M/s Nath Brothers Exim Intl. Ltd., New Delhi V. DCIT, New Delhi

CO 232/DEL/2013

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3683 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 01-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: ASHISH GOEL
• Keywords: Business income; Depreciation; Opportunity of being heard; Rule of consistency; Earning of tax free income; Question of law; Benefit of exemption; Revised return
• Section: 143(3); 234B; 14A; 80IB; 10B; 32; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E , NEW DELHI BEFORE SH. BHAVNESH SAINI , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO . 3946 /DE L/ 2013 ASSESSMENT YEAR: 2009 - 10 DCIT, CIRCLE - 13(1), NEW DELHI VS. M/S. NATH BROTHERS EXIM INTL. LTD., 102 - A, BANGLA SAHIB MAR G (REAR SIDE) GOLE MARKET, NEW DELHI PAN : AAACN0495R ( APPELLANT ) (RESPONDENT) AND C.O. NO.232/DEL/2013 [IN ITA NO . 3946 /DEL/ 2013] ASSESSMENT YEAR: 2009 - 10 M/S. NATH BROTHERS EXIM INTL. LTD., 102 - A, BANGLA SAHIB MAR G (REAR SIDE) GOLE MARKET, NEW DELHI VS. DCIT, CIRCLE - 13(1), NEW DELHI PAN : AAACN0495R ( APPELLANT ) (RESPONDENT) AND ITA NO . 4087 /DEL/ 2014 ASSESSMENT YEAR: 2010 - 11 DCIT, CIRCLE - 13(1), NEW DELHI VS. M/S. NATH BROS EXIM INTERNATIONAL LTD. 1 02 - A, BANGLA SAHIB MARG (REAR SIDE) GOLE MARKET, NEW DELHI PAN : AAACN0495R ( APPELLANT ) (RESPONDENT) 2 AND ITA NO . 4007 /DEL/ 2014 ASSESSMENT YEAR: 2010 - 11 M/S. NATH BROS EXIM INTERNATIONAL LTD. 102 - A, BANGLA SAHIB MARG (REAR SIDE), GOLE MARKET, NEW DELHI VS. DCIT, CIRCLE - 13(1), NEW DELHI PAN : AAACN0495R ( APPELLANT ) (RESPONDENT) ASSESSEE BY SH. VED JAIN, ADV. & SH. ASHISH GOEL, CA DEPARTMENT BY SH. S.R. SENAPATI, SR. DR DATE OF HEARING 19.04.2018 DATE OF PRONOUNCEMENT 2 7 . 0 4 . 2 0 1 8 ORDER PER O.P. KANT , A. M. : THE APPEAL HAVING IT A NO. 3946/DEL /2013 AND CROSS O BJECTION N O . 232/DEL /2 013 HAVE BEEN PREFERRED BY THE R EVENUE AND THE ASSESSEE RESPECTIVELY, AGAINST THE ORDER DATED 28/03/2013 PASSED BY THE LD. COMMISSIONER OF I NCOME T AX (A PPEALS ) XVI, NEW DELHI [IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 20 09 - 10. THE APPEALS HAVING IT A NO. 4087/ DEL /2014 AND IT A NO. 4007/DEL /2014 , HAVE BEEN PREFERRE D BY THE R EVENUE AND THE ASSESSEE RESPECTIVELY AGAINST THE ORDER DATED 28/04/2014 PASSED BY THE LD. CIT(A) FOR ASSESSMENT YEAR 2010 - 11. IN THESE APPEALS AND CROSS OBJECTION, COMMON ISSUES ARE INVOLVED, AND THEREFORE , T HESE APPEALS AND CROSS OBJECTION WERE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR CONVENIENCE. 3 ITA NO.3946/DEL/2013 & C.O. NO.232/DEL/2013 2. THE GROUNDS RAISED BY THE REVENUE IN IT A NO. 3946/DEL /2013 , ARE AS UNDER 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW BY DIRECTING THE AO TO VERIFY THE FACTS AGAIN AND RE - EXAMINE THE CASE OF THE ASSESSEE AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THOUGH THE AO HAD DULY FOLLOWED THE SAID PROCEDURE AT THE TIME OF THE ASSESSMENT PROCEEDINGS. 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN NOT APPRECIATING THE DECISION OF THE LD. CIT(A) IN THE PRECEDING YEAR I.E . IN THE AY 2008 - 09 WHEREIN THE ASSESSEE HAD FILED AN APPEAL AGAINST THE SAME ISSUES AND THE LD. CIT(A) HAD DISMISSED THE APPEAL OF THE ASSESSEE ON THE SAME GROUNDS. 3. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW BY IGNORING THE PROVISIONS OF SEC 10B, VIZ - A VIZ OF SECTION 10B(8). 4. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW BY IGNORING THE FACT THAT THE ASSESSEE HAS NOT FILED ANY NEW / ADDITIONAL DOCUMENTS WHICH N EEDS TO RE - EXAMINED. 5. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2.2 THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IN C . O . NO. 232/DEL /2013 ARE REPRODUCED AS UNDER: 1. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE APPEAL IN FORM NO. 36 HAS BEEN FILED WITHIN THE TIME LIMIT PRESCRIBED U/S 253 (3) OF THE INCOME - TAX ACT, 1961. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A)'S ACCEPTANCE OF ASSESSEE'S C ONTENTION FOR EXEMPTION U/S 10B 4 OF THE ACT IS UNEQUIVOCAL NEGATING THE APPLICABILITY OF THE PROVISIONS OF SECTION 10B (8) AND HIS DIRECTIONS TO AO ARE LIMITED TO SATISFYING ALL OTHER REQUISITES ENVISAGED IN THE SCHEME OF SECTION 10B OF THE ACT. 3. ON FAC TS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS RELIED ON THE DECISIONS IN LEGATO SYSTEMS INDIA (P) LTD. V. ITO (2005) 93 TTJ (DEL) 828 & ADJUDICATED BY THE HON'BLE HIGH COURT OF DELHI IN (2006) 203 CTR (DEL) 101 AND FURTHER IN ACIT V. HEADSTRON G SERVICES INDIA PVT. LTD. [ITA NO. 519/DEL/2011 - AY 2005 - 06] AND DECIDED THAT THE PROVISIONS OF SECTION 10B (8) VIS - A - VIS DECLARATION TO BE MADE IS IN RESPECT OF THAT YEAR ONLY. THE LEARNED CIT (A) IN ASSESSMENT YEAR 2008 - 09 HAS OPINED THAT THE DECLARATION U/S 10B OF THE ACT MADE FOR ONE YEAR IS ALSO APPLICABLE TO LATER YEARS DOES NOT HAVE THE SUPPORT OF ANY CASE LAWS. 4. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS CORRECTLY CONCLUDED THAT THE DECLARATION UNDER THE PROVISION OF SECTION 10B (8) ARE LIMITED TO THE RELEVANT ASSESSMENT YEAR ONLY. 5. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS RULED/INTERPRETED ON CASE LAWS PRESENTLY PREVAILING. 6. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE EXEMPTION U/S 10B IS TO BE COMPUTED ON THE BASIS OF THE PROVISIONS OF SECTION 10B (4) AND DEFINITION OF 'EXPORT TURNOVER' IN EXPLANATION 2 TO SECTION 10B. 7. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, DISALLOWANCE OF RS.55,394 U/S 14A OF THE ACT IS BAD IN LAW AND SHOULD BE D ECLARED AS NULL AND VOID. 8. THE APPELLANT - COMPANY CRAVES FOR ITS RIGHT, WITHOUT PREJUDICE, TO ADD, DELETE, ALTER, MODIFY OR OTHERWISE PRESENT ANY GROUNDS OF APPEAL EITHER AT OR BEFORE HEARING OF THE APPEAL. 5 3. T HE ASSESSEE ALSO FILED ADDITIONAL GROUNDS ON 21/02/2018 THROUGH THE LD. COUNSEL, WHICH IS REPRODUCED AS UNDER: 9(I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO AND EXCLUDING THE FOLLOWING AMOUNTS W HILE COMPUTING DEDUCTION UNDER SECTION 10B OF THE ACT (I) EXPORT INCENTIVE RS. 13,22,959/ - (II) SCRAP SALES RS. 22,920/ - (III) LNTEREST ON FIXED DEPOSITS RS. 23,04,152/ - (IV) AMOUNT WRITTEN BACK RS. 44,376/ - (V) MISCELLANEOUS INCOME RS. 3,907/ - (VI) INSURANCE CLAIM RS. 1,31,980/ - (VII) JOB WORK RECEIVED RS. 2,08,803/ - (VIIII) CLAIM & DAMAGES RS. 2,75,245/ - 9(II) THE ABOVE ACTION HAS BEEN CONFIRMED DESPITE THE FACT THAT ABOVE INCOMES ARE INEXTRICABLY LINKED WITH THE BUSINESS UNDERTAKING AND IS PART OF THE BUSINESS PROFITS AND HENCE CANNOT BE EXCLUDED WHILE COMPUTING THE DEDUCTION UNDER SECTION 10B OF THE ACT. 4. WE HAVE HEARD THE RIVAL CONTENTIONS REGARDING THE ADMISSIBILITY OF THE ADDITIONAL GROUND OF CROSS OBJECTIONS. IN OUR OPINION, THIS IS NOT AN ADDITIONAL GROUND BUT IT IS A NEW GROUND ADDED TO THE EARLIER GROUNDS BECAUSE THIS ISSUE WAS ALREADY ADJUDICATED BY T HE LD. CIT(A) IN PARA 6 .1 TO 6.7 OF THE IMP UGNED ORDER, HOWEVER, IT WAS NOT RAISED BY THE ASSES SEE IN THE ORIGINAL GROUNDS OF CROSS O BJECTI ONS TAKEN IN FORM NO. 36A. THUS , THIS BEING A NEW GROUND ADDED TO THE EXISTING 8 GROUNDS, WE ADMIT THE SAME FOR ADJU DICATION. 5. B RIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING AND EXPORT OF HIGH 6 FASHION READY - MADE GARMENTS, MADE - UPS ETC . FROM ITS EXPORT O RIENTED U NIT (EOU) LOCATED AT C - 32 AND C - 51, SECTOR 57 NOIDA. FOR THE Y EAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ELECTRONICALLY ON 30/09/2009 , DECLARING TOTAL INCOME OF RS.51,96, 150/ - WHICH WAS REVISED SUBSEQUENTLY FOR FIVE TIMES. THE LAST REVISED RETURN OF INCOME WAS FILED ON 19/03/2011 , DECLARING TOTAL IN COME OF RS.3, 610 / - AN D BOOK PROFIT UNDER SECTION 115 JB OF THE INCOME - T AX ACT, 1961 ( IN SHORT THE ACT ) OF RS.2,12,93, 621/ - . IN THIS REVISED RETURN , THE ASSESSEE SHOWN GROSS INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OF RS. 2, 04,62,916/ - AND AFTER CLAIMING DEDUCTION UNDER SECTION 10 B OF THE A CT OF RS. 1,87,36,185/ - , NET INCOME OF RS.17,26,731/ - WAS SHOWN, WHICH WAS FURTHER SET OFF FULLY AGAINST BROUGHT FORWARD BUSINESS LOSS ES AND DEPRECIATION LOSS AND THE FINAL INCOME UNDER THE HEAD PROFIT AND GAIN S OF BUSINESS WAS SHOWN AS NIL AND INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES OF RS.3, 610/ - WAS DECLARED IN THE RETURN OF INCOME AS TOTAL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR A SCRUTINY AND NOTI CE UNDER SECTION 143(2) OF THE A CT WAS IS SUED ON 19/08/2010, WHICH WAS COMPLIED BY THE ASSESSE E . IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT ON 30/08/2011, THE ASSESSING OFFICER DENIED THE DEDUCTION UNDER SECTION 10B OF THE ACT, ON THE GROUND THAT THE ASSESSEE DID NOT EXERCISE THE OPTION OF CLAIMING DEDUCTION IN THE VERY FIRST Y EAR OF ITS PRODUCTION FROM THE EOU I.E. ASSESSMENT YEAR 2002 - 03 AND SUBSEQUENT ASSESSMENT YEARS I.E. AY 2003 - 04 TO 2006 - 07 AND, THUS IT WAS NOT ENTITLED FOR CLAIMING DEDUCTION IN THE YEAR UNDER CONSIDERATION . THE ASSESSING OFFICER DID NOT VERIFY, OTHERWISE THE ELIGIBILITY CRITERIAS AS LAID DOWN IN SECTION 10 B OF 7 THE A CT. A S FAR AS QUANTUM OF THE DEDUCTION IS CONCERNED, THE LD. ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10B OF THE A CT ON THE OTHER INCOME S IN THE NATURE OF EXPORT INCENTIVES, SCRAP SALE, INTEREST ON FDR, AMOUNT WRITTEN BACK, MISCELLANEOUS INCOME, INSURANCE CLAIM, JO B WORK RECEIVED AND CLAIMS AND DA MAGES. THE ASSESSING OFFICER ALSO MADE DIS ALLOWANCE UNDER SECTION 1 4A OF THE ACT, AMOUNTING TO RS. 1,41,484/ - INVOKING PROVISIONS OF THE RULE 8D OF INCOME - TAX RULES, 1962 (IN SHORT THE RULES ) AGAINST DIVIDEND INCOME OF RS.4,66, 152/ - FROM THE INVESTMENT OF RS.1,27,35, 979/ - IN SHARES AND MUTUAL FUND YIELDING EXEMP T INCOME. 5.1 AGGRIEVED WITH THE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE . AGGRIEVED WITH THE FINDING OF THE LD. CIT(A), THE R EVENUE AND THE ASSES SEE ARE BEFORE THE TRIBUNAL BY WAY OF FILING APPEAL AND CROSS OBJECTION RESPECTIVELY. 6. IN GROUND NOS. 1 TO 4 OF THE APPEAL, THE R EVENUE HAS CHALLENGED THE FINDING OF THE LD. CIT(A) ON THE ISSU E OF DEDUCTION UNDER SECTION 10 B OF THE ACT. 6.1 BEFORE US, T HE LD. DR , ADDRESSING G OUND NO. 1 SUBMITTED THAT THAT THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY AND RE - EXAMINE THE CASE OF THE ASSESSE E . IN SUPPORT OF THE GROUND NO.4 , HE SUBMITTED THAT THE ASSESSEE HAD NOT FILED ANY ADDITIONAL DO CUMENTS AND , THEREFORE , SENDING OF MATTER FOR RE - EXAMINATION TO THE ASSESSING OFFICER WAS NOT IN ACCORDANCE WITH LAW. HE REFERRED TO GROUND NO. 2 OF THE APPEAL AND SUBMITTED THAT THE LD. CIT(A) IN THE YEAR UNDER CONSIDERATION HAS NOT FOLLOWED 8 THE FINDING OF THE LD. CIT(A) IN ASSESSMENT YEAR 2008 - 09. IN SUPPORT OF GROUND NO. 3, THE LD. DR SUBMITTED THAT THE LD. CIT(A) HAS IGNORED THE PROVISION S OF SECTION 10 B(8) OF THE ACT , ACCORDING TO WHICH , IF THE ASSESSEE OPT OUT FOR DEDUCTION UNDER SECTION 10 B IN ANYONE YEAR, THEN HE IS NOT ENTITLED FOR DEDUCTION FOR ANY OTHER RELEVANT ASSESSMENT YEAR , AS PROVISIONS OF THE SECTION 10 B OF THE ACT , WOULD NOT APPLY IN CASE OF OTHER RELEVANT ASSESSMENT YEAR(S). 6.2 T HE LD. COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT HE HAS FO LLOWED DECISION OF THE HON BLE J URISDICTIONAL HIGH COURT ON THE ISSUE IN DISPUTE AND , THEREFORE , THERE IS NO ERROR IN THE ORDER OF THE LD. CIT(A) AND HENCE IT SHOULD BE UPHELD. 6.3 W E HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE INSTANT CASE, THE ASSESSEE DID NOT C LAIM DEDUCTION UNDER SECTION 10 B OF THE ACT IN THE FIRST ASSESSMENT YEAR OF PRODUCTION FROM THE EXPORT ORIENTED UNIT I .E. ASSESSMENT YEAR 2002 - 03 AND ALSO NOT CLAIMED DEDUCTION FOR ASSESSMENT YEAR 2003 - 04 TO ASSESSMENT Y EAR 2006 - 07. FURTHER , AS PER THE PROVISO TO S UBSECTION (1) OF THE SECTION 10B OF THE ACT , IF RETURN OF INCOME IS NOT FILED ON OR BEFORE THE DUE DATE OF FILING OF RETURN SPECIFIED UNDER SECTION 139(1) OF THE ACT, NO DEDUCTION UNDER SECTION 10 B OF THE ACT SHALL BE ALLOWED. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME IN TERMS OF SECTION 139(1) OF THE ACT 30/09/2009 AND CLAIM ED DEDUCTI ON UNDER SECTION 10 B OF THE ACT IN THE REVISED RETURN OF INCOME FILED ON 19/03/2011. THE ASSESSING OFFICER DISALL OWED THE CLAIM UNDER SECTION 10 B OF THE ACT, RELYING ON THE SUB - SECTION (8) OF SECTION 10B OF THE ACT WHICH READS AS UNDER: 9 SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKINGS. 10B. (1) . (2) .. (3) .. (4) . (5) . (6) . (7) . (8) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS OF THIS SECTION, WHERE THE ASSESSEE, BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SUB - SECTION (1) OF SECTION 139 , FURNISHES TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEAR. 6. 4 T HE CO NTENTION OF THE R EVENUE IS THAT , THE WORD RELEVANT ASSESSMENT YEAR SHOULD BE CONSTRUED PLURAL AND , THUS , IF THE ASSESSEE OPT OUT OF THE DEDUCTION IN ANY OF THE ASSESSMENT YEAR, THEN T HE PROVISIONS OF THE SECTION 10 B WOULD NOT APPLY TO THE ASSESSEE FOR REST OF THE ASSESSMENT YEARS AND ACCORDINGLY , NO DE DUCTION COULD HAVE BEEN ALLOWED TO THE ASSESSEE. THE LD. CIT(A), HOWEVER, FOLLOWED THE FINDING OF THE TRIBUNAL AND HON BLE JURISDICTIONAL HI GH COURT IN THE CASE OF LEGOTO S YSTEMS INDIA PRI VATE LIMITED (SUPRA) AND HELD THAT DEDUCTION UNDER SECTION 10B OF THE ACT CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THE ASSESSEE OPTED OUT IN EARLIER YEARS. THE RELEVANT FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS REPRODUCED AS UNDER: 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE FINDINGS OF THE AO AS WELL AS THE SUBMISSIONS OF THE A/R OF THE APPELLANT. GROUND NO. 1 OF APPEAL IS DIRECTED AGAINST DENYING EXEMPTION U/S 10B OF THE IT ACT, 1961 OF RS. 1,87,36,185/ - . THE APPELLANT CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF HIGH FASHION 10 DESIGN WEAR, LADIES ACCESSORIES, MADE - UPS, ETC AND CLAIMED DEDUCTION U/S 10B OF RS. 1,87,36,185/ - IN THE AY 2009 - 10. THE AO OBSERVED THAT UNDER THE PROVISION OF SEC 10B THE ASSES SEE HAS TO EXERCISE ITS OPTION OF CLAIMING DEDUCTION IN FORM 56F, IN THE VERY FIRST ASSESSMENT YEAR I.E. AY 2002 - 03. SINCE THE ASSESSEE HAS CHOSEN FOR NOT CLAIMING EXEMPTION IN THE VERY FIRST YEAR I.E. AY 2002 - 03 AND ALSO FURNISHED UNDERTAKING U/S 10B(8) F OR NOT CLAIMING DEDUCTION U/S 10B IN SUBSEQUENT ASSESSMENT YEARS I.E. 2003 - 04 TO 2006 - 07, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10B IN THIS ASSESSMENT YEAR ALSO. ACCORDINGLY THE AO HELD THAT SINCE THE ASSESSEE HAS REGULARLY FUR NISHED DECLARATION IN WRITING U/S 10B(8) IN AY 2003 - 04 TO 2006 - 07 FOR NOT CLAIMING DEDUCTION U/S 10B AND NO CLAIM WAS MADE IN THE FIRST YEAR OF EOU UNDERTAKING I.E. AY 2002 - 03, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 10B FOR AY 2009 - 10 AL SO. CONSIDERING THE ABOVE, THE EXEMPTION U/S 10B AMOUNTING TO RS. 1,87,36,185/ - CLAIMED IN THE REVISED RETURN WAS NOT ALLOWED BY THE AO. 4.2 HON BLE ITAT, DELHI IN THE CASE OF LEGATO SYSTEMS INDIA (P) LTD. VS. ITO 93 TTJ 828 HAD THE OCCASION TO ANALYZE SU B - SECTION (8) OF SECTION 10A AND THE TRIBUNAL HAS EXPOUNDED AS UNDER: - 'PERUSAL OF SUB - S. (8) OF S. 10A REVEALS THAT THE DECLARATION REQUIRED TO BE MADE IS IN RESPECT OF THAT YEAR ONLY FOR WHICH THE ASSESSEE DOES NOT DESIRE APPLICATION OF PROVISION OF THI S SECTION. IN CASE THE ASSESSEE DID NOT FILE ANY SUCH DECLARATION IN THE FIRST ASSESSMENT YEAR IN WHICH IT WAS ELIGIBLE TO THE EXEMPTION, THE SAME CANNOT BE A CRITERIA TO DENY THE EXEMPTION FOR THE SUCCESSIVE YEARS.. THE PRINCIPLE OF ESTOPPELS IS NOT APPLI CABLE IN TAX PROCEEDINGS TO THE SUCCESSIVE ASSESSMENT AS HAS ALSO BEEN LAID DOWN BY THE MON BLE HIGH COURT OF DELHI IN CWT VS. MEATLESS (P) LTD. (1984) 43 CTR (DEL) 281 : (1985) 156 ITR 569 (DEL) AND ALSO BY GUJARAT HIGH COURT IN ANANT MILLS LTD. VS. CIT (1993) 109 CTR (GUJ) 231 : (1994)206 ITR 582 (GUI) AND BOMBAY HIGH COURT IN KANTILAL CHIMANLAL SHAH VS. CIT (1954) 26 ITR 303 (BOM).' 11 4.3 IN THE AFORESAID CASE THE HON BLE ITAT AFTER EVALUATING THE FACTS AND CIRCUMSTANCES OF THE CASE HAD RESTORED THE MATT ER TO THE FILES OF THE AO TO ALLOW EXEMPTION U/S. 10A, IF THE ASSESSEE IS FOUND TO HAVE SATISFIED REQUISITES ENVISAGED IN SECTION 10A OF THE ACT. THIS DECISION OF THE TRIBUNAL WAS THE SUBJECT MATTER OF THE ADJUDICATION BY THE HON BLE JURISDICTIONAL HIGH C OURT IN 203 CTR 101. THE ORDER OF THE HIGH COURT IS AS UNDER: - THE TRIBUNAL HAS RECORDED A FINDING OF FACT THAT THE RESPONDENT - ASSESSEE WAS NOT AN OLD UNIT ALREADY IN EXISTENCE SO AS TO BE DISENTITLED TO THE BENEFIT OF EXEMPTION UNDER S. 10 A OF THE IT A CT, 1961. IT HAS, ON THAT FINDING, REMITTED THE MATTER BACK TO THE AO WITH THE FOLLOWING DIRECTIONS: 'WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO ALLOW EX EMPTION UNDER S. 10A IN BOTH THE YEARS IN CASE THE ASSESSEE IS FOUND TO HAVE SATISFIED ALL OTHER REQUISITES ENVISAGED IN THE SCHEME OF S. 10 A OF THE ACT. IN CASE THE EXEMPTION UNDER S.LOA CANNOT BE ALLOWED FOR THE REASONS OF NOT SATISFYING THE REQUISITES, THE CLAIM OF DEDUCTION UNDER S. 80HHE SHALL BE ALLOWED AFTER PROVIDING OPPORTUNITY TO MEET THE REQUISITES.' THE ABOVE DIRECTION IS, IN OUR VIEW, JUST AND PROPER HENCE DOES NOT CALL FOR ANY INTERFERENCE ESPECIALLY WHEN THE QUESTION (WHETHER THE ASSESSEE) SATISFIES THE PREREQUISITES STIPULATED FOR THE PURPOSE OF GETTING BENEFIT UNDER S. 10A IS A MATTER LEFT TO BE DETERMINED BY THE AO. SO ALSO THE ENTITLEMENT OF THE ASSESSEE TO SEEK DEDUCTION UNDER S. 80HHE HAVING BEEN LEFT TO BE DETERMINED BY THE AO, SUBJEC T TO ASSESSEE S SATISFYING THE PRE - REQUISITES STIPULATED FOR THE GRANT OF SUCH A BENEFIT UNDER THE SAID PROVISION. NO QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION IN THIS APPEAL TO WARRANT ITS ADMISSION. 12 THE APPEAL IS ACCORDINGLY DISMISSED IN LIMINE. 4.4 FOLLOWING THE DECISIONS IN THE CASE OF LEGATO SYSTEMS INDIA (P) LTD. (SUPRA) HON BLE ITAT, DELHI IN THE CASE OF AC1T VS. HEADSTRONG SERVICES INDIA PVT. LTD. IN ITA NO. 519/DEL/2011 IN ITS DECISION DT. 08/04/2011 H AVE ALSO HELD THAT THE AO S GROUND OF DENIAL OF DEDUCTION U/S 10A FOR A. Y. 2000 - 01 BY INVOKING THE PROVISIONS OF SECTION 10A(8) CANNOT BE SUSTAINED PROVIDED, ALL THE OTHER REQUISITES OF GETTING EXEMPTION U/S 10A ARE FULFILLED IN THESE ASSESSMENT YEARS. 4.5 IT IS CLEAR FROM THE ABOVE DECISIONS OF HON BLE ITAT AND HON BLE JURISDICTIONAL HIGH COURT, THAT DECLARATION REQUIRED TO BE MADE U/S 10A SUB - SECTION (8) IS IN RESPECT OF THAT YEAR ONLY FOR WHICH ASSESSEE DOES NOT DESIRE APPLICATION OF THE PROVISIONS OF THIS SECTION. THE PROVISION OF SEC 1013 SUB - SEC (8) AND SEC 10A SUB - SEC (8) ARE IDENTICAL. THEREFORE, THE RATIO OF ABOVE DECISIONS SHALL ALSO APPLY TO SEC 10B SUB - SEC (8). IT IS NOT THE CASE IN THE INSTANT APPEAL THAT FOR THE ASSESSMENT YEARS 2009 - 10, THE ASSESSEE HAS EXERCISED ANY SUCH OPTION. HENCE, AO S GROUND OF DENIAL EXEMPTION U/SLOA THAT ASSESSEE HAS EXERCISED THE OPTION NOT TO CLAIM EXEMPTION U/S 10A IN AY 2002 - 03 TO AY 2006 - 07 IS NOT TENABLE FOR THE ASSESSMENT YEAR 2009 - 10 IN THE LIGHT OF THE ABO VE DECISION. HENCE I AM OF THE OPINION THAT THE AO S GROUND OF DENIAL OF DEDUCTION U/S 10B FOR A. Y. 2009 - 10 BY INVOKING THE PROVISIONS OF SECTION 10B(8) CANNOT BE SUSTAINED PROVIDED, ALL THE OTHER REQUISITES OF GETTING EXEMPTION U/S 10B ARE FULFILLED IN THESE ASSESSMENT YEARS. HOWEVER IT IS OBSERVED THAT IN THE ORDER OF THE AO THE PRIMARY DISCUSSION HAS BEEN THE APPLICABILITY OF SUB - SECTION (8) OF SECTION 10B. OTHER ASPECTS AS TO WHETHER THE REQUISITES OF SUB SECTION 10(B) HAVE BEEN COMPLIED WITH OR NOT, HAVE NOT BEEN GONE THROUGH. RESPECTFULLY FOLLOWING THE PRECEDENT FROM THE AFORESAID DECISION OF ITAT AND ALSO THE JURISDICTIONAL HIGH COURT DECISION, THE AO IS DIRECTED TO ALLOW EXEMPTION U/S 10B, IF THE ASSESSEE IS FOUND TO BE SATISFYING ALL OTHER REQUISI TES ENVISAGED IN THE SCHEME OF SECTION 10B OF THE ACT/TH CASE THE ASSESSEE DOES NOT SATISFY THE REQUISITES ENVISAGED IN SEC 10B THE CLAIM OF EXEMPTION U/S 10B 13 CANNOT BE ALLOWED. NEEDLESS TO ADD THAT ASSESSEE SHALL BE GRANTED ADEQUATE OPPORTUNITY OF BEING H EARD. 6.5 SINCE THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL AND THE HON BLE JURISDICTIONAL HIGH COURT ON THE ISSUE IN DISPUTE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY , HOLD THAT THE ASSESSEE CANNOT BE DENIED DEDUCTION UNDER SECTION 10 B OF THE ACT MERELY ON THE GROUND THAT THE ASSESSEE D I D N O T O P T FOR DEDUCTION IN EARLIER ASSESSMENT YEAR ( S ) . THE GROUND NO. 3 OF THE APPEAL IS ACCORDINGLY DISMISSED. 7. AS FAR AS GROUND NO. 1 & 4 O F THE APPEAL ARE CONCERNED, WE FIND THAT THE LD. CIT(A) HAS DIRECTED TO VERIFY THE OTHERWISE ELIGIBILITY OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10B OF THE ACT, WHICH WAS NOT EXAMINED BY THE LD. ASSESSING OFFICER IN ASSESSMENT PROCEEDING. THE ASSESSING OFFICER DISALLOWED ON FIRST THRESHOLD OF SECTION 10B(8) OF THE ACT WITHOUT EXAMINING ELIGIBILITY UNDER OTHER PROVISIONS OF THAT SECTION AND THEREFORE, THE LD. CIT(A) DIRECTED TO VERIFY THOSE ELIGIBILITY CRITERIA BEFORE ALLOWING DEDUCTION REQUESTED BY THE ASSESSEE . WE DO NOT FIND ANY ERROR IN THE SAID DIRECTION BY THE LD. CIT(A). BUT, ACCORDING TO R EVENUE, THE LD. CIT(A) HAS NO POWER OF REMITTING THE MATTER TO THE FILE OF THE ASSESSING OFFICER. IN SUCH CIRCUMSTANCES, WE FEEL IT APPROPRIATE TO ISSUE IDENTIC AL DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE OTHERWISE REQUISITE ELIGIBILITY CRITERIA OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10 B OF THE ACT AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE GROUND NO. 1 AND 4 OF THE APPEAL ARE ACCORDINGLY ALLOWED. 14 8. IN ASSESSMENT YEAR 2008 - 09, THE RETURN OF INCOME WAS NOT FILED WITHIN THE LIMITATION PROVIDED UNDER SECTION 139(1) OF THE ACT AND , THEREFORE , THE DEDUCTION WAS NOT ALLOWED TO THE A SSESSEE , W HEREAS IN THE YEAR UNDER CONS IDERATION, THERE IS NO DISPUTE A S THE RETURN WAS FILED ON OR BEFORE THE DUE DATE OF FILING OF RETURN PRESCRIBED UNDER SECTION 139 (1) OF THE ACT. SINCE THE FACTS IN THE YEAR UNDER CONSIDERATION BEING DIFFERENT FROM TH E FACTS OF ASSESSMENT 2008 - 09, WE DO NOT FIND ANY ERROR BY THE LD. CIT(A) IN NOT FOLLOWING THE ORDER OF THE CIT(A) FOR ASSESSMENT THE 2008 - 09. THE GROUND NO. 2 OF THE APPEAL IS ACCORDINGLY DISMISSED . 9. THE GROUND NO. 5 OF THE BEING GENERAL IN NATURE, WE ARE NOT REQUIRED TO ADJUDICATE UPON AND ACCORDINGLY, DISMISSED. 10. THE GROUND NO S . 1 TO 5 OF THE CROSS OBJECTION ARE ONLY SUPPORTING THE FINDING OF THE LD. CIT(A). SINCE THE ISSUES RAISED IN THESE GROUNDS ALREADY STAND ADJUDICATED IN THE GROUNDS OF APPEA L OF THE R EVENUE, WE ARE NOT SEPARATELY ADJUDICATING THESE GROUNDS OF CROSS OBJECTION. 11. THE GROUND NO. 6 & 9 ARE IN RELATION TO QUANTUM OF DEDUCTION UNDER SECTION 10 B OF THE ACT. 11.1 IN GROUND NO. 6, THE ASSESSEE HAS REQUESTED FOR COMPUTING THE PR OFIT DERIVED FROM THE EXPORT OF ARTICLES OR THINGS BY THE ASSESSEE IN PROPORTION OF THE PROFIT OF THE UNDERTAKING, IN THE SAME PROPORTION BETWEEN THE EXPORT TURNOVER OF THE ARTICLES OR THINGS AND THE TOTAL TURNOVER OF THE BUSINESS OF UNDERTAKING. 1 1 .1 WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES. IN THIS GROUND, THE ASSESSEE IS ONLY SEEKING COMPUTATION OF DEDUCTION IN ACCORDANCE WITH THE PROVISION OF ACT , BUT THIS GROUND IS PREMATURE AS THE COMPUTATION OF THE DEDUCTION HAS ALREADY BEEN 15 RESTORED TO THE FILE OF THE ASSESSING OFFICER, AND BEING A QUASI - JUDICIAL AUTHORITY, WE EXPECT THAT HE WILL ALLOW THE COMPUTATION OF DEDUCTION IN ACCORDANCE WITH THE PRO VISIONS OF THE ACT. ACCORDINGLY, THIS GROUND OF THE CROSS OBJECTION IS DISMISSED AS PREMATURE AT TH IS STAGE. 12 . IN GROUND NO. 9, THE ASSESSEE HAS CHALLENGED FINDING OF THE LD. CIT(A) IN HOLDING NON - ELIGIBILITY FOR DEDUCTION UNDER SECTION 10 B OF THE ACT IN RESPECT OF E XPORT I NCENTIVES ( RS. 13,22,959/ - ), SCRAP SALES (RS. 22,920/ - ), I NTEREST ON FIXED DE POSITS (RS. 23,04,152/ - ), A MOUNT S WRITTEN BACK (RS. 44,376/ - ), MISCELLANEOUS INCOME (RS. 3,907/ - ), I NSURANCE CLAIM (RS. 131,980/ - ), JOB WORK RECEIVED ( RS. 2,08,803), AND CLAIMS & D AMAGES (RS. 2,75,245/ - ). THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE AS UNDER: 6.1 IN GROUND NO. 3 OF APPEAL THE PLEA OF THE APPELLANT IS THAT THE AO HAS ERRED IN OPINING THAT EXPORT INCENTIVES (RS. 1,322,959/ - ), SCRAP SALE (RS. 22,920/ - ), INTEREST ON FIXED DEPOSITS (RS. 2,304,152/ - ), AMOUNT WRITTEN BACK (RS. 44,376/ - ), MISCELLANEOU S INCOME (RS. 3,907/ - ), INSURANCE CLAIM (RS. 131,980/ - ), JOB WORK RECEIVED (RS. 208,803/ - ) AND CLAIMS & DAMAGES (RS. 275,245/ - ) ARE TO BE EXCLUDED FOR CLAIM OF EXEMPTION U/S 10B OF THE IT ACT, 1961 OR ALTERNATIVELY, FOR PARITY S SAKE, CONSIDERING THE ABOVE ITEMS FOR EXCLUSION BOTH FROM THE TOTAL EXPORT TURNOVER (NUMERATOR) AND THE TOTAL TURNOVER OF THE BUSINESS (DENOMINATOR) FOR COMPUTING CLAIM U/S 10B OF THE ACT. THE AO OBSERVED THAT EVEN FOR THE SAKE OF ARGUMENT, IF IT IS PRESUMED THAT THE ASSESSEE IS ELI GIBLE FOR EXEMPTION U/S 10B, THE ABOVE OTHER INCOME WILL HAVE TO BE EXCLUDED FOR CLAIM OF EXEMPTION U/S 10B. THE AO FOLLOWING THE DECISION OF FLON BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT HELD THAT SINCE IN RESPECT TO THE ABOVE HEADS OF INCOME T HE ASSESSEE HAS FAILED TO PROVE THE NEXUS OF FIRST DEGREE OF CONNECTION BETWEEN THE BUSINESS OF THE ASSESSEE AND INCOME OF OTHER HEADS, THEREFORE, THE ASSESSEE WOULD NOT 16 BE ELIGIBLE FOR EXEMPTION U/S 10B IN RESPECT TO THESE INCOMES. 6.2 THE PROVISION IN S EC 10B(1) SAYS: - 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. FROM THE ABOVE PROVISION IT IS CLEAR THAT THE DEDUCTION SHALL BE ALLOWED ONLY IN RESPECT OF PROFIT AND GAINS DERIVED FROM THE ELIGIBLE UNIT. NOW IT IS A WELL SETTLED PRINCIPLE OF LAW THAT THE EXPRESSION DERIVED IS OF A NARROWER CONNOTATION TH AN THE EXPRESSION ATTRIBUTABLE TO . THE EXPRESSION DERIVED POSTULATES THE EXISTENCE OF A DIRECT AND PROXIMATE NEXUS WITH THE EXPORT ACTIVITY. THE EXPRESSION DERIVED FROM WAS EXPLAINED IN THE JUDGMENT OF HON BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 129 TAXMAN 539 IN THE CONTEXT OF THE USE OF THAT EXPRESSION IN SECTION 80HH. IN THAT CASE THE ASSESSEE HAD PLACED A DEPOSIT WITH AN ELECTRICITY BOARD FOR OBTAINING THE SUPPLY OF ELECTRICITY AND THE SUBMISSION OF THE ASSESSEE WAS THAT THE UNDE RTAKING ITSELF COULD NOT RUN IN THE ABSENCE OF ELECTRICITY. CONSEQUENTLY, IT WAS URGED THAT THE INTEREST RECEIVED ON THE DEPOSITS PLACED WITH THE ELECTRICITY BOARD MUST BE REGARDED AS BEING DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE SUPREME COURT REJECTE D THIS SUBMISSION, HOLDING THAT THE EXPRESSION DERIVED FROM 'MUST BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS'. THE COURT HELD THAT THOUGH ELECTRICITY MAY BE REQUIRED FOR THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR SUCH SUPPLY ' IS A STEP REMOVED FROM THE BUSINESS' AND THE DERIVATION OF PROFITS ON THE DEPOSIT MADE 'CANNOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF'. 17 6.3 IN THE CASE OF STERLING FOODS (237 ITR 579) (SC) APEX COURT HELD THAT PROFIT FROM SALE OF IMPORT ENTITLEMENT IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THERE MUST BE, FOR THE APPLICATION OF THE WORDS DERIVED FROM , A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. 6.4 IN LIBERTY INDIA VS. CIT (317 ITR 218) (SC) FLON BLE APEX COURT HELD THAT BY USING THE EXPRESSION DERIVED FROM , PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. DEPB/DUTY DRAWBACKS ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVT, AND HENCE THEY BELONG TO THE CATE GORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS AND NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 6.5 THE SAME PRINCIPLE HAS BEEN REITERATED BY HON BLE SUPREME COURT IN C1T V. K. RAVINDRANATHAN NAIR [2007] 295 ITR 228 SPECIFICALLY IN THE CONTEXT OF THE PROV ISIONS OF SECTION 80HHC. 6.6 HON BLE DELHI HIGH COURT IN C1T VS. SHRI RAM HONDA POWER EQUIP (2007) 158 TAXMAN 474 (DELHI) HAVE HELD THAT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE AN IMMED IATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. IT WAS FURTHER HELD THAT THE EXPRESSION PROFITS DERIVED FROM SUCH EXPORT OCCURRING IN SUB - SECTION (3) READ WITH EXPLANAT ION (BAA) RESTRICT THE PROFITS AVAILABLE FOR DEDUCTION IN TERMS OF SUB - SECTION (1) TO ONLY THOSE ITEMS OF INCOME DIRECTLY RELATABLE TO THE BUSINESS OF EXPORT. IN THE SAID DECISION HON BLE HIGH COURT HAVE HELD: ON THREE OCCASIONS THE SUPREME COURT HAS AFFIRMED JUDGMENTS OF THE KERALA HIGH COURT IN SOUTHERN CASHEW EXPORTS V. DY. CIT [2003] 130 TAXMAN 203, K. RAVINDRANATHAN NAIR V. CIT [2003] 262 ITR 669 AND URBAN STANISLAUS CO. V. CIT [2003] 263 ITR 10 WHEREIN 18 CO URT HAS CONSISTENTLY HELD THAT INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCE S AND NOT AS BUSINESS INCOME. [PARA 17] THE EXPORTER IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER TO AVAIL CREDIT FACILITY FOR THE EXPORT BUSINESS. THE ARGUMENT ON BEHALF OF THE ASSESSEE WAS THAT BUT FOR SUCH A STIPULATION BY THE BANK THERE WAS NO NEED FOR THE EXPORTER TO KEEP THE MONEY IN FIXED DEPOSIT AND THEREFORE, THE INCOME EARNED FROM SUCH FIXED DEPOSITS BEARS A DIRECT NEXUS TO THE BUSINESS ACTIVITY ITSELF. GIVEN THE REPEATED AFFIRMATION BY THE SUPREME COURT OF THREE JUDGMENTS OF THE KERALA HIGH COURT ON THE SAME ISSUE, VIEW EXPRESSED BY THE KERALA HIGH COURT ON EACH OF THESE OCCASIONS HAS TO BE FOLLOWED. ACCORDINGLY, THE INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE A N IMMEDIATE NEXUS WITH THE EXPORT BUSINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. THUS, THE EXPRESSION PROFITS DERIVED FROM SUCH EXPORT OCCURRING IN SUB - SECTION (3) READ WITH EXPLANATION (BAA) R ESTRICT THE PROFITS AVAILABLE FOR DEDUCTION IN TERMS OF SUB - SECTION (1) TO ONLY THOSE ITEMS OF INCOME DIRECTLY RELATABLE TO THE BUSINESS OF EXPORT. 6.7 IN VIEW OF THE ABOVE, THE INCOME FROM EXPORT INCENTIVES (RS. 1,322,959/ - ), SCRAP SALE (RS. 22,920/ - ), INTEREST ON FIXED DEPOSITS (RS. 2,304,152/' - ), AMOUNT WRITTEN BACK (RS. 44,376/ - ), MISCELLANEOUS INCOME (RS. 3,907/R), INSURANCE CLAIM (RS. 131,980/ - ), JOB WORK RECEIVED (RS. 208,803/ - ) AND CLAIMS & DAMAGES (RS. 275,245/ - ) CANNOT BE TREATED AS INCOME DERIV ED FROM THE ELIGIBLE UNIT, AND AS SUCH WOULD NOT BE ELIGIBLE FOR DEDUCTION U/S 10B. THE AO IS JUSTIFIED IN HIS VIEW THAT THE ASSESSEE WOULD NOT BE ELIGIBLE FOR EXEMPTION U/S 10B IN RESPECT TO THESE INCOMES. IN THE CASE OF CIT VS. SADHU FORGING LTD. (2011) 242 CTR (DEL) 158 IT HAS BEEN HELD THAT 19 THERE CANNOT BE ANY TWO OPINIONS THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALSO GENERATE SCRAP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS OF SALE OF SCRAP BEING PAR T AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTING U/S 80IB. HOWEVER IN THE INSTANT CASE OF THE APPELLANT, IN THE ABSENCE OF ANY MATERI AL OR EXPLANATION ON WHETHER THE SCRAP SCALE SHOWN BY THE APPELLANT IS GENERATED IN THE MANUFACTURING PROCESS, THE SAID RECEIPTS FROM SALE OF SCRAP CANNOT BE TREATED AS DERIVED FROM THE ELIGIBLE ACTIVITIES OF EXPORT. SIMILARLY THE AMOUNT WRITTEN BACK OF PR OVISIONS/ EXPENSES OF RS. 4 - 1.736/ - OR EARLIER YEARS DOES NOT RELATE TO THE AY 2009 - 10. THEREFORE, THE AO IS JUSTIFIED IN HIS VIEW THAT THE APPELLANT WOULD NOT BE ELIGIBLE FOR EXEMPTION U/S 10B IN RESPECT OF THESE INCOMES. THE APPEAL FAILS IN THIS GROUND. 12 .1 BEFORE US , THE LD. COUNSEL FILED THE WRITTEN SUBMISSION, WHICH IS REPRODUCED AS UNDER: 1. EXPORT INCENTIVES - RS. 13.22.959/ - I. THIS INCOME FORMS PART OF THE BUSINESS IF THE UNDERTAKING AND THEREFORE CANNOT BE EXCLUDED FROM THE COMPUTATION OF CALCULATING EXEMPTION. II. THIS ISSUE IS COVERED BY THE JUDGMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT - VIII VS XLNC FASHIONS 2015(10) TMI1086 - 3 - 3 CIT VS HRITNIK EXPORTS P LTD - 2015(1)TMI 1009 - DELHI HIGH COURT. 2. SCRAP SALES RS . 22.920 SCRAP SALE IS THE INCOME DERIVED FROM THE BUSINESS AND IS ELIGIBLE FOR THE DEDUCTION. THIS ISSUE IS COVERED BY THE FOLLOWING: CIT - VII VS PUNJAB STAINLESS INDUSTRIES 364 ITR 0144 (2014) SC PRINCIPAL COMMISSIONER OF INCOME TAX - 21 VERSUS UNIVERSAL PRE CISION SCREWS 2015 (10) TMI 951 - DELHI HIGH COURT 3. INTEREST ON F IXED DEPOSITS - RS. 23.04.152/ - [ PB PG. 11 20 I. INCOME HAS BEEN EARNED ON THE FDRS PLEDGED WITH THE BANKS TO SECURE BANK OVERDRAFTS ETC. AND THE SAME IS EVIDENT FROM THE 1ST PG OF BALANCE SH EET OF THE COMPANY. II. THIS ISSUE IS COVERED BY THE JUDGEMENT OF HON'BLE ITAT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX 21 VERSUS UNIVERSAL PRECISION SCREWS 2015 (10) TMI 951 - DELHI HIGH COURT WHEREIN SPECIFIC ISSUE HAS BEEN DEALT WITH AND IT HAS BEEN HELD THAT - '10. IN THE PRESENT CASE, THE ASSESSEE HAS STATED THAT THE INTEREST ON FDRS WAS RECEIVED ON 'MARGIN KEPT IN THE BANK FOR UTILIZATION OF LETTER OF CREDIT AND BANK GUARANTEE LIMITS'. IN THOSE CIRCUMSTANCES, THE DECISION OF THE ITAT THAT SUCH INTEREST BEARS THE REQUISITE CHARACTERISTIC OF BUSINESS INCOME AND HAS NEXUS TO THE BUSINESS ACTIVITIES OF THE ASSESSEE CANNOT BE FAULTED. IN OTHER WORDS, INTEREST EARNED ON THE FDRS WOULD FORM PART OF THE 'PROFITS OF THE BUSINESS OF THE UNDERTAKING' FOR THE PURPOSES OF COMPUTATION OF THE PROFITS DERIVED FROM EXPORT BY APPLYING FORMULA UNDER SECTION 10B(4) OF THE ACT. 11. CONSEQUENTLY, NO SUBSTANTIAL QUESTION OF LAW ARISES ON THIS ASPECT AS WELL. 12. THE APPEAL IS DISMISSED.' SIMILAR FINDING IS GIVEN IN I. RIVIERA HOME FURNISHING VERSUS ADDL. COMMISSIONER OF INCOME TAX, RANGE 15 - 2015 (11) TMI1139 - DELHI HIGH COURT II. THE COMMISSIONER OF INCOME TAX VERSUS M/S. GEM PLUS JEWELLERY INDIA LTD. [2011] 330 ITR 175 4. AMOUNT WRITTEN BACK - RS. 44.376/ - THIS IS ALSO THE AMOUNT WRITTEN BACK IN THE COURSE OF BUSINESS ACTIVITY AGAINST THE AMOUNT NOT TO BE PAID TO THE SUPPLIERS OWING TO DIFFERENCE IN THE QUALITY OF MATERIAL AND SPECIALLY ON COMPLAINTS RECEIVED FROM THE FOREIGN BUYERS OF THE EXPORTED GOODS. THESE ARE ASSESSABLE UNDER SECTION 41(1) OF THE INCOME TAX ACT AND THEREFORE ASSESSABLE AS BUSINESS INCOME. THIS ISSUE IS COVERED BY THE ORDER OF ITAT BANGLORE IN THE CASE OF KARNATAKA INSTRADE CORPORATION LTD VS ACIT (2010)133 TTJ(BANG)61 WHEREIN IN PARA 8 HON'BLE ITAT HELD THAT ADVANCE WRITTEN BACK IS BUSINESS INCOME U/S 41(1) AND NOT INCOME FROM OTHER SOURCES. 5. INSURANCE CLAIM (RS. 131.980) I. THE CLAIM IS RECEIVED BY THE ASSESSEE IN THE DUE COURSE OF BUSINESS AND INSURANCE CLAIMS GOES TO R EDUCE THE COST OF THE GOODS TO BE EXPORTED AND ACCORDINGLY IT INCREASES THE BUSINESS PROFIT OF THE UNDER TAKING. 21 III. THIS ISSUE IS SQUARELY COVERED BY THE ACIT, AHMEDABAD CIRCLE - 1, AHMEDABAD VERSUS M/S. ARVIND LTD AND VICA - VERSA 2015 (9) TMI 224 - ITAT AHMEDABAD IN WHICH IT HAS BEEN HELD THAT 6. RIVAL CONTENTIONS HEARD. RECORD PERUSED. THERE IS NO DISPUTE THAT THIS SUM OFF 8,24,522/ - HAS ARISEN FROM INSURANCE CLAIM OF EXPORTED GOODS, PURCHASE MATERIAL DISCOUNTS AND 'OTHER' INCOME OF RS. 7,41,717/ - , RS. 81 ,70 6/ - AND RS. 1,099/ - ; RESPECTIVELY. THE CIT(A) ACCEPTS ASSESSEE S ARGUMENTS AND HOLDS THAT THE SAME IS DIRECTLY LINKED TO ITS BUSINESS IN QUESTION AS PER THE TRIBUNAL S ORDER (SUPRA). THE REVENUE FAILS TO REBUT THESE FINDINGS OF FACT AND LAW BY QUOTING CO GENT MATERIAL OR CASE LAW TO THE CONTRARY. WE OBSERVE IN THESE FACTS THAT THESE AMOUNTS LEAD TO REDUCTION IN PURCHASE PRICE OF THE CORRESPONDING MATERIAL PURCHASED FOR THE PURPOSE OF BUSINESS ONLY. THE CIT(A)'S FINDINGS UNDER CHALLENGE ARE AFFIRMED. REVENU E'S APPEAL IT A 816/AHD/2011 IS DISMISSED. 6. JOB WORK RECEIVED - RS. 2.08.803 / - THESE AMOUNTS HAVE BEEN EARNED DURING THE COURSE OF DURING THE SERVICES RENDERED ALONG WITH THE EXPORT THEREFORE ELIGIBLE FOR DEDUCTION. RELIANCE IS BEING PLACED ON THE JUDGE MENT CIT VERSUS SADHU FORGING LTD (2011) 242 CTR (DEL) 158 IN WHICH HON'BLE DELHI HIGH COURT HAS BEEN HELD THAT SCRAP SALE CHARGES AND JOB WORK/ LABOUR CHARGES NOT TO BE EXCLUDED FOR THE PURPOSE OF GIVING EFFECT TO DEDUCTION U/S 80IB OF THE ACT. 7. CLAIMS & DAMAGES - RS. 2.75.245/ - THE CLAIM IS RECEIVED BY THE ASSESSEE IN THE DUE COURSE OF BUSINESS AND HENCE SAID INCOME IS WITHIN THE AMBIT OF THE BUSINESS OF THE UNDERTAKING. THIS ISSUE IS SQUARELY COVERED BY THE ACIT, AHMEDABAD CIRCLE - 1, AHMEDABAD VERSUS M/S. ARVIND LTD AND VICA - VERSA 2015 (9) TMI 224 - ITAT AHMEDABADAS PER PROFIT & LOSS ACCOUNT, IT IS CLEARLY EVIDENT THAT THE TOTAL RECEIPT OF THE COMPANY IS APPROX RS. 20 CRORES (PB PG. 153) WHEREAS DIVIDEND IS RS. 4,66,152/ - WHICH IS 0.23%. THUS, THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 4,66,152/ - FROM ONLY WHICH DO NOT REQUIRE ANY EXTRA EFFORTS ON ACCOUNT OF ADMINISTRATIVE EXPENSES ETC. FURTHER, THE INVOCATION OF RULE 8D IS NOT AUTOMATIC - NO SATISFACTION BV THE AO IT IS A SETTLED LAW THAT T HE AO HAS TO FIRST VERIFY THE CORRECTNESS OF THE ASSESSEE S CLAIM, WHICH HAS NOT BEEN DONE IN THE PRESENT CASE. THIS ISSUE IS SQUARELY COVERED WITH THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TAIKISHA ENGINEERING INDIA LTD. (2015) 370 ITR 338 (DEL), WHEREIN IT WAS HELD AS UNDER: 22 'SECTION 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE A CT. UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT, THE ASSESSING OFFICER IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEM PT INCOME, THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RULE 8D OF THE RULES (QUOTED AND ELUCIDATED BELOW). THEREFORE, THE ASSESSING OFFICER AT THE FIRST INSTANC E MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME. IF AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED ON THIS COUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT H E IS ENTITLED TO ADOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. THUS, RULE 8D IS NOT ATTRACTED AND APPLICABLE TO ALL ASSESSEE WHO HAVE EXEMPT INCOME AND IT IS NOT COMPULSORY AND NECESSARY THAT AN ASSESSEE MUST VOLUNTARILY COMPUTE DISALLOWANCE AS PER RULE 8D OF THE RULES. WHERE THE DISALLOWANCE OR 'NIL' DISALLOWANCE MADE BY THE ASSESSEE IS FOUND TO BE UNSATISFACTORY ON EXAMINATION OF ACCOUNTS, THE ASSESSING OFFICER IS ENTITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 8D OF THE RULES.' F URTHER RELIANCE IN THIS REGARD IS PLACED ON THE RECENT JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR. CIT V. U. K. PAINTS (INDIA) PVT. LTD. IN ITA NO. 781/2016 DATED 06.12.2016, WHEREIN THE HON BLE COURT HAS HELD AS UNDER: 'IN THAT SENSE , THE RULES ARE NOT MERELY PROCEDURAL BUT ARE SUBSTANTIVE AND CAN BE SAID TO BE ENGRAFTED IN THE STATUTE, AS IS EVIDENT FROM THE MANDATE OF THE FIRST PART OF SECTION 14A(2). THAT APART, SIGNIFICANTLY, THE QUESTION OF APPLYING THE STATUTORILY PRESCRIBED ME THOD WOULD ARISE ONLY AND ONLY IF THE AO EXPRESSES AN OPINION REJECTING THE ASSESSEE'S METHODOLOGY AND THE FIGURE OFFERED AT THE TIME OF ASSESSMENT. THIS IS MATERIAL BECAUSE THE JURISDICTION TO GO INTO THE METHOD PRESCRIBED IN THE RULES ARISE ONLY IF THE A MOUNTS THE ASSESSEE OFFERS DOES NOT HAVE ANY REALISTIC CORRELATION WITH THE TAX EXEMPT INCOME. FOR INSTANCE, IN A GIVEN CASE, IF A TAX EXEMPT INCOME IS TO THE TUNE OF'5 CRORES AND THE ASSESSEE IS ABLE TO SATISFY THAT EXPENDITURE RELATABLE TO THAT INCOME OR THE REASONABLE NEXUS TO SUCH INCOME IS '25 LAKHS, THERE HAS TO BE STRONG REASONS WHY THE SAID AMOUNT OF '25 LAKHS ARE TO BE REJECTED. IN OTHER WORDS, THE OPINION OF THE ASSESSING OFFICER IN THE LATTER PART [OF SECTION 14A(2J] IS TO BE BASED UPON AN APPRAI SAL OF OBJECTIVE MATERIAL RELATING TO THE ASSESSEE'S VOLUNTARY DISALLOWANCE OF AMOUNT/AMOUNTS.' RECENTLY HON BLE DELHI HC IN THE CASE OF H.T. MEDIA VS PCIT ITA NO. 548/DEL/2015 DATED. 23.8.2017 HAS HELD THAT 23 '30. RULE 8 D (1) STATES MORE OR LESS WHAT SEC TION 14A[2J OF THE ACT STATES. IT REQUIRES THE AO TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THEN RECORD THAT HE IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF EXPENDITURE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED. UNLESS THIS STAGE IS CROSSED I.E. THE STAGE OF THE AO RECORDING THAT HE IS NOT SATISFIED WITH THE CLAM OF THE ASSESSEE IN THE MANNER INDICATED I.E. AFTER EXAMINING THE ASSESSEE'S ACCOUNTS, THE QUESTION OF APPLYING THE FORMULA UNDER RU LE 8D [2) DOES NOT ARISE. THAT THIS IS A MANDATORY PRE - REQUISITE FOR APPLYING RULE 8D [2] IS FAIRLY WELL - SETTLED. .. 34. THE ASSESSEE HAD EXPLAINED THAT RS. 3 LAKHS WAS BEING DISALLOWED VOLUNTARILY AS AN 'EXPENDITURE WHICH C OULD BE ATTRIBUTABLE FOR EARNING THE SAID INCOME.' THE ASSESSEE EXPLAINED THAT THE DISALLOWANCE HAD BEEN DETERMINED ON THE BASIS OF COST OF FINANCE DEPARTMENT IN THE RATIO OF EXEMPT INCOME TO TOTAL TURNOVER. ON THAT BASIS THE DISALLOWANCE IN AY 2005 - 06 WAS UPHELD BY CIT (A) AT RS. 1 LAKH. THE DISALLOWANCE FOR THIS AY WAS WORKED OUT AS RS. 1,42,404/ - AND SINCE THE ASSESSEE HAD ALREADY MADE A DISALLOWANCE OF RS. 3 LACS, NO FURTHER DISALLOWANCE WAS CALLED FOR. 35. IN ORDER TO DISALLOW THIS EXPENSE THE AO HAD T O FIRST RECORD, ON EXAMINING THE ACCOUNTS, THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF RS. 3 LAKHS BEING THE ADMINISTRATIVE EXPENSES. THIS WAS MANDATORILY NECESSITATED BY SECTION 14 A (2) O F THE ACT READ WITH RULE 8D (1) (A) OF THE RULES.' 12 .2 ON THE CONTRARY, THE LD. DR RELIED ON THE FINDING OF THE LOWER AUTHORITIES AND SUBMITTED THAT IT IS RECEIPTS FROM THESE SOURCES ARE NOT PROFIT DERIVED FROM THE UNDERTAKING BY THE EXPORT ORIENTED UNDERTAKING AND THEREFORE NO DEDUCTION CA N BE ALLOWED IN VIEW OF THE SUPREME COURT DECISION CITED BY THE LD. CIT(A). 12 .3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MATERIAL ON RECORD. THE DEDUCTION UNDER SECTION 10 B OF THE ACT IS IN RESPECT OF PROFIT AND GAINS, WHICH ARE DERIVED BY THE EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLE OR THINGS OR COMPUTER SOFTWARE. THE S UBSECTION (1) OF THE SECTION 10 B READS AS UNDER: SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED HUNDRED PER CENT EXPORT - ORIENT ED UNDERTAKINGS. 24 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONS ECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE A SSESSEE : 12 .4 T HUS , IT IS EVIDENT THAT AS FA R AS DEDUCTION UNDER SECTION 10 B OF THE ACT IS CONCERNED, ONLY PROFIT DERIVED FROM THE UNDERTAKING HAS TO BE CONSIDERED FOR DEDUCTION AND OTHER BUSINESS INCOME OR OTHER INCOME OF THE UNDERTAKING ARE NOT ELIGIBL E FOR DEDUCTION UNDER SECTION 10 B OF THE ACT 1 2 . 5 ON THE ISSUE OF ALLOW ABILITY OF DEDUCTION ON EXPORT INCENTIVES, THE LD. CIT(A) HAS RELIED ON THE DECISION OF THE HON BL E SUPREME COURT IN THE CASE OF STERLING FOOD (237 ITR 579) AND L IBERTY INDIA VS. CIT (3 17 ITR 218). IN THE CASE OF S TERLING F OODS (SUPRA), THE HON BLE SUPREME COURT HELD THAT PROFIT FROM SALE OF IMPORT ENTITLEMENTS IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. SIMILARLY IN THE CASE OF LIBERTY INDIA (SUPRA) ALSO THE HON BLE SUPREME COURT HELD THAT FR OM THE EXPRESSION DERIVED FROM THE PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST - DEGREE AND DEPB/DUTY DRAWBACKS ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY THE CENTRAL GOVERNMENT AND THEY BELONG TO CATEGORY OF THE ANCILLARY PROFITS OF SUCH UNDERTAKING AND NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. FURTHER, THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. MEGHALAYA S TEELS LTD . HAS ALSO UPHELD THE FINDING IN THE CASE OF LIBERTY INDIA (SUPRA) THAT EXPORT INCEN TIVES ARE NOT PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. 25 1 2 .6 AS AGAINST THE ABOVE SUPREME COURT S DECISION, THE LD. COUNSEL OF THE ASSESSEE HAS CITED BEFORE US THE DECISIONS OF HON BLE DELHI HIGH COURT IN THE CASE OF XLNC F ASHIONS (SUPRA) AND HRITN IK EXPORTS (SUPRA), WHEREIN THE HON BLE HIGH COURT ALLOWED THE DEDUCTION UNDER SECTION 10 B OF THE ACT ON THE EXPORT INCENTIVES IN VIEW OF THE SUBSECTION ( 4 ) OF SECTION 10B WHICH PROVIDES AS WHAT WOULD BE A PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. 12 .7 SIMILARLY ON THE ISSUE OF SCRAP SALES THE ASSESSEE HAS CITED THE DECISION OF THE HON BLE SUPRE ME COURT IN THE CASE OF PUNJAB S TAINLESS I NDUSTRIES (SUPRA). 12 .8 SINCE THE ISSUE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE AC T HAS ALREADY BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER, WE FEEL IT APPROPRIATE TO RESTORE THIS ISSUE FOR DECIDING THE QUANTUM OF THE DEDUCTION ON EXPORT INCENTIVES , AND SCRAP SALE S TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IN THE LIGHT OF ABOVE DECISIONS OF THE HON BLE C OURT S . 12 .9 IN THE CASE OF INTEREST ON FIXED DEPOSITS, THE LD. COUNSEL OF THE ASSESSEE HAS CITED THE DECISION OF THE UNIVERSAL P RECISION S CREWS (SUPRA), WHEREIN THE INTEREST RECEIVED ON FDRS, KEPT AS MARGIN MONEY IN THE BANK FOR UTILISATION OF LETTER OF CRE DIT AND BANK GUARANTEES LIMITS , HAS BEEN HELD TO BE PROFIT DERIVED FROM THE UNDERTAKING FOR THE PURPOSE OF SECTION 10B OF THE ACT. BUT IN THE INSTANT CASE, WE NEED TO VERIFY WHETHER THE FIXED DEPOSITS, ON WHICH INTEREST HAS BEEN EARNED WERE PLACED WITH THE BANK FOR SECURING OVERDRAFTS OR THOSE FIXED DEPOSITS HAVE BEEN MADE ONLY FOR EARNING INTEREST. THIS FACT IS NOT AVAILABLE ON RECORD, AND THEREFORE , THIS ISSUE NEED S TO BE EXAMINED BY THE ASSESSING 26 OFFICER. THE OTHER A M OUNTS OF AMOUNTS WRITTEN BACK, I NSUR ANCE CLAIM, JOB WORK RECEIVED, C LAIMS & D AMAGES ETC . IT NEEDS FACTUAL VERIFICATION, WHETHER THE AMOUNTS IN QUESTION PERTAIN TO BUSINESS AC TIVITY OF EARLIER YEARS OR IN THE YEAR UNDER CONSIDERATION AND THEN , ACCORDINGLY TO BE DECIDED IN ACCORDANCE WITH LAW. SINCE THESE FACTS HAVE NOT BEEN VERIFIED BY THE LOWER AUTHORITIES, THEREFORE , WE FEEL IT APPROPRIATE THAT SAME SHOULD BE EXAMINED BY THE ASSESSING OFFICER. 12.10 IN VIEW OF THE ABOVE DISCUSSION, THE ISSUE IN DISPUTE RAISED IN GROUND NO. 9 IS RESTORED TO THE FILE OF THE OF THE A SSESSING OFFICER FOR DECIDING A FRESH IN ACCORDANCE WITH LAW. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL B E AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. 1 3 . THE G ROUND NO. 7 OF CROSS - OBJECTION RELATE S TO DISALLOW ANCE OF RS.55, 394 / - IN TERMS OF R ULE 8D(2)(III) OF I NCOME TAX R ULES, 1962 (IN SHORT THE R ULES ) SUSTAINED BY THE LD. CIT(A) . BEFORE US , THE LD. COU NSEL OF THE ASSESSEE DID NOT PRESS THIS GROUN D OF THE APPEAL AND ACCORDINGLY, IT IS DISMISSED AS INFRUCTUOUS. 14 . IN THE RESULT, THE APPEAL OF THE R EVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED PARTLY FOR A STATISTICAL PURPOSES. ITA NO. 4087/DEL/2014 & 4007/DEL/2014 15 . THE GROU NDS RAISED BY THE REVENUE IN ITA NO. 4087/DEL/2014, ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN REDUCING THE DISALLOWANCE FROM RS. 1,29,942/ - TO RS. 64,319/ - WITHOUT APPRECIATING THE FACTS GIVEN BY THE AO IN HIS ASSESSMENT ORDER AND THE DETAILED 27 CALCULATIONS MADE BY THE AO AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I T RULES. 1.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (A) HAS ERRED IN DELETING THE ABOVE DISALLOWANCE BY IGNORING THE FACT THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY JUSTIFICATION REGARDING NEXUS BETWEEN BORROWINGS AND INVESTMENTS AND LOANS AND ADVANCES, WHICH INVARIABLY INDICATES THAT FINANCE COSTS HAVE BEEN INCURRED TOWARDS FINANCING OF INVESTMENTS, YIELDING EXEMPT INCOME. 1.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ABOVE DISALLOWANCE WITHOUT APPRECIATING THE FACT THAT THE PROVISION LAID DOWN B Y THE ACT THROUGH SECTION 14A R.W.R 8D, AS PER WHICH ALL THE CLAUSES (I), (II) & (III) OF SUB - SECTION 2 ARE DULY APPLICABLE EVEN IF THE DIRECT EXPENSES HAVE BEEN ADDED BACK BY THE ASSESSEE ON ITS OWN. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO RE - VERIFY THE FACTS AND RE - EXAMINE THE ISSUE OF EXEMPTION U/S 10 B OF THE ACT AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE COMPANY WITHOUT APPRECIATING THE FACT THAT THE AO HAD DULY FOLLOWED TH E SAID PROCEDURE AT THE TIME OF THE ASSESSMENT PROCEEDINGS. 2.1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE DECISION OF THE LD. CIT(A) IN THE PRECEDING YEAR I.E IN THE AY 2008 - 09 IN ASSESSEE'S OWN CASE WHEREIN THE ASSESSEE HAD FILED AN APPEAL AGAINST THE SAME ISSUES AND THE LD. CIT(A) HAD DISMISSED THE APPEAL OF THE ASSESSEE ON THE SAME GROUNDS. 2.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED BY IGNORING THE FACT THAT THE ASSESSEE HAS NOT FILED ANY NEW/ ADDITIONAL DOCUMENTS WHICH NEEDS TO RE - EXAMINED. 3. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 15 .1 THE GROUNDS RAISED BY THE ASSE SSEE IN IT A NO. 4007/DEL/2014 , ARE REPRODUCED AS UNDER: 28 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX HAVE ERRED IN OPINING THAT EXPORT INCENTIVES (RS. 645.470.00), INTEREST ON FIXED DEPOSIT (RS. 3,8 88,624.00), AMOUNT WRITTEN BACK (RS. 531.140.00), MISCELLANEOUS INCOME (RS. 9,015.00) AND CLAIMS & DAMAGES (RS. 1,595,334.00 ARE TO BE EXCLUDED FOR CLAIM OF EXEMPTION U/S 10B OF THE INCOME - TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX HAVE ERRED IN DISALLOWING RS. 64,319.00 U/S 14A OF INCOME TAX ACT, 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX HAVE ERRED IN CHARGING INTERE ST U/S 234B OF THE INCOME - TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX HAVE ERRED IN CHARGING INTEREST U/S 234D OF THE INCOME - TAX ACT, 1961. , 5. THE APPELLANT - COMPANY CRAVES FOR ITS RIGHT, WITHOUT PREJUDICE, TO ADD, DELETE, ALTER, MODIFY OR OTHERWISE PRESENT ANY GROUNDS OF APPEAL EITHER AT OR BEFORE HEARING OF THE APPEAL. 16 . W E FIND THAT ISSUES RAISED IN GRO UND NO. 2 OF THE APPEAL OF THE R EVENUE ARE IDENTICAL TO GROUND NO S . 1 TO 4 OF THE APPEAL OF THE REVENUE IN ITA NO. 3946/DEL/2013 FOR ASSESSMENT YEAR 2009 - 10, WHICH WE HAVE ADJUDICATED IN PRECEDING P AR AS. FOLLOWING THE RULE OF CONSISTENCY, THE ISSUE S RAISED IN THIS APPEAL ARE ALSO ADJUDICATED MUTA TIS - MUTAND IS. 17 . THE GROUND NO. 1 TO 1.2 OF THE APPEAL OF THE R EVENUE AND GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE ARE RELATED TO DISALLOWANCE UNDER SECTION 14A OF THE ACT. 1 7 .1 THE ASSESSE E EARNED DIVIDEND INCOME OF RS.3,75, 399 / - WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE A CT AND NO DISALLOWANCE WAS MADE B Y THE ASSESSEE UNDER SECTION 14 A OF THE ACT IN RELATION TO THIS EXEMPT INCOME. THE ASSESSI NG OFFICER INVOKED R ULE 8D OF THE RULES AND MADE DISALLOWANCE OF 29 RS.1,29, 94 2/ - WHI CH INCLUDED DISALLOWANCE OF RS.65, 623/ - FOR PROPORTIONA TE INTEREST DISALLOWANCE UNDER R ULE 8D(2)(II) O F THE R ULES AND DISALLOWANCE OF RS.64, 319/ - FOR ADMINISTRATIVE EXPENSES AT THE RATE OF 0.5 % OF AVERAGE VALUE OF INVESTMENT YIELDING EXEMPT INCOME IN TERMS OF R ULE 8D(2)(III) OF THE R ULES. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS.65, 623/ - UNDER R ULE 8D(2)(II) HOLDING THAT ASSESSEE WAS HAVING SUFFICIENT OWN FOR INVESTMENT IN SHARES YIELDING EXEMPT INCOME AND THUS NO DISALLOWANCE WAS REQUIRED, BU T HE UPHELD DISALLOWANCE OF RS.64, 319/ - TOWARDS ADMINISTRATIVE EXPENSES. 1 7 .2 WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE OF DISALLOWANCE FOR PROPORTIONATE IN TEREST EXPENDITURE IN TERMS OF R ULE 8D(2 )(III) OF THE RULES, AS RAISED BY THE REVENUE IN GROUND S N O. 1 TO 1.2 OF THE APPEAL , HAS BEEN ALLOWED BY THE T RIBUNAL IN THE CASE OF THE ASSESSEE FO R ASSESSMENT YEAR 2008 - 09 IN ITA NO. 5547/DEL/2017, A S UNDER: 11. AFTER CONSIDERING THE RIVAL SUBMISSION, WE ARE OF THE VIEW THAT ADDITION OF RS.2,19,561/ - IS NOT JUSTIFIED. THE ASSESSEE HAS OWN SUFFICIENT FUNDS WHICH ARE MORE THAN THE INVESTMENT MADE BY THE ASSESSEE. THEREFORE, NO INTEREST IS TO BE DISALLOWED. FURTHER, A.O. HAS NOT MADE OUT A CASE IF ANY BOR ROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENT TO EARN EXEMPTED INCOME. IN THE ABSENCE OF ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS INVESTED TO EARN EXEMPT INCOME, THE DISALLOWANCE OF INTEREST IS NOT PERMISSIBLE. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.2,19,610/ - . HOWEVER, AS REGARDS THE BALANCE AMOUNT OF RS,47,053/ - , LEARNED COUNSEL FOR THE ASSESSEE DID NOT MAKE FURTHER SUBMISSIONS CONSIDERING IT TO BE A SMALL AMOUNT. THIS PART 30 OF GROUND IS ACCORDINGLY DISMISSED. IN THE RESULT, ADDITION OF RS.2,19,561/ - IS DELETED. THIS GROUND OF THE APPEAL IS PARTLY ALLOWED. 17 .3 IN THE YEAR UNDER CONSIDERATION ALSO THE ASSESSEE HAS DEMONSTRATED AVAILABILITY OF THE OWN FUNDS AS OBSERVED BY THE LD. CIT(A) IN PA RA 4.4.2 OF THE IMPUGNED ORDER A S UNDER: 4.4.2 FROM THE BALANCE SHEET IT IS OBSERVED THAT BESIDES A PAID - UP SHARE CAPITAL OF RS. 7,50,000/ - , THE RESERVES & SURPLUS ARE RS. 12,74,54,381/ - AS ON 31.03.2009 WHICH HAS GONE UP TO RS. 14,86,55,373/ - AS ON 31.03.2010. AGAINST THIS, THE TOTAL INVESTMENTS HAVE GONE UP FROM RS. 1,27,35,979/ - AS ON 31.03.2009 TO RS. 129,91,717/ - ON 31.03.2010 INDICATING NEW INVESTMENT OF RS. 2,55,738/ - AS AGAINST THE NEW NON INTEREST BEARING OWN FUND OF RS. 2.12 CRORES. THUS, THE ASSESSEE HAD SUFFICIENT NON - INTEREST BEARING OWN FUNDS TO MAKE THE INVESTMENTS ON WHICH THE TAX EXEMPT INCOME IS EARNED. THEREFORE, NO INDIRECT INTEREST EXPEND ITURE IS ATTRIBUTABLE TO EXEMPT INCOME. AS SUCH NO DISALLOWANCE OF INDIRECT EXPENDITURE BY WAY OF INTEREST CAN BE MADE U/S 8D(2)(II). FURTHER, CONSIDERING THE INVESTMENT ACTIVITY AND EXEMPT DIVIDEND INCOME IT IS EVIDENT THAT OTHER INDIRECT EXPENDITURES REL ATED TO MANAGEMENT AND ADMINISTRATION ARE ATTRIBUTABLE EARNING THE EXEMPT INCOME. ALL SUCH INDIRECT EXPENDITURE ON ADMINISTRATION & MANAGEMENT, OTHER THAN INTEREST ARE REQUIRED TO BE CONSIDERED FOR DISALLOWANCE ON THE BASIS OF THE FORMULA GIVEN IN CL (III) OF RULE 8D (2). 17 .4 THUS , RESPECTFULLY FOLLOWING THE FINDING OF THE T RIBUNAL, WE UPHOLD THE FINDING OF THE LD. CIT(A) ON THE ISSUE OF D ELETING THE DISALLOWANCE OF RS. 65,623/ - . THE GROUNDS OF THE R EVENUE ARE ACCORDINGLY DISMISSED. 18 . AS FAR AS GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS CONCERNED , IT WAS NOT PRESSED BY THE LD. COUNSEL BEFORE US AND IS ACCORDINGLY DISMISSED AS INFRUCTUOUS. 19 . THE GROUND NO. 1 RAISED IN THE APPEAL OF THE ASSESSEE, IS IDENTICAL TO THE GROUND NO. 9 RAIS ED IN THE CROSS OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10, ACCORDINGLY TO HAVE 31 CONS ISTENCY ON THE ISSUE IN DISPUTE , WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH IN ACCORDANCE WITH LAW AFTER VERIFYING THE NECESS ARY FACTS. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE AFFORDED ADEQUATE OPPORTUNITY OF BEING HEARD. 20 . GRO UND NO. 3 OF THE APPEAL OF THE R EVENUE AND GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE ARE GENERAL IN NATURE AND HENCE , THE SAME ARE DISMISS ED AS INFRUCTUOUS. THE GROUND S NO S . 3 & 4 OF THE APPEAL OF THE ASSESSEE ARE CONSEQUENTIAL, WHICH ARE NOT REQUIRED TO ADJUDICATE UPON AND DISMISSED AS INFRUCTUOUS. 2 1 . IN THE RESULT, APPEAL OF THE R EVENUE AND APPEAL OF THE ASSESSEE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES. 2 2 . TO SUM UP, BOTH THE APPEALS FILED BY THE REVENUE AND THE APPEAL AS WELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 7 T H APRIL , 201 8 . S D / - S D / - ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H APRIL , 201 8 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI