Tyco Valves & Controls (India) Pvt. Ltd., Baroda V. The ACIT, Baroda Cir- 4, Baroda

ITA 1040/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1878 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 28-04-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P SHAH
• Assessee Lawyers: M C PANDIT
• Keywords: Business income; Cost of acquisition; Bad and doubtful debts; Set aside
• Section: 80HHC; 80IB; 10B; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 10.12.2009 DRAFTED ON:10.12.2 009 ITA NO.981/AHD/2006 ASSESSMENT YEAR : 2002-2003 ASSTT. COMMISSIONER OF INCOME TAX, BARODA CIR. 4, BARODA. VS. TYCO VALVE & CONTROLS INDIA PVT LTD. (FORMERLY KNOWN AS KEYSTONE INDIA PVT. LTD.) 302, A IVORY TERRACE, R.C.DUTT ROAD, ALAPURI, BARODA. PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) ITA NO.1040/AHD/2006 ASSESSMENT YEAR : 2002-2003 TYCO VALVE & CONTROLS INDIA PVT LTD. (FORMERLY KNOWN AS KEYSTONE INDIA PVT. LTD.) 302, A IVORY TERRACE, R.C.DUTT ROAD, ALAPURI, BARODA. VS. ASSTT. COMMISSIONER OF INCOME TAX, BARODA CIR. 4, BARODA. PAN/GIR NO. : (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI M.C.PANDIT SR.D.R. RESPONDENT BY: SHRI J.P.SHAH O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE CROSS APPEALS FILED BY THE REVENUE A ND ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-III, BAROD A, DATED 8.02.2006. ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 2 - ITA NO.981/AHD/2006 2. GROUNDS NO.1 AND 2 OF THE APPEAL OF THE REVENUE READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HOLDING THAT IF THE DEPB LICENCE INCOME IS BY WAY OF CREDIT FOR THE USE OF LICENCE AND IS NOT BY WAY OF SALE OF LICENCE THEN THE SAME IS I NCLUDIBLE IN THE PROFIT OF INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB OF THE ACT. 2. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION O F THE LEARNED ASSESSING OFFICER THAT THE INCOME GENERATED IS FROM DEPB LICENCE AND NOT FROM INDUSTRIAL UNDERTAKING AND AS SUCH THE SAME CANNOT BE PART OF THE PROFIT OF THE INDUSTRIAL UNDERTAKING . 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS UNDER:- 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. MY FINDINGS, IN RESPECT OF EACH ITEM OF INCOME INCLUDED IN THE O THER INCOME ARE AS UNDER: (I) DEPB LICENCE RS.13,31,972/-: IN THE ASSESSMENT YEAR 2001-02, IT WAS HELD BY THE CIT(A) THAT THIS INCOME IS NOT PART OF PROFIT OF THE INDUSTRIAL UNDE RTAKING. HOWEVER, RECENTLY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. INDIA GELATINE & CHEMICALS LTD., HELD THAT THE DUTY DRAW BACK IS GIVEN SPECIFICALLY TO REDUCE THE COST OF MANUFACTURING TH E GOODS AND TO REDUCE THE BURDEN OF CUSTOM DUTIES AND EXCISE DUTIES, AND THEREFORE, ANY RECEIPTS BY WAY OF REIMBURSEMENT OF SUCH DUTIES ARE INEXTRICABLY LINKED WITH COST OF PRODUCTION AND THEREFORE, DUTY DRAWBAC K WAS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PUR POSE OF SECTION 80J OF THE ACT. THE SCHEME OF DEPB LICENCE IS SIMILAR TO D RAWBACK. THEREFORE, IF THE DEPB LICENCE INCOME IS BY WAY OF CREDIT FOR USE OF LICENCE, THE SAME IS INCLUDIBLE IN THE PROFITS OF THE INDUSTRIAL UNDE RTAKING. THE LEARNED ASSESSING OFFICER MAY INCLUDE THIS INCOME AFTER VER IFYING THE NATURE OF RECEIPT. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IS COVERED BY THE D ECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 3 17 ITR 218 (SC) IN FAVOUR OF THE REVENUE, WHEREIN IT WAS HELD THAT DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVER NMENT OR FROM S. 75 OF ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 3 - THE CUSTOMS ACT, 1962, HENCE, INCENTIVES PROFITS AR E NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS AND THEREFORE, DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF NET PROFITS OF THE INDUSTRIAL UNDE RTAKING FOR THE PURPOSES OF S. 80-IA OR 80-IB. RESPECTFULLY FOLLOWING THE SAID DE CISION, WE ALLOW THESE GROUNDS OF APPEAL OF THE REVENUE. 5. GROUNDS NO.3 AND 4 OF THE APPEAL OF THE REVENUE READS AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FURTHER ERRED IN HOLDING THAT INCOME EARNED FROM SERVICE CH ARGES IS PART OF PROFIT EARNED FROM INDUSTRIAL UNDERTAKING, AND H ENCE, INCLUDABLE IN THE PROFIT OF INDUSTRIAL UNDERTAKINGS FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80IB OF THE ACT . 4. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF THE LEARNED ASSESSING OFFICER THAT AS THE SERVICE CHARGES ARE G ENERATED FOR THE SERVICES AFTER THE GOODS ARE SOLD CANNOT BE SAI D TO BE PROFIT DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR COMPUT ING DEDUCTION UNDER SECTION 80IB. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS SHOWN RECEIP T OF RS.19,13,441/- BEING SERVICE CHARGES WHICH HAS BEEN INCLUDED IN TH E OTHER INCOME. THE ASSESSEE SUBMITTED THAT SECTION 80IB PROVIDES THAT ASSESSEE CAN CLAIM DEDUCTION FOR PROFIT AND GAINS DERIVED FROM BUSINES S. ON PERUSAL OF DETAILS, IT WOULD BE NOTED THAT THERE IS A DIRECT NEXUS BETWEEN THE BUSINESS OF THE COMPANY AND THE SERVICE CHARGES EARNED AND THEREFOR E, IT SHOULD BE INCLUDED IN THE BUSINESS PROFITS OF THE INDUSTRIAL UNDERTAKI NG FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80IB OF THE ACT. THE LEARNED ASSESSING OFFICER HELD THAT SINCE THE SAID RECEIPT IS NOT REC EIVED FROM THE INDUSTRIAL UNDERTAKING, THE DEDUCTION UNDER SECTION 80IB IS NO T ELIGIBLE ON THE SAME. 7 ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) HELD THAT THE SERVICES CHARGES MAY BE CONSIDERED FOR DEDUCTIO N UNDER SECTION 80IB IF THE ASSESSEE IS ABLE TO SHOW THAT THE SALES WERE A FTER SALE SERVICE CONDITION ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 4 - OR THE RECEIPTS AROSE IN THE COURSE OF MANUFACTURIN G. HE RELIED ON THE DECISION OF THE CASE OF MIRA INDUSTRIES 87 ITD 475. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED ASSESSING OFFICER. 9. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE ARGUED AND SUBMITTED THAT IN CASE THE RECEIPTS FROM SERVICE CH ARGES ARE MORE THAN THE EXPENDITURE INCURRED FOR EARNING THE RECEIPTS THAN THE NET AMOUNT OF RECEIPTS FROM SERVICE CHARGES SHOULD BE DEDUCTED FROM THE BU SINESS PROFITS FOR COMPUTING DEDUCTION UNDER SECTION 80IB OTHERWISE, N O DEDUCTION SHOULD BE MADE FROM THE BUSINESS PROFITS. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN RESP ECT OF SERVICE CHARGES OF RS 19,13,441/- CREDITED BY THE ASSESSEE IN ITS P ROFIT & LOSS ACCOUNT AND EXCLUDED BY THE LEARNED ASSESSING OFFICER FOR COMPU TING DEDUCTION UNDER SECTION 80IB HELD AS UNDER :- THESE RECEIPTS MAY BE CONSIDERED FOR DEDUCTION UND ER SECTION 80IB, IF THE ASSESSEE IS ABLE TO SHOW THAT THE SALE S WERE AFTER SALES SERVICE CONDITION OR THE RECEIPTS AROSE IN THE COU RSE OF MANUFACTURING. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF M IRA INDUSTRIES 87 ITD 475. WE THEREFORE OBSERVE THAT LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) HAS HELD THAT IF THE RECEIPT IS IN THE NATURE OF AFTER SALES SERVICE OF MANUFACTURED GOODS AND SALE OF MANUFACTURED GOOD S WERE CONDITIONAL UPON AFTER SALES SERVICE BY THE ASSESSEE OR IF THE RECEI PT IS IN THE COURSE OF MANUFACTURING BUSINESS BY THE ASSESSEE THEN THE SAM E IS ALLOWABLE AND HAS SET ASIDE THE ISSUE TO THE FILE OF THE LEARNED ASSESSIN G OFFICER TO DECIDE THE SAME AFRESH AFTER VERIFICATION AS THE LEARNED ASSESSING OFFICER HAS NOT EXAMINED ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 5 - THE ISSUE FROM THIS ANGLE. WE FIND THAT THE ORDER O F THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS COVERED BY THE DECISION O F THIS TRIBUNAL IN THE CASE OF MIRA INDUSTRIES LTD. 87 ITD 425 WHEREIN IT WAS HELD THAT LABOUR CHARGES RECEIVED PURSUANT TO THE CONDITION OF SALES AS AFTER SALES SERVICE QUALIFIES FOR DEDUCTION UNDER SECTION 80I. THE ABOV E VIEW ALSO FINDS SUPPORT FROM THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS FAL INDUSTRIES LTD. 27 DTR (MAD) 157. THE REVENUE C OULD NOT POINT OUT ANY ERROR IN THE ABOVE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS), WE THEREFORE DO NOT FIND ANY GOOD REA SON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS), WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 11. GROUNDS NO.5 AND 6 OF THE APPEAL OF THE REVENUE READS AS UNDER:, 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN HOLDING THAT SALES TAX AND EXCISE DUTY SHO ULD BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULAT ION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 6. THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE LEARNED ASSESSING OFFICER IN THE INCLUSION OF SALES TAX AND EXCISE DUTY IN THE TOTAL TURNOVER IN VIEW OF THE DECISION OF THE S UPREME COURT IN CHOWRANGHEE SALES BUREAU (87 ITR 542) AND MC. DOWEL LES AND THE RECENT DECISION OF THE ITAT, AHMEDABAD IN THE C ASE OF GUJARAT FLUROCHEMICALS (ITA NO.231/AHD/2000 DATED 2 4.08.2000) AND GUJARAT ALKALIS & CHEMICALS LTD. (ITA NO.1188/A HD/2000 DATED 13.12.2001). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. BOTH THE PARTIES AGREED THAT THE ISSUE STANDS COVERED AGAINST THE RE VENUE BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS (2007) 290 ITR 667 (SC) WHEREIN IT WAS HELD THAT EXCISE DU TY AND SALES-TAX ARE NOT INCLUDIBLE IN 'TOTAL TURNOVER' IN THE FORMULA CONTA INED IN S. 80HHC (3). ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 6 - RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT, WE DISMISS THESE GROUNDS OF APPEAL OF THE REVENUE. 13. GROUNDS NO.7 AND 8 OF THE APPEAL OF THE REVENUE READS AS UNDER: 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN HOLDING THAT INTEREST INCOME OF RS.66,13,5 87/- IS NOT TO BE INCLUDED IN THE TURN OVER FOR THE PURPOSE OF CAL CULATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 8. THE LD.CIT(A) OUGHT TO HAVE UPHELD THE FINDING O F THE AO THAT SINCE THE ASSESSEE ITSELF HAD ACCOUNTED FOR THE INT EREST INCOME AS ITS BUSINESS INCOME IN THE PROFIT & LOSS ACCOUNT, T HE SAME CONSTITUTES PROFIT DERIVED FROM THE INDUSTRIAL UNDE RTAKING FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 8 0HHC OF THE ACT. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER WHILE COMPUTING THE PROFIT OF THE BUSINESS FOR THE PUR POSE OF CALCULATING THE DEDUCTION UNDER SECTION 80HHC EXCLUDING 90% OF INTE REST INCOME IN VIEW OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. HOWE VER, HE INCLUDED THE INTEREST INCOME IN THE TOTAL TURNOVER OF THE BUSINE SS. THE ASSESSEE SUBMITTED THAT EXCLUDING INTEREST INCOME FROM PROFIT OF THE B USINESS AND INCLUDING THE SAME IN THE TOTAL TURNOVER LEAD TO ABSURD RESULT CO NSIDERING THAT THERE WILL DISPARITY BETWEEN THE NUMERATOR (PROFIT OF THE BUSI NESS) AND DENOMINATOR (TOTAL TURNOVER) OF THE FORMULA. THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE AND RELYING ON THE DECISIONS IN THE CASE OF CIT VS. KANTILAL CHHOT ALAL 246 ITR 439(MUMBAI), JEYAR CONSULTANTS AND INVESTMENT (PRIV ATE) LIMITED VS. ACIT 46 ITR 71 (MADRAS ITAT), AND HERO CYCLES LTD. VS. A CIT 84 TTJ 485 (CHANDIGARH ITAT) HELD THAT INTEREST INCOME CANNOT BE CONSIDERED AS TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 7 - 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED ASSESSING OFFICER WHEREAS LEARNED AUTHORISE D REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS). 16 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. WE FIND THAT IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND SELLING INCLUDING EXPORT OF VALVES. THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING VARIOUS JUDICIAL PRO NOUNCEMENTS AS MENTIONED ABOVE IN THIS ORDER HELD THAT INTEREST WILL NOT FOR M PART OF TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. THE REVENU E COULD NOT BRING ANY MATERIAL BEFORE US TO CONTROVERT THE ABOVE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OR COULD NOT PO INT OUT ANY DEFECT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDE R OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), WHICH IS CONFI RMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NO.1040/AHD/2006 17 GROUND NO.1 OF THE APPEAL OF THE ASSESSEE READS AS UNDER: 1.1 THE COMMISSIONER OF INCOME TAX (APPEALS)-III, B ARODA, [HEREINAFTER REFERRED TO AS 'THE CIT(A)'] HAS ERRED IN LAW AND IN FACTS OF THE CASE IN UPHOLDING THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4, BARODA ['HEREINAFTER REFERRED TO AS THE AO'] ACTION IN EXCLUDING THE 'OTHER INCOME' OF RS. 47,58,885 (DETAILS GIVEN BELO W), WHILE ARRIVING AT THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80I B OF THE ACT ON THE GROUND THAT THE SAME WAS NOT DERIVED FROM 80IB UNIT . SR. NO. NATURE OF INCOME AMOUNT (RS.) 1 INCOME FROM SALE OF WOODEN SCRAP AND DRUM 10,088 2 DOCUMENTATION CHARGES COLLECTED FROM CUSTOMERS 127,432 ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 8 - 3 INSURANCE CHARGES INCURRED AND THEN COLLECTED FROM CUSTOMERS ON LOCAL SALES 11,124 4 OCTROI SALES 3,000 5 INTEREST INCOME 46,07,241 TOTAL 47,58,885 1.2 THE CIT(A) HAS FAILED TO APPRECIATE AND OUGHT T O HAVE HELD THAT THE OTHER INCOME OF RS. 47,58,885 HAS BEEN DERIVED FROM THE 80IB UNIT AND HENCE THE SAID INCOME SHOULD BE INCLUDED IN THE PROFITS OF THE 80IB UNIT. 1.3 THE APPELLANT PRAYS THAT THE AO BE DIRECTED THA T THE OTHER INCOME OF RS. 47,58,885 BE INCLUDED IN THE PROFITS OF THE 80IB UNIT AND DEDUCTION IN RESPECT OF THE SAME SHOULD BE ALLOWED TO THE APPELLANT. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE LOWER AUTHORITIES EXCLUDED OTHER INCOME OF RS.47,58 ,885/- FROM BUSINESS INCOME WHILE COMPUTING INCOME DERIVED FROM INDUSTRI AL UNDERTAKING WITH REFERENCE TO WHICH DEDUCTION IS ALLOWABLE UNDER SEC TION 80IB. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CLAIMED B EFORE US THAT THE OTHER INCOME OF RS.47,58,885/- WAS COMPRISED OF THE FOLLO WING. RS. 10,088/- INCOME FROM SALE OF WOODEN AND DR UM. RS. 1,27,432/- DOCUMENTATION CHARGES RS. 11,124/- INSURANCE LOCAL SALES RS. 3,000/- OCTROI SALES RS.46,07,241/- INTEREST INCOME. RS.47,58.885/- TOTAL THE LEARNED AUTHORISED REPRESENTATIVE CONTENDED BEF ORE US THAT THE SCRAP SALE OF RS.10,088/- IS COVERED BY THE DECISION OF H ON'BLE GUJARAT HIGH COURT IN THE CASE OF DY.CIT VS. CORE HEALTH CARE LTD. (20 09) 308 ITR 263 IN FAVOUR OF THE ASSESSEE. HE FURTHER CONTENDED THAT D OCUMENTATION CHARGES OF RS.1,27,432/-, INSURANCE LOCAL SALES RS.11,124/- AN D OCTROI SALE RS.3000/- WAS NOT AN INCOME AND THE SAME WAS REIMBURSEMENT OF EXP ENSES FROM THE CUSTOMERS AND THE SAME GOES ON TO REDUCE THE EXPENS ES AND THE SAME NOT BEING AN INCOME CANNOT BE EXCLUDED FOR COMPUTING DE DUCTION ALLOWABLE UNDER ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 9 - SECTION 80IB. IN RESPECT OF INTEREST INCOME OF RS.4 6,07,241/-THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE FAIRLY CO NCEDED THAT THE SAME IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE HON'BL E GUJARAT HIGH COURT IN THE CASE OF DCIT VS. ARAT ELECTRO CHEMICALS LTD. (2 009) 17 DTR (GUJ) 255. WE FIND THAT THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. (2009) 308 ITR 263 HELD AS UNDER:- 21. IN RELATION TO QUESTION NO. 3 IT IS AN ACCEPTE D POSITION THAT THE EMPTY CONTAINERS, WHICH WERE SOLD, WERE CONTAINERS IN WHICH RAW MATERIAL IN BULK HAD BEEN PURCHASED BY THE ASSESSEE . THE COST OF THE CONTAINERS WAS PART OF THE PURCHASE PRICE WHICH WEN T TO MAKE UP THE TOTAL COST OF THE MANUFACTURED PRODUCT AND WAS THUS DIRECTLY RELATABLE TO THE MANUFACTURING ACTIVITY OF THE INDUSTRIAL UND ERTAKING. THE INCOME GENERATED ON SALE OF SUCH EMPTY CONTAINERS COULD BE SET OFF AGAINST THE PURCHASE COST, IN OTHER WORDS BRINGING DOWN THE PUR CHASE PRICE OF RAW MATERIAL, OR IT COULD BE TREATED AS INCOME DIRECTLY RELATABLE TO THE ACTIVITY OF INDUSTRIAL UNDERTAKING. THE NET RESULT WOULD BE THE SAME EITHER THE COST OF RAW MATERIAL GETS REDUCED AND TH US INCREASES PROFITS OF MANUFACTURED PRODUCTS ON SALE; OR THE SALE PRICE OF CONTAINERS IS DIRECTLY ADDED TO SWELL THE TOTAL PROFITS. THEREFOR E, IN LIGHT OF THE DECISION OF THIS HIGH COURT IN THE CASE OF DY. CIT VS. HARJIVANDAS JUTHABHAI ZAVERI (SUPRA), THERE IS NO INFIRMITY IN THE IMPUGNED ORDER OF TRIBUNAL. WE FIND THAT THE LOWER AUTHORITIES HAVE NOT VERIFIE D THE NATURE OF RECEIPTS OF RS.10,088/- CLAIMED BY THE ASSESSEE AS SCRAP SALE. THEREFORE, IN OUR CONSIDERED OPINION, IT SHALL BE JUST AND FAIR TO RE MIT THIS PART OF THE GROUND OF APPEAL BACK TO THE FILE OF THE AO FOR VERIFICATION AND THEREAFTER, DECIDED THE SAME AFRESH AFTER TAKING INTO CONSIDERATION THE DEC ISION IN THE CASE OF DY.CIT VS. CORE HEALTH CARE LTD. (2009) 308 ITR 263 (SUPRA ). 19. SIMILARLY WE FIND THAT THE CLAIM OF THE ASSESSE E IS THAT RECEIPT OF RS. 1,27,432/ DOCUMENTATION CHARGES, RS.11,124/- INSURA NCE LOCAL SALES AND RS.3,000/- OCTROI SALES, ARE REIMBURSEMENT OF EXPE NSES BY THE CUSTOMER WAS ALSO NOT VERIFIED BY THE LOWER AUTHORITIES. IN OUR CONSIDERED VIEW, IF THE AMOUNT IS ACTUALLY REIMBURSEMENT OF SPECIFIC EXPENS E OF THE ASSESSEE THEN THE SAME OUGHT TO HAVE BEEN SET OFF AGAINST THE RELEVAN T EXPENSES AND CANNOT BE ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 10 - TREATED AS SEPARATE INCOME OF THE ASSESSEE. HOWEVE R, IF THE SAME IS A CHARGE PAID TO THE ASSESSEE FOR THE SERVICES RENDERED BY T HE ASSESSEE IRRESPECTIVE OF THE ACTUAL AMOUNT OF EXPENSES INCURRED BY THE ASSES SEE THEN THE SAME CANNOT BE TREATED AS REIMBURSEMENT OF EXPENSES BUT IN SUCH SITUATION ALSO THE ENTIRE RECEIPT CANNOT BE TAKEN AS INCOME OF THE ASSESSEE A ND AFTER ALLOWING DEDUCTION FOR THE RELEVANT EXPENSES ONLY, THE NET AMOUNT CAN BE TREATED AS INCOME OF THE ASSESSEE WHICH ALONE CAN BE EXCLUDED AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LALSONS ENTERPRISES VS. DC IT (2004) 89 ITD 25 (DEL) (SB). WE THEREFORE, ALSO REMIT THIS PART OF T HE GROUND OF APPEAL BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PROPE R VERIFICATION AND ADJUDICATION AFRESH AS PER LAW IN LIGHT OF THE DISC USSION MADE HEREINABOVE. 20. IN RESPECT OF THE BALANCE AMOUNT OF THIS GROUND OF APPEAL WHICH IS RS.46,07,241/- RELATING TO INTEREST INCOME , THE OR DER OF THE LOWER AUTHORITIES IS CONFIRMED. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED AS STATED ABOVE. 21 GROUND NO.2 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 2.1 THE CIT(A) HAS ERRED IN LAW AND IN FACTS O F THE CASE IN UPHOLDING THE AO'S ACTION IN NOT ALLOWING THE DEDUCTION UNDER SECTION 10B OF THE ACT ON THE INTEREST INCOME OF RS. 17,07,551, WITHOU T CONSIDERING THE FACT THAT THE INTEREST IS DIRECTLY AND INEXTRICABLY LINK ED TO THE BUSINESS PROFITS OF ITS 100% EOU AND THE ENTIRE BUSINESS INCOME IS D EEMED TO BE THE PROFIT DERIVED FROM EXPORT BUSINESS. 2.2 THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW THE DEDUCTION UNDER SECTION 10B OF THE ACT ON THE INTEREST INCOME OF RS. 17,07,551. 22. AT THE TIME OF THE HEARING, THE LEARNED AUTHORI SED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT IN VIEW OF THE JUDICIAL PRONOUNCEMENT, THE ISSUE STANDS COVERED AGAINST THE ASSESSEE. THEREFORE, THE SE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 23. GROUND NO.3 OF THE APPEAL OF THE ASSESSEE READ S AS UNDER:- ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 11 - 3.1 THE CIT(A) HAS ERRED IN LAW AND IN FACTS O F THE CASE IN UPHOLDING THE AO'S ACTION IN REDUCING THE DEDUCTION CLAIMED U NDER SECTION 80IB OF THE ACT (ON THE PROFITS FROM THE MANUFACTURED EXPOR T TURNOVER) FROM THE 'PROFITS OF THE BUSINESS' FOR THE PURPOSE OF CALCUL ATING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT, WITHOUT CONSIDERING THE FACT THAT BOTH THE SECTIONS ARE INDEPENDENT OF EACH OTHER AND NEIT HER IS MADE SUBJECT TO THE OTHER. 3.2 THE APPELLANT SUBMITS AND PRAYS THAT CONSIDERIN G THE INTENTION BEHIND THE GRANT OF / DEDUCTION UNDER SECTION 80HH C, THE AO OUGHT NOT TO HAVE REDUCED THE DEDUCTION UNDER SECTION 80-IB O F THE ACT FROM THE 'PROFITS OF THE BUSINESS' WHILE COMPUTING THE DEDUC TION UNDER SECTION 80HHC OF THE ACT. 3.3 WITHOUT PREJUDICE TO THE ABOVE, IF THE 'PROF ITS OF THE BUSINESS' AS COMPUTED FOR THE DEDUCTION - UNDER SECTION 80HHC OF THE ACT HAVE TO BE REDUCED BY THE PROFITS ARISING TO THE 80-IB UNIT, T HEN THE 'PROFITS' TO BE REDUCED SHOULD BE RESTRICTED TO THE EXTENT OF 'PROF ITS ARISING FROM EXPORT TURNOVER, WHICH AMOUNTS TO RS. 19,13,000. IN OTHER WORDS, THE PROFITS ARISING FROM THE MANUFACTURED LOCAL TURNOVER OF THE 80-IB UNIT (OF RS. 3,06,50,000) SHOULD NOT BE REDUCED. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE VARY FAIR LY CONCEDED THAT THE ISSUES INVOLVED IN THE ABOVE GROUNDS OF APPEAL ARE COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL C BENCH OF DELHI, IN THE CASE OF ACIT VS. HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD. (2009) 119 ITD 107 WHEREIN IT WAS HELD THAT IN VIEW OF THE PROVISIONS OF S. 80-IA (9) DEDUCTION UNDER S. 80HHC IS TO BE ALLOWED ON PROFITS AND GAINS AS REDU CED BY THE DEDUCTION CLAIMED AND ALLOWED UNDER S. 80-IB/80-IA. THEREFORE , THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 25. GROUND NO.4 OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 4.1 THE CIT(A) HAS ERRED IN LAW AND IN FACTS OF TH E CASE IN UPHOLDING THE AO'S ACTION IN INCLUDING THE 'OTHER INCOME' OF RS. 40,99,066 (DETAILS GIVEN BELOW) AS PART OF THE 'TOTAL TURNOVER', WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT: SR. NO. NATURE OF INCOME CHENNAI UNIT AMT. (RS.) BARODA UNIT AMT. (RS.) TOTAL (RS.) ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 12 - D MISCELLANEOUS INCOME A) SCRAP INCOME 5,32,570 269,075 8,01,645 B) INCOME FROM SALE OF WOODEN SCRAP AND DRUM 0 10,088 10,088 C) DOCUMENTATION CHARGES 0 127,432 127,432 D) BAD DEBTS RECOVERED 0 68,829 68,829 E) SUNDRY BALANCES WRITTEN OFF 0 14,836 14,836 F) SERVICE CHARGES 0 19,13,441 19,13,441 G) INSURANCE ON LOCAL SALES 0 11,124 11,124 H) OCTROI SALES 0 3,000 3,000 I) OTHERS 1,46,680 0 1,46,680 TOTAL 6,79,250 24,17,825 30,97,075 2) EXCHANGE VARIATION (NET) 23,30,324 (13,28,333) 10,01,991 TOTAL 30,09,574 10,89,492 40,99,066 4.2 THE APPELLANT PRAYS THAT THE ADDITION OF 'OTHER INCOME' OF RS. 40,99,066 MADE TO THE TOTAL TURNOVER BE DELETED. 26. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER WHILE COMPUTING THE PROFITS OF THE BUSINESS FOR THE PURPO SES OF CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT EXCLUDED 9 0% OF MISCELLANEOUS INCOME OF RS.30,97,076/- AND EXCHANGE VARIATION OF RS.10,01,991/- IN VIEW OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT. HOWE VER, AT THE SAME TIME, THE LEARNED ASSESSING OFFICER INCLUDED THE MISCELLA NEOUS INCOME AND EXCHANGE VARIATION INCOME IN THE TOTAL TURNOVER. TH E ASSESSEE SUBMITTED THAT EXCLUDING MISCELLANEOUS INCOME AND EXCHANGE VARIATI ON AND INCLUDING THE SAME IN THE TURNOVER LEADS TO ABSURD RESULT CONSIDE RING THAT THERE WILL BE DISPARITY BETWEEN THE NUMERATOR (PROFIT OF THE BUSI NESS ) AND DENOMINATOR (TOTAL TURNOVER) OF THE FORMULA. THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HELD THAT MISCELLANEOUS INCOME HAVE TO BE TREATED AS A PART OF BUSINESS INCOME AND THEREFORE ARE INCLUDED IN THE TOTAL INCOME ALSO AS THE ARISE OUT OF THE BUSINESS ACTIVITY. HE ALSO HELD THAT THE AMOUNT OF EXCHANGE VARIATION IS DIRECTLY LINKED TO EXPORT OF GOODS AND THEREFORE, WAS RIGHTLY TREAT ED AS A PART OF THE TOTAL TURNOVER. ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 13 - 27. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 28. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND TH AT THE LOWER AUTHORITIES INCLUDED EXCHANGE FLUCTUATION GAIN OF RS.10,01,991/ - AND MISCELLANEOUS INCOME OF RS.30,97,076/- IN THE TOTAL TURNOVER OF T HE ASSESSEE WHILE COMPUTING THE DEDUCTION ALLOWABLE UNDER SECTION 80H HC ON THE GROUND THAT THESE WERE PART OF THE ASSESSEES BUSINESS INCOME. THE ONLY CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE B EFORE US WAS THAT AS THESE RECEIPTS DO NOT FORM PART OF NUMERATOR IT SHA LL BE ALSO EXCLUDED FROM THE DENOMINATOR TO BRING BOTH IN PARITY. WE FIND THAT THE NUMERATOR REPRESENTS EXPORT TURNOVER AND DENOMINATOR REPRESENTS TOTAL TU RNOVER. THUS, IF SIMILAR EXCHANGE FLUCTUATION GAIN AND MISCELLANEOUS INCOME RELATING TO EXPORT TURNOVER, IF WAS EXCLUDED FROM THE EXPORT TURNOVER THEN ONLY THE ASSESSEES SUBMISSION THAT PARITY DEMANDS THAT SIMILAR RECEIP TS SHOULD ALSO BE EXCLUDED FROM THE DENOMINATOR WOULD HAVE BEEN LOGICAL. AS N UMERATOR REPRESENTS EXPORT TURNOVER AND DENOMINATOR REPRESENT TOTAL TUR NOVER OF THE BUSINESS NATURALLY DENOMINATOR WILL HAVE MORE ELEMENT THAN T HE NOMINATOR. WE FIND THAT THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE HAS NOT BEEN ABLE TO BRING ANY MATERIAL BEFORE US TO SHOW THAT THE M ISCELLANEOUS INCOME OR EXCHANGE FLUCTUATION WERE NOT A RECEIPT OF THE BUSI NESS. WE THEREFORE, DO NOT FIND ANY GOOD REASON FOR WHICH THIS BUSINESS RECEI PTS COULD BE EXCLUDED FROM THE TOTAL TURNOVER OF THE ASSESSEE FOR COMPUTING EX PORT DEDUCTION ALLOWABLE UNDER SECTION 80HHC OF THE ACT. THEREFORE, THIS GRO UND OF APPEAL OF THE ASSESSEE IS REJECTED. 29. GROUND NO.5.1 OF THE APPEAL OF THE ASSESSEE REA DS AS UNDER:- ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 14 - 5.1 THE CIT(A) HAS ERRED IN LAW AND IN FACTS O F THE CASE, IN UPHOLDING THE AO'S ACTION OF INCLUDING THE MANUFACTURED EXPOR T TURNOVER OF RS. 15,17,95,464 (PERTAINING TO 10B UNIT) TO THE 'TOTAL TURNOVER' FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80 HHC OF THE ACT. 30. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR, THE ASSESSEE EXPORTED GOODS FROM ITS TWO UNITS OUT OF CHENNAI UN IT IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80HHC. AS REGARD THE EXPORT FROM BARODA UNIT DEDUCTION UNDER SECTION 80HHC HAD BEEN CLAIMED. DUR ING THE ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER ASKED TH E ASSESSEE TO EXPLAIN WHY THE EXPORT TURNOVER OF 10B UNIT SHOULD NOT BE INCL UDED IN THE TOTAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AVAILABLE TO BARODA UNIT. THE ASSESSEE SUBMITTED THAT MANUFACTURED EXPO RT TURNOVER OF RS.15,17,95,464/-PERTAINING TO 10B UNIT SHOULD ALSO BE INCLUDED IN EXPORT TURNOVER AND LOCAL TURNOVER FOR COMPUTING THE DEDUC TION UNDER SECTION 80HHC OF THE ACT. HOWEVER, THE LEARNED ASSESSING OF FICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE WITHOUT GIVING ANY REASON AND ONLY ADDED THE EXPORT TURNOVER OF 10B UNIT OF RS.15,17,95,464/- TO THE TO TAL TURNOVER FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN AP PEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE PROVISIONS OF SECTION 80HHC ARE EXPLICIT ON THE ISSUE THAT FOR TH E PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC THE EXPORT TURNOVER H AS TO BE ONLY THAT EXPORT TURNOVER TO WHICH SECTION 80HHC APPLIES. THE CONTEN TION OF ASSESSEE THAT EXPORT TURNOVER SHOULD ALSO BE INCLUDED THE TURNOVE R OF THE UNIT TO SECTION 10B APPLIES. 31. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SHIVAGAMI MATCH INDUSTRIES (2009) 24 DTR (MAD) 209 WHEREIN IT WAS HELD THAT ASSESSEE HAVING MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR EXPORT BUSINESS AND L OCAL BUSINESS, DEDUCTION UNDER S. 80HHC IS TO BE COMPUTED ON THE BASIS OF TO TAL TURNOVER, EXPORT ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 15 - TURNOVER AND PROFITS OF THE BUSINESS OF THE EXPORT DIVISION ALONE AND NOT THE TOTAL TURNOVER AND THE PROFITS OF THE ENTIRE BUSINE SS OF THE ASSESSEE. HE ALSO RELIED ON THE DECISION OF AHMEDABAD BENCH OF THE TR IBUNAL IN THE CASE OF JAYANTILAL J. SONI VS. ITO (1999) 63 TTJ (AHD) 661 WHEREIN IT WAS HELD THAT ASSESSEE IS ENTITLED TO BENEFIT OF S. 80HHC IN RESP ECT OF ENTIRE INCOME OF ITS UNIT WHICH IS EXCLUSIVELY ENGAGED IN EXPORT BUSINES S AND THERE IS NO QUESTION OF COMPUTATION OF INCOME FROM EXPORT BUSINESS BASED ON TOTAL TURNOVER UNDER CL. (B) OF SUB-S. (3) OF S. 80HHC. 32. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT THE UNIT WHICH IS ELIGI BLE FOR DEDUCTION UNDER SECTION 10B BEING A SEPARATE UNIT ITS TURNOVER SHOU LD NOT HAVE BEEN INCLUDED WITH THE TURNOVER OF THE OTHER UNIT IN WHICH DEDUCT ION ALLOWABLE UNDER SECTION 80HHC IS COMPUTED. IN SUPPORT OF THIS CLAIM, THE AS SESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN TH E CASE OF CIT VS. SHIVAGAMI MATCH INDUSTRIES (2009) 24 DTR (MAD) 209 WHEREIN IT WAS HELD THAT ASSESSEE HAVING MAINTAINED SEPARATE BOOKS OF A CCOUNT FOR EXPORT BUSINESS AND LOCAL BUSINESS, DEDUCTION UNDER S. 80H HC IS TO BE COMPUTED ON THE BASIS OF TOTAL TURNOVER, EXPORT TURNOVER AND PR OFITS OF THE BUSINESS OF THE EXPORT DIVISION ALONE AND NOT THE TOTAL TURNOVER AN D THE PROFITS OF THE ENTIRE BUSINESS OF THE ASSESSEE. FROM THE FACTS BEFORE US, IT IS NOT CLEAR WHETHER THE ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT O F THE TWO UNITS OR NOT. IN THE CIRCUMSTANCE IN OUR CONSIDERED OPINION, IT SHAL L BE JUST AND FAIR TO REMIT THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR PROPER VERIFICATION. THE LEARNED ASSESSING OFFICER IS DIR ECTED TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE DECISION OF THE MADRA S HIGH COURT IN THE CASE ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 16 - OF CIT VS. SHIVAGAMI MATCH INDUSTRIES (2009) 24 DTR (MAD) 209. AFTER PROPER VERIFICATION AND AFTER ALLOWING REASONABLE O PPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. 34. GROUND NO.5.2 OF THE APPEAL OF THE ASSESSEE REA DS AS UNDER: 5.2 WITHOUT PREJUDICE TO THE ABOVE, IF THE CIT( A) ACTION IS UPHELD, THEN ON LIKE TO LIKE BASIS, THE MANUFACTURED EXPORT TURNOVER OF RS. 15,17,95,464 SHOULD BE ALSO INCLUDED IN THE EXPORT TURNOVER' (WHICH IS THE NUMERATOR) FOR THE PURPOSE OF CALCULATING THE D EDUCTION AVAILABLE UNDER SECTION 80HHC OF THE ACT. 35. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GROUND OF APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. 36 GROUND NO.6. OF THE APPEAL OF THE ASSESSEE READS AS UNDER:- 6.1 THE CIT(A) HAS ERRED IN LAW AND IN FACTS O F THE CASE IN UPHOLDING THE AO'S ACTION IN CHARGING INTEREST OF RS. 1,88,07 2 UNDER SECTION 234D OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE REFU ND (ON WHICH INTEREST HAS BEEN CHARGED) WAS GRANTED TO THE APPELLANT ON MAY 30, 2003, WHICH IS BEFORE THE INSERTION OF PROV ISIONS OF SECTION 234D OF THE ACT WITH EFFECT FROM JUNE 1, 2003. 6.2 THE CIT(A) HAS ERRED IN LAW IN IGNORING THE GENERAL INTERPRETATION THAT THE PROVISIONS OF SECTION 234D ARE SUBSTANTIVE IN NATURE AND NOT PROCEDURAL. THEREFORE, INTEREST UNDER SECTION 234D OF THE ACT CANNOT BE LEVIED IN RESPECT OF ASSESSMENT YEAR UNDER APPEAL. 6.3 THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELETE THE INTEREST CHARGED OF RS. 1,88,072. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. BOTH THE PARTIES AGREED THAT SINCE THE ASSESSMENT YEAR INVOLVED IN 2 002-03, THEREFORE, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. EKTA PROMOTE RS PVT. LTD. (2008) 113 ITA NO .981 & 1040/AHD/2006 M/S.TYCO VALVE & CONTROL INDIA PVT LTD. ASST.YEAR -2002-2003 - 17 - ITD 719 (DEL) (SB) WHEREIN IT WAS HELD THAT SEC. 23 4D INSERTED IN THE IT ACT, 1961, BY THE TAXATION LAWS (AMENDMENT) ACT, 2003, W .E.F. 1ST JUNE, 2003, BEING SUBSTANTIVE IN NATURE, HAS NO RETROSPECTIVE E FFECT, HENCE APPLICABLE FROM ASST. YR. 2004-05 ONLY; INTEREST UNDER S. 234D IS C HARGEABLE FROM ASST. YR. 2004-05 ONLY AND IT COULD NOT BE CHARGED FOR EARLIE R ASSESSMENT YEARS EVEN THOUGH REGULAR ASSESSMENTS FOR SUCH EARLIER ASSESSM ENT YEARS ARE FRAMED AFTER 1ST JUNE, 2003 OR REFUND IS GRANTED FOR THOSE YEARS AFTER THE SAID DATE. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENC H OF THE TRIBUNAL, WE DELETE THE INTEREST OF RS.1,88,072/-CHARGED UNDER S ECTION 234D OF THE ACT AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 38. IN THE RESULT, THE APPEAL OF REVENUE AS WELL AS THAT OF THE ASSESSEE BOTH ARE PARTLY ALLOWED IN THE MANNER INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE H EARING IN THE PRESENCE OF THE PARTIES ON 10/12/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 10/12/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-III, BARODA. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD