The Arvind Ltd, Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1022/AHD/2011

• Counselvise Citation: 102220514 RSA 2011
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 07-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA WITH G M THAKOR
• Keywords: Business income; Depreciation
• Section: 143(3); 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT AND SHR I S. S. GODARA , JUDICIAL MEMBER ACIT, AHMEDABAD CIRCLE - 1, AHMEDABAD (APPELLANT) VS M/S. ARVIND LTD (ERSTWHILE KNOWN AS ARVIND MILLS LTD.), NARODA ROAD, AHMEDABAD PAN: AABCA 2398 D (RESPONDENT) M/S. ARVIND LTD (ERSTWHILE KNOWN AS ARVIND MILLS LTD.), NARODA ROAD, AHMEDABAD PAN: AABCA 2398 D (APPELLANT) VS ACIT, AHMEDABAD CIRCLE - 1, AHMEDABAD (RESPONDENT) REVENUE BY : S H RI R.I, PATEL CIT - DR WITH DINESH S INGH, SR. D.R. ASSESSEE BY: S H RI P.M. MEHTA WITH G.M. , THAKOR, A.R. DATE OF HEARING : 06 - 08 - 2 015 DATE OF PRONOUNCEMENT : 26 - 08 - 2 015 I T A NO . 816 / A HD/20 11 A SSESSMENT YEAR 200 1 - 02 ITA NO. 1022 /AHD/20 11 ASSESSM ENT YEAR 200 1 - 02 I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 2 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THE S E CROSS APPEAL S FILED BY THE REVENUE AND ASSESSEE FOR A.Y. 2001 - 02, ARISE FROM ORDER OF THE CIT(A) - VI, AHMEDABAD DATED 17 - 01 - 2011 IN APPEAL NO. CIT(A) - VI/DCIT.CIR.1 / 236/07 - 08 , IN PROCEEDINGS UNDER S ECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE RAISES TWO SUBSTANTIVE GROUNDS IN ITS APPEAL ITA NO. 816/AHD/2011 SEEKING RESTORATION OF DEPRECIATION DISALLOWANCE/ADDITION OF RS. 8,62,13,944/ - AND THE ONE AMOUNTING TO RS . 8,24,522/ - MADE ON ACCOUNT OF OT H ER INCOME NOT DEDUCTED U/S. 10B OF THE ACT. THE CIT(A) S FINDINGS ON THE FORMER GROUND CONTAIN THE ASSESSING OFFICER S FINDINGS AND ASSESSEE S SUBMISSION S AS UNDER: - 3.1 THE A.O. HAS STATED IN THE ASSESSMENT O RDER DATED 31/12/2007, WHICH IS AS UNDER: 'IT IS OBSERVED FROM THE RECORDS THAT WHILE ARRIVING AT THE A.I., THE DEPRECIATION AS PER COMPANIES ACT AS DEBITED IN THE P&L A/C. WAS ADDED TO THE PROFIT OF RS. 1,40, 13,29,356/ - INSTEAD OF ACTUAL FIGURE OF RS, 7,4 8,75,43,300/ - . THEREFORE, AN AMOUNT OF RS.8,62,13,944/ - REMAINS TO BE ADDED. HENCE, THE AR OF THE ASSESSEE WAS ASKED FOR TO EXPLAIN. IN RESPONSE TO THE ABOVE, THE ASSESSEE HAS SUBMITTED REPLY AS UNDER: - WITH REGARDS TO THE SAME, IT MAY BE POINTED OUT THA T ARVIND INTERNATIONAL, A DIVISION OF ARVIND MILLS, WAS A EXPORT - ORIENTED I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 3 UNIT, CLAIMING DEPRECIATION U/S 108 OF T HE INCOME TAX ACT . DURING THE YEAR UNDER CONSIDERATION, HOWEVER, THE EOU WAS DEBONDED W.E.F . 3.1.2001 AND THE ASSESSEE DECIDED NOT TO AVAIL SU CH DEDUCTION FROM THE SAID DATE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED A AFTER DEPRECIATION T OTAL INCOME OF RS. 11,33,47,660/ - FROM SUCH EXPORT - ORIENTED UNIT. OUT OF THE SAID GAINS OF SUCH EOU A DEDUCTION TO THE TUNE OF RS. 11,22,72,452/ - WAS CLAIMED AS PER THE PROVISIONS OF SECTION 10(B). VIDE THE STATEMENT OF REASONS FURNISHED TO THE ASSESSEE YOU HAVE STATED THAT DEPRECIATION TO THE TUNE OF RS. 8,62,13,944/ - WAS NOT ADDED BACK WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE YE AR UNDER CONSIDERATION. FURTHER YOU HAVE QUOTED SECTION 10(B)(BJ, WHERE IN IT IS STATED THAT WHERE THE ASSESSEE IS ALLOWED DEDUCTION UNDER THE SAID SECTION, NO DEDUCTION OF DEPRECIATION IS ALLOWABLE BUT SHALL BE DEEMED TO HAVE BEEN ALLOWED. THE ASSESSEE HE RE IN STATES THAT IT HAS FULLY COMPLIED WITH THE PROVISIONS OF THE SAID SECTION AS QUOTED BY YOURSELF. YOU HAVE FURTHER OBSERVED THAT WHILE THE BOOK DEPRECIATION IS RS. 48,75,43,300/ - , AN AMOUNT OF RS. 1,40,13,29,356/ - HAS BEEN ADDED BACK BY THE ASSESSEE IN ITS RETURN OF INCOME. WITH REGARDS TO THE SAME, IT MAY BE BROUGHT TO YOUR NOTICE THAT THE FIGURE OF DEP RECIATION OF RS. 1,48,75,43,300/ - IS THE TOTAL DEPRECIATION FOR ALL THE ASSETS OF ARVIND MILLS AS A WHOLE, WHICH ALSO INCLUDES THE DEPRECIATION FOR TH E UNIT OF ARVIND INTERNATIONAL. FURTHER, WHILE ARRIVIN G AT THE FIGURE OF 11,22,72,452/ - AS DEDUCTION U/S 10(B) , DEPRECIATION OF RS. 8,62,13,944/ - WAS ALREADY DEDUCTED FROM THE PROFIT OF THE ENTITY. THEREFORE, WHILE ADDING BACK THE DEPRECIATION TO COMPUTE T HE BUSINESS INCOME OF T HE ASSESSEE AS A WHOLE, THERE WAS NO FURTHER NEED TO ADD BACK THE DEPRECIATION ON ACCOUNT OF SUCH UNIT. IT MAY BE FURTHER BROUGHT TO YOUR NOTICE THAT WH ILE COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD OF BUSINESS GAINS, DEPRE CIATION AS PER THE PROVISIONS OF INCOME TAX WAS CONSIDERED ONLY FOR THE PERIOD FOR 3.1.2001 TO 31.3.2001 I.E. THE PERIOD AFTER THE RENUNCIATION OF RIGHT TO CLAIM DEDUCTION U/S 10(B). THE SA ME IS AL SO HIGHLIGHTED IN THE RETURN OF INCOME I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 4 FILED BY THE ASSESS EE. HENCE, THE TOTAL INCOME AS OFFERED TO TAX BY THE ASSESSEE HAS BEEN RIGHTLY COMPUTED FAKING INTO CONSIDERATION ALL THE PROVISIONS APPLICABLE TO THE ASSESSEE AND THEREFORE, THERE IS NO SHORT - LEVY OF TAX. FURTHER IT MAY BE ALSO BROUGHT TO YOUR NOTICE THA T THE ASSESSEE HAD ADOPTED THE SAME METHOD TO COMPUTE THE TOTAL INCOME EVEN FOR THE EARLIER YEARS. THE ASSESSEE TO FURTHER SUBSTANTIATE ITS STAND, ATTACHES A COPY OF THE COMPUTATION OF INCOME FOR A.Y. 2000 - 01 FOR YOUR KIND PERUSAL. IN VIEW OF THE ABOVE, I T IS CLEAR THAT THE ASSESSEE HAS RIGHTLY ADDED BACK THE AMOUNT OF DEPRECIATION TO THE TUNE OF RS. 1,40,13,29,356/ - AND THEREFORE, IN THE OPINION OF THE ASSESSEE, THERE IS NO UNDER ASSESSMENT OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION.' AFTER GO ING THROUGH THE DETAILED SUBMISSION OF THE ASSESSEE, WHILE KEEPING IN MIND THE RELEVANT PROVISIONS OF THE LAW, IF IS FOUND THAT THE REASONS GIVEN BY THE ASSESSEE WERE UNTENABLE. FROM THE STATEMENT OF COMPUTATION OF INCOME SUBMITTED ALONG WITH THE RETURN OF INCOME, IT IS CLEAR THAT WHILE THE BOOK DEPR ECIATION WAS RS. 1,48,75,43,300/ - , THE AMOUNT ADDED BACK WAS ONLY RS. 1,40, !3,29,356/ - . THEREFORE, THE REASONING PROVIDED BY THE ASSESSEE HOLDS NO BASE AND THEREFORE AN ADDITION OF RS.8,62,13,944/ - IS MADE TO THE TOTAL INCOME OF THE ASSESSEE.' 3.2 THE APPELLANT HAS SUBMITTED IN ITS WRITTEN SUBMISSION WHICH IS AS UNDER: 'THE ASSESSING OFFICER HAS OBSERVED THAT THE DEPRECIATION AS PER THE PROFIT & LOS S ACCOUNT WAS RS. 148,75,43,300/ - AS AGAINST WHICH IN THE C OMPUTATION THE APPELLANT HAD ADDED BACK THE AMOUNT OF RS. 140, 13,29,356/ - AND HENCE ACCORDING TO HIM THE AMOUNT OF DIFFERENCE OF RS.8,62,13,944/ - REMAINED TO BE ADDED BACK. IN THIS CONNECTION THE APPELLANT HAD GIVEN DETAILED EXPLANATION WHICH IS REPRODUCED IN THE ASSESSMENT ORDER AND IF HAS BEEN REJECTED BY THE A.O. WITHOUT ASSIGNING ANY SPECIFIC REASON FOR NOT ACCEPTING THE SAME. THE APPELLANT MAY, THEREFORE, REFER TO THE FOLLOWING PARA FROM THE STATEMENT OF FACTS: I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 5 (I) WITH REGARD TO DEPRECIATION, THE ASSES SING OFFICER RAISED A QUERY THAT THE AMOUNT OF RS.8,62,13,944 HAD NOT BEEN ADDED BACK AND IN RESPONSE THERETO THE ASSESSEE SUBMITTED THAT ARVI ND INTERNATIONAL, A DIVISION OF ARVIND MILLS LTD. WAS A 100% EXPORT ORIENTED UNIT, ENTITLED TO DEDUCTION U/S. 10 B OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE EOU WAS DEBONDED W.E.F. 3.1.2001 AND THE ASSESSEE DECIDED NOT TO AVAIL SUCH DEDUCTION FROM THE SAID DATE. THE ASSESSEE FURTHER STATED THAT THE ASSESSEE EARNED AFTER D EPRECIATION TOTAL INCOME OF RS. 1 1,33 ,47,660 FROM EOU BUT A DEDUCTION TO THE TUNE OF RS. 1 1,22,72,452 WAS CLAIMED AS PER SEC. JOB OF THE ACT. IT WAS ALSO SUBMITTED THAT WHILE ARRIVING AT RS. 11,22,72,452, AS DEDUCTION U/S. JOB DEPRECIATION OF RS.8,62,73,94 4 WAS AL READY DEDUCTED FROM THE PROFI T OF THE ENTITY. THEREFORE, WHILE ADDING BACK THE DEPRECIATION TO COMPUTE THE BUSINESS INCOME OF THE ASSESSEE AS A WHOLE, THERE WAS NO FURTHER NEED TO ADD BACK DEPRECIATION ON ACCOUNT OF SUCH UNIT. IT WAS ALSO SUBMITTED THAT WHILE COMPUTING THE INCOME OF T HE ASSESSEE UNDER THE HEAD OF BUSINESS GAINS, DEPRECIATION AS PER THE PROVISIONS OF INCOME TAX WAS CONSIDERED ONLY FOR THE PERIOD FOR 3.1.2001 TO 31.3.2001 I.E. THE PERIOD AFTER THE RENUNCIATION OF RIGHT TO CLAIM DEDUCTION U/S. 10B . THE SAME IS ALSO HIGHLI GHTED IN THE RETURN OF INCOME FILED BY THE ASSESSEE. HENCE, THE TOTAL INCOME AS OFFERED TO TAX BY THE ASSESSEE HAS BEEN RIGHTLY COMPUTED TAKING INTO CONSIDERATION ALL THE PROVISIONS APPLICABLE TO THE ASSESSEE AND THEREFORE, THERE IS NO SHORT - LEVY OF TAX. ' 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER NOTICED THAT APPELLANT DID NOT ADD THE ENTIRE BOOK DEPRECIATION WHILE COMPUTING BUSINESS INCOME. THE DIFFERENCE OF BOOK DEPRECIATION AND AMOUNT AD DED ON ACCOUNT OF BOOK DEPRECIATION IN COMPUTATION OF INCOME WAS TREATED AS INCOME ON ACCOUNT OF SHORT ADDITION OF BOOK DEPRECIATION. APPELLANT SUBMITTED THAT THE DIFFERENCE WAS ON ACCOUNT OF DEPRECIATION RELATING TO ITS 100% EOU DIVISION NAMELY ARVIND INT ERNATIONAL. SINCE THE BOOK DEPRECIATION WAS ADDED WHILE COMPUTING DEDUCTION UNDER SECTION 10 B, NO SEPARATE ADDITION IN GENERAL COMPUTATION OF INCOME WAS MADE. IT IS A MATTER OF I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 6 VERIFICATION. I HAVE GONE THROUGH THE COMPUTATION OF 10 B AND I FIND THAT THE SAID BOOK DEPRECIATION IS CONSIDERED THERE. IN ANY CASE, ASSESSING OFFICER IS DIRECTED TO VERIFY FROM THE COMPUTATION OF 10 B DEDUCTIONS AND IF THE DIFFERENCE IN BOOK DEPRECIATION IS CONSIDERED IN SAID COMPUTATION THEN HE WILL NOT MAKE FURTHER ADDITION IN NORMAL BUSINESS COMPUTATION. IF THE SAME IS NOT CONSIDERED IN 10 B COMPUTATIONS, THE ADDITION WILL SURVIVE. THIS LEAVES THE REVENUE AGGRIEVED. 4 . WE HAVE HEARD BOTH THE SIDES AND PERUSED THE CASE FILE. IT IS TO BE SEEN THAT THE CIT(A) HAS ONLY RESTOR ED THE ISSUE BAC K TO THE ASSESSING O FFICER FOR FACTUAL VERIFICATION AS TO WHETHER THE ASSESSSEE HAS ALREADY CONSIDERED THE VERY DEPRECIATION IN I T S COMPUTATIO N NOT AS SO AS TO AVOID DOUBLE DISALLOWANCE. THE ASSESSEE PLACES BEFORE US THE ASSESSING OFFICE R S CONSEQUENTIAL ORDER DATED TO BE 22/02/2010 WRONGLY MENTIONED EXPRESSLY STATING CIT(A) S ORDER UNDER CHALLENGE. THE IMPUGNED DISALLOWANCE ON ACCOUNT OF DEPRECIATION OF RS . 8,62,13,944/ - STANDS DELETED IN THE SAID ORDER . THE REVENUE S GRIEV ANCE IS REND ERED INFRUCTOUS. ITS CORRESPONDING GROUND ACCORDINGLY FAILS. 5. THE REVENUE S 2 ND GROUND OF R S. ,8,24,522/ - ON ACCOUNT OF OTHER INCOME IS DEALT IN THE CIT(A) FINDINGS AS FOLLOWS 4. THE GROUND NO.3 IS AGAINST ADDITION OF RS. 8, 24,522/ - ON ACCOU NT OF THE INCOME. 4.1 THE A.O. HAS STATED IN THE ASSESSMENT ORDER DATED 31/12/2007, WHICH IS AS UNDER: I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 7 'IT IS NOTICED THAT THE DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED A TOTAL INCOME OF RS.8,24,522/ - AS OTHER INCOME COMPRISING OF INSU RANCE CLAIM, PURCHASE DISCOUNT AND OTHER MISCELLANEOUS INCOME. HENCE, THE AR OF THE ASSESSEE WAS ASKED FOR TO EXPLAIN. IN RESPONSE TO THE ABOVE, THE ASSESSEE HAS SUBMITTED REPLY AS UNDER: - 'IN REGARDS TO THE SAME, THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION, ARVIND INTERNATIONAL, A DIVISION OF ARV/'ND MILLS LTD. EARMARKED AS A 100% EOU, EARNED A TOTAL INCOME CLASSIFIED UNDER 'OT HER INCOME' TO THE TUNE OF RS. 8 ,24,522/ - COMPRISING OF MATERIAL PURCHASE DISCOUNT, INSURANCE CLAIM RECEIVED AND OTHER MISCELLANEOUS INCOME. IT MAY BE NOTED THAT THOUGH ALL SUCH INCOME AS REFERRED TO HEREINABOVE, CLASSIFIED UNDER OTHER INCOME ARE ESSENTIALLY LINKED TO THE DIVISION'S MAIN BUSINESS. CLASSIFYING THE SAME UNDER OTHER INCOME HAS BEEN DONE MERELY TO SEPAR ATE THESE ITEMS FROM SALES. THEREFORE, THE ASSESSEE REQUESTS YOUR GOOD SELVES TO KINDLY GIVE DUE CONSIDERATION TO THE SUBSTANCE OVER FORM AND TREAT SUCH INCOME IN ITS TRUE NATURE.' IT MAY BE NOTED THAT U/S 10B EXEMPTION IS AVAILABLE ONLY IN RESPECT OF THE INCOME ARISING OUT OF EXPORT OF ARTICLES. IN THIS CASE, THE OTHER INCOME AS REFERRED TO HEREINABOVE FAILS TO FULFILL THESE CRITERIA AS LAID DOWN U/S 10B . FURTHER THE ASSESSEE WAS NOT ABLE TO JUSTIFY AS TO HOW SUCH INCOME WAS INTRICATELY LINKED TO THE INCO ME ARISING OUT OF THE EXPORT OF ARTICLES. IN VIEW OF THE SAME, THE ARGUMENTS OF THE ASSESSEE WERE FOUND TO BE UNTENABLE AND THEREFORE, THE INCOME PERTAINING TO INSURANCE CLAIM AND OTHER MISCELLANEOUS INCOME IS SOUGHT TO BE DEDUCTED WHILE COMPUTING THE DEDU CTION AVAILABLE U/S 10(B). THEREFORE, THE CLAIM OF THE ASSESSEE FOR DEDUC T/ON U/S 10B STANDS REDUCED TO THAT EFFECT.' 4.2 THE APPELLANT HAS SUBMITTED IN ITS WRITTEN SUBMISSION WHICH IS AS UNDER: 'THE A.O. HAS STATED THAT THE OTHER INCOME INCLUDES IN SURANCE CLAIM AND PURCHASE DISCOUNT. THE APPELLANT HAD EXPLAINED THAT ARVIND INTERNATIONAL DIVISION OF THE APPELLANT WHICH WAS 100% EOU HAD EARNED THIS INCOME WHICH WAS THOUGH CLASSIFIED AS OTHER I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 8 INCOME, IT WAS PART OF THE BUSINESS INCOME OF THE UNDERTAKIN G. THE A.O. HAS, HOWEVER STATED THAT THE APPELLANT COULD NOT LINK IT WITH THE EXPORT INCOME OF THE UNDERTAKING U/S. 10B AND ACCORDINGLY HE HAS NOT ACCEPTED THE SAME. IN THIS CONNECTI ON IF IS SUBMITTED THAT THE INCOME OF RS.8,24,522/ - INCLUDES MATERIAL PUR CHA SE DISCOUNT, INSURANCE CLAIM. THIS DISCOUNT, INSURANCE CLAIMS GOES TO REDUCE THE COST AND ACCORDINGLY IT INCREASES THE BUSI NESS PROFIT OF THE UNDER TAKING. THUS IF RESULTS INTO REDUCTION OF COST AND HENCE IT IS PART OF THE BUSINESS INCOME OF THE UND ER FAKING. HENCE IT IS ELIGIBLE FOR DEDUCTION OR EXEMPTION AS THE CASE MAY BE. THIS MAY BE APPRECIATED IN VIEW OF THE DECISION OF THE I TA T, AHMEDABAD IN THE CASE OF AART I INDUSTRIES 95 TTJ 15.' 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT OR DER AND APPELLANT'S SUBMISSION. ASSESSING OFFI CER DID NOT ALLOW DEDUCTION UNDE R SECTI ON 10 B ON MATERIAL PURCHASE DISCOUNT AND INSURANCE INCOME ON THE GROUND THAT THESE ARE NOT DERIVED FROM EXPORT OF ARTICLES. APPELLANT SUBMITTED THAT THESE ARE DIRECTLY LIN KED TO THE COST OF PURCHASES AND INCREASE THE PROFIT OF THE UNDERTAKING. THIS IS NOTHING BUT PART OF BUSINESS PROFIT OF THE UNDERTAKING. APPELLANT ALSO RELIED UPON THE DECISION OF JURISDICTIONAL ITAT. I AGREE WITH THE APPELLANT THAT MATERIAL PURCHASE DISCO UNT AND INSURANCE CLAIMS ARE DIRECTLY LINKED TO THE BUSINESS OF THE UNDERTAKING. THESE REDUCE THE COST OF PURCHASES AND THEREFORE PART OF BUSINESS INCOME. RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT REFERRED BY THE APPELLANT, ASSESSING OFFIC ER IS DIRECTING TO ALLOW DEDUCTION UNDER SECTION 10 B OF IT ACT ON THESE INCOMES. 6. RIVAL CONTENTIONS HEARD. RECORD PERUSED. TH ERE IS NO DISPUTE THAT THIS SUM OF RS. 8,24,522/ - HAS ARISEN F R O M INSURANCE CLAIM OF EXPORTED GOODS , PURCHASE MATERIAL DISCOU NTS AND OTHER INCOME OF RS. 7,41,717/ - , RS. 81,706/ - AND RS. 1,099/ - ; RESPECTIVELY. THE CIT(A) ACCEPTS ASSESSEE S ARGUMENT S AND HOLDS THAT T HE 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 I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 9 QUOTING COGENT 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 C IT(A) S FINDINGS UNDER CHALLENGE ARE AFFIRMED. REVENUE S APPEAL ITA 816/AHD/2011 IS DISMISSED. 7. THIS LEAVES US WITH THE ASSESSEE S APPEAL ITA 1022/AHD/2011 CHALLE NGING VALIDITY OF THE REOPENING IN QUESTION AND ALSO CLAIMING SEC. 10B DEDUCTION ON INTE REST OF RS. 20,82,239/ - RECEIVED ON LATE RECOV ERIES FRO M CUSTOMERS. BOTH THE LOWER AUTHORITIES HOLD THAT ABOVE STATED INTEREST AS NOT TO HAVE ARISEN F R O M THE ELIGIBLE BUSINESS. THE ASSESSEE DOES NOT PRESS ITS LEGAL PLEA. WE PROCEED TO ADJUDICATE THE LAT TER ISSUE ON MERITS AND FIND THAT THE LOWER APPELLATE ORDER UPHOLDS THE ASSESS ING OFFICER S ACTION MAKING THE IMPUGNED DISALLOWANCE AS GIVEN BELOW: - 5. THE GROUND NO.4 IS REGARDING INTEREST INCOME U/S 10(B) OF RS.20,82,239/ - . 5.1 THE A.O. HAS ST ATED IN THE ASSESSMENT ORDER DATED 31/12/2007, WHICH IS AS UNDER: 'IT WAS NOTICED THAT THE ASSESSEE HAD EARNED INTEREST INCOME IN THE INCOME OF THE UNIT CLAIMED BY THE ASSESSEE TO BE A 100% EOU. SUCH INTEREST WAS SET - OFF AGAINST THE INTEREST EXPENDITURE O F THE UNIT AND THE NET INTEREST EXPENDITURE WAS SHOWN IN THE PROFIT & LOSS O/C OF THE DIVISION. AS THE ASSESSEE INITIALLY FAILED TO SUBMIT THE ACTUAL DETAILS OF THE INTEREST EARNED, IT WAS PROPOSED TO APPORTION THE TOTAL INTEREST EARNED BY THE ASSESSEE, AR VIND MILLS TO ITS DIVISION ARVIND INTERNATIONAL IN THE RATIO OF THEIR RESPECTIVE TURNOVER. HENCE, THE AR OF THE ASSESSEE WAS ASKED FOR TO EXPLAIN. IN RESPONSE TO THE ABOVE, THE ASSESSEE HAS SUBMITTED REPLY AS UNDER: - I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 10 IT MAY BE BORNE IN MIND THAT U/S 10(B) OF THE ACT, EXEMPTION IS GRANTED ONLY IN THE RESPECT OF THE INCOME EARNED FROM THE EXPORT OF ARTICLES. IN THIS CASE, THE INCOME SOUGHT TO BE CLAIMED AS DEDUCTION U/S 10(B) IS INTEREST EARNED BY THE ASSESSEE AND NOT THE PROFIT EARNED BY THE ASSESSEE FROM T HE EXPORT OF THE ART ICLES AS REQUIRED BY SECTION '10 (B). SECTION 10(B) CLEARLY EXCLUDES FROM ITS SCOPE ANY INCOME OTHER THAN THE INCOME EARNED DIRECTLY OUT OF EXPORT OF GOODS. IN FACE OF THE S AME, THE ASSESSEE'S CONTENTION THAT THE INTEREST INCOME HAS ARIS EN OUT OF SUCH TRANSACTIONS IS FOUND TO BE INVALID. FURTHER, KEEPING IN MIND THE PROVISIONS OF SECTION 10(B), THE INCOME FROM INTEREST SO EARNED SHOULD BE SEPARATED WHILE COMPUTING THE NET GAINS FROM SUCH EXPORT BUSINESS. THEREFORE, THE INTEREST EARNED BY THE ASSESSEE AMOUNTING TO RS. 20,82,239/ - IS TO BE DEDUCTED FROM THE AMOUNT SOUGHT TO BE CLAIMED BY THE ASSESSEE AS DEDUCTION U/S 10(B) AND HENCE, THE DEDUCTION AVAILED BY THE ASSESSEE STANDS REDUCED TO THAT EFFECT.' 5.2 THE APPELLANT HAS SUBMITTED I N ITS WRITTEN SUBMISSION WHICH IS AS UNDER: 'THE ASSESSING OFFICER HAS STATED THAT THE ABOVE INTEREST WAS SET OFF AGAINST THE INTEREST EXPENDITURE OF THE UNIT AND NET INTEREST EXPENDITURE WAS SHOWN IN THE PROFIT & LOSS ACCOUNT OF THE EXPORT ORIENTED UNIT. THE APPELLANT HAD EXPLAINED THAT THIS INTEREST WAS EARNED ON ACCOUNT OF LATE PAYMENT MADE BY CUSTOMERS AND, THEREFORE, IT WAS DIRECTLY RELATED TO THE EXPENDITURE/ INCOME OF THE ARTICLES AND WAS NOT TO BE EXCLUDED. IN ANY CASE, THE NET AMOUNT OF INTEREST I NCOME AND EXPENDITURE WAS EXPENDITURE OF RS. 131.36 LAKH. HENCE ALSO THERE WAS NO JUSTIFICATION FOR NOT CONSIDERING THIS INCOME FOR THE PURPOSE OF SECTION 10(B). THE A.O. HAS STATED THAT IT IS NOT CONSIDERED INCOME AND NOT THE PROFIT OF THE UNDERTAKING. HE NCE HE SAYS THAT THE CLAIM IS NOT VALID. IN THIS CONNECTION IT IS SUBMITTED THAT AS STATED BEFORE THE A.O. AND AS ACCEPTED BY HIM THE NET FIGURE OF INTEREST WAS EXPENDITURE OF RS. 131.36 LAKH WHICH WAS AFTER DEDUCTING THE ABOVE INTEREST EARNED AT S.20.82 LAKH. THUS, THERE BEING NET EXPENDITURE THERE WAS NO REASON FOR CONSIDERING THE SAID INCOME FOR THE PURPOSE OF EXCLUSION FROM THE ELIGIBLE PROFIT. I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 11 THIS VIEW IS SUPPORTED BY DIFFERENT DECISIONS OF THE I TAT. APART FROM THIS, THE A.O. WAS EXPLAINED THAT THIS AMOUNT OF RS.20.82 LAKH REPRESENT INTEREST RECEIVED FOR LATE PAYMENT FROM THE CUSTOMERS. ACCORDINGLY, IT IS PART OF THE SALE PROCEEDINGS OF THE UNDERTAKING AND HENCE IT SHOULD NOT BE EXCLUDED FROM THE ELIGIBLE PROFIT. THIS VIEW IS SUPPORTED BY VARIOUS DECI SIONS AS UNDER : I) GUJ ARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. 283 ITR 402. II) MADRAS HIGH COURT DECISION IN THE CASE OF INDO MATSUSHITA CARBON CO. LTD. 286 ITR 201. HAVING REGARD TO THE ABOVE SPECIFIC DECISIONS, THE IMPUGNED AMOUNT OF INTER EST FORMS PART OF THE ELIGIBLE PROFIT/ ELIGIBLE INCOME OF THE UNDERTAKING AND IT CANNOT BE EXCLUDED.' 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. THE INTEREST INCOME EARNED FROM CUSTOMERS IS REDUCED FROM INTE REST EXPENSES AND NET EXPENSE WAS CLAIMED. THE INTEREST IS NOT EARNED FROM EXPORT ACTIVITY BUT DERIVED FROM LATE PAYMENT OF EXPORT PROCEEDS. THEREFORE INTEREST INCOME CANNOT BE TREATED AS DERIVED FROM EXPORT ACTIVITY. APPELLANT RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT AND MADRAS HIGH COURT WHICH ARE ON DEDUCTION UNDER SECTION 80 IA AND NOT ON 80 HHC OR 10 B. THE INTEREST FROM CUSTOMERS CAN BE TREATED AS DERIVED FROM INDUSTRIAL UNDERTAKING SINCE INTEREST RECEIVED FROM DEBTORS IS PART OF PROFIT O F THE UNDERTAKING. HOWEVER INTEREST RECEIVED FROM CUSTOMERS IS NOT DERIVED FROM THE BUSINESS OF EXPORTS. THE IMMEDIATE SOURCE OF THIS INCOME IS DELAYED PAYMENTS FROM CUSTOMERS AND NOT EXPORTS OF GOODS OR SERVICES. CONSIDERING THE APEX COURT DECISION IN THE CASE OF STERLING FOODS LTD, INTEREST WILL NOT QUALIFY FOR DEDUCTION UNDER SECTION 10 B. ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 8. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THIS ISSUE. T HE ASSESSEE IS OTHERWISE ENTITLED FOR SEC. 10B DEDUCTION BEING A NE WLY ESTABLISHED HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING. THIS I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 12 STATUTORY PROVISION GRANTS DEDUCTION OF SUCH PROF ITS AND GAIN S AS ARE DERIVED FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FROM EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE. THE ASSESSEE S STAND THROUGH O UT IS THAT THIS INTEREST SUM OF RS. 20,82,239/ - HA S ARISEN FROM LATE PAYMENTS OF EXPORT PROCEEDS ONLY F R O M OVERSEAS EXPORT CUSTOMERS. EVEN THE CIT ( A) OBSERVED THAT T H E IMPUGNED INTEREST CAN BE TREATED TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING SINCE THE SAME IS RECEIVED FRO M DEBTORS IS PART OF PROFITS , BUT NOT D ERIVED FROM EXPORTS. WE DISAGREE WITH THIS REASONING AS THE INTEREST HAS BEEN DERIVED FROM EXPORT PROCEEDINGS OF THE ELIG IBLE BUSINESS UNIT ONLY . WE REFER TO HON BLE JURISDICTIONAL HIGH COURT S VIEW I N NIRMA INDUSTRIES LTD CASE (SUPRA) IN THIS BACKDROP OF FACTS AND HOLD THAT ASSESSEE S INTEREST SUM OF RS. 20,82,239/ - REALIZED FROM ITS EXP ORT CUSTOMERS ON ACCOUNT OF DELAYED PAYMENTS OF EXPORT PROCEEDS FORMS PART THEREOF ONLY SO AS TO BE E NTITLED TO BE TREATED AS ELIGIBLE PROFITS AND GAINS F R O M EXPORT BUSINESS ONLY AS THE SAME IS NOT AN INDEPENDENT RECEIPT. THE ASSESSEE S ARGUMENT S ON MERITS SUCCEED . 8.1 . THE REVENUE S AP PEAL ITA 416/AHD/2011 IS DISMISSED AND A SSESSEE S APPEAL ITA 416/AHD/2011 IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN COURT ON 26 - 08 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 26 /08 /2015 AK I.T.A NO S . 816 & 1022 /AHD/20 11 A.Y. 2001 - 02 PAGE NO ACIT VS. M/S. ARVIND LTD 13 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,