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deduction u/s 80IB

Started by Mansha, December 08, 2011, 10:54:45 AM

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The company is situated in industrially backward area and eligible for 80IB deduction. During the year the company has received Insurance claim for goods destroyed in fire. The company has also sold scrap generated through manufacturing process.

Whether these insurance claim received for goods destroyed in fire and Scrap sale generated through manufacturing process is eligilbe for deduction while calculationg Deduction u/s. 80IB,

Please share  case laws with this regards in assessee's favour

ashutosh majumdar

I am sorry but you will not pass muster in view of the apex court ruling in Liberty India v CIT reported in (2009) 317 ITR 218 (SC). The Court has taken a very strict view of the term "derived from" and held that the industrial undertaking must be the direct source of the receipt. Even DEPB & Duty drawback receipt were held not eligible. So how can an insurance claim and scrap receipts be eligible?


There is direct judgement of Bombay High court on allowability of deduction u/s 80IB on insurance claim of destroyed goods.
Similarly , there is direct judgement of Madras High court and Gujarat Hogh court on allwoability of deduction u/s 80IB on scrap generated through manufacturing process.
I will give citation in a day or two.


In my view both the items are eligible for deduction. Thee are many decisions in this regard. Recently  P&H High Court in case of Vallabh Yarn (51 DTR 236) held that insurance claim is eligible for deduction. The Liberty India judgment is entirely different. It talk of incentives and source thereof i.e. industrial undertaking vs. government policy. It was held that those incentives were arising from government policy and not directly from industrial undertakaing. The scrap sales is nothing but part of sales. It has no connection with any policy or other source. It is directly arising from the manufacturing process of undertaking. It is always inextrcale linked with manufacturing process and hence can not be seen divorced of industrial undertaking to contend that source is different. Similarly, insurance claim is nothing but the reduction in trading loss. It should not be treated as independent inocme as such but as reduction/saving of expenses. Since the trading loss is debited to P&L account, its saving should always be considerd as reduction of expenses and in that sense eligible for deduction. Both the things are closely connected in undetachable manner to the industrial undertaking and hence eligible for deduction.