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Facts
The assessee company filed its return of income for AY 2018-19, claiming deduction under Section 80IE of the Income Tax Act. The Assessing Officer disallowed deductions on various receipts, including Excise duty refund, VAT remission, GST refund, excess VAT refund, insurance on sale, insurance claim received, and interest income. The Ld. CIT(A) subsequently allowed the assessee's appeal, deleting the addition by treating these receipts as eligible for Section 80IE deduction, leading the Revenue to appeal to the ITAT.
Held
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s order. It found no infirmity in the CIT(A)'s decision, noting that similar issues regarding the eligibility of such receipts for Section 80IE/80IA/80IB deduction had been adjudicated in the assessee's own case for earlier assessment years and by various High Courts and ITAT benches, consistently in favor of the assessee.
Key Issues
The key legal issues concerned whether Excise duty refund, VAT remission, GST refund, excess VAT refund, insurance on sale, insurance claim received, and interest income qualify for deduction under Section 80IE of the Income Tax Act, and the applicability of judicial precedents on similar matters.
Sections Cited
80IE, 143(1), 143(2), 142(1), 80IC, 80IA, 80IB
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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the revenue against the order of Commissioner of Income Tax (Appeals), -Kolkata-26 (hereinafter referred to as the Ld. CIT(A)] dated 22.11.2024 for AY 2018-19.
Assessment Year: 2018-19 Kamlang Saw & Veneer Mills Pvt. Ltd.
Brief facts of the case of the assessee are that the assessee company has e-filed the return of income for the A.Y. 2018-19 on 10/09/2018 declaring total income of Rs.2,49,97,532/- after claiming deduction of Rs.2,49,97,532/- u/s 80 IE of the I.T. Act and the same was processed u/s 143(1) of I.T. Act. The case of the assessee was selected for scrutiny assessment through CASS. The notice u/s.143(2) of the I.T. Act was issued to the assessee on 22/09/2019 and duly served on the assessee. Subsequently, the notices u/s.142(1) of I.T. Act was issued on 30/01/2020 and duly served upon the assessee, calling for the details pertaining to the reason for selection. In response to the notice issued u/s 142(1) of the Act the assessee has made online submission which comprises of computation of income for the year under consideration, Form no 29B, From no 10 CCB, balance sheet and profit & loss for the year under consideration. In view of discussion made above I Para (s) and since issue is pending before Guwahati High Court, claim of deduction u/s 80IE of the Act made by the assessee on the following receipts is disallowed:
1. Excise duty refund Rs.56,18,544/-,
2. VAT remission Rs.20,19,960/-,
GST refund Rs.1,57,32,629/-,
Excess VAT refund Rs.27,512,/-,
Insurance on sale Rs.3,78,528/-,
6. Insurance claim received Rs.1,04,212/-
Interest income Rs.4,36,201/-
Total Rs. 2,43,17,586/-
3. Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been partly allowed by deleting the addition u/s 80IE of the Act.
4. The Ld. D.R challenges the very impugned order thereby submitting that the Ld. CIT(A) has erred in deleting the addition made on account of excise duty refund, VAT remission, GST refund and excess VAT refund treating the same as income from business and profession. It has further been argued that the Ld. CIT(A) has further erred in deleting the addition made on account of insurance on sale, insurance claim received by treating the same as income from business and profession eligible for deduction u/s 80IE of the Act.
5. Contrary to that the ld. A.R supports the impugned order thereby submitting that on the same issue the assessee has received relief from the ITAT for the earlier financial year and it has already been adjudicated by the Tribunal in assessee’s own case and the Ld. CIT(A) has passed an order in favour of the assessee, keeping in view the finding of the Tribunal passed in favour of the assessee for the earlier assessment years. According to the assessee there is no infirmity in the impugned order.
6. Upon hearing the submission of the counsel of the respective parties, and on perusal of the order of lower authorities, following facts have been emerged: i) The assessee is a manufacturing undertaking claiming deduction under section 80IE of the Income Tax Act. ii) The return of income was filed on 10.09.2018. iii) The assessee maintains books of account on Mercantile basis. All the vouchers and documents as called for by the AO were furnished in the course of assessment to the satisfaction of the AO. iv) The assessment order was passed raising a demand of Rs.5236490. v) The Assessing Officer has treated Excise Duty Refund Rs 5618544, VAT Remission Rs.2019960, GST Refund Rs.15732629 and Excess VAT Refund Rs.27512 as Income vi) The learned Assessing Officer has also treated Insurance on Sale Rs.378528, Insurance Claim Received Rs.104212 and Interest Income Rs.436201 as Income from Business and Profession not eligible for deduction U/s 80IE of the Act.
7. We further find that the AO has denied the claim of the assessee u/s 80IE only on this ground that the issue is pending before the Hon’ble Gauhati High Court. There is no denying to this fact that on the similar issue against the same assessee ITAT has passed an order in favour of the assessee. The Ld. CIT(A) in its order has discussed this fact being essential to reproduce herein below:
“Further, in this regard we also like to state that we have received relief from the Honorable Income Tax Appellate Tribunal (ITAT) on similar ground in the earlier financial years also. (Copy of Order enclosed as per Annexure 1). In this connection, a similar issue has been covered in the decision of Hon’ble ITAT, Guwahati in dated 11.11.2022 for A.Y. 2015-16, the relevant part is reproduced as under: “5. We have heard the rival contentions and perused the material placed on record before us. The revenue is aggrieved with the finding of the Ld. CIT (A) allowing deduction u/s 80IE of the Act. in respect of receipt of excise duty refund and sales tax remission. As submitted by the Ld. Counsel for the assessee we find that similar issue has come up for adjudication before this Tribunal in assesse’s own case for the assessment years 2012-13, 13-14 and 2014-15 in & 197/Gau/2017 dated 09.02.2018, wherein dealing with the similar issue the appeal of revenue was dismissed. Relevant observation of the Tribunal is reproduced herein below: “9 We have given a careful consideration to the rival submissions and perused the materials available on record, we find force in the submission of the Sr. counsel for the assessee on the issue under consideration. The VAT/CST remission and excise duty refund are includable in the claim of deduction U/s 80IC of the Act for eligible units established at Biorth Eastern States, as held by the Tribunal in the case of Meghalaya Mineral Product Vs ACIT (2015) 38 ITR (trib) 186. Since the impugned decision of Ld.CIT (A) is based on the Tribunal’s decision cited in his order (supra) and since Ld. DR for the Revenue is unable to bring to our notice any changes in law or facts. Therefore, we respectfully following the decision of the Tribunal in Meghalaya Mineral Product (supra) and other decisions cited above, confirm the order of Ld.CIT(A). Therefore, these three appeals of the Revenue are dismissed.”
6. Since the issues raised in the instant appeal stands already adjudicated by this Tribunal in assessee’s own case (supra) for preceding assessment years (2012-13 to 2014-15) and the revenue being unable to place any other binding precedence in its favour, we fail to find any infirmity in the finding of the Ld.CIT(A). Thus, grounds raised by the revenue are dismissed.
Assessment Year: 2018-19 Kamlang Saw & Veneer Mills Pvt. Ltd. A perusal of the assessment order reveal that the AO has not allowed the deduction u/s 80IE of the Act on the above amounts only on the ground that the issue is pending before the Hon’ble Guwahati High Court. In this connection, reference is invited to the decision of the ITAT, Guwahati Bench in the appellants own case for the A.Y. 2015-16 where it was held: 5. We have heard the rival contentions and perused the material placed on record before us. The revenue is aggrieved with the finding of the ld. CIT(A) allowing deduction u/s. 80IE of the Act in respect of receipt of excise duty refund and sales tax remission. As submitted by the Ld. Counsel for the assessee we find that similar issue has come up for adjudication before this Tribunal in assesse's own case for the assessment years 2012-13, '13-14 and 2014-15 in 196 & 197/Gau/2017 dated 09-02-2018, wherein dealing with similar issue the appeal of revenue was dismissed. Relevant observation of the Tribunal is reproduced herein below:- "9. We have given a careful consideration to the rival submissions and perused the materials available on record, we find force in the submission of the Sr. counsel for the assessee on the issue under consideration. The VAT/CST remission and excise duty refund are includable in the claim of deduction U/s 80IC of the Act for eligible units established at North Eastern States, as held by the Tribunal in the case of Meghalaya Mineral Product Vs. ACIT (2015) 38 ITR (trib) 186. Since the impugned decision of Id CIT(A) is based on the Tribunal's decision cited in his order (supra) and since Ld DR for the Revenue is unable to bring to our notice any change in law or facts. Therefore, we respectfully following the decision of the Tribunal in Meghalaya Mineral Product (supra) and other decisions cited above, confirm the order of Id CIT(A). Therefore, these three appeals of the Revenue are dismissed.
6. Since the issues raised in the instant appeal stands already adjudicated by this Tribunal in assessee's own case ( supra) for AY 2015-16 M/s. Kamlang Saw & Veneer Mills P.Ltd preceding assessment years (2012-13 to 2014-15) and the revenue being unable to place any other binding precedence in its favour, we fail to find any infirmity in the finding of the ld. CIT(A). Thus, grounds raised
by the revenue are dismissed.
7. In the result, the appeal of the revenue is dismissed.”
8. Going over the order passed by the Ld. CIT(A) and considering the admitted fact that in the own case of assessee for the earlier assessment year deduction u/s 80IE has been allowed, hence, we do not find any infirmity in the impugned order of the Ld. CIT(A) on this issued.
So far as the second issue with regard to insurance on sale and insurance claim received, we find that the assessee has incurred transit insurance expenses on the finished goods sold and transport to the customer and recovered the same from the customers. It is pertinent to mention herein that the amount of insurance claim received is also against the cost of damages of the stock and other items incurred by the assessee. The said amount is mere reimbursement of expenses/losses incurred by the company which formed part of the items as shown as the expenses in the manufacturing and profit and loss account of the company. The Ld. CIT(A) in giving relief to the assessee after Assessment Year: 2018-19 Kamlang Saw & Veneer Mills Pvt. Ltd. going over the decision passed by the Hon’ble Gauhati High Court and further by the ITAT, Mumbai Tribunal, the relevant portion of the order of Ld. CIT(A) are essential to reproduce herein below:
“In this connection, reference is invited to the decision of the Hon’ble Gujarat High Court in the case of CIT(4) vs. Shree Rama Multi Tech Ltd. [2013] 33 taxmann.com 194 (Guj) wherein it has been held that the compensation received by the industrial undertaking from insurance company on account of loss of raw material and finished goods would be eligible for deduction u/s. 80IA of the Act. The relevant extract of the said decision is cited hereunder for ease of reference: 5. Learned counsel for the assessee stated that all industrial activities of the assessee were eligible for deduction under section 80-IA of the Act. Therefore, when the goods were destroyed in fire, the insurance claim received by the assessee should also qualify for deduction under section 80-IA of the Act .
6. Section 80-IA of the Act, as is well known, provides for deduction in respect of profit and gains from industrial undertakings or enterprise engaged in the infrastructure development. The fact that the assessee's profits are eligible for such deduction is not in dispute. Short question is, can the insurance claim in the circumstances under which the same was received, be stated to be derived from industrial undertaking. This very issue came up for consideration before Division Bench of Delhi High Court in case of Sportking India Ltd. (supra) the High Court held and observed as under: "5. At the outset while determining the meaning to be attributed to this expression, one must keep in mind that section 80-IA is a part of fasciculus of provisions whereby benefits are granted to certain industrial undertakings, businesses etc. including those which are located in certain special locations/areas. The object is generation of new investment and employment with respect to particular industries in certain areas and in certain locations besides generation of revenue for the Government and industries from whom plant etc. will be purchased by the new industrial undertaking. The object of the provision is further made clear from subsection (2) of section 80-IA whereby such businesses are not considered for taking advantage of the deduction under section 80-IA if either it is formed from splitting up of an existing business or by use of machinery or plant previously used and so on. The object is clearly to give fillip to the economy and to investment. This object will have to be kept in view while interpreting the provisions of section 80-IA.
We find that for a similar provision of section 80-IB, two decisions have been rendered by two Division Benches of this court in the judgments reported as CIT v. Eltek SGS (P) Ltd. [2008] 300 ITR 6 (Delhi), and CIT v. Dharam Pal Prem Chand Ltd. [2009] 317 ITR 353 (Delhi); [2009] 221 CTR (Del) 133. In the Eltek SGS (P) Ltd. case [2008] 300 ITR 6 (Delhi) duty drawback was held to be profits/gains derived from an industrial undertaking and hence eligible for deductions under section 80-IB. In the case of CIT v. Dharam Pal Prem Chand Ltd. [2009] 317 ITR 353 (Delhi) refund of excise duty was held to be profits and gains derived from an industrial undertaking within the meaning of an expression under section 80-IB.
We have no reason to take a different view. If the assessee had either consumed the raw material in its industrial activity or sold the finished good but for the unfortunate fire, surely the assessee would have earned income. Such income would have been eligible for deduction under section 80-IA of the Act. If this much is undisputed, merely because of the fire and destruction of such goods before sale would hardly make any significant difference insofar as angle, what the assessee achieved through passing of the insurance claim was reduction of the Assessment Year: 2018-19 Kamlang Saw & Veneer Mills Pvt. Ltd. loss arising out of the industrial undertaking. Such recouping or reduction of the loss cannot be kept out of consideration while computing the assessee's income eligible for reduction under section 80-IA of the Act. This decision has been followed in the decision of ITAT, Mumbai in the case of Colorplus Realty Limited vs Dy. CIT, Central Circle-8(1), Mumbai in 22/12/2023 where it was held: 15. Though the above cited decision was on deduction pertaining to section 80IA, the proposition laid down by the Hon’ble High Court has to be considered for deciding the issue in hand. The assessee in the present case has received compensation for destroyed and lost goods from the insurance company and from the franchisees which the Revenue claims to be not from the industrial undertaking and shall not be the profits and gains of the business of the assessee. The Hon’ble Gujarat High Court after duly considering the decision of the Division Bench of Hon’ble Delhi High Court in the case of CIT vs. Sportking India Ltd. [2010] 324 ITR 283 has held that such compensation received from insurance company for the damage incurred by the assessee would be the profit/loss from such industrial undertaking, for the reason that if not for such loss, the assessee would have earned income which is otherwise eligible for deduction u/. 80IB of the Act.
From the above observation, it is evident that on identical facts, the Hon'ble High Court has held that the assessee is eligible for deduction u/s. 80IA/80IB of the Act on compensation received due to destruction of goods before sale had taken place. We find that on destruction of raw materials, the assessee was paid insurance claim, the cost of raw material is already considered as ‘cost’ while working out the profit of eligible undertaking and the claim tantamount to sale of raw materials. As regards to loss of goods at franchisee and the amount paid by such franchisee would also be sale of goods. Thus, both the above sums are profits derived from industrial undertaking business eligible for deduction. Hence, we direct the ld. A.O. to allow deduction u/s. 80IB on both the amounts. We, therefore, allow the appeal filed by the assessee.”
Going over the above discussion as well as considering the order passed by the Ld. CIT(A), we do not find any infirmity in the impugned order. Accordingly, the appeal of the revenue is dismissed.
In the result, the appeal filed by the revenue is dismissed.
Order is pronounced in the open court on 18th July, 2025