Gujarat High Court chaired by Justice Sonia Gokhani and Justice Sandeep N Bhatt allowed deduction under section 80IC of Income Tax Act, 1961 as there is direct nexus between manufacturing activity and foreign exchange gain from export.
The return of income for the A.Y. 2009- 10 was filed by the assessee declaring the total income of Rs.14,66,29,789 and the book profit under section 115JB of the Income Tax Act of Rs.64,90,33,459.
Further, the court observed the submission of the assessee before the Assessing Officer (AO) that the income from scrap sale generated through production process, since reduced the cost of production, the same was held to be in direct nexus with the business income of the eligible unit and is eligible for deduction under section 80IC of the Income Tax Act.
AO did not accept the contentions put forth by the assessee and disallowed, while computing the deduction under section 8OIC of the Income Tax Act on the ground that foreign exchange did not satisfy the income derived from business condition.
The gain did not have immediate and direct nexus with the manufacturing activity as the same had not been found eligible for deduction under section 10A of Income Tax Act.
The Court went to an extent of saying that even assuming that the refund does not amount to an income in the hands of the assessee, it is a profit or gain directly derived by the assessee from its industrial activities.
The Gujarat High Court argued that the case CIT vs. Dharam Pal Prem Chand, [2009] 180 Taxman 557 (Delhi) is directly related to the issue and holds that the excise duty refund was dependent on the activities conducted by the assessee. As a result, it has been determined that both paying central excise duty and receiving a refund have a direct connection to manufacturing activities.
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