Shree Laxmi Ship Breakers, Ahmedabad V. The ACIT., Circle-10, Ahmedabad

ITA 2651/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1896 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 25-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Keywords: Business income
• Section: 80IB; 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING:2/12/2009 DRAFTED ON: 2/12/200 9 ITA NO2651/AHD/2009 ASSESSMENT YEAR : 2006-2007 SHRI LAXMI SHIPBREAKERS B-601/A, NIRMAN COMPLEX, OPP. HAVMORE RESTAURANT, NAVRANGPURA, AHMEDABAD. VS. A.C.I.T., CIR.10, AHMEDABAD PAN/GIR NO. : AAOFS 9097P (APPELLANT) .. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY: GOVIND SINGHAL O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD.CIT(APPEALS)-XVI, AHMEDABAD, DATED 15.07.2009. 2. THE GROUNDS OF THE APPEAL READS AS UNDER:- 1. THE LEARNED CIT(A), RANGE- XVI, AHMEDABAD HAS ERRED IN LAW AND FACT BY CONSIDERING ASSESSMENT ORDER AND MADE DISALLOWAN CE OF RS.5,95, 522/- U/S 80I(B) INCOME TAX ACT, ON ACCOUNT OF INTE REST ON FDR FOR OPENING OF L/C FOR PURCHASE OF SHIP 2. THE LEARNED CIT (A), RANGE- XVI, AHMEDABAD HAS E RRED IN LAW AND FACT BY CONSIDERING ASSESSMENT ORDER AND MADE DISALLOWAN CE U/S 80I(B) DUE TO NOT CONSIDERING FOLLOWING INCOME/PROFIT FROM IND USTRIAL ACTIVITY (1) RS. 5,95,522/- IN RESPECT OF FDR INTEREST. ERRED IN NOT ALLOWING NETTING OF INTEREST RECEIVED WITH INTEREST PAID. THE INTEREST PAID IS EXCESS ON INTEREST RECEIVED. THEREFORE THERE IS NO INTEREST I NCOME TO DISALLOW. 3. ERRORED IN NOT CONSIDERING DIRECT NEXUS BETWEEN MONEY BORROWED AND KEPT FOR FDR (OUT OF BANK CC. ACCOUNT) AND FDR BROK EN AND WHEN L/C PAYMENT BECOME DUE TO SUPPLIER. THEREFORE, FDR IS F OR REVENUE AND OPERATIONAL PART OF INDUSTRIAL ACTIVITY AT THE TIME OF DEPOSITING AS WELL AS AT THE TIME OF WITHDRAWAL. THE BOTH THE TIME IT IS CONNECTED WITH SUPPLIERS AS DIRECT NEXUS. ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 2 - 4. ERRORED IN APPLYING THE CASE LAW OF PANDIAN CHEM ICALS LTD. 262 ITR 278 (5C), AS ELECTRICITY DEPOSIT IS AN INVESTMENT FOR L ONG TERM LINK WITH COST OF PROJECTS, WHILE IN OUR CASE FDR IS TEMPORARY AND OP ENED AND BROKEN FOR EVERY TRANSACTION TO TRANSACTION FOR EACH PURCHASE. 5. THE ASSESSING OFFICER HAS ERRED IN INTERPRETATIO N, UNDERSTANDING AND INTENTION OF LAW U/S 801 (B) OF INCOME TAX ACT. 6. THE ORDER AS PASSED BY THE LEARNED CIT (A), RANG -XVI, AHMEDABAD IS NOT BASED ON THE ACTUAL FACTS OF THE CASE AND IS NO T JUSTIFIABLE IN LAW. 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS FOLLOWS:- 2. THE MAIN ISSUE INVOLVED IN THIS APP EAL IS REGARDING DISALLOWANCE OF DEDUCTION U/S. 80IB OF RS. 5,38,078 /-. THE ASSESSEE IS A SHIP BREAKER. ON THE SHIP BREAKING ACTIVITY AND O THER INCOME, THE APPELLANT, HAS CLAIMED DEDUCTION U/S. 80IB OF RS. 5 ,38,078/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER FOLLOWING THE J UDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKE RS. WHILE MAKING THE DISALLOWANCE, THE ASSESSING OFFICER HAS ALSO MADE R EMARKS THAT 80IB DEDUCTION IS NOT ALLOWABLE ON THE FDR INTEREST INCO ME OF RS. 5,95,522/-. FURTHER THE APPELLANT HAS CLAIMED DEDUCTION U/S. 80 IB ON THE NET PROFIT DERIVED ON ALL TYPE OF SALES I.E., SALE OF SHIP SCR AP, TRADING SALES AND HIGH SEAS SALES AND NO SEPARATE P & L A/C OR WORKING WAS FURNISHED BEFORE THE ASSESSING OFFICER IN RESPECT OF THE PROFIT ON T HE SALE OF SHIP SCRAP. THE ASSESSING OFFICER OBSERVED THAT THE APPELLANT I S NOT ENTITLED TO THE DEDUCTION U/S. 80IB ON TRADING SALE AS WELL AS ON H IGH SEAS SALES. THE APPELLANT HAS FILED THE APPEAL AGAINST THE ACTION O F THE ASSESSING OFFICER IN DENYING DEDUCTION U/S. 80IB AND ALSO C HALLENGED THE OBSERVATION IN RESPECT OF FDR INTEREST AND PROFIT O N TRADING SALES & HIGH SEAS SALES. SHRI KEDAR LADDHA, CA ATTENDED AND FILE D WRITTEN SUBMISSION DT 25-6-2009 AS UNDER:-. 'WITH REFERENCE TO ABOVE WE WOULD LIKE TO GIVE CERT AIN EXPLANATIONS. DEDUCTION U/S 80L(B) (1) INTEREST ON FDR THE FIRM IS ENGAGE IN THE BUSINESS OF SHIP BREAKING , WHERE IT HAD . TO BUY THE SHIP AGAINST THE FOREIGN LETTER OF CREDI T ISSUED BY THE FIRM'S BANKER (CANARA BANK) TO SUPPLIER OF SHIP. TH E BANKER TAKE THE SECURITY AS MARGIN MONEY IN THE FORM OF FIXED D EPOSIT RECEIPT (FDR) AS PER THEIR TERMS OF SANCTION OF VAR IOUS CREDIT FACILITIES. WE ENCLOSED HEREWITH A COPY OF SANCTION LETTER. THEREFORE, THE INTEREST EARNED IS INCIDENTAL TO BUS INESS OPERATION. WITHOUT THE FDR IT CAN'T OPEN THE LETTER OF CREDIT AND PURCHASE THE SHIP FOR BREAKING. THE FIXED DEPOSIT IS BROKEN IMMEDIATELY ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 3 - EACH & EVERY TIME TO MAKE THE PAYMENT TO SUPPLIER, WHICH CAN BE SEEN BY ENCLOSED BANK STATEMENT. THEREFORE, INTE REST EARNED IS INCIDENTAL TO NATURE OF BUSINESS INCOME, WHICH I S SHOWN AS BUSINESS INCOME. (2) NET OUT OF INTEREST RECEIVED & PAID IS NOT INCOME (I) RECEIPT OF INTEREST IS IN COURSE OF BUSINESS A CTIVITY/OPERATION NECESSITATING IN INTEREST OF THE BUSINESS. THE FIRM HAD RECEIVED INTEREST RS.5,95,522/- FROM B ANK FOR DURING NORMAL CONDUCT OF BUSINESS AND HAD PAID INTE REST RS. 38,87,319/- TO BANK FOR CREDIT FACILITIES FOR THE P URPOSE OF THE BUSINESS ACTIVITIES. THE COMPANY HAS NO INVESTMENT ACTIVITY OR PURPOSE. THE COMPANY HAD TO MAKE THE FDR FOR THE PU RPOSE FOR REGULAR BANKING TRANSACTION FOR L/C (GUARANTEES) AS CASH MARGIN FOR BANK SAFETY. INTEREST CHARGED FROM BUSINESS PAR TIES IS IN INTEREST OF BUSINESS TO CHARGE IF OUTSTANDING BALAN CES IS NOT PAID WITHIN STIPULATED TIME. IT IS NECESSARY TO CURB THE PRACTICE OF THE PARTIES NOT TO PAY TIMELY ON DUE DATE. IN ORDER TO SUPPORT OUR POINT WE QUOTE THE FOLLOWIN G JUDGEMENT OF /INDUCTOTHERM (INDIA) LTD. V. DY. C/T (2002) 29 DTC 3 36 (AHD- JRIB) : (2002) 75 7TJ (AHD-TRIB) 728. IN THIS CASE IF WAS HELD THAT THE INTEREST INCOME E ARNED ON MARGIN MONEY DEPOSITED WITH BANK IS CLEARLY LINKED WITH AS SESSEE'S ACTIVITIES OF INDUSTRIAL UNDERTAKING, THEREFORE DED UCTION UNDER SECTION 80 /A WITH RESPECT THERETO IS ALLOWABLE. (II) INTEREST RECEIVED SHOULD BE NET OUT FROM INTER EST PAID IF THE INTEREST PAID IS EXCEEDING THE INTEREST RECE IVED. THE COMPANY HAD NET INTEREST PAYMENT. THEREFORE, THE IN TEREST RECEIVED SHOULD NOT BE EXCLUDED FOR THE PURPOSE FOR 80 IA CALCULATION. IN REFERENCE TO SIMILAR SECTION 80HHC, IT IS NOTED THAT WHILE COMPUTING PROFITS OF THE BUSINESS, 90 PERCENT OF TH E RECEIPTS BY WAY OF RENT, INTEREST, ETC., IS TO BE DEDUCTED. A Q UESTION ARISES AS WHETHER SUCH RECEIPTS ARE TO BE DEDUCTED ON GROSS B ASIS OR NET BASIS, I.E, AFTER EXCLUDING THE COSTS INCURRED IN E ARNING THIS. SIMILAR WAS THE CASE BEFORE, THE MUMBAI TRIBUNAL IN PINK STAR V. DEPUTY C/T (2000) 14 DTC 611 (MUM-TRIB): (2000) 72 /T D 137 (MUM-TRIB). & TUT/COR/N ALKALI CHEMICALS & FERTILIZER S LTD. V. C/T (1997; 227 ITR 172 (SQ. THE TRIBUNAL HELD THAT WHEN PROFITS AND GAINS OF BUSINESS OR PROFESSION ARE DET ERMINED, WHAT IS INCLUDED THEREIN .ARE NET RECEIPT OF VARIOUS COM PONENTS THAT GO TO MAKE THE PROFIT UNDER THAT HEAD. THUS, IF THE PR OFIT OF THE BUSINESS INCLUDES CERTAIN RECEIPT WHICH HAVE CORRES PONDING COSTS, OR IF THE PROFITS INCLUDE CERTAIN CREDITS AND THE B USINESS ALSO HAS DEBITS OF THE SAME NATURE, IF THESE ARE NOT NETTED OUT AGAINST ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 4 - EACH OTHER, THE PROFIT OF BUSINESS WILL PRESENT A D ISTORTED PICTURE AND MAY LEAD TO INJUSTICE WHILE IMPLEMENTING AN INC ENTIVE PROVISION. IN SUPPORT OF THE ABOVE DISCUSSION WE ST ATE THAT THE JUDGMENT [77 ITR 307 (INDORE)] IS NOT APPLICABLE TO US. THE TRIBUNAL PROVED ITS POINT USING THE FOLLOWING I LLUSTRATION: TRADING AND PROFIT & LOSS ACCOUNT COST OF GOODS 30 EXPORT SALES 50 INTEREST PAID 12 INTEREST REC EIVED 15 OTHER EXPENSES 10 NET-PROFIT 13 65____________________65 SITUATION 1 (GROSS INTEREST CONSIDERED): NET.PROFIT 13.00 LESS:90%OF 15 13.50 PROFIT OF BUSINESS ---- SITUATION 2(NET PROFIT CONSIDERED): NET PROFIT 13.00 LESS:90%OF 3 (15-12) 2.70 PROFIT OF BUSINESS 0.30 IT IS CLEAR FROM THE ABOVE THAT IN SITUATION 1 THE ASSESSEE IS DENIED OF THE DEDUCTION WHILE IN SITUATION 2 HE BECAME ENTITLED T O IT. HENCE THE TRIBUNAL HELD THAT SITUATION 2 WILL PREVAIL. THEREF ORE 90 PERCENT OF NET INTEREST BROKERAGE, ETC... WILL BE DEDUCTED. SIMILA R DECISION WAS GIVEN UNDER FOLLOWING CASE LAWS: KANTILAL CHHOTALAL V. DEPUTY CIT (1999) 10 DTC 182 (MUM-TRIB) R.PRAKASH V. ASSISTANT CIT(2001) 19 DTC 747, 837 (COCH-TRIB): (2002) 75 TTJ(COCH-TRIB) THE STATEMENT OF INTEREST RECEIVED AND PAID IS ENCL OSED HEREWITH. (3) THERE IS DIRECT NEXUS BETWEEN INTEREST INCO ME & PAID THE PARTIES HAD THE PRACTICE TO MAKE THE FDR AS AND WHEN REQUIRED, OUT OF CASH CREDIT LOAN ACCOUNT OF THE BANK. THE FDR RE ALIZATION IS ALSO CREDITED TO LOAN ACCOUNT. THEREFORE, THERE IS DIREC T NEXUS BETWEEN FUND BORROWED AND USED FOR FDR. THEREFORE, INTEREST RECE IVED AND INTEREST PAID IS CORERELATED. WE ENCLOSED HEREWITH ACCOUNT C OPY OF BANK STATEMENT. (4) AS PER CASE LAW 175 [TAXMAN] 877 THE HONORABLE SUPREME COURT HAS A/LOWED U/S.80IB DEDUCT/ON IN THE CASE OF M/S. VIJAY SHIP BARKERS, AS SHIP BREAKING ACTIVI TY AS INDUSTRIES. THEREFORE, OUR CLAIM IS NOW, VALID. ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 5 - (5) WE ENCLOSING HEREWITH LEDGER ACCOUNT FOR FDR WITH CANARA BANK, BANK STATEMENT ALONG WITH BANK'S SANCTION LET TER FOR LIMITS FOR YOUR HONOUR'S READY REFERENCE.' 2.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT. I DON'T AGREE WITH THE APPELLANT THAT INTEREST ON FDR IS ELIGIBLE FOR DEDUCTION U/S. 80IB IN VIEW OF THE FOLLOWING JUDGEMENT OF HON'BLE SUPREME COURT :- I) PANDIAN CHEMICALS LTD 262 ITR 278 (SC) DEDUCTION UNDER S. 80HHPROFITS AND GAINS DERIVED FROM INDUSTRIAL UNDERTAKING- INTEREST ON DEPOSITS W ITH ELECTRICITY BOARD- CANNOT BE SAID TO BE DERIVED FRO M INDUSTRIAL UNDERTAKING BEING A STEP REMOVED FROM TH E BUSINESS OF INDUSTRIAL UNDERTAKINGNOT ELIGIBLE FOR DEDU. U/S. 80HH HELD THE WORDS 'DERIVED FROM' IN S. 80HH MUST BE UNDERS TOOD AS SOMETHING WHICH HAS DIRECT OR IMMEDIATE NEXUS WI TH THE APPELLANT'S INDUSTRIAL UNDERTAKING. ALTHOUGH EL ECTRICITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. THE DERIVATION OF PROFITS ON THE DEPOSIT MADE WITH ELECTRICITY BOARD CANNOT BE SAID TO FLOW DIRECTLY F ROM THE INDUSTRIAL UNDERTAKING ITSELF. WHERE THE WORDS ARE UNEQUIVOCAL, THERE IS NO SCOPE FOR IMPORTING ANY RU LE OF INTERPRETATION AS SUBMITTED BY THE APPELLANT)-CIT V S. PANDIAN CHEMICALS LTD, (1998) 147 CTR (MAD) 5 : ( 1998) 233 ITR 497 (MAD) APPROVED; COMBO/ ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. CIT 1978 CTR (SC) 50 : (197 8) 113 ITR 84 (SC), CIT VS. RAJA BAHADUR KAMAKHAYA NORA/ON SIN GH (1948) 16 ITR 325 (PC) AND 27 ITR 1 (SC) APPLIED. THE WORD ' DERIVED' HAS BEEN CONSTRUED AS FACT BACK IN 1948 BY THE PRIVY COUNCIL IN CIT VS RAJA BAHADUR KAMAKHYA NARAYAN SINGH (1948) 16 ITR 325 (PC) WHEN IT SAID: 'THE WORD 'DERIVED IS NOT A TERM OF ART. ITS USE IN THE DEFINITION INDEED DEMANDS AN ENQUIRY INTO THE GENEA LOGY OF THE PRODUCT. BUT THE ENQUIRY SHOULD STOP AS SOON AS THE EFFECTIVE SOURCE IS DISCOVERED. IN THE GENEALOGICAL TREE OF THE INTEREST LAND INDEED APPEARS IN THE SECOND DEGR EE, BUT THE IMMEDIATE AND EFFECTIVE SOURCE IS RENT, WHI CH HAT SUFFERED THE ACCIDENT OF NON-PAYMENT. AND RENT IS N OT LAND WITHIN THE MEANING OF THE DEFINITION.' ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 6 - THIS DEFINITION WAS APPROVED AND REITERATED IN 1955 BY A CONSTITUTION BENCH OF THIS COURT IN THE D ECISION OF MRS. BACHA F. GUZDARVS. CIT(1955) 27ITR 1 (SC). IT IS CLEAR, THEREFORE, THAT THE WORDS 'DERIVED FROM' IS S. 80HH OF THE I.T.ACT, 1961 MUST BE UNDERSTOOD AS SOMETHIN G WHICH HAS DIRECT OR IMMEDIATE NEXUS WITH THE APPELL ANT'S INDUSTRIAL UNDERTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOSES OF THE INDUSTRIAL UNDERTA KING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOV ED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE DER IVATION OF PROFITS ON THE DEPOSIT MADE WITH ELECTRICITY BOA RD CANNOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF.' II) ON NETTING OF INTEREST INCOME RELIANCE IS PLACE D ON THE DECISION OF HON'BLE SUPREME COURT - 248/449 (SC) DR V P GOPINATHAN - ' INCOME FROM OTHER SOURCESINTEREST ON FIXED DEPOSIT DEDUCIBILITY OF INTEREST ON LOAN TAKEN ON THE SECURITY OF FDSAMOUNT PAID BY ASSESSEE AS INTEREST ON LOAN THAT HE TOOK I FROM THE BANK ON THE SECURITY OF FIXED DEPOSIT COULD NOT BE REDUCED FROM HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT PLACED BY HIM IN THE BANK HELD IT WAS NOT DISPUTED, AS IT COULD NOT BE, THAT IF TH E ASSESSEE HAD TAKEN A LOAN FROM ANOTHER BANK AND PAI D INTEREST THEREON HIS REAL INCOME WOULD NOT DIMINISH TO THE EXTENT THEREOF. THE ONLY QUESTION THEN IS : DOE S IT MAKE ANY DIFFERENCE THAT HE TOOK THE LOAN FROM THE SAME BANK IN WHICH HE HAD PLACED THE FIXED DEPOSIT. THER E IS NO DIFFERENCE IN THE EYE OF THE LAW. THE INTEREST THAT THE ASSESSEE RECEIVED FROM THE BANK WAS INCOME IN HIS 'HANDS. IT COULD STAND DIMINISHED ONLY IF THERE I W AS A PROVISION IN LAW WHICH PERMITS SUCH DIMINUTION. THE RE IS NONE, AND, THEREFORE, THE AMOUNT 1 PAID BY THE ASSE SSEE AS INTEREST ON THE LOAN THAT HE TOOK FROM THE BANK DID NOT REDUCE HIS INCOME BY WAY OF INTEREST ON THE FIXED D EPOSIT PLACED BY HIM IN THE BANK]CIT VS. DR. V.P. GOPINAT HAN (1997) 137 CTR (KERJ 190 : F!998J 229 ITR 80) (KERJ : TC S41.3613 SET - ASIDE; JASHVIDHYABEN C. MEHFA VS. C/T (1983,' 67 CTR (GUJ. 239 : (1988) 172 ITR 680 (GUJ : TC 41RJ09 DISTINGUISHED. PARA 4} CONCLUSION ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 7 - IF INTEREST ON LOAN TAKEN BY THE ASSESSEE FROM THE BANK ON THE SECURITY OF FIXED DEPOSIT COULD NOT BE REDUCED FROM HIS INCOME BY WAY OF INTEREST ON THE FIXED DEPOSIT PLACED BY HIM IN THE BANK. INTEREST FROM FDR IN BANK - LOAN TAKEN AGAINST SECU RITY OF FD - INTEREST ON LOAN NOT DEDUCTIBLE AGAINST THE IN TEREST FROM FDR U/S. 57(III).' 2.2 THE CASE OF THE APPELLANT IS COVERED BY BOTH TH E DECISIONS OF SUPREME COURTS AS MENTIONED ABOVE. HOWEVER ON THE S HIP BREAKING INCOME THE APPELLANT IS ENTITLED TO CLAIM DEDUCTION U/S. 80IB AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKERS 175 TAXMAN877 (SC). 2.3 IN SHORT THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE DEDUCTION U/S. 80IB ON THE SHIP BREAKING ACTIVITY OF THE APPELLANT ONLY. NO DEDUCTION U/S. 801B IS ALLOWED ON FDR INTEREST INCOME. 4. NOTICE OF HEARING WAS GIVEN TO THE ASSESSEE AT T HE TIME OF FILING OF APPEAL IN THE TRIBUNAL VIDE ACKNOWLEDGEMENT CUM NOT ICE OF APPEAL DATED 25.09.2009. WHEN THE CASE WAS CALLED FOR HEARING, N ONE WAS PRESENT ON BEHALF OF THE ASSESSEE AND NEITHER ANY ADJOURNMENT APPLICA TION WAS FILED. THE BENCH WAS OF THE VIEW THAT THE ISSUE INVOLVED IN THIS APP EAL CAN BE DECIDED IN ABSENCE OF THE ASSESSEE. THEREFORE, THE APPEAL WAS HEARD EX-PARTE QUA THE APPELLANT ASSESSEE AND DECIDED AFTER TAKING INTO CO NSIDERATION THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE MAT ERIAL AVAILABLE ON RECORD. 5. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIA LS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAS RECEIVED INTERES T OF RS.5,95,522/- FROM FDR KEPT WITH BANK. THE ASSESSEE CLAIMED THAT THE FDR W ITH THE BANK WAS MADE FOR OPENING LETTER OF CREDITS FOR PURCHASE OF SHIP. THUS, THE FDRS WERE PART OF ASSETS OF SHIP BREAKING BUSINESS OF THE ASSESSEE . FURTHER, THE ASSESSEE CONTENDED THAT INTEREST PAYMENT WAS MORE THAN THE I NTEREST RECEIPTS AND THEREFORE, THERE WAS NO REAL INCOME FROM INTEREST I N THE HANDS OF THE ASSESSEE. ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 8 - ON THE ABOVE SUBMISSION THE ASSESSEE CLAIMED THAT R ECEIPT OF INTEREST QUALIFIES FOR DEDUCTION UNDER SECTION 80IB AND IN ANY VIEW OF THE MATTER THERE BEING NO REAL INCOME FROM INTEREST NOTHING CAN BE EXCLUDED F OR COMPUTING THE DEDUCTION ALLOWABLE UNDER SECTION 80IB. THE ABOVE C LAIM OF THE ASSESSEE WAS NEGATED BY THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD VS. CIT 262 ITR 278 (SC) AND THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN 248 ITR 449 (SC). WE FIND THAT AS PER PROVISIONS OF SECTION 80IB OF THE ACT ONLY INCO ME, WHICH ARE DERIVED FROM THE ELIGIBLE BUSINESS OF THE INDUSTRIAL UNDERT AKING IS ALLOWABLE FOR DEDUCTION. IN OUR CONSIDERED OPINION, INCOME DERIVE D FROM THE ACTIVITIES UNDERTAKEN TO CONDUCT THE ACTUAL BUSINESS OF THE IN DUSTRIAL UNDERTAKING CAN ONLY BE CATEGORIZED AS INCOME DERIVED FROM THE INDU STRIAL UNDERTAKING AND THE INCOME, WHICH ARE DERIVED FROM THE INCIDENTAL ACTIV ITIES TAKEN BY THE ASSESSEE DURING THE COURSE OF THE BUSINESS ARE MERELY INCIDE NTAL INCOME AND THEY MAY BE INCOME ATTRIBUTABLE TO THE BUSINESS OF THE INDUS TRIAL UNDERTAKING BUT THEY ARE NOT INCOME DERIVED FROM THE INDUSTRIAL UNDERTAK ING. IN THE INSTANT CASE THE ELIGIBLE BUSINESS OF THE ASSESSEES INDUSTRIAL UNDE RTAKING WAS BREAKING OF SHIP. TO MAKE FDR IRRESPECTIVE OF THE PURPOSE FOR WHICH I T WAS MADE, IT IS AN ACTIVITY UNDERTAKING BY THE ASSESSEE WHICH IS A STE P REMOVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE SHIP BREAKING. THERE FORE, THE INCOME DERIVED FROM SUCH ACTIVITY WHICH WAS A STEP REMOVED FROM TH E ACTUAL CONDUCT OF THE MAIN BUSINESS OF THE INDUSTRIAL UNDERTAKING CANNOT BE CATEGORIZED AS INCOME DERIVED FROM ELIGIBLE BUSINESS OF THE INDUSTRIAL UN DERTAKING. IN VIEW OF THE ABOVE, IN OUR CONSIDERED OPINION, LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) WAS JUSTIFIED IN HOLDING THAT INCOME D ERIVED FROM INTEREST ON FDR IN THE INSTANT CASE WILL NOT QUALIFY FOR DEDUCT ION UNDER SECTION 80IB OF THE ACT. HOWEVER, WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE GROSS RECEIPT OF INTEREST ON FDRS CANNOT BE TAKEN AS INCOME DERIVED FROM INTEREST WHEN THE FDRS WERE MADE OUT OF BORROWED F UNDS ON WHICH INTEREST ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 9 - WAS ALSO PAID BY THE ASSESSEE. IN SUCH CASE, ONLY T HE NET INTEREST INCOME COULD ONLY BE TAKEN AS INCOME FROM INTEREST, WHICH ALONE CAN BE EXCLUDED FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE UNDER SECT ION 80IB OF THE ACT. THE ABOVE VIEW FINDS SUPPORTS FROM THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER E QUIP. & OTHERS (2007) 289 ITR 475 (DEL) AND SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF LALSONS ENTERPRISE VS. DCIT (2004) 89 ITD 25 (DELHI) (SB). THE CLAIM OF THE ASSESSEE IS THAT FDRS ARE MADE OUT OF BORROWED FUND S I.E. BY WITHDRAWING MONEY FROM THE CASH CREDIT ACCOUNT MAINTAINED WITH THE BANK. IN THE ABOVE CIRCUMSTANCES, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DR. V. P. GOPINATHAN 248 ITR 449 (SC) IS NOT APPLICABL E BECAUSE IN THAT CASE IT WAS NOT THE FACT THAT INVESTMENT IN FDR WAS MADE OU T OF THE BORROWED CAPITAL. ON THE OTHER HAND IN THAT CASE, THE FACTS WERE THAT THE ASSESSEE HAS OBTAINED A LOAN ON THE SECURITY OF FDRS WHICH WERE MADE OUT OF OWN FUNDS. THEREFORE, IN OUR CONSIDERED VIEW, THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN REJECTING THE CON TENTION OF THE ASSESSEE ON THE BASIS OF THE SAID DECISION OF THE HON'BLE SUPR EME COURT. FURTHER, AS THE FULL FACTS OF THE CASE REQUIRED TO ADJUDICATE THE I SSUE THAT WHAT WAS THE INCOME OF THE ASSESSEE FROM RECEIPT OF INTEREST OF RS.5,95 ,522/- IS NOT AVAILABLE ON RECORD, IN OUR CONSIDERED OPINION IT SHALL BE JUST AND FAIR TO RESTORE THIS PART OF THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER IS DIRECTED TO VERIFY THE SOURCE OF INVESTMENT IN FDR BY THE ASSESSEE AND IF THE SAME IS BORROWED FUNDS THEN THE AMOUNT OF INTEREST PAID BY THE ASSESSEE IN RESPECT OF THAT BORROWED FUND SH OULD BE DEDUCTED FROM THE RECEIPT OF INTEREST TO ARRIVE AT THE NET INCOME FR OM THE INTEREST ON FDR WHICH IS TO BE EXCLUDED FOR COMPUTING DEDUCTION ALLOWABLE UNDER SECTION 80IB OF THE ACT. THE LEARNED ASSESSING OFFICER SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE ADJUDICATING THE ABO VE ISSUE AFRESH AS PER LAW. THUS, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ITA NO .2651/AHD/2009 SHRI LAXMI SHIPBREAKERS ASST.YEAR -2006-2007 - 10 - 6. THE GROUNDS NO.7 AND 8 OF THE APPEAL READS AS UN DER: 7. DISALLOWANCE OF EXPRESSES OF MISC.EXP. AND OFFI CE EXP. WHILE FBT IS PAID AND NO PERSONAL EXPENSES IS THERE. 7. WE FIND THAT THIS GROUNDS OF APPEAL DOES NOT ARI SE OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND HEN CE, THE SAME IS REJECTED. 8. GROUND NO.8 OF THE APPEAL READS AS UNDER: 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ALL THE ABOVE GROUNDS OF APPEAL AT OR DURING THE COURSE OF HEARING. 9. THE ABOVE GROUND OF APPEAL IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION BY US. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARTIES IN THE COURT ON 02/12/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 02/12/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XVI, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD