The ACIT, Circle-1, Ahmedabad V. ABM Steel Pvt. Ltd., Ahmedabad

ITA 2703/AHD/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9004 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-02-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-09-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY RAI
• Assessee Lawyers: T P HEMANI
• Keywords: Business income; Depreciation; Set aside
• Section: 80HHC; 80IA; 56; 63; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI N S SAINI AND MAHAVIR SINGH) ITA NO.2703/AHD/2004 (ASSESSMENT YEAR:- 2001-02) THE ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE-1, AHMEDABAD V/S ABM STEEL PRIVATE LTD., PLOT NO.64-A, PHASE-I, GIDC VATVA, AHMEDABAD [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI SANJAY RAI, SR. DR RESPONDENT BY:- SHRI T P HEMANI, ADVOCATE O R D E R PER N S SAINI (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS) DATED 28-06-20 04 FOR ASSESSMENT YEAR 2001-02. 2 GROUND NO.1 RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER:- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO ALLOW DEDUCTION U/S 80I ON INTEREST INCOME. 3 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS DECIDED THE ISSUE AS UNDER:- 3 THE FIRST GROUND RELATES TO THE TREATMENT GIVEN TO INTEREST INCOME OF RS.13,19.627/- AS NOT DERIVED FROM INDUSTRIAL UN DERTAKING FOR THE PURPOSES OF SECTION 80IA AND THEREBY ITS EXCLUSION FROM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING AND THE FIFTH GROUND RELATES TO THE NETTING OUT OF INTEREST I.E. INTEREST EXPENSES - IN TEREST INCOME AND TO 2 2 EXCLUDE THE EXCESS OF INTEREST INCOME OVER INTEREST EXPENSES FROM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING. THE ASSESSING OFFICER DISCUSSED THE ISSUE AS UNDER: 'THE SUBMISSION OF THE ASSESSEE IS NOT CORRECT SINC E THE FACT IS THAT THIS INTEREST HAS BEEN EARNED BY THE ASSESSEE ON ADVANCE S GIVEN FOR THE BUSINESS PURPOSE. THE NATURES OF THESE LOANS IS NOT LIKE THE NATURES OF FUNDS ON WHICH INTEREST HAS BEEN PAID. INTEREST LIA BILITY HAS AROSE TO THE ASSESSEE ON NORMAL COURSE OF THE BUSINESS HOWEVER T HIS INTEREST HAS BEEN RECEIVED ON THE LOANS GIVEN TO SOME OTHER COMP ANIES OR TO THE STAFF OR DEPOSITS IN THE BANK ETC, THEREFORE THE NATURE OF BOTH THE FUNDS IS VERY DIFFERENT. THE CONTENTION OF THE ASSESSEE I S THAT IF THESE FUNDS HAD NOT BEEN GIVEN TO OTHERS, THESE WOULD HAVE BEEN UTILIZED FOR THE BUSINESS PURPOSE IS WORTHLESS HERE IN THIS PERSPECT IVE, SINCE IT IS BASED ON SPECULATION NOT ON THE PRESENT FACTS THAT THE LO ANS HAVE BEEN GIVEN. AND ONCE THE LOANS HAVE BEEN GIVEN, THESE_GENERATE AN INCOME IN THE FORM OF INTEREST. THIS INTEREST INCOME HAS GENERATE D BY REMOVING ONE STEP FROM THE NORMAL BUSINESS COURSE OF THE ASSESSE E WHICH IS MANUFACTURING ACTIVITY. THEREFORE THE CONTENTION OF THE ASSESSEE IS NOT TENABLE. AT FIRST, THIS IS NOT A BUSINESS INCOME, THIS IS IN COME FROM OTHER SOURCE SINCE THIS HAS NOT EMANATED FROM ANY BUSINESS ACTIV ITY, IT IS A 'BY- PRODUCT' OF THE DEPOSITS WHICH ARE MADE FOR BUSINES S PURPOSE. THIS CHARACTERISTIC DOES NOT GIVEN ANY INCOME THE NATURE OF BUSINESS INCOME. EVEN IF AFTER SOME STRETCH OF IMAGINATION I T IS ACCEPTED THAT THIS IS A BUSINESS INCOME, THIS CAN NEVER BE CHARAC TERIZED AS INCOME DERIVED FROM BUSINESS .' RELYING ON THE DECISIONS OF THE HON'BLE SUPREME COU RT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (262 ITR 276) THE AS SESSING OFFICER EXCLUDED THE INTEREST INCOME OF RS.13,19,827/- FROM THE ELIGIBLE PROFITS O THE INDUSTRIAL UNDERTAKING. THE ID. AUTHORIZED REPRESENTATIVE ON THE OTHER HAN D SUBMITTED AS UNDER: FIRSTLY, THE APPELLANT COMPANY PLACED THE PROFITS E ARNED BY IT FROM ITS 100% EXPORT ORIENTED INDUSTRIAL UNDERTAKING ON SHOR T TERM DEPOSITS WITH OTHER BODY CORPORATE PURELY ON TEMPORARY BASIS WITH A DEFINITE VIEW TO BUILD A FINANCIAL BRIDGE SO THAT SHORT TERM BORROWINGS CAN BE 3 3 MADE FROM THOSE BODY CORPORATES FOR THE PURPOSES OF THE BUSINESS PARTICULARLY BECAUSE THE BANK AND FINANCIAL INSTITU TIONS TAKE A LONG TIME TO SANCTION THE REQUIRED FUNDS. IN SUCH CIRCUM STANCES, ADDITIONAL FUNDS CAN BE AVAILED FROM SUCH BODY CORPORATES, IF NEED BE. THE APPELLANT COMPANY HAD, THUS, PARKED ITS FUNDS WITH OTHER BODY CORPORATES TO ESTABLISH AND DEVELOP A UNIQUE ADDITI ONAL FINANCIAL RELATIONSHIP. SECONDLY, HAD THE APPELLANT COMPANY NOT SO PARKED T EMPORARILY THE FUNDS SO GENERATED WITH OTHER COMPANIES, THE SAME W OULD HAVE GONE TO ITS OWN BANK ACCOUNT WHICH WOULD HAVE RESULTED I N THE REDUCTION OF INTEREST BURDEN. THIRDLY, THE APPELLANT HAD TEMPORARILY PARKED ITS O WN FUNDS GENERATED FROM ITS MAIN ACTIVITY I.E. 100% EXPORT ORIENTED IN DUSTRIAL UNDERTAKING. THE APPELLANT COMPANY DID NOT EMPLOY THE FUNDS TO E ARN INTEREST INCOME AND AS SUCH THE INTENTION BEHIND, AS STATED EARLIER, WAS NOT TO EARN INTEREST INCOME FROM MONEY LENDING ACTIVITY BU T TO STRENGTHEN AND BROADBASE FINANCIAL RESOURCES FOR ITS INDUSTRIA L ACTIVITY WHICH CAN BE TAPPED IN CASE OF URGENT NEED OF FUNDS. IT IS ONLY ON ACCOUNT OF SUCH A PRUDENT BUSINESS DE CISION THAT THE INDUSTRIAL ACTIVITY HAD THE BENEFIT OF CREDIT LIMIT S WITH THE BANK PLUS THE ADDITIONAL CREDIT FACILITIES AGAINST FUNDS PARK ED WITH THE BODES CORPORATE, WHICH OTHERWISE WOULD HAVE GONE TO REDUC E THE BANK BORROWINGS, IN THE ULTIMATE ANALYSIS, WHILE THE BUR DEN OF INTEREST HAS GONE DOWN, THE AVAILABILITY OF LIQUID FUNDS HAVE GO NE UP. LASTLY, THE INTEREST EARNED AMOUNTING TO RS.10,70,2 01/- (PL. SEE THE DETAILS GIVEN IN THE TABLE HEREINABOVE) ON SUCH SHO RT TERM INTER CORPORATE DEPOSITS, PLACED WITH THE DEFINITE OBJECT TO BROAD BASE FINANCIAL RESOURCES WITHOUT AND IN ANY WAY CURTAILI NG THE AVAILABILITY IN THE CREDIT FACILITIES WITH THE BANKERS. THE PRIM E INTENTION IS NOT TO EARN INTEREST WHICH FORMS BARELY 8% OF THE TOTAL PR OFIT (BEFORE DEPRECIATION AND INCOME TAX) OF RS.1,31,95,292/-, B UT AS STATED ABOVE WAS TO SECURE GREATER FINANCIAL AVAILABILITY FOR TH E EXPANDING BUSINESS. THE SHORT TERM DEPOSITS PLACED BY THE APPELLANT COM PANY, IN THE ABOVE CIRCUMSTANCES,, WERE NECESSARILY INTERCONNECT ED WITH THE INDUSTRIAL UNDERTAKING I.E. BUSINESS OF THE APPELLA NT COMPANY AND CANNOT BE TREATED AS PURE INVESTMENT THE ACTIVITY I S NOT IN THE COURSE 4 4 OF MONEY LENDING BUSINESS WHICH THE APPELLANT COMPA NY DID NOT ENGAGE IN, CONSIDERING THE FACT THAT FT IS NEITHER REGULAR, NO R CONTINUOUS. THE ENTIRE INTEREST HAS SPRUNG FROM THE BUS/NESS ACTIVITY OF THE APPELLANT COMPANY AND DID NOT ARISE OUT OF ANY INDEPENDENT ACTIVITY. IN THIS BACKGROUND, IF THE PROFITS GENERATED FROM B USINESS OF THE APPELLANT COMPANY WERE DEPOSITED WITH THE BANTERS, IT WOULD HAVE REDUCED THE INTEREST BURDEN BUT AT THE SAME TIME IT WOULD NOT HAVE SECURED ANY ADDITIONAL CREDIT FACILITIES FROM BANK, WHILE THE SHORT TERM DEPOSITS PLACED WITH THE BODES CORPORATES HAVE SECU RED ADDITIONAL SOURCE OF FINANCE AND AT THE SAME TIME EFFECTIVELY REDUCED THE INTEREST BURDEN. THUS, INTEREST EARNED BY THE APPELLANT COMP ANY IN THE INSTANT CASE, IF ANALYZED, WOUD GIVE A CLEAR PICTURE THAT I T OWES ITS ORIGIN TO AND IS INTERCONNECTED WITH THE 'INDUSTRIAL UNDERTAK ING' AND NOT WITH ANY MONEY LENDING ACTIVITY OR INVESTMENT IN SHORT T ERM ADVANCES. THE APPELLANT COMPANY ALSO RELIED ON THE FOLLOWING DECISIONS : SHIV SANKAR GRANITES (P) LTD. VS. ITO (2002) (81 ITD 106) (HYDERABAD) ACIT VS. GALLIUM EQUIPMENT PVT. LTD. (2001) (79 TD 41) (TM) (DELHI) GODAVARI DRUGS LTD. VS. JT. DCIT 2004) (89 ITD 326) (HYDERABAD) PINK STAR VS. DCIT (2000) (72 ITD 137) (MUMBAI) LALSON ENTERPRISES VS. DCIT (2004) (89 ITD 25) (SB) (DELHI) IT WAS ALSO STATED BY THE LD. AUTHORIZED REPRESENTA TIVE THAT THE APPELLANT COMPANY HAS PAID INTEREST TO THE TUNE OF RS.18,15,095/- AND IN THE ULTIMATE ANALYSIS THERE IS A NET OUTFLOW OF INTEREST TO THE TUNE OF RS.4,95,268/- (18,15,095 -13,19,827) 4.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDE R AND THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTAT IVE AND I HAVE ALSO GONE THROUGH THE DETAILS OF INTEREST WHICH SHO WS THAT THE APPELLANT COMPANY HAS OVER ALL PAID INTEREST OF RS. 4,95,268/-DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2001-2002. THE R ATIO OF THE DECISION OF THE APEX COURT IN THE CASE OF PANDIAN C HEMICALS LTD. WILL 5 5 NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THERE IS AN EXCESS OF INTEREST EXPENSES OVER INTEREST INCOME, HENCE QU ESTION OF EXCLUDING ONLY INTEREST INCOME OF RS.13,19,827/- FROM THE ELI GIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING DOES NOT ARISE AT ALL. ACCOR DINGLY, CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND THE CASE LAWS RELIED UPON BY THE APPELLANT, 1 DIRECT THE ASSESSING OFFICER TO NET OU T THE INTEREST (I.E. INTEREST EXPENSES - INTEREST INCOME) AND THEN TO WO RK OUT THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPO SES OF SECTION 801A. 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COMPONENTS AND PARTS FOR PROCES S CONTROL INSTRUMENTATION AND OTHER PRODUCTS AND INCOME DERIV ED THERE- FROM IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE ASSESSEE ALSO DURING THE YEAR UNDER APPEAL RECEIVED INTEREST OF RS.13,19,827/- AND PAID INTEREST OF RS.18,15,095/-. THE LEARNED ASSESSING OFFICER OBSERVED THAT INTEREST RECEIPT CA NNOT BE TREATED AS PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING A ND THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE LEARNED ASSESSING OFFICER THEREFORE EXCLUDED THE TOTAL INTE REST RECEIVED OF RS.13,19,827/- FOR CALCULATING THE AMOUNT ALLOWA BLE AS DEDUCTION U/S 80IA OF THE ACT. ON APPEAL, THE LEARN ED COMMISSIONER OF INCOME-TAX (APPEALS) OBSERVING THAT THE ASSESSEE HAD ALSO PAID INTEREST OF RS.18,15,095/- A LLOWED SET OFF OF INTEREST PAID AGAINST INTEREST RECEIVED AND THER EFORE VIEWED THAT THEREFORE THERE IS NO NET INTEREST INCOME BUT THERE WERE NET EXPENDITURE OF RS.4,95,268/- AND CONSEQUENTLY NOTHI NG COULD BE EXCLUDED ON ACCOUNT OF RECEIPT OF INTEREST FOR CALC ULATING THE AMOUNT WHICH IS DEDUCTIBLE U/S 80IA OF THE ACT. BEI NG AGGRIEVED BY THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX 6 6 (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. WE F IND THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NO T JUSTIFIED IN ALLOWING SET OFF OF INTEREST EXPENDITURE AGAINST INTEREST RECEIVED WITHOUT BRINGING ON RECORD ANY MATERIAL TO SHOW NEXUS BETWEEN INTEREST RECEIPT AND INTEREST PAID BY THE A SSESSEE. WE FULLY AGREE WITH THE FINDING OF THE LEARNED COMMISS IONER OF INCOME-TAX (APPEALS) TO THE EXTENT THAT GROSS AMOUN T OF RECEIPT CANNOT BE EXCLUDED ON THE GROUND THAT SUCH RECEIPT IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING BUT ONLY NET INCOME I.E. AFTER ALLOWING SET OFF OF EXPENDITURE WHICH HAD A NEXUS W ITH SUCH RECEIPT ONLY CAN BE EXCLUDED. THE ABOVE VIEW FINDS SUPPORT FROM THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF LALSONS ENTERPRISES VS. DCIT (2004) 89 ITD 25 (SB) (DELHI). HOWEVER, WE FIND THAT BOTH THE LOWER AUTHO RITIES HAVE NOT EXAMINED THE ISSUE FROM THIS ANGLE AND HAVE BRO UGHT NO MATERIAL TO SHOW THAT THE INTEREST EXPENDITURE OF T HE ASSESSEE HAD A NEXUS WITH THE INTEREST RECEIPT OR NOT. THE PARTI ES BEFORE US HAVE ALSO BROUGHT NO MATERIAL ON RECORD SO THAT THE ISSUE CAN BE ADJUDICATED BY US COMPLETELY. IN THESE CIRCUMSTANCE S, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND RESTO RE THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER F OR ADJUDICATION AFRESH AS PER LAW AFTER ALLOWING SUFFICIENT OPPORTU NITY OF HEARING TO THE ASSESSEE. THE LEARNED ASSESSING OFFICER IS D IRECTED TO EXCLUDE ONLY NET INTEREST INCOME I.E. GROSS INTERES T RECEIPT AS REDUCED BY THE INTEREST EXPENDITURE WHICH HAD NEXUS WITH INTEREST RECEIPT FOR COMPUTING THE DEDUCTION ALLOWABLE U/S 8 0IA OF THE ACT. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7 7 5 GROUND NO.2 IN THE APPEAL READS AS UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO ENHANCE THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION U/ S 80I BY RS.10,51,946/- RECEIVED BY THE ASSESSEE FOR TREATME NT GIVEN TO THE NET PATTERN DEVELOPMENT CHARGES. 6 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS DECIDED THIS ISSUE AS UNDER:- 6. THE THIRD GROUND OF APPEAL IS REGARDING TREATME NT GIVEN TO THE NET PATTERN DEVELOPMENT CHARGES OF RS.10,51,946/- A S NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION JQIA AND HENCE ITS EXCLUSION FROM THE ELIGIBLE PROFITS OF THE' IND USTRIAL UNDERTAKING. ASSESSING OFFICER OBSERVED AS UNDER: 'THIS INCOME HAS NOT BEEN GENERATED BY ANY MANUFACT URING ACTIVITY OF THE ASSESSES FOR WHICH THIS CLAIM OF DEDUCTION U/S. 80-IA HAS BEEN PROVISIONED FOR. FOR THE GENERATION OF THIS INCOME ASSESSEE IS MANAGING THE AFFAIRS OF THE VENDORS AND EARNS THE I NCOME FOR THE SAME. THEREFORE IT IS EVIDENT THAT THIS INCOME HAS NOT GE NERATED BY MANUFACTURING OF PROCESSING OF THE INDUSTRIAL UNDER TAKING. THE CONTENTION OF THE ASSESSEE IS NOT CORRECT SINCE AS PER SEC. 80IA(2), THE CLAIM OF DEDUCTION UNDER THIS SECTION HAS BEEN PROVIDED TO THE ASSESSEE SINCE IT IS LOCATED IN INDUSTRIALLY BACKWA RD DISTRICT AND IS ENGAGED IN THE MANUFACTURING OR PRODUCING ACTIVITIES, IN CASE OF PATTERN DEVELOPMENT CHARGES, IT CAN NEITHER BE CATE GORIZED AS BEING GENERATED DIRECTLY IN A BACKWARD AREA FOR WHICH THE CLAIM OF DEDUCTION HAS BEEN GRANTED BY THE STATUTE, NOR THIS IS ANY KI ND OF MANUFACTURE OR PRODUCTION ACTIVITY.' THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY STATED BEFORE ME THAT THE FACTS HAVE BEEN PLACED ON THE RE CORD OF THE ASSESSING OFFICER DESCRIBING THE NATURE OF INCOME A ND THE QUANTUM OF THE INCOME WHICH HAS BEEN REPRODUCED BY THE ASSESSI NG OFFICER ON PAGE:5 OF THE ASSESSMENT ORDER. THE LD. AUTHORIZED REPRESENTATIVE ONCE AGAIN BRIEFLY REITERATED THE FACTS DETAILED HE REUNDER: 8 8 (I) PATTERN DEVELOPMENT FROM THE DRAWINGS IS THE FI RST STAGE OF PRODUCTION WHICH IS FOLLOWED BY ACTUAL MASS PRODUCT ION FROM CASTINGS, (II) AFTER ANALYZING THE DRAWINGS RECEIVED FROM THE CUST OMERS, THE REQUIRED PATTERN IS DECIDED BY THE APPELLANT CO MPANY, (III) THE PATTERN VENDORS ARE SELECTED BY THE APPELLANT C OMPANY FOR DEVELOPMENT OF THE REQUIRED PATTERN, (IV) THE ENTIRE PATTERN DEVELOPMENT WORK IS GUIDED AND SUPERVISED BY THE APPELLANT COMPANY AS ITS OWN COST AND RISK (V) THE AMOUNT PAID TO PATTERN VENDORS IN INDIAN CURREN CY IS SHOWN AS PATTERN DEVELOPMENT CHARGES PAID. (VI) THE AMOUNT RECEIVED FROM THE CUSTOMERS IN FOREIGN EXCHANGE IS SHOWN AS TOOLING INVOICES RAISED. (VII) THE EXCESS OF TOOLING INVOICES OVER THE PATTERN DEVELOPMENT CHARGES PAID IS SHOWN AS NET SERVICES CHARGES FOR PATTERN DEVELOPMENT. THE FIGURATIVE FACTS ARE AS UNDER: TOOLING INVOICES RAISED (IN FOREIGN EXCHANGE) 22, 03,895 LESS; PATTERN DEVELOPMENT CHARGES PAID(IN INDIAN RS .) 11,51,949 NET PATTERN DEVELOPMENT CHARGES CREDITED TO PROFIT & LOSS ACCOUNT 10,51,946 THE APPELLANT COMPANY ALSO RELIED ON THE DECISION O F HONBLE ITAT, MUMBAI IN THE CASE OF SUNRISE METAL INDUSTRIES VS. ITO (2004) (89 ITD 406) WHEREIN IT WAS HELD AS UNDER: 'IT WAS UNDISPUTED THAT THE ASSESSEE, AS OBSERVED B Y THE COMMISSIONER (APPEALS), WAS ENGAGED IN THE MANUFACTURING OF ARTI CLES. SIMPLY BECAUSE THE HOT ROLLING ACTIVITY WAS DONE BY THE OU TSIDE PARTIES, THE 9 9 ASSESSEE COULD NOT BE DENIED THE DEDUCTION UNDER SE CTION 80IA, PARTICULARLY WHEN THE HOT ROLLING ACTIVITY WHICH WA S DONE BY THE OUTSIDE AGENCIES WAS DONE UNDER THE DIRECT SUPERVIS IONS, CONTROL AND AT THE RISK OF THE ASSESSEE. BY EXERCISING EFFECTIVE S UPERVISION, THE ASSESSEE COULD ENSURE THAT THE PRODUCTION COMING OU T OF THE MILLS/FACTORIES OF OUTSIDE AGENCIES WAS OF THE SAME METAL AS WAS GIVEN TO THEM FOR CARRYING OUT HOT ROLLING ACTIVITY. THER EFORE, THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF COPPER ROADS, SEG MENT SECTION, WIRES, SHEETS, PLATES, ETC., AND, HENCE, DEDUCTION UNDER SECTION 80-IA WAS ADMISSIBLE TO THE ASSESSEE. THE ORDER OF THE CO MMISSIONER (APPEALS) WAS, THEREFORE, REVERSED ON SAID ISSUE AN D THE ASSESSING OFFICER WAS DIRECTED TO ALLOW DEDUCTION UNDER SECTI ON 80-IA TO THE ASSESSEE.' I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AN D THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATIVE OF THE AP PELLANT COMPANY AND ALSO THE DECISION IN THE CASE OF SUNRISE METAL INDUSTRIES (SUPRA). I FIND FROM THE FACTS THAT THE NET PATTERN DEVELOPMEN T CHARGES OF RS.10,51,946/- IS OPERATIONAL INCOME AS THE PATTERN DEVELOPMENT BEING THE FIRST STAGE IN THE PRODUCTION PROCESS AND IS TH US DIRECTLY DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE ENTIRE WORK OF PATTERN DEVELOPMENT WAS GUIDED AND SUPERVISED BY THE APPELL ANT COMPANY. IN THE CIRCUMSTANCES, THE APPELLANT COMPANY SHOULD NOT BE DENIED THE BENEFIT OF CLAIM U/S 80IA ON SUCH INCOME. ACCORDING LY I DIRECT THE AO TO ENHANCE THE ELIGIBLE PROFITS OF THE INDUSTRIAL U NDERTAKING FOR THE PURPOSES OF SECTION 80IA BY RS.10,51,946/-. 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF COMPONENTS AND PARTS F OR PROCESS CONTROL INSTRUMENTATION AND OTHER PRODUCTS. THE LEA RNED ASSESSING OFFICER OBSERVED FROM THE DETAILS OF OTHE R INCOME THAT THE ASSESSEE HAS SHOWN INCOME OF RS.10,51,946/- UND ER THE HEAD PATTERN DEVELOPMENT CHARGES. THE LEARNED ASSESSIN G OFFICER FOUND THAT THE INCOME WAS DERIVED BY THE ASSESSEE B Y UNDERTAKING 10 10 WORK OF DEVELOPING OF PATTERN ON BEHALF OF THE CUST OMERS AND THIS INCOME WAS NOT GENERATED BY ACTUAL MANUFACTURING BU SINESS OR ACTIVITY OF THE ASSESSEE. THEREFORE, IN THE OPINION OF THE LEARNED ASSESSING OFFICER THE SAID INCOME WAS NOT DERIVED F ROM THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND THEREFOR E NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. ON APPEAL, THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT THE NET PATTERN DEVELOPMENT CHARGES OF RS.10,51,946/- IS OPERATIONA L INCOME AS THE PATTERN DEVELOPMENT BEING THE FIRST STAGE IN TH E PRODUCTION PROCESS AND IS THUS DIRECTLY DERIVED FROM THE INDUS TRIAL UNDERTAKING. THE ENTIRE WORK OF PATTERN DEVELOPMENT WAS GUIDED AND SUPERVISED BY THE APPELLANT COMPANY AND WAS CAR RIED OUT BY PATTERN VENDORS AT THE COST AND RISK OF THE APPELLA NT COMPANY. THEREFORE, THE APPELLANT COMPANY SHOULD NOT BE DENI ED THE BENEFIT OF CLAIM U/S 80IA ON SUCH INCOME. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTENDED THAT THE PATT ERN DEVELOPED IS A TOOL WHICH IS USED BY THE ASSESSEE I N ITS MANUFACTURING BUSINESS. THEREFORE, THE INCOME DERIV ED FROM DEVELOPMENT OF TOOL IS NOT THE INCOME DERIVED FROM MANUFACTURING ACTIVITY AND THEREFORE THE LEARNED CO MMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN ALLOWI NG DEDUCTION IN RESPECT OF INCOME OF RS.10,51,946/-. ON THE OTHE R HAND, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE R ELIED UPON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND SUBMITTED THAT THE DEVELOPMENT OF PATTERN WAS A PART AND PARCEL OF THE BUSINESS OF MANUFACTURING OF COMPONEN TS AND PARTS. WE FIND THAT THE ASSESSEE IS ENGAGED IN MANUFACTURI NG OF COMPONENTS AND PARTS FOR PROCESS CONTROL INSTRUMENT ATION AND 11 11 OTHER PRODUCTS INCOME OF WHICH QUALIFIES FOR DEDUCT ION U/S 80IA OF THE ACT. THE ASSESSEES BUSINESS OF MANUFACTURIN G OF COMPONENTS AND PARTS FOR PROCESS CONTROL INSTRUMENT ATION AND OTHER PRODUCTS STARTS WITH THE RECEIPT OF DRAWINGS OF PARTS AND COMPONENTS REQUIRED BY ITS CUSTOMERS. THE ASSESSEE FOR MANUFACTURING PARTS AND COMPONENTS HAD TO DEVELOP F IRSTLY PATTERN OR MOULDS. THUS, THE DEVELOPMENT OF PATTERN AND MOULDS WAS UNDERTAKEN BY THE ASSESSEE AS A FIRST STEP IN T HE VARIOUS STAGES OR PROCESSES INVOLVED IN MANUFACTURING OF PA RTS AND COMPONENTS. THE REVENUE HAS BROUGHT NO MATERIAL TO SHOW THAT PATTERN DEVELOPMENT CHARGES WAS UNDERTAKEN BY THE A SSESSEE AS A SEPARATE AND INDEPENDENT ACTIVITY OR BUSINESS. ACCO RDING TO THE ASSESSEE THIS ACTIVITY COULD NOT BE INDEPENDENT BUS INESS WITHOUT MANUFACTURING COMPONENTS AND PARTS. THE ASSESSEE MA DE SEPARATE CHARGES FOR THE PATTERN DEVELOPMENT NOT BECAUSE IT WAS A SEPARATE BUSINESS BUT AS BECAUSE ONE STAGE IN THE MANUFACTUR ING OF COMPONENTS AND PARTS WERE COMPLETED AND SO AS TO RE ALIZE SOME REVENUE BEFORE COMPLETION OF COMPLETE MANUFACTURING ACTIVITY. THE CONTENTION OF THE ASSESSEE THAT ENTIRE PATTERN DEVELOPMENT ACTIVITY WAS CARRIED OUT UNDER ITS SUPERVISION AND GUIDANCE AT ITS OWN COST AND RISK WAS NOT CONTROVERTED BY THE REVEN UE. WE FIND THAT THE REVENUE HAS BROUGHT NO MATERIAL BEFORE US TO SHOW THAT MANUFACTURING OF COMPONENTS AND PARTS COULD HAVE BE EN DONE BY THE ASSESSEE WITHOUT MANUFACTURING MOULDS OR DEVELO PING PATTERN. FURTHER, IT IS ALSO NOT THE CASE OF THE RE VENUE THAT THE ASSESSEE COULD HAVE UNDERTAKEN ACTIVITY OF DEVELOPM ENT OF PATTERN EVEN WITHOUT ITS BUSINESS OF MANUFACTURING OF COMPONENTS AND PASTS SO THAT THIS ACTIVITY COULD BE TREATED AS INDEPENDENT AND 12 12 SEPARATE BUSINESS. THUS, ON THE ABOVE FACTS, WE FIN D THAT THE PATTERN DEVELOPMENT ACTIVITY UNDERTAKEN BY THE ASSE SSEE WAS A PART AND PARCEL OF THE BUSINESS OF MANUFACTURING OF COMPONENTS AND PARTS FOR PROCESS CONTROL INSTRUMENTATION AND O THER PRODUCTS AND THE SAME WAS NOT A SEPARATE AND INDEPENDENT BUS INESS OF THE ASSESSEE. WE THEREFORE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 8 GROUND NO.3 IN THE APPEAL READS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO EXCLUDE ONLY RS.78001/- BEING THE NET PREMIUM ON SALE OF DE PB LICENSE AND NOT RS.21,24,012/- BEING THE FULL VALUE FOR THE PUR POSE OF CALCULATING DEDUCTION U/S 80IA. 9 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS DECIDED THE ISSUE AS UNDER: 7 THE FOURTH GROUND OF APPEAL IS AGAINST THE EXCLU SION OF RS.21,24.012/- BEING THE SALE VALUE OF DEPB LICENSE FROM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPO SES OF SECTION 80IA ON THE GROUND THAT THE SAID INCOME IS NOT DERIVED F ROM THE INDUSTRIAL UNDERTAKING. RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS LTD. (237 ITR 57 9) THE AO EXCLUDED A SUM OF RS.21,24,012/- BEING THE SALE VAL UE OF DEPB LICENSE FROM THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80IA THOUGH THE DECISION OF THE APEX COURT WAS RENDERED IN CONNECTION WITH SECTION 80HH. THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY SUBMITTED AS UNDER: THE AO HAS DRAWN AN ANALOGY FROM THE DECISION OF A PEX COURT IN THE CASE OF CIT VS. STERLING FOODS LTD. (237 ITR 57 9) AND HAS 13 13 CONCLUDED THAT THE DEPB LICENCE IS THE PRODUCT OF I NCENTIVE GIVEN BY THE GOVERNMENT OF INDIA AND THAT THEREFORE ANY INCO ME DERIVED FROM THE SALE OF SUCH LICENCE CANNOT BE SAID TO BE DERIV ED FROM INDUSTRIAL UNDERTAKING. WITH DUE RESPECT TO THE OBSERVATIONS MADE AND CONCL USION REACHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ST ERLING FOODS LTD. (237 1TR 579) THAT THE SOURCE OF IMPORT ENTITLEMENT S IS THE EXPORT PROMOTION SCHEME OF THE GOVERNMENT OF INDIA AND THA T THEREFORE ANY INCOME ARISING FROM SALE OF SUCH IMPORT ENTITLEMENT CANNOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING, THE APPELLA NT COMPANY SUBMITS THAT THIS IS AN INSTANCE WHERE AN AUGUST BO DY OF SUPREME COURT JUDGES, AS HUMANS, CAN GET ROPED IN AND BE MI SLED BY THE ARGUMENTS OF SHREWD ADVOCATES. THE APPELLANT COMPANY SUBMITS THAT THERE IS ANOTHER SIDE OF THE COIN WHICH HAS ESCAPED THE ATTENTION OF THE APEX COURT. THE EXPORT PROMOTION SCHEME OR ANY EXPORT INCENTIVE SCHEME OWES ITS EXISTENCE TO THE EXPORTS MADE FROM INDIA AND AI M AT REGULATING AND DEFINING THE BENEFITS WHICH WOULD BECOME AVAILABLE TO EXPORTERS. IF THERE ARE NO EXPORTS MADE BY A MANUFACTURER IN A GI VEN YEAR, NO BENEFIT WILL ACCRUE TO THE MANUFACTURER. THUS, THE SOURCE OF BENEFIT TO ACCRUE IS EXPORTS MADE AND NOT THE SCHEMES WHICH DE FINE AND REGULATE THE BENEFIT TO BECOME AVAILABLE TO THE GENUINE PART IES. IN THIS CONTEXT THE COURSE OF ANY SUCH ENTITLEMENT IS THE EXPORTS M ADE BY AN INDUSTRIAL UNDERTAKING IN THE SOURCE OF ITS BUSINESS. THERE IS ANOTHER FACTOR WHICH GOVERNS THE INTENTION BEHIND THE SCHEME OF ISSUE OF DEPB LICENCES TO INDUSTRIAL UNDERTAKING S WHICH EXPORT THEIR PRODUCTS. IN THE COMPETITIVE EXPORT MARKETS, IT IS DIFFICULT TO MAKE INROADS. THEREFORE, IRRESPECTIVE OF THE HIGHER COST OF MANUFACTURE OR TO MEET THE COMPETITIVE PRICES QUOTE D BY EXPORTERS OF OTHER COUNTRIES ON DUMPING BASIS, THE INDIAN EXPORT ERS IS FORCED BY TRADE CONDITIONS TO EXPORT ITS PRODUCTS ON THE SAME LEVEL OF PRICES IN THE EXPORT MARKETS. THEREFORE IN ORDER THAT THE EXPORTING UNITS DO RECE IVE REMUNERATIVE RETURNS FOR THE EXPORTS OF THEIR PRODUCTS, SUCH LIC ENCES ARE ISSUED UNDER A SCHEME SO THAT THE EXPORTING UNIT EARNS SOME PRIC E BENEFITS TO SUSTAIN ITS ACTIVITY OF EXPORTS AND ITS GROWTH. THEREFORE I N THE ULTIMATE ANALYSIS 14 14 THE INCOME DERIVED FROM SALE OF DEPB LICENCE IS A P ART AND PARCEL OF THE EXPORT EARNINGS DERIVED BY A MANUFACTURER FROM ITS INDUSTRIAL ACTIVITY. WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, IT WAS S PECIFICALLY BROUGHT TO THE NOTICE OF THE LEARNED ACIT THAT THE APPELLAN T COMPANY HAS EARNED PROFIT OF RS.78.001/- ON SUCH SAFE OF DEPB L ICENCES. THE SAID DETAILS ARE ONCE AGAIN PLACED ON YOUR HONOUR'S RECO RD (PAGE: 1 TO 3)' 7.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION MADE BY THE LD. AUTHORIZED REPRESENTATIV E OF THE APPELLANT COMPANY. THE DECISIONS OF THE HON'BLE SUP REME COURT IN THE CASE OF STERLING FOODS LTD. (SUPRA) COVERS THE ISSUE. THE INCOME FROM DEPB LICENCE IS OUTSIDE THE SCOPE OF ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80IA. BUT I FIND FORCE IN THE ALTERNATE ARGUMENT OF THE LD. AUTHORIZ ED REPRESENTATIVE THAT WHAT IS TO BE EXCLUDED IS THE NET PROFIT FROM THE SALE OF DEPB LICENCE. THE DETAILS OF NET PROFIT FROM SALE OF DEP B LICENSES AMOUNTING TO RS.78,001/- WHICH WERE PLACED BEFORE T HE ASSESSING OFFICER HAVE ALSO BEEN SUBMITTED BEFORE ME. I DIREC T THE ASSESSING OFFICER TO COMPUTE THE ELIGIBLE PROFITS OF THE INDU STRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80IA AFTER EXCLUDING RS.78, 001/- BEING THE NET PREMIUM ON SALE OF DEPB LICENCE AND NOT THE FULL SA LE VALUE OF DEPB LICENCE, WITHOUT CONSIDERING THE MATCHING COST.., 10 AT THE TIME OF HEARING, BOTH THE PARTIES AGREED THAT THIS ISSUE IS NOW COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF REVENUE BY THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (SC), WHE REIN IT WAS HELD THAT DEPB / DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SE CTION 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTIVES PROFITS AR E NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS AND, THEREFORE, DUTY DRAWBACK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET P ROFITS OF THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SECTION 8 0IA OR 80IB. 15 15 RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT, WE ALLOW THIS GROUND OF APPEAL OF THE REVENU E. 11 GROUND NO.4 IN THE APPEAL READS AS UNDER:- THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO CALCULATE THE DEDUCTION U/S 80HHC WITHOUT REDUCING THE DEDUCT ION U/S 80IA. 12 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS DECIDED THE ISSUE AS UNDER:- 8. THE SIXTH GROUND IS AGAINST THE REDUCTION OF TH E CLAIM U/S, 80IA OF RS.6.20.478/-FROM THE PROFITS OF THE BUSINESS WORKE D OUT FOR THE PURPOSES OF SECTION 80HHC. 8.1 THE ASSESSING OFFICER RELYING ON THE PROVISIONS OF SUB-SECTION (9A) OF SECTION 80IA REDUCED THE CLAIM OF RS.6,20,4 78/-, WORKED OUT BY HIM FROM THE PROFITS OF THE BUSINESS FOR THE PUR POSES OF SECTION 80HHC. 8.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELL ANT COMPANY ON THE OTHER HAND HEAVILY RELIED ON THE INTENTION OF T HE LEGISLATURE IN INCORPORATING THE PROVISIONS OF SUBSECTION (9A) OF SECTION 80IA AS EXPLAINED IN NOTES ON CLAUSES EXPLAINING THE AMENDM ENT (THE FINANCE (NO. 2) BILL 1998). THE LD. AUTHORIZED REPRESENTATI VE ALSO BROUGHT OUT IN THE SUBMISSIONS BEFORE ME THE SUBSTANCE OF T HE SAID PROVISIONS AS EXPLAINED IN THE SAID BUDGET. THE EXPLANATION (B AA) TO SECTION 80HHC WAS ALSO BROUGHT OUT IN THE SUBMISSIONS TO PR OVE THAT SECTION 80HHC AND EXPLANATION (BAA) TO THE SAID SECTION WHI CH DEFINES THE 'PROFITS OF THE BUSINESS' NO WHERE SPECIFY THAT THE PROFITS OF THE BUSINESS UNDER THE SAID SECTION HAS TO BE REDUCED B Y THE AMOUNT OF DEDUCTION WORKED OUT U/S. 80IA. THE LD. AUTHORIZED REPRESENTATIVE ALSO BROUGHT TO MY NOTICE THE DECISION OF THE HON'B LE HIGH COURT OF MUMBAI IN THE CASE OF C/T \&. SHIRKE CONSTRUCTION EQUIPMENT LTD. (246 ITR 429) WHEREIN IT WAS HELD THAT SECTION 80HHC IS A COMPLET E CODE IN ITSELF. THE LD. AUTHORIZED REPRESENTATIVE V EHEMENTLY ARGUED THAT THE PROVISIONS OF SECTION 80IA (9A) DO NOT OVE RRIDE THE COMPUTATION PROVISIONS OF SECTION 80HHC AS THE DEDU CTION U/S. 16 16 80HHC IN 'ON THE PROFITS OF THE BUSINESS AS A WHOLE WHEREAS THE DEDUCTION U/S 80IA IS ON THE PROFITS OF INDUSTRIAL UNDERTAKING. 8.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND ALS O THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATIVE OF THE AP PELLANT COMPANY EXPLAINING THE INTENTION OF THE LEGISLATURE BEHIND INCORPORATING THE PROVISIONS OF SUB-SECTION (9A) OF SECTION 80IA ON T HE STATUTE BOOK. I FIND FORCE IN THE SUBMISSIONS MADE BY THE LD. AUTHO RIZED REPRESENTATIVE. THE INTERPRETATION OF SECTION 80IA (9A) MADE BY THE ASSESSING OFFICER IS NOT IN CONFORMITY WITH THE INT ENTION OF THE LEGISLATURE AS EXPLAINED IN THE BUDGET WHEREBY THE SAID PROVISIONS OF SECTION 80IA (9A) WERE BROUGHT ON THE STATUTE BOOK. MOREOVER, SECTION 80HHC IS A COMPLETE CODE IN ITSELF. EXPLANA TION (BAA) TO SECTION 80-HHC ALSO DO NOT PERMIT SUCH DEDUCTION. I N THE CIRCUMSTANCES, I DIRECT THE AO NOT TO REDUCE THE AM OUNT OF DEDUCTION OF SECTION 80IA FROM THE PROFITS OF THE BUSINESS FO R THE PURPOSES OF SECTION 80HHC. 13 AT THE TIME OF HEARING BOTH THE PARTIES SUBMITT ED THAT THE ISSUE STANDS NOW COVERED AGAINST THE ASSESSEE A ND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. HINDUSTAN MINT & AGRO PRODU CTS (P) LTD. 119 ITD 107 (SB) (DELHI), WHEREIN IT WAS HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 80IA(9) DEDUCTION U/S80HHC IS TO BE ALLOWED ON PROFITS AND GAINS AS REDUCED BY THE DEDU CTION CLAIMED AND ALLOWED U/S 80IB/80IA. RESPECTFULLY FOLLOWING T HE DECISION OF THE DELHI SPECIAL BENCH OF ITAT, WE ALLOW THIS G ROUND OF APPEAL OF THE REVENUE. 14 GROUND NO.5 IN THIS APPEAL READS AS UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO EXCLUDE THE EXCISE DUTY AND SALES-TAX FROM THE TOTAL TURNOV ER FOR CALCULATING DEDUCTION U/S 80HHC. 17 17 15 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS DECIDED THE ISSUE AS UNDER: 9. THE SEVENTH GROUND OF APPEAL RELATES TO THE ADD ITION OF EXCISE DUTY OF RS.9,26,477/- TO THE TURNOVER TO ARRIVE AT THE T OTAL TURNOVER OF RS.6,94,72,302/- FOR THE PURPOSES OF SECTION 80HHC. RELYING ON VARIOUS DECISIONS THE ASSESSING OFFICER HELD THAT THE ELEMENT OF EXCISE DUTY IS THE PART OF TURNOVER. 9.1 THE LD. AUTHORIZED REPRESENTATIVE ON THE OTHER HAND EXPLAINED TIE FACTS IN THE CASE OF THE APPELLANT COMPANY AND THE METHOD IN WHICH ACCOUNTING OF EXCISE DUTY IS DONE BY IT. IT WAS EXP LAINED BEFORE ME THAT MQDVAT AVAILED FROM THE PURCHASES IS UTILIZED TO MAKE THE PAYMENT OF THE EXCISE DUTY ON THE CLEARANCE OF GOOD S FROM THE FACTORY. THE REFUND OF EXCISE DUTY IS OBTAINED ON THE EXPORT OF THE SAID GOODS. IN THIS VIEW OF THE MATTER IT WAS BROUGHT OUT BEFOR E ME THAT ANY ADJUSTMENT TO THE TOTAL TURNOVER WITH THE AMOUNT OF EXCISE DUTY WOULD AMOUNT TO TAKING CREDIT FOR THE SAME AMOUNT TWICE- (I) REDUCTION OF EXCISE DUTY FROM THE PURCHASE MADE BY THE APPELLANT COMPANY AND (II) THE ALLEGED ADDITION TO THE TOTAL TURNOVER WITH THE SAID AMOUNT OF EXCISE DUTY. THE APPELLANT COMPANY RELIED ON THE DECISION OF THE HON'BLE HIGH COURT OF MUMBAI IN THE CASE OF CIT VS. SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) (245 ITR 769). THE RELEVANT PORTION OF THE SAID DECISION READS AS UNDER: 'THE EMPHASIS IS ON THE WORDS 'PROFITS DERIVED FROM THE EXPORTS'. THEREFORE, WEIGHTAGE MUST BE GIVEN TO SUCH PROFITS. SUCH PROFITS CANNOT BE REDUCED ARTIFICIALLY BY INCLUDING STATUTO RY LEVIES IN THE DENOMINATOR, NAMELY, TOTAL TURNOVER. THEREFORE, TH E TURNOVER SHOULD BE RESTRICTED TO SUCH , RECEIPTS WHICH HAVE AN ELEMENT OF PROFITS IN IT. IT IS ONLY THE ACTUAL SALE ;U PRICE WHICH IS RELEVANT. ANYTHING CHARGED BY THE ASSESSEE BY WAY OF EXCISE DUTY AND SALES TAX CANNOT BE TAKEN INTO ACCOUNT AS THEY DO NOT HAVE ANY ELEMENT OF PRO FIT. EVEN, 18 18 ACCORDING TO ACCOUNTING PRINCIPLES, SUCH DO NOT FOR M PART OF THE PROFIT AND LOSS ACCOUNT IN FACT, THEY ARE SHOWN AS LIABILI TY IN THE BALANCE- SHEET. IN THE CIRCUMSTANCES, THE ABOVE ITEMS CANNOT BE INCLUDED IN THE TOTAL TURNOVER,' THE APPELLANT COMPANY ALSO RELIED ON THE DECISION O F THE HON'BIE HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS. CHLORIDE INDIA LTD. (2002) (256 ITR 625) WHEREIN IT WAS HELD THAT OCTROI, EXCISE DUTY AND SALE TAX ARE TO BE EXCLUDED FROM THE 'TOTAL TURNOVE R' FOR TH3 PURPOSES OF COMPUTING THE SPECIAL DEDUCTION U/S. 80HHC. 9.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATI VE OF THE APPELLANT COMPANY. I FIND FORCE IN THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATIVE. IN CONFORMITY WITH THE D ECISIONS OF HON'BLE HIGH COURT OF MUMBAI IN THE CASE OF SUDARSHAN CHEMICALS (SUPRA) AND OF HON'BLE HIGH COURT OF CALCUTTA IN TH E CASE OF CHLORIDE INDIA (SUPRA) I DECIDE THE ISSUE IN FAVOUR OF THE APPELLA NT COMPANY AND DIRECT THE ASSESSING OFFICER TO REDUCE THE AMOU NT OF EXCISE DUTY FROM THE TOTAL TURNOVER. 16 AT THE TIME OF HEARING BOTH THE PARTIES AGREED THAT THIS ISSUE HAS BEEN DECIDED BY THE HON'BLE SUPREME COURT AGAINST THE REVENUE IN THE CASE OF CIT VS. LAKSHI MACHINE WORKS 209 OTR 667 (SC), WHEREIN IT WAS HELD THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN TOTAL TURNOVER IN THE FORMULA C ONTAINED IN SECTION 80HHC(3). RESPECTFULLY FOLLOWING THE DECISI ON OF THE HON'BLE SUPREME COURT, WE DISMISS THIS GROUND OF AP PEAL OF THE REVENUE. 17 GROUND N0.6 IN THIS APPEAL READS AS UNDER THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO INCLUDE EXPORT INCENTIVE AND SALE OF DEPB LICENSE AS BUSINE SS INCOME FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC. 19 19 18 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS DECIDED THE ISSUE AS UNDER: 10 THE EIGHTH GROUND OF APPEAL IS AGAINST EXCLUSI ON OF SALE OF DEPB LICENCE AMOUNTING TO RS.21,24,012/- FROM THE P ROFITS OF THE BUSINESS FOR THE PURPOSES OF SECTION 80HHC AND HOLD ING THE SAME AS INCOME FROM OTHER SOURCES ON THE GROUND THAT LICENC ES GRANTED UNDER THE NEWLY ENACTED FOREIGN TRADE (DEVELOPMENT AND RE GULATION) ACT, 1992 IN PLACE OF THE REPEALED IMPORTS AND EXPORTS ( CONTROL) ACT, 1947 CANNOT BE TREATED AS BUSINESS INCOME U/S. 28(IIIA). 10.1 THE ASSESSING OFFICER OBSERVED IN THE ORDER TH AT SECTION 28(IIIA) DOES NOT COVER THE LICENCES GRANTED BY THE GOVERNME NT OF INDIA UNDER FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 199 2. THE ASSESSING OFFICER RELIED ON REPEAL AND SAVINGS CLAU SE APPEARING IN THE NEWLY ENACTED ACT PERTAINING TO THE IMPORT AND EXPO RT (CONTROL) ACT, 1947. THE ASSESSING OFFICER ALSO OBSERVED THAT THE SAID INCOME ON SALE OF DEPB LICENCE ACCOUNTED FOR EITHER ON ACCRUA L OR CASH BASIS IS NOT A RECEIPT TO BE CLAIMED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OF PROFESSION' AS DEFINED UNDER SUB-CLAUSE (I) TO (VI) OF SECTION 28 OF THE ACT AND THEREFORE IT IS TAXED U/S . 56 OF THE ACT AS 'INCOME FROM OTHER SOURCES'. 10.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE APPE LLANT COMPANY MADE DETAILED SUBMISSIONS AND POINTED OUT BEFORE ME THE PROVISIONS OF SECTION 8 OF THE GENERAL CLAUSES ACT, 1897 AS SE T OUT HEREUNDER: 'CONSTRUCTION OF REFERENCES TO REPEALED ENACTMENTS - (1) WHERE THIS ACT, OR ANY CENTRAL ACT OR REGULATIO N MADE AFTER THE COMMENCEMENT OF THIS ACT, REPEALS AND RE-ENACTS, WI TH OR WITHOUT MODIFICATION, ANY PROVISION OF A FORMER ENACTMENT, THEN REFERENCES IN ANY OTHER ENACTMENT OR IN ANY INSTRUMENT TO THE PRO VISION SO REPEALED SHALL, UNLESS A DIFFERENT INTENTION APPEARS, BE CON STRUED AS REFERENCES TO THE PROVISION SO RE-ENACTED,' THE LD. AUTHORIZED REPRESENTATIVE ALSO BROUGHT OUT BEFORE ME IN GREAT DETAILS FOLLOWING DECISIONS WHEREIN THE HON'B LE HIGH COURT HAD OCCASION TO CONSIDER THE PROVISIONS OF SECTION 8 OF THE GENERAL CLAUSES ACT, 1897. 20 20 (I) CIT VS. ASSAM COMPANY LTD, (1950) (124 IT R 711 PP 718- 719)(CAL) (II) T.T.P. BEEPATHUMMA VS. SP. DUTY TAHSILDA R ( 1982 ) (134 ITR 488) (KER.) IN THE LIGHT OF THE ABOVE DECISIONS IT WAS CONTENDE D THAT THE CLAIM MADE BY IT UNDER THE PROVISO TO SUB-SECTION (3) OF SECTION 80HHC R.W.S. 28(IIIA) OF THE ACT IS DEARLY SAVED IN SPITE OF THE FACT THAT THE DEDUCTION CONTEMPLATED U/S. 80HHC ONLY COVERS THE L ICENCE GRANTED UNDER THE IMPORTS (CONTROL) ORDER 1955 MADE UNDER T HE OLD ACT. THE LD. AUTHORIZED REPRESENTATIVE ALSO MADE REFEREN CE TO THE STATEMENT OF OBJECTS AND REASONS APPENDED TO THE FO REIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 WHICH IS AS UNDER: 'FT IS NOW GENERALLY ACKNOWLEDGED THAT FOREIGN TRAD E IS A DRIVING FORCE OF ECONOMIC ACTIVITY. TECHNOLOGY, INVESTMENT AND PR ODUCTION AM BECOMING INCREASINGLY INTERDEPENDENT UPON EACH OTHE R AND FOREIGN TRADE BRINGS THESE ELEMENTS TOGETHER AND SPURS ECON OMIC GROWTH. THE IMPORTS AND EXPORTS (CONTROL) ACT, 1947, WAS MA DE IN DIFFERENT CIRCUMSTANCES, ALTHOUGH IT HAS BEEN AMENDED FROM TI ME TO TIME, THE ACT DOES NOT PROVIDE AN ADEQUATE LEGAL FRAMEWORK FO R THE DEVELOPMENT AND PROMOTION OF INDIA'S FOREIGN TRADE. BESIDES, IN JULY, 1991 AND AUGUST, 1991, MAJOR CHANGES IN TRADE POLIC Y WERE MADE BY THE GOVERNMENT OF INDIA, THE GOALS OF THE NEW TRADE POLICY ARE TO INCREASE PRODUCTIVITY AND COMPETITIVENESS AND TO AC HIEVE A STRONG EXPORT PERFORMANCE. THE EXPORT AND IMPORT POLICY IS A VITAL PART OF TRADE POLICY. THE BASIC LAW GOVERNING FOREIGN TRADE MUST SERVE AS AN INSTRUMENT TO CREATE AN ENVIRONMENT THAT WILL PROVI DE A STRONG IMPETUS TO EXPORTS, FACILITATE IMPORTS AND R&NDER EXPORT AC TIVITY MORE PROFITABLE.' IT WAS ALSO ARGUED THAT THOUGH THE NEW ACT HAS REPL ACED THE IMPORT AND EXPORTS (CONTROL) ACT, 1947, THE INTENTION IS T O GIVE IMPETUS TO EXPORT, FACILITATE IMPORT AND RENDER THE EXPORT ACT IVITY MORE PROFITABLE. THEREFORE, KEEPING IN VIEW THE OBJECTS AND THE REAS ONS OF THE NEW ACT, IT COULD NOT BE SAID THAT THE BENEFITS WHICH WERE A VAILABLE TO THE EXPORTERS UNDER THE OLD ACT ARE SOUGHT TO BE DENIED BY REPEAL OF THE OLD ACT AND ENACTMENT OF THE NEW ACT, 21 21 THE LD. AUTHORIZED REPRESENTATIVE ALSO RELIED ON TH E FOLLOWING DECISION TO STRENGTHEN THE ARGUMENTS OF THE APPELLA NT COMPANY THAT THE PROVISIONS OF SECTION 80HHC OF THE ACT WHICH FA LL UNDER CHAPTER VIA OF THE ACT ARE FOR THE BENEFITS OF TINE EXPORTE RS, WHICH HAVE TO BE CONSTRUED LIBERALLY IN FAVOUR OF THE ASSESSEE. (I) CIT. VS. SA TELUT ENGG. L TD. (1978) (113ITR 2 08) (GUJ.) (II) BAJAJ TEMPO VS. CIT (1992) (196 ITR 188) (SC) (III) CIT VS. HINDUSTAN BULK CARRIERS (2003) (259 ITR 449) (SC) THE APEX COURT IN THE HINDUSTAN BULK CARRIER'S (SUPRA) CASE HAS EXPLAINED THE PRINCIPLE OF LIBERAL AND PURPOSEFUL C ONSTRUCTION OF THE STATUTE. THE RELEVANT PORTION OF THE SAID JUDGMENT (PAGE: 464 -465) IS REPRODUCED HEREUNDER: 'A CONSTRUCTION WHICH REDUCES THE STATUTE TO A FUTI LITY HAS TO BE AVOIDED. A STATUTE OR ANY ENACTING PROVISION THEREI N MUST BE SO CONSTRUED AS TO MAKE IT EFFECTIVE AND OPERATIVE ON THE PRINCIPLE EXPRESSED IN THE MAXIM UT RES MAGIS VALEAT QUAM PEREAT, I.E. A LIBERAL CONSTRUCTION SHOULD BE PUT UPON WRITTEN INSTRUMENTS , SO AS TO UPHOLD THEM, IF POSSIBLE, AND CANY INTO EFFECT THE INTENTI ON OF THE PARTIES (SEE: BROOM'S LEGAL MAXIMS (10TH EDITION), PAGE 361, CRAI ES ON STATUTES (7TH EDITION) PAGE 95, AND MAXWELL ON STATUTES (11T H EDITION) PAGE 221). A STATUTE IS DESIGNED TO BE WORKABLE AND THE INTERP RETATION THEREOF BY A COURT SHOULD BE TO SECURE THAT OBJECT UNLESS CRUCIA L OMISSION OR CLEAR DIRECTION MAKES THAT END UNATTAINABLE. (SEE: WHITNE Y V. COMMISSIONERS OF INLAND REVENUE (1926) AC 37, 52 (H L)REFERRED TO IN CIT VS. S. TEJA SINGH (1959) 35 ITR 408 (SC); AI R 1959 SC 352. GURSAHAI SAIGAL V. CIT (1963) 48 ITR (SC) 1; AIR 19 63 SC 1062). THE COURTS WILL HAVE TO REJECT THAT CONSTRUCTION WH ICH WILL DEFEAT THE IN INTENTION OF THE LEGISLATURE EVEN THOUGH THERE MAY BE SOME INEXACTITUDE IN THE LANGUAGE USED (SEE: SALMON VS. DUNCOMBE (1886) 11 APP CAS 627,634 (PC), CURTIS V. STOVIN (1889) 22 QBD 513 REFERRED TO IN S. TEJA SINGH (1959) 35 ITR 408 (SC) . IF THE CHOICE IS BETWEEN TWO INTERPRETATIONS, THE N ARROWER OF WHICH WOULD FAIL TO ACHIEVE THE MANIFEST PURPOSE OF THE L EGISLATION WE SHOULD 22 22 AVOID A CONSTRUCTION WHICH WOULD REDUCE THE LEGISLA TION TO FUTILITY, AND SHOULD RATHER ACCEPT THE BOLDER CONSTRUCTION, BASED ON THE VIEW THAT PARLIAMENT WOULD LEGISLATE ONLY FOR THE PURPOSE OF BRINGING ABOUT AN EFFECTIVE RESULT, (SEE: NOKES V. DONCASTER AMALGAMA TED COOLIERIES LTD. (1940) 3 ALL ER 549 (HI) REFERRED TO IN PYE V. MINISTER FOR LANDS FOR NEW SOUTH WALES (1954) 3 ALL ER 514 (PC). THE P RINCIPLES INDICATED IN THE SAID CASES WERE REITERATED BY THIS COURT IN MOHAN KUMAR SINGHANIA V. UNION OF INDIA, AIR 1992 SC 1 THE STATUTE MUST BE READ AS A WHOLE AND ONE PROVISION OF THE ACT SHOULD BE CONSTRUED WITH REFERENCE TO OTHER PROVISI ONS IN THE SAME ACT SO AS TO MAKE A CONSISTENT ENACTMENT OF THE WHOLE S TATUTE. THE COURT MUST ASCERTAIN THE INTENTION OF THE LEGIS LATURE BY DIRECTING ITS ATTENTION NOT MERELY TO THE CLAUSES TO BE CONST RUED BUT TO THE ENTIRE STATUTE; IT MUST COMPARE THE CLAUSE WITH OTHER PART S OF THE LAW AND THE SETTING IN WHICH THE CLAUSE TO BE INTERPRETED OCCUR S. (SEE; R.S. RAGHUNATH V. STATE OFKAMATAKA, AIR 1992 SC 81). SUC H A CONSTRUCTION HAS THE MERIT OF AVOIDING ANY INCONSIS TENCY OR REPUGNANCY EITHER WITHIN A SECTION OR BETWEEN TWO D IFFERENT SECTIONS OR PROVISIONS OF TH& SAME STATUTE. IT IS THE DUTY O F THE COURT TO AVOID A HEAD ON CLASH BETWEEN TWO SECTIONS OF THE SAME ACT. (SEE: SULTANA BEGUM V. PREM CHAND JAIN, AIR 1997 SC 1006). WHENEVER IT IS POSSIBLE TO DO SO, IT MUST BE DONE T O CONSTRUE THE PROVISIONS WHICH APPEAR TO CONFLICT SO THAT THEY HA RMONISE, IT SHOULD NOT BE LIGHTLY ASSUMED THAT PARLIAMENT HAD GIVEN WI TH ONE HAND WHAT FT TOOK AWAY WITH THE OTHER. THE PROVISIONS OF ONE SECTION OF THE STATUTE CANNOT BE USED TO DEFEAT THOSE OF ANOTHER UNLESS IT IS IMPOSSIBLE TO .''EFFE CT RECONCILIATION BETWEEN THEM. THUS, A CONSTRUCTION THAT REDUCES ONE OF THE PROVISIONS TO A 'USELESS LUMBER' OR 'DEAD LETTER' IS NOT A HARMONISED CONSTRUCTION. TO HARMONISE IS NOT TO DESTROY.' THE SEAMED LD. AUTHORIZED REPRESENTATIVE ALSO INVIT ED MY ATTENTION TO THE INSTRUCTION BEARING REFERENCE F. NO. 133/131 /97- TPL DT. 23-2- 1998 ISSUED BY THE CBDT UNDER WHICH THE BENEFIT UND ER THE PROVISIONS OF SECTION 80HHC OF THE ACT STOOD EXTEND ED TO PREMIUM RECEIVED ON TRANSFER OF EXPORT QUOTAS AS PART OF EX PORT PROFIT ELIGIBLE FOR DEDUCTION U/S. 80HHC OF THE ACT. 23 23 IT WAS ALSO ARGUED BY THE LD. AUTHORIZED REPRESENTATIV E THAT PRIOR TO THE INTRODUCTION OF CLAUSE (IIIA) TO SECTION 28 BY THE FINANCE ACT, 1990 W.R.E.F. 1-4-1962, THE POSITION WAS UNAMBIGUOUS AND CLEAR AS THE RECEIPTS ON SALE OF IMPORT ENTITLEMENT WERE ASSESSE D TO TAX AS BUSINESS INCOME AS THERE WOULD BE AN INTIMATE AND DIRECT CON NECTION BETWEEN THE BUSINESS CARRIED ON BY THE ASSESSEE AND THE IMP ORT ENTITLEMENTS RECEIVED. IT WAS ALSO ARGUED THAT IF ON AN EXAMINAT ION OF THE NATURE OF THE RECEIPTS IT IS FOUND THAT THE AMOUNTS ARE SUPPL EMENTED TO THE TRADING RECEIPTS OR ARE CONNECTED WITH THE BUSINESS , EVEN THOUGH THEY DID NOT ARISE ACTUALLY FROM ANY POSITIVE OPERATION OF THE TRADER, IF SHOULD BE LEGITIMATELY BE CONSIDERED TO BE THE BUSI NESS RECEIPTS. THE LD. AUTHORIZED REPRESENTATIVE RELIED ON THE FOLLOWI NG DECISIONS IN SUPPORT: (I) CIT VS. WHEEL & RIM CO OF INDIA LTD, (19 77) (107 ITR 168) (MAD.) (II) JEEWANLAL (1929) LTD. VS. CIT (1983) (13 9 ITR 865} (CALI (III) METAL ROLLING WORKS PVT LTD. VS. CIT (1983) (142 ITR 170} (BOM.) (IV) UDAIPUR MINERAL DEVELOP. SYNDICATE PVT. LT D. VS. CIT (1988) (173 ITR 431) (RAJ.) (V) CIT VS. M VENKATARATNAM & CO. (P) LTD. (1989) (175 ITR 61) (A.P.) (VI) KESAVAN & SONS (K.E.) VS. CIT(1991) (187IT R 124) (KER.) THE LD. AUTHORIZED REPRESENTATIVE ALSO TOOK AN ALTE RNATIVE ARGUMENT THAT THE SALE OF DEPB LICENCE IS ALSO COVERED U/S. 28(IIIB) WHICH IS REPRODUCED HEREUNDER: ' 28(IIIB): CASH ASSISTANCE (BY WHATEVER . NAME CALLED) RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA.' 24 24 10.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND HAV E ALSO GONE THROUGH THE DETAILED SUBMISSIONS MADE BY THE LD. AU THORIZED REPRESENTATIVE. THE INTERPRETATION OF THE TAXING ST ATUTE, DESIGNED TO GRANT BENEFIT TO THE ASSESSEE SHOULD BE VIEWED LIBE RALLY AND IN FAVOUR OF THE ASSESSEE AS CONSISTENTLY HELD BY THE APEX CO URT WHICH IS EVIDENT FROM IN ITS RECENT DECISION IN THE CASE OF HINDUSTAN BULK CARRIERS (SUPRA). IT WOULD BE UNJUST TO TAX THE SALE OF DEPB LICENCE AS 'INCOME FROM OTHER SOURCES' AND NOT AS 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' JUST BECAUSE THE OLD ACT HAS BEEN RE PEALED AND THE NEW ACT HAS BEEN ENACTED WITH THE SAME OBJECTS TO GIVE IMPETUS TO EXPORT AND RENDER THE EXPORT ACTIVITY MORE PROFITABLE. IN VIEW OF THE PROVISIONS OF SECTION 8 OF THE GENERAL CLAUSES ACT, 1897, THE SALE OF DEPB LICENCE APTLY REMAINS COVERED U/S. 28(IIIA). O THERWISE ALSO, I FIND THAT AS IT HAS BEEN HELD IN THE CASE OF PRATIB HA SYNTEX BY THE HON'BLE ITAT, AHMEDABAD, SECTION 28(IIIB) IS WIDE E NOUGH TO COVER THE CLAIM OF THE APPELLANT. ACCORDINGLY, I DIRECT T HE ASSESSING OFFICER TO GIVE THE BENEFIT OF SECTION 80HHC ON SUCH INCOME . 19 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. THE LEARNED ASSESSING OFFICER HELD THAT THE EXPORT INCENTIVE AND SALE PROCEEDS OF DEPB ARE INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HELD T HAT THEY ARE BUSINESS INCOME BY OBSERVING AS UNDER: 10.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND HAV E ALSO GONE THROUGH THE DETAILED SUBMISSIONS MADE BY THE LD. AU THORIZED REPRESENTATIVE. THE INTERPRETATION OF THE TAXING ST ATUTE, DESIGNED TO GRANT BENEFIT TO THE ASSESSEE SHOULD BE VIEWED LIBE RALLY AND IN FAVOUR OF THE ASSESSEE AS CONSISTENTLY HELD BY THE APEX CO URT WHICH IS EVIDENT FROM IN ITS RECENT DECISION IN THE CASE OF HINDUSTAN BULK CARRIERS (SUPRA). IT WOULD BE UNJUST TO TAX THE SALE OF DEPB LICENCE AS 'INCOME FROM OTHER SOURCES' AND NOT AS 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' JUST BECAUSE THE OLD ACT HAS BEEN RE PEALED AND THE NEW ACT HAS BEEN ENACTED WITH THE SAME OBJECTS TO GIVE IMPETUS TO EXPORT AND RENDER THE EXPORT ACTIVITY MORE PROFITABLE. IN VIEW OF THE PROVISIONS OF SECTION 8 OF THE GENERAL CLAUSES ACT, 1897, THE SALE OF 25 25 DEPB LICENCE APTLY REMAINS COVERED U/S. 28(IIIA). O THERWISE ALSO, I FIND THAT AS IT HAS BEEN HELD IN THE CASE OF PRATIB HA SYNTEX BY THE HON'BLE ITAT, AHMEDABAD, SECTION 28(IIIB) IS WIDE E NOUGH TO COVER THE CLAIM OF THE APPELLANT. ACCORDINGLY, I DIRECT T HE ASSESSING OFFICER TO GIVE THE BENEFIT OF SECTION 80HHC ON SUCH INCOME . 20 WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENT ATIVE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE FIND THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FOLLOWED THE O RDER OF THE TRIBUNAL IN THE CASE OF PRATIBHA SYNTEX (SUPRA) WHI LE ALLOWING THE APPEAL OF THE ASSESSEE. WE THEREFORE DO NOT FIN D ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF INCOME-TAX (APPEALS). IT IS CONFIRMED AND THE GR OUND OF APPEAL OF THE REVENUE IS DISMISSED. 21 GROUND NO.7 IN THE APPEAL READS AS UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO INCLUDE NET INTEREST INCOME IN THE PROFIT OF THE BUSINESS F OR CALCULATION OF DEDUCTION U/S 80HHC. 22 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS DECIDED THE ISSUE AS UNDER: 11. THE NINTH GROUND OF APPEAL IS AGAINST BRINGING FOLLOWING RECEIPTS WITHIN THE PURVIEW OF EXPLANATION (BAA), 90% OF WHI CH HAS BEEN REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PU RPOSES OF SECTION 80HHC. (A) INTEREST INCOME RS.13,19,827/- (B) EXPORT EXCHANGE RATE DIFFERENCE RS. 2,76 ,679/- (C) NET PATTERN DEVELOPMENT CHARGES RS.10, 51,946/- 26 26 11.1(A) THE ASSESSING OFFICER REITERATED THE SAME ARGUMENTS AS ADVANCED WHITE DEALING WITH THE INTEREST INCOME OF RS.13,19,827/- FOR THE GRANT OF THE CLAIM U/S. 80IA AND THEREFORE EXCL UDED 90% OF THE INTEREST INCOME AS PER EXPLANATION (BAA) TO SECTION 80HHC WHILE ARRIVING AT THE PROFITS OF THE BUSINESS FOR THE PUR POSES OF SECTION 80HHC. (II) THE LD. AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY RELIED ON THE SUBMISSIONS MADE IN THAT REGARD AND A LSO CITED FOLLOWING CASE LAWS: PINK STAR VS. DDIT (72ITD 137} (MUM.) LALSON ENTERPRISES VS. DCIT (89 ITD 25) (SB)(DEL) ACIT VS. GALLIUM EQUIPMENT PVT. LTD. (79 ITD 41) (T M) (HYD.) (III) I HAVE CONSIDERED THE FINDINGS OF THE ASSESSI NG OFFICER AS WELL AS SUBMISSION PUTFORTH BY THE ID. AUTHORIZED REPRESENT ATIVE OF THE APPELLANT AND FIND THAT SO FAR AS DEDUCTION U/S, 80 HHC IS CONCERNED, THE TREATMENT OF INTEREST INCOME IS WELL COVERED BY THE SPECIAL BENCH DECISION OF ITAT DELHI TAKEN IN THE CASE OF LALSON ENTERPRISES VS DCIT (89 ITD 25) WHEREIN IT HAS BEEN HELD THAT INTE REST RECEIPT AND INTEREST EXPENSES SHOULD BE CONSIDERED TOGETHER. IN THIS CASE, INTEREST EXPENSES ARE MORE THAN INTEREST RECEIPTS AND OVER A ND ABOVE WHICH ONLY EXPENSES TO THE EXTENT OF RS.4,95,268/-. THERE FORE, THERE REMAINS NO ANY INTEREST INCOME WHICH CAN BE DEDUCTED FROM T HE EXPORT BUSINESS INCOME TO ARRIVE AT THE DEDUCTION U/S. 80H HC. THEREFORE IN THE LIGHT OF THIS VIEW, I HOLD THAT THE ACTION OF T HE ASSESSING OFFICER ON THIS ISSUE IS NOT JUSTIFIED AND THEREFORE ASSESSING OFFICER IS DIRECTED NOT TO DEDUCT ANY INTEREST INCOME WHILE CALCULATING THE DEDUCTION CLAIM U/S. 80HHC OF THE ACT. 23 THE ISSUE INVOLVED IN THE GROUND OF APPEAL IS E XACTLY THE SAME WHICH WAS INVOLVED IN GROUND NO.1 ABOVE. T HEREFORE, OUR DECISION GIVEN HEREINABOVE IN RESPECT OF GROUND NO.1 IS ALSO TO BE TREATED OUR DECISION IN RESPECT OF THIS GROUN D OF APPEAL ALSO. THEREFORE, WE SET ASIDE THE ORDER OF THE LEAR NED 27 27 COMMISSIONER OF INCOME-TAX (APPEALS) IN RESPECT OF THIS GROUND OF APPEAL AND RESTORE THE MATTER BACK TO THE FILE O F THE LEARNED ASSESSING OFFICER WITH THE SAME DIRECTION AS GIVEN HEREINABOVE IN RESPECT OF GROUND NO.1 OF THE APPEAL. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 24 GROUND NO.8 IN THIS APPEAL READS AS UNDER: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO INCLUDE AMOUNT OF NET PATTERN DEVELOPMENT CHARGES OF RS.10, 51,946/- IN THE TOTAL PROFIT FOR CALCULATION OF DEDUCTION U/S 80HHC . 25 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS DECIDED THE ISSUE AS UNDER: (I) THE ASSESSING OFFICER AGAIN FOLLOWED HIS OWN F INDING PERTAINING TO NET PATTERN DEVELOPMENT CHARGES OF RS .10,S1,946/- GIVEN WHILE DEALING WITH THE CLAIM U/S, 80IA OF THE ACT AND THEREFORE BROUGHT THIS INCOME WITHIN THE PURVIEW OF EXPLANATION (BAA) TO SECTION 80HHC AND EXCLUDED 90% OF IT FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSES O F SECTION 80HHC (II) THE LD. AUTHORIZED REPRESENTATIVE REITERA TED THE SUBMISSIONS MADE IN THIS REGARD AND ALSO RELIED ON THE DECISION OF HON'BIE HIGH COURT OF MUMBAI IN THE CASE OF CIT VS. 8ANGALORE CLOTHING CO, (2003) (260 ITR 371) (III) I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE LD. AUTHORIZED REPRE SENTATIVE ON THIS ISSUE AND FIND THAT THIS GROUND OF APPEAL I S COVERED BY THE DECISION RENDERED IN ADJUDICATING THE THIRD GRO UND OF APPEAL AT PARA 7.3, AS HELD THEREIN THIS BEING INCOME FROM BASIC MANUFACTURING OPERATION OF THE APPELLANT COMPANY IT HAS TO BE CONSIDERED WHILE ARRIVING AT THE PROFITS OF THE BUS INESS AND NO PART OF IT CAN BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSES OF SECTION 80HHC, BECAUSE THIS IS THE INCO ME FROM THE 28 28 MANUFACTURING ACTIVITY AND IS EARNED BY THE APPELLA NT COMPANY IN FOREIGN EXCHANGE. 26 THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IS EXACTLY THE SAME AS WAS IN GROUND NO.2 OF THE APPEAL ABOVE. THEREFORE, FOLLOWING OUR DECISION IN RESPECT OF GROUND NO.2 OF THE APPEAL, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 27 IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED IN THE MANNER INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 05-02-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 05-02-2010 COPY OF THE ORDER FORWARDED TO : 1. ABM STEEL PRIVATE LTD., PLOT NO.64-A, PHASE-I, G IDC VATVA, AHMEDABAD 2. THE ACIT, CIRCLE-1, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-V, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD