By TIOL News Service

CHANDIGARH, FEB 09, 2016: THE issue is - Whether for the purpose of computing deduction u/s 80IC, the sale of scrap has to be held as eligible item to be claimed as deduction under section 80IC. YES is the answer.

Facts of the case

The assessee company is engaged in the manufacturing and trading of ayurvedic medicines and herbal products. During assessment, AO asked the assessee to justify this claim of deduction u/s 80IC. The assessee replied that registration charges are received by the assessee from new customer as and when they are appointed. Since this amount is towards the product kit, which is nothing but a normal sale and part of the normal business sales. Therefore, deduction u/s 80IC is allowable on the sale. Regarding other heads, interest received, miscellaneous income and scrap sale, it was contended that all these were consequential to business. Therefore, deduction u/s 80IC was to be allowed on the same. AO rejected all these contentions of the assessee, disallowed deduction u/s 80IC on registration charges, interest received, miscellaneous income and scrap sale.

Having heard the matter, the Tribunal held that,

++ on perusal of order of CIT(A), we find that he has given a very apt finding on the allowability of registration fee for the purpose of deduction u/s 80IC and observed that regarding the income generated on account of 'registration fee', it is noted that the company charges Rs.1,450/- per kit from new appointees as advisors. The kit contains products worth Rs. 1,258/- and literature etc., worth Rs.192/-. So, the 'registration fee' has product components which are manufacture by the company and sold in the kit to the new appointees as advisors. Similar to the availability of claim of deduction of 80IC on income generated through products sold by the company, the deduction u/s 80IC is also available on the products sold through the kit. Therefore, out of the total amount credited under head 'registration charges', an amount of Rs.51,70,380/- being on account of products is found to be eligible for deduction u/s 80IC, The balance amount on account of income generated on registration and charged for literature, application fee etc is not eligible for deduction u/s 80IC as the same is not found to be income derived from the eligible industrial undertaking. From the perusal of the above paragraph, we do not find any infirmity in the finding given by CIT(A) as the kit for which registration fee is received by the assessee contains the products of the assessee in which the assessee deals together with the literature explaining the use of the product. By no stretch of imagination, this kit can be said to be not related to the business of the assessee. Since deduction u/s 80IC is allowed on any income on sale of products of the company. The product sold through a kit cannot be said to be not of the business. Therefore, we confirm the action of the CIT(A) in deleting the disallowance of deduction u/s 80IC on registration charges to the extent of cost of products contained by the kit. The appeal of the Department is dismissed;

Consideration of sale of scrap while computing deduction u/s 80IC

++ from the perusal of the order of the I.T.A.T., Chandigarh Bench in the case of M/s Ansysco, we hold that the sale of scrap be held to be eligible for deduction under section 80IC. The fact that the Department has gone in appeal against the said order before the Punjab & Haryana High Court does not make any difference since as on the date order of the Coordinate Bench is binding on us, since it is a trite law that an order rendered by any authority is a good law till the day when the said order is set aside by a process known to the law. Therefore, till the date the order of the High Court comes, the said order of the I.T.A.T. is binding on us. The Cross Objection filed by the assessee is partly allowed. In the result, the appeal of the Revenue in ITA No.528/Chd/2014 is dismissed and Cross Objections filed by the assessee in C.O.No.33/Chd/2014 is partly allowed.

(See 2016-TIOL-230-ITAT-CHD)