Royal Exports, New Delhi V. ACIT Central Circle-16, New Delhi

ITA 2402/DEL/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2129 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-12-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 27-06-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V R SANBHAD RA
• Assessee Lawyers: DR RAKESH GUPTA; SOMIL AGRAWAL ADVS
• Keywords: Business income; TDS; Set aside
• Section: 80HHC; 10B; 191; 12

Judgement Text

1 ITA NOS. 2 402/D/2008 & 721/D/2009 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT ME MBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO.-2402/DE L/2008 (ASSESSMENT YEAR-2004- 05) M/S ROYAL EXPORTS, 2719, BANK STREET, KAROL BAGH, NEW DELHI. AADER6282N VS ACIT, CENTRAL CIRCLE 16, NEW DELHI. & I.T.A .NO.-721/DEL/2009 (ASSESSMENT YEAR-2005- 06) M/S ROYAL EXPORTS, 2719, BANK STREET, KAROL BAGH, NEW DELHI. AADER6282N VS ACIT, CENTRAL CIRCLE 16, NEW DELHI. APPELLANT BY DR. RAKESH GUPTA & SH. SOMIL AGRAWAL, ADVS. RESPONDENT BY SHRI V.R. SANBHADRA, SR. DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T TWO SEPARATE ORDERS DATED 25/04/2008 FOR A.Y. 2004-05 A ND ORDER DATE OF HEARING 16.12.2015 DATE OF PRONOUNCEMENT 22.02.2016 2 ITA NOS. 2 402/D/2008 & 721/D/2009 DATED 15/01/2009 FOR A.Y. 2005-06 BY LD. CIT(A)-II, NEW DELHI ON THE FOLLOWING GROUNDS OF APPEAL: GROUNDS OF ITA NO. 2402/DEL/2008 : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN HOL DING THAT THERE WAS NO NEXUS BETWEEN THE INTEREST PAYMENT AND INTEREST RECEIVED ON FDR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN HOL DING THAT INTEREST ON FDR WAS TAXABLE AS INCOME FROM OTHER SO URCES IN ALL THE CASES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN DIS MISSING THE APPEAL OF THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN NOT ALLOWING NETTING OF INTEREST AS RIGHTLY ARGUED AND SUBMITTED DURING APPEAL PROCEEDINGS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN HOL DING THAT ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 10A IN R ESPECT OF AMOUNT OF RS. 8,35,507/-. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN NOT CONSIDERING VARIOUS JUDGMENT CITED DURING APPEAL PROCEEDINGS AND REJECTING THE SAME WITHOUT ANY DISC USSION IN THE APPEAL ORDER. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) WAS INCORRECT AND UNJUSTIFIED IN HOL DING THAT THE AMOUNT OF RS. 8,35,507/- WAS TAXABLE. GROUNDS OF ITA NO. 721/DEL/2009 : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS INCORRECT AND UNJUSTIFIED I N DISMISSING THE APPEAL OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) WAS INCORRECT AND UNJUSTIFIED I N SUSTAINING THE ACTION OF THE ASSESSING OFFICER IN E XCLUDING 3 ITA NOS. 2 402/D/2008 & 721/D/2009 THE INTEREST INCOME OF RS. 1,80,71,744/- FROM THE D EDUCTION CLAIMED U/S 10A/10B OF THE INCOME TAX ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) WAS INCORRECT AND UNJUSTIFIED I N HOLDING THAT THE ASSESSEE WAS NOT ENTITLED FOR ANY BENEFIT OF SET OF AGAINST INTEREST INCOME RECEIVED ON FIXED DEPOSITS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) WAS INCORRECT AND UNJUSTIFIED I N EXCLUDING THE GROSS INTEREST INCOME FROM THE COMPUTATION OF D EDUCTION U/S 10A/10B OF THE INCOME TAX ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) WAS INCORRECT AND UNJUSTIFIED I N RELYING ON THE JUDGMENT OF MUMBAI BENCH REPORTED IN 23 SOT 271 . 2. BRIEF FACTS OF THE CASE ARE THAT: THE ASSESSEE FIRM ESTABLISHED IN NOIDA EXPORT PROCE SSING ZONE IS ENGAGED IN MANUFACTURE AND HUNDRED PERCENT EXPORT O F GOLD JEWELLERY. THE ASSESSEE HAS BEEN CLAIMING EXEMPTIO N U/S 10A/10B OF THE INCOME TAX ACT AND SUCH EXEMPTION HAS BEEN A LLOWED IN ALL THE PRECEDING ASSESSMENT YEARS. HOWEVER, IN THIS A SSESSMENT YEAR, THE ASSESSING OFFICER, AS PER THE ASSESSMENT ORDER HELD THAT THE INTEREST OF RS. 8,33,507/- RECEIVED ON FDRS WAS NOT DERIVED FROM THE EXPORT AND, THEREFORE, THIS AMOUNT WAS NOT ENTITLED FOR SUCH EXEMPTION AND ACCORDINGLY, HE DISALLOWED THE S AME. 2.1. THE MATTER WENT BEFORE THE CIT(A) WITH NO RELI EF. BUT THE CIT(A) AGREED THAT THE INVESTMENT IN FDR WAS FOR BU SINESS PURPOSE AND THE INTEREST INCOME CAN BE TAKEN AS BUSINESS IN COME OF THE ASSESSEE. HE ALSO FURTHER HELD THAT THE FDRS WERE UTILIZED AS MARGIN MONEY AGAINST VARIOUS CREDIT FACILITIES. FD R WAS NOT INVESTED FOR EARNING ANY INCOME ONLY. EVEN AFTER S UCH FINDINGS AND OBSERVATIONS, THE CIT(A) RELYING ON THE HONBLE DEL HI HIGH COURT 4 ITA NOS. 2 402/D/2008 & 721/D/2009 JUDGMENT IN THE CASE OF KRAFT LAND INDIA REPORTED I N 162 TAXMAN123, AGREED WITH THE ASSESSING OFFICER DISMIS SED THE APPEAL. THE HONBLE ITAT AGREED WITH THE AUTHORITIE S BELOW RELYING ON THE HONBLE DELHI HIGH COURT JUDGMENT IN THE CAS E OF KRAFT LAND INDIA(SUPRA). 2.2. THE MATTER WENT BEFORE THE HONBLE DELHI HIGH COURT, WHERE THE MATTER WAS SET ASIDE AND OBSERVED THAT IF THE I NTEREST ON FDRS HAS SOME NEXUS WITH THE BUSINESS, IT CAN BE VIEWED OR SCRUTINIZED DIFFERENTLY. TO PUT IT OTHERWISE, THE HONBLE DELH I HIGH COURT DID NOT AGREE WITH THE KRAFT LAND(SUPRA). ON THE CONTR ARY, THE HONBLE COURT REFERRED TO THE JUDGMENTS IN THE CASE OF CIT VS. EXCELLENT COMMERCIAL ENTERPRISES AND FINANCE LTD., REPORTED I N 282 ITR 423 AND CIT VS. KOSSICA TELECOM LTD., REPORTED IN 287 I TR 479. THE HONBLE COURT ALSO RELIED VERY HEAVILY ON THE HONB LE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. PRODUCTION (P ) LTD., REPORTED IN (2010) 191 TAXMAN 79 . 2.3. THE HONBLE DELHI HIGH COURT SENT BACK THE ISS UE TO THIS TRIBUNAL VIDE ORDER DATED 12.07.2010 PASSED IN ITA NO.730/2010, FOR FRESH ADJUDICATION BY TAKING FACTUAL SCENARIO I NTO CONSIDERATION AND THE LAW APPLICABLE. THE HONBLE JURISDICTIONAL HIGH COURT IN ITS ORDER DATED HAS REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PRODUCTION (P.) LTD.(SUPRA). IN THE LIGHT OF THE RATIO LAID ON IN PRODUCTION (P.) LTD. (SUPRA) THE HONBLE JURISDICTIONAL HIGH COURT HAS OBSERVED THAT IS AN INCOME IS RECEIV ED FROM THE INTEREST ON FDR AND IT HAS SOME NEXUS WITH THE INDU STRIAL 5 ITA NOS. 2 402/D/2008 & 721/D/2009 UNDERTAKING OR BUSINESS UNDERTAKING, IT CAN BE VIEW ED OR SCRUTANISED DIFFERENTLY. 3. AS PER THE ABOVE SCENARIO, THE POSITION BOILS DO WN WHETHER FDRS WERE TAKEN FOR THE PURPOSE OF THE BUSINESS. THE IN TEREST INCOME WOULD ALSO BE BUSINESS INCOME AND NOT INCOME FROM O THER SOURCES IF THERE IS SOME NEXUS. ONCE IT IS A BUSINESS INCO ME, DEDUCTION U/S 10A/10B WOULD BE ALLOWABLE. 3.1. IN BRIEF, THE FACTS ARE THAT THE ASSESSEE IS A FIRM BEING 100% EXPORT ORIENTED UNDERTAKING (EOU), AND IS ENGAGED I N MANUFACTURE AND EXPORT OF GOLD JEWELLARY. FOR THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2004-05, ASSESSEE FILED A RETURN OF INCOME DECLARING RS. 9,15,130/-. IN THE RETURN OF INCOME, ASSESSEE HAD CLAIMED DEDUCTION U/S 10B OF THE ACT. IN THE ASSES SMENT PROCEEDINGS, ASSESSING OFFICER NOTED THAT ASSESSEE HAD INCLUDED A SUM OF RS. 8,35,507/-, REPRESENTING INTEREST EARNED ON FDRS WITH BANK, FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 1 0B OF THE ACT. THE ASSESSEE CONTENDED THAT IT HAS BEEN CLAIMING EX EMPTION U/S.10A FOR THE LAST NUMBER OF YEARS AND SUCH EXEMP TION WAS ALLOWED IN ALL THE PRECEEDING ASSESSMENT YEARS FROM 2000-01 TO 2002-03. THE ASSESEE CONTENDED THAT SIMILAR INCOME HAD ARISEN IN WHEREIN CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B WAS ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEAS OF THE ASSESSEE DISALLOWED THE INTEREST ON FD RS FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 10B OF THE ACT. 3.2. THE ASSESSEE HAS TAKEN CREDIT FACILITIES FROM DIFFERENT BANKS. FROM THESE BANKS THE ASSESSEE HAS TAKEN PACKING CRE DIT LIMIT AND 6 ITA NOS. 2 402/D/2008 & 721/D/2009 BANK GUARANTEE LIMITS FOR WHICH THE FIRM HAS GIVEN MARGIN MONEY TO THE BANK IN THE SHAPE OF FDRS AND COLLATERAL SEC URITIES. THE BANK DEBITED CHARGES FOR BANK GUARANTEE COMMISSION AND PACKING CREDIT INTEREST AND CREDITED INTEREST ON FDR AMOUNT . FROM THE CREDIT FACILITIES AVAILABLE WITH THE BANK THE ASSES SEE GOT ISSUED BANK GUARANTEE IN FAVOUR OF M/S. MMTC LD. THE MMTC LTD. IN TURN DELIVER THE GOLD ON LOAN. FROM SUCH GOLD THE ASSESSEE MANUFACTURE JEWELLERY AND EXPORT THE SAME TO THE BU YER. ON RECEIPT OF THE PAYMENTS FROM BUYERS THE ASSESSEE MA KE PAYMENTS TO MMTC AND AGAIN TAKE DELIVERY OF GOLD. 3.3. THE LD. AR SUBMITTED THAT IN THE YEAR UNDER CO NSIDERATION, THE ASSESSEE FIRM WAS GRANTED NON-FUND GUARANTEE LI MIT OF RS. 5 CRORES BY THE STATE BANK OF INDIA. THE ASSESSEE FI RM HAS TO PROVIDE BANK GUARANTEE BY DEPOSITING 25% MARGIN MONEY WITH THE BANKS AS FDR TO MMTC FOR OBTAINING THE GOLD AND THEN GOLD MANUFACTURE JEWELLERY AND EXPORT THE SAME. HE HAS PREPARED A C HART SHOWING THE TOTAL FDRS PURCHASED IN THE YEAR UNDER CONSIDER ATION FROM WHERE THE INTEREST OF RS. 8,34,507/- HAS BEEN EARNE D. AS PER THE PAPER BOOK, THE FDRS FROM THE THREE BANKS WERE OBTA INED BY RAISING LOAN FROM THE BANKS FOR WHICH THE ASSESSEE WAS GRANTED BG/PCL LIMIT. THE COMPLETE DETAILS IN THIS REGARD FROM ALL THE THREE BANKS ARE CONTAINED AT PAGES 1 TO 35 OF THE P APER BOOK FILED BY THE ASSESSEE ON 11/10/2013. 3.4. THE LD. AR FURTHER SUBMITTED THAT THESE DETAIL S ABSOLUTELY DEMONSTRATE THAT THERE IS A COMPLETE NEXUS BETWEEN THE FDRS AND BUSINESS OF THE ASSESSEE. THE ASSESSEE RECEIVED GO LD FOR THE 7 ITA NOS. 2 402/D/2008 & 721/D/2009 PURPOSE OF ITS BUSINESS ONLY ON THE BASIS OF THE FD RS WHICH WERE USED AS MARGIN MONEY AND IN THE ABSENCE OF FDRS, IT WAS NOT POSSIBLE FOR ASSESSEE TO CARRY ON ITS BUSINESS. 3.5. THE LD. AR PLACED HIS RELIANCE ON THE DECISION OF BANGALORE BENCH IN THE CASE OF CIT VS. MOTOROLA INDIA ELECTRO NICS P. LTD. REPORTED IN (2007) 112 TTJ 562. IN THIS CASE THE A SSESSEE HAD CLAIMED DEDUCTION U/S 10B ON INTEREST EARNED ON DEP OSITS HELD IN EEFC A/C AND INTER CORPORATE LOANS ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERN. SUCH INCOME WAS HELD ASSESSABL E AS BUSINESS INCOME AND ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SE CTIONS 10A/10B OF THE ACT. IN COMING TO SUCH CONCLUSION, THE BENC H HAS SPECIFICALLY NOTED THE RELEVANT PROVISIONS OF SECTI ON 10B, AS IT STOOD FOR AY 2003-04. FOLLOWING DISCUSSION BY THE TRIBUN AL IN THE HEAD NOTE IS WORTHY OF NOTICE: COMING TO THE AY 2001-02, THE ACT HAS UNDERGONE A CHANGE. SECTION 10B HAS UNDERGONE A CHANGE. EARLI ER, IT WAS AN EXEMPTION SECTION AND INCOME FROM THESE UNDERTAKINGS WHICH ARE COVERED BY THIS SECTION DID NOT FORM PART OF TOTAL INCOME. FROM THIS PARTICULAR YE AR, THOUGH THE SECTION APPEARS IN CHAPTER III, WHICH CLASSIFIES INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME, A DEDUCTION FROM BUSINESS INCOME FROM THE UNDERTAKING IS GRANTED BY INCLUDING THE SPECIAL PROVISION. ANOTHER IMPORTANT FEATURE IN SUB-S. (4) OF SEC. 10B IS THAT THE METHODOLOGY OF ARRIVING AT THE EXPORT PROFITS OF THE BUSINESS OF THE UNDERTAKING I S GIVEN IN A FORMULA, AS IN THE CASE OF SECTION 80HHC . THE TERMINOLOGY USED IN SUB-S. (4) OF SEC. 10B IS PROFITS OF THE BUSINESS OF THE UNDERTAKING IN CONTRADISTIN CTION TO THE WORDS PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM A 100 PER CENT EXPORT ORIENTED UNDERTAKING. THE TERM FROM THE BUSINESS OF IS MU CH 8 ITA NOS. 2 402/D/2008 & 721/D/2009 WIDER THAN THE TERM DERIVED FROM INDUSTRIAL UNDERTAKING. KEEPING THIS DISTINCTION IN MIND, TH E ENTIRE PROFITS DERIVED FROM THE BUSINESS OF UNDERTA KING SHOULD BE TAKEN INTO CONSIDERATION, WHILE COMPUTING THE ELIGIBLE DEDUCTION U/S 10B/10A, BY APPLYING THE MANDATORY FORMULA. IF THE LEGISLATURE INTENDED TO EXCLUDE INTEREST FROM THE TERM PROFITS OF BUSINESS OF UNDERTAKINGS UNDER SECTION 10A/10B. THUS, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTIONS 10A AND 10B ON THE LINES INDICATED ABOVE FOR THE A.Y. 2001-02. 180 CRE (MAD .) 40 : (2003) 259 ITR 403 (MAD) AND (2003) 179 CTR (MAD) 522 : (2003) 260 ITR 304 (MAD) DISTINGUISHED. 4. THE LD. DR HAS PLACED HIS RELIANCE UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT, REPORTED IN (2009) 317 ITR 218. IN THIS BACKGROUND, WE MAY NOW EXAMINE THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10B OF THE ACT IN RELATION TO THE IMPUGNED INCOME. WE HAVE PERUSED THE RECORDS PLACED BEFORE U S, THE ARGUMENTS ADVANCED BY BOTH THE COUNSELS AND THE JUD GMENTS RELIED UPON BY THEM. 6.1. IT IS OBSERVED FROM THE ORDER OF THE LD.CIT(A) FOR ASSESSMENT YEAR 2004-05 THAT THE LD.CIT(A) HAS HELD THE INTERE ST FROM FDRS TO BE INEXPLICABLY LINKED WITH THE BUSINESS OF THE AS SESSEE. THE LD.CIT(A) HAS ALSO HELD THAT SUCH INTEREST FROM FDR S, EARNED BY THE ASSESSEE IS NOT BY VIRTUE OF ANY ACTIVITY OR VE NTURE, IT IS AUTOMATIC ON THE INVESTMENT OF THE FDRS. THE LD.CI T(A) AGREES WITH THE FACT THAT THE FDRS WERE INVESTED NOT TO E ARN ANY INCOME BUT FOR UTILIZING THE SAME AS MARGIN MONEY AGAINST VARIOUS CREDIT 9 ITA NOS. 2 402/D/2008 & 721/D/2009 FACILITIES AVAILED BY THE ASSESSEE AND THAT THE ASS ESSEE HAD NO INTENTION OF EARNING ANY INCOME FROM FDRS. THE LD .CIT(A) HAS ALSO HELD THAT THE MAIN INTENTION OF INVENTING IN FDRS WAS TO KEEP THEM AS SECURITY FOR THE PURPOSES OF BUSINESS, AND HENCE THE INTEREST INCOME CAN BE TAKEN AS BUSINESS INCOME OF THE ASSESSEE. 6.2. WE HAVE ALSO PERUSED THE AGREEMENT DATED 29.08 .2003, BETWEEN THE ASSESSEE AND STATE BANK OF INDIA, FOR A VAILING THE CREDIT FACILITY, WHICH HAS BEEN PLACED AT PAGES 2-5 OF THE PAPER BOOK. CLAUSE B OF THE TERMS AND CONDITIONS SPECIFIE S THAT THE ASSESSEE WILL HAVE TO TAKE A BANK GUARANTEE OR LETT ERS OF CREDIT TO AN EXTENT OF 5 CRORES FOR AVAILING THE CREDIT FACIL ITY. IT IS ALSO PERTINENT TO NOTE FROM THE PAPER BOOK PLACED BEFORE US THAT THE STATE BANK OF INDIA HAS ALSO DEDUCTED TDS ON THE IN TEREST EARNED BY THE ASSESSEE. 6.3. THE S. 10B(1) AND (4) READS AS FOLLOWS : '10B (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER C ENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE. 10B(2) .... 10 ITA NOS. 2402/D/2008 & 721/D/2009 10B (3) ..... 10B (4) FOR THE PURPOSES OF SUB-S. (1), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTA KING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.' 6.4. OTHER SUB-SECTIONS OF THIS SECTION ARE NOT RE LEVANT FOR THE ISSUE IN DISPUTE. THE ABOVE SECTION SUPPORTS THE ARGUMENT OF THE LEARNED COUNSEL FOR ASSESSEE. THE SECTION HAS UNDERGONE A C HANGE. EARLIER, IT WAS AN EXEMPTION SECTION AND INCOME FROM THESE U NDERTAKINGS WHICH ARE COVERED BY THIS SECTION DID NOT FORM PART OF TOTAL INCOME. FROM ASSESSMENT YEAR 2001-02, THE SECTION APPEARS I N CHAPTER III, WHICH CLASSIFIES INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME, A DEDUCTION FROM BUSINESS INCOME FROM THE UNDERTAKING IS GRANTED BY INCLUDING THE SPECIAL PROVISION. 6.5. ANOTHER IMPORTANT FEATURE IN SUB-S. (4) IS TH AT THE METHODOLOGY OF ARRIVING AT THE EXPORT PROFITS OF THE BUSINESS O F THE UNDERTAKING IS GIVEN IN A FORMULA, AS IN THE CASE OF S. 80HHC AND IT SHALL BE THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO TOT AL TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE. THE WORD 'SHALL' HAS BEEN USED TO MAKE IT MANDATORY. ANOTHER IMPORTANT FEATURE IS THAT THE TERMINOLOGY USED IN SUB-S. (4) IS 'PROFITS OF THE BUSINESS' OF THE UNDERTAKING IN CONTRADISTINCTION T O THE WORDS 11 ITA NOS. 2402/D/2008 & 721/D/2009 'PROFITS AND GAINS DERIVED BY THE ASSESSEE' FROM A 100 PER CENT EXPORT ORIENTED UNDERTAKING. 6.6. FROM THE ABOVE DISCUSSIONS THERE IS NO DOUBT T HAT THE INTEREST EARNED BY THE ASSESSEE FROM FDRS WERE INEXPLICABLY LINKED WITH THE BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. S ECTION 10B OF THE ACT, AS IT STOOD FOR THE RELEVANT ASSESSMENT YEAR U NDER CONSIDERATION, PROVIDED FOR DEDUCTION OF SUCH PROFI T AND GAINS AS ARE DERIVED BY 100% EOU FROM THE EXPORT OF ARTICLE OR THINGS. SUB SECTION 4 OF SECTION 10B PRESCRIBES THAT THE PROFIT S DERIVED FROM EXPORT OF ARTICLE OR THINGS SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFIT OF THE UNDERTAKING, THE SAME PROPORTION AS T HE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER OF THE BUSINES S CARRIED ON BY THE UNDERTAKING. IT ONLY NEEDS TO BE NOTED THAT SU B-SECTION (1) OF SECTION 10B PRESCRIBES A DEDUCTION FOR SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED U NDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS.. AND SUB-SECTION (4) OF SECTION 10B PRESCRIBES THE METHODOLOGY TO COMPUTE THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS FOR THE PURPOSES OF SUB-SECTION (1) OF SECTION 10B. 6.4. THE LD.AR HAS PLACED RELIANCE ON THE DECISION OF MOTOROLA ELECTRONICS INDIA (P.) LTD.,(SUPRA). 6.5. COMING TO THE DECISION RELIED UPON BY THE REVE NUE IN LIBERTY INDIA(SUPRA), DOES NOT APPLY TO THE FACTS OF THE PR ESENT CASE IN HAND AS IT DEALS WITH THE INCOME THAT HAS BEEN REMITTED BY THE CENTRAL GOVERNMENT(U/S.75 OF THE CUSTOMS ACT) UNDER DEPB SC HEME, U/S.80 HHC. 12 ITA NOS. 2402/D/2008 & 721/D/2009 7. THEREFORE, INTEREST INCOME WHICH CONSTITUTED BUS INESS PROFITS OF THE EOU COULD NOT BE EXCLUDED FROM THE PURVIEW OF S ECTION 10B, HAVING REGARD TO THE METHOD OF COMPUTATION OF PROFI TS DERIVED FROM BUSINESS PROVIDED IN SECTION 10B(4) OF THE ACT. 7.1. THUS, IN VIEW OF THE ABOVE DISCUSSION, WE AGRE E WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR ASSESSEE AND DIRECT THE AO TO RECOMPUTE THE DEDUCTION UNDER SS. 10A AND 10B OF THE ACT ON THE LINES INDICATED ABOVE FOR THE ASST. YRS. 2004-0 5 AND 2005-06. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS ALLOWED IN THE ASST. YR. 2004-05 AND 2005-06. 7.2. THE ASSESSEES APPEALS FOR A.Y. 2004-05 AND 20 05-06, STANDS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 22.02. 2016 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22.02.2016 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 13 ITA NOS. 2402/D/2008 & 721/D/2009 DATE 1. DRAFT DICTATED ON 21.12.15 2. DRAFT PLACED BEFORE AUTHOR 28.12.15/22.02.2016 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 22.2.16 6. KEPT FOR PRONOUNCEMENT ON 22.2.16 7. FILE SENT TO THE BENCH CLERK 22.2.16 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.