The ACIT, Vapi Circle, Vapi. V. Hindustan Inks & Resins Ltd., Vapi.

ITA 1483/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5838 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-06-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 05-05-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Assessee Lawyers: M K PATEL
• Keywords: Gift; Business income; Business expenditure; Question of law; Set aside
• Section: 43B; 80HHC; 80IA; 80HH; 143(2); 37; 6

Judgement Text

N THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1483 & 1508/AHD/2004 [ASSTT.YEAR: 2000-01] ACIT, VAPI CIRCLE, VAPI -VS- HINDUSTAN INKS & RESI NS LTD. INCOME TAX OFFICE, AJITNAGAR, [PRESENTLY KNOWN AS MICRO CHALA, VAPI INKS LTD.] PARISHRA, MUKTANAND MARG, CHALA, VAPI PAN NO.AAACH7063F M/S. MICRO INKS LIMITED -VS- ACIT, VAPI CIRCLE, VA PI (FORMERLY KNOWN AS VAPI M/S. HINDUSTAN INKS & RESINS MUKTANAND MARAG, CHALA, VAPI, GUJARAT (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA, SR-DR ASSESSEE BY: SHRI M.K. PATEL, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE CROSS APPEALS ONE BY REVENUE AND ANOTHER B Y ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APP EALS), VALSAD IN APPEAL NO.CAS(VLS)/79/02-03 DATED 24-02-2004. THE ASSESSME NT WAS FRAMED BY ACIT, VAPI CIRCLE U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 29-11-2002 FOR ASSESSMEN T YEAR 2000-01. FIRST WE WILL TAKE UP REVENUES APPEAL IN ITA NO.14 83/AHD/2004. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.12,61,299/- OUT OF TOTAL E XPENSES ON THIS ACCOUNT AT RS.63,06,498/- AND DISALLOWANCE COMES TO 1/5 TH OF THE TOTAL FOREIGN TRAVEL EXPENSES. ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 2 EVEN THOUGH THE ASSESSEE HAS FURNISHED THE DETAILS, THE ASSESSING OFFICER CONCLUDED THAT IT COULD NOT JUSTIFY THE NUMBER OF D AYS OF STAY ABROAD BY A PARTICULAR PERSON IS MAINLY FOR THE PURPOSE OF BUSINESS. ACCOR DINGLY, HE MADE DISALLOWANCE AND CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY OBS ERVING IN PARA-7 OF HIS APPELLATE ORDER, WHICH READS AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LEARNED COUNSEL, THE FINDING AND REMAND REPORT OF THE ASSESSING OFFICER AND THE RELEVANT DECISIONS RELIED UPON. THE ASSESSING OFFICER HAS NOT POINTED OUT WHI CH OF THE EXPENSES ARE NOT FOR THE PURPOSE OF BUSINESS. THE EXPENSES CAN N O BE DISALLOWED IN A SUMMARY MANNER. HE COULD NOT PROVE THE FOREIGN TRAV EL AS A PLEASURE TRIP. NOR HE COULD PROVE THAT THE EXPENDITURE WAS PERSONAL IN NATURE. I AGREE WIT THE FINDING GIVEN BY MY PREDECESSOR IN THE APPELLANTS OWN CASE FOR THE ASSTT. YEAR 1997-98 AND THE DISALLOWANCE ARE DELETED FOR T HE SAME REASONING. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 3. LD. COUNSEL FOR THE ASSESSEE STATED THAT CIT(A) HAS FOLLOWED ASSESSMENT YEAR 1997-98 AND TRIBUNAL IN ASSESSMENT YEAR 1997-98 IN ITA NO.700/AHD/2002 DATED 31-05-2007 HAS ALLOWED THE CLAIM OF ASSESSEE VIDE PARA-3 AS UNDER:- 3. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RI VAL SUBMISSIONS. IN ABSENCE OF ANY MATERIAL JUSTIFYING THE STAY BY DIRE CTORS FOR PERSONAL PURPOSES, NO DISALLOWANCE CAN BE MADE. PRIMA FACIE THE VISITS WERE FOR BUSINESS PURPOSES, AND THEREFORE, THE CIT(A) RIGHT IN ALLOWI NG THE SAME. EVEN NOW BEFORE US REVENUE COULD NOT JUSTIFYING THE DISALLOWANCE BY ANY COGENT MATERIAL THAT THE SAME WAS NOT FOR THE PURPOSE OF B USINESS AND THE ASSESSEE HAS FILED COMPLETE DETAILS REGARDING, VISITS, PURPOSE A ND NUMBER OF DAYS OF STAY BY ITS DIRECTORS. IT IS A FACT THAT THE STAY WAS BY THE D IRECTOR AND NOT BY ANY OTHER PERSON AND THAT ALSO FOR THE PURPOSES OF BUSINESS. IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A) ACCORDINGLY THI S ISSUE OF REVENUES APPEAL IS DISMISSED. 4. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF OIL AND PETROL EXPENSES AMOUNTING TO RS.11,47,189/-. LD. COUNSEL FOR ASSESSEE HAS REFERRED TO THE ORDER OF TRIBUNAL IN ITA NO.391/AHD/2003 FOR ASSESSMENT YEAR 1998-99 DATED 20- ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 3 07-2007, WHEREIN THE TRIBUNAL VIDE PARA-27 & 28 ALLOWED THE CLAIM OF ASSESSEE, WHICH READ AS UNDER:- 27. THE GROUND NOS. 3 AND 4 OF HE APPEAL ARE DIREC TED AGAINST THE ORDER OF THE LD. CIT(A) ALLOWING RELIEF TO HE ASSESSEE OUT O F 1/4 TH DISALLOWANCE ON ACCOUNT OF OIL AND PETROL EXPENSES OF DAMAN AND VA PI UNITS RESPECTIVELY. 28. THE FACTS OF THE CASE ARE THAT THE AO DISALLOWE D 1/4 TH OF THE EXPENSE INCURRED ON OIL AND PETROL ON ACCOUNT OF PERSONAL USE OF THE VEHICLES BY THE DIRECTOR SIN RESPECT OF DAMAN AND VAPI UNITS. IN AP PEAL, THE LD. CIT(A), FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO., 253 ITR 749, WHEREIN IT WAS HELD THAT THERE CANNOT BE A DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF A CAR B Y THE DIRECTOR IN THE HANDS OF THE COMPANY, DELETED THE DISALLOWANCES MADE BY T HE AO. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CONTRARY DECISION TO ONE RELIED UPON BY THE LD. CIT(A). HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THESE GROUNDS OF APPEA L OF THE REVENUE ARE DISMISSED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE NOTICED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE FACTS ARE EXACTLY IDENTICAL, WHAT WAS IN A SSESSMENT YEAR 1998-99, WHICH HAS BEEN FOLLOWED BY THE CIT(A) ALSO. THE TOTAL EXPENDI TURE DEBITED BY THE ASSESSEE ON ACCOUNT OF OIL AND PETROL EXPENSES WAS TO THE TUNE OF RS.60,48,300/- FOR DAMAN UNIT AND RS.1,87,645/- FOR VAPI UNIT AND THE ASSESSING O FFICER MADE THE DISALLOWANCE AT RS.11,11,660/- FOR DAMAN UNIT AND RS.35,529/- FOR V API UNIT. THE ASSESSING OFFICER HAS SIMPLY MENTIONED THAT THE PERSONAL USER OF VEHI CLES IS NOT RULED OUT BUT THIS OBSERVATION OF THE ASSESSING OFFICER IS WITHOUT ANY EVIDENCE OR BASIS. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION IN IMMEDIATE PREC EDING YEAR, WE DISMISS THE ISSUE OF REVENUES APPEAL. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF PRELIMINARY EXPENSES AMOUNTING TO RS.32,998/-. LD. COUNSEL FOR ASSESSEE HAS REFERRED TO THE ORDER OF TRIBUNAL IN ITA NO.391/AHD/2003 FOR ASSESSMENT YEAR 1998-99 DATED 20-07-2007, WHEREIN THE TRIBUNAL VIDE PARA-21 TO 24 ALLOWED THE CLAIM OF ASSESSEE, WHICH READ AS UNDER:- ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 4 21. IN THE REVENUES APPEAL, THE FIRST GROUND OF A PPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) ALLOWING THE DEDUCTION OF RS.32 ,998/- ON ACCOUNT OF PRELIMINARY EXPENSE. 22. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE CLAIMED DEDUCTION OF RS.32,998/- ON ACCOUNT OF PRELIMINARY EXPENSES. TH E AO DISALLOWED THE SAME ON PROTECTIVE BASIS ON THE GROUND TAT THE ASSE SSEE WAS NOT IN APPEAL AGAINST THE ASSESSMENT ORDER FOR THE ASSESSMENT YEA R 1993-94. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE FILED THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 1997-98 DATED 22.1.2001 IN APPEAL N O.CAS(1)/339/2000-01 DT. 22.01.2001 AND IN PARAGRAPH 3.1 OF THIS ORDER, THE CIT(A) DIRECTED THE AO TO ALLOW FULL CLAIM OF HE ASSESSEE AND RECTIFY THE ASSESSMENT ORDER ON THE BASIS OF THE ORDER OF THE TRIBUNAL IN THE APPEAL FI LED BY THE ASSESSEE. FOLLOWING THE SAID ORDER OF THE CIT(A), THE LD. CIT (A) IN THE PRESENT YEAR DIRECTED THE AO TO ALLOW FULL CLAIM OF THE ASSESSEE OF DEDUCTION OF THE PRELIMINARY EXPENSES. 23. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDER OF THE AO WHEREAS THE LD. AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE SUPPORTED THE ORDER OF THE CIT(A). 24. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL ON RECORD, WE FIND THAT TH E LD. CIT(A) HAD ALLOWED THE CLAIM FOR DEDUCTION OF PRELIMINARY EXPENSES OF RS.3 2,998/- FOLLOWING THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 1997-98 WHERE IN THE APPEAL OF THE ASSESSEE WAS ALLOWED FOLLOWING THE ORDER OF THE TRI BUNAL IN THE ASSESSEE OWN CASE. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY COGENT AND RELEVANT MATERIAL ON RECORD TO CONTROVERT THE F INDING OF THE LD. CIT(A). HENCE WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DI SMISSING THIS GROUND OF APPEAL OF THE REVENUE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE NOTICED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE FACTS ARE EXACTLY IDENTICAL, WHAT WAS IN A SSESSMENT YEAR 1998-99, WHICH HAS BEEN FOLLOWED BY THE CIT(A) ALSO. RESPECTFULLY FOLL OWING THE TRIBUNALS DECISION IN IMMEDIATE PRECEDING YEAR, WE DISMISS THE ISSUE OF R EVENUES APPEAL. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AS R EGARDS TO CLAIM OF DEDUCTION U/S.80HHC OF THE ACT, WHETHER MISCELLANEOUS RECEIPT S AND SALE OF SCRAPE ARE TO BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/S. 80HHC O F THE ACT FROM THE TOTAL INCOME OF THE ASSESSEE, AMOUNTING TO RS.25,26,946/- AND RS .43,91,859/-. THE FOLLOWING MISCELLANEOUS RECEIPTS AND SALE OF SCRAPE ARE CONSI DERED FOR DEDUCTION U/S.80HHC OF THE ACT BY THE CIT(A):- I) SUNDRY BALANCE WRITTEN OFF RS.1,07,715/-, ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 5 II) SALES ROUNDING OFF RS.7,295/-, III) DISCOUNT RECD. FROM SUPPLIERS RS.54,793/-, IV) AMOUNT RECEIVED RS.91,900/- HIS AMOUNT IS ALREA DY REDUCED BY ASSESSEE WHILE CLAIMING 80HHC, V) INCOME FROM WIND POWER GENERATION RS.8,79,053/-. THIS AMOUNT I ALREADY EXCLUDED WHILE CLAIMING 80HHC, VI) SALES TAX REFUND RS.1,58,032/- DIRECT NEXUS WIT H BUSINESS AND MANUFACTURE, VII) AMOUNT RECD. FOR TERMINATION OF CONTRACT RS.12 ,05,462/-, VIII) INSURANCE CLAIM OF RS.22,673/-, RECD. FOR DAM AGE TO RAW MATERIALS. IX) SALE OF SCRAPE RS.43,91,859/- 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSU E AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AS REGARDS TO SUNDR Y BALANCES WRITTEN OFF AMOUNTING TO RS.1,07,715/-, THE SALES ROUNDING OFF OF RS.7,29 5/-, DISCOUNT RECEIVED FRO SUPPLIERS AMOUNTING TO RS.54,7053/-, SALES TAX REFUND AMOUNTI NG TO RS.1,58,032/- AND INSURANCE CLAIM OF RS.22,673/- THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THESE ARE DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSE E AND ARE EMANATING OUT OF THE BUSINESS PROFITS EARNED FROM MANUFACTURING AND EXPO RT PROFITS. ACCORDINGLY, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THESE AMOUNTS ARE NOT TO BE EXCLUDED FROM THE BUSINESS PROFIT U/S. CLAUSE (BAA) OF SEC. 80HHC OF THE ACT WHILE COMPUTING BUSINESS PROFIT. WE FIND THAT THE CIT(A) HAS INCLUDED THESE ITEMS IN THE BUSINESS PROFIT AS THESE ARE RELATED TO EXPORT PROFITS OF THE ASSESSEE AND IN NO WAY THESE CAN BE EXCLUDED UNDER CLAUSE (BAA) OF SEC. 80HHC OF THE AC T. WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE AND PR OFIT EARNED BY THE ASSESSEE ON THESE ITEMS AS A BUSINESS PROFIT ELIGIBLE FOR DEDUC TION UNDER SECTION 80HHC OF THE ACT. ACCORDINGLY, THE ORDER OF CIT(A) ON THESE ITEM S IS UPHELD. 10. AS REGARDS TO THE CLAIM OF DEDUCTION U/S.80HHC ON ACCOUNT OF INCOME FROM WIND POWER GENERATION AMOUNTING TO RS.8,79,053/- AN D AMOUNT RECEIVED OF RS.91,900/-, THE LD. COUNSEL FOR THE ASSESSEE CLEAR LY STATED THAT THE ASSESSEE WHILE COMPUTING DEDUCTION U/S.80HHC HAS ALREADY EXCLUDED THIS AMOUNT AND THIS CANNOT BE EXCLUDED ONCE MORE. WE FIND FORCE IN THE ARGUME NT OF THE LD. COUNSEL FOR THE ASSESSEE AND FOR THE LIMITED PURPOSE OF VERIFICATIO N, WHETHER THE ASSESSEE HAS ALREADY EXCLUDED THIS AMOUNT FROM THE BUSINESS PROF ITS FOR COMPUTATION OF DEDUCTION ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 6 U/S.80HHC OF THE ACT OR NOT, WE SEND THIS TO THE FI LE OF THE ASSESSING OFFICER, WHO WILL VERIFY THE SAME. THIS ISSUE OF THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 11. AS REGARDS TO THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT ON THE AMOUNT RECEIVED FROM TERMINATION OF CONTRACT I.E. CONTRACT UAL REIMBURSEMENT OF LOSS OF PROFIT RECEIVED BY ASSESSEE-COMPANY, THE REVENUE HAS CAME IN APPEAL BEFORE US AGAINST THE ORDER OF CIT(A). WE FIND THAT THE ASSESSEE-COM PANY HAS RECEIVED COMPENSATION FROM M/S. AKZO NOBLE AMOUNTING TO RS.12,05,462/- FO R TERMINATION OF CONTRACT AS LOSS FOR BUSINESS PROFIT WHICH THE ASSESSEE-COMPANY HAS EARNED OTHERWISE. WE FIND THAT THE FOREIGN PARTY HAS ASSURED THE ASSESSEE A R ETURN BY WAY OF ASSURED PROFIT. THE PURCHASER HAS AGREED THAT A FIXED QUANTITY OF P RODUCTS WILL BE PURCHASED AT A FIXED PRICE AND ASSURED PROFIT WILL BE PROVIDED TO THE ASSESSEE. THE PURCHASER COULD NOT FULFILL HIS COMMITMENT AS PER THE AGREEMENT, AS THE ABOVE COMPANY WAS SUPPOSED SOME GUARANTEED MINIMUM QUANTITY AND WAS A LSO LIABLE TO PAY REIMBURSE EQUIVALENT PROFIT TO THE ASSESSEE-COMPANY IN CASE O F FAILURE TO PURCHASE THE AGREED MINIMUM QUANTITY. THIS IS NOT A CASE OF COMPENSATI ON OF LOSS OR NON-COMPETITION PAYMENT. THE ASSESSEE HAS RECEIVED FOREIGN EXCHANG E FOR THIS PAYMENT AND THIS IS A BUSINESS PROFIT. THIS FACT HAS NOT BEEN DISPUTED BY THE LOWER AUTHORITIES. FOR THE PURPOSES OF WORKING OUT THE FORMULA AND IN ORDER TO AVOID DISTORTION IN ARRIVING AT THE EXPORT PROFIT CLAUSE (BAA) STOOD INSERTED IN SECTIO N 80HHC, TO SAY THAT ALTHOUGH INCENTIVE PROFITS AND INDEPENDENT INCOME CONSTITUTE D PART OF A GROSS TOTAL INCOME, BUT THEY HAD TO BE EXCLUDED FROM GROSS TOTAL INCOME BEC AUSE SUCH RECEIPTS HAD NO NEXUS WITH THE EXPORT TURNOVER. BUT IN THE PRESENT CASE, THE FOREIGN EXCHANGE RECEIVED BY THE ASSESSEE FROM THE FOREIGN PURCHASER ON AN AGREED GUARANTEED MINIMUM PROFIT. THIS IS A BUSINESS PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THIS PROFIT DOES NOT CALL FOR INVOCATI ON OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. ACCORDINGLY, THIS ISSUE O F THE REVENUES APPEAL IS DISMISSED. 12. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS AS REGARDS TO EXCLUSION OF THE AMOUNT OF RS.43,91,859/- ON ACCOUNT OF SALE OF SCRA P WHILE COMPUTING DEDUCTION U/S.80HHC OF THE ACT. AT THE OUTSET, THE LD. COUNS EL FOR THE ASSESSEE STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 7 DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.972/AHD/2005 FOR THE ASSESSMENT YEAR 1999-00 DATED 17-07-2009. WE FIND THAT EVEN THE CIT(A) HAS GIVEN A FINDING THAT SCRAP SALE IS DIRECTLY RELATAB LE TO BUSINESS INCOME OF THE ASSESSEE AND THE SCRAP IS NATURAL OUTCOME OF THE MA NUFACTURING PROCESS. ACCORDING TO CIT(A), THIS SCRAP SALE IS DIRECTLY RELATABLE TO BUSINESS PROFIT OF THE ASSESSEE OF EXPORTS AND ACCORDINGLY ALLOWABLE. WE ARE IN AGREE MENT WITH THE FINDING OF CIT(A) ON THIS ISSUE AND WE CONFIRM THE ORDER OF CIT(A). T HIS ISSUE OF THE REVENUES APPEAL IS DISMISSED. 13. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DIRECTING TO EXCLUDE THE EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER WHILE COMPUTING U/S.80HHC OF THE ACT. 14. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE ARG UED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE APEX COURT IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC), WHEREIN THE HONBLE APEX COURT HAS HELD AS UNDER:- IN FACT, IN CIVIL APPEAL NO.4409 OF 2005, THE ABOV E PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER [SEE : PAGE NO.24 OF THE PAPER BOOK], IF SO, THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PAR T OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3), OTHERWISE THE FORMULA BECOM ES UNWORKABLE. IN OUR VIEW, SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE AN Y ELEMENT OF TURNOVER WHICH IS THE POSITION EVEN IN THE CASE OF RENT, COM MISSION, INTEREST ETC., IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALE S TAX ARE INDIRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. THEREFORE, IF THEY ARE MADE RELATABLE TO EXPORTS, THE FORMULA UNDER SECTION 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HAVE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HHC FROM TIME TO TIME. RESPECTFULLY FOLLOWING THE HONBLE APEX COURT, WE C ONFIRM THE ORDER OF CIT(A) AND THIS ISSUE OF THE REVENUES APPEALS IS DISMISSED. 15. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AS REGARDS TO THE ORDER OF CIT(A) IN DIRECTING NOT TO EXCLUDE THE FOLLOWING FOR THE C LAIM OF DEDUCTION U/S.80IA OF THE ACT I) MISCELLANEOUS RECEIPTS AMOUNTING TO RS.25,26 ,946/- II) SCRAP SALES AMOUNTING TO RS.43,91,889/- ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 8 16. AT THE OUTSET, LD. COUNSEL FOR ASSESSEE REFERRE D THAT THIS ISSUE IS SQUARELY COVERED IN ASSESSEES OWN CASE IN ITA NO.972/AHD/2005 DATED 17-07-2009 FOR ASSESSMENT YEAR 1999-00 IN PARA-20 TO 22 , WHICH READ AS UNDER:- 20. GROUND NO.5 OF THE APPEAL READS AS UNDER:- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INCOME FROM SALE OF S CRAP AMOUNTING TO RS.28,61,124/- AND EXPORT BENEFIT RECEIVABLES AMOUN TING TO RS.22,91,731/- WILL BE INCLUDED WHILE WORKING OUT THE PROFITS ELIG IBLE FOR DEDUCTION U/S. 80HHC & 80IA WITHOUT CONSIDERING THE RATIO LAID DOWN BY T HE HONBLE APEX COURT IN THE CASE OF CIT VS. STERLING FOODS 237 ITR 579 ON T HE ISSUE. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE CIT(A) HAS DIRECTED NO TO EXCLUDE THE INCOME FROM SALE OF SCRAP AMOUNTI NG TO RS.28,261,124/- AND EXPORT BENEFIT RECEIVABLE AMOUNTING TO RS.22,91 ,731/- WILE WORKING OUT THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT. THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE RELYING UPON THE DECISION OF THE I.T.A.T. AHMEDABAD BENCH IN THE CASE OF UNITED PHOSPHOROUS V. JOINT CI T (2002) 81 ITD 553 (AHD.). 22. AFTER HEARING THE LD. REPRESENTATIVE OF BOTH TH E PARTIES, WE FIND THAT THE ASSESSEE CLAIMED DEDUCTION U/S.80IA OF THE ACT IN R ESPECT OF THE FOLLOWING INCOME: I) INCOME FROM SALE OF SCRAP RS.28,61,124/- II) EXPORT BENEFIT RECEIVABLE RS.22,91,731/- THE ISSUE REGARDING CLAIM OF DEDUCTION U/S.80IA OF THE ACT ON ACCOUNT OF SALE OF SCRAP IS SQUARELY COVERED IN FAVOUR OF HE ASSESS EE AND AGAINST THE REVENUE BY THE DECISION OF I.T.A.T. AHMEDABAD BENCH DATED 01.02.2008 IN THE CASE OF ACIT VAPI CIRCLE V. PLOYCOM ASSOCIATE, DAMAN IN ITA NO.3801/AHD/2003 RELATING TO ASSESSMENT YEAR 2005-06. THE TRIBUNAL VIDE PARA 6 AND 7 OF THE ORDER HELD AS UNDER:- 6. THE NEXT GROUND IN THIS APPEAL OF THE REVENUE I S AS REGARDS TO CLAIM OF DEDUCTION U/.80IB ALLOWED BY THE CIT ON ACCOUNT OF ALE CRAP. HAVING HEARD RIVAL CONTENTION AND GOING THROUGH THE CASE R ECORDS IT IS NOTICED THE ISSUE OF CRAP SALE IS SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT V. MADRAS MOORS/M.M. FORGINGS (2002) 257 ITR 60 AS UNDER:- ONCE THIS SITUATION IS CLEAR, THERE WOULD BE NO SC OPE FOR ACCEPTING THE ARGUMENT OF THE REVENUE HAT THE TOTAL TURNOVER OF BUSINESS WOULD INCLUDE EVEN THE TURNOVER OF GOODS W HICH ARE OUTSIDE THE SCOPE OF CLAUSE (A) SUB-SECTION (2). HE NCE, WE ARE OF THE CLEAR OPINION THAT THE TURNOVER FROM THE BUS INESS OF SALE OF MOTORCYCLES MOTORCYCLE SPARE PARTS, TELEVISION SETS CANNOT BE INTRODUCED TO INFLATE THE TOTAL TURNOVER ARTIFICIAL LY IN ORDER TO REDUCE THE BENEFIT WHICH THE ASSESSEE IS ENTITLED T O. THAT WOULD ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 9 BE CLEARLY GOING AGAINST THE OBJECT OF SECTION 80HH C WHICH IS SOLELY TO ENCOURAGE THE EXPORTS. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE MADR AS HIGH COURT, WE DECIDE THIS ISSUE AGAINST THE REVENUE. IN VIEW OF THE DECISION OF THE TRIBUNAL (SUPRA), WE HOLD THAT THE CIT(A) WAS JUSTIFIED IN MAKING DEDUCTION U/S.80IA IN RESPECT O F INCOME FROM SALE OF SCRAP AMOUNTING TO RS.28,61,124/-. WE ALSO HOLD THAT THE CIT(A) WAS JUSTIFIED IN HOLDING THAT DEDUCTION U/.S 80IA IS ADMISSIBLE IN R ESPECT OF EXPORT BENEFIT RECEIVABLE AMOUNTING TO RS.22,91,731/-. IN VIEW OF THE DECISION OF I.T.A.T. AHMEDABAD BENCH IN THE CASE OF UNITED PHOSPHROUS LT D. V. JOINT CIT (2002) 81 ITD 553 (AHD.). 17. WE FIND THAT THE ISSUE OF SCRAP SALE AND MISCEL LANEOUS RECEIPTS FOR THE CLAIM OF DEDUCTION U/S.80IA OF THE ACT IS COVERED IN FAVO UR OF THE ASSESSEE, IN ASSESSEES OWN CASE AS MENTIONED ABOVE. HOWEVER, IT IS TO BE MENTIONED THAT THE DEDUCTION U/S.80IA IS SUBJECT TO RESTRICTIONS U/S.80IA(9) OF THE ACT AND THIS WILL BE RESTRICTED AND WILL NOT BE OUT OF THE GROSS TOTAL INCOME BUT AFTER THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT. ONE MORE QUALIFICATION TO DEDUCTION UNDER SECTION 80IA OF THE ACT IS IN RESPECT TO AMOUNT RECEIVED OF RS.91,900/- AND INCOM E FROM WIND POWER GENERATION AMOUNTING TO RS.8,79,053/-, THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ADMITTED THAT THESE AMOUNTS HAVE ALREADY BEEN REDUCED BY THE ASSESSEE AND NOW THE ASSESSING OFFICER NEED NOT TO REDUCE AGAIN AND HE C ONCEDED THESE ISSUES. WE ARE OF THE VIEW THAT THESE ISSUES THE ASSESSING OFFICER WILL VERIFY WHETHER THE ASSESSEE HAS REDUCED FROM THE ACCOUNTS ITSELF OR NOT. IN CA SE THE ASSESSEE HAS REDUCED ITSELF, HE NEED NOT TO REDUCE AGAIN AND WILL DECIDE AFTER V ERIFICATION. THIS ISSUE OF THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. 18. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN HOLDING THAT SP UNIT IS ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT THIS GR OUND RAISED BY THE REVENUE DOES NOT ARISE FROM THE ORDER OF THE ASSESSING OFFICER O R CIT(A), HENCE THE SAME NEEDS NO ADJUDICATION. THE LEARNED SR. DR ALSO FAIRLY AG REED. WE FIND FROM THE RECORDS THAT THESE GROUNDS RAISED BY THE REVENUE IS NOT ARI SING OUT OF THE ORDERS OF THE LOWER AUTHORITIES, HENCE THE SAME IS DISMISSED AS INFRUCT UOUS. NOW COMING TO ASSESSEES APPEAL IN ITA NO. 1508/200 4 ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 10 19. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED FIRST TWO ISSUES IN THIS APPEAL OF ASSESSEE, HENCE, WE DISMISS THE SAME AS NOT PRESSED. 20. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISAL LOWING CONTRIBUTIONS TO THE TUNE OF RS.16,15,647/- TO PF/ESI. 21. WE FIND THAT THE ISSUE OF EMPLOYEES CONTRIBUTI ON HAS BEEN CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. P.M. ELECTRONICS LTD. (2008) 220 CTR 635 (DEL), WHEREIN THE HON'BLE DELHI HIGH COURT HAS DISCUSSED IN PARA-4 AS UNDER:- 4. ON 27 TH NOV., 1998 THE ASSESSEE HAD FILED A RETURN OF INCO ME DECLARING A LOSS OF RS.8,92,888. ON 11 TH MAY, 1999 THE RETURN WAS PROCESSED UNDER S. 143(1)(A) OF THE ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, A NOTICE DT. 27 TH SEPT., 1999 UNDER S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE NOTICE A ND ON EXAMINATION OF THE DETAILS SUBMITTED BY THE ASSESSEE WITH RESPECT TO P ROVIDENT FUND PAYMENTS MADE BOTH ON ACCOUNT OF EMPLOYERS AND EMPLOYEES S HARE REVEALED THAT PAYMENTS IN THE SUM OF RS.17,94,042 WERE LATE AS PE R THE PROVISIONS OF S. 36(1)(VA) R.W S. 2(24)(X) AND S. 43B. CONSEQUENTLY , THE AO DISALLOWED THE DEDUCTION AND ADDED A SUM OF RS.17,94,042 TOWARDS E PF CONTRIBUTION. AND SUBSEQUENTLY DECIDE THIS ISSUE IN PARA-10 TO 14 OF HON'BLE DELHI HIGH COURT, WHICH READ AS UNDER:- 10. IN VIEW OF THE ABOVE, IT IS QUITE EVIDENT THAT THE SPECIAL LEAVE PETITION WAS DISMISSED BY A SPEAKING ORDER AND WHILE DOING SO TH E SUPREME COURT HAD NOTICED THE FACT THAT THE MATTER IN APPEAL BEFORE I T PERTAINS TO A PERIOD PRIOR TO THE AMENDMENT BROUGHT ABOUT IN S. 43B OF THE ACT. T HE AFORESAID POSITION AS REGARDS THE STATE OF THE LAW FOR A PERIOD PRIOR TO THE AMENDMENT TO S. 43B HAS BEEN NOTICED BY A DIVISION BENCH OF THIS COURT IN DHARMENDRA SHARMA (SUPRA) . APPLYING THE RATIO OF THE DECISION OF THE SUPREME COURT IN VINAY CEMENT (SUPRA) A DIVISION BENCH OF THIS COURT DISMISSED T HE APPEALS OF THE REVENUE. IN THE PASSING WE MAY ALSO NOTE THAT A DIV ISION BENCH OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS. NEXUS COMPUTER (P) LTD. BY A JUDGMENT DT. 19 TH AUG., 2008, PASSED IN TAX CASE (APPEAL) NO.1192/20 08 [REPORTED AT (2008) 219 CTR (MAD.) 54 ED.] DISCUS SED THE IMPACT OF BOTH THE DISMISSAL OF THE SPECIAL LEAVE PETITION IN THE CASE OF GEORGE WILLIAMSON (ASSAM) LTD. (SUPRA) AND VINAY CEMENT (SUPRA) AS WELL AS A CONTRARY VIEW OF THE DIVISION BENCH OF ITS OWN COURT IN SYNERGY FINANCIAL EXCHANGE (SUPRA). THE DIVISION BENCH OF THE MADRAS HIGH COURT HAS EXP LAINED THE EFFECT OF THE DISMISSAL OF A SPECIAL LEAVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF KUNHAYAMMED & ORS.VS. STATE OF KERALA & ANR. (2000) 162 CTR (SC) 97: 119 STC 505 AT P. 526 IN PARA 40 AND NOTED THE FOLLOWING OBSERVATIONS : ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 11 IF THE ORDER REFUSING LEAVE TO APPEAL IS A SPEAKIN G ORDER, I.E., GIVES REASONS FOR REFUSING THE GRANT OF LEAVE, THEN THE O RDER HAS TWO IMPLICATIONS. FIRSTLY, THE STATEMENT OF LAW CONTAIN ED IN THE ORDER IS A DECLARATION OF LAW BY THE SUPREME COURT WITHIN THE MEANING OF ART. 141 OF THE CONSTITUTION. SECONDLY, OTHER THAN THE DECLA RATION OF LAW, WHATEVER IS STATED IN THE ORDER ARE THE FINDINGS RE CORDED BY THE SUPREME COURT WHICH WOULD BIND THE PARTIES THERETO AND ALSO THE COURT. TRIBUNAL OR AUTHORITY IN ANY PROCEEDINGS SUB SEQUENT THERETO BY WAY OF JUDICIAL DISCIPLINE, THE SUPREME COURT BEING THE APEX COURT OF THE COUNTRY. BUT, THIS DOES NOT AMOUNT TO SAYING TH AT THE ORDER OF THE COURT. TRIBUNAL OR AUTHORITY BELOW HAS STOOD MERGED IN THE ORDER OF THE SUPREME COURT REJECTING SPECIAL LEAVE PETITION OR T HAT THE ORDER OF THE SUPREME COURT IS THE ONLY ORDER BINDING AS RES JUDICATA IN SUBSEQUENT PROCEEDINGS BETWEEN THE PARTIES. 11. UPON NOTING THE OBSERVATIONS OF THE SUPREME COU RT IN KUNHAYAMMED & ORS. (SUPRA) THE DIVISION BENCH OF THE MADRAS HIGH COUR T IN THE CASE OF NEXUS COMPUTER (P) LTD. (SUPRA) CAME TO THE CONCLUSION THAT THE VIEW TAKEN BY THE SUPREME COURT IN VINAY CEMENT (SUPRA) WOULD BIND THE HIGH COURT AS IT WAS LAW DECLARED BY THE SUPREME COURT UNDER ART. 141 OF THE CONSTITUTION. 12. WE ARE IN RESPECTFUL AGREEMENT WITH THE REASONI NG OF THE MADRAS HIGH COURT IN NEXUS COMPUTER (P) LTD. (SUPRA). JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE VIEW OF THE SUPREME COURT IN VINAY CEMEN T (SUPRA) AS ALSO THE VIEW OF THE DIVISION BENCH OF THIS COURT IN I DHARM ENDRA SHARMA (SUPRA). 13. IN THESE CIRCUMSTANCES, WE RESPECTFULLY DISAGRE E WITH THE APPROACH ADOPTED BY A DIVISION BENCH OF THE BOMBAY HIGH COUR T IN PAMWI TISSUES LTD. (SUPRA). 14. IN THESE CIRCUMSTANCES INDICATED ABOVE, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDER ATION IN THE PRESENT APPEAL. THE APPEAL IS, THUS, DISMISSED. 22. WE FIND THAT THE HON'BLE DELHI HIGH COURT IN TH E CASE OF P.M. ELECTRONICS LTD. (SUPRA) HAS DECIDED THIS ISSUE OF PAYMENT OF EMPLOY EES CONTRIBUTION TOWARDS PROVIDENT FUND AFTER CONSIDERING THE DECISION OF HO N'BLE APEX COURT IN THE CASE OF VINAY CEMENT (SUPRA) AND ALSO DISTINGUISHED THE CASE LAW REFERRED BY TH E LD. DR OF BOMBAY HIGH COURT IN PAMWI TISSUES LTD. (SUPRA) . EVEN NOW THIS ISSUE HAS BEEN CONSIDERED BY HONBLE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) / (2009) 185 TAXMAN 416 (SC), WHER EIN, IT IS HELD THAT CONTRIBUTION TO PROVIDENT FUND, MADE BEFORE DUE DA TE OF FILING OF RETURN ALLOWABLE AS DEDUCTION. THE DELETION OF THE SECOND PROVISO TO SE CTION 43B, AND THE AMENDMENT TO THE FIRST PROVISO, BY THE FINANCE ACT, 2003 WAS TO OVERCOME IMPLEMENTATION PROBLEMS. CONSEQUENTLY, THE AMENDMENTS, THOUGH MADE APPLICABLE BY PARLIAMENT ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 12 ONLY WITH EFFECT FROM 1-4-2004, WERE CURATIVE IN NA TURE AND WOULD APPLY RETROSPECTIVELY W.E.F. 1-4-1988. ACCORDINGLY, FOLL OWING APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) AND DELHI HIGH COURT IN P.M. ELECTRONICS LTD. (SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE. 23. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN NOT CONSIDERING THE EXPORT BENEFITS RECEIVABLE FOR DEDU CTION U/S.80-IA OF THE ACT. 24. AT THE OUTSET LD. COUNSEL FOR ASSESSEE STATED T HAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 AND 2001-2002 IN ITA NO. 972 AND 973 /AHD/2005 DATED 17-07- 2009. ON THE OTHER HAND THE LEARNED SR. DR STATED THAT THIS ISSUE IS NOW SETTLED BY HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA V C IT ( 2009) 317 ITR 218 (SC) WHEREIN THE HONBLE APEX COURT HAS STATED THAT DUTY DRAWBACK RECEIPTS /DUTY ENTITLEMENT PASS BOOK BENEFITS ARE ON ACCOUNT OF ST ATUTORY PROVISIONS IN CUSTOMS ACT/SCHEME(S) FRAMED BY GOVERNMENT, THEREFORE PROFI TS SO DERIVED DO NOT FORM PART OF NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR PURPOSES OF SECTIONS 80 IB, 80 I AND 80 IA. LD. SR. DR IN VIEW OF THE DECISION OF LIBERTY INDIA (SUPRA) STATED THAT NOW THE ISSUE IS SETTLED IN FAVOUR OF THE REVENUE AND A GAINST THE ASSESSEE. 25. AFTER HEARING THE RIVAL CONTENTIONS ON THIS ISS UE AND GOING THROUGH THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF L IBERTY INDIA (SUPRA), WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTIO N ON EXPORT BENEFITS RECEIVABLE BY THE ASSESSEE. ACCORDINGLY, THIS ISSUE OF THE ASSES SEES APPEAL IS DISMISSED. 26. THE NEXT COMMON ISSUES IN THIS APPEAL OF ASSESS EE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICE R IN NOT CONSIDERING THE INTEREST INCOME FOR DEDUCTION UNDER SECTION 80IA AND 80HHC O F THE ACT AMOUNTING TO RS.11,52,074/-. 27. THE LEARNED COUNSEL FOR THE ASSESSEE, STATED TH AT ISSUE REGARDING INTEREST INCOME RECEIVED FROM CUSTOMERS ON DELAYED PAYMENTS AMOUNTING TO RS.1,04,714/-, THE LD. COUNSEL STATED THAT THE ISSUE IS SQUARELY C OVERED BY THE JUDGMENT IN THE CASE OF NIRMA INDUSTRIES LTD VS. DCIT (2006) 283 IT R 402 (GUJ). ON THE OTHER HAND THE LEARNED SR. DR STATED THAT NOW THE ISSUE HAS BE COME CLEAR AFTER THE DECISION OF ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 13 HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DR ESSER RAND INDIA P. LTD.[2010] 323 ITR 429 (BOM), WHEREIN, HONBLE BOMBAY HIGH COU RT HAS CLEARLY HELD THAT THE RECOVERY OF FREIGHT, INSURANCE, PACKAGING RECEIPTS, SALES TAX REFUND AND SERVICE INCOME BEING MISCELLANEOUS INCOME NOT FORMING PART OF EXPORT ACTIVITY COVERED BY SECTION 80HHC, NINETY PER CENT OF SUCH INCOME SHOUL D BE EXCLUDED FROM COMPUTING THE INCOME OF ELIGIBLE BUSINESS FOR PURPOSES OF SEC TION 80HHC, FOLLOWING THE DECISION IN THE CASE OF CIT VS. K RAVINDRANATHAN NA IR [2007] 295 ITR 228 (SC). IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE STATED T HAT WHEN TWO HIGH COURTS DIFFER ON THE SAME ISSUE, THE BENEFICIAL VIEW SHOULD BE TA KEN IN FAVOUR OF THE ASSESSEE. HE STATED THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP [2007] 289 ITR 475 (DELHI) HAS ALLOWED THE CLAIM OF THE ASSESSEE AS REGARD TO NETTING OF INTEREST ON THE ALLOWANCE OF D EDUCTION UNDER SECTION 80HHC OF THE ACT. 28. AS REGARDS TO INTEREST FROM BANK ON MARGIN MONE Y, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT ONLY NETTING HAS TO BE GRANTED IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DEL). ON THE OTHER HAND THE LEARNED SR. D R STATED THAT NOW THE ISSUE HAS BECOME CLEAR AFTER THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT V. ASIAN STAR CO. LTD. IN ITA NO.200 OF 2009 (BOM), WHEREIN, HONBLE BOMBAY HIGH COURT OBSERVED THAT EXPLANATION (BAA) TO S. 80HHC REQUIRES THAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE HAVE TO BE REDUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERAGE ETC HAVE TO BE EXCLUDED IS BECAUSE T HEY DO NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND THEIR INCLUSION IN PROFITS WOULD RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. HOWEVER, AS SOME EXPENDIT URE MIGHT HAVE BEEN INCURRED IN EARNING THESE INCOMES, AN ADHOC DEDUCTION OF TEN PE R CENT FROM SUCH INCOME IS ALLOWED. IT WAS FURTHER OBSERVED BY THE HONBLE HIG H COURT THAT ONCE PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCL USION AND THE EXTENT OF THE EXCLUSION, IT WOULD NOT BE OPEN TO THE COURT TO ORD ER OTHERWISE BY REWRITING THE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION I S TO FIND OUT THE TRUE INTENT OF A LEGISLATIVE PROVISION AND IT IS CLEARLY NOT OPEN TO THE COURT TO LEGISLATE BY SUBSTITUTING A FORMULA OR PROVISION OTHER THAN WHAT HAS BEEN LEG ISLATED BY PARLIAMENT. IT IS NOT OPEN TO SAY THAT SOMETHING MORE THAN THE 10% STATUT ORILY PROVIDED SHOULD ALSO BE ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 14 ALLOWED. HONBLE HIGH COURT FURTHER HELD THAT IN CI T V. SHRI RAM HONDA POWER EQUIP , (2007)289 ITR 475 (DEL), THE DELHI HIGH COURT HAS NOT ADEQUATELY EMPHASIZED THE ENTIRE RATIONALE FOR CONFINING THE DEDUCTION ONLY T O THE EXTENT OF NINETY PER CENT OF THE EXCLUDIBLE RECEIPTS AND IT CANNOT BE FOLLOWED. AS REGARDS THE JUDGEMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISES , HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT THE TRIBUNAL HAS TRA NSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUDICIAL POWER AND . HAS IN EFFECT LEG ISLATED BY PROVIDING A DEDUCTION ON THE GROUND OF EXPENSES OTHER THAN IN THE TERMS WHIC H HAVE BEEN ALLOWED BY PARLIAMENT. THAT IS IMPERMISSIBLE. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT WHEN TWO HIGH COURTS DIFFER ON THE SAME ISSUE, THE BENEFICIAL VIE W SHOULD BE TAKEN IN FAVOUR OF THE ASSESSEE. HE STATED THAT HONBLE DELHI HIGH COURT I N THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DELHI) HAS ALLOWED THE CLAIM O F THE ASSESSEE AS REGARD TO NETTING OF INTEREST ON THE AL LOWANCE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 29. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF ASIAN STAR CO. LTD. (SUPRA) HAS CONSIDERED THE DELHI HIGH COURT JUDGMEN T IN THE CASE OF SHRI RAM HONDA POWER EQUIP (SUPRA) AS WELL THE CASE OF SPECIAL BENCH OF THIS TRIBUNAL IN LALSON ENTERPRISES AND HELD THAT 90% OF RECEIPTS BY WAY OF INTEREST HA VE TO BE REDUCED FROM THE BUSINESS PROFITS WHILE COMPUTING D EDUCTION U/S.80HHC OF THE ACT UNDER CLAUSE (BAA). RESPECTFULLY FOLLOWING HONBLE BOMBAY HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA), WE UPHOLD THE ORDER OF CIT(A) AND THIS IS SUE OF THE ASSESSEES APPEAL IS DISMISSED. 30. WE FURTHER FIND THAT THESE ISSUES ARE COVERED, AS REGARDS THE INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAYMENT HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. (SUPRA) HAS CLEARLY HELD THAT WHILE COMPUTING DEDUCTION UNDER SECTION 80I INTEREST RECEIVED FROM TRADE DEBTORS TO WARDS LATE PAYMENT OF SALE CONSIDERATION IS TO BE INCLUDED IN THE PROFITS OF T HE INDUSTRIAL UNDERTAKING. WE FIND THAT THE HONBLE HIGH COURT HAS ALLOWED DEDUCTION U NDER SECTION 80I ON DELAYED PAYMENT OF INTEREST RECEIVED FROM TRADE DEBTORS, TH E ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA ALSO. THIS DEDUCTION UNDER SECTION 80HHC AND 80IA WILL BE RESTRICTED IN VIEW OF THE PROVISIONS OF SEC TION 80IA(9) AND THE DECISION OF ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 15 SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. HINDUSTAN MINTS & AGRO PRODUCTS PVT. LTD. (2009) 119 ITD 107 (SB) (DELHI) WHEREIN IT IS HELD THAT DEDUCTION TO BE ALLOWED UNDER ANY PROVISION OF CHAPTER VI-A W ITH HEADING C(80H, 80HHC ETC) IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION ALREADY ALLOWED UNDER SECTION 80IA/80IB OF THE ACT. ACCORDINGLY, AS REGARDS TO INTEREST ON DELAYED PAYMENT FROM TRADE DEBTORS THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDE R SECTION 80IA AS WELL AS UNDER SECTION 80HHC, BUT SUBJECT TO ABOVE RESTRICTIONS. 31. WE FURTHER FIND THAT AS REGARDS TO INTEREST ON MARGIN MONEY, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80IA IN VIE W OF THE DECISION OF ITAT, AHMEDABAD D BENCH IN ASSESSEES OWN CASE IN ITA N O.651/AHD/2003 FOR THE ASSESSMENT YEAR 1998-1999 ORDER DATED 20/07/2007, I N WHICH THE TRIBUNAL HAS HELD IN PARA NOS. 17 AND 18 AS UNDER: 17. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDER OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE ASSESSEE HAD CLAIMED BEFORE THE CIT(A) THAT THE INTEREST INCOME OF RS.8,70,050/- PERTAINING TO DAMAN UNIT AND RS.1,61,570/- PERTAINING TO VAPI UNIT SHOULD BE SET OFF AGAINST THE INTEREST EXPENDITURE INCURRED BY THE AS SESSEE FOR THE PURPOSE OF BUSINESS AND THE NET AMOUNT OF INTEREST ONLY SHOULD BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE IN ORDER TO DETERMINE THE E LIGIBLE AMOUNT OF PROFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA OF THE ACT. WE FIND THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS SHRI RAM HONDA POWER EQUIP, (2007) 289 ITR 4 75(DELHI) WHEREIN IT WAS HELD THAT THE WORD INTEREST IN CLAUSE (BAA) O F THE EXPLANATION TO SECTION 80HHC CONNOTES NET INTEREST AND NOT GROSS INTERE ST AND, THEREFORE, IN DEDUCTING SUCH INTEREST, THE AO WILL TAKE I ACCOUNT THE NET INTEREST I.E. GROSS INTEREST AS REDUCED BY THE EXPENDITURE INCURRED FOR EARNING SUCH INTEREST. WHERE AS A RESULT OF THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS AND PROFESSION, THE AO TREATS THE INTEREST RECEIPT AS B USINESS INCOME, THEN THE DEDUCTION SHOULD BE PERMISSIBLE IN TERMS OF EXPLANA TION (BAA) OF THE NET INTEREST I.E. GROSS INTEREST LESS THE EXPENDITURE I NCURRED FOR THE PURPOSE OF EARNING SUCH INTEREST. THE NEXUS BETWEEN OBTAINING THE LOAN AND PAYING INTEREST THEREON FOR THE PURPOSE OF EARNING INTERES T ON THE FIXED DEPOSIT, TO DRAW AN ANALOGY FROM SECTION 37 WILL REQUIRE TO BE SHOWN BY THE ASSESSEE FOR APPLICATION OF THE NETTING PRINCIPLE. FOLLOWING TH E SAID DECISION OF THE HONBLE DELHI HIGH COURT, WE SET ASIDE THE ORDERS OF THE LO WER AUTHORITIES AND REMAND THE MATTER BACK TO THE FILE OF THE AO WITH THE DIRE CTION THAT WHILE DEDUCTING THE RECEIPT BY WAY OF INTEREST FROM THE PROFITS OF THE BUSINESS FOR COMPUTING THE RECEIPT BY WAY OF INTEREST FROM THE PROFITS OF THE BUSINESS FOR COMPUTING ELIGIBLE PROFIT FOR THE PURPOSE OF SECTION 80IA, ON LY NET INTEREST REMAINING AFTER ALLOWING THE SET OFF OF INTEREST PAID WHICH HAS A N EXUS WITH INTEREST RECEIVED, SHOULD BE REDUCED AND NOT THE GROSS AMOUNT OF INTER EST. THE AO IS ACCORDINGLY DIRECTED TO RECOMPUTE THE DEDUCTION UND ER SECTION 80 IA OF THE ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 16 ACT IN THE LIGHT OF THE ABOVE OBSERVATIONS. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 18. THE GROUND NOS. 9 AND 10 OF THE APPEAL ARE DIRE CTED AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE ORDER OF THE AO IN NOT CONSIDERING THE INTEREST INCOME WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBM ITTED THAT IN THESE GROUNDS OF APPEAL ALSO, SIMILARLY AS CONTENDED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA, THE ASSESSEE WANTS THAT NET INT EREST ONLY SHOULD BE DEDUCTED FROM THE EXPORT PROFITS OF THE ASSESSEE WH ILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. WHILE DE CIDING THE GROUND NOS. 7 AND 8 OF APPEAL, WE HAVE RESTORED THE ISSUE BACK TO THE FILE OF THE AO FOR RECOMPUTING THE DEDUCTION UNDER SECTION 80IA AFTER DEDUCTING NET INTEREST INCOME REMAINING AFTER SET OFF OF INTEREST PAID WHI CH HAS A NEXUS WITH INTEREST RECEIVED. FOR THE SAME REASONS AND WITH THE SAME D IRECTION, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE I S REMANDED TO THE FILE OF THE AO. THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES. THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL I N THE PRESENT YEAR, RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION AND TAKING A CONSISTENT VIEW, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE QUA THE INTEREST INCOME ON MARGIN MONEY FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. 32. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) NOT ALLOWING THE GIFTS GIVEN ITS EMPLOYEES AS BUSINESS EXPENDITURE AMOUNTING TO RS.49,90,496/-. 33. AT THE OUTSET THE LEARNED COUNSEL FOR THE ASSES SEE STATED THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY ITAT IN ASSESSEES OWN CASE BY AHMEDABAD B BENCH IN ITA NO. 2935/AHD/2003 FOR THE ASSESSMENT YEAR 2000- 2001 VIDE ORDER DATED 07-03- 2005. THE LEARNED SENIOR DR STATED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE ABOVE DECISION OF THE TRIBUNAL IN AS SESSEES OWN CASE. AFTER GOING THROUGH THE CASE LAW RELIED ON BY BOTH THE SIDES IN ASSESSEES OWN CASE, WE FIND THAT THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: 15. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS. WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE LD. ASSESSING OFFICER HAS RIGHTLY HELD THAT VALUE OF ARTICLES, DISTRIBUTED BY THE ASS ESSEE TO ITS EMPLOYEES COMES WITHIN THE AMBIT OF PERQUISITES EMPLOYED IN SECTI ON 17(2) (III) (C) OF THE IT ACT WHICH IS COVERED UNDER THE DEFINITION OF SALARIES AS PROVIDED IN SECTION 17(I)(IV) OF THE ACT. THEREFORE, BEFORE DISTRIBUTI NG ARTICLES TO THE EMPLOYEES, THE ASSESSEE OUGHT TO HAVE DEDUCTED THE TAX AT SOUR CE ON THE VALUE OF SUCH ARTICLES. HOWE THE DEFINITION OF GIFT EMPLOYED I N TRANSFER OF PROPERTY ACT HAS ITA NO.1483 & 1508/AHD/04 A.Y. 2000-01 ACIT VAPI CIR. V. MICRO INKS LTD. PAGE 17 ANY RELEVANCY WITH THE DISPUTE RAISED BY THE ASSESS ING OFFICER IS NOT DISCERNIBLE FROM THE WRITTEN SUBMISSIONS? AS FAR AS THE ALTERNATIVE CONTENTION IS CONCERNED, SUCH PRAYER WAS NOT RAISED BEFORE THE ASSESSING OFFICER NOR HAS BEEN SHOWN TO US THAT VALUE OF SUCH ASSETS HAVE BEEN SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET OR AT ANY STAGE, THES E ARTICLES HAVE TAKEN BACK BY THE ASSESSEE FROM ITS EMPLOYEES. HENCE WE DO NO T SEE ANY GOOD REASON TO INTERFERE IN THE ORDERS OF THE REVENUE AUTHORITI ES BELOW. THE LD. ASSESSING OFFICER HAS RIGHTLY CHARGED IN INTEREST U/S. 201(1A ) OF THE ACT. 34. AFTER GOING THROUGH THE ABOVE, WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE HAS HELD THE ASSESSEE IN DEFAULT WHILE UPHOLDI NG THE ASSESSING OFFICER CHARGING INTEREST U/S.201(1A) OF THE ACT ON THE GIF T ARTICLES DISTRIBUTED BY THE ASSESSEE-COMPANY TO ITS EMPLOYEES. THE GIFT ARTICLE S DISTRIBUTED WAS CONSIDERED AS PERQUISITES IN THE EMPLOYEES HAND U/S.17(2)(III) OF THE ACT. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FO R DEDUCTION OF THIS EXPENDITURE AND WE ALLOW THE CLAIM OF THE ASSESSEE. 35. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WELL AS THAT OF REVENUE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES AS INDI CATED ABOVE. ORDER PRONOUNCED ON 30 TH DAY OF JUNE, 2010. SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VSL 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD