M/s Optek Disc Manufacturing Co., Solan V. ITO, Baddi

ITA 1017/CHANDI/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2576 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 80IB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 1017/CHD/2014 ASSESSMENT YEAR : 2010-11 OPTEK DISC MANUFACTURING CO. VS. ITO VILL. KUNJHAL. PO BAROTIWALA, BADDI TEHSIL BADDI, DISTT. SOLAN PAN NO. AAAFO9436G (APPELLANT) (RESPONDENT) APPELLANT BY : SH. DEEPAK AGGARWAL RESPONDENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 05/01/2016 DATE OF PRONOUNCEMENT : 19/01/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) SHIMLA DT. 04/09/2014. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LEARNED CIT(APPEALS) GROSSLY ERRED & ACTED UNREASONABLY IN RESTRICTING THE DEDUCTION U/S 80IC TO 25% WITHOUT CONSIDERING THE F ACTS OF THE CASE & DOCUMENT ON RECORD. 2. THAT WHILE UPHOLDING THE ABOVE ADDITION THE CIT(APP EALS) HAS SHOWN GROSS DISRESPECT, JUDICIAL INDISCIPLINE BY NOT FOLLOWING THE ORDER OF HONBLE DELHI TRIBUNAL IN CASE OF TRIPUTI LPG INDUSTRIES VS. DCIT, DEHRADUN WHICH WAS BROUGHT TO HER KNOWLEDGE WHOSE FACTS ARE IDENTICAL TO THE APPELLANT & IN WHICH CASE THE HON BLE DELHI TRIBUNAL HAS CATEGORICALLY HELD THAT DEDUCTION U/S 80IC IS TO BE ALLOWED @ 100 % IN CASE SUBSTANTIAL EXPANSION HAS BEEN UNDERTAKEN. 3. THAT THE LEARNED CIT(A) HAS UPHELD THE ORDER OF ASS ESSING OFFICER IN RESTRICTING THE DEDUCTION U/S 80IC TO 25% ON PRESUMPTIONS, SUSPICIO N, CONJECTURES, SURMISES & IMMATERIAL FACTS WITHOUT PROPER CONSIDERATION OR AP PRECIATION OF THE FACT & THE LAW INVOLVED. 4. THAT THE LEARNED CIT(APPEAL) HAS UPHELD THE ORDER O F LEARNED AO IN DING RS. 18,76,802/- BEING INTEREST ON MARGIN MONEY FOR L/C TO THE ASSES SEE & DENYING RELIEF U/S 80IC ON THE SAME WITHOUT CONSIDERING THE FACT THAT IT WAS NOWHE RE IN DISPUTE THAT INTEREST HAS BEEN EARNED ON THE MARGIN MONEY FOR L/C. 5. THAT THE LEARNED CIT (APPEAL) HAS UPHELD THE ORDER OF LEARNED AO IN NOT CONSIDERING THAT INTEREST ON MARGIN MONEY FOR L/C IS INEXTRICABLY LI NKED TO THE MAIN BUSINESS OF THE ASSESSEE & HENCE IS ENTITLED TO RELIEF U/S 80IC. 6. THAT THE LEARNED CIT(A) HAS ERRED IN ADDING RS. 20, 000/- AS INTEREST ON FDR MORTGAGED WITH SALES TAX AUTHORITY. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME DECLARING NIL INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT, AMOUNTING TO RS. 1,80,55,101/-. THE ASSESSEE FIRM D ERIVES INCOME FROM MANUFACTURING OF RECORDABLE COMPACT DISC. THE ASSES SEE STARTED ITS MANUFACTURING ACTIVITY W.E.F 19/08/2004 AS MENTIONE D IN FORM NO. 10CCB AND THE YEAR UNDER CONSIDERATION IS THE 6 TH ASSESSMENT YEAR IN WHICH 100% DEDUCTION UNDER SECTION 80IC HAS BEEN CLAIMED. SUBSTANTIAL EX PANSION HAS BEEN DONE DURING FY 2009-10 RELEVANT TO AY 2010-11. THE ASSES SEE HAD CLAIMED DEDUCTION UNDER SECTION 80IC @100% RE-FIXING THE INITIAL AY A S AY 2010-11. THE AO AFTER DETAILED DISCUSSION RESTRICTED THE DEDUCTION @ 25% TREATING AY 2010-11 AS 6 TH YEAR OF CLAIM OF DEDUCTION U/S 80IC. FURTHER ADDITI ON WERE MADE BY AO ON ACCOUNT OF DENYING THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80IC ON INTEREST EARNED ON FDRS KEPT AS MARGIN MONEY TO AV AIL BANK GUARANTEE AMOUNTING TO RS. 18,76,802/- AND RS. 20,000/- AS IN TEREST ACCRUED ON FDRS, ON THE GROUND THAT THE INTEREST EARNED HAD NO FIRST DE GREE NEXUS WITH UNDERTAKING OF THE ASSESSEE. THUS THE ASSESSEE WAS ASSESSED AT A TOTAL INCOME OF RS. 1,41,76,519/-. LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE BY HOLDING THAT RE-FIXING OF INITIAL YEAR AFTER SUBSTANTIAL EXPANSION WAS NOT PERMITTED AS PER THE PROVISIONS OF SECTION 80IC AND HENCE THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80IC OF THE ACT @ 25% ONLY. FURTHER THE DISALLOWANC E OF DEDUCTION ON INTEREST INCOME ON FDRS GIVEN AS MARGIN MONEY FOR L/C WAS U PHELD BY THE LD. CIT(A), IN THE ABSENCE OF ANY EVIDENCE GIVEN BY THE ASSESSEE T O SUPPORT ITS CONTENTION THAT THE L/C HAD BEEN TAKEN FOR IMPORT OF RAW MATER IAL. MOREOVER THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IC ON INTE REST EARNED ON FDRS PLEDGED WITH THE SALES TAX DEPARTMENT WAS ALSO UPHE LD BY THE LD. CIT(A), ON THE GROUND THAT THERE WAS NO CONNECTION OF THE SAME TO THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. 3 4. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PRE SENT APPEAL BEFORE US. 5. GROUND NO. 1, 2,& 3 RAISED BY THE ASSESSEE ARE A GAINST THE RESTRICTION OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80I C @ 25% OF ITS PROFIT AS AGAINST 100% CLAIMED BY THE ASSESSEE. 6. BEFORE US LD. AR ADMITTED THAT THIS ISSUE IS COV ERED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF M/S HYCRON ELECTRONICS VS. ITO IN ITA NO. 798/CHD/2012 DT. 27/05/2015. 7. WE HAVE HEARD THE REPRESENTATIVE OF BOTH THE PAR TIES AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AND THE DOCUMENTS PL ACED BEFORE US. 8. THE UNDISPUTED FACT IN THE PRESENT CASE ARE THAT THE ASSESSE IS ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 80IC SINCE AY 2005 -06 WHEN IT COMMISSIONED ITS BUSINESS AND HAS CLAIMED 100% DEDUCTION OF ITS PROFIT FOR FIVE ASSESSMENT YEARS I.E. UPTO ASSESSMENT YEAR 2009-10. THE IMPU GNED ASSESSMENT YEAR IS THE SIXTH ASSESSMENT YEAR AND IN THIS YEAR THE ASSESSE E HAD UNDERTAKEN SUBSTANTIAL EXPANSION IN ITS ELIGIBLE UNDERTAKINGS. 9. THE DISPUTE IN THE PRESENT CASE IS REGARDING THE RATE AT WHICH DEDUCTION U/S 80IC IS TO BE ALLOWED IN THE IMPUGNED ASSESSMEN T YEAR, WHICH THE ASSESSEE CLAIMS TO BE 100%, ON THE BASIS THAT THE IMPUGNED A SSESSMENT YEAR IS TO BE TREATED AS THE INITIAL YEAR AS PER SECTION 80IC ON ACCOUNT OF SUBSTANTIAL EXPANSION UNDERTAKEN, WHILE THE AO DENIES THE SAME AND CLAIMS THAT DEDUCTION FOR THE SIXTH YEAR CAN BE CLAIMED ONLY AT THE RATE OF 25% OF THE PROFITS. THUS THE ONLY ISSUE TO BE ADJUDICATED UPON IS WHETHER AFTER HAVING CLAIMED 100% DEDUCTION OF PROFITS U/S 80IC IN THE F IRST YEAR OF COMMENCEMENT OF BUSINESS, THE ASSESSEE IS ENTITLED TO AGAIN CLAIM T HE SAME RATE OF DEDUCTION FROM THE ASSESSMENT YEAR IN WHICH SUBSTANTIAL EXPANSION IS UNDERTAKEN. IN OTHER WORDS, WHETHER THERE CAN BE MORE THAN ONE INITIAL Y EAR AS PER THE PROVISION OF SECTION 80IC OF THE ACT. 4 10. WE FIND THAT THIS ISSUE HAS ALREADY BEEN DECIDE D AGAINST THE ASSESSEE BY THE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF M/S HYCRON ELECTRONICS VS. ITO IN ITA NO. 798/CHD/2012 DT. 27/05/2015 , WHEREIN IT WAS HELD THAT THERE CAN BE ONLY ONE INITIAL YEAR FOR THE PURPOSE OF CLAIMING DEDU CTION U/S 80IC AND THAT IN THE STATE OF HIMACHAL PRADESH DEDUCTION @ 100% IS TO BE ALLOWED ONLY FOR THE FIRST FIVE YEARS AND THEREAFTER THE DEDUCTION HAS TO BE R ESTRICTED TO 25%. THE HONBLE ITAT HAS HELD AT PARA 33, 35 AND 39 OF ITS ORDER AS FOLLOWS: 33. EVEN IF THE ABOVE CONTROVERSY IS IGNORED REGARD ING EXISTING UNIT, THE INTENTION OF THE LEGISLATURE BECOME ABSOLUTELY CLEA R WHEN SUB SECTION (2) IS READ ALONGWITH SUB-SECTION (3) OF SECTION 80IC. AS NOTE D EARLIER, SUB SECTION (2) IS ENABLING PROVISION WHICH PROVIDES FOR DEDUCTION IN CERTAIN KIND OF UNDERTAKINGS, I.E. NEW UNIT SET UP OR THE EXISTING UNITS WHICH CA RRIES OUT SUBSTANTIAL EXPANSION DURING THE PARTICULAR WINDOW PERIOD WHICH ARE GIVEN IN CLAUSES (I), (II) & (III) OF SUB SECTION (2). THE SUB SECTION (3) PROVIDES FOR R ATES OF DEDUCTION. IT IS USEFUL TO NOTE THAT CLAUSE (I) OF SUB SECTION (3) PROVIDES FO R 100% DEDUCTION FOR A PERIOD OF 10 ASSESSMENT YEARS IN CASES COVERED BY SUB CLAUSE (I) & (III) OF CLAUSE (A) AND SUB CLAUSE (I) & (III) OF CLAUSE (B). NOW SUB CLAU SE (I ) AND (III) OF CLAUSE (A) OF SUB SECTION (2) REFERS TO THE WINDOW PERIOD IN CASE OF STATE OF SIKKIM, NORTH- EASTERN STATES WHEREAS SUB CLAUSE (II) REFERS TO TH E WINDOW PERIOD IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCHAL. SIMILARLY, SUB CLAUSE (I) & (III) OF CLAUSE (B) REFERS TO WINDOW PERIOD IN CASE OF STATE OF SIKKIM AND NORTH- EASTER STATES WHEREAS SUB CLAUSE (II) REFERS TO THE WINDOW PERIOD IN CASE OF STATE OF HIMACHAL PRADESH AND UTTARANCHAL. NOW CLAUSE (I I) OF SUB SECTION (3) PROVIDES FOR 100% DEDUCTION ON SUCH PROFITS FOR FIVE ASSESSM ENT YEARS COMMENCING WITH INITIAL ASSESSMENT YEAR AND THEREAFTER 25% (OR 30% WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. THEREFORE, IT IS ABSOLUTELY CLEAR THAT IN CASE OF STATE OF SIKKIM AND NORTH-EASTERN STATES, LEGISL ATURE WAS VERY CLEAR THAT IN CASE OF NEW UNDERTAKING OR IN CASE OF SUBSTANTIAL E XPANDED UNDERTAKING DEDUCTION IS TO BE ALLOWED @ 100% FOR WHOLE OF THE TEN YEARS WHEREAS IN CASE OF STATE OF HIMACHAL PRADESH AND UTTARANCHAL THE DEDUC TION WAS TO BE ALLOWED @ 100% ONLY FOR FIRST FIVE YEARS AND THEREAFTER IT WA S ONLY 25%. IF THE LEGISLATURE WANTED TO EXTEND THE BENEFIT IN THE CASE OF SUBSTAN TIAL EXPANSION SEPARATELY THEN THE RATE OF DEDUCTION IN THE CLAUSE (I) & (II) OF SUB SECTION (3) WOULD NOT HAVE BEEN DIFFERENT I.E. 100% FOR WHOLE OF THE 10 Y EARS IN CASE OF STATE OF SIKKIM & NORTH-EASTERN STATES UNDER SUB CLAUSE (I) AND FOR THE STATE OF HIMACHAL PRADESH & UTTARANCHAL UNDER SUB CLAUSE (II) 100% FOR FIRST FIVE YEARS AND THEREAFTER 25% FOR NEXT FIVE YEARS. THE CONCEPT OF SUBSTANTIAL EXPAN SION REMAINS SAME UNDER SUB SECTION (2) FOR BOTH TYPES OF STATES I.E STATE OF S IKKIM AND NORTH-EASTERN STATES AND STATE OF HIMACHAL PRADESH AND UTTRANCHAL. IF T HE EXTENDED BENEFIT OF SUBSTANTIAL EXPANSION WAS TO BE SEPARATELY ALLOWED IN CASE OF STATE OF HIMACHAL PRADESH AND STATE OF UTTARANCHAL, THEN MEANING OF S UBSTANTIAL EXPANSION AS GIVEN UNDER SUB SECTION (2) WHICH IS SAME FOR THE S TATE OF SIKKIM AND NORTH- EASTERN STATES BECOME REDUNDANT. AS NOTED EARLIER, THE PROVISION CANNOT BE INTERPRETED IN SUCH A WAY THAT PART OF THE SECTION BECOMES REDUNDANT OR OTIOSE. THEREFORE, WHATEVER DOUBTS MAY BE THERE IN SUB SECT ION (2) WHEN IT IS READ WITH SUB SECTION (3), THOSE DOUBTS ARE TOTALLY REMOVED A ND IT BECOME ABSOLUTELY CLEAR THAT RATE OF DEDUCTION HAS TO BE 100% FOR FIRST 5 YEARS AND 25% THEREAFTER . 35. FURTHER, SUB SECTION (6) PROVIDES THAT IN NO CA SE THE TOTAL PERIOD OF DEDUCTION COULD EXCEED THE PERIOD OF 10 YEARS INCLU DING DEDUCTION AVAILED UNDER SUB SECTION (4) OF SECTION 80IB AND SECTION 1 0A AND 10B. IT WAS CONTENDED BEFORE US THAT SINCE THERE IS NO RESTRICTION IN CAR RYING OUT OF SUBSTANTIAL EXPANSION IN THE NEW UNITS AND AS SUCH SUBSTANTIAL EXPANSION CAN BE CARRIED OUT ANY NUMBER OF TIMES. IF THIS INTERPRETATION IS ACC EPTED THEN SUB SECTION (6) WOULD BE RENDERED OTIOSE OR MEANINGLESS BECAUSE IF A UNIT WAS SET UP ON THE COMMENCEMENT OF THIS SECTION AND THE SAME CLAIMS D EDUCTION @ 100% AND LATER ON EVERY FIVE YEARS A SUBSTANTIAL EXPANSION IS CARR IED OUT THEN ACCORDING TO THE INTERPRETATION CANVASSED ON BEHALF OF THE ASSESSEE, SUCH UNIT WOULD AGAIN BECOME ENTITLED TO 100% DEDUCTION FOR ANOTHER FIVE YEARS AND FURTHER BLOCK OF FIVE YEARS EVERY TIME SUBSTANTIAL EXPANSION IS CAR RIED OUT. IF THIS INTERPRETATION IS ADOPTED THEN DEDUCTION WOULD BECOME ALMOST PERCEPTU AL AS LONG AS THE ASSESSEE HAS CARRIED OUT SUBSTANTIAL EXPANSION BUT IN THAT CASE SUB SECTION (6) WOULD LOOSE ITS MEANING. SUCH AN UNLIMITED PERIOD O F DEDUCTION WOULD NOT BE IN CONSONANCE OF LAW. AT THE COST OF REPETITION, WE WOULD LIKE TO EMPHAS IZE THAT NO PRINCIPLE OF INTERPRETATION CAN BE ADOPTED WHICH LE ADS TO A SITUATION WHERE A PARTICULAR PART OF THE SECTION BECOMES TOTALLY REDU NDANT. IN FACT THOUGH IT WAS CONTENDED THAT IN THE PRESENT CASE (I.E. IN CASE OF HYCRON ELECTRONICS) DEDUCTION HAS BEEN CLAIMED ONLY OF 10 YEARS BUT ON THE DATE O F HEARING SOME OTHER APPEALS WERE ALSO LISTED WHEREIN THE DEDUCTION WAS CLAIMED FOR MORE THAN 10 5 YEARS ADOPTING THE SAME CONTENTION WHICH HAS BEEN M ADE BEFORE US. IN CASE OF M/S MAHAVIR INDUSTRIES (ITA NO. 127/CHD/2011 AND IT A NO. 791/CHD/2012) THOUGH THOSE CASES WERE ADJOURNED BECAUSE SOME OTHER ISSUE S WERE ALSO THERE BUT IN THOSE TWO CASES ASSESSEE HAD COMMENCED THE OPERATIO N ON 8.5.1997 AND CLAIMED DEDUCTION U/S 80IB FROM ASSESSMENT YEARS 1 998-99 TO 2005-06. LATER ON, SUBSTANTIAL EXPANSION WAS CARRIED OUT IN ASSESSMENT YEAR 2005-06 AND ON THE BASIS OF THE CONTENTION THAT ASSESSEE IS ALLOWED TO CARRY OUT ANY NUMBER OF EXPANSIONS, DEDUCTION WAS CLAIMED FOR THE 12 TH YEAR FOR ASSESSMENT YEAR 2009-10 (WE MAY CLARIFY THAT REFERENCE TO THESE CASES IS MA DE BECAUSE OF PARTICULAR CONTENTION AND WE ARE NOT EXPRESSING ANY OPINION ON THE MERITS OF THESE APPEALS HERE). THEREFORE, THE CONTENTION OF THE ASSESSEE THAT ANY NUMBER OF EXPANSIONS ARE ALLOWED IS NOT POSSIBLE IN VIEW OF THE RESTRICT ION GIVEN IN SECTION 80IC(6). 39. LASTLY, IT WAS CONTENDED THAT INITIAL ASSESSMEN T YEAR AS DEFINED IN CLAUSE (V) OF SUB SECTION (8) OF SECTION 80IC USES THE EXP RESSION OR THEREFORE, IT CAN BE CONSTRUED THAT IT RELATES TO BOTH SITUATIONS SEPARA TELY I.E. FOR NEW UNIT AND SUBSTANTIAL EXPANDED UNIT. WE FIND NO FORCE IN THI S CONTENTION. THE INITIAL ASSESSMENT YEAR HAS BEEN DEFINED AND THE EXPRESSION OR HAS BEEN USED IN RESPECT OF NEW UNITS BY STATING COMMENCES OPERATIO N OR COMPLETE SUBSTANTIAL EXPANSION. HERE THE EXPRESSION OR IS TO BE READ AS A MUTUALLY EXCLUSIVE EXPRESSION WHICH REFERS TO A PARTICULAR SITUATION B Y EXCLUDING THE OTHER SITUATION. THEREFORE, INITIAL ASSESSMENT YEAR WOULD CLEARLY CO MMENCE EITHER ON COMMENCEMENT OF OPERATION OR AT COMPLETION OF SUBST ANTIAL EXPANSION OF EXISTING UNIT. IN ANY CASE THE WORD INITIAL CANNOT BE USED TW ICE BY REFERRING TO SERIES OF EVENTS . THIS CAN BE UNDERSTOOD WITH A VERY SIMPLE EXAMPLE . LET US SAY A PERSON A PASSES OUT HIS EXAMINATION OF LLB AND GE T EMPLOYED AS LEGAL OFFICER IN AN ORGANIZATION. LATER ON, HE QUITS THE JOB AND STARTS THE PRACTICE IN LEGAL PROFESSION AND ULTIMATELY HE IS ELEVATED AS A JUDGE . THEN IN SUCH A SITUATION IT CANNOT BE SAID THAT INITIALLY A WAS WORKING IN A ORGANIZATION AND THEN INITIALLY HE WAS IN THE PROFESSION AND THEN ELEVATED AS A JUD GE. INITIALLY CAN BE USED ONLY ONCE AS A MATTER OF USAGE OF ENGLISH LANGUAGE. THEREFORE, READING OF THE ABOVE PROVISION CLEARLY SHOWS THAT INTENTION OF THE LEGIS LATURE WAS VERY CLEAR TO ALLOW 100% FOR FIRST FIVE YEARS IN CASE OF UNITS SITUATED IN THE STATE OF HIMACHAL PRADESH (SINCE ALL THE CASES BEFORE US ARE SITUATED IN THE STATE OF HIMACHAL PRADESH) AND THEREAFTER 25% DEDUCTION FOR ANOTHER FIVE YEARS ON THE NEW UNITS OR THE EXISTING UNITS WHERE SUBSTANTIAL EXPANSION WAS CARRIED OUT. 11. IN VIEW OF THE ABOVE WE FIND NO MERIT IN THE GR OUND RAISED BY THE ASSESSEE. CONSEQUENTLY ,THE DEDUCTION CLAIMED BY TH E ASSESSEE U/S 80IC FOR THE IMPUGNED AY IS RESTRICTED TO 25% OF THE PROFITS AND THE DISALLOWANCE OF DEDUCTION U/S 80 IC OF RS. 1,22,79,718/- IS HEREBY UPHELD. 12. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E THEREFORE DISMISSED. 13. GROUND NO. 4, 5, 6 RAISED BY THE ASSESSEE ARE A GAINST THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC OF THE INTEREST EARNED ON MARGIN MONEY FOR L/C AND THE INTEREST EARNED ON FDRS MORTGAGED WITH THE SALES TAX AUTHORITY. 14. DURING ASSESSMENT PROCEEDINGS IT WAS FOUND THAT THE ASSESSEE HAD EARNED INTEREST INCOME AMOUNTING TO RS. 18,76,802/- ON FDRS WHICH WAS GIVEN AS MARGIN MONEY FOR BANK GUARANTEE AND HAD CLAIMED DEDUCTION UNDER SECTION 80IC ON THE SAME. THE LD. AO DISALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THE IMMEDIATE PROXIMATE SOURCE OF THE INTEREST INCOME WAS NOT THE BUSINESS OF THE ASSESSEE. 6 15. BEFORE THE LD. CIT(A) THE ASSESSEE CONTENDED TH AT THE INTEREST ON FDRS GIVEN AS MARGIN MONEY FOR L/C WAS FOR THE PURPOSE O F IMPORT OF RAW MATERIAL AND THUS INTEREST INCOME EARNED HAD DIRECT NEXUS WI TH UNDERTAKING OF THE ASSESSEE AND THEREFORE THE ASSESSEE WAS ELIGIBLE FO R DEDUCTION UNDER SECTION 80IC. LD. CIT(A) REJECTED THE CONTENTION OF THE ASS ESSEE BY STATING THAT NO EVIDENCE IN SUPPORT OF THE ABOVE CLAIM HAD BEEN FIL ED BY THE ASSESSEE AND THEREFORE UPHELD THE DISALLOWANCE MADE BY THE AO. 16. BEFORE US LD. AR REITERATED THE CONTENTION MADE BEFORE THE LD. CIT(A) AND STATED THAT THE INTEREST HAD BEEN EARNED ON FDR WHICH WAS GIVEN AS MARGIN MONEY FOR L/C FOR IMPORT OF RAW MATERIAL AND THUS THERE WAS DIRECT NEXUS WITH INDUSTRIAL UNDERTAKING OF THE ASSESSEE. THE AR PLACED RELIANCE ON THE DECISION OF THE HONBLE CHANDIGARH BENCH OF THE ITA T IN THE CASE OF M/S SWASTIK WIRE PRODUCT VS. THE ITO IN ITA NO. 397 & 398/CHD/2 014 IN SUPPORT OF ITS ABOVE CONTENTION. 17. LD. DR ON THE OTHER HAND STATED THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF M/S HYCRON ELECTRONICS VS. ITO(SUPRA) WHERE IN AT PAGE 60 OF T HE ORDER THE HONBLE TRIBUNAL HAD CATEGORICALLY HELD THAT THE INTEREST RECEIVED O N MARGIN MONEY IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC. 18. WE HAVE HEARD THE REPRESENTATIVE OF BOTH THE PA RTIES AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AND THE DOCUMENTS PL ACED BEFORE US. 19. WE FIND THAT THE ISSUE OF ALLOWANCE OF DEDUCTIO N UNDER SECTION 80IC ON INTEREST RECEIVED ON MARGIN MONEY HAD BEEN DEALT BY THE HONBLE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF M/S HYCRON ELECTRO NICS VS. ITO (SUPRA) WHEREIN APPLYING THE RATIO LAID DOWN BY THE HONBLE APEX CO URT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278, HONBLE TRIBUNA L HAD HELD THAT AFORESAID 7 INTEREST INCOME COULD NOT BE SAID TO BE DERIVED FRO M THE INDUSTRIAL UNDERTAKING. THE HONBLE TRIBUNAL HELD AT PARA 58 TO 60 OF ITS O RDER AS FOLLOWS: 58. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFU LLY WE FIND THAT HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMIC ALS LTD VS. CIT (SUPRA) WAS CONCERNED WITH THE ISSUE OF DEDUC TION U/S 80HH ON INTEREST INCOME RECEIVED ON ELECTRICITY DEPOSIT MAD E BY THE ASSESSEE. ON THIS ISSUE, THE FOLLOWING OBSERVATIONS WERE MADE:- THE WORDS DERIVED FROM IN SECTION 80HH OF THE INC OME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT OR IMMED IATE NEXUS WITH THE ASSESSEES INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRI CITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. 59. AFTER THE ABOVE OBSERVATION, IT WAS HELD AS UND ER:- HELD ACCORDINGLY, THAT INTEREST DERIVED BY THE IND USTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOAR D FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS O R GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTIO N UNDER SECTION 80HH . 60. SAME VIEW WAS TAKEN LATER ON IN THE CASE OF LIB ERTY INDIA LTD V CIT (SUPRA). IT MAY BE NOTED THAT THAT EXPRESSIO N DERIVED FROM HAS BEEN USED IN SECTION 80IC ALSO, THEREFORE, AS F AR AS INTEREST RECEIVED ON MARGIN MONEY AND INTEREST RECEIVED ON O THER AMOUNTING TO RS. 2,85,876/- AND RS. 70,328/- ARE NO T ENTITLED FOR DEDUCTION U/S 80IC AND ACCORDINGLY WE CONFIRM THE ACTION OF THE ASSESSING OFFICER AND CIT(A) IN THIS RESPECT. FOLLOWING THE AFORESAID JUDGMENT WE HOLD THAT THE A SSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IC ON THE INTEREST RECEIV ED ON MARGIN MONEY AND THE DISALLOWANCE MADE AMOUNTING TO RS. 18,76,802/- IS THEREFORE UPHELD. FURTHER THE RELIANCE PLACED BY THE LD. AR ON THE DE CISION IN THE CASE OF M/S SWASTIK WIRE PRODUCT VS. THE ITO(SUPRA) IS MISPLACE D SINCE THE FACT IN THE AFORESTATED CASE WERE DISTINGUISHABLE FROM THE PRES ENT CASE. A PERUSAL OF THE AFORESTATED JUDGMENT REVEALS THAT THE ISSUE IN THAT CASE WAS ALLOWANCE OF CLAIM OF DEDUCTION U/S 80IC ON INTEREST INCOME RECEIVED F ROM CUSTOMERS WHICH WAS ALLOWED BY THE HONBLE TRIBUNAL BY FOLLOWING THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S PHATELA COTGIN INDUST RIES (P) LTD. VS. CIT 303 ITR 411. SINCE THE ISSUE IN THE PRESENT CASE IS ALLOWAN CE OF DEDUCTION UNDER SECTION 80IC ON INTEREST EARNED ON MARGIN MONEY, THE RATIO LAID DOWN IN THE CASE OF M/S SWASTIK WIRE PRODUCT VS. THE ITO(SUPRA) DOES NOT AP PLY IN THE PRESENT CASE. 8 20. IN VIEW OF THE ABOVE THE ASSESSEES CLAIM OF DED UCTION UNDER SECTION 80IC ON THE INTEREST EARNED ON MARGIN MONEY AMOUNTING TO RS. 18,76,802/- IS DISALLOWED. THE GROUND OF APPEAL RAISED BY THE ASSE SSEE IS THEREFORE DISMISSED. 21. GROUND NO. 6 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF DEDUCTION UNDER SECTION 80IC ON THE INTEREST EARNED ON FDRS. 22. BRIEF FACTS RELATING TO THE CASE ARE THAT THE A SSESSEE HAD GIVEN SECURITY TO THE SALES TAX AUTHORITY IN THE SHAPE OF FDR TO THE TUNE OF RS. 2,00,000/-. NO INTEREST ON ACCRUAL BASIS HAD BEEN DECLARED ON THE SAME FOR TAXATION PURPOSES. LD. AO MADE ADDITION OF THE INTEREST EARNED ON FDR @ 10% AMOUNT TO RS. 20,000/-. AND FURTHER DENIED DEDUCTION UNDER SECTIO N 80IC ON THE SAME TO THE ASSESSEE. 23. DURING APPELLATE PROCEEDINGS THE ASSESSEE CONTE NDED THAT SINCE THE SECURITY DEPOSIT IS WITH THE SALE TAX AUTHORITY THE INTEREST EARNED THEREON IS A PART OF MANUFACTURING ACTIVITY AND HENCE ELIGIBLE FOR DE DUCTION UNDER SECTION 80IC. LD. CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE INTEREST ACCRUED HAD NO CONNECTION TO THE ACTIVITY OF THE IN DUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 80IC. 24. AGGRIEVED BY THE SAME THE ASSESSEE CAME UP IN A PPEAL BEFORE US. 25. BEFORE US, LD. AR REITERATED THE CONTENTION MAD E BEFORE THE LD. CIT(A) AND FURTHER RELIED ON THE DECISION OF THE HONBLE C HANDIGARH BENCH OF THE ITAT IN THE CASE OF M/S SWASTIK WIRE PRODUCT VS. THE ITO (SUPRA). 26. LD. DR ON THE OTHER HAND STATED THAT THIS ISSUE WAS COVERED BY THE DECISION OF THE HONBLE ITAT IN THE CASE OF M/S HYC RON ELECTRONICS VS. ITO(SUPRA) WHERE IN AT PARA 60 OF THE ORDER IT WAS HELD AS UND ER : 60. SAME VIEW WAS TAKEN LATER ON IN THE CASE OF LIB ERTY INDIA LTD V CIT (SUPRA). IT MAY BE NOTED THAT THAT EXPRESSIO N DERIVED FROM HAS BEEN USED IN SECTION 80IC ALSO, THEREFORE, AS F AR AS INTEREST RECEIVED ON MARGIN MONEY AND INTEREST RECEIVED ON O THER AMOUNTING TO RS. 2,85,876/- AND RS. 70,328/- ARE NO T ENTITLED FOR 9 DEDUCTION U/S 80IC AND ACCORDINGLY WE CONFIRM THE ACTION OF THE ASSESSING OFFICER AND CIT(A) IN THIS RESPECT. 27. WE HAVE HEARD THE REPRESENTATIVE OF BOTH THE PA RTIES AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AND THE DOCUMENTS PL ACED BEFORE US. 28. WE FIND THAT THIS ISSUE IS ALSO COVERED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION OF HONBLE ITAT IN THE CASE OF M/S HYCRON ELECTRONIC VS. ITO (SUPRA). FOLLOWING THE SAME WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S 80IC ON INTEREST EARNED ON FDRS AMOUNTING TO RS. 2 0,000/-. WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS GROUND. 29. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREF ORE DISMISSED. 30. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19/01/2016. SD/- SD/- (H.L. KARWA) (ANNAPURNA MEHROTRA) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 19/01/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR