Inox India Ltd., Baroda V. The DY.CIT., Circle-1, Baroda

ITA 2765/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0274 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 02-07-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 11-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLEY JINDAL
• Assessee Lawyers: MILLIN MEHTA
• Keywords: Business income; Bad and doubtful debts; Competent authority; Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c); 43B; 244A; 80HHC; 234B; 10B; 80IA; 201; 80HH

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INOX INDIA LTD.,ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. DY CIT, CIRCLE-1, BARODA. (APPELLANT) .. (RESPONDENT) ASSTT. CIT, CIR.1(2), BARODA. VS. M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. DY CIT, CIRCLE-1, BARODA. (APPELLANT) .. (RESPONDENT) ITA NO.2765/AHD/2006 ASST. YEAR :2000-01 ITA NO.1/AHD/2007 ASST. YEAR :2000-01 ITA NO.282/AHD/2007 ASST. YEAR :2001-02 ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 2 ASSTT. CIT, CIR.1(2), BARODA. VS. M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. DY CIT, CIRCLE-1, BARODA. (APPELLANT) .. (RESPONDENT) ASSTT. CIT, CIR.1(2), BARODA. VS. M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. DY CIT, CIRCLE-1, BARODA. (APPELLANT) .. (RESPONDENT) ITA NO.490/AHD/2007 ASST. YEAR :2001-02 ITA NO.283/AHD/2007 ASST. YEAR :2002-03 ITA NO.491/AHD/2007 ASST. YEAR :2002-03 ITA NO.284/AHD/2007 ASST. YEAR :2003-04 ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 3 ASSTT. CIT, CIR.1(2), BARODA. VS. M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. ASSTT. CIT, CIR.1(2), BARODA. (APPELLANT) .. (RESPONDENT) ASSTT. CIT, CIR.1(2), BARODA. VS. M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. ASSTT. CIT, CIR.1(2), BARODA. (APPELLANT) .. (RESPONDENT) ITA NO.492/AHD/2007 ASST. YEAR :2003-04 ITA NO.147/AHD/2008 ASST. YEAR :2004-05 ITA NO.457/AHD/2008 ASST. YEAR :2004-05 ITA NO.148/AHD/2008 ASST. YEAR :2005-06 ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 4 M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. DY CIT, CIRCLE-1, BARODA. (APPELLANT) .. (RESPONDENT) M/S INOX INDIA LTD., ABS TOWER, 4 TH FLOOR, OLD PADRA ROAD, BARODA. VS. ASSTT. CIT, CIR.1(2), BARODA. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI MILLIN MEHTA, AR REVENUEBY:- SHRI SHELLEY JINDAL, SR.DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . OUT OF ALL THESE THIRTEEN APPEALS, SOME ARE FILED BY THE ASSESSEE AND FOR SOME ASST. YEARS CROSS APPEALS ARE FILED BY BOT H DEPARTMENT AND ASSESSEE INVOLVING DIFFERENT ASSESSMENT YEARS. SINC E ALL THESE APPEALS INVOLVE COMMON ISSUES ALSO, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.2765/AHD/2006 ASST. YEAR : 2000-01 (ASSESSEES APPEAL) 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING 90 % OF ITA NO.2964/AHD/2009 ASST. YEAR :2006-07 ITA NO.2963/AHD/2009 ASST. YEAR :2007-08 ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 5 THE FOLLOWING AMOUNTS FROM PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME: A) INTEREST FROM HANK ON MARGIN MONEY 11,61,870 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 9,64,740 WHICH THE MONIES ARE BORROWED BY T HE COMPANY C) INSURANCE CLAIM 3,42.628 TOTAL INTEREST INCOME 24,69.438 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN HOLDING THAT GROSS AMOUNT OF INTEREST AND OTHER INCOME IS REQUIRED TO HE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND NO DEDUCTION SHOULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME , 2. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING THE FOLLOWING AMOUNTS FROM INCOME ELIGIBLE FOR DEDUCTIO N U/S. 80IA OF THE ACT ON THE GROUND THAT THESE INCOMES ARE NOT DERIVED FROM INDUSTRIAL UNDERTAKING; AMOUNT (RS.) A) INTEREST FROM HANK ON MARGIN MONEY 11,61,870 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT WHICH 9,64,740 THE MONIES ARE BORROWED BY THE COMPAN Y C) INTEL-RAT ON IDB1 OMNI BONDS 49,920 D) INSURANCE CLAIM RECEIVED 3,42,828 E) INCOME FROM OPERATIONS 47,39.022 F) LEASE RENT ON LEASE O F ASSETS 1,07,74,556 MANUFACTURED BY THE APPELLANT IT IS SUBMITTED THAT ALL THE ABOVE INCOMES INCLUDIN G OF REPAIRING ACTIVITY AND INSTALLATION AND LEASE IS BUSINESS ACT IVITY FORM AN INTEGRAL PART OF THE MANUFACTURING ACTIVITY AND HEN CE HAS TO BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKI NG AND THEREFORE ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT, 3. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN EX CLUDING VARIOUS INCOMES FROM THE PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND FROM PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING FO R COMPUTING THE DEDUCTION U/S. 80HHC AND 80IA RESPECTIVELY ON THE BASIS OF 'GROSS ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 6 RECEIPTS' THEREOF AND IN NOT ALLOWING ANY EXPENDITU RE INCURRED FOR EARNING THE RESPECTIVE INCOME. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN AP PLYING THE AMENDED PROVISION OF SECTION 10B OF THE ACT, DESPIT E THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U/S. 10B FO R AY 2000-01 BEING THE ASSESSMENT YEAR IMMEDIATELY PRIOR TO AY 2 001-02, THE ASSESSMENT YEAR IN WHICH THE AMENDED PROVISIONS WER E MADE EFFECTIVE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AL SO ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF THE AO I N REJECTING THE CLAIM OF 100 % EOU U/S 10B OF THE ACT ON THE GROUND THAT NO EXEMPTION U/S. 10B IS AVAILABLE TO THE APPELLANT AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO THE APPELLANT HAS N OT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE, 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.10, 540 BEING PRIOR PERIOD EXPENSES. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CH ARGING INTEREST U/S, 234B AND 234D OF THE ACT. 7. THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN INITIATIN G PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF VACUUM INSULATED TANKS, COLD CONVERTER SYSTEM, ATMO SPHERIC VAPORISERS AND CRYO CONTAINERS ETC. 4. THE FIRST ISSUE RELATES TO REDUCTION OF 90% OF T HE AMOUNTS SUCH AS INTEREST FROM BANK ON MARGIN MONEY, INTEREST FROM I CD, INSURANCE CLAIM FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF CO MPUTATION OF DEDUCTION UNDER SECTION 80 HHC. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 7 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IT WAS SUBMITTED BY THE LD. AR THAT THIS IS SUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN ASST. YEAR 1999-00 IN ITA NO.1063/A HD/2003 FOR ASST. YEAR 1999-00 AND ITA NO.823/AHD/2003 ASST. YEAR 199 9-00 PRONOUNCED ON 23/01/2009 FOLLOWING THE DECISION OF HON. SUPREM E COURT IN THE CASE OF KARNAL CO-OP. SUGAR MILLS LTD. 243 ITR 02 (SC) I N PARA 30 OF THEIR ORDER. 6. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDER S OF AUTHORITIES BELOW. 7. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE RESTORE THE MATTER TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH AFTER CONSIDERING THE DECISION OF HON. SUPREME COURT AS R EFERRED ABOVE. 8. THE ISSUE REGARDING INTEREST ON INTER CORPORATE DEPOSITS AND INSURANCE CLAIM RECEIVED, HAS BEEN CONFIRMED BY THE TRIBUNAL IN THE PREVIOUS YEAR AS REFERRED TO ABOVE VIDE PARA 31 OF THEIR ORDER AS UNDER :- 31. COMING TO INTEREST ON INTER CORPORATE DEPOSITS AND INSURANCE CLAIM RECEIVED, WE ARE OF THE OPINION THAT THE ORDER OF T HE CIT(A) IN RESPECT TO THIS ISSUE REQUIRES NO INTERFERENCE FROM OUR END AN D, THEREFORE, ASSESSEES GROUND TO THIS EXTENT IS REJECTED. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE CONFI RM THE ORDER OF LD. CIT(A). PART OF THE GROUND NO.1 OF ASSESSEE IS ACCO RDINGLY REJECTED. 9. GROUND NO.2 RELATES TO THE INTEREST AND OTHER IN COME FROM THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. T HE INTEREST FROM BANK ON MARGIN MONEY, INTEREST ON ICD AND INTEREST ON ID BI OMNI BONDS HAVE BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL I N THE PRECEDING YEAR VIDE PARA 10.1 OF THEIR ORDER AS UNDER :- ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 8 10.1 SO FAR AS INTEREST FROM BANK & OTHERS AND MIS CELLANEOUS INCOME ARE CONCERNED, WE ARE OF THE OPINION THAT LAW WITH RESPECT TO NATURE OF THIS INCOME IS NOW WELL SETTLED AS PER VARIOUS DECI SIONS OF HON. SUPREME COURT, ACCORDING TO WHICH THE INCOME FROM THESE SOU RCES HAS TO BE TAXED AS INCOME FROM OTHER SOURCES AND IF THAT IS THE CAS E, THEN THE SAME CANNOT BE CONSIDERED AS DERIVED FROM INDUSTRIAL UNDERTAKI NG. CONSEQUENTLY, THE REVENUES GROUND WITH THIS RESPECT IS ALLOWED. ACCORDINGLY THESE ISSUES ARE CONFIRMED AGAINST THE ASSESSEE. 10. THE ISSUE REGARDING INSURANCE CLAIM HAS TO BE D ECIDED IN FAVOUR OF ASSESSEE FOLLOWING THE DECISION OF ITAT (SPECIAL BE NCH) IN NIRMA INDUSTRIES LTD. VS. ACIT (2005) 95 ITD 199 (AHD) (S B). IT HAS BEEN HELD THEREIN THAT INSURANCE CLAIM RELATES TO BUSINESS OF THE ASSESSEE AND, THEREFORE, WILL BE PART OF BUSINESS PROFIT AND ACCO RDINGLY WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. CLAIM OF DEDUCTIO N UNDER SECTION 80IA ON INCOME FROM OPERATION AT RS.47,37,022/- IS DECID ED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PREVIOUS YEAR AS PER PARA 10 OF THEIR ORDER AS UNDER :- 10. AFTER CAREFUL CONSIDERATION OF THE RIVAL SUBMI SSIONS, FACTS AND CIRCUMSTANCES OF THE CASE AND VARIOUS DECISIONS, WE ARE OF THE OPINION THAT SO FAR AS INCOME FROM OPERATIONS AND LIABILITY BAL. WRITTEN BACK ARE CONCERNED, THE SAME BEING RELATED TO BUSINESS TRANS ACTIONS ARE TO BE CONSIDERED AS DERIVED FROM INDUSTRIAL UNDERTAKING AND, THEREFORE, ARE ENTITLED TO DEDUCTION U/S 80-IA OF THE ACT. ACCORDINGLY, THIS PART OF THE ASSESSEES GROUND IS ALLOWED. 11. LEASE RENT ON LEASE OF ASSETS MANUFACTURED BY T HE ASSESSEE HAS BEEN SET ASIDE TO THE FILE OF LD. CIT(A) FOR FRESH CONSI DERATION IN THE PREVIOUS YEAR BY THE TRIBUNAL AS PER PARA 10.2 OF THEIR ORDE R AS UNDER:- ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 9 10.2 COMING TO LEASE RENT INCOME, WE AS PER OUR OB SERVATIONS AGAINST GROUND NO.4 (SUPRA), RESTORE THE ISSUE BACK TO THE FILE OF CIT(A) WITH THE SAME DIRECTIONS. ACCORDINGLY, WE ALSO RESTORE THE ISSUE TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION AND ALSO KEEPING IN VIEW THE HON. APEX COURTS DECISION IN CIT VS. K. RAVINDRAN IYER 295 ITR 228 (SC). THUS GR OUND NO.2 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . 12. GROUND NO.3 RELATES TO REJECTION OF CLAIM OF 10 0% EOU U/S 10B OF THE ACT ON THE GROUND THAT NO EXEMPTION U/S 10B IS AVAILABLE TO THE ASSESSEE. 13. THE LD. AR RELIED ON THE DECISION OF HON. DELHI HIGH COURT IN CIT VS. SHRI RAM HONDA POWER EQUIPMENT 289 ITR 475 FOR THE PROPOSITION THAT NETTING SHOULD BE ALLOWED. HOWEVER, HON. BOMBA Y HIGH COURT IN THE CASE OF CIT VS. ASIAN STARS, BOMBAY, PRONOUNCED ON 5 TH APRIL, 2010 HELD THAT NETTING OF EXPENDITURE IS NOT ALLOWABLE UNDER EXPLANATION (BAA) TO SECTION 80HHC. HON. BOMBAY HIGH COURT DISAPPROVED T HE DECISION IN LALSON ENTERPRISES 95 ITD 25 (DEL) AND ALSO DECLINE D TO FOLLOW THE DECISION OF HON. DELHI HIGH COURT IN SHRI RAM HONDA POWER EQUIPMENT (SUPRA). IT IS HELD BY HON. DELHI HIGH COURT THAT E XPLANATION (BAA) TO SECTION 80 HHC ALREADY PROVIDES 90% OF RECEIPT BY B ROKERAGE COMMISSION, INTEREST, RENT ETC. ETC. TO BE REDUCED FROM THE BUSINESS PROFITS. SINCE SOME EXPENDITURE MIGHT HAVE BEEN INC URRED IN EARNING THIS INCOME THEIR DEDUCTION @ 10% FROM SUCH INCOME IS AL LOWED. ONCE PARLIAMENT HAS LEGISLATED BOTH ON THE NATURE OF EXC LUSION AND EXTENT THEREOF, IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE. THEREFORE, ONCE 90% OF INTEREST RECEIVED IS EXCLUDED THEN QUES TION OF ALLOWING NETTING WOULD NOT ARISE AS RELATED EXPENDITURE IS A LREADY COVERED IN 10%. ACCORDINGLY, WE RESPECTFULLY FOLLOW THE DECISION OF HON. BOMBAY HIGH ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 10 COURT ON THIS ISSUE AND DECIDE THE ISSUE AGAINST TH E ASSESSEE. THIS GROUND IS ACCORDINGLY REJECTED. 14. GROUND NO.4 RELATES TO REJECTION OF CLAIM OF 10 0% EOU U/S 10B OF THE ACT ON THE GROUND THAT NO EXEMPTION U/S 10B IS AVAILABLE TO THE ASSESSEE AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO THE ASSESSEE HAS NOT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE F OREIGN EXCHANGE. THE LD. AR HAS HEAVILY RELIED ON THE PROVISO CONTAI NED IN SECTION 10B(1). THIS PROVISO READS AS UNDER :- PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UN DERTAKING FOR ANY ASSESSMENT YEAR ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000 THE UNDERTAKING SHALL BE ENTITLED TO THE DEDUCTION REFERRED TO IN THIS SUB- SECTION ONLY FOR THE UNEXPIRED PERIOD OF AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS. 15. ACCORDING TO THE LD. AR THIS PROVISO MEANS THAT IF ASSESSEE IS ALLOWED EXEMPTION UNDER SECTION 10B(1) IN ASST. YEA R 2000-01 BY VIRTUE OF PROVISIONS AS EXISTING PRIOR TO ITS AMENDMENT BY FINANCE ACT, 2000 THEN SUCH UNDERTAKING WOULD BE ENTITLED TO EXEMPTIO N CONSECUTIVELY FOR NEXT NINE UNEXPIRED PERIOD. IN OTHER WORDS, ACCORDI NG TO THE LD. AR IF ASSESSEE SATISFIES THE CONDITIONS OF SECTION 10B(1) IN ASST. YEAR 2001-02 THEN NOTWITHSTANDING WHETHER IT SATISFIES FURTHER C ONDITIONS IN SUBSEQUENT YEARS, THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION. FURTHER, IN OTHER WORDS, THE ONUS ON THE ASSESSEE THAT IT SATISFIES T HE CONDITIONS AS LAID DOWN IN SECTION 10B AS STOOD FOR ASST. YEAR 2001-02 IS DISCHARGED IN THAT YEAR THEN ASSESSEE WOULD BE ENTITLED TO SUCH EXEMPT ION IN ALL SUBSEQUENT UNEXPIRED YEARS NOTWITHSTANDING THAT IT SATISFIES T HE CONDITIONS IN THOSE SUBSEQUENT YEARS, OR NOT. THUS IF AO ALLOWS EXEMPTI ON TO THE ASSESSEE IN ONE INITIAL YEAR YEAR THEN ASSESSEE WILL BE CONTINU ED TO BE GRANTED SUCH EXEMPTION FOR NEXT UNEXPIRED PERIOD WITHOUT LOOKING INTO WHETHER IT ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 11 SATISFIES SUCH CONDITIONS IN SUCH SUBSEQUENT YEARS. THE LD. DR ON THE OTHER HAND OPPOSED THIS CONTENTION PUT FORWARD BY T HE LD. AR AND SUPPORTED THE ORDER OF CIT(A). 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE INTERPRETATION A DVANCED BY LD. A.R. IS NOT CORRECT. INCOME OF EVERY ASST. YEAR HAS TO BE C OMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AS EXISTING FOR THAT ASST. YEAR. THE APPLICABILITY OF THE AMENDED PROVISIONS HAS TO BE L OOKED INTO AND IS TO BE SEEN WHETHER ASSESSEE SATISFIES THOSE CONDITIONS OR NOT AND WHETHER IT FALLS INTO CHARGING SECTION RELEVANT TO THAT ASST. YEAR. IN OUR CONSIDERED VIEW THE AO IS DUTY BOUND TO SEE WHETHER ASSESSEE IS SAT ISFYING THE CONDITIONS LAID DOWN IN THE RELEVANT PROVISIONS OF THE ACT FOR THAT PARTICULAR ASST. YEAR BEFORE ALLOWING DEDUCTIONS OF THE EXEMPTION OR THE ALLOWANCE CLAIMED BY THE ASSESSEE. THE ONLY MEANING THAT CAN BE ATTACHED TO THE PROVISO TO SECTION 10B(1) AS SUBSTITUTED BY FINANCE ACT 2000 IS THAT ASSESSEE WILL BE ENTITLED TO EXEMPTION ONLY FOR THE UNEXPIRED PERIOD AND THAT ITS INNING CANNOT BE STARTED AFRESH FROM SUBSE QUENT YEAR/YEARS IF THERE IS AN AMENDMENT IN THE ACT. THUS IN RESPECT OF THOS E ASSESSEES WHO ARE GIVEN EXEMPTION FOR CERTAIN NUMBER OF YEARS PRIOR T O AMENDMENT IN SECTION 10B BY FINANCE ACT, 2000 THEN SUCH ASSESSEE S WILL BE ENTITLED TO EXEMPTION AFTER THE AMENDMENT BY FINANCE ACT 2000 I N RESPECT OF THOSE YEARS ONLY WHICH ARE STILL LEFT UNEXPIRED AS BALANC E OUT OF 10 YEARS. THUS THIS PROVISO IN FACT RESTRICTS THE ALLOWABILITY OF EXEMPTION FOR ONLY UNEXPIRED PERIOD OUT OF 10 YEARS AND THUS DISABLES THE ASSESSEE TO START A FRESH INNING OF 10 YEARS AFTER THIS AMENDMENT BY FI NANCE ACT 2000. BUT THAT DOES NOT MEAN THAT CONDITIONS LAID DOWN IN SEC TION 10B AS BROUGHT IN BY FINANCE ACT 2000 OR BY SUBSEQUENT AMENDMENT IN T HAT SECTION ARE NOT REQUIRED TO BE SATISFIED BY THE ASSESSEE. THE RESTR ICTION IMPOSED BY THE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 12 PROVISO IS ONLY ON NUMBER OF YEARS FOR WHICH EXEMPT ION IS ALLOWABLE AND DOES NOT PROVIDE EXEMPTION FROM CONDITION IMPOSED F OR ALLOWANCE OF EXEMPTION IN SUBSEQUENT YEARS BY SUBSEQUENT AMENDME NTS IN THE LAW. IN OTHER WORDS ASSESSEE HAS TO SATISFY THAT IT FULFILL S THE CONDITIONS LAID DOWN IN THE RELEVANT ASST. YEAR BEFORE IT CLAIMS EXEMPTI ON UNDER SECTION 10B. WE REJECT THIS ARGUMENT OF ASSESSEE THAT CONDITIONS IMPOSED BY SUBSEQUENT AMENDMENT ARE NOT REQUIRED TO BE EXAMINE D BY THE AO AND ASSESSEE HAS TO BE ALLOWED EXEMPTION IN SUBSEQUENT YEARS ONLY ON THE BASIS OF ITS SATISFYING CONDITIONS LAID DOWN PRIOR TO AMENDMENT BY FINANCE ACT 2000. NOW COMING TO THE QUESTION AS TO WHAT CONDITION ASSESSEE HAS TO SATISFY, IN SUBSEQUENT YEARS. WE NO TE THAT SUB-SECTION (3) OF SECTION 10B AS AMENDED BY FINANCE ACT, 2000 HAS BROUGHT IN FOLLOWING NEW CONDITIONS:- (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA A RE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FU RTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION -1 FOR THE PURPOSES OF THIS SUB-SECTION THE EXPRESSI ON COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORISED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGUL ATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. EXPLANATION -2 THE SALE PROCEEDS REFERRED TO IN THIS SUB-SECTIO N SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEED S ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE BANK OF INDIA. THUS IT HAS TO BE SEEN THAT ASSESSEE IS BRINGING FO REIGN EXCHANGE INTO INDIA AS A RESULT OF ITS EXPORT. THE ARGUMENT OF TH E ASSESSEE IS THAT OTHER CONCERNS TO WHOM ASSESSEE HAS SOLD ITS PRODUCT IN I NDIA ARE BRINGING CONVERTIBLE FOREIGN EXCHANGE IN INDIA THROUGH EXPOR T OF THEIR PRODUCT CONTAINED IN THE CONTAINERS MANUFACTURED BY THE ASS ESSEE. THUS PRODUCTS OF THE ASSESSEE IN FACT ARE EXPORTED BY THE OTHER C ONCERNS AND CONVERTIBLE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 13 FOREIGN EXCHANGES ARE BROUGHT BY THEM INTO INDIA. W E ARE UNABLE TO SUBSCRIBE TO THIS VIEW. IT IS BECAUSE PHRASE MENTIO NED IN SUB-SECTION (3) IS ..ARE RECEIVED IN., OR BROUGHT INTO INDIA BY TH E ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE THUS IT IS THE ASSES SEE WHO HAS TO BRING CONVERTIBLE FOREIGN EXCHANGE IN INDIA OUT OF ITS OW N EXPORT. IF OTHER PARTIES ARE BRINGING CONVERTIBLE FOREIGN EXCHANGE I N INDIA THEN IT WILL NOT BE THE FULFILLMENT OF THE CONDITIONS IMPOSED BY SUB -SECTION (3). IT IS ADMITTED POSITION OF FACTS THAT ASSESSEE IS NOT IN FACT BRINGING CONVERTIBLE FOREIGN EXCHANGE AND ENTIRE OF ITS PRODUCTS ARE SOL D IN INDIA IN INDIAN RUPEES. THEREFORE, THE ASSESSEE WILL NOT BE ENTITLE D TO EXEMPTION UNDER SECTION 10B. ACCORDINGLY THIS GROUND OF ASSESSEE IS REJECTED. 17. GROUND NO.5 RELATES TO DISALLOWANCE OF RS.10,54 0/- BEING PRIOR PERIOD EXPENSES. WE NOTICED THAT THIS GROUND IS NOT SERIOUSLY CONTESTED AS AMOUNT INVOLVED IS PETTY. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, THIS GROUND OF ASSESSEE IS REJECTED. 18. GROUND NO.6 RELATES TO CHARGING OF INTEREST UND ER SECTION 234B & 234D OF THE ACT. 19. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. INTEREST UNDER SECTION 234D IS CHARGEABLE F ROM ASST. YEAR 2004- 05 AND CANNOT BE CHARGED IN EARLIER ASST. YEAR EVEN THOUGH REGULAR ASSESSMENTS FOR THOSE ASST. YEARS ARE FRAMED AFTER 1 ST JUNE, 2003 OR REFUND IS ISSUED ACCORDINGLY AFTER THE SAID DATE. W E RESPECTFULLY FOLLOW THE DECISION OF ITAT (SPECIAL BENCH) IN ITO VS. EKT A PROMOTERS P. LTD. 305 ITR (AT) 01 (DEL) IN THIS REGARD. SINCE PRESENT ASST. YEAR INVOLVED IS 2000-01 INTEREST UNDER SECTION 234D CANNOT BE CH ARGED. THUS THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. CHARGING OF I NTEREST U/S 234B IS CONSEQUENTIAL. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 14 ITA NO.1/AHD/2007 ASST. YEAR 2000-01 (REVENUES APP EAL) 20. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL :- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO EXCLUDE EXCISE DUTY OF RS.2,58,77,511/- AND SALES TAX OF RS.74,81,908/- FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S .80HHC, WITHOUT APPRECIATING THE RATIO LAID DOWN BY THE SUP REME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU P. LTD VS CIT 67 ITR 542 (SC) AND SINCLAIR MURRAY & CO P. LTD. VS CIT 97 ITR 615 (SC) HOLDING THAT THE COLLECTION OF TAXES FORMS PART OF TRADING RECEIPTS AND HENCE TOTAL TURNOVER. 1(B) THE CJT(A) ALSO FAILED TO TAKE NOTE OF THE DEF INITION OF TOTAL TURNOVER IN CLAUSE (BA) OF THE EXPLANATION BELOW SE CTION 80HHC, EXCLUDING ONLY FREIGHT & INSURANCE UP TO THE CUSTOM S STATION, LEAVING THE CONCEPT OF TOTAL TURNOVER TO BE UNDERST OOD AS IN COMMON COMMERCIAL PARLANCE. 1(C) THE CIT{A) FAILED TO TAKE NOTE OF THE MANDATE OF SECTION 145A(B), INSERTED W.E.F, 1.4.1999, GOVERNING THE COMPUTATION OF PROFITS HAVING INESCAPABLE BEARING ON THE COMPUTATION OF DE DUCTION U/S.80HHC, WHICH IS MADE BY APPORTIONING THE SAME P ROFITS IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF LEASE REN T OF RS. 1,07,74,556/- FROM THE PROFITS OF THE BUSINESS IN T HE COMPUTATION OF DEDUCTION U/S 80 HHC ON THE SOLE GROUND THAT THE LE ASE RENT WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APPRECIATING THAT EXPLANATION (BAA)(1) BELOW SECTION 80 HHC PROVIDES FOR EXCLUSION OF 90%, INTER ALIA, OF RENT, ONLY WHEN THE SAME WAS ASSESSABLE AS BUSINESS INCOME, I.E. UNDER THE HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION', AS IS CLEAR FROM THE WORDS 'INCLUDE D IN SUCH PROFITS' IN THIS EXPLANATION AND, IN CASE SUCH RENT WAS ASSE SSABLE AS INCOME FROM HOUSE PROPERTY OR OTHER SOURCES, THERE WAS NO QUESTION AT ALL OF ANY PORTION OF THE SAME ENTERING INTO THE COMPUT ATION OF DEDUCTION U/S 80HHC. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 15 2(B) THE CIT(A) FAILED TO TAKE NOTE OF THE RATIO OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORK S LTD. VS CIT 266 ITR 47 (GUJ) SPECIFICALLY HOLDING SUCH RENT AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S 8 0HHC, BESIDES THE DECISIONS IN THE CASE OF CIT VS K.K. DOSHI & CO , 245 ITR 849 (BOM) AND CIT VS. KANTILAL CHHOTALA 246 ITR 439 (BO M). 3(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF INCOME OF RS.47,39,022/- FROM REPAIRS AND OTHER SERVICE CHARG ES FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUC TION U/S 80HHC, ON THE SOLE GROUND THAT THE SAME WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APPRECIATING THAT EXPLANATION (BAA) (1) BELOW SECTION 80HHC PROVIDES FOR EXCLUSION OF 90% OF 'CHA RGES' AND 'ANY OTHER RECEIPT OF A SIMILAR NATURE', ONLY WHEN THE SAME WERE ASSESSABLE AS BUSINESS INCOME, I.E. UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', AS IS CLEAR FROM THE WORDS 'INCLUDED IN SUCH PROFITS' IN THIS EXPLANATION AND, IN CASE SUCH RECEIPT WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', THERE WAS NO QUESTION AT ALL OF ANY PORTION THEREOF ENTERING INTO THE COMPUTATION OF DEDUCTION U/S 80HHC 3(B) CIT(A) FAILED TO TAKE NOTE OF THE JURISDICTION AL HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD, VS CIT 266 ITR 47 (GUJ) SPECIFICALLY HOLDING SUCH MISCELLANEOUS INCOM ES AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S 80HHC BESIDES THE DECISIONS IN THE CASE OF CIT VS K .K. DOSHI & CO. 245 ITR 849 (BOM) AND CIT VS KANTILAL CHHOTALA 246 ITR 439 (BOM) HOLDING THAT 90% OF ALL RECEIPTS WHICH DO NOT FORM PART OF TURNOVER ARE EXCLUDIBLE UNDER THE EXPLANATION (BAA) THAT WAS ENACTED IN ORDER TO REMOVE DISTORTION IN THE WORKIN G OF PROFITS DERIVED FROM THE EXPORT BY APPORTIONMENT OF THE PRO FITS OF THE BUSINESS IN THE RATIO OF EXPORT TURNOVER TO TOTAL T URNOVER, WHICH ENVISAGES ENTIRE PROFITS AS ARISING FROM TURNOVER. 21. THE FIRST GROUND OF THIS APPEAL OF REVENUE IS R EGARDING EXCLUSION OF SALES-TAX AND EXCISE DUTY FROM THE TOTAL TURNOVE R WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 16 22. THIS ISSUE IS NOW DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON. APEX COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667(SC). ACCORDINGLY THIS GROUND OF R EVENUE IS REJECTED. 23. GROUND NO.2 IS RELATES TO EXCLUSION OF LEASE RE NT FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80 HHC. 24. THIS ISSUE IN ASSESSEES APPEAL HAS BEEN RESTOR ED TO THE FILE OF LD. CIT(A) AND ACCORDINGLY ENTIRE ISSUE HAS TO BE EXAMI NED BY HIM AFRESH INCLUDING THE POINT RAISED BY THE REVENUE. ACCORDIN GLY, THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO.3 RELATES TO EXCLUSION OF INCOME FROM PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80 HHC. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR. AC CORDINGLY THIS GROUND OF REVENUE IS REJECTED. 26. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.282/AHD/2007 ASST. YEAR 2001-02 (ASSESSEES APPEAL) 27. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N THIS APPEAL :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING 90 % OF THE FOLLOWING AMOUNTS FROM PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME: A) INTEREST FROM BANK ON MARGIN MONEY 19,38,857 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 6,00,000 WHICH THE MONIES ARE BORROWED BY THE COMPANY C) INSURANCE CLAIM _ 2,28,886 ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 17 TOTAL INTEREST INCOME 27.67,743 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN HOLDING THAT GROSS AMOUNT OF INTEREST AND OTHER INCOME IS REQUIRED TO BE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND NO DEDUCTION SHOULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING THE FOLLOWING AMOUNTS FROM INCOME ELIGIBLE FOR DEDUCTIO N U/S. 80IA OF THE ACT ON THE GROUND THAT, THESE INCOMES ARE NOT D ERIVED FROM INDUSTRIAL UNDERTAKING- AMOUNT (RS.) A) INTEREST FROM BANK ON MARGIN MONEY 19,38,857 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 6,00,000 WHICH THE MONIES ARE BORROWED BY THE COMPANY C) INSURANCE CLAIM RECEIVED 2,28,886 D) INCOME FROM OPERATIONS 66,06 H 532 E) LEASE RENT ON LEASE O F ASSETS 1,07,10,082 MANUFACTURED BY THE APPELLANT IT IS SUBMITTED THAT ALL THE ABOVE INCOMES INCLUDIN G OF REPAIRING ACTIVITY AND INSTALLATION AND LEASE IS BUSINESS ACT IVITY FORM AN INTEGRAL PART OF THE MANUFACTURING ACTIVITY AND HEN CE HAS TO BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKI NG AND THEREFORE ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN EX CLUDING VARIOUS INCOMES FROM THE PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND FROM PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING FO R COMPUTING THE DEDUCTION U/S. 80HHC AND 80IA RESPECTIVELY ON THE B ASIS OF 'GROSS RECEIPTS' THEREOF AND IN NOT ALLOWING ANY EXPENDITU RE INCURRED FOR EARNING THE RESPECTIVE INCOME. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN AP PLYING THE AMENDED PROVISION OF SECTION 10B OF THE ACT, DESPIT E THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U/S. 10B FO R AY 2000-01 BEING THE ASSESSMENT YEAR IMMEDIATELY PRIOR TO AY 2 001-02, THE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 18 ASSESSMENT YEAR IN WHICH THE AMENDED PROVISIONS WER E MADE EFFECTIVE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AL SO ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF THE AO I N REJECTING THE CLAIM OF 100 % EOU U/S. 10B OF THE ACT ON THE GROUN D THAT NO EXEMPTION U/S. 10B IS AVAILABLE TO THE APPELLANT AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO THE APPELLANT HAS N OT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT, AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.8,0 03 BEING PRIOR PERIOD EXPENSES. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN. FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CH ARGING INTEREST U/S. 234B AND 234DOF THE ACT. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN IN ITIATING PENALTY PROCEEDINGS U/S. 27L(L)(C) OF THE ACT. 28. GROUND NO.1 OF THIS APPEAL RELATES TO DEDUCTION OF 90% OF INTEREST AND OTHER INCOME FROM THE PROFITS OF THE BUSINESS F OR COMPUTATION OF DEDUCTION U/S 80 HHC. THE ISSUES INVOLVED IN THIS G ROUND ARE THE SAME AS GROUND NO.1 IN THE APPEAL FOR ASST. YEAR 2000-01 OF ASSESSEES APPEAL. FOLLOWING THE SAME WE RESTORE THE ISSUE REGARDING I NTEREST FROM BANK ON MARGIN MONEY TO THE FILE OF AO FOR RECONSIDERATION IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE CASE OF KARNA L CO-OP. SUGAR MILLS LTD. (SUPRA). THIS PART OF THE GROUND IS ALLOWED FO R STATISTICAL PURPOSES. 29. THE ISSUE REGARDING INTEREST ON CORPORATE DEPOS IT AND INSURANCE CLAIM IS CONFIRMED FOLLOWING OUR ORDER FOR ASST. YE AR 2000-01. 30. GROUND NO.2 RELATES TO DEDUCTION OF INTEREST AN D OTHER INCOME FROM THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80I B. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 19 31. SIMILAR ISSUE HAD ARISEN IN THE CASE OF ASSESSE E FOR ASST. YEAR 2000-01 WHEREIN WE HAVE CONFIRMED THE ORDER OF AO I N RESPECT OF INTEREST FROM BANK ON MARGIN MONEY, INTEREST FROM I CD AND INTEREST FROM IDBI OMNI BONDS. FOLLOWING OUR DECISION IN ASST. YE AR 2000-01 WE CONFIRM THE ORDER OF THE AO IN RESPECT OF INTEREST FROM BANK ON MARGIN MONEY AND INTEREST FROM ICD. HOWEVER, THE ISSUE REL ATING TO INSURANCE AND INCOME FROM OPERATION IS ALLOWED IN FAVOUR OF A SSESSEE FOLLOWING OUR ORDER FOR ASST. YEAR 2000-01. 32. THE ISSUE REGARDING LEASE RENT ON LEASE OF ASSE TS MANUFACTURED BY THE ASSESSEE IS RESTORED TO THE FILE OF AO FOLLOWIN G OUR ORDER IN ASST. YEAR 2000-01. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED AND PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 33. GROUND NO.3 RELATES TO REDUCTION OF GROSS AMOUN T OF VARIOUS INCOME INSTEAD OF NET AMOUNT. 34. SIMILAR ISSUE HAD ARISEN BEFORE US IN ASST. YEA R 2000-01. FOLLOWING THE SAME WE CONFIRM THE ORDER OF LD. CIT( A), WHEREIN WE HAVE HELD THAT 90% OF GROSS AMOUNT HAS TO BE REDUCED FRO M THE PROFITS OF THE BUSINESS INSTEAD OF NET. FOLLOWING THE SAME WE CONF IRM THE ORDER OF LD. CIT(A). THIS GROUND OF ASSESSEE IS REJECTED. 35. GROUND NO.4 RELATES TO CLAIM OF 100% EOU EXEMPT ION U/S 10B. SIMILAR ISSUE HAD ARISEN BEFORE US IN ASSESSEES AP PEAL FOR ASST. YEAR 2000-01. WE HAVE REJECTED THE CLAIM OF ASSESSEE AFT ER DISCUSSING THE ISSUE IN DETAIL FOR THAT YEAR. AS THE FACTS ARE THE SAME, FOLLOWING OUR ABOVE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 20 ORDER, WE REJECT THE CLAIM OF ASSESSEE THIS YEAR AL SO. THIS GROUND OF ASSESSEE IS DISMISSED. 36. GROUND NO.5 RELATES TO DISALLOWANCE OF PRIOR PE RIOD EXPENSES. FOLLOWING OUR ORDER FOR ASST. YEAR 2000-01 WE CONFI RM THE ORDER OF LD. CIT(A) AND DISMISS THE GROUND OF APPEAL FILED BY TH E ASSESSEE. 37. GROUND NO.6 IS REGARDING CHARGING OF INTEREST U NDER SECTION 234D. THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE FOLLOWI NG OUR ORDER FOR ASST. YEAR 2000-01. ITA NO.490/AHD/2007 ASST. YEAR 2001-02 (REVENUES A PPEAL) 38. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL:- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO EXCLUDE EXCISE DUTY OF RS.3,23,51,323/- AND SALES TAX OF RS.1,00,69,057/- FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S .80HHC, WITHOUT APPRECIATING THE RATIO LAID DOWN BY THE SUP REME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU P. LTD VS CIT 87 ITR 542 (SC) AND SINCLAIR MURRAY & CO P. LTD. VS CET 97 ITR 615 (SC) HOLDING THAT THE COLLECTION OF TAXES FORMS PART OF TRADING RECEIPTS AND HENCE TOTAL TURNOVER, 1(B) THE CIT(A) ALSO FAILED TO TAKE NOTE OF THE DEF INITION OF TOTAL TURNOVER FN CLAUSE (BA) OF THE EXPLANATION BELOW SE CTION 80HHC, EXCLUDING ONLY FREIGHT & INSURANCE UP TO THE CUSTOM S STATION, LEAVING THE CONCEPT OF TOTAL TURNOVER TO BE UNDERST OOD AS IN COMMON COMMERCIAL PARLANCE. 1(C) THE CIT(A) FAILED TO TAKE NOTE OF THE MANDATE OF SECTION 145A{B) R INSERTED W.E.F. 1.4.1999, GOVERNING THE COMPUTATION OF PROFITS HAVING INESCAPABLE BEARING ON THE COMPUTATION OF DE DUCTION U/S.80HHC, WHICH IS MADE BY APPORTIONING THE SAME P ROFITS IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER, ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 21 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF LEASE REN T OF RS.96,39,073/- FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION U/S SO HHC, ON THE SOLE GROUND THAT TH E LEASE RENT WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APPRECIA TING THAT EXPLANATION (BAA)(L) BELOW SECTION 80 HHC PROVIDES FOR EXCLUSION OF 90%, INTER ALIA, OF RENT, ONLY WHEN THE SAME WAS ASSESSABLE AS BUSINESS INCOME, I,E, UNDER THE HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION 1 ', AS IS CLEAR FROM THE WORDS 'INCLUDED IN SUCH PRO FITS' IN THIS EXPLANATION AND, IN CASE SUCH RENT WAS ASSE SSABLE AS INCOME FROM HOUSE PROPERTY OR OTHER SOURCES, THERE WAS NO QUESTION AT ALL OF ANY PORTION OF THE SAME ENTERING INTO THE COMPUT ATION OF DEDUCTION U/S 80HHC, 2(B) THE CIT(A) FAILED TO TAKE NOTE OF THE RATIO OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS CIT 266 ITR 47 (GUJ} SPECIFICALLY HOLDING SUCH R ENT AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S 80HHC, BESIDES THE DECISIONS IN THE CASE OF CIT VS . K.K. DOSHI & CO. 245 ITR 849 (BOM) AND CIT VS KANTILAL CHHOTALA 246 ITR 439 (BOM). 3(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF INCOME OF RS.59,45,878/- FROM REPAIRS AND OTHER SERVICE CHARG ES SHOWN UNDER THE HEAD 'OPERATIONS', FROM THE PROFITS OF THE BUSI NESS IN THE COMPUTATION OF DEDUCTION U/S 80HHC, ON THE SOLE GRO UND THAT THE SAME WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APP RECIATING THAT EXPLANATION (BAA)(L) BELOW SECTION 80HHC PROVIDES F OR EXCLUSION OF 90% OF 'CHARGES' AND 'ANY OTHER RECEIPT OF A SIM ILAR NATURE', ONLY WHEN THE SAME WERE ASSESSABLE AS BUSINESS INCO ME, I,E. UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON', AS IS CLEAR FROM THE WORDS 'INCLUDED IN SUCH PROFITS' IN THIS E XPLANATION AND, M CASE SUCH RECEIPT WAS ASSESSABLE UNDER THE HEAD ' INCOME FROM OTHER SOURCES', THERE WAS NO QUESTION AT ALL OF ANY PORTION THEREOF ENTERING INTO THE COMPUTATION OF DEDUCTION U/S 80HH C. 3(B) CIT(A) FAILED TO TAKE NOTE OF THE JURISDICTION AL HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS. CIT 266 ITR 47 (GUJ) SPECIFICALLY HOLDING SUCH MISCELLANEOUS INCOM ES AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S 80HHC BESIDES THE DECISIONS IN THE CASE OF CIT VS. K.K. DOSHI & ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 22 CO. 245 ITR 849 (BOM) AND CIT VS KANTILAL CHHOTALAL 246 ITR 439 (BOM) HOLDING THAT 90% OF ALL RECEIPTS WHICH DO NOT FORM PART OF TURNOVER ARE EXCLUDIBLE UNDER THE EXPLANATION (B AA) THAT WAS ENACTED IN ORDER TO REMOVE DISTORTION IN THE WORKIN G OF PROFITS DERIVED FROM THE EXPORT BY APPORTIONMENT OF THE PRO FITS OF THE BUSINESS IN THE RATIO OF EXPORT TURNOVER TO TOTAL T URNOVER, WHICH ENVISAGES ENTIRE PROFITS AS ARISING FROM TURNOVER, 39. GROUND NO.1 OF REVENUES APPEAL RELATES TO EXCL USION OF SALES-TAX AND EXCISE DUTY FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80 HHC. 40. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE IN ASST. YEAR 2000-01 FOLLOWING THE DECISION OF HON. SUPREME COUR T IN CIT VS. LAXMI MACHINE WORKS (SUPRA). ACCORDINGLY, THIS GROUND IS DECIDED IN FAVOUR OF ASSESSEE. 41. GROUND NO.2 RELATES TO EXCLUSION OF LEASE RENT FROM THE PROFITS OF BUSINESS IN THE COMPUTATION OF DEDUCTION U/S 80 HHC . FOLLOWING OUR ORDER IN ASST. YEAR 2000-01 WE RESTORE THIS ISSUE T O THE FILE OF AO FOR RECONSIDERATION. 42. GROUND NO.3 RELATES TO EXCLUSION OF INCOME FROM OPERATION FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTI ON U/S 80 HHC. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ASS T. YEAR 2000-01 AND ACCORDINGLY THIS GROUND OF REVENUE IS REJECTED. 43. AS A RESULT, THE APPEAL OF REVENUE IS PARTLY AL LOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.283/AHD/2007 ASST. YEAR 2002-03 (ASSESSEES APPEAL) 44. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN TH IS APPEAL:- ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 23 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING 90 % OF THE FOLLOWING AMOUNTS FROM PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME 1 A) INTEREST FROM BANK ON MARGIN MONEY 22,63,124 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 6,00,000 WHICH THE MONIES ARE BORROWED BY THE COMP ANY C) INTEREST ON INCOME TAX REFUND 1,00,470 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN HOLDING THAT GROSS AMOUNT OF INTEREST AND OTHER INCOME IS REQUIRED TO BE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND NO DEDUCTION SHOULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING THE FOLLOWING AMOUNTS FROM INCOME ELIGIBLE FOR DEDUCTIO N U/S. 801A OF THE ACT ON THE GROUND THAT THOSE INCOMES ARE NOT DE RIVED FROM INDUSTRIAL UNDERTAKING: AMOUNT (RS.) A) INTEREST FROM HANK ON MARGIN MONEY 22,63,124 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 6,00,000 WHICH THE MONIES ARE BORROWED BY TH E COMPANY C) INTEREST ON INCOME TAX REFUND 1,00,470 D) INCOME FROM OPERATIONS 81,84,014 E) LEASE RENT ON LEASE OF ASSETS 84,51,958 MANUFACTURED BY THE APPELLANT IT IS SUBMITTED THAT ALL THE ABOVE INCOMES INCLUDIN G OF REPAIRING ACTIVITY AND INSTALLATION AND LEASE IS BUSINESS ACT IVITY FORM AN INTEGRAL PART OF THE MANUFACTURING ACTIVITY AND HEN CE HAS TO BE TREATED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKI NG AND THEREFORE ELIGIBLE FOR DEDUCTION U/S 80LA OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN EX CLUDING VARIOUS INCOMES FROM THE PROFITS AND GAINS FROM BUSINESS OR PROFESSION AND FROM PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING FO R COMPUTING THE DEDUCTION U/S. 80HHC AND 80IA RESPECTIVELY ON THE B ASIS OF 'GROSS ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 24 RECEIPTS' THEREOF AND IN NOT ALLOWING ANY EXPENDITU RE INCURRED FOR EARNING THE RESPECTIVE INCOME, 4. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING DEDUCTION CLAIMED U/S. 80IA FROM THE PROFIT OF THE BUSINESS WHILE CALCULATING DEDUCTION U/S.80HHC OF THE INCOME TAX A CT, 1961. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN AP PLYING THE AMENDED PROVISION OF SECTION 10B OF THE ACT, DESPIT E THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U/S. 10B FO R AY 2000-01 BEING THE ASSESSMENT YEAR IMMEDIATELY PRIOR TO AY 2 001-02, THE ASSESSMENT YEAR IN WHICH THE AMENDED PROVISIONS WER E MADE EFFECTIVE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AL SO ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF THE AO I N REJECTING THE CLAIM OF 100 % EOU U/S, 10B OF THE ACT ON THE GROUN D THAT NO EXEMPTION U / B . 10B IS AVAILABLE TO THE APPELLANT AS THE ENTIRE SAL ES ARE IN DOMESTIC MARKET AND ALSO THE APPELLANT HAS N OT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.39, 891 BEING PRIOR PERIOD EXPENSES. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DI SALLOWING BAD DEBTS OF RS.73,47,881 DESPITE THE FACT THAT THE APP ELLANT HAD SATISFIED ALL CONDITIONS MENTIONED IN SECTION 36(1) (VII) OF THE ACT. IT MAY ALSO BE MENTIONED THAT THE COMMISSIONER OF I NCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW IN OBSERVING THAT THE CLAIM OF THE APPELLANT IS NOT ALLOWABLE ON THE GROUND THE SA ID SUM REPRESENTS PENALTY FOR BREACH OF LAW. IT MAY BE MENTIONED THAT THERE IS NO BREACH OF LAW. THE SAID SUM REPRESENTS AMOUNT NOT R ECEIVED ON ACCOUNT OF BREACH OF AGREEMENT AND NOT ON ACCOUNT O F BREACH OF LAW. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CH ARGING INTEREST U/S, 234B AND 234D OF THE ACT, ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 25 9. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN IN ITIATING PENALTY PROCEEDINGS U/S. 271(L)(C) OF THE ACT. 45. GROUND NO.1 OF THIS APPEAL RELATES TO DEDUCTION OF 90% OF INTEREST AND OTHER INCOME FROM THE PROFITS OF THE BUSINESS F OR COMPUTATION OF DEDUCTION U/S 80 HHC. THE ISSUES INVOLVED IN THIS G ROUND ARE THE SAME AS GROUND NO.1 IN THE APPEAL FOR ASST. YEAR 2000-01 OF ASSESSEES APPEAL. FOLLOWING THE SAME WE RESTORE THE ISSUE REGARDING I NTEREST FROM BANK ON MARGIN MONEY TO THE FILE OF AO FOR RECONSIDERATION IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE CASE OF KARNA L CO-OP. SUGAR MILLS LTD. (SUPRA). 46. THE ISSUE REGARDING INTEREST ON CORPORATE DEPOS IT AND INSURANCE CLAIM IS CONFIRMED FOLLOWING OUR ORDER FOR THE ASST . YEAR 2000-01. 47. THE ISSUE REGARDING INTEREST ON INCOME-TAX REFU ND CANNOT BE CONSIDERED AT PAR AS INTEREST FROM BUSINESS AND THE REFORE, THIS WILL NOT COME INTO COMPUTATION OF DEDUCTION U/S 80 HHC AT AL L. THIS PART OF THE GROUND IS REJECTED. 48. GROUND NO.2 RELATES TO DEDUCTION OF INTEREST AN D OTHER INCOME FROM THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80I B. 49. SIMILAR ISSUE HAD ARISEN IN THE CASE OF ASSESSE E FOR ASST. YEAR 2000-01 WHEREIN WE HAVE CONFIRMED THE ORDER OF AO I N RESPECT OF INTEREST FROM BANK ON MARGIN MONEY, INTEREST FROM I CD AND INTEREST FROM IDBI OMNI BONDS. FOLLOWING OUR DECISION IN ASST. YE AR 2000-01 WE CONFIRM THE ORDER OF THE AO IN RESPECT OF INTEREST FROM BANK ON MARGIN MONEY AND INTEREST FROM ICD. HOWEVER, THE ISSUE REL ATING TO INSURANCE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 26 AND INCOME FROM OPERATION IS ALLOWED IN FAVOUR OF A SSESSEE FOLLOWING OUR ORDER FOR ASST. YEAR 2000-01. 50. THE ISSUE REGARDING LEASE RENT ON LEASE OF ASSE TS MANUFACTURED BY THE ASSESSEE IS RESTORED TO THE FILE OF AO FOLLOWIN G OUR ORDER IN ASST. YEAR 2000-01. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED AND PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 51. GROUND NO.3 RELATES TO REDUCTION OF GROSS AMOUN T OF VARIOUS INCOME INSTEAD OF NET AMOUNT. 52. SIMILAR ISSUE HAD ARISEN BEFORE US IN ASST. YEA R 2000-01. FOLLOWING THE SAME WE CONFIRM THE ORDER OF LD. CIT( A), WHEREIN WE HAVE HELD THAT 90% OF GROSS AMOUNT HAS TO BE REDUCED FRO M THE PROFITS OF THE BUSINESS INSTEAD OF NET. FOLLOWING THE SAME WE CONF IRM THE ORDER OF LD. CIT(A). 53. GROUND NO.4 RELATES TO DEDUCTION CLAIMED U/S 8 0IA FROM THE PROFIT OF BUSINESS WHILE COMPUTING DEDUCTION U/S 80 HHC. 54. THIS ISSUE IS DIRECTLY COVERED BY THE DECISION OF THE TRIBUNAL (SPECIAL BENCH) IN ACIT VS. HINDUSTAN MINT AND AGRO PRODUCTS LTD. 119 ITD 107 (DEL)(SB). ACCORDINGLY THE ISSUE DECIDED AG AINST THE ASSESSEE. THIS GROUND OF ASSESSEE IS, THEREFORE, REJECTED. 55. GROUND NO.5 RELATES TO CLAIM OF 100% EOU EXEMPT ION U/S 10B. SIMILAR ISSUE HAD ARISEN BEFORE US IN ASSESSEES AP PEAL FOR ASST. YEAR 2000-01. WE HAVE REJECTED THE CLAIM OF ASSESSEE AFT ER DISCUSSING THE ISSUE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 27 IN DETAIL FOR THAT YEAR. THEREFORE, FOLLOWING OUR A BOVE ORDER, WE REJECT THE CLAIM OF ASSESSEE THIS YEAR ALSO. 56. GROUND NO. 6 RELATES TO DISALLOWANCE OF RS.39,8 91/- BEING PRIOR PERIOD EXPENSES. 57. A SIMILAR ISSUE HAD ARISEN BEFORE US IN ASSESSE ES OWN CASE FOR ASST. YEAR 2000-01 VIDE GROUND NO.5. WE NOTICE THAT THIS GROUND IS NOT SERIOUSLY CONTESTED AS AMOUNT INVOLVED IS PETTY. CO NSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, THIS GROUND OF ASSESSEE IS REJECTED. 58. GROUND NO.7 RELATES TO DISALLOWANCE OF BAD DEBT S. ACCORDING TO THE ASSESSEE IT HAS RAISED BILL OF RS.2,61,73,095/- ON APLDA DURING 2001- 02. THIS AMOUNT WAS INCLUDED IN THE SALES FOR THAT YEAR AND ACCORDINGLY TAX WAS OFFERED ON INCOME GENERATED FROM IT. THE AS SESSEE RECEIVED A SUM OF RS.1,88,25,213/-. BALANCE OF THE SUM REMAINED IN DISPUTE BETWEEN THE PARTIES. APLDA STOPPED MAKING PAYMENT TO THE ASSESS EE ON THE GROUND THAT ASSESSEE DID NOT COMPLY WITH THE CONDITIONS ME NTIONED IN THE AGREEMENT FOR SUPPLY OF MATERIAL. IT ACCORDINGLY CH OSE TO WRITE OFF THE AMOUNT FROM ITS BOOKS. ONCE THE AMOUNT IS WRITTEN O FF IT IS ALLOWABLE AS BAD DEBT U/S 36(1)(VII). FOLLOWING THE DECISION OF HON. SUPREME COURT IN THE CASE OF T. R. F. LTD. VS CIT 323 ITR 397 (SC) IN WHICH IT WAS HELD AS UNDER:- THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWE VER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBIT ED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE A CCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION I S DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 28 NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS E XERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, TH E MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSI DERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO TH E EXTENT OF THE WRITE OFF. WE RESTORE THE MATTER TO THE FILE OF AO TO VERIFY W HETHER THE AMOUNT HAS BEEN ACTUALLY WRITTEN OFF AND THEN DECIDE THE ISSUE IN ACCORDANCE WITH THE DECISION OF HON. APEX COURT IN TRF LTD. VS. CIT (SU PRA). ACCORDINGLY, THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSES. 59. GROUND NO.8 IS REGARDING CHARGING OF INTEREST U /S 234D OF THE ACT. THIS GROUND IS DECIDED IN FAVOUR OF ASSESSEE FOLLOW ING OUR ORDER FOR ASST. YEAR 2000-01. ITA NO.491/AHD/2007 ASST. YEAR 2002-03 (REVENUES A PPEAL) 60. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- L(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO EXCLUDE EXCISE DUTY OF RA.88,3L,207/- AND SALES TAX OF RS.2,53,24,858/- FROM THE TOTAL TU RNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S,80HHC, WITHOUT A PPRECIATING THE RATIO LAID DOWN BY THE SUPREME COURT IN THE CAS E OF CHOWRINGHEE SALES BUREAU P. LTD VS CIT 87 ITR 542 ( SC) AND SINCLAIR MURRAY & CO P- LTD. VS. CIT 97 ITR 615 (SC ) HOLDING THAT THE COLLECTION OF TAXES FORMS PART OF TRADING RECEIPTS AND HENCE TOTAL TURNOVER. L(B) THE CTT(A) ALSO FAILED TO TAKE NOTE OF THE DE FINITION OF TOTAL TURNOVER IN CLAUSE (BA) OF THE? EXPLANATION BELOW S ECTION 80HHC, EXCLUDING ONLY FREIGHT & INSURANCE UP TO THE CUSTOM S STATION, LEAVING THE CONCEPT OF TOTAL TURNOVER TO BE UNDERS TOOD AS IN COMMON COMMERCIAL PARLANCE. L(C) THE CIT(A) FAILED TO TAKE NOTE OF THE MANDA TE OF SECTION 145A(B) INSERTED W.E.F. 1.4.1999, GOVERNING THE COMPUTATION OF PROFITS HAVING INESCAPABLE BEARING ON THE COMPUTATION OF DE DUCTION ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 29 U/S.80HHC, WHICH IS MADE BY APPORTIONING THE SAME P ROFITS IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF LEASE REN T OF RS. 34,5L,958/- FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION U/S 80 HHC, ON THE SOLE GROUND THAT THE L EASE RENT WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APPRECIATING THAT EXPLANATION (BAA)(L) BELOW SECTION 80 HHC PROVIDES FOR EXCLUSION OF 90%, INTER ALIA, OF RENT, ONLY WHEN THE SAME WAS ASSESSABLE AS BUSINESS INCOME, I.E, UNDER THE HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION', AS IS CLEAR FROM THE WORDS 'INCLUDE D IN SUCH PROFITS' IN THIS EXPLANATION AND, IN CASE SUCH RENT WAS ASSE SSABLE AS INCOME FROM HOUSE PROPERTY OR OTHER SOURCES, THERE WAS NO QUESTION AT ALL OF ANY PORTION OF THE SAME ENTERING INTO THE COMPUT ATION OF DEDUCTION U/S 80HHC. 2(B) THE CIT(A) FAILED TO TAKE NOTE OF THE RATIO OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORK S LTD. VS CIT 266 ITR 47 (GUJ) SPECIFICALLY HOLDING SUCH RENT AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S 8 0HHC, BESIDES THE DECISIONS IN THE CASE OF CIT VS K.K. DOSHI & CO . 245 ITR 849 (BOM) AND CIT VS KANTILAL CHHOTALA 246 ITR 439 (BOM ), 3(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN NEGATING THE EXCLUSION OF INCOME OF P.S.81,84,014/- FROM REPAIRS AND OTHER SERVICE CHAR GES SHOWN UNDER THE HEAD 'OPERATIONS', FROM THE PROFITS OF THE BUSI NESS IN THE COMPUTATION OF DEDUCTION U/S 80HHC, ON THE SOLE GRO UND THAT THE SAME WAS ASSESSABLE AS BUSINESS INCOME, WITHOUT APP RECIATING THAT EXPLANATION (BAA)(L) BELOW SECTION 80HHC PROVIDES F OR EXCLUSION OF 90% OF 'CHARGES' AND 'ANY OTHER RECEIPT OF A SIM ILAR NATURE', ONLY WHEN THE SAME WERE ASSESSABLE AS BUSINESS INCO ME, I.E. UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON', AS IS CLEAR FROM THE WORDS 'INCLUDED IN SUCH PROFITS' IN THIS E XPLANATION AND, IN CASE SUCH RECEIPT WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES', THERE WAS NO QUESTION AT ALL OF ANY PORTION THEREOF ENTERING INTO THE COMPUTATION OF DEDUCTION U/S 80HH C, 3(B) CIT(A) FAILED TO TAKE NOTE OF THE JURISDICT IONS! HIGH COURT DECISION IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS CIT 2 66 ITR 47 (GUJ} SPECIFICALLY HOLDING SUCH MISCELLANEOUS INCOM ES AS EXCLUDIBLE TO THE EXTENT OF 90% IN THE COMPUTATION OF DEDUCTION U/S ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 30 SOHHC BESIDES THE DECISIONS IN THE CASE OF CIT VS K .K. DOSHI & CO. 245 ITR 849 (BOM) AND CIT VS KANTILAL CHHOTALA 246 ITR 439 (BOM) HOLDING THAT 90% OF ALL RECEIPTS WHICH DO NOT FORM PART OF TURNOVER ARE EXCLUDIBLE UNDER THE EXPLANATION (BAA) THAT WAS ENACTED IN ORDER TO REMOVE DISTORTION IN THE WORKIN G OF PROFITS DERIVED FROM THE EXPORT BY APPORTIONMENT OF THE PRO FITS OF THE BUSINESS IN THE RATIO OF EXPORT TURNOVER TO TOTAL T URNOVER, WHICH ENVISAGES ENTIRE PROFITS AS ARISING FROM TURNOVER. 61. GROUND NO.1 RELATES TO EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING DE DUCTION U/S 80 HHC. 62. THIS ISSUE IS NOW DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON. APEX COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667(SC). ACCORDINGLY THIS GROUND OF R EVENUE IS REJECTED. 63. GROUND NO.2 OF THIS APPEAL RELATES TO EXCLUSION OF LEASE RENT FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF D EDUCTION U/S 80 HHC. 64. THE ISSUE OF LEASE RENT ON LEASE OF ASSETS MANU FACTURED BY THE ASSESSEE HAS BEEN SET ASIDE TO THE FILE OF LD. CIT( A) FOR FRESH CONSIDERATION IN THE PREVIOUS YEAR BY THE TRIBUNAL AS PER PARA 10.2 OF THEIR ORDER AS UNDER:- 10.2 COMING TO LEASE RENT INCOME, WE AS PER OUR OB SERVATIONS AGAINST GROUND NO.4 (SUPRA), RESTORE THE ISSUE BACK TO THE FILE OF CIT(A) WITH THE SAME DIRECTIONS. ACCORDINGLY, WE ALSO RESTORE THE ISSUE TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION AND ALSO KEEPING IN VIEW THE HON. APEX COURTS DECISION IN CIT VS. K. RAVINDRAN IYER 295 ITR 228 (SC). THUS GR OUND NO.2 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 31 65. GROUND NO.3 RELATES TO EXCLUSION OF INCOME FROM RAPAIRS AND OTHER SERVICE CHARGES SHOWN UNDER THE HEAD OPERATIONS, FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION U/S 80 HHC . 66. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR. ACCORDINGLY THIS GROUND OF REVENUE IS REJECTED. 67. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.284/AHD/2007 ASST. YEAR 2003-04 (ASSESSEES APPEAL) 68. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN TH IS APPEAL :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN RE DUCING 90 % OF THE FOLLOWING AMOUNTS FROM PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME- A) INTEREST FROM BANK ON MARGIN MONEY 15,05,952 B) INTEREST ON ICD GIVEN AT THE SAME RATE AT 6,00,000 WHICH THE MONIES ARE BORROWED BY TH E COMPANY C) INTEREST ON INCOME TAX REFUND 1,39,365 D) SALES TAX REFUND AND INTEREST THEREON 3,47,275 E) LEASE RENT 54,66,866 6 F) INCOME FROM OPERATIONS 56,01,175 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN NOT GIVING ANY DECISION ON ITEM NOS. (E) AND (F) ABOVE DESPITE THE FACT THAT SPECIFIC GROUNDS WERE TAKEN B Y THE APPELLANT AND ALSO SUBMISSIONS WERE MADE AT THE TIME OF HEARI NG. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN HOLDING THAT GROSS AMOUNT OF INTEREST AND OTHER INCOME IS REQUIRED TO BE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND NO DEDUCTION SHOULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 32 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN AP PLYING THE AMENDED PROVISION OF SECTION 10B OF THE ACT, DESPIT E THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U/S. 10B FO R AY 2000-01 BEING THE ASSESSMENT YEAR IMMEDIATELY PRIOR TO AY 2 001-02, THE ASSESSMENT YEAR IN WHICH THE AMENDED PROVISIONS WER E MADE EFFECTIVE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AL SO ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF THE AO I N REJECTING THE CLAIM OF 100 % EOU U/S. 10B OF THE ACT ON THE GROUN D THAT NO EXEMPTION U/S. 10B IS AVAILABLE TO THE APPELLANT AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO THE APPELLANT HAS N OT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.16, 623 BEING PRIOR PERIOD EXPENSES. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CH ARGING INTEREST U/S. 234B AND 234D OF THE ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN IN ITIATING PENALTY PROCEEDINGS U/S. 271(L)(C) OF THE ACT. 69. GROUND NO.1 OF THIS APPEAL RELATES TO DEDUCTION OF 90% OF INTEREST AND OTHER INCOME FROM THE PROFITS OF THE BUSINESS F OR COMPUTATION OF DEDUCTION U/S 80 HHC. THE ISSUES INVOLVED IN THIS G ROUND ARE THE SAME AS GROUND NO.1 IN THE APPEAL FOR ASST. YEAR 2000-01 OF ASSESSEES APPEAL. FOLLOWING THE SAME WE RESTORE THE ISSUE REGARDING I NTEREST FROM BANK ON MARGIN MONEY TO THE FILE OF AO FOR RECONSIDERATION IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE CASE OF KARNA L CO-OP. SUGAR MILLS LTD. (SUPRA). 70. THE ISSUE REGARDING INTEREST ON CORPORATE DEPOS IT AND INSURANCE CLAIM IS CONFIRMED. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 33 71. GROUND NO.2 RELATES TO CLAIM OF EXEMPTION U/S 1 0B. SIMILAR ISSUE HAD ARISEN BEFORE US IN ASSESSEES APPEAL FOR ASST. YEAR 2000-01. WE HAVE REJECTED THE CLAIM OF ASSESSEE AFTER DISCUSSIN G THE ISSUE IN DETAIL FOR THAT YEAR. THEREFORE, FOLLOWING OUR ABOVE ORDER, WE REJECT THE CLAIM OF ASSESSEE THIS YEAR ALSO. 72. GROUND NO.3 RELATES TO DISALLOWANCE OF PRIOR PE RIOD EXPENSES. THIS ISSUE CAME UP BEFORE US IN ASSESSEES OWN APPEAL FO R ASST. YEAR 2000-01 WHEREIN WE HAVE DECIDED THE SAME. FOLLOWING OUR ORD ER FOR ASST. YEAR 2000-01 WE CONFIRM THE ORDER OF LD. CIT(A) AND DISM ISS THE GROUND OF APPEAL FILED BY THE ASSESSEE. 73. GROUND NO.4 RELATES TO CHARGING OF INTEREST U/S 234D OF THE IT ACT. SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE US IN ASSESSEES OWN APPEAL FOR ASST. YEAR 2000-01 WHEREIN WE HAVE DECIDED THE SAME. THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE FOLLOWING OUR ORDER F OR ASST. YEAR 2000-01. ITA NO.492/AHD/2007 ASST. YEAR 2003-04 (REVENUES A PPEAL) 74. THE REVENUE HAS RAISED FOLLOWING GROUNDS IN THI S APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DIRECTING TO EXCLUDE EXCISE DUTY OF RS.1,71,77,281/- AND SALES TAX OF RS,60,75,207/- FR OM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC, WITHOUT APPRECIATING THE RATIO LAID DOWN BY THE SUP REME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU P. LTD VS CIT 87 ITR 542 (SC) AND SINCLAIR MURRAY & CO. P. LTD. VS CIT 97 IT R 615 (SC) HOLDING THAT THE COLLECTION OF TAXES FORMS PART OF TRADING RECEIPTS AND HENCE TOTAL TURNOVER. 2. THE CIT(A) ALSO FAILED TO TAKE NOTE OF THE DEFINITION OF TOTAL TURNOVER IN CLAUSE (BA) OF THE EXPLANATION BELOW SE CTION 80HHC, EXCLUDING ONLY FREIGHT & INSURANCE UP TO THE CUSTOM S STATION, ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 34 LEAVING THE CONCEPT OF TOTAL TURNOVER TO BE UNDERST OOD AS IN COMMON COMMERCIAL PARLANCE. 3. THE CIT(A) FAILED TO TAKE NOTE OF THE MANDATE OF SECTION 145A(B), INSERTED W.E.F. 1.4.1999, GOVERNING THE COMPUTATION OF PROFITS HAVING INESCAPABLE BEARING ON THE COMPUTATION OF DE DUCTION U/S.80HHC, WHICH IS MADE BY APPORTIONING THE SAME P ROFITS IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER. 75. GROUND NO.1 OF THIS APPEAL RELATES TO EXCLUSION OF EXCISE DUTY AND SALES-TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE O F COMPUTING DEDUCTION U/S 80 HHC. 76. SIMILAR ISSUE CAME UP BEFORE US FOR ADJUDICATIO N IN REVENUES APPEAL FOR ASST. YEAR 2000-01. 77. THIS ISSUE IS NOW DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON. APEX COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667(SC). ACCORDINGLY THIS GROUND OF R EVENUE IS REJECTED. 78. GROUND NO.2 IS RELATING TO EXCLUSION OF LEASE R ENT FROM THE PROFITS OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION UND ER SECTION 80 HHC. 79. THIS ISSUE IN ASSESSEES APPEAL HAS BEEN RESTOR ED TO THE FILE OF LD. CIT(A) AND ACCORDINGLY ENTIRE ISSUE HAS TO BE EXAMI NED BY HIM AFRESH INCLUDING THE POINT RAISED BY THE REVENUE. ACCORDIN GLY, THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 80. GROUND NO.3 RELATES TO EXCLUSION OF INCOME FROM PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80 HHC. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR. AC CORDINGLY THIS GROUND OF REVENUE IS REJECTED. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 35 81. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.147/AHD/2008 ASST. YEAR 2004-05 (ASSESSEES APPEAL) 82. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN TH IS APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (A) -I, BARODA [THE CIT(A)] ERRED IN FACT AND IN LAW IN CONFIRMING ACTI ON OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(2) ['THE AO'] IN REWORKING DEDUCTION U/S 80HHC OF THE INCOME TAX ACT , 196L ('THE ACT') BY MAKING VARIOUS ADJUSTMENT TO THE CLAIM OF THE APPELLANT. A. THE CIT(A} ERRED IN FACT AND IN LAW IN CONFIRMING A CTION OF THE AO IN REDUCING THE FOLLOWING AMOUNTS FROM THE PROFI T OF THE BUSINESS ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME. PARTICULARS AMOUNT (RS.) INTEREST ON MARGIN MONEY 7,24,039/- INTEREST ON IT REFUNDS 2,56,738/- INTEREST ON NSC 933/- TOTAL 9,81,760/- B. THE CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING ACTION OF THE AO IN HOLDING THAT GROSS AMOUNT OF INTEREST AND OTHER INCOME WHICH IS REQUIRED TO BE EXCLUDED FROM THE PROFITS FOR THE PU RPOSE OF COMPUTING DEDUCTION U/S. 80HHC AND NO DEDUCTION SHO ULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. 2. THE LEARNED CIT (A) ERRED IN FACT END IN LAW IN CONFIRMING ACTION OF THE AO IN APPLYING THE AMENDED PROVISION OF SECT ION 10B OF THE ACT DESPITE THE FACT THAT THE APPELLANT WAS ENTITLE D TO EXEMPTION U/S 10B OF THE ACT, FOR ASSESSMENT YEAR 2000-2001 BEING THE A.Y. IMMEDIATELY PRECEDING THE A.Y. 2001-02, THE A.Y. IN WHICH THE AMENDED PROVISION WERE MADE EFFECTIVE. THE LEARNED ASSESSING OFFICER ERRED IN FACT AND IN REJECTING THE CLAIM OF 100% EOU U/S 10B OF THE ACT, ON A MISTAKEN GROUND THAT ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 36 NO EXEMPTION U/S 10B IS AVAILABLE TO THE APPELLANT AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO THE APPELLANT HAS NO RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S 234D OF T HE ACT. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN WITHDRAWING INTEREST U/S 244 A OF THE ACT 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN INITIATING THE PENALTY PROCEEDI NGS U/S 271(1)(C) OF THE ACT. 83. GROUND NO.1 OF THIS APPEAL RELATES TO DEDUCTION OF INTEREST AND OTHER INCOME FROM THE PROFITS OF THE BUSINESS FOR C OMPUTATION OF DEDUCTION U/S 80 HHC. THE ISSUES INVOLVED IN THIS G ROUND ARE THE SAME AS GROUND NO.1 IN THE APPEAL FOR ASST. YEAR 2000-01 OF ASSESSEES APPEAL. FOLLOWING THE SAME WE RESTORE THE ISSUE REGARDING I NTEREST FROM BANK ON MARGIN MONEY TO THE FILE OF AO FOR RECONSIDERATION IN VIEW OF THE DECISION OF HON. SUPREME COURT IN THE CASE OF KARNA L CO-OP. SUGAR MILLS LTD. (SUPRA). 84. THE ISSUE REGARDING INTEREST ON INCOME-TAX REFU ND CANNOT BE CONSIDERED AT PAR AS INTEREST FROM BUSINESS AND THE REFORE, THIS WILL NOT COME INTO COMPUTATION OF DEDUCTION U/S 80 HHC AT AL L. THIS PART OF THE GROUND IS REJECTED. 85. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED FOR S TATISTICAL PURPOSES. 86. GROUND NO.2 RELATES TO CLAIM OF EXEMPTION U/S 1 0B. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE US IN ASSESSEES O WN APPEAL FOR ASST. YEAR 2000-01. WE HAVE DECIDED THE SAME AGAINST THE ASSESSEE IN THAT ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 37 ASST. YEAR. FOLLOWING THE ABOVE ORDER OF THE TRIBUN AL, THIS ISSUE IS DECIDED AGAINST THIS ASSESSEE THIS YEAR ALSO. 87. GROUND NO.3 RELATES TO CHARGING OF INTEREST U/S 234D OF THE ACT. SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE US IN ASSESSEES OWN APPEAL FOR ASST. YEAR 2000-01 WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. THIS ISSUE IS DECIDED IN FAVOUR OF AS SESSEE FOLLOWING OUR ORDER FOR ASST. YEAR 2000-01. ACCORDINGLY THIS GROU ND IS ALLOWED. 88. GROUND NO.4 RELATES TO WITHDRAWING INTEREST U/S 244A OF THE ACT. THIS ISSUE IS NOT SERIOUSLY CONTESTED AND HENCE REJ ECTED. 89. GROUND NO.5 RELATES TO INITIATION OF PENALTY PR OCEEDINGS U/S 271(1)(C) OF THE ACT. THIS ISSUE IS PREMATURE AT TH IS STAGE AND HENCE REJECTED. ITA NO.457/AHD/2008 ASST. YEAR 2004-05 (REVENUES A PPEAL) 90. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. C1T(A) ERRED IN DELETING THE ADDITION OF RS.6,37,34 5/- ON ACCOUNT OF EXPENDITURE INCURRED ON CEILING RENOVATION, CONS TRUCTION OF ROAD AND BOUNDARY WALL, CONCRETE FLOORING ETC. TREATED A S CAPITAL EXPENDITURE BY THE ASSESSING OFFICER. (B THE ID. CIT(A) FAILED TO APPRECIATE THAT RENEWAL , REPLACEMENT OR MODIFICATION OF AN ASSET OR PART OF AN ASSET CANNOT BE TREATED AS ALLOWABLE EXPENDITURE UNDER THE INCOME-TAX ACT, THO UGH AS PER ACCOUNTING NORMS, THESE COULD BE TREATED AS REVENUE EXPENDITURE OR CURRENT EXPENDITURE IN THE LIGHT OF THE SUPREME COU RT DECISION IN THE CASE OF BALLIMAL NAVAL KISHORE VS CIT 224 1TR 4 14 AND CIT VS SARAVANA SPINNING MILLS PVT. LTD., 293 ITR 201(S C). 2(A) THE ID. CIT(A) ERRED IN NEGATING THE EXCLUSION OF LEASE RENT OF RS.52,30,180/- FROM THE TURNOVER OF THE BUSINESS IN THE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 38 COMPUTATION OF DEDUCTION U/S 80HHC, WITHOUT APPRECI ATING THAT EXPLANATION (BAA) (1) BELOW SECTION 80HHC PROVIDES FOR EXCLUSION OF 90% OF RENT AND OTHER NON-BUSINESS INCOME INCLUD ING RECEIPTS FROM EXCHANGE RATE FLUCTUATIONS. (B) THE LD. CIT(A) ERRED IN NEGATING THE EXCLUSION OF INCOME OF RS.82,24,440/- FROM REPAIRS AND OTHER SERVICE CHARG ES SHOWN UNDER THE HEAD 'OPERATIONS, FROM THE PROFITS OF THE BUSI NESS IN THE COMPUTATION OF DEDUCTION U/S 80HHC, WITHOUT APPRECI ATING THAT EXPLANATION (BAA)(1) BELOW SECTION 80HHC PROVIDES F OR EXCLUSION OF 90% OF CHARGES AND ANY OTHER RECEIPT OF A SI MILAR NATURE', ONLY WHEN THE SAME WAS ASSESSABLE AS BUSINESS INCOM E, I,E. UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON', AS IS CLEAR FROM THE WORDS 'INCLUDED IN SUCH PROFITS' IN THIS E XPLANATION AND, IN CASE SUCH RENT WAS ASSESSABLE UNDER THE HEAD IN COME FROM OTHER SOURCES, THERE WAS NO QUESTION AT ALL OF ANY PORTI ON OF THE SAME ENTERING INTO THE COMPUTATION OF DEDUCTION U/S 80 H HC. 91. GROUND NO.1 OF THIS APPEAL RELATES TO DELETION OF ADDITION ON ACCOUNT OF EXPENDITURE INCURRED ON CEILING RENOVATI ON, CONSTRUCTION OF ROAD AND BOUNDARY WALL, CONCRETE FLOORING ETC. 92. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAS CLAIMED CURRENT REPAIRS AT RS.9,42,322 /-. ON VERIFICATION OF BILLS AND VOUCHERS IT WAS FURTHER FOUND THAT A SUM OF RS.6,72,190/- HAS BEEN INCURRED IN RESPECT OF REPAIRING OF ROADS, BOU NDARY WALL, CONCRETE FLOORING AND RENOVATION OF FACTORY TOILETS IN THE F ACTORY BUILDING ETC. THE AO TREATED THEM AS REVENUE EXPENDITURE BUT THE LD. CIT(A) ALLOWED THE CLAIM AS CAPITAL BY HOLDING THAT NATURE OF EXPENDIT URE IS CIVIL WORK CARRIED OUT BY THE ASSESSEE AND IS IN THE NATURE OF CURRENT REPAIRS IN CONNECTION WITH RENOVATION OF FACTORY AND ITS PREMISES AND FAC ILITIES INCLUDING THAT OF THE ROAD LEADING TO THE FACTORY. NO NEW ADDITION TO THE ASSET OF ANY ENDURING NATURE IS MADE, THEREFORE, THERE WAS NO CA SE OF ANY DISALLOWANCE. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 39 93. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE EXPENDITURE WAS INCURRED F OR PRESERVING AND MAINTAINING THE ALREADY EXISTING ASSET. NO PART OF THE EXPENDITURE WAS INCURRED FOR ACQUIRING ANY NEW ASSET. EVEN THE LD. AO HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT ASSESSEE HAS CREATED A NE W ASSET BY INCURRING SUCH EXPENDITURE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. OUR VIEW IS SUPPORTED BY THE DECISION OF HON. APEX COURT IN CIT VS. SARAVANA SPINNING MILLS P. LTD. 293 ITR 201 (DEL). THIS GROUND OF REVENUE IS REJECTED. 94. GROUND NO.2(A) RELATES TO EXCLUSION OF LEASE RE NT FROM THE TURNOVER OF THE BUSINESS IN THE COMPUTATION OF DEDUCTION U/S 80 HHC. 95. THE ISSUE OF LEASE RENT ON LEASE OF ASSETS MANU FACTURED BY THE ASSESSEE HAS BEEN SET ASIDE TO THE FILE OF LD. CIT( A) FOR FRESH CONSIDERATION IN THE PREVIOUS YEAR BY THE TRIBUNAL AS PER PARA 10.2 OF THEIR ORDER AS UNDER:- 10.2 COMING TO LEASE RENT INCOME, WE AS PER OUR OB SERVATIONS AGAINST GROUND NO.4 (SUPRA), RESTORE THE ISSUE BACK TO THE FILE OF CIT(A) WITH THE SAME DIRECTIONS. ACCORDINGLY, WE ALSO RESTORE THE ISSUE TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION AND ALSO KEEPING IN VIEW THE HON. APEX COURTS DECISION IN CIT VS. K. RAVINDRAN IYER 295 ITR 228 (SC). THUS GR OUND NO.2 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES . 96. GROUND NO.2(B) RELATES TO EXCLUSION OF INCOME F ROM PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80 HHC. SIMI LAR ISSUE CAME UP BEFORE US FOR CONSIDERATION IN REVENUES APPEAL FOR ASST. YEAR 2000-01. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 40 THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEAR. ACCORDINGLY THIS GROUND OF REVENUE IS REJECTED. ITA NO.148/AHD/2008 ASST. YEAR 2005-06 (ASSESSEES APPEAL) 97. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE A SSESSEE:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN APPLYING THE AMENDED PROVISION OF SECTION 10B OF THE INCOME TAX ACT, 196 1 DESPITE THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U /S 10B FOR A.Y. 2000-01 BEING THE A.Y. IMMEDIATELY PRECEDING TO A.Y . 2001-02, THE A.Y. IN WHICH THE AMENDED PROVISIONS WERE MADE EFFECTIVE. THE LEARNED AO ERRED IN FACT AND IN LAW IN REJECTIN G THE CLAIM OF 100% EOU U/S 10B OF THE INCOME TAX ACT. 1961 ON A M ISTAKEN GROUND THAT NO EXEMPTION U/S 10B IS AVAILABLE TO TH E APPELLANT AS THE ENTIRE SALES ARE IN DOMESTIC MARKET AND ALSO TH E APPELLANT HAS NOT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREI GN EXCHANGE, 2 . THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWI NG CLAIM OF EXCISE DUTY OF RS. 5,71,534/- WITHOUT PREJUDICE TO ABOVE THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT ALLOWING THE DEDUCTION U/S 43B DESPITE THE F ACT THAT THE SAID CLAIM IS CLEARLY ALLOWABLE AS PER THE PROVISIONS OF SECTION 43B OF THE INCOME TAX ACT, 1961. 3. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFI RMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS. 22,750/- ON TH E GROUND THAT THE SAID EXPENSES ARE PRIOR PERIOD EXPENSES 4. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN INITIATIN G THE PENALTY PROCEEDINGS U/S 271(L)(C) OF THE INCOME TAX ACT, 19 61. 98. GROUND NO.1 OF THIS APPEAL RELATES TO CLAIM OF EXEMPTION U/S 10B. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE US IN A SSESSEES OWN APPEAL ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 41 FOR ASST. YEAR 2000-01. WE HAVE DECIDED THE SAME AG AINST THE ASSESSEE IN THAT ASST. YEAR. FOLLOWING THE ABOVE ORDER OF THE T RIBUNAL, THIS ISSUE IS DECIDED AGAINST THIS ASSESSEE THIS YEAR ALSO. 99. GROUND NO.2 RELATES TO DISALLOWANCE OF EXCISE D UTY OF RS.5,71,534/-. 100. THE AO OBSERVED THAT ASSESSEE HAS DEBITED A SU M OF RS.5,71,534/- ON ACCOUNT OF EXCISE DUTY. IT WAS EXPLAINED THAT EX CISE DUTY OF RS.1,23,878/- WAS PAID AGAINST FREE REPLACEMENT OF CRYOSEAL CONTAINERS SOLD WITH WARRANTY PERIOD BUT DUE TO NON-PERFORMANC E OF SOME OF THE CONTAINERS FREE REPLACEMENT WAS GIVEN AND ACCORDING LY EXCISE DUTY CHARGEABLE ON THEIR LEAVING THE FACTORY GATE WAS DE BITED IN THE PROFIT AND LOSS ACCOUNT. FURTHER A SUM OF RS.4,44,608/- BEING EXCISE DUTY WAS PAID ON FREE SALE TO A RESEARCH UNIT OF GOVERNMENT OF IN DIA. AS PER EXCISE LAW ASSESSEE TAKES THE BENEFIT OF 8-10% OF THE DUTY AS MODVAT ON RAW MATERIAL AND IF IT DOES NOT CHARGE ANY EXCISE DUTY ON SALE OF PRODUCT THEN SUCH 8-10% EXCISE DUTY ON SALE HAS TO BE RECOVERED FROM THE CUSTOMERS. SINCE IT WAS A FREE SALE TO THE RESEARCH UNIT OF GO VERNMENT OF INDIA NO EXCISE DUTY WAS CHARGED ON SUCH FREE SALE THEN MODV AT COMPONENT HAD TO BE DEBITED IN THE PROFIT AND LOSS ACCOUNT AN D ADJUSTED IN THE MODVAT A/C. THUS IT BECOMES ADDITIONAL COST TO THE COMPANY. SIMILARLY A SUM OF RS.3048/- WAS ALSO PAID AS EXCISE DUTY FOR REPAIRING THE PRODUCT ON BEHALF OF THE CUSTOMER. THE MODVAT A/C HAS TO BE ADJUSTED BY DEBITING IN THE PROFIT AND LOSS ACCOUNT AS IT WAS A LSO A FREE REPLACEMENT. THE AO, HOWEVER, TOOK THE VIEW THAT ASSESSEE HAS BE EN FOLLOWING EXCLUSIVE METHOD IN ACCOUNTING FOR THE EXCISE DUTY I.E. EXCISE DUTY IS SEPARATELY ACCOUNTED WHETHER PAID OR RECEIVED BUT I N THIS CASE ASSESSEE ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 42 HAS ADOPTED INCLUSIVE METHOD BY DEBITING THE SAME T O THE PROFIT AND LOSS ACCOUNT. HE ACCORDINGLY DISALLOWED THE CLAIM. 101. THE LD. CIT(A) CONFIRMED THE ADDITION BY OBSER VING AS UNDER :- 7. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT IN EFFECT THE SUBMISSIONS MADE BY THE APPELLANT ARE A REITERA TION OF THE STANCE TAKEN UP BEFORE THE AO WHO HAD CONSIDERED THE SAME AND REJECTED BY SAYING THAT THE ACCEPTANCE OF THE CLAIM WOULD AMOUN T TO THE REVERSAL OF THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE APPELLANT SINCE IT WOULD MEAN THAT THE APPELLANT HAS BEEN RESORTED TO THE INCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF THE EXCISE DUTY PAID. I T IS OBSERVED THAT THE APPELLANT HAS NOT SQUARELY MET THIS OBJECTION. UNDE R THE CIRCUMSTANCES, I FIND NO REASON TO INTERFERE WITH THE ORDER OF THE A O ON THIS POINT. THE DISALLOWANCE MADE BY THE AO OF 5,71,534/- IS CONFIR MED. 102. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED V IEW THE ISSUE REQUIRES RECONSIDERATION ON THE PART OF THE AO. HE HAS TO GIVE OPPORTUNITY TO THE ASSESSEE TO SHOW WHAT WOULD BE THE EFFECT ON PROFIT AND LOSS ACCOUNT IF THIS EXCISE DUTY IS ALSO CONSIDERED ON E XCLUSIVE METHOD. IF THE RESULT IS THE SAME AT THE END OF THE ACCOUNTING PER IOD THE CLAIM HAS TO BE ALLOWED. ACCORDINGLY, THIS GROUND IS ALLOWED BUT FO R STATISTICAL PURPOSES. 103. GROUND NO.3 RELATES TO DISALLOWANCE OF PRIOR P ERIOD EXPENSES. SIMILAR ISSUE CAME UP BEFORE US FOR CONSIDERATION I N ASST. YEAR 2000-01 (GROUND NO.5 IN THAT YEAR). WE HAVE DECIDED THE SAM E CONFIRMING THE ORDER OF LD. CIT(A) ON THIS ISSUE. FOLLOWING OUR OR DER FOR ASST. YEAR 2000-01 WE DISMISS THE GROUND OF APPEAL FILED BY TH E ASSESSEE. 104. GROUND NO.4 RELATES TO INITIATION OF PENALTY P ROCEEDINGS U/S 271(1)(C).. 105. THIS ISSUE IS PRE-MATURE AT THIS STAGE AND HEN CE IT IS REJECTED. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 43 ITA NO.2964/AHD/2009 ASST. YEAR 2006-07 (ASSESSEES APPEAL) 106. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN T HIS APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN APPLYING THE AMENDED PROVISION OF SECTION 10B OF THE INCOME TAX ACT, 106 ! DESPITE THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U /S 10B FOR A.Y. 2000-01 BEING THE A,Y. IMMEDIATELY PRECEDING TO A.Y . 2001-02, THE A.Y. IN WHICH THE AMENDED PROVISIONS WERE MADE EFFECTIVE. 2. THE LEARNED AO ERRED IN FACT AND IN LAW IN REJECTING THE CLAIM OF 100% EOU U/S 10B OF THE INCOME TAX ACT, 1961 ON A M ISTAKEN GROUND THAT NO EXEMPTION U/S 10B IS AVAILABLE TO TH E APPELLANT AS THE ENTIRE SATES ARE IN DOMESTIC MARKET AND ALSO TH E APPELLANT HAS NOT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREI GN EXCHANGE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CHARGING PENALTY U/S 271(1)(C) OF THE INCOME -TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FAD AND IN LAW IN CHARGING INTEREST U/S 234C. 234D, & 244 OF T HE INCOME-TAX ACT, 1961. 107. GROUND NOS.1 & 2 RELATE TO CLAIM OF EXEMPTION U/S 10B. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE US IN ASSESSEES O WN APPEAL FOR ASST. YEAR 2000-01. WE HAVE DECIDED THE SAME AGAINST THE ASSESSEE IN THAT ASST. YEAR. FOLLOWING THE ABOVE ORDER OF THE TRIBUN AL, THIS ISSUE IS DECIDED AGAINST THIS ASSESSEE THIS YEAR ALSO. 108. GROUND NO.3. RELATES TO CHARGING OF PENALTY U/ S 271(1)(C) OF THE I.T. ACT, 1961. 109. THIS ISSUE IS PRE-MATURE AND HENCE IT IS REJEC TED. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 44 110. GROUND NO.4 RELATES TO CHARGING OF INTEREST U/ S 234C, 234D & 244 OF THE ACT. 111. THE ISSUE REGARDING CHARGING OF INTEREST U/S 2 34C & U/S 244 OF THE ACT IS CONSEQUENTIAL IN NATURE AND WILL DEPEND UPON THE ASSESSED INCOME. THIS ISSUE IS ACCORDINGLY REJECTED. 112. SO FAR AS THE ISSUE REGARDING CHARGING OF INTE REST U/S 234D IS CONCERNED, SIMILAR ISSUE CAME UP FOR ADJUDICATION B EFORE US IN ASSESSEES OWN APPEAL FOR ASST. YEAR 2000-01 WHEREIN WE HAVE D ECIDED THE SAME IN FAVOUR OF THE ASSESSEE. THIS ISSUE IS DECIDED IN FA VOUR OF ASSESSEE FOLLOWING OUR ORDER FOR ASST. YEAR 2000-01. ACCORDI NGLY THIS GROUND IS PARTLY ALLOWED. ITA NO.2963/AHD/2009 ASST. YEAR 2007-08 (ASSESSEES APPEAL) 113. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN T HIS APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN APPLYING THE AMENDED PROVISION OF SECTION 10B OF THE INCOME TAX ACT, 106 ! DESPITE THE FACT THAT THE APPELLANT WAS ENTITLED TO EXEMPTION U /S 10B FOR A.Y. 2000-01 BEING THE A,Y. IMMEDIATELY PRECEDING TO A.Y . 2001-02, THE A.Y. IN WHICH THE AMENDED PROVISIONS WERE MADE EFFECTIVE. 2. THE LEARNED AO ERRED IN FACT AND IN LAW IN REJECTING THE CLAIM OF 100% EOU U/S 10B OF THE INCOME TAX ACT, 1961 ON A M ISTAKEN GROUND THAT NO EXEMPTION U/S 10B IS AVAILABLE TO TH E APPELLANT AS THE ENTIRE SATES ARE IN DOMESTIC MARKET AND ALSO TH E APPELLANT HAS NOT RECEIVED ANY SALE PROCEEDS IN CONVERTIBLE FOREI GN EXCHANGE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FACT AND IN LAW IN CHARGING PENALTY U/S 271(1)(C) OF THE INCOME -TAX ACT, 1961. 4. THE LEARNED COMMISSIONER OF INCOME TAX (A) ERRED IN FAD AND IN LAW IN CHARGING INTEREST U/S 234C. 234D, & 244 OF T HE INCOME-TAX ACT, 1961. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 45 114. GROUND NOS. 1 & 2 RELATE TO CLAIM OF EXEMPTION U/S 10B. THIS ISSUE CAME UP FOR CONSIDERATION BEFORE US IN ASSESSEES O WN APPEAL FOR ASST. YEAR 2000-01. WE HAVE DECIDED THE SAME AGAINST THE ASSESSEE IN THAT ASST. YEAR. FOLLOWING THE ABOVE ORDER OF THE TRIBUN AL, THIS ISSUE IS DECIDED AGAINST THIS ASSESSEE THIS YEAR ALSO. 115. GROUND NO.3. RELATES TO CHARGING OF PENALTY U/ S 271(1)(C) OF THE I.T. ACT, 1961. 116. THE ISSUE OF CHARGING INTEREST IS PRE-MATURE A T THIS STAGE AND HENCE IT IS REJECTED. 117. GROUND NO.4 RELATES TO CHARGING OF INTEREST U/ S 234C, 234D & 244 OF THE ACT. 118. THE CHARGING OF INTEREST IS CONSEQUENTIAL AND WOULD DEPEND UPON THE FINALLY ASSESSED INCOME AND HENCE IT IS PRE-MAT URE AND REJECTED. 119. SO FAR AS THE ISSUE REGARDING CHARGING OF INTE REST U/S 234D IS CONCERNED, IT IS STATED THAT SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE US IN ASSESSEES OWN APPEAL FOR ASST. YEAR 2000-01 WHEREIN WE HAVE DECIDED THE SAME IN FAVOUR OF THE ASSESSEE. THIS IS SUE IS DECIDED IN FAVOUR OF ASSESSEE FOLLOWING OUR ORDER FOR ASST. YEAR 2000 -01. ACCORDINGLY GROUND NO.4 IS PARTLY ALLOWED. ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 46 120. IN THE RESULT ASSESSEES APPEAL IN - ITA NO.2765/A/2006 IS PARTLY ALLOWED AND PARTLY AL LOWED FOR STATISTICAL PURPOSES. ITA NO.282/A/2007 IS PARTLY ALLOWED AND PARTLY ALLO WED FOR STATISTICAL PURPOSES. ITA NO.283/A/2007 IS PARTLY ALLOWED AND PARTLY ALLO WED FOR STATISTICAL PURPOSES. ITA NO.284/A/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.147/A/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.148/A/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2964/A/2009 IS PARTLY ALLOWED. ITA NO.2963/A/2009 IS PARTLY ALLOWED. AND REVENUES APPEALS - ITA NO.1/A/2007 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ITA NO.490/A/2007 IS PARTLY ALLOWED AND PARTLY ALLO WED FOR STATISTICAL PURPOSES. ITA NO.491/A/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.492/A/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.457/A/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 13/8/2010 SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 13/8/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- ITA NO.2765/AHD/2006 ASST. YEAR 2000-01 & OTHERS 47 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD