M/s.Kumarakom Lake Resort P. Ltd, Cochin V. The ACIT, Cochin

ITA 242/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7475 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 05-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR; SHANTAM BOSE
• Assessee Lawyers: BALAKRISHNAN K
• Section: 143(3); 115JB; 80IB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO. 240-242/COCH/2015 ASSESSMENT YEARS : 2007-08,2008-09 & 2010-11 M/S.KUMARAKOM LAKE RESORT PVT. LTD., DOOR NO. 64, KAIRALI APARTMENTS, PANAMPILLY NAGAR, KOCHI-682 017. [PAN:AABCK 1974B] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI BALAKRISHNAN K., CA REVENUE BY SHRI SHANTAM BOSE, CIT(DR) AND SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 03/02/2016 DATE OF PRONOUNCEMENT 01/03/2016 O R D E R PER BENCH: THESE THREE APPEALS AT THE INSTANCE OF THE ASS ESSEE ARE DIRECTED AGAINST THE TWO ORDERS OF THE CIT(A) BOTH DATED 20/10/2015. THE RELEVANT ASSESSMENT YEARS ARE 2007-08, 2008-09 AND 2010-11. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS AND THEY PERTAIN TO THE SAME ASSESSEE, THESE APPEALS WERE HEARD TOGETHE R AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. I.T.A. NOS.240-242/COCH/2015 2 3. IDENTICAL GROUNDS ARE RAISED IN THESE APPEALS, HENCE, THE GROUNDS RELATING TO THE ASSESSMENT YEAR 2007-08 ARE REPRODU CED BELOW: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND C ONSIDERING THE PROVISIONS IN LAW, THE LEARNED COMMISSIONER OF INCO ME-TAX(APPEALS)-I (CIT(A) WHILE CONSIDERING THE CLAIM OF THE ASSES SEE FOR DEDUCTION U/S. 80IB(7) (A) OF THE INCOME TAX ACT, 1961 (ACT) HAS ERRED IN DISALLOWING THE RECEIPTS EARNED BY THE ASSESSEE UNDER VARIOUS H EADS OF INCOME WHICH HAVE A DIRECT NEXUS TO THE BUSINESS ACTIVITIE S OF THE ASSESSEE AND WITHOUT CONSIDERING THE FACT THAT THE SAME IS ELIGI BLE FOR A DEDUCTION U/S. 80IB(7)(A) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE L EARNED CIT(A) HAS ERRED IN DISALLOWING THE ENTIRE AMOUNT OF OTHER INC OME DERIVED FROM THE BUSINESS OF THE ASSESSEE WITHOUT CONSIDERING THE FA CT THAT THE PORTION OF OTHER INCOME HAS ALREADY BEEN OFFERED TO TAX IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007-08. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 4. FIRST WE SHALL CONSIDER THE FACTS FOR THE ASSES SMENT YEAR 2007-08 AND ADJUDICATE THE ISSUES THEREIN WHICH WILL BE BINDING ON THE OTHER ASSESSMENT YEARS NAMELY 2008-09 AND 2010-11. 5. THE BRIEF FACTS IN RESPECT OF THE ASSESSMENT Y EAR 2007-08 ARE AS FOLLOWS: THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHICH IS ENGAGED IN THE BUSINESS OF RUNNING HOTEL BY THE NAME AND STYLE OF KUMARAKO M LAKE RESORT. FOR I.T.A. NOS.240-242/COCH/2015 3 THE RELEVANT ASSESSMENT YEAR, THE RETURN OF INCOME WAS FILED ON 14/11/2007 DECLARING NIL INCOME UNDER THE NORMAL PROVISIONS AND A SUM OF RS.3,67,18,179/- AS BOOK PROFITS U/S. 115JB OF THE INCOME TAX ACT, 1961. THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ON 22/12/2009 MAKING CERTAIN DISALLOWANCES. SUBSEQUENTLY, THE AS SESSING OFFICER ISSUED NOTICE U/S. 148 AND RE-ASSESSMENT U/S. 143(3) R.W.S . 147 OF THE ACT WAS COMPLETED VIDE ORDER DATED 29/07/2013. IN THE RE-AS SESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION U/S. 80-IB(7)(A) OF THE INCOME TAX ACT AMOUNTING TO RS.6,84,491/- , FOR THE REASON THAT THE ASSESSEE HAD NOT RECEIVED APPROVAL FROM THE DIRECTO R GENERAL OF INCOME TAX (DGIT) (EXEMPTION). THE ASSESSING OFFICER ALSO EXCLUDED OTHER INCOME EARNED BY THE ASSESSEE AMOUNTING TO RS.9,85 ,097/- FROM THE PURVIEW OF BUSINESS PROFITS FOR THE PURPOSE OF CALC ULATING DEDUCTION U/S. 80IB(7)(A) OF THE ACT STATING THAT THE SAME IS NOT DERIVED FROM THE BUSINESS OF THE HOTEL. 6 . AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO TH E FIRST APPELLATE AUTHORITY. THE CIT(A) TAKING NOTE OF THE SUBSEQUEN T APPROVAL FROM THE DGIT(EXEMPTION) HELD THAT THE ASSESSEE IS ENTITLED T O DEDUCTION U/S. 80IB(7)(A) OF THE I.T. ACT. WITH REGARD TO THE EXCL USION OF OTHER INCOME FOR THE PURPOSE OF CALCULATING DEDUCTION U/S. 80IB(7)(A ), THE CIT(A) CONFIRMED THE ASSESSMENT ORDER. I.T.A. NOS.240-242/COCH/2015 4 7. AGGRIEVED BY THE CIT(A)S ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. THE ASSESSEE HAS FILED THREE SETS OF PAPER BOOKS FOR E ACH OF THE ASSESSMENT YEARS, INTER ALIA , CONTAINING COMPUTATION STATEMENTS, BALANCE SHEET A ND VARIOUS JUDICIAL PRONOUNCEMENTS. THE LD. COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUT HORITY. 8. THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE INCOME IS ENUMERATED AS OTHER INCOME DOES NOT HAVE DIRECT NEXUS WITH T HE RUNNING OF THE HOTEL. IT WAS SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE A PEX COURT IN THE CASE OF CIT VS. STERLING FOODS REPORTED IN 104 TAXMAN 204, THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF 80IB(7)(A) OF THE ACT IN RESPECT OF VARIOUS RECEIPTS MENTIONED AS OTHER INCOME. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THE FOLLOWING ISSUES ARISE FOR OUR CONSIDERATION, N AMELY:- I) WHETHER THE CIT(A) IS JUSTIFIED IN DISALLOWING THE ENTIRE AMOUNT OF OTHER INCOME DERIVED FROM THE BUSINESS OF THE ASSES SEE WITHOUT CONSIDERING THE FACT THAT THE INTEREST INCOME ON FI XED DEPOSIT OF RS.237,410 HAS ALREADY BEEN OFFERED TO TAX IN THE R ETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2007-08. II) WHETHER THE CIT(A) IS JUSTIFIED IN EXCLUDING O THER INCOME EARNED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF DEDUCTION U /S. 80IB(7)(A) OF THE ACT. I.T.A. NOS.240-242/COCH/2015 5 DURING THE ASSESSMENT YEAR 2007-08, THE FOLLOWING I NCOME EARNED BY THE ASSESSEE COMPANY WAS GROUPED UNDER THE HEAD OTHER INCOME AND THE DETAILED SPLIT UP OF THE OTHER INCOME EARNED BY THE ASSESSEE COMPANY ARE AS FOLLOWS: SL. NO PARTICULARS NATURE OF INCOME AMOUNT (INR) 1. INTEREST INCOME INTEREST ON FIXED DEPOSIT FROM SIB (KUMARAKOM) 237,410 2. RENT RECEIVED FROM HERITAGE SHOP CURIO SHOP 180,000 3. RENT ON AMENITIES TO M/S. KUMARAKOM WATER TRANSPORT PVT. LTD. HOUSEKEEPING AND RESTAURANT SERVICE 120,000 4. REVENUE FROM STAFF MESS REVENUE FROM STAFF MESS USED BY THE GUEST DRIVERS 7,139 5. REVENUE FROM STAFF TELEPHONE REVENUE FROM TELEPHONE USED BY STAFF 90,048 6. OTHER MISCELLANEOUS INCOME INCOME FROM CLUB CULTURAL PROGRAMS/DJ ETC. 475,216 7. MISCELLANEOUS INCOME INCOME FROM SALE OF USED PACKING MATERIALS, RECOVERY OF MATERIAL DAMAGE FROM STAFF ETC. 112,695 TOTAL 1,222,507 OUT OF THE ABOVE OTHER INCOME, THE ASSESSEE HAD ALR EADY OFFERED INTEREST INCOME ON FIXED DEPOSIT FROM SIB, (KUMARAKOM) AMOUN TING TO RS.2,37,410/- TO BE TAXED IN THE RETURN OF INCOME. I.T.A. NOS.240-242/COCH/2015 6 9.1 FOR THE BALANCE AMOUNT OF RS.9,85,097 (RS.12,2 2,507-2,37,410/-), THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80IB(7)(A) OF T HE ACT. ACCORDING TO THE ASSESSEE, THE ABOVE MENTIONED RECEIPTS DESCRIBED AS OTHER INCOME HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE AND, ACCORDINGLY, IT WAS ELIGIBLE FOR DEDUCTION U/S. 80IB(7)(A) OF THE I.T. ACT. THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR COMPLETED U/S. 143(3) R.W.S . 147 OF THE ACT DISALLOWING THE CLAIM OF THE ASSESSEE FOR THE REASO N THAT OTHER INCOME EARNED BY THE ASSESSEE IS ONLY INCIDENTAL AND DOES NOT HAVE DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE COMPANY. THE CIT(A) FURTHER HELD THAT THOUGH OTHER INCOME APPEARS TO HAVE ARISEN FROM BUSINESS AND ITS RELATED ACTIVITIES OF THE ASSESSEE, IT CANNOT BE SAID TO HAVE BEEN DE RIVED FROM BUSINESS OF HOTEL. 9.2 AS REGARDS THE CIT(A)S INCLUSION OF INTEREST INCOME ON FD FROM SIB AMOUNTING TO RS. 2,37,410/- FOR THE PURPOSE OF DENI AL OF DEDUCTION U/S. 80IB(7)(A) OF THE ACT, ACCORDING TO US, IS MISCONCE IVED BECAUSE THE ASSESSEE COMPANY ITSELF HAD OFFERED THE SAME TO TAX. THIS IS EVIDENT FROM THE COMPUTATION OF TOTAL INCOME FOR THE RELEVANT ASSESS MENT YEAR WHICH IS ENCLOSED AS ANNEXURE A TO THE PAPER BOOK FILED FOR THE ASSESSMENT YEAR 2007-08. WHEN THE ASSESSEE ITSELF HAS ADDED BACK T HE AMOUNT TO THE P&L A/C, THE CIT(A) IS NOT JUSTIFIED IN INCLUDING THE S AME UNDER THE HEAD OTHER I.T.A. NOS.240-242/COCH/2015 7 INCOME FOR THE PURPOSE OF DENYING DEDUCTION U/S. 8 0IB(7)(A) OF THE ACT. IT IS ORDERED ACCORDINGLY. THEREFORE GROUND NO. 2 IS ALLO WED. 9.3 WITH REGARD TO THE OTHER RECEIPTS WHETHER IT IS ENTITLED TO DEDUCTION U/S. 80IB, NECESSARILY, WE HAVE TO EXAMINE THE MEANING O F THE WORD DERIVED FROM CONTAINED IN SECTION 80IB OF THE ACT. SECTIO N 80-IB OF THE ACT PROVIDES FOR DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS. AS PER THE PROVISIONS OF SECTION 80-IB OF THE ACT, DEDUCTION I S AVAILABLE TO PROFITS AND GAINS DERIVED FROM THE SPECIFIC BUSINESS. THE PHR ASE DERIVED FROM USED IN SECTION 80-IB IS HIGHLIGHTED FOR REFERENCE BELOW- WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUD ES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB- SECTIONS (3) TO (11), (11A) AND (11B) (SUCH BUSINESS BEING HEREINAF TER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMP UTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. 9.4 FURTHER, SUB-SECTION (7) TO SECTION 80IB REA DS AS FOLLOWS: (7) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY HOT EL SHALL BE (A) FIFTY PERCENT OF THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF SUCH HOTEL FOR A PERIOD OF TEN CONSECUTIVE YEARS.. 9.5 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDI A (ICAI) HAS PRESCRIBED TECHNICAL GUIDE ON AUDIT IN HOTEL INDUSTRY. THE GUI DE PROVIDES FOR KEY I.T.A. NOS.240-242/COCH/2015 8 REVENUE GENERATION ACTIVITIES IN CASE OF HOTEL INDU STRY WHICH HAS BEEN DETAILED AS FOLLOWS:- ROOM REVENUE; RETENTION CHARGES DUE TO CANCELLATION; FOOD AND BEVERAGE (F&B) REVENUE FROM RESTAURANTS; F&B REVENUE FROM MINI BAR; F&B REVENUE FROM BANQUETS; HALL HIRE FROM BANQUETS. COMMUNICATION REVENUE (BOTH TELEPHONE & INTERNET); DISPOSAL OF EMPTIES/SALE OF SCRAP CAR HIRE INCOME; BUSINESS CENTRE REVENUE; ARCADE REVENUES; HEALTH CLUB/CLUB UE/SPA/BEAUTY PARLOUR REVENUES; LAUNDRY REVENUES; HOUSEKEEPING BILLS; 9.6 AS PER GENERALLY ACCEPTED UNIFORM SYSTEM OF AC COUNTING FOLLOWED BY HOTEL INDUSTRIES IN INDIA REVENUE IS DIVIDED INTO F OUR CATEGORIES AS FOLLOWS:- PARTICULARS AMOUNT REVENUE: I) ROOMS XXX II) FOOD AND BEVERAGES XXX III)OTHER OPERATED DEPARTMENTS XXX IV)RENTALS AND OTHER INCOME XXX FOOD AND BEVERAGES REVENUE SHALL INCLUDE THE FOLLOW ING:- PARTICULARS AMOUNT FOOD AND BEVERAGE REVENUE: OUTLET FOOD REVENUE XXX OUTLET BEVERAGE REVENUE XXX IN-ROOM DINING FOOD REVENUE XXX IN-ROOM DINING BEVERAGE REVENUE XXX BANQUET/CATERING FOOD REVENUE XXX BANQUET/CATERING BEVERAGE REVENUE XXX MINI BAR FOOD REVENUE XXX MINI BAR BEVERAGE REVENUE XXX OTHER FOOD REVENUE XXX I.T.A. NOS.240-242/COCH/2015 9 OTHER BEVERAGE REVENUE XXX LESS:ALLOWANCES (XXX) RENTALS AND OTHER INCOME SHALL INCLUDE THE FOLLOWIN G:- PARTICULARS AMOUNT SPACE RENTAL AND CONCESSIONS XXX COMMISSIONS XXX CANCELLATION PENALTIES XXX GUEST LAUNDRY AND DRY CLEANING XXX 9.7 THE OTHER INCOME EARNED BY THE ASSESSEE AND THE GROUPING UNDER THE KEY REVENUE GENERATION CATEGORY CAN BE SUMMARIZED I N THE BELOW TABLE SL. NO. OTHER INCOME RECEIVED BY THE COMPANY KEY REVENUE GENERATION CATEGORY AS PER THE ICAI GUIDELINES AND UNIFORM SYSTEM OF ACCOUNTING 1. 2. RENT RECEIVED FROM HERITAGE SHOP RENT RECEIVED FOR SPACE AND AMENITIES GIVEN TO M/S. KUMARAKOM WATER TRANSPORT PVT. LTD. SPACE RENTALS, ARCADE REVENUE, HOUSEKEEPING BILLS. 3. REVENUE FROM STAFF MESS USED BY THE GUEST DRIVERS FOOD AND BEVERAGES 4. REVENUE FROM TELEPHONE USED BY STAFF COMMUNICATIONS REVENUE(BOTH TELEPHONE AND INTERNET) 5. INCOME FROM CLUB CULTURAL PROGRAMS/DJ/ETC. CLUB USE REVENUE 6. INCOME FROM SALE OF USED PACKING MATERIALS, RECOVERY OF MATERIAL DAMAGE FROM STAFF ETC. DISPOSAL OF EMPTIES/SALE OF SCRAP THUS IT CAN BE SEEN FROM THE ABOVE THAT, RENT RECEI VED BY THE ASSESSEE OF RS.180,000/- FROM HERITAGE SHOP WHICH REPRESENTS RE NTAL INCOME FROM CURIO I.T.A. NOS.240-242/COCH/2015 10 SHOP AND OF RS.120,000/- FOR THE SPACE AND AMENITIE S GIVEN TO KUMARAKOM WATER TRANSPORT PVT. LTD. WILL FALL WITHIN THE KEY REVENUE GENERATION CATEGORY OF SPACE RENTALS AND ARCADE REVENUE AND HOUSEK EEPING BILL FOR A HOTEL INDUSTRY. REVENUE FROM STAFF MESS OF RS.7,139/- WIL L ALSO FALL WITHIN THE KEY REVENUE GENERATION CATEGORY OF FOOD AND BEVERAGES FOR A HOTEL INDUSTRY. REVENUE FROM STAFF TELEPHONE OF R.90,048/- WILL FAL L WITHIN THE KEY REVENUE CATEGORY OF COMMUNICATION REVENUE (BOTH TELEPHONE & INTERNET) AS PER ICAI GUIDELINES. INCOME FROM CLUB CULTURAL PROGRAM/DJ OF RS.475,216/- WILL FALL WITHIN THE KEY REVENUE GENERATION CATEGORY OF CLUB USE REVENUE. FURTHER THE SALE OF USED PACKING MATERIALS, RECOVERY OF MATERIA L DAMAGE FROM STAFF ETC. WILL FALL WITHIN THE KEY REVENUE CATEGORY OF DISPO SAL OF EMPTIES/SALE OF SCRAP AS PER THE ICAI GUIDELINES. THUS IT CAN BE SEEN TH AT THE OTHER INCOME EARNED BY THE ASSESSEE COMPANY WOULD FALL WITHIN THE AMBIT OF KEY REVENUE GENERATING ACTIVITY IN CASE OF A HOTEL INDUSTRY AND , ACCORDINGLY, HAS A DIRECT NEXUS WITH THE HOTEL BUSINESS OF THE UNDERTAKING. 9.8 THE ASSESSING OFFICER HAS DISALLOWED THE DEDUC TION U/S. 80-IB(7)(A) OF THE ACT TOWARDS OTHER INCOME ON THE CONTENTION TH AT, THE ASSESSEE IN THE BOOKS OF ACCOUNT HAS TERMED IT AS OTHER INCOME AN D, ACCORDINGLY, THE SAME IS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF KEDARNATH JUTE MFG. C O. LTD. VS. CIT (82 ITR 363) HAS HELD THAT, WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR I.T.A. NOS.240-242/COCH/2015 11 DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF IT S RIGHT NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACC OUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT (S UPRA), IT IS VERY CLEAR THAT THE ASSESSEE WOULD BE ENTITLED TO ELIGIBLE DEDUCTIO N, IRRESPECTIVE OF THE MANNER IN WHICH THE ENTRIES IN THE BOOKS OF ACCOUNT ARE MAINTAINED. 9.9 THE HIGH COURT OF MADRAS IN THE CASE OF FENNE R (INDIA) LTD. VS. CIT (125 TAXMAN 386) HAS HELD THAT, IN THE INDUSTRIAL UNDERTAKING IN THE MANUFACTURE OF V-BELTS, OIL SEALS, O-RINGS AND RUBBER MOULDED P RODUCTS, CERTAIN SCRAP MATERIALS RESULTED, WHICH HAVE A SALEABLE VALUE. TO SAY THAT THE SCRAP MATERIALS HAD NO DIRECT LINK OR NEXUS WITH THE INDU STRIAL UNDERTAKING CANNOT AT ALL BE EXPECTED TO COMMEND ACCEPTANCE, ESPECIALLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. IN THIS VIEW OF THE MATT ER, WE ARE OF THE VIEW THAT PROFITS AND GAINS FROM THE SALE OF SCRAP MATERIALS ARE ELIGIBLE FOR DEDUCTION IN AN AMOUNT EQUAL TO 20 PER CENT U/S. 80HH, IN AS MUC H AS SUCH GAINS OR PROFITS ARE DERIVED FROM THE INDUSTRIAL UNDERTAKING AND INCLUDIBLE IN THE GROSS TOTAL INCOME OF THE ASSESSEE AND THE QUESTION RELAT ABLE TO THE PROFIT ON THE SALE OF SCRAP IS, THUS, ANSWERED IN FAVOUR OF THE A SSESSEE. THE DELHI HIGH COURT IN THE CASE OF CIT VS. SADHU FORGING LTD. (11 TAXMANN,.COM 322) HAS HELD THAT , KEEPING IN VIEW THE ACTIVITIES OF THE ASSESSEE IN GIVING HEAT I.T.A. NOS.240-242/COCH/2015 12 TREATMENT FOR WHICH IT HAD EARNED LABOUR CHARGES AN D JOB-WORK CHARGES, IT CAN THUS BE SAID THAT THE APPELLANT HAD DONE A PROC ESS ON THE RAW MATERIAL WHICH WAS NOTHING BUT A PART AND PARCEL OF THE MANU FACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING. THESE RECEIPTS CANNOT BE SA ID TO BE INDEPENDENT INCOME OF THE MANUFACTURING ACTIVITIES OF THE UNDER TAKINGS OF THE ASSESSEE AND THUS COULD NOT BE EXCLUDED FROM THE PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80-IB. THESE WERE GAINS DERIVED FROM INDUSTRIAL UNDERTAKIN GS AND SO ENTITLED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80-IB. THERE CA NNOT BE ANY TWO OPINIONS THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALSO GENERATE SCRAP IN THE PR OCESS OF MANUFACTURING. THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTING U/S. 80-IB. 9.10 IN THE INSTANT CASE, THE FOLLOWING INCOME WHICH HAS BEEN CLASSIFIED AS OTHER INCOME IN THE BOOKS OF ACCOUNT:- I) RENT RECEIVED FROM HERITAGE SHOP. II) RENT RECEIVED FOR THE SPACE AND AMENITIES GIVEN TO KUMARAKOM WATER TRANSPORT PVT. LTD. III) REVENUE FROM STAFF MESS USED BY GUEST DRIV ERS. IV) REVENUE FROM TELEPHONE USED BY STAFF. V) INCOME FROM CLUB CULTURAL PROGRAMS/DJ ETC. I.T.A. NOS.240-242/COCH/2015 13 VI) INCOME FROM SALE OF USED PACKING MATERIALS, R ECOVERY OF MATERIAL DAMAGE FROM STAFF ETC. WOULD QUALIFY AS INCOME DERIVED FROM SPECIFIED BUSI NESS CONSIDERING THE FACT THAT THERE IS A DIRECT NEXUS AND A PROXIMATE C ONNECTION WITH THE BUSINESS OF THE ASSESSEE. THE OTHER INCOME AS MEN TIONED ABOVE IS NOT EARNED FROM A SEPARATE COST AND PROFIT CENTRE, BUT IS DERIVED FROM THE MAIN PROFIT CENTRE OF HOTEL INDUSTRY ITSELF. THE SO URCE OF THE PROFITS OF THE OTHER INCOME AS MENTIONED ABOVE CONTINUES TO BE T HE BUSINESS PROFITS FROM THE HOTEL INDUSTRY AND THERE IS NO OTHER COMME RCIAL ACTIVITY WHICH IS CARRIED ON BY THE ASSESSEE. 9.11 MOREOVER, SECTION 80IB(7)(A) STATES THAT 50% OF THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF SUCH HOTEL. IN THIS CONTEXT ALSO, IT CAN BE STATED THAT THE TERM PROFITS AND GAINS DERIVED FROM THE BUSINESS OF SUCH HOTEL HAS WIDER MEANING THAN THE TERM PROFIT S AND GAINS DERIVED FROM AN UNDERTAKING. WE HAVE MENTIONED IN THE EAR LIER PARAGRAPHS WITH REFERENCE TO THE ICAI AUDIT GUIDELINES THAT THESE A RE RECEIPTS DIRECTLY ON ACCOUNT OF RUNNING OF THE HOTEL BUSINESS AND IT IS NOT INCIDENTAL/ANCILLARY INCOME AND, THEREFORE, THESE RECEIPTS THOUGH TERMED AS OTHER INCOME IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S. 80IB OF T HE ACT. HENCE, THE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR THE ASSESSM ENT YEAR 2007-08. I.T.A. NOS.240-242/COCH/2015 14 9.12 THE DETAILS OF THE OTHER INCOME FOR THE ASS ESSMENT YEARS 2008-09 AND 2010-11 ARE AS FOLLOWS:- AY 2008-09 SL. NO. PARTICULARS NATURE OF INCOME AMOUNT (INR) 1. INTEREST INCOME INTEREST ON FIXED DEPOSIT FROM SIB 89,915 2. REVENUE FROM STAFF MESS REVENUE FROM STAFF MESS USED BY THE GUEST DRIVERS 2,121 5 REVENUE FROM STAFF TELEPHONE REVENUE FROM TELEPHONE USED BY STAFF 65,340 6 MISCELLANEOUS INCOME INCOME FROM CLUB CULTURAL PROGRAMME/DJ/ETC. 774,657 7. OTHER MISCELLANEOUS INCOME INCOME FROM SALE OF USED PACKING MATERIALS, RECOVERY OF MATERIAL DAMAGE FROM STAFF ETC 254,795 8. REFUND INTEREST RECEIVED ON INCOME TAX REFUND 86,363 TOTAL 1,273,191 AY 2010-11 SL. NO. PARTICULARS NATURE OF INCOME AMOUNT (INR) 1. INTEREST INCOME INTEREST ON FIXED DEPOSIT FROM SIB(KUMARAKOM) 198,198 2. RENT RECEIVED FROM M/S. KUMARAKOM WATER TRANSPORT PVT. LTD. RENT ON SPACE AND AMENITIES GIVEN TO M/S. KUMARAKOM WATER TRANSPORT PVT. LTD. 120,000 3. REVENUE FROM STAFF MESS REVENUE FROM STAFF MESS USED BY THE GUEST DRIVERS 88,825 I.T.A. NOS.240-242/COCH/2015 15 4. OTHER MISCELLANEOUS INCOME INCOME FROM SALE OF USED PACKING MATERIALS, RECOVERY OF MATERIAL DAMAGE FROM STAFF ETC 85,279 5. INTEREST RECEIVED ON INCOME TAX REFUND INTEREST RECEIVED ON INCOME TAX REFUND 69,209 TOTAL 561,511 AFTER EXAMINING THE RECEIPTS FOR THE ASSESSMENT YEA R 2007-08, WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 80I B(7)(A) OF THE ACT. SIMILARLY, IN RESPECT OF OTHER INCOME FOR AYS 20 08-09 AND 2010-11, EXCEPT FOR INTEREST INCOME AND INTEREST ON REFUND, THE OT HER INCOME ENUMERATED ABOVE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S. 80IB(7)(A). THEREFORE, OUR FINDINGS AND CONCLUSIONS FOR THE ASSESSMENT YEAR 20 07-08 WILL HOLD GOOD FOR THE ASSESSMENT YEAR 2008-09 AND 2010-11. IT IS ORD ERED ACCORDINGLY. 10. IN THE RESULT, THE APPEALS FILED BY THE A SSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1-03-2016. SD/- SD/- (B.P.JAIN) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDIC IAL MEMBER PLACE : KOCHI DATED: 1ST MARCH, 2016 GJ COPY TO: 1. M/S.KUMARAKOM LAKE RESORT PVT. LTD., DOOR NO. 64 , KAIRALI APARTMENTS, PANAMPILLY NAGAR, KOCHI-682 036. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(2), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI . I.T.A. NOS.240-242/COCH/2015 16 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN