC in relation thereto. According to the AO, these items of revenues could not be said to have been derived from the eligible undertaking and therefore held that they were not eligible for ITA No. M/s. Ashok Leyland Ltd. ::6 :: insertion of the aforementioned Rule. Accordingly, due to the change in , the aforesaid decision is no longer applicable in the 18. For the aforesaid reasons therefore, since the expenses to the tune of Rs.23,14,39,697/- was not approved by DSIR in Form 3CL, in light of the restriction set out in Rule 6(7A)(b) tax Rules,1962, the Ld. CIT(A) had rightly denied deduction u/s 35(2AB) to the extent of Rs.23,14,39,967/- see no reason to interfere with the order of Ld. CIT(A) on this aspect and hence confirm the same. This ground therefore stands dismissed. Ground No.4 is regarding the disallowance of deduction claimed u/s IC of the Act to the extent of Rs.23,99,06,451/-. The facts as noted are that, the assessee had claimed deduction of u/s 80-IC of the Act, in respect of the profits derived by its eligible unit at Pantnagar. Upon examination of the stand accounts of the assessee, the AO noted that the assessee had apportioned and credited revenue from spare parts and Annual Charges (‘AMC’) revenue including interest and other income aggregating to Rs.229.85 crores to the eligible unit and claimed deduction IC in relation thereto. According to the AO, these items of revenues could not be said to have been derived from the operations of the eligible undertaking and therefore held that they were not eligible for ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. Accordingly, due to the change in , the aforesaid decision is no longer applicable in the 18. For the aforesaid reasons therefore, since the was not approved by DSIR in 6(7A)(b) of the , the Ld. CIT(A) had rightly denied weighted -. We therefore see no reason to interfere with the order of Ld. CIT(A) on this aspect and therefore stands dismissed. Ground No.4 is regarding the disallowance of deduction claimed u/s The facts as noted are that, the assessee had claimed deduction of e Act, in respect of the profits derived by its eligible unit at Pantnagar. Upon examination of the stand-alone accounts of the assessee, the AO noted that the assessee had inter alia apportioned and credited revenue from spare parts and Annual Charges (‘AMC’) revenue including interest and other income aggregating to Rs.229.85 crores to the eligible unit and claimed deduction IC in relation thereto. According to the AO, these items of the operations of the eligible undertaking and therefore held that they were not eligible for deduction u/s 80-IC of the Act. The AO, accordingly, re eligible turnover of Pantnagar Unit (after excluding the aforesaid revenues) and worked out turnover at Rs.211,19,52,600/ u/s 80-IC of the Act to the extent of Rs.23,89,06,451/ Ld. CIT(A) upheld the order of the AO. Now the assessee is in appeal before us. 5.2 We have heard both the parties and perused the material placed before us. From the order of the lower authorities, it is noted that the following items of income were excluded by the AO while computing the turnover/income of the eligible u u/s 80-IC of the Act was correspondingly reduced. (i) Revenue from sale of spare parts (ii) AMC Charges (iii) Scrap sales (iv) Freight recovery (v) Interest income from investments (vi) Other income (Marketing) Total 5.3 We shall deal with each of the above items of revenue separately. From the facts available before us, it is noted that the assessee is an automotive manufacturer. It had set up a chassis manufacturing unit at Pantnagar. It was brought to our notice that al ITA No. M/s. Ashok Leyland Ltd. ::7 :: IC of the Act. The AO, accordingly, re eligible turnover of Pantnagar Unit (after excluding the aforesaid revenues) and worked out the eligible deduction u/s 80- turnover at Rs.211,19,52,600/-. Hence, the AO disallowed the deduction IC of the Act to the extent of Rs.23,89,06,451/-. On appeal, the Ld. CIT(A) upheld the order of the AO. Now the assessee is in appeal We have heard both the parties and perused the material placed before us. From the order of the lower authorities, it is noted that the following items of income were excluded by the AO while computing the turnover/income of the eligible unit and accordingly, the eligible deduction IC of the Act was correspondingly reduced. Revenue from sale of spare parts Rs.126.49 crores Rs.35 crores Rs.18.5 crores Rs.49.8 crores Interest income from investments Rs.8.13 crores Other income (Marketing) Rs.12.47 crores Rs.229.85 crores We shall deal with each of the above items of revenue separately. From the facts available before us, it is noted that the assessee is an automotive manufacturer. It had set up a chassis manufacturing unit at Pantnagar. It was brought to our notice that all the sales of the vehicles ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. IC of the Act. The AO, accordingly, re-calculated the eligible turnover of Pantnagar Unit (after excluding the aforesaid -IC at 9.5% of . Hence, the AO disallowed the deduction . On appeal, the Ld. CIT(A) upheld the order of the AO. Now the assessee is in appeal We have heard both the parties and perused the material placed before us. From the order of the lower authorities, it is noted that the following items of income were excluded by the AO while computing the nit and accordingly, the eligible deduction Rs.126.49 crores Rs.35 crores Rs.18.5 crores crores Rs.8.13 crores Rs.12.47 crores Rs.229.85 crores We shall deal with each of the above items of revenue separately. From the facts available before us, it is noted that the assessee is an automotive manufacturer. It had set up a chassis manufacturing unit at l the sales of the vehicles manufactured in various units are identifiable by their chassis numbers, which contains an identification of the manufacturing unit. The assessee being a manufacturer of commercial vehicles, is therefore required to provide parts and spares for smooth functioning of the vehicles sold, for their maintenance and upkeep. These spare parts supplied are quality checked and approved for usage in the vehicles, which comprises of bought out components and also certain manufactured in components. The Ld. AR for the assessee pointed out that the sale of these spare parts to their customers is necessary and intrinsically linked with the sales as the assessee being a manufacturer is required to ensure that their products remain defect f also to facilitate the replacement or removal of the defects through genuine spare parts to be made available during the lifetime of the vehicle. It was submitted that any inappropriate or spurious spare parts would result in damage of the vehicle parts or compromise the vehicle quality, which would resultantly cause consumer dissatisfaction, breach of warranty as well as consumer litigation. It was therefore contended before us that the supply and sale of these spare manufactured as well as bought out components, were intrinsically linked to the manufacture and sale of its commercial vehicles and therefore, the same was rightly apportioned in the ratio of the total turnover and credited in the stand-alone ITA No. M/s. Ashok Leyland Ltd. ::8 :: manufactured in various units are identifiable by their chassis numbers, which contains an identification of the manufacturing unit. The assessee being a manufacturer of commercial vehicles, is therefore required to s and spares for smooth functioning of the vehicles sold, for their maintenance and upkeep. These spare parts supplied are quality checked and approved for usage in the vehicles, which comprises of bought out components and also certain manufactured in components. The Ld. AR for the assessee pointed out that the sale of these spare parts to their customers is necessary and intrinsically linked with the sales as the assessee being a manufacturer is required to ensure that their products remain defect free during their period of warranty and also to facilitate the replacement or removal of the defects through genuine spare parts to be made available during the lifetime of the vehicle. It was submitted that any inappropriate or spurious spare parts result in damage of the vehicle parts or compromise the vehicle quality, which would resultantly cause consumer dissatisfaction, breach of warranty as well as consumer litigation. It was therefore contended before us that the supply and sale of these spare manufactured as well as bought out components, were intrinsically linked to the manufacture and sale of its commercial vehicles and therefore, the same was rightly apportioned in the ratio of the total turnover and alone accounts of the eligible unit. The assessee has ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. manufactured in various units are identifiable by their chassis numbers, which contains an identification of the manufacturing unit. The assessee being a manufacturer of commercial vehicles, is therefore required to s and spares for smooth functioning of the vehicles sold, for their maintenance and upkeep. These spare parts supplied are quality checked and approved for usage in the vehicles, which comprises of bought out components and also certain manufactured in-house components. The Ld. AR for the assessee pointed out that the sale of these spare parts to their customers is necessary and intrinsically linked with the sales as the assessee being a manufacturer is required to ensure ree during their period of warranty and also to facilitate the replacement or removal of the defects through genuine spare parts to be made available during the lifetime of the vehicle. It was submitted that any inappropriate or spurious spare parts result in damage of the vehicle parts or compromise the vehicle quality, which would resultantly cause consumer dissatisfaction, breach of warranty as well as consumer litigation. It was therefore contended before us that the supply and sale of these spare parts, both manufactured as well as bought out components, were intrinsically linked to the manufacture and sale of its commercial vehicles and therefore, the same was rightly apportioned in the ratio of the total turnover and accounts of the eligible unit. The assessee has therefore urged that the lower authorities were unjustified in not considering the aforesaid revenues as a part of the turnover of the eligible unit. The Ld. CIT, DR on the other hand supported the order of t authorities. 5.4 Having considered the facts relating to this issue, it is an undisputed fact that the assessee is engaged in the business of manufacture and supply of commercial vehicles. During the year, the assessee had manufactured and sold 4 Pantnagar Unit, which yielded revenue of Rs.7410.36 crores. Having regard to the nature of the product supplied, it is necessitated for the assessee to supply spare parts to the customers for the upkeep and maintenance of these vehicles. This supply is not only required to be made during the period of warranty but it is also required to be ensured by the assessee that these spare parts are readily available for their customers even post completion of the warranty pe unless and until the customers are ensured that the necessary genuine spare parts are available, which are inextricably linked to their use of the commercial vehicles, the sale of these vehicles would indeed be severely hampered. We are therefore in agreement with the assessee that they are required to manufacture these parts and also obtain and supply certain bought out components from genuine suppliers (which cannot be manufactured by them) in relation to these commercial vehicles ITA No. M/s. Ashok Leyland Ltd. ::9 :: therefore urged that the lower authorities were unjustified in not considering the aforesaid revenues as a part of the turnover of the eligible unit. The Ld. CIT, DR on the other hand supported the order of t Having considered the facts relating to this issue, it is an undisputed fact that the assessee is engaged in the business of manufacture and supply of commercial vehicles. During the year, the assessee had manufactured and sold 46181 number of vehicles from its eligible Pantnagar Unit, which yielded revenue of Rs.7410.36 crores. Having regard to the nature of the product supplied, it is necessitated for the assessee to supply spare parts to the customers for the upkeep and ance of these vehicles. This supply is not only required to be made during the period of warranty but it is also required to be ensured by the assessee that these spare parts are readily available for their customers even post completion of the warranty period. Reason being, unless and until the customers are ensured that the necessary genuine spare parts are available, which are inextricably linked to their use of the commercial vehicles, the sale of these vehicles would indeed be severely therefore in agreement with the assessee that they are required to manufacture these parts and also obtain and supply certain bought out components from genuine suppliers (which cannot be manufactured by them) in relation to these commercial vehicles ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. therefore urged that the lower authorities were unjustified in not considering the aforesaid revenues as a part of the turnover of the eligible unit. The Ld. CIT, DR on the other hand supported the order of the lower Having considered the facts relating to this issue, it is an undisputed fact that the assessee is engaged in the business of manufacture and supply of commercial vehicles. During the year, the assessee had 6181 number of vehicles from its eligible Pantnagar Unit, which yielded revenue of Rs.7410.36 crores. Having regard to the nature of the product supplied, it is necessitated for the assessee to supply spare parts to the customers for the upkeep and ance of these vehicles. This supply is not only required to be made during the period of warranty but it is also required to be ensured by the assessee that these spare parts are readily available for their riod. Reason being, unless and until the customers are ensured that the necessary genuine spare parts are available, which are inextricably linked to their use of the commercial vehicles, the sale of these vehicles would indeed be severely therefore in agreement with the assessee that they are required to manufacture these parts and also obtain and supply certain bought out components from genuine suppliers (which cannot be manufactured by them) in relation to these commercial vehicles manufactured and sold by them. In our considered view revenue derived from the sale of spare parts and bought out components in relation to the commercial vehicles sold by the eligible unit, indeed was intrinsically linked to the operations of t and was therefore eligible for deduction u/s 80 5.5 We find that somewhat similar issue was involved in the decision rendered by the Mumbai Bench of this Tribunal in the case of Engineers Limited vs J derived from sale of bought out components, which were integral to the products manufactured by the assessee, was held to be eligible for deduction u/s 80-IC of the Act. The findings rendered in this decision, which are found to be relevant to the present case is as follows: “27. The issue of purchasing different components, different equipments and spare parts from various concerns and their assembly, fabrication and erection into plant known as ETP was considered at Bench of Tribunal in Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 and after deliberation at length on the facts, decision of Apex Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 4121 and various other judicial pronouncements of va was covered within the definition of manufacturing of an article or thing. …. It was further held as under : \"In the instant case, the assessee was purchasing different components, different equipments and spare were assembling those components, equipments and accessories and thereby they were preparing fabricating and erecting a plant which was known as ETP. The ultimate end product which was prepared as a result of assembling of various components with the constant application of ITA No. M/s. Ashok Leyland Ltd. ::10 :: factured and sold by them. In our considered view revenue derived from the sale of spare parts and bought out components in relation to the commercial vehicles sold by the eligible unit, indeed was intrinsically linked to the operations of the eligible industrial undertaking and was therefore eligible for deduction u/s 80-IC of the Act. We find that somewhat similar issue was involved in the decision rendered by the Mumbai Bench of this Tribunal in the case of Engineers Limited vs JCIT (112 TTJ 940), wherein the revenues derived from sale of bought out components, which were integral to the products manufactured by the assessee, was held to be eligible for IC of the Act. The findings rendered in this decision, are found to be relevant to the present case is as follows: 27. The issue of purchasing different components, different equipments and spare parts from various concerns and their assembly, fabrication and erection into plant known as ETP was considered at length by Delhi Bench of Tribunal in Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 and after deliberation at length on the facts, decision of Apex Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 4121 and various other judicial pronouncements of various courts, it was held that the assessee was covered within the definition of manufacturing of an article or thing. It was further held as under : \"In the instant case, the assessee was purchasing different components, different equipments and spare parts from various other parties and were assembling those components, equipments and accessories and thereby they were preparing fabricating and erecting a plant which was known as ETP. The ultimate end product which was prepared as a result of various components with the constant application of ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. factured and sold by them. In our considered view therefore, the revenue derived from the sale of spare parts and bought out components in relation to the commercial vehicles sold by the eligible unit, indeed was he eligible industrial undertaking IC of the Act. We find that somewhat similar issue was involved in the decision rendered by the Mumbai Bench of this Tribunal in the case of Mihir wherein the revenues derived from sale of bought out components, which were integral to the products manufactured by the assessee, was held to be eligible for IC of the Act. The findings rendered in this decision, are found to be relevant to the present case is as follows: 27. The issue of purchasing different components, different equipments and spare parts from various concerns and their assembly, fabrication length by Delhi Bench of Tribunal in Degremont India Ltd. v. Dy. CIT [1996] 59 ITD 423 and after deliberation at length on the facts, decision of Apex Court in CIT v. N.C. Budharaja & Co. [1993] 204 ITR 4121 and various other rious courts, it was held that the assessee was covered within the definition of manufacturing of an article or thing. \"In the instant case, the assessee was purchasing different components, parts from various other parties and were assembling those components, equipments and accessories and thereby they were preparing fabricating and erecting a plant which was known as ETP. The ultimate end product which was prepared as a result of various components with the constant application of technical know-how was the ETP. The ETP was obvi different plant than the various components, equip got manufactured according to the tailor made requirement fr different suppliers. The activities carried out by the assessee were, therefore, clearly covered within the definition of manufacture of an article or thing. … 31.…….The situs of assembly of end not disentitle the assessee from its claim of deduction under section 80 IA of the Act in respect of bought out components utilized for the erection of the said cooling towers. There is no merit in the contention of the learned DR that excise duty is paid only on manufac levy of Excise Duty is governed by Excise Laws. There is no merit in denial of exemption under section 80 items as the same are not subjected to Excise Duty. The assessee prepares two different bills, one for other for bought out components, both of which are utilized for the erection of cooling tower. The assessee raises separate bills for transportation, erection and service charges. The profits on sale of the manufactured items and bought out components are eligible for deduction under section 80 32. Thus, after considering the entire relevant material and decisions of the various High Courts and Tribunal, we are of the view that the assessee is entitled to the the Act both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter flow (CM series) cooling towers. 5.6 Likewise, we find that similar view has bee Tribunal at Chandigarh in the case of No. 1273/Chd/2010) dated 27.06.2012 Engineering Devices Ltd. vs Addln. CIT (ITA No. 1130/Chd/2012) dated 11.06.2013, wherein on similar facts, it was hel revenues derived from sale of spares and bought out components was eligible for deduction u/s 80 ITA No. M/s. Ashok Leyland Ltd. ::11 :: how was the ETP. The ETP was obvi-ously distinct and different plant than the various components, equip- ments, purchased or got manufactured according to the tailor made requirement fr different suppliers. The activities carried out by the assessee were, therefore, clearly covered within the definition of manufacture of an The situs of assembly of end-product being client’s premises does the assessee from its claim of deduction under section 80 IA of the Act in respect of bought out components utilized for the erection of the said cooling towers. There is no merit in the contention of the learned DR that excise duty is paid only on manufactured items. The levy of Excise Duty is governed by Excise Laws. There is no merit in denial of exemption under section 80-IA of the IT Act on bought out items as the same are not subjected to Excise Duty. The assessee prepares two different bills, one for excisable manufactures items and other for bought out components, both of which are utilized for the erection of cooling tower. The assessee raises separate bills for transportation, erection and service charges. The profits on sale of the ems and bought out components are eligible for deduction under section 80-IA of the Act. Thus, after considering the entire relevant material and decisions of the various High Courts and Tribunal, we are of the view that the assessee is entitled to the benefit of deduction under section 80 the Act both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter flow (CM series) cooling towers.” Likewise, we find that similar view has been expressed by this Tribunal at Chandigarh in the case of BNAL Prefab vs Addln. CIT (ITA No. 1273/Chd/2010) dated 27.06.2012 and Engineering Devices Ltd. vs Addln. CIT (ITA No. 1130/Chd/2012) , wherein on similar facts, it was hel revenues derived from sale of spares and bought out components was eligible for deduction u/s 80-IC of the Act. For the foregoing reasons ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. ously distinct and ments, purchased or got manufactured according to the tailor made requirement from the different suppliers. The activities carried out by the assessee were, therefore, clearly covered within the definition of manufacture of an product being client’s premises does the assessee from its claim of deduction under section 80- IA of the Act in respect of bought out components utilized for the erection of the said cooling towers. There is no merit in the contention of tured items. The levy of Excise Duty is governed by Excise Laws. There is no merit in IA of the IT Act on bought out items as the same are not subjected to Excise Duty. The assessee excisable manufactures items and other for bought out components, both of which are utilized for the erection of cooling tower. The assessee raises separate bills for transportation, erection and service charges. The profits on sale of the ems and bought out components are eligible for Thus, after considering the entire relevant material and decisions of the various High Courts and Tribunal, we are of the view that the benefit of deduction under section 80-IA of the Act both on the manufactured items and the bought out components, used for the erection of cross flow (XE series) and counter n expressed by this BNAL Prefab vs Addln. CIT (ITA and M/s Spray Engineering Devices Ltd. vs Addln. CIT (ITA No. 1130/Chd/2012) , wherein on similar facts, it was held that the revenues derived from sale of spares and bought out components was IC of the Act. For the foregoing reasons therefore, we hold that, in the present case also, the revenue from spares parts of Rs.126.49 crores was in manufactured vehicles and hence is held to be eligible for deduction u/s 80-IC of the Act. 5.7 The next item of revenue is the revenue derived from service/AMC charges amounting to Rs.35 crores. It is the case of the asse such AMC charges are directly relatable to the business carried on by the assessee of manufacturing commercial vehicles in order to ensure that the vehicles supplied remain defect free and function not only for the committed warranty but also dur Revenue however has contended that such service charges cannot be said to be derived from the eligible business. Having considered the impugned issue, we find that this identical claim had come up before the Chandigarh Bench of this Tribunal in the case of Limited (supra) wherein, this Tribunal, following the decision of the Hon’ble Himachal Pradesh High Court, in the assessee’s own case has allowed the deduction u/s 80 assessee. The relevant observations of the Tribunal reads as under: “52. The assessee has furnished on record communication with certain customers to whom it had supplied the cooling and condensing systems and Annual Maintenance Contract (AMC) of carried out by the assessee at negotiated terms and conditions. The claim of the assessee was that it was providing AMC to only such cooling and condensing systems, which were manufactured by it and supplied to ITA No. M/s. Ashok Leyland Ltd. ::12 :: therefore, we hold that, in the present case also, the revenue from spares parts of Rs.126.49 crores was inextricably linked with the sale of manufactured vehicles and hence is held to be eligible for deduction u/s The next item of revenue is the revenue derived from service/AMC charges amounting to Rs.35 crores. It is the case of the asse such AMC charges are directly relatable to the business carried on by the assessee of manufacturing commercial vehicles in order to ensure that the vehicles supplied remain defect free and function not only for the committed warranty but also during the lifetime of the product. The Revenue however has contended that such service charges cannot be said to be derived from the eligible business. Having considered the impugned issue, we find that this identical claim had come up before the Chandigarh Bench of this Tribunal in the case of Spray Engineering Devices wherein, this Tribunal, following the decision of the Hon’ble Himachal Pradesh High Court, in the assessee’s own case has allowed the deduction u/s 80-IC on AMC charges receive assessee. The relevant observations of the Tribunal reads as under: 52. The assessee has furnished on record communication with certain customers to whom it had supplied the cooling and condensing systems and Annual Maintenance Contract (AMC) of the said systems were to be carried out by the assessee at negotiated terms and conditions. The claim of the assessee was that it was providing AMC to only such cooling and condensing systems, which were manufactured by it and supplied to ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. therefore, we hold that, in the present case also, the revenue from spares extricably linked with the sale of manufactured vehicles and hence is held to be eligible for deduction u/s The next item of revenue is the revenue derived from service/AMC charges amounting to Rs.35 crores. It is the case of the assessee that such AMC charges are directly relatable to the business carried on by the assessee of manufacturing commercial vehicles in order to ensure that the vehicles supplied remain defect free and function not only for the ing the lifetime of the product. The Revenue however has contended that such service charges cannot be said to be derived from the eligible business. Having considered the impugned issue, we find that this identical claim had come up before the Chandigarh Spray Engineering Devices wherein, this Tribunal, following the decision of the Hon’ble Himachal Pradesh High Court, in the assessee’s own case has IC on AMC charges received by the assessee. The relevant observations of the Tribunal reads as under:- 52. The assessee has furnished on record communication with certain customers to whom it had supplied the cooling and condensing systems the said systems were to be carried out by the assessee at negotiated terms and conditions. The claim of the assessee was that it was providing AMC to only such cooling and condensing systems, which were manufactured by it and supplied to the customers as based, depending on the size of the sugar mill and type of the existing sugar mill. The total AMC charges received by the assessee during the year were Rs.37,75,423/ High Court in assessee's own case in ITA No.39 of 2006 vide decision dated 7.11.2009 had held that the words 'derived from' in section 80IB of the Act were much narrower in connotation as compared to the words 'attributable to'. It was further laid dow would be entitled to claim deductions under Section 80 shows that the profit is derived from the business of such Industrial Undertaking. The income should be derived from the operational profits of the business and the source of income should be business itself. The Hon'ble High Court after laying down the above said principles held that the assessee was entitled to claim deduction under section 80IB of the Act on MODVAT credit and also erection and commissio being directly relatable to the business and the source of the income being business itself. The Hon'ble High Court further held that When the assessee is engaged in the business of manufacture, the work 'manufacture' cannot be read so narrow to the price of the goods sold. If the manufacturer is required by the customer to erect and commission the machinery the amount received by it on this count is income derived from the business itself and therefore eligible for deduction under Section 80 53. Following the above said parity of reasoning and in view of the factual aspect brought on record by the assessee, we hold that AMC charges received by the assessee are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC of the Act. Ground No.3 raised by the assessee is allowed.\" 5.8 We further note that, the Hon’b CIT vs International Data Management Limited (261 ITR also held that, where the assessee derives income from rendering service and maintenance facilities to its clients in relation to the product supplied, then such service charges are entitled to deduction u/s 80 The relevant observations of the Hon’ble High Court, taken note of by us, is as follows:- ITA No. M/s. Ashok Leyland Ltd. ::13 :: the customers as the systems provided by the assessee were client based, depending on the size of the sugar mill and type of the existing sugar mill. The total AMC charges received by the assessee during the year were Rs.37,75,423/-. We find that the Hon'ble Himachal Prad High Court in assessee's own case in ITA No.39 of 2006 vide decision dated 7.11.2009 had held that the words 'derived from' in section 80IB of the Act were much narrower in connotation as compared to the words 'attributable to'. It was further laid down that The Industrial Undertaking would be entitled to claim deductions under Section 80- shows that the profit is derived from the business of such Industrial Undertaking. The income should be derived from the operational profits ess and the source of income should be business itself. The Hon'ble High Court after laying down the above said principles held that the assessee was entitled to claim deduction under section 80IB of the Act on MODVAT credit and also erection and commissioning charges, being directly relatable to the business and the source of the income being business itself. The Hon'ble High Court further held that When the assessee is engaged in the business of manufacture, the work 'manufacture' cannot be read so narrowly so as to limit the amount only to the price of the goods sold. If the manufacturer is required by the customer to erect and commission the machinery the amount received by it on this count is income derived from the business itself and e for deduction under Section 80-IB. 53. Following the above said parity of reasoning and in view of the factual aspect brought on record by the assessee, we hold that AMC charges received by the assessee are directly relatable to the business by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC of the Act. Ground No.3 raised by the assessee is allowed.\" We further note that, the Hon’ble Bombay High Court in the case of CIT vs International Data Management Limited (261 ITR also held that, where the assessee derives income from rendering service and maintenance facilities to its clients in relation to the product supplied, such service charges are entitled to deduction u/s 80 The relevant observations of the Hon’ble High Court, taken note of by us, ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. the systems provided by the assessee were client based, depending on the size of the sugar mill and type of the existing sugar mill. The total AMC charges received by the assessee during the . We find that the Hon'ble Himachal Pradesh High Court in assessee's own case in ITA No.39 of 2006 vide decision dated 7.11.2009 had held that the words 'derived from' in section 80IB of the Act were much narrower in connotation as compared to the words n that The Industrial Undertaking -IB only if it shows that the profit is derived from the business of such Industrial Undertaking. The income should be derived from the operational profits ess and the source of income should be business itself. The Hon'ble High Court after laying down the above said principles held that the assessee was entitled to claim deduction under section 80IB of the ning charges, being directly relatable to the business and the source of the income being business itself. The Hon'ble High Court further held that When the assessee is engaged in the business of manufacture, the work ly so as to limit the amount only to the price of the goods sold. If the manufacturer is required by the customer to erect and commission the machinery the amount received by it on this count is income derived from the business itself and 53. Following the above said parity of reasoning and in view of the factual aspect brought on record by the assessee, we hold that AMC charges received by the assessee are directly relatable to the business by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC of the Act. Ground No.3 raised by le Bombay High Court in the case of CIT vs International Data Management Limited (261 ITR 177) has also held that, where the assessee derives income from rendering service and maintenance facilities to its clients in relation to the product supplied, such service charges are entitled to deduction u/s 80-I of the Act. The relevant observations of the Hon’ble High Court, taken note of by us, “According to the Assessing Officer, receipts by way of service and maintenance charges have been manufacturing operations. That these receipts cannot form part of profits derived from industrial undertaking. Therefore, the Assessing Officer excluded receipt of service charges and maintenance charges from the eligible p business of manufacture and sale of mini micro-based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribu orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between the impugned receipts and th This is a finding of fact also recorded by the Tribunal. We do not see any reason to interfere with this finding of fact. Accordingly, we answer the question in the affirmative, the Department.” 5.9 Likewise, we find that the Hon’ble Gauhati High Court also in the case of Torsa Machines Ltd. vs CIT (389 ITR 377) revenue from service charges is derived from the manufacturing activities of the eligible unit and thus was entitled for deduction u/s 80 Act. Respectfully following the decisions cited (supra), assessee is entitled to deduction u/s 80 5.10 In relation to the revenue of Rs.18.50 crores derived from scrap, it was brought to our notice that the generated from the operations of the Understandably, in any manufacturing operation, particularly that of vehicles in the present case, certain scrap materials are generated, which have saleable value. According to us, it would be improper to say that such scrap has no direct link or nexus ITA No. M/s. Ashok Leyland Ltd. ::14 :: According to the Assessing Officer, receipts by way of service and maintenance charges have been included in profits derived from manufacturing operations. That these receipts cannot form part of profits derived from industrial undertaking. Therefore, the Assessing Officer excluded receipt of service charges and maintenance charges from the eligible profits. In this case, the assessee is engaged in the business of manufacture and sale of data processing cards, ribbons and based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribu orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between the impugned receipts and the main business activity of the assessee. This is a finding of fact also recorded by the Tribunal. We do not see any reason to interfere with this finding of fact. Accordingly, we answer the question in the affirmative, i.e., in favour of the assessee and ” Likewise, we find that the Hon’ble Gauhati High Court also in the Torsa Machines Ltd. vs CIT (389 ITR 377), has held that the revenue from service charges is derived from the manufacturing activities t and thus was entitled for deduction u/s 80 Respectfully following the decisions cited (supra), we hold that the assessee is entitled to deduction u/s 80-IC on the AMC charges. In relation to the revenue of Rs.18.50 crores derived from scrap, it was brought to our notice that the foregoing receipts were generated from the operations of the eligible industrial undertaking Understandably, in any manufacturing operation, particularly that of vehicles in the present case, certain scrap materials are generated, which have saleable value. According to us, it would be improper to say that such scrap has no direct link or nexus with the manufacturing operations ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. According to the Assessing Officer, receipts by way of service and included in profits derived from manufacturing operations. That these receipts cannot form part of profits derived from industrial undertaking. Therefore, the Assessing Officer excluded receipt of service charges and maintenance charges rofits. In this case, the assessee is engaged in the processing cards, ribbons and based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribunal in its orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between e main business activity of the assessee. This is a finding of fact also recorded by the Tribunal. We do not see any reason to interfere with this finding of fact. Accordingly, we answer the ., in favour of the assessee and against Likewise, we find that the Hon’ble Gauhati High Court also in the , has held that the revenue from service charges is derived from the manufacturing activities t and thus was entitled for deduction u/s 80-IC of the we hold that the IC on the AMC charges. In relation to the revenue of Rs.18.50 crores derived from sale of foregoing receipts were industrial undertaking. Understandably, in any manufacturing operation, particularly that of vehicles in the present case, certain scrap materials are generated, which have saleable value. According to us, it would be improper to say that with the manufacturing operations of the eligible business. sale of scrap materials is eligible unit. Our view finds support from the decision of Calcutta High Court in the case of (231 Taxman 585) and Sadhu Forgings Ltd (11 taxmann.com 322) also be made to the jurisdictional Madras High Court in the case of ACIT (125 Taxman 386) \"13. As already stated, in the industrial undertaking in the manufacture of V-Belts, oil seals, O materials resulted in, which has a saleable value. To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance, especially, on the facts and in the circumstances may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such as V-Belts, oil seals, O In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are derived from the industrial unde income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee.\" 5.11 In view of the above therefore, the AO is directed to include the revenues derived from sale of scrap of Rs.18.50 crores while working out the deduction of the eligible Pantnagar Unit u/s 80 5.12 The next item of revenue is the recovery of the freight charges from the customers which was incurred on their behalf amounting to Rs. 49.8 ITA No. M/s. Ashok Leyland Ltd. ::15 :: of the eligible business. According to us therefore, revenue derived from sale of scrap materials is includible while working out the profits of the eligible unit. Our view finds support from the decision of lcutta High Court in the case of Reckitt Benckiser India Ltd Vs ACIT and Hon'ble Delhi High Court in the case of Sadhu Forgings Ltd (11 taxmann.com 322). Gainful reference may the following findings rendered by Madras High Court in the case of Fenner India Ltd Vs ACIT (125 Taxman 386), which are as follows:- \"13. As already stated, in the industrial undertaking in the manufacture Belts, oil seals, O-Rings and rubber moulded products, ce materials resulted in, which has a saleable value. To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance, especially, on the facts and in the circumstances of the case. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such Belts, oil seals, O-Rings and certain rubber moulded products, In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are derived from the industrial undertaking and includible in the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee.\" In view of the above therefore, the AO is directed to include the ved from sale of scrap of Rs.18.50 crores while working out the deduction of the eligible Pantnagar Unit u/s 80-IC of the Act. The next item of revenue is the recovery of the freight charges from the customers which was incurred on their behalf amounting to Rs. 49.8 ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. According to us therefore, revenue derived from includible while working out the profits of the eligible unit. Our view finds support from the decision of the Hon'ble Reckitt Benckiser India Ltd Vs ACIT Hon'ble Delhi High Court in the case of CIT Vs . Gainful reference may following findings rendered by the Hon'ble Fenner India Ltd Vs \"13. As already stated, in the industrial undertaking in the manufacture Rings and rubber moulded products, certain scrap materials resulted in, which has a saleable value. To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance, especially, on the of the case. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such Rings and certain rubber moulded products, etc. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are rtaking and includible in the gross total income of the assessee and the question relatable to the profit on the In view of the above therefore, the AO is directed to include the ved from sale of scrap of Rs.18.50 crores while working out IC of the Act. The next item of revenue is the recovery of the freight charges from the customers which was incurred on their behalf amounting to Rs. 49.8 crores. It was brought to our notice that, the assessee incurs freight cost in the course of manufacture and sale of recovered from the customers. The Ld. AR showed us that the freight costs was debited in the standalone accounts of the eligible unit at Pantnagar and therefore, the recovery of such freight cost from the customers which was shown by way of separate credit in the standalone accounts, effectively went on to reduce the overall freight cost of the eligible unit. According to the Ld. AR, only because the freight recoveries have been shown on the credit side of the standalone a reason to hold that it was not intrinsically linked to the eligible business. On the other hand, the Ld. CIT, DR argued that the recoveries of freight cost did not arise from the manufacturing operations of the eligible unit and therefore cannot be said to be ‘derived’ from the eligible business. 5.13 Having considered the rival submissions, we are in agreement with the Ld. AR that the freight recovered by the assessee was towards the freight cost incurred in the course of manufacture an commercial vehicles, which had already been debited to the standalone accounts of the eligible unit. Accordingly, the freight recoveries in a way has reduced its overall burden of freight cost. Hence, in that view of the matter, it would be imp the operations of the eligible business and is therefore required to be deducted while computing the eligible profits, but at the same time, the ITA No. M/s. Ashok Leyland Ltd. ::16 :: crores. It was brought to our notice that, the assessee incurs freight cost in the course of manufacture and sale of its commercial vehicles, which is recovered from the customers. The Ld. AR showed us that the freight costs was debited in the standalone accounts of the eligible unit at Pantnagar and therefore, the recovery of such freight cost from the was shown by way of separate credit in the standalone accounts, effectively went on to reduce the overall freight cost of the eligible unit. According to the Ld. AR, only because the freight recoveries have been shown on the credit side of the standalone accounts, cannot be reason to hold that it was not intrinsically linked to the eligible business. On the other hand, the Ld. CIT, DR argued that the recoveries of freight cost did not arise from the manufacturing operations of the eligible unit e cannot be said to be ‘derived’ from the eligible business. Having considered the rival submissions, we are in agreement with the Ld. AR that the freight recovered by the assessee was towards the freight cost incurred in the course of manufacture an commercial vehicles, which had already been debited to the standalone accounts of the eligible unit. Accordingly, the freight recoveries in a way has reduced its overall burden of freight cost. Hence, in that view of the matter, it would be imprudent to hold that the freight cost is relatable to the operations of the eligible business and is therefore required to be deducted while computing the eligible profits, but at the same time, the ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. crores. It was brought to our notice that, the assessee incurs freight cost its commercial vehicles, which is recovered from the customers. The Ld. AR showed us that the freight costs was debited in the standalone accounts of the eligible unit at Pantnagar and therefore, the recovery of such freight cost from the was shown by way of separate credit in the standalone accounts, effectively went on to reduce the overall freight cost of the eligible unit. According to the Ld. AR, only because the freight recoveries ccounts, cannot be reason to hold that it was not intrinsically linked to the eligible business. On the other hand, the Ld. CIT, DR argued that the recoveries of freight cost did not arise from the manufacturing operations of the eligible unit e cannot be said to be ‘derived’ from the eligible business. Having considered the rival submissions, we are in agreement with the Ld. AR that the freight recovered by the assessee was towards the freight cost incurred in the course of manufacture and supply of commercial vehicles, which had already been debited to the standalone accounts of the eligible unit. Accordingly, the freight recoveries in a way has reduced its overall burden of freight cost. Hence, in that view of the rudent to hold that the freight cost is relatable to the operations of the eligible business and is therefore required to be deducted while computing the eligible profits, but at the same time, the freight recoveries cannot be treated as part of the same e In this regard, we find that the decision of this Tribunal at Chandigarh in the case of ACIT vs Nalagarh Steel Rolling Mill Pvt. Ltd. (ITA No. 93/Chd/2013) dated 02.08.2013 of the present case wherei relatable to the eligible business and therefore considered for the purposes of computing deduction u/s 80 findings of this Tribunal read as under: “7. After considering the rival been adjudicated by Ld. CIT(A) in para 3.2, which is as under: 3.2 I have considered the submission of the Ld. Counsel. The freight charges shown by the appellant as income are, in fact, freight reimbursement again profit and loss account. Freights are in relation to the purchase of raw materials and sale of finished goods and it is seen the fright charges are included in the sale bill. Only because the reimbursement have be loss account, it does not alter the nature of transactions. The net effect of freight charges being expenditure, disallowance u/s 80IC of the Act should not have been made. Hence, the disallowance of deduction u/s 80IC of the Act on freight charges is deleted. 8. The above clearly shows that freight has been earned on account of carriage of finished goods and raw material and freight has been received form customers. However, this is in the nature of reimbursement if the total expenditure on truck is considered which has already been debited to profit and loss account. If such expenditure is considered, then there is no income on account of freight. When the truck expenses are debited to profit and loss they lead profits, therefore, freight charges would compensate such decrease. Accordingly in our onion, the Ld. CIT(A) has correctly adjudicated the issue.” ITA No. M/s. Ashok Leyland Ltd. ::17 :: freight recoveries cannot be treated as part of the same eligible business. In this regard, we find that the decision of this Tribunal at Chandigarh in ACIT vs Nalagarh Steel Rolling Mill Pvt. Ltd. (ITA No. 93/Chd/2013) dated 02.08.2013 to be squarely applicable to the facts of the present case wherein, the recovery of freight cost was held to be relatable to the eligible business and therefore considered for the purposes of computing deduction u/s 80-IC of the Act. The relevant findings of this Tribunal read as under:- 7. After considering the rival submissions, we find that this issue has been adjudicated by Ld. CIT(A) in para 3.2, which is as under: 3.2 I have considered the submission of the Ld. Counsel. The freight charges shown by the appellant as income are, in fact, freight reimbursement against which expenses have been debited to the profit and loss account. Freights are in relation to the purchase of raw materials and sale of finished goods and it is seen the fright charges are included in the sale bill. Only because the reimbursement have been shown on the credit side of the profit and loss account, it does not alter the nature of transactions. The net effect of freight charges being expenditure, disallowance u/s 80IC of the Act should not have been made. Hence, the disallowance of u/s 80IC of the Act on freight charges is deleted. 8. The above clearly shows that freight has been earned on account of carriage of finished goods and raw material and freight has been received form customers. However, this is in the nature of nt if the total expenditure on truck is considered which has already been debited to profit and loss account. If such expenditure is considered, then there is no income on account of freight. When the truck expenses are debited to profit and loss they lead to decrease in profits, therefore, freight charges would compensate such decrease. Accordingly in our onion, the Ld. CIT(A) has correctly adjudicated the ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. ligible business. In this regard, we find that the decision of this Tribunal at Chandigarh in ACIT vs Nalagarh Steel Rolling Mill Pvt. Ltd. (ITA No. to be squarely applicable to the facts n, the recovery of freight cost was held to be relatable to the eligible business and therefore considered for the IC of the Act. The relevant submissions, we find that this issue has been adjudicated by Ld. CIT(A) in para 3.2, which is as under:- 3.2 I have considered the submission of the Ld. Counsel. The freight charges shown by the appellant as income are, in fact, freight st which expenses have been debited to the profit and loss account. Freights are in relation to the purchase of raw materials and sale of finished goods and it is seen the fright charges are included in the sale bill. Only because the en shown on the credit side of the profit and loss account, it does not alter the nature of transactions. The net effect of freight charges being expenditure, disallowance u/s 80IC of the Act should not have been made. Hence, the disallowance of u/s 80IC of the Act on freight charges is deleted. 8. The above clearly shows that freight has been earned on account of carriage of finished goods and raw material and freight has been received form customers. However, this is in the nature of nt if the total expenditure on truck is considered which has already been debited to profit and loss account. If such expenditure is considered, then there is no income on account of freight. When the to decrease in profits, therefore, freight charges would compensate such decrease. Accordingly in our onion, the Ld. CIT(A) has correctly adjudicated the 5.14 Gainful reference in this regard may also be made to the decision of the Hon’ble Supreme Court in the case of Limited (238 taxman 559) the Government, which were essentially reimbursements t freight costs incurred at the industrially backward districts, was held to be directly linked to the eligible business and hence allowed as deduction u/s 80-IC of the Act. In our considered view, the ratio decidendi laid down in this judgment qua the freight subsidy would apply with equal force to the recovery of freight costs by the assessee from its customers, in the present case. Accordingly, the AO is directed to consider the freight cost recoveries of Rs.49.80 crores for the purposes of comp 80-IC of the Act. 5.15 Now on the issue as to whether the interest income of Rs.8.13 crores is includable or not for computing deduction u/s 80 we find that the action of lower authorities is squarely supported by the decision of the Hon'ble Fenner (India) Ltd (supra) \"14. The other part of the question is relatable to the interest earned by the industrial undertaking. This sort of a question ar consideration in the case of CIT v. Pandian Chemicals Ltd. [1998] 147 CTR (Mad) 5: (1996) 10 MTCR 531 : TC S25.2556. The question relatable to the interest raised therein figured as question no. 3 and it runs as under: Whether, on the facts and in was right in holding that the interest on deposit with the Tamil Nadu ITA No. M/s. Ashok Leyland Ltd. ::18 :: Gainful reference in this regard may also be made to the decision of the Hon’ble Supreme Court in the case of CIT vs Meghalaya Steels Limited (238 taxman 559)wherein, the freight subsidy received from the Government, which were essentially reimbursements t freight costs incurred at the industrially backward districts, was held to be directly linked to the eligible business and hence allowed as deduction u/s IC of the Act. In our considered view, the ratio decidendi laid down in a the freight subsidy would apply with equal force to the recovery of freight costs by the assessee from its customers, in the present case. Accordingly, the AO is directed to consider the freight cost recoveries of Rs.49.80 crores for the purposes of computing deduction u/s Now on the issue as to whether the interest income of Rs.8.13 crores is includable or not for computing deduction u/s 80 we find that the action of lower authorities is squarely supported by the he Hon'ble jurisdictional Madras High Court in the case of Fenner (India) Ltd (supra) wherein it was held as under: \"14. The other part of the question is relatable to the interest earned by the industrial undertaking. This sort of a question ar consideration in the case of CIT v. Pandian Chemicals Ltd. [1998] 147 CTR (Mad) 5: (1996) 10 MTCR 531 : TC S25.2556. The question relatable to the interest raised therein figured as question no. 3 and it Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest on deposit with the Tamil Nadu ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. Gainful reference in this regard may also be made to the decision of CIT vs Meghalaya Steels wherein, the freight subsidy received from the Government, which were essentially reimbursements towards the freight costs incurred at the industrially backward districts, was held to be directly linked to the eligible business and hence allowed as deduction u/s IC of the Act. In our considered view, the ratio decidendi laid down in a the freight subsidy would apply with equal force to the recovery of freight costs by the assessee from its customers, in the present case. Accordingly, the AO is directed to consider the freight cost uting deduction u/s Now on the issue as to whether the interest income of Rs.8.13 crores is includable or not for computing deduction u/s 80-IC of the Act, we find that the action of lower authorities is squarely supported by the Court in the case of held as under: \"14. The other part of the question is relatable to the interest earned by the industrial undertaking. This sort of a question arose for consideration in the case of CIT v. Pandian Chemicals Ltd. [1998] 147 CTR (Mad) 5: (1996) 10 MTCR 531 : TC S25.2556. The question relatable to the interest raised therein figured as question no. 3 and it the circumstances of the case, the Tribunal was right in holding that the interest on deposit with the Tamil Nadu Electricity Board should be treated as income derived from an industrial undertaking for the purpose of relief under s. 80HH? 15. The question by a Division Bench of this Court, which ultimately held that the Tribunal has committed an error of law holding that the interest earned on the deposit with the Tamil Nadu Electricity Board by the ass treated as income derived from industrial undertaking for the purpose of relief under s. 80HH of IT Act. 16. This decision, being that of a Division Bench of this Court, is binding on us and in this view of the matter, there is no other go to conclude that the interest earned by the industrial undertaking cannot at all be eligible to be included in the gross total income for claiming deduction of an amount equal to twenty per cent in the process of computation of the profits a and this part of the question is, therefore, answered against the assessee.\" 5.16 Following the above, we find CIT(A) confirming the AO’s action of excluding the interest Rs.8.13 crores, while computing the deduction u/s 80 5.17 With regard to other income of Rs.12.47 crores, the Ld. AR for the assessee submitted that this comprised of income earned from marketing which was apportioned, similar to alone accounts, on the basis of matching concept of accounting. However, no specific details in this regard demonstrating as to how this income was intrinsically connected with the operations of eligible unit was brough before us or that it had a direct bearing on the marketing costs incurred by the eligible unit. In our considered view, this particular stream of marketing income was an degree nexus between profits and the i ITA No. M/s. Ashok Leyland Ltd. ::19 :: Electricity Board should be treated as income derived from an industrial undertaking for the purpose of relief under s. 80HH? so raised had been discussed in paras.7 to 15 therein by a Division Bench of this Court, which ultimately held that the Tribunal has committed an error of law holding that the interest earned on the deposit with the Tamil Nadu Electricity Board by the assessee should be treated as income derived from industrial undertaking for the purpose of relief under s. 80HH of IT Act. 16. This decision, being that of a Division Bench of this Court, is binding on us and in this view of the matter, there is no other go for us, except to conclude that the interest earned by the industrial undertaking cannot at all be eligible to be included in the gross total income for claiming deduction of an amount equal to twenty per cent in the process of computation of the profits and gains of the said industrial undertaking and this part of the question is, therefore, answered against the Following the above, we find no infirmity in the order of the learned confirming the AO’s action of excluding the interest Rs.8.13 crores, while computing the deduction u/s 80-IC of the Act With regard to other income of Rs.12.47 crores, the Ld. AR for the assessee submitted that this comprised of income earned from marketing which was apportioned, similar to marketing costs debited in the stand alone accounts, on the basis of matching concept of accounting. However, no specific details in this regard demonstrating as to how this income was intrinsically connected with the operations of eligible unit was brough before us or that it had a direct bearing on the marketing costs incurred by the eligible unit. In our considered view, this particular stream of marketing income was an independent source of income beyond the nexus between profits and the industrial undertaking ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. Electricity Board should be treated as income derived from an industrial so raised had been discussed in paras.7 to 15 therein by a Division Bench of this Court, which ultimately held that the Tribunal has committed an error of law holding that the interest earned on the essee should be treated as income derived from industrial undertaking for the purpose of 16. This decision, being that of a Division Bench of this Court, is binding for us, except to conclude that the interest earned by the industrial undertaking cannot at all be eligible to be included in the gross total income for claiming deduction of an amount equal to twenty per cent in the process of nd gains of the said industrial undertaking and this part of the question is, therefore, answered against the no infirmity in the order of the learned confirming the AO’s action of excluding the interest income of IC of the Act. With regard to other income of Rs.12.47 crores, the Ld. AR for the assessee submitted that this comprised of income earned from marketing marketing costs debited in the stand- alone accounts, on the basis of matching concept of accounting. However, no specific details in this regard demonstrating as to how this income was intrinsically connected with the operations of eligible unit was brought before us or that it had a direct bearing on the marketing costs incurred by the eligible unit. In our considered view, this particular stream of independent source of income beyond the first- ndustrial undertaking and therefore, the AO had rightly excluded the same while working out the eligible deduction u/s 80IC of the Act. 5.18 In light of the above findings therefore, the AO is accordingly directed to re-compute the turnover of the eligi the deduction u/s 80-IC after including the revenues derived from sale of spares of Rs.126.49 crores, AMC charges of Rs.35 crores, sale of scrap of Rs.18.5 and freight recovery of Rs.49.8 crores. The other items of income viz., interest income of Rs.8.13 crores and other marketing income of Rs.12.47 crores shall not be considered for the purposes of Section 80 With these directions, the AO is directed to accordingly re the deduction u/s 80-IC of the Act. Needless opportunity of hearing to the assessee before finalizing the computation of deduction u/s 80-IC and shall pass a speaking order in this regard. Hence, this ground stands partly allowed. 6. In the result, the appeal of the as Order pronounced on the Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA लेखासद\u0007य/ACCOUNTANT MEMBER ITA No. M/s. Ashok Leyland Ltd. ::20 :: therefore, the AO had rightly excluded the same while working out the eligible deduction u/s 80IC of the Act. In light of the above findings therefore, the AO is accordingly compute the turnover of the eligible unit for working out IC after including the revenues derived from sale of spares of Rs.126.49 crores, AMC charges of Rs.35 crores, sale of scrap of Rs.18.5 and freight recovery of Rs.49.8 crores. The other items of income erest income of Rs.8.13 crores and other marketing income of Rs.12.47 crores shall not be considered for the purposes of Section 80 With these directions, the AO is directed to accordingly re- IC of the Act. Needless to say, the AO shall afford an opportunity of hearing to the assessee before finalizing the computation IC and shall pass a speaking order in this regard. Hence, this ground stands partly allowed. In the result, the appeal of the assessee is partly allowed. Order pronounced on the 12th day of February, 2025, in Chennai. AMITABH SHUKLA) /ACCOUNTANT MEMBER Sd/ (एबी टी. (ABY T. VARKEY \tयाियकसद\u0007य/JUDICIAL MEMBER ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. therefore, the AO had rightly excluded the same while working out the In light of the above findings therefore, the AO is accordingly ble unit for working out IC after including the revenues derived from sale of spares of Rs.126.49 crores, AMC charges of Rs.35 crores, sale of scrap of Rs.18.5 and freight recovery of Rs.49.8 crores. The other items of income erest income of Rs.8.13 crores and other marketing income of Rs.12.47 crores shall not be considered for the purposes of Section 80-IC. -work and allow to say, the AO shall afford an opportunity of hearing to the assessee before finalizing the computation IC and shall pass a speaking order in this regard. sessee is partly allowed. , in Chennai. Sd/- . वक ) ABY T. VARKEY) /JUDICIAL MEMBER चे\u0003ई/Chennai, \u0005दनांक/Dated: 12th February TLN, Sr.PS आदेश क\r \u000eितिलिप अ\u0014ेिषत/Copy to 1. अपीलाथ\r/Appellant 2. \u000e\u000fथ\r/Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड\u001eफाईल/GF ITA No. M/s. Ashok Leyland Ltd. ::21 :: February, 2025. Copy to: , Chennai / Madurai / Salem / Coimbatore. ITA No. 2377/Chny/2024 (AY2017-18) M/s. Ashok Leyland Ltd. , Chennai / Madurai / Salem / Coimbatore. "
Other Referred Cases
Engineers Limited vs JCIT, Mihir vs JCIT, Degremont India Ltd. v. Dy. CIT, CIT v. N.C. Budharaja & Co., ACIT vs Nalagarh Steel Rolling Mill Pvt. Ltd., CIT vs International Data Management Limited, Torsa Machines Ltd. vs CIT, Fenner India Ltd vs ACIT
Laws Referred To
Income Tax Act
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