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Facts
These cross appeals were filed by Uflex Ltd. (assessee) and ACIT (Revenue) for Assessment Years 2011-12 to 2014-15, following a search and seizure operation under Section 132. The disputes primarily revolved around disallowances made by the Assessing Officer under Section 14A read with Rule 8D for exempt dividend income, the treatment of CENVAT refund for book profit computation under Section 115JB, and the allowability of deductions under Section 80IB for income from scrap sales and other sundry receipts like freight, exchange rate fluctuations, and export incentives.
Held
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals for all assessment years. It held that no disallowance under Section 14A and 115JB was warranted as the investments were made from the assessee's own funds and the AO failed to record satisfaction as mandated by Section 14A(2). Furthermore, the CENVAT refund was considered a capital receipt excludable from book profits, and income from scrap sales, freight, exchange rate fluctuation, insurance recovery, interest, and rent was deemed as derived from business operations, thus eligible for deduction under Section 80IB.
Key Issues
Whether disallowance under Section 14A read with Rule 8D and its addition to book profits under Section 115JB was justified; whether CENVAT refund should be treated as a capital receipt for Section 115JB computation; and whether income from scrap sales and other ancillary activities is eligible for deduction under Section 80IB.
Sections Cited
Section 14A, Rule 8D, Section 115JB, Section 80IB, Section 132, Section 153A, Section 143(2), Section 142(1), Section 143(3), Section 2(24), Section 4
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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: N.K. BILLAIYA & MS. ASTHA CHANDRA
These cross appeals filed by the assessee and the Revenue arise out of the order of the Ld. Commissioner of Income Tax, (Appeals)-29, New
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 2 Delhi (“CIT(A)”) dated 29.01.2018 pertaining to Assessment Year (“AY”) 2011-12 and orders dated 30.01.2018 pertaining to Assessment years (“AYs”) 2012-13, 2013-14 and 2014-15.
In AY 2011-12, the grounds taken by the assessee and Revenue are as follows:-
AY 2011-12 - assessee “1. The lower authorities are wrong on facts and bad in law in disallowing a sum of Rs. 88,16,520/- without recording the satisfaction required under Section 14A of the Income Tax act, 1961 ("Act") and rule BD of the Income tax Rules, 1962.
2. That on the facts and in the circumstances authorities erred in disallowing and immediate connection of the case, the lower expenses without examining the direct with dividend income. There was no expenditure incurred in relation to" dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 88, 16,520/-disallowed under rule 8D readwith section 14A while computing the book profits under section 115JB of the Act.
4. The lower authorities erred on facts and in law in not reducing the refund of claim of excise duty ( Cenvat) of Rs. 7,82,73.134/- being a capital receipt while computing the under section 115JB of the Act.” AY 2011-12 - Revenue “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s 14A of the Act to Rs. 8,16,520/- against the disallowance of Rs. 1,66,07,634/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 1,97,23,000/- in respect of scrap sales of Rs. 1,97,23,000/- as being generated out of its manufacturing activity and allowable as deduction u/s 80IB.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s 801B in respect of Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 3 other income of Rs. 17,15,729/- comprising of freight exchange rate fluctuation and insurance recovery holding it as part of sale proceeds. 4. That the grounds of appeal are without prejudice to each other.”
3. The grounds raised by the assessee and the Revenue for AY 2012-13 are as follows:-
AY 2012-13 - assessee “1. The lower authorities are wrong on facts and bad in law in disallowing a sum of Rs. 85,43,000/- without recording the satisfaction required under Section 14A of the Income Tax act, 1961 ("Act") and rule 8D of the Income tax Rules, 1962 2. That on the facts and in the circumstances. authorities erred in disallowing expenses of the case, the lower without examining the direct and immediate connection with dividend income. There was no expenditure incurred "in relation to" dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 85,43,000/- disallowed under section 14A readwith rule 8D while computing the book profits under section 115JB of the Act.
4. The lower authorities erred on facts and in law in not reducing the claim of excise duty ( Cenvat) refund of Rs. 8,35,89,921 being a capital receipt under section 115JB of the Act 5. The appellant craves leave to add, to alter, delete, modify or vary the above grounds of appeal at or before the time of the hearing.”
AY 2012-13 - Revenue “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s 14A of the Act to Rs. 61,66,493/- against the disallowance of Rs. 1,47,09,493/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 4,31,95,000/- in Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 4 respect of scrap sales of Rs. 4,31,95,000/- as being generated out of its manufacturing activity and allowable as deduction u/s 80IB. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s 801B in respect of other income of Rs. 66,883/- comprising of export incentive holding it as part of sale proceeds. 4. That the grounds of appeal are without prejudice to each other.”
4. For AY 2013-14, the assessee and the Revenue has taken the following grounds:-
AY 2013-14 - assessee “1. That on the facts and in the circumstances of the case, the lower authorities erred in law disallowing expenditure of Rs. 80,54,305/- under rule 8D(2)(iii) of the Income tax rules 1962 read with section 14A of the Income Tax Act ("Act") without satisfying the nexus of expenditure with dividend income earned. 2 That on the facts and in the circumstances authorities erred in disallowing expenses of the case, the lower without examining the direct and immediate connection with dividend income. There was no expenditure incurred "in relation to dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 80,54,305/- disallowed under section 14A read with rule 8D while computing the book profits under section 115JB of the Act.
4. The lower authorities erred on facts and in law in in not reducing the claim of excise duty (Cenvat) refund of Rs. 9,99,49,572/- being a capital receipt under section 115JB of the Act.” AY 2013-14 - Revenue “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s 14A of the Act to Rs. 71,61,277/- against the disallowance of Rs. 1,52,15,582/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962.
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 5 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 5,11,06,823/- in respect of scrap sales of Rs. 5,11,06,823/- as being generated out of its manufacturing activity and allowable as deduction u/s 80IB.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s 801B in respect of other income of Rs. 23,42,349/- out of total other income of Rs. 23,80,850/-comprising of amount recovered from customers for none submission of Form-C & misc. income and foreign exchange fluctuation and discount and holding it as part of profit of the industrial undertaking.
4. That the grounds of appeal are without prejudice to each other.”
5. The assessee and the Revenue has raised the following grounds in AY 2014-15:-
AY 2014-15 - assessee “1. That on the facts and in the circumstances of the case, the lower authorities erred in law disallowing expenditure of Rs. 81,04,615/- under rule BD of the Income tax rules 1962 read with section 14A of the Income Tax Act ("Act") without satisfying the nexus of expenditure and dividend income earned.
2. That on the facts and in the circumstances of the case, the lower authorities erred in disallowing expenses without examining the direct and immediate connection with dividend income. There was no expenditure incurred "in relation to" dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 81,04,615/- disallowed under section 14A read with rule 8D while computing the book profits under section 115JB of the Act.
4. The lower authorities erred on facts and in law in not reducing the excise duty (Cenvat) refund of Rs. 18,33,61,159/- being a capital receipt under section 115JB of the Act.” The Revenue has raised the following grounds:
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 6 AY 2014-15 - Revenue “1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s 14A of the Act to Rs. 52,21,173/- against the disallowance of Rs. 1,33,25,788/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 7,44,40,891/- in respect of scrap sales of Rs. 7,44,40,891/- as being generated out of its manufacturing activity and allowable as deduction u/s 80IB.
On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s 80IB in respect of other income of Rs. 1,61,31,655/- comprising of interest income, export incentive and other misc. income and holding it as part of profit of the industrial undertaking.
That the grounds of appeal are without prejudice to each other.”
6. Since common grounds have been raised in all the four (4) appeals of the assessee and four (4) appeals of the Revenue (except the amounts involved), these have been heard together and are being disposed of by this consolidated order.
We have taken the appeal of the assessee and the Revenue pertaining to AY 2011-12 as the lead case. Our findings in this appeal shall apply mutatis mutandis to the appeals of the subsequent AYs 2012-13, 2013-14 and 2014-15 pertaining to the assessee and the Revenue.
It is a search case.
Search and seizure operation under section 132 of the Income Tax Act, 1961 (the “Act”) was conducted in M/s. Uflex Group of cases on 19.02.2014 in which the case of the assessee was also covered.
The assessee is engaged in the business of manufacturing of Flexible Packaging Material in Roll Form, printed articles in pouch form, polyester
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 7 film, BOPP Film, ink and adhesive, Pet Chips, Coolant, Printing Machinery etc. In response to notice under section 153A of the Act the assessee filed its return for AY 2011-12 on 23.07.2015 declaring loss of Rs. 1,50,83,27,860/- under normal provisions of the Act and book profit of Rs. 3,88,66,49,517/- under MAT provisions. The case was taken up for scrutiny. Notices under section 143(2) and 142(1) along with questionnaire were issued. In response requisite information/details were filed. The Ld. Assessing Officer (“AO”) completed the assessment on 31.03.2016 under section 153A r.w. section 143(3) of the Act making certain additions / disallowances in computation of income under the normal provisions of the Act as also in computation of Book Profit under section 115JB of the Act.
Aggrieved thereby, the assessee filed appeal before the Ld. CIT(A) who allowed part relief to the assessee.
Dissatisfied, the assessee as also the Revenue is in appeal before the Tribunal.
We take up the appeal of the assessee for adjudication first.
Ground No. 1 & 2 of the assessee’s appeal relate to disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (the “Rules”). The Ld. AO has discussed this issue in para 7 at pages 10-15 of the assessment order. The Ld. AO found that the assessee earned dividend income of Rs. 1,70,12,884/- during the year. He required the assessee to show cause why disallowance be not made under section 14A as the same is claimed to be exempt. The assessee in its reply contended that the purpose of investment in equity shares is to have controlling interest in the respective investee companies and not to earn dividend income which has causally arisen; the expenditure incurred is not ‘ in relation to’ exempt dividend income and that the investments have been made out of surplus funds available with the company.
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 8 14.1 The explanation of the assessee was not acceptable to the Ld. AO. According to him there is an overt and direct link between the expenses incurred by the assessee and the earning of exempt income. He, therefore computed the disallowance of Rs. 1,69,44,245/- under section 14A r.w. Rule 8D of the Rules and added to the income of the assessee. Similar disallowance was made while computing the book profits under section 115JB of the Act.
14.2 On appeal, the Ld. CIT(A) confirmed the disallowance of Rs. 88,16,520/- representing administrative expenses @0.5% under Rule 8D(2)(iii) on the total average investment and allowed relief of Rs. 81,27,725/- being indirect interest disallowed by the Ld. AO on account of investments made in earlier years and new investments made in the year recording his finding that the investments were made out of own funds of the assessee.
14.3 The assessee is dissatisfied by the confirmation of disallowance of Rs. 88,16,520/- under Rule 8D(2)(iii) of the Rules as also in computing the book profits under section 115JB of the Act and Ground No. 1 to 3 relate thereto.
15. The Ld. AR submitted that the investments were made in earlier years as also in this year out of the assessee’s own funds which exceeded the funds borrowed by the assessee for the purpose of its business. Relying on the decision of Hon’ble Supreme Court in South Indian Bank vs. CIT (2021) 283 Taxman 178 (SC)/ (2021) 438 ITR 1 (SC), the Ld. AR contended that the assessee’s own interest free funds were available with it which exceeded its investment yielding tax free dividend and therefore it should be presumed that the investments have been made out of assessee’s own funds. No disallowance is thus warranted.
15.1 The Ld. AR further submitted that the disallowance of Rs. 88,16,520/- made under Rule 8D(2)(iii) and confirmed by the Ld. CIT(A) is also not maintainable on the ground that no satisfaction as required under section Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 9 14A r.w. Rule 8D has been recorded as held by the Tribunal in the assessee’s own case for AY 2010-11.
15.2 As regards identical disallowance made by the Ld. AO and confirmed by the Ld. CIT(A) under section 115JB of the Act against which the assessee has raised ground No. 3, the Ld. AR relied on the decision of the ITAT, Delhi Special Bench in ACIT vs. Vireet Investment Pvt. Ltd. reported in 165 ITD 27 (Delhi) (SB) and the decision of Hon’ble Karnataka High Court in Shobha Developers Ltd. vs. DCIT (LTU) (2021) 434 ITR 266 (Kar) for the proposition that where disallowance made under section 14A r.w. Rule 8D were deleted, addition for said disallowance cannot be made to book profits under section 115JB of the Act.
The Ld. CIT-DR supported the order of the Ld. CIT(A).
We have given our careful thought to the submission of the parties and perused the records. The facts are not in dispute. The Ld. CIT(A) has recorded finding of fact in para 9.1 of his appellate order:
I am of the view that the investments were made out of own funds, hence no disallowance on account of interest can be made under section 14A read with Rule 8D. Thus, following the then CIT(A)’ s order in appeal No. 599/13-14/CIT(A)-29 dated 21.01.2015 for investments made in earlier years and new investments made out of no borrowed funds, the appellant gets relief of Rs. 81,27,725/-.
The above factual finding of the Ld. CIT(A) could not be controverted by the Ld. CIT-DR by bringing on record any adverse material whereas the record reveals that as against available amount of share capital, reserve and surplus of Rs. (in lakhs) 124535.34, Rs. 136728.80, Rs. 148548.21 and Rs. 159371.75 in AY 2011-12, 2012-13, 2013-14 and 2014-15 investment in shares were made of Rs. (in lakhs) 49296.58, Rs. 49048.21, Rs. 66000.94 and Rs. 53048.59 in AY 2011-12, 2012-13, 2013-14 and 2014-15 respectively. In such a scenario, the decision of the Ld. CIT(A) cannot be faulted on the ground that he erred in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 10 income i.e dividend. We, therefore, reject the Revenue’s stand in this regard. Moreover, the decision of the Ld. CIT(A) is in consonance with the view expressed by the Hon’ble Supreme Court in the case of South Indian Bank Ltd. (supra).
As to the legal plea taken by the Ld. AR that the Ld. AO has not recorded his satisfaction as to why the assessee’s claim that no expenditure has been incurred for earning of exempt income suffice is to quote from the decision of the Tribunal in the assessee’s own case for the immediately proceeding AY 2010-11 in rendered on 30.11.2021 as under:-
“Now it is well settled proposition that recording of satisfaction as contemplated in Section 14A(2) of the Act is a condition precedent for determination of the amount of expenditure for earning the exempt income as formulated. This has been held so by the Hon'ble jurisdictional High Court in the case of HT Media Ltd. 399 ITR 576 (Del). Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT 402 ITR 640 (SC) has clarified this aspect in the following manner:-
"Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer."
5.1 Since no satisfaction has been recorded by the Assessing Officer as per the mandate of section 14A (2), then no disallowance under Section 14A can be made and accordingly, disallowance worked out by the Assessing Officer under Rule 8D is deleted.”
We respectfully follow the decision (supra) of the Tribunal and hold that non-recording of satisfaction as embedded in sub-section (2) of section 14A is a legal infirmity committed by the Ld. AO which cannot be ignored.
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 11
The Hon’ble Karnataka High Court has held in its decision in Shobha Developer Ltd. (supra) that once disallowance made under section 14A r.w. Rule 8D is deleted, said disallowance cannot be made while computing book profit under section 115JB of the Act. No contrary decision has been brought to our notice by the Ld. CIT-DR. We therefore, accept the contention of the Ld. AR in this regard.
Accordingly, we delete the impugned disallowance under section 14A and 115JB of the Act and decide Ground No. 1, 2 and 3 of the assessee’s appeal in its favour.
Ground No. 4 of the assessee’s appeal relates to denial of reduction of refund claim of excise duty (CENVAT) of Rs. 7,82,73,134/- being a capital receipt while computing book profit under section 115JB of the Act. The Ld. AO discussed this issue in para 11 of his assessment order. He found that the assessee disclosed Book profit under section 115JB after reducing capital subsidy on Jammu Unit amounting to Rs. 7,82,73,134/-. Since no justification was given for the said deduction, the Ld. AO negatived the claim of the assessee.
23.1 On appeal, the Ld. CIT(A) observed in para 11 of the appellate order that even if it is a capital receipt, then also it forms part and parcel of book profit and denied relief to the assessee. Aggrieved, the assessee is in appeal before the Tribunal.
23.2 Before us the parties have consented that the issue is covered by the decision of the Tribunal in assessee’s own case for AY 2010-11 in as also by the decision of Hon’ble Calcutta High Court in PCIT vs. Ankit Metal and Power Ltd. (2019) 416 ITR 591(Cal.).
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 12 24. We have perused the decision (supra) of the Tribunal which held in para 14 and 15 thereof as under:-
“14. Regarding issue raised vide Ground No. 7, that the aforesaid subsidy being capital in nature it will also not form part of the book profit u/s 115JB. Before us the Ld. Counsel for the assessee submitted that the CENVAT credit as received by the appellant under the incentive scheme for J&K as formulated by the Central Government and treated the same as a capital receipt not liable to tax by the J&K High Court in the case of Shree Balaji Alloys (supra) and also affirmed by the Hon'ble Supreme Court, that it will not form part of the income chargeable to tax u/s 4 of the Act and once the same is treated as capital receipt not chargeable to tax under the Income-tax Act, then same has to be excluded while computing the income under the MAT provisions in terms of Section 115-JB of the Act. Because Section 115-JB is also meant for the purpose of levy of tax on income and the basic things will have to be kept in mind that receipts which have to be included in the profit should be having the characteristic of income. There is a fundamental difference between the income and capital that the income is liable to tax, whereas capital is not liable to tax. In the case of Padmaraje R. Kadambande vs. CIT in 195 ITR 877. the Hon'ble Supreme Court held that the capital receipts are not income within the definition of Section 2(24) of the Act and hence are not chargeable under the Income Tax Act. The learned counsel further stated that the provision of Section 115-JB of the Act is alternative mechanism for computation of income based on book profit without claiming any deduction or incentive allowable under the Act, but the fact remains that taxability has to be restricted to the income and once a receipt is considered as capital, it should be excluded even while computing book profit u/s. 115-JB of the Act. He relied upon the following judgements: (i) dated 13th January 2017 JSW Steels Ltd. vs. ACIT (ii) ITA No. 5124/Del/2011 dated 29th June 2018 Montage Enterprises Pvt. Ltd. vs. DCIT (iii) ITA No. 2199/Del/2009 dated 20th March 2019 Ultimate Flexipack Ltd. vs. DCIT (iv) 416 ITR 591 (Cal) Pr. CIT vs. Ankit Metal 85 Power Ltd. (v) Appeal No. 1132 of 2014 dated 4th January 2017 CIT vs. Harinagar Sugar Mills Ltd. (Bombay)
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 13 (vi) 615 & 635/JP/2010 dated 9th September 2011 - Shree Cement - Appeal by Revenue, the Hon'ble Rajasthan High Court in Appeal Nos. 204 of 2010 and 85 of 2014 vide order dated 22nd August 2017 has not admitted any question of law in appeal filed by Revenue.
Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J & K as Formulated by the Central Government is a capital receipt not liable to ax, accordingly the same cannot be part of book profit under Section 15JB also. Consequently, ground No. 7 is also allowed.”
Respectfully following the decision (supra) we decide Ground No. 4 of the assessee’s appeal in its favour.
Now we take up the appeal of the Revenue for adjudication.
The Ground No. 1 relates to the restriction of disallowance of Rs. 88,16,520/- (incorrectly mentioned as Rs. 8,16,520/-) by the Ld. CIT(A) under section 14A r.w. Rule 8D as against disallowance of Rs. 1,66,07,634/- made by the Ld. AO. We have discussed this issue while adjudicating the appeal of the assessee. For the reasons set out in paras 15, 15.1, 17, 18, 19 and 20 we do not find any legal substance in ground No. 1 of the Revenue which we hereby reject.
Ground No. 2 relates to income of Rs. 1,97,23,000/- by way of scrap sale generated out of manufacturing activity of the assessee which the Ld. CIT(A) held to be allowable deduction under section 80IB of the Act. The Ld. AO discussed this issue in para 9 of the assessment order. He made the impugned disallowance for the reason that income from sale of scrap generated during manufacturing cannot be said to have been derived from industrial activity as it does not flow directly from such activity.
28.1 On appeal, the Ld. CIT(A) relying on the decision of Hon’ble Delhi High Court in CIT vs. Sadhu Forging Ltd. (2011) 336 ITR 444 (Delhi) held in para 13.1 of the appellate order that income from sale of scrap is to be treated as Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 14 derived from the business of the industrial undertaking of the assessee. The Revenue is dissatisfied and is before the Tribunal.
The Ld. CIT-DR supported the finding of the Ld. AO. The Ld. AR submitted that identical issue in the case of Revenue’s appeal in ACIT vs. Ultimate Flexipack Ltd. (ITA No. 1418/Del/2018) dated 06.09.2021 has been decided by the ‘B’ Bench of Delhi Tribunal against the Revenue and in favour of the assessee following the decision of Hon’ble Delhi High Court in Sadhu Forging Ltd. (supra).
Since the issue is covered in favour of the assessee and against the Revenue by the decision of the Hon’ble Delhi High Court in Sadhu Forging Ltd. (supra) which has been followed by the Ld. CIT(A) as also by the Co- ordinate Bench of the Tribunal, we decline to interfere with the order of the Ld. CIT(A) on the point and reject this ground of the Revenue.
Ground No. 3 relates to “other income” of Rs. 17,15,720/- comprising of freight, exchange rate fluctuation and insurance recovery held by the Ld. CIT(A) as part of sale proceeds and hence an allowable deduction under section 80IB of the Act. In para 10 of assessment order the Ld. AO observed that on the aforesaid receipts deduction under section 80IB is not admissible. On appeal, the Ld. CIT(A) opined and recorded his finding in para 13 of appellate order as under:
I have considered the facts and circumstances of the case and the judicial pronouncement relied upon by the appellant. I am of the view that freight recoveries are the part of the sales proceeds of the undertakings, exchange fluctuation rate is nothing but the reduction in the purchase cost and insurance recovery received on damaged goods are also the part and parcel of the profit of the undertaking, therefore, the AO is directed to allow the deduction u/s 801B on these items. Therefore, the appeal on this ground is allowed.
31.1 The Revenue is dissatisfied and Ground No. 3 relates thereto.
We have heard the Ld. Representative of the parties and perused the records. Nothing has been brought on record by the Ld. CIT-DR to interfere
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 15 with the above findings of the Ld. CIT(A). The Ld. AR has relied on the decision of the Hon’ble Supreme Court in CIT vs. Meghalaya Steels Ltd. (2016) 383 ITR 217(SC). Hence, we have no reason to interfere with the findings of the Ld. CIT(A). Accordingly, ground No. 3 of the Revenue is dismissed.
In its appeal for AY 2012-13 the Revenue has taken Ground No. 3 relating to export incentive receipt of Rs. 66,883/-which has been held by the Ld. CIT(A) as part of sale proceeds and hence an allowable deduction under section 80IB of the Act. Likewise, in AY 2014-15 in its ground No. 3 the Revenue is dissatisfied by the finding of the Ld. CIT(A) in respect of the other income of Rs. 1,61,31,655/- comprising of interest income, export incentive and other misc. Income that it is part of profit of the industrial undertaking.
We have heard the Ld. Representative of the parties and perused the records. As regards export incentive receipt of Rs. 66,883/- in AY 2012-13, in view of the verifiable contention of the Ld. AR that it is evident from the computation of income forming part of the return that the assessee has already reduced the same from eligible profits, the grievance of the Revenue does not survive. We therefore, endorse the findings of the Ld. CIT(A).
Regarding the finding of the Ld. CIT(A) in respect of other income of Rs. 1,61,31,655/- we extract para 9.3 of the appellate order hereunder:-
“9.3 Regarding the other income of Rs. 1,61,31,655/- is concerned, the appellant has submitted that Rs. 49,48,334/- representing the interest income, Export incentive and other misc. Income, has already been excluded from the eligible profit as per computation of income. Regarding the other Income of Rs,1,11,83,321/- in Jammu Units - I to III, the nature of the other income is as under: 1. Jammu Unit I Miscellaneous Operating Income Rs.10,48,682/- 2. Jammu Unit II
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 16 Foreign exchange fluctuations Rs. 74,11,989/- 3. Jammu Unit III - Exchange rate fluctuations Rs. 24,26,235/- - Discount Rs. 2,19,415/- - Other miscellaneous income Rs. 77,000/- Rs. 1,11,83,321/- 9.4 Other income of Rs. 10,48,682/- in Jammu Unit I represents Insurance recoveries which has been received from insurance company against damaged goods. Regarding the foreign exchange fluctuation of Rs.74,11,989/- for Jammu Unit Il and Rs. 24,26,235/- for Jammu Unit III, the appellant has submitted that the same has resulted on account of purchase made from foreign suppliers which is nothing but reduction in cost of purchases and therefore eligible for deduction U/s 801B. The appellant relied upon the judgment in the case of CIT Vs. Metal Man Auto P Ltd. (2011) 336 ITR 434 (P&H) and the judgment of Hon'ble Madras High Court in Fenner (India) Pvt. Ltd. vs. CIT (2000) 241 ITR 803 (Mad.). Regarding the sum of Rs.77,000/- on account of rent in Jammu Unit III, the appellant has submitted that the same has arisen on account of space provided to banks for providing ATM facilities as Banking ATM facilities are essential to facilitate to do banking transactions by employees without disturbing the business activities of the appellant, therefore, the same is eligible for U/s 801B. In view of above discussion and following the above three judgments, the income on account of insurance claim and foreign exchange fluctuation & Rental income are allowed to be included in the eligible profits in Jammu-1, Jammu- Il Unit and Jammu - III. Regarding the sum of Rs.2,19,415/- received on account of discount in Jammu Unit III, the appellant has relied upon the judgment of ITAT Mumbai in the case of Shri Sri Krushna Patnaik and 5836/MUM/2008 for A.Y. 2004-05 and 2005-06 wherein the ITAT bench has held that the amount written off / discount if are on account of revenue. Relying upon the ITAT's judgment, the same is found to be allowable U/s 801B.”
We find no infirmity in the order of the Ld. CIT(A). Interest, export incentive and other misc income of Rs. 49,48,334/- has already been reduced from eligible profit which is evident from the computation of income itself. The nature of remaining amount of other income of Rs. 1,11,83,321/- in Jammu Unit I, Unit II and Unit III has been explained by the Ld. CIT(A)
Uflex Ltd. Vs ACIT & ACIT vs. Uflex Ltd. 17 along with cogent reasons for their inclusion in eligible profits in the respective units. We, therefore, decline to interfere.
In the result, appeals of the assessee for AY 2011-12 and subsequent AY(s) 2012-13, 2013-14 and 2014-15 are allowed. Appeals of the Revenue for all the aforesaid AYs are dismissed.