The ACIT, Circle 5, Ahmedabad V. Prabhudas Kishordas Tobacco Products Ltd, Ahmedabad

ITA 2121/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5682 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 18-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Principle of natural justice; Rule of consistency; Fair market value; Set aside
• Section: 143(3); 80HHC; 80IB; 80IA; 80HH; 143(2); 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' [BEFORE S/SHRI D T GARASIA,JM & A N PAHUJA,AM] ITA NO.2121/AHD/2007 (ASSESSMENT YEAR:-2004-05) ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-5, C.U SHAH COLLEGE BUILDING,2 ND FLOOR,AHMEDABAD V/S PRABHUDAS KISHORDAS TOBACCO PRODUCTS PVT. LTD. 659/1, GULBAI TEKRA, PANCHVATI, 2 ND LANE, AHMEDABAD [PAN: AABLP1495Q] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI SHELLEY JINDAL, DR ASSESSEE BY:- SHRI S N SOPARKAR, AR O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 13- 03-2007 OF THE LD. CIT(APPEALS)-XI, AHMEDABAD, RAIS ES THE FOLLOWING GROUNDS : 1 THE LD. COMMISSIONER OF INCOME- TAX (A)-XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE ADDITION MADE O N ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED FOR PETTY DONATIO NS, ETC. FROM RS.89,441/- TO RS.65,000/-. 2. THE LD. COMMISSIONER OF INCOME- TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE O F RS.4,12,27,149/-ON ACCOUNT OF DISALLOWANCE OF EXCESS INTEREST PAID TO PERSONS SPECIFIED UNDER SECTION 40A(2)(B) OF THE I.T. ACT, 1961. 3. THE LD. COMMISSIONER OF INCOME- TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFI CER TO ALLOW THE DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961 ON I NTEREST RECEIPTS AND MOTOR HIRE CHARGES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME- TAX (A)-XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. COMMISSIONER OF INCOME- TAX (A)-XI, AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 2 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FA CTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOM E OF RS.11,21,93,730/- FILED ON 29-10-2004 BY THE ASSESS EE-COMPANY, MANUFACTURING TOBACCO PRODUCTS, WAS TAKEN UP FOR SC RUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE INCOME-TAX ACT, 1 961 [HEREINAFTER REFERRED TO AS THE ACT] ON 18.8.2005. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED FROM THE STATEMENT OF COMPUTATION OF INCOME THAT T HE ASSESSEE CLAIMED PETTY DONATIONS OF RS.1,34,161/- ON THE BAS IS OF NOTES BELOW THE STATEMENT OF COMPUTATION OF TOTAL INCOME. SINCE SIMILAR CLAIMS WERE DISALLOWED IN THE PRECEDING YEARS, RELYING UPO N A DECISION DATED 08-09-2006 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY 2000-01, THE AO DISALLOWED 2/3 RD OF EXPENSES AMOUNTING TO RS.89,441/- . 3 ON APPEAL, THE LEARNED CIT(A) WHILE RELYING UPON HIS ORDER DATED 13-01-2006 IN THE ASSESSEES OWN CASE FOR THE A. Y . 2002-03 REDUCED THE DISALLOWANCE TO RS.65,000/-. 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A).BOTH THE PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION DATED 30- 04-2010 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2002- 03 & 2003-04 IN ITA NOS.782 &2064/AHD/2006. 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION OF THE ITAT . WE FIND THAT THE ITAT WHILE ADJUDICATING A SIMILAR CLAIM IN THE ASSE SSEES OWN CASE FOR THE AYS 2002-03 & 2003-04 IN ITA NOS.782 &2064/ AHD/2006 VIDE THEIR ORDER DATED 30-04-2010, CONCLUDED AS UNDER: ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 3 4 THE NEXT COMMON ISSUE IN THESE APPEALS OF THE RE VENUE IN ITA NO.782/AHD/2006 AND ITA NO.2064/AHD/2006 IS AS REGA RDS TO THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE CLAIMED U/S 37 OF THE ACT TO RS.25,000/- AND RS.65,000/- RESPECTIVELY IN BOTH TH E YEARS AND THE FACTS BEING EXACTLY IDENTICAL IN BOTH THE YEARS, WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.4002/AHD/2003 FOR AY 2001-02 VIDE ORDER DATED 27-07-2007 HAS ALREADY CONSIDERED THIS ISSUE AND CONFIRMED THE ACTION OF CIT(A) DELETING THE ADDITION BY GIVING FO LLOWING FINDING IN PARA- 15:- 15 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN T HE AY 2000-01, WHEREIN VIDE ORDER DATED 22-12-2006 IN ITA NO.3120/ AHD/2003, THE TRIBUNAL DISMISSED THE APPEAL OF THE REVENUE AND UP HELD THE ORDER OF THE LD. CIT(A) IN ALLOWING 1/3 RD EXPENSES IN ASSESSEES OWN CASE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) IN ALLOWING 1/3 RD OF THE EXPENSES OUT OF RS.1,33,136/- CLAIMED BY THE ASSESSEE AND THIS GROUND OF REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE TRIBUNALS DECISION IN A SSESSEES OWN CASE (SUPRA), OF EARLIER YEARS, WE UPHOLD THE ORDERS OF CIT(A) AND THIS COMMON ISSUE OF REVENUES APPEALS, IN BOTH THE YEARS, IS D ISMISSED. 6. AS IS APPARENT FROM THE AFORESAID DECISION DATE D 30.4.2010 FOR THE AYS 2002-03 & 2003-04, THE TRIBUNAL MERELY FOLL OWED AN EARLIER DECISION DATED 22-12-2006 IN ITA NO.3120/AHD/2003 F OR THE AY 2000-01, UPHOLDING THE ORDER OF THE LD. CIT(A) ALLOWING ONL Y 1/3 RD OF THE EXPENSES. THE AO ALSO IN HIS ORDER FOLLOWED THE DECISION OF THE ITAT FOR THE AY 2000-01 BUT THE SAME IS STATED TO BE DATED 8.9.2006. THIS REQUIRES VERIFICATION. THE LD. CIT(A) IN THE IMPUGNED ORDER FOLLOWED HIS OWN ORDER FOR THE A Y 2002-03, WHICH THE TRIBUNAL HAVE NOW UPHELD VIDE THEIR AFORESAID ORDER DATED 30.4.2010. IN THESE CIRCUMSTANCES, WE VACATE THE FINDINGS OF THE LD. CI T(A) AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE IN ACCORDANCE WITH THE AF ORESAID ORDER DATED 22.12.2006 OF THE ITAT FOR THE AY 2000-01. WITH THESE OBSERVAT IONS, GROUND NO.1 IS DISPOSED OF. 7. GROUND NO.2 RELATES TO DISALLOWANCE OF EXCESSIVE INTEREST OF RS.4,12,27,149/- IN TERMS OF PROVISIONS OF SEC. 40A (2)(B) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 4 THE ASSESSEE PAID INTEREST @ 22% PA ON THE LOANS TA KEN FROM THE SHAREHOLDERS, WHO WERE EITHER THE DIRECTORS OR THE RELATIVES OF DIRECTORS WHILE THE MARKET RATE PREVAILING DURING T HE YEAR WAS 12 TO 15% PA. ACCORDINGLY, KEEPING IN VIEW HIS OWN FINDIN GS IN THE AY 2003-04 AND CONSIDERING THE RATE OF INTEREST PAID T O THE ASSESSEE ON THEIR FIXED DEPOSITS WITH VARIOUS BANKS AS ALSO REL YING DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C1T VS SHA TRUNJAY DIAMONDS, 261 ITR 258, THE AO DISALLOWED INTEREST OF RS.4,12,27,149/ - OUT OF INTEREST OF RS.13,18,62,832/- ,INVOKING THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE ACT. 8. ON APPEAL, THE LD. CIT(A) , FOLLOWING HIS OWN OR DER DATED 18-07-2005 FOR THE A.Y.2003-04 DELETED THE ADDITION. 9. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). BOTH THE PARTIES AGREED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION DATED 30- 04-2010 OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AYS 2002- 03 & 2003-04 IN ITA NOS.782 &2064/AHD/2006. 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION OF THE ITAT FOR THE P RECEDING ASSESSMENT YEARS. WE FIND THAT THE ITAT WHILE ADJUD ICATING A SIMILAR CLAIM IN THE ASSESSEES OWN CASE FOR THE AYS 2002- 03 & 2003-04 IN ITA NOS.782 &2064/AHD/2006 VIDE THEIR ORDER DATED 3 0-04-2010, CONCLUDED AS UNDER: 11. BEFORE US LD. CIT-DR SHRI B S GEHLOT RELIED ON THE ASSESSMENT ORDER AND STATED THAT THE AO HAS RIGHTLY DISALLOWED THE EXCESS INTEREST PAID TO RELATED PARTIES BY INVOKING U/S 40A(2)(B) O F THE ACT. ACCORDINGLY, HE URGED THE BENCH TO CONFIRM THE ASSESSMENT ORDER. O N THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE, SHRI S N SOPARKAR ARGUED THAT THE ORDER OF CIT(A) IS A REASONED ORDER AND THE DISALLOWANCE IS DELETED BY THE REASONS THAT FOR OBTAINING BANK LOAN 100% COLLATERALS SECUR ITY IS TO BE PROVIDED, WHICH IS NOT POSSIBLE AND PRACTICABLE. HE STATED TH AT EVEN THE DIRECTORS OF THE COMPANY ARE REQUIRED TO GIVE PERSONAL GUARANTEE WHICH IS NOT ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 5 ACCEPTABLE TO EACH AND EVERY DIRECTOR. EVEN SO MUCH FORMALITIES ARE REQUIRED IN THE SHAPE OF FORMS, STOCK STATEMENTS AR E TO BE SUBMITTED PERIODICALLY, CMA DATA AND OTHER NECESSARY DOCUMENT S FROM TIME TO TIME TO THE BANK FOR OBTAINING SUCH LOANS. EVEN HE ARGUE D THAT INTEREST CHARGED BY ASSOCIATE PARTIES @ 22% IS QUITE REASONABLE BY C ONSIDERING THE RATE CHARGED BY THE BANK RATE I.E. 19.5%. LD. COUNSEL FO R THE ASSESSEE STATED THAT THERE ARE HUGE LEGAL EXPENSES SUCH AS STAMP CH ARGES, REGISTRATION CHARGES ETC. WHICH ARE TO BE INCURRED, WHICH WILL C OST AS ADDITIONAL 2.2% ON GETTING THE LOAN FROM BANK AND THE LOAN FROM THE AS SOCIATE PARTIES WILL NOT INCUR SUCH EXPENSES. HE ALSO RELIED ON THE DECISION OF AMRITSAR BENCH IN THE CASE OF ITO V. BANSILAL GUPTA IN TTJ 113 (2008) 898 (ASR), WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- '11. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY C ONSIDERED THE RIVAL CONTENTIONS, EXAMINED THE FACTS, EVIDENCE AND MATERIAL PLACED ON RECORD. WE HAVE REFERRED TO THE DECISION OF TRIBUNAL (SMC), AMRITSAR BENCH, IN THE CASE OF H .S. SALES CORPN. VS. ITO (SUPRA), WHERE THE TRIBUNAL BY REFER RING TO THE EARLIER ORDER OF TRIBUNAL AMRITSAR BENCH, IN THE CA SE OF AIM FORGINS, JALALDHAR VS. ASSTT. CIT, HAS HELD THAT IN TEREST PAID @ 24% PER CENT WAS FAIR AND REASONABLE AND DID NOT WA RRANT ANY DISALLOWANCE. WHILE DOING SO, THE TRIBUNAL FURT HER RELIED ON THE DECISION OF TRIBUNAL (SM) AMRITSAR BENCH, IN THE CASE OF PARMOD KUMAR RAJ KUMAR, PHAGARAM VS. ASSTT. CIT IN ITA NO.267/ASR/2005 FOR THE ASST. YR. 2001-02, WHERE IT WAS HELD AS UNDER:- '5.1 I HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE RIVAL CONTENTIONS, EXAMINED THE FACTS, EVIDENCE AND MATER IAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE HAS PAID INTEREST @ 24 PER CENT TO PERSONS COVERED UNDE R S. 40A(2)(B) I.E. AT THE SAME RATE AT WHICH INTEREST W AS CLAIMED AND ALLOWED IN THE PAST I.E. ASST. YR. 2000-01. THE RE IS ALSO NO DISPUTE ABOUT THE FACT THAT THE BORROWED AMOUNTS WE RE UTILIZED FOR THE PURPOSE OF BUSINESS. SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL. (SMC) AMRITSAR BENCH IN THE CA SE OF M/S. PARMOD KUMAR RAJ KUMAR VS. ASST. CIT. IN ITA NO.267 /AST/2005 FOR THE ASST. YR. 2001-02 DT. 2ND SEPT. 2005 AND TH E TRIBUNAL DECIDED THE SAME IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY RECORDING FOLLOWING FINDINGS IN PARA 6 O F THE ORDER:- '6. I HAVE HEARD BOTH THE PARTIES AND CAREFULLY CON SIDERED THE RIVAL CONTENTIONS WITH REFERENCE TO FACTS, EVIDENCE AND ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 6 MATERIAL ON RECORD. THE FACT THAT THE ASSESSEE HAD CLAIMED INTEREST @ 24 PER CENT AND WAS ALLOWED BY THE REVEN UE IN THE ASST. YR. 2000-01 HAS NOT BEEN DISPUTED BY THE REVE NUE. THEREFORE, PRINCIPLE OF CONSISTENCY DEMANDED THAT N O ADDITION IN RESPECT OF THE SAME SHOULD HAVE BEEN MA DE FOR THE ASSESSMENT YEAR UNDER REFERENCE. BESIDES, THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL (S MC). AMRITSAR BENCH, IN THE CASE OF M/S. RIMPY PROCESSOR S (?) LTD; VS, ASSTT. CIT. CIR.5, AMRITSAR (SUPRA) WHERE IT WA S HELD IN PARA 4 AS UNDER:- '4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE A SSESSEE WAS PAYING THE INTEREST TO THESE PERSONS @ 24 PER CENT IN THE PRECEDING ASSESSMENT YEARS AS WELL. PAGE 173 OF THE PAPER BOOK IS A CHART SHOWING INTEREST TO THESE PERSONS @ 24 PER CENT IN THE PRECEDING AND SUCCEEDING YEARS WHICH WA S ACCEPTED BY THE REVENUE. EVEN THE ASSESSMENT FOR TH E IMMEDIATELY PRECEDING YEAR WAS MADE IN SCRUTINY UND ER S. 143(3) BY ACCEPTING THE PAYMENT OF INTEREST @ 24 PE R CENT. ASSESSMENT ORDER FOR THE SAID YEAR HAS BEEN PLACED AT P.49 OF THE PAPER BOOK. THESE FACTS INDICATE THAT THE ASSES SEE HAD PAID INTEREST TO THESE PERSONS @ 24 PER CENT IN THE PRECEDING AS WELL AS SUCCEEDING YEARS AND THE SAME WAS ACCEPT ED BY THE REVENUE. THAT BEING THE POSITION, THERE WAS NO REASON TO DISTURB THE FINALITY GIVEN TO THESE TRANSACTIONS BY THE DEPARTMENT ITSELF. PRINCIPLE OF CONSISTENCY REQUIRE S THAT IN THE ABSENCE OF ANY CHANGE IN THE FACTUAL OR LEGAL POSIT ION, A VIEW TAKEN SHOULD NOT BE ALTERED. THIS VIEW HAS BEE N RECENTLY REITERATED BY THE HON'BLE DELHI HIGH COURT IN THE C ASE OF DIRECTOR OF IT (EXEMPTION) VS. GURU NANAK VIDYA BHA NDAR TRUST (2004) 187 CTR (DEL) 558 ; (2005) 272 ITR 379 (DEL) . IN VIEW OF THESE FACTS, I AM SATISFIED THAT THE ADDITION MADE AND SUSTAINED BY ALLOWING INTEREST TO SUCH SPECIFIED TH AT THE ADDITION MADE AND SUSTAINED BY ALLOWING INTEREST TO SUCH SPECIFIED PERSONS AT 18 PER CENT ONLY WAS NOT JUSTI FIED. BY REVERSING THE IMPUGNED ORDER ON THIS SCORE, I DIREC T THE DELETION OF THIS ADDITION. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FA TS OF THE ABOVEMENTIONED CASE. THEREFORE, RESPECTFULLY FOLLOW ING THE ORDER OF THE TRIBUNAL, I SET ASIDE THE ORDER OF THE CIT(A) A ND DELETE THE IMPUGNED DISALLOWANCE. ACCORDINGLY, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 7 THIS ORDER WAS FOLLOWED BY THE TRIBUNAL, AMRITSAR B ENCH, IN THE CASE OF AIM FORGINGS VS. ASTT. CIT (SUPRA) FOR THE ASST. YR. 2001-02. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CASES ALREADY DECIDED BY THE TRIBUNAL. RESPECTFULLY FOLLOWING THE SAME, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE AO IS DIRECTED T O ALLOW THE INTEREST CLAIMED BY THE ASSESSEE. THIS GROUND OF APPEAL IS A CCORDINGLY ALLOWED.' 12. LD. COUNSEL FOR THE ASSESSEE FURTHER ALSO RELIE D ON THE DECISION OF THIS TRIBUNAL IN ITA NO.59/AHD/2005 DATED 03-03-2009 IN THE CASE OF SAUMIL TRADERS PVT. LD. V ITO WARD-8(1) A'BAD FOR ASSESSME NT YEAR 2001-02, WHEREIN THE TRIBUNAL HAS HELD IN PARA-13 AS UNDER:- '13. WE HAVE CONSIDERED THE SUBMISSIONS MADE. THERE IS NO DENIAL OF FACT THAT THE AMOUNT WAS BORROWED BY THE ASSESSE E FOR THE PURPOSE OF BUSINESS IN EARLIER YEARS I.E. SINCE ASS ESSMENT YEAR 1993-94. NO DISALLOWANCE HAS BEEN MADE IN THE PAST. THIS FACT IS NOT CONTROVERTED BY EITHER THE ASSESSING OFFICER OR THE LEARNED DR. IT IS INCORRECT TO COMPARE THAT RATE OF INTEREST PA ID BY THE ASSESSEE ON UNSECURED LOAN WITH THE RATE OF INTEREST IN SECU RED LOAN OBTAINED FROM THE BANK AND FINANCIAL INSTITUTIONS. THE AMOUN TS BORROWED FROM BANK ARE SECURED AND HENCE CARRIES LESSER RISK . THEREFORE, THE COMPARISON OF RATE OF INTEREST PAID BY THE ASSESSEE ON UNSECURED LOAN WITH THE SECURED LOAN IS INCORRECT. IT IS ALSO SETTLED LAW THAT THE DECISION HOW THE BUSINESS SHOULD BE CARRIED ON IS T HE PREROGATIVE OF THE ASSESSEE AND THE ASSESSING OFFICER CANNOT DICTA TE THE TERMS AS TO HOW THE BUSINESS SHOULD BE CARRIED ON. WHILE CON SIDERING THE CLAIM UNDER SECTION 36(1)(III) WHAT IS TO BE EXAMIN ED IS WHETHER THE AMOUNT IS BORROWED FOR THE PURPOSE OF BUSINESS OR N OT. SINCE THE AMOUNT IS BORROWED IN EARLIER YEARS AT A STIPULATED RATE OF INTEREST AND WHICH IS STILL UTILIZED FOR THE PURPOSE OF BUSI NESS, THE INTEREST RATE COULD NOT HAVE BEEN RENEGOTIATED. EVEN THE LEA DING RATE BY BANKS IN RESPECT OF SECURED LOAN IS AS HIGH AS 17.5 %. THEREFORE, RATE OF INTEREST PAID BY THE ASSESSEE IS REASONABLE HAVING REGARD TO THE FAIR VALUE OF SUCH SERVICES. THE ASSESSING OFFI CER HAS NOT COMPARED THE RATE OF INTEREST ON UNSECURED LOANS. T HEREFORE, THE ASSESSING OFFICER WAS INCORRECT IN RESTRICTING THE INTEREST PAYABLE TO THE EXTENT OF 18% ONLY. SINCE THE RATE OF INTEREST PAID BY THE ASSESSEE IS REASONABLE, THE ASSESSING OFFICER IS DI RECTED TO ALLOW SAME.' LD. COUNSEL FOR THE ASSESSEE ALSO ARGUED THAT THESE LOANS ARE CARRY FORWARD LOAN FROM EARLIER YEARS AND NO SUCH DISALLO WANCE WAS MADE IN EARLIER YEARS. HE SATED THAT THESE DEPOSITS ARE SIN CE ASSESSMENT YEAR ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 8 1992-93 AND INTEREST FROM THAT YEAR IS PAID @ 22% T O THE RELATED PERSONS FROM WHOM THE LOANS HAVE BEEN OBTAINED AND NO SUCH DISALLOWANCE IS MADE IN ANY OF THE YEARS EARLIER. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THESE L OANS WERE BORROWED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS IN EARLIER YEARS I.E. SINCE ASSESSMENT YEAR 1992-93. NO SUCH DISALLOWANCE HAS B EEN MADE IN THE PAST. THIS FACT IS NOT CONTROVERTED BY EITHER THE A SSESSING OFFICER OR THE LEARNED DR. IT IS A FACT THAT THE RATE OF INTEREST PAID BY THE ASSESSEE ON UNSECURED LOAN VIS-A-VIS THE RATE OF INTEREST IN SE CURED LOAN OBTAINED FROM THE BANK AND FINANCIAL INSTITUTIONS, THE RATE OF IN TEREST TO ASSOCIATE CONCERN IS LITTLE HIGHER BUT THE AMOUNTS BORROWED FROM BANK ARE SECURED AND HENCE CARRIES LESSER RISK. EVEN THE BANK INTEREST IS ALMO ST AT 19.5% AND IF WE CALCULATE THE OVERHEAD EXPENSES I.E. THE REGISTRATI ON CHARGES, STAMP DUTY CHARGES, EXPENSES TO BE INCURRED FOR SUBMITTING STO CK STATEMENTS ETC. TO THE BANK, THE BANK INTEREST WILL AUTOMATICALLY INCR EASE TO A CERTAIN LEVEL. THEREFORE, THE COMPARISON OF RATE OF INTEREST PAID BY THE ASSESSEE ON UNSECURED LOAN WITH THE SECURED LOAN IS INCORRECT. IT IS ALSO SETTLED LAW THAT THE DECISION HOW THE BUSINESS SHOULD BE CARRIED ON IS THE PREROGATIVE OF THE ASSESSEE AND THE ASSESSING OFFICER CANNOT DICTA TE THE TERMS AS TO HOW THE BUSINESS SHOULD BE CARRIED ON. WHILE CONSIDERIN G THE CLAIM UNDER SECTION 36(1)(III) WHAT IS TO BE EXAMINED IS WHETHE R THE AMOUNT IS BORROWED FOR THE PURPOSE BUSINESS OR NOT. SINCE THE AMOUNT IS BORROWED IN EARLIER YEARS AT A STIPULATED RATE OF INTEREST AND WHICH IS STILL UTILIZED FOR THE PURPOSE OF BUSINESS, THE INTEREST RATE COULD NOT HA VE BEEN RENEGOTIATED. EVEN THE LENDING RATE BY BANKS IN RESPECT OF SECURE D LOAN IS AS HIGH AS 19.5%. THEREFORE, RATE OF INTEREST PAID BY THE ASSE SSEE IS REASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SUCH SERV ICES. THE ASSESSING OFFICER HAS NOT COMPARED THE RATE OF INTEREST ON UN SECURED LOANS. THEREFORE, THE ASSESSING OFFICER WAS INCORRECT IN R ESTRICTING THE INTEREST PAYABLE TO THE EXTENT OF 19.5% ONLY. SINCE THE RAT E OF INTEREST PAID BY THE ASSESSEE IS REASONABLE, THE ORDER OF CIT(A) IS CONF IRMED DELETING THE DISALLOWANCE. 10.1 IN THE LIGHT OF VIEW TAKEN BY THE ITAT IN TH EIR AFORESAID DECISION FOR THE AYS 2002-03 & 2003-04 WHILE UNDISP UTEDLY, FACTS REMAINING THE SAME IN THE YEAR UNDER CONSIDERATION AND THE REVENUE HAVING NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE , GROUND NO.2 IN THE APPEAL IS DISMISSED. ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 9 11. GROUND NO.3 RELATES TO DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST RECEIPTS AND MOTOR HIRE CHARGES. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE, INTER ALIA, CLAIMED DEDUCTION U/S 80IB OF THE ACT ON THE INTEREST RECEIPTS OF RS. 4,71,02,910 ON FIXED DEPOSITS WITH THE BANK AND MOTOR HIRE CHARGES OF RS.29,66,885/. RELYING UPON THE DECISION S IN THE CASE OF AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD . VS. CIT,137 ITR 616(GUJ),C1T V. KAMAKHYA NARAYAN SINGH [1948] 1 6 ITR 325(PC),COCHIN COMPANY V. C1T (1978) 114 ITR 822(KE RALA), HINDUSTAN LEVER LTD. V. CIT [1980] 121 ITR 951(BOMB AY) AND CIT V. STERLING FOODS [1999] 237 1TR 579(SC), THE AO CONCL UDED THAT THE AFORESAID RECEIPTS ON ACCOUNT OF INTEREST AND HIRIN G CHARGES WERE NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERT AKING AND ACCORDINGLY, WERE NOT ELIGIBLE FOR DEDUCTION U/S80I B OF THE ACT. 12. ON APPEAL, THE LEARNED CIT(A) CONCLUDED AS UNDE R : 5.2.1. IT IS SEEN THAT THE APPELLANT IS HAVING IN TEREST PAYMENTS AND INTEREST RECEIPTS. SIMILARLY MOTOR HIRING CHARGES A LSO HAVING BOTH RECEIPTS AND PAYMENTS. ULTIMATELY, THERE IS A NET PAYMENTS W ITH REGARD TO INTEREST AND MOTOR CHARGES. HOWEVER, RENTAL INCOME, COMPUTER RENTAL RECEIPTS AND MISCELLANEOUS INCOME ARE ONLY HAVING POSITIVE RECEI PTS AND NO PAYMENTS AGAINST THESE RECEIPTS. THEREFORE, RECEIPTS LIKE RE NTAL INCOME, COMPUTER RENTAL RECEIPTS AND MISCELLANEOUS INCOME CANNOT FOR M PART OF THE BUSINESS INCOME OF THE APPELLANT. THEREFORE, THESE RECEIPTS WOULD NOT BE ENTITLED FOR DEDUCTION U/S. 80IB OF I. T. ACT. 5.2.2. AS IT COULD BE SEEN THAT THE INTEREST RECEIP TS AND MOTOR HIRING CHARGES ARE ONLY BUSINESS RECEIPTS, AND THE NET OF THE PAYMENTS AND RECEIPTS ARE ONLY NEGATIVE RECEIPTS THEREFORE, THEY ARE ELIGIBLE FOR THE DEDUCTION U/S.80IB OF I. T. ACT. 5.2.3 IN THE LIGHT OF ABOVE, THE AO IS DIRECTED TO RECOMPUTED DEDUCTION U/S 80IB OF THE IT ACT RESTRICTING RECEIPTS LIKE ONLY R ENTAL INCOME, COMPUTER RENTAL RECEIPTS AND MISCELLANEOUS INCOME AND ALLOW INTEREST RECEIPTS AND ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 10 MOTOR HIRE CHARGES WHILE COMPUTING DEDUCTION U/S 80 IB OF IT ACT, 1961. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED . 13. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED TH E FINDINGS OF THE AO IN THE LIGHT OF VARIOUS DECISIONS REFERRED TO BY HIM AND CONTENDED THAT THE LD. CIT(A) DID NOT EXAMINE THE ISSUE IN PR OPER PERSPECTIVE NOR RECORDED ANY FINDINGS AS TO WHETHER OR THE INTE REST ON FIXED DEPOSITS AND MOTOR HIRING CHARGES WERE INDEED DERIV ED FROM THE ELIGIBLE BUSINESS OF THE INDUSTRIAL UNDERTAKING ,EN TITLED TO DEDUCTION U/S 80IB OF THE ACT. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE WHILE SUPPORTING THE FINDINGS OF THE LD. C IT(A) RELIED ON THE DECISION OF THE SPECIAL BENCH ITAT AHMEDABAD IN THE CASE OF NIRMA INDUSTRIES LTD. VS. ACIT (2005) 95 ITD 199 (AHD) (S B). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDERS , THE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE GRO UND THE RECEIPTS BY WAY OF INTEREST ON FIXED DEPOSITS WITH THE BANK AND MOTOR HIRE CHARGES WERE NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHI LE THE LD. CIT(A) WITHOUT RECORDING ANY FINDINGS ON THIS ASPECT , PROCEEDED T O NET OFF THE RECEIPTS AND PAYMENTS AND THAT TOO WITHOUT MAKING REFERENCE TO ANY MATERIAL, ESTABLISHING THE NEXUS OF RECEIPTS WITH PAYMENTS AND WITHOUT AFFORD ING ANY OPPORTUNITY TO THE CONCERNED AO. AS REGARDS EXCLUSION OF INTEREST ON FDRS FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT, T HE LEADING DECISION IS THAT OF THE HON'BLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 WHICH HOLDS THAT INTEREST EARNED ON DEPOSITS PLACE D FOR THE PURPOSES OF OBTAINING LOANS FOR BUSINESS CANNOT BE TREATED A S BUSINESS INCOME BUT ONLY AS INCOME FROM OTHER SOURCES.. THE DECISION IN TUTICOR IN ALKALI CHEMICALS AND FERTILIZERS LTD. [1997] 227 ITR 172 , WHICH WAS RENDERED IN THE CONTEXT OF SECTIONS 56 AND 57, HAS BEEN FOLLOWED IN CIT V. AUTOKAST LTD . [2001] 248 ITR 110 (SC). LIKEWISE, IN CIT V. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC) INTEREST ON FIXED ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 11 DEPOSITS WAS HELD NOT TO QUALIFY FOR SETTING OFF AG AINST INTEREST ON LOANS BORROWED. THE OTHER DECISIONS ON THE SAME LINES, IN THE CONTE XT OF SECTION 80HHC ARE CIT V. STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 (SC). IN THESE DECISIONS, THE HON'BLE SUPREME COUR T REITERATED THE NEXUS THEORY AND DECLINED TO TREAT S UCH INTEREST EARNED AS BUSINESS INCOME. THE DECISION OF THE MADRAS HIGH COURT IN SO UTH INDIA SHIPPING CORPORATION LTD. V. CIT [1999] 240 ITR 24 WAS ALSO RENDERED IN THE CONTEXT OF TREATING CERTAIN RECEIPTS NOT AS BUSINESS INCOME BU T INCOME FROM OTHER SOURCES FOR THE PURPOSES OF SECTION 56 READ WITH SECTION 57 (III) OF THE ACT. IN CASES WHERE THE ASSESSEE IS REQUIRED TO MANDATORILY KEEP MONIES IN FIXED DEPOSIT IN ORDER TO AVAIL OF CREDIT FACILITY, THE ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT BUT FOR SUCH A STIPULATION BY THE BANK THERE WAS NO NEED FOR THE ASSESSEE TO KEEP THE MONEY IN FIXED DEPOSIT AND THEREFORE, THE INCOME EARNED F ROM SUCH FIXED DEPOSITS BEARS A DIRECT NEXUS TO THE BUSINESS ACTIVITY ITSELF. GIV EN THE REPEATED AFFIRMATION BY THE HON'BLE SUPREME COURT IN THE VARIOUS CASES, WE ARE OF THE OPINION THAT INTEREST EARNED FROM THE BANK, DOES NOT HAVE AN IMMEDIATE NE XUS WITH THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND THEREFORE, CAN NOT B E SAID TO BE DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING . 14.1 IN THE CASE OF AHMEDABAD MANUFACTURING AND CALICO PRINTING CO. LTD. VS.CIT,137 ITR 616(GUJ),HONBLE JURISDICTIONAL HIGH COURT HELD WE ARE IN FULL AGREEMENT WITH THE VIEW TAKEN BY TH E BOMBAY HIGH COURT AND TO SOME EXTENT WITH THE VIEW TAKEN BY THE KERALA HIGH COURT. PROFITS AND GAINS CAN BE SAID TO HAVE BEEN ' DERIVED ' FROM AN ACTIVITY C ARRIED ON BY A PERSON ONLY IF THE SAID ACTIVITY IS AN IMMEDIATE AND EFFECTIVE SOURCE OF THE SAID PROFIT OR GAIN. THERE MUST BE A DIRECT NEXUS BETWEEN THE ACTIVITY AND THE EARNING OF THE PROFITS AND GAINS. IN OTHER WORDS, WHAT WE HAVE TO CONSIDER IS THE PROXIMATE SOURCE AND NOT THE SOURCE TO WHICH THE PROFIT OR GAIN MAY IN A REM OTE INDIRECT WAY BE REFERABLE. THE VIEW TO THIS EFFECT OF THE PRIVY COUNCIL IN CIT V. KAMAKHYA NARAYAN SINGH [1948] 16 ITR 325 WAS APPROVED BY THE SUPREME COURT IN MRS. BACHA F. GUZDAR V. CIT [1955] 27 ITR 1 AND FOLLOWED BY THE KERALA HIGH COURT IN COCHIN CO MPANY V. CIT [1978] 114 ITR 822 AND BY THE BOMBAY HIGH COURT IN HINDUSTAN LEVER LT D. V. CIT [1980] 121 ITR 951 . IN OUR OPINION, THE WORD ' DERIVE ' TO BE FOUND I N S. 2(5)(A)(I) OF THE RELEVANT FINANCE ACT WILL HAVE TO BE GIVEN A MEANING CONSISTENT WITH WHAT WAS DECIDED IN THE ABOVE DECISIONS. THE W ORDS 'DERIVED FROM EXPORTS' ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 12 CANNOT BE ACCEPTED AS EQUIVALENT TO ' REFERABLE TO EXPORTS ' OR EVEN INDIRECTLY OR REMOTELY CONNECTED WITH THE EXPORTS BY A NEBULOUS L INK. 14.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN TH E CASE OF NAHAR EXPORTS VS. CIT,288 ITR 494 UPHELD DISALLOWANCE OF CLAIM FOR DE DUCTION U/S 80IA OF THE ACT ON THE INTEREST INCOME, IN THE LIGHT OF AFORESAID DECISIONS OF THE APEX COURT IN STERLING FOODS [1999] 237 ITR 579 (SC) AND PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 .. 14.3 FOR THE PURPOSE OF CLAIMING DEDUCTION UNDE R S. 80-IB OF THE ACT, THE ASSESSEE IS NOT ONLY REQUIRED TO ESTABLISH THAT IT WAS BUSINESS PROFIT OF THE INDUSTRIAL UNDERTAKING, BUT ALSO TO ESTABLISH THAT THIS WAS A PROFIT 'DERIVED FROM' THE BUSINESS ACTIVITY OF AN INDUSTRIAL UNDERTAKING, WH ICH MEANS A DIRECT NEXUS BETWEEN THE PROFITS AND INDUSTRIAL UNDERTAKING. THE MERE FACT THAT SUCH INCOME WAS A BUSINESS INCOME WOULD NOT ENTITLE THE ASSESSE E FOR DEDUCTION UNDER S. 80- IB OF THE ACT. AS HELD BY THE HONBLE SUPREME COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 , THE PROFITS OR GAINS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT MUST BE DER IVED FROM THE ACTUAL CONDUCT OF THE BUSINESS, AND UNLESS THE PROFITS OR GAINS AR E DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS, IT CANNOT BE STATED THAT T HE INTEREST IS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHER WO RDS, THE INDUSTRIAL UNDERTAKING MUST DIRECTLY YIELD THE PROFIT, AND IT CANNOT BE TH E MEANS TO YIELD THE INCOME. THE FACT THAT THE AMOUNT WAS ASSESSED AS BUSINESS INCOM E ITSELF WOULD NOT BE SUFFICIENT TO HOLD THAT THE INTEREST INCOME WAS DER IVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. IN OTHE R WORDS, IT IS NOT ALL BUSINESS RECEIPTS THAT WOULD QUALIFY FOR THE DEDUCTION AND T HE LEGISLATURE HAS APPARENTLY NOT INTENDED TO GIVE THE BENEFIT OF DEDUCTION TO AL L BUSINESS INCOME. IF THE INTENTION OF THE LEGISLATURE WAS TO GRANT RELIEF TO ALL BUSINESS INCOME, IT COULD HAVE USED THE EXPRESSION, 'PROFITS AND GAINS OF IND USTRIAL UNDERTAKING', THE FACT THAT THE LEGISLATURE HAS USED THE EXPRESSION 'PROFI TS AND GAINS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING' HAS SOME SIGNI FICANCE AND IT CONNOTES THAT THE IMMEDIATE AND EFFECTIVE SOURCE OF INCOME ELIGIB LE FOR GRANT OF RELIEF UNDER ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 13 SECTION 80IB OF THE ACT MUST BE THE INDUSTRIAL UNDE RTAKING ITSELF AND NOT ANY OTHER SOURCE. THE MANDATE OF LAW IS THAT UNLESS THE SOURC E OF THE PROFIT IS THE UNDERTAKING, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 80IB OF THE ACT. MERE COMMERCIAL CONNECTION BETWEEN THE INC OME AND THE INDUSTRIAL UNDERTAKING WOULD NOT BE SUFFICIENT. THE DERIVATION OF THE INCOME MUST BE DIRECTLY CONNECTED WITH THE BUSINESS IN THE SENSE THAT THE I NCOME IS GENERATED BY THE BUSINESS. IT WOULD NOT BE SUFFICIENT IF IT IS GENER ATED BY THE EXPLOITATION OF A BUSINESS ASSET. 14.4 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS.GASKETS AND RADIATORS DISTRIBUTORS, 296 ITR 440(GUJ) IN THE CON TEXT OF DEDUCTION U/S 80HHC OF THE ACT IN RESPECT OF INCOME ON ACCOUNT OF INTEREST ON FIXED DEPOSITS HELD IDENTICAL QUESTION CAME TO BE CONSIDERED BY THE HO N'BLE SUPREME COURT IN PANDIAN CHEMICALS LTD. V. CIT [2003] 262 ITR 278 AND THE QUESTION, WHICH WAS POSED FOR CONSIDERATION BEFORE THE APEX COURT WAS W HETHER THE INTEREST ON DEPOSITS WITH THE TAMIL NADU ELECTRICITY BOARD SHOU LD BE TREATED AS INCOME DERIVED BY THE INDUSTRIAL UNDERTAKING FOR THE PURPO SE OF SECTION 80HH OR NOT, AND THE HON'BLE SUPREME COURT HAS OBSERVED THAT SECTION 80HH OF THE INCOME-TAX ACT GRANTS DEDUCTION IN RESPECT OF PROFITS AND GAIN S 'DERIVED FROM' AN INDUSTRIAL UNDERTAKING AND THE WORDS 'DERIVED FROM' IN SECTION 80HH OF THE INCOME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEE'S INDUSTRIAL UNDERTAKING. THE SUP REME COURT HELD THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE ON DEPOSITS MADE WITH THE TAMIL NADU ELECTRICITY BOARD FOR THE SUPPLY OF ELEC TRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTA KING FOR THE PURPOSE OF THE SAID DEDUCTION UNDER SECTION 80HH. IN G.T.N. TEXTIL ES LTD. V. DY. CIT [2005] 279 ITR 72 , THE KERALA HIGH COURT HELD THAT INTEREST ON BANK DEPOSITS WAS NOT PROFIT DERIVED FROM EXPORT OF GOODS. THE KERALA HIGH COURT HAS FURTHER HELD THAT THE INTEREST EARNED BY THE ASSESSEE ON FIXED DEPOSITS, COMMISSION RECEIVED ON SALE OF MACHINERY, ETC., WERE NOT BUSINESS INCOME AND CO NSEQUENTLY THE ASSESSEE WAS NOT ENTITLED TO COMPUTATION OF ELIGIBLE DEDUCTI ON UNDER SECTION 80HHC OF THE ACT BY INCLUDING THOSE RECEIPTS UNDER BUSINESS INCO ME. THEREFORE, CONSIDERING THE AFORESAID TWO DECISIONS, WE MUST HOLD THAT THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME-TAX (APPEALS), BOTH COMMITTE D AN ERROR IN TREATING THE INTEREST ON DEPOSITS AS 'BUSINESS INCOME' AND GRANT ING THE ASSESSEE THE DEDUCTION UNDER SECTION 80HHC OF THE ACT.. ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 14 15. IN THE INSTANT CASE, AS ALREADY POINTED OU T , THE LD. CIT(A) HAS NOT RECORDED ANY FINDINGS AS TO WHETHER OR NOT RECEIPTS ON ACCOU NT OF INTEREST OR MOTOR HIRE CHARGES WERE DERIVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND WHETHER ANY EXPENDITURE WAS ALSO AC TUALLY INCURRED BY THE ASSESSEE IN EARNING THESE RECEIPTS. A MERE GLANCE A T THE OBSERVATIONS OF THE LD. CIT(A) IN PARA 5.2.1 & 5.2.2 OF HIS ORDER REVEALS T HAT THE LD. CIT(A) HAVE NOT PASSED A SPEAKING ORDER. WE ARE OF THE OPINION THAT THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST IT SELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT MANDATES THAT THE ORDE R OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHA LL STATE THE POINTS FOR DETERMINATION, THE DECISION THEREON AND THE REASON FOR THE DECISION. AS IS APPARENT FROM THE IMPUGNED ORDER, IN OUR OPINION, T HE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE, NAMELY, THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER, WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAISED BEFORE IT. TH E REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDURE AND SAFEGUARD TO ENSURE O BSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARITY, CHECKS THE INTRODUCTION OF E XTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE D ECISION-MAKING PROCESS. WE MAY POINT OUT THAT A DECISION DOES NOT MERELY MEA N THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB,(1995)1SCC 760(SC)]. 15.1 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN T HE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ,WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ISSUE RAISED IN THIS GROUND NO.3 TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCORDANCE WITH LAW, AFTER ALLOWIN G SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES AND KEEPING IN VIEW THE VARIOUS JUDICIA L PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL, THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE ITA NO.2121/AHD/07 FOR AY 2004-05 PRABHUDAS KISHORDAS TOBACCO PRODUCT PVT. LTD. 15 MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. W ITH THESE OBSERVATIONS, GROUND NO. 3 IS DISPOSED OF. 16. GROUND NOS. 4 & 5 BEING GENERAL IN NATURE, DO NOT CALL FOR ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED . 17. IN THE RESULT, APPEAL IS PARTLY ALLOWE D, BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 2-7-2010 SD/- SD/- (D T GARASIA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 2-7-2010 COPY OF THE ORDER FORWARDED TO: 1. PRABHUDAS KISHORDAS TOBACCO PRODUCTS PVT. LTD. 6 59/1, GULBAI TEKRA, PANCHVATI, 2 ND LANE, AHMEDABAD 2. THE ACIT, CIRCLE-5, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD