The ITO, Vapi Ward-4, Daman V. M/s. Metal Link, Nani Daman

ITA 2875/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0386 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-11-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 20-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Set aside
• Section: 271(1)(c); 80HHC; 80IB; 80IA; 274; 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 24.11.09 DRAFTED ON:C25.11.200 9 ITA NO.2875/AHD/2006 ASSESSMENT YEAR : 1999-2000 INCOME TAX OFFICER, VAPI-WARD-4, DAMAN. VS. M/S. METAL LINK, PLOT NO.67, PANCHAL UDYOG NAGAR, BHIMPORE, NANI DAMAN. PAN/GIR NO. : AAEFM 2426J (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA SR. D.R. RESPONDENT BY: SHRI S.N.SOPARKAR A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD.CIT(APPEALS), VALSAD, DATED 21.09.2006 IN APPEAL NO. CIT(A)/VLS/94 & 93/06-07. 2. THE GROUND NO. 1 OF THE APPEAL READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE LOW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE FD INTERES T OF RS.3,12,964/- AND BANK INTEREST INCOME OF RS.3,78,574/- AND THUS LEA RNED CIT(A) WRONGLY ALLOWED THE ASSESSEE TO CLAIM THE DEDUCTION UNDER S ECTION 80IB ON BOTH THESE INTEREST INCOMES. 3. THE BRIEF FACTS OF THE CASE AS OBSERVED IN THE A SSESSMENT ORDER BY THE LEARNED ASSESSING OFFICER READS AS UNDER: AS FAR AS THE REMAINING INTEREST INCOME OF RS.3,12 ,964/- EARNED ON FDRS KEPT WITH BANK AS SECURITIES FOR CREDIT FACILITY , IT SEEMS THAT THE ASSESSEE HAS NOT BEEN ABLE TO CORRECTLY INTERPRET THE DECISI ON GIVEN BY THE ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 2 - HON'BLE SUPREME COURT IN THE CASE OF CIT VS. STERLI NG FOODS (1999) 237 ITR 579. THE ASSESSEE IS REITERATING ITS ARGUMENT T HAT THE DEPOSITS WERE KEPT AS A RESULT OF COMPULSION OF BUSINESS. THE FAC T IS THAT, IT IS IMMATERIAL AS TO FOR WHAT PURPOSE THE DEPOSITS WERE KEPT. WHAT IS IMPORTANT AND MATERIALISTIC IS AS TO WHETHER THE IM MEDIATE SOURCE OF EARNING THAT INTEREST INCOME IS THE MANUFACTURING A CTIVITY OF ASSESSEE OR EXPORTS, AS THE CASE MAY BE. THE ARGUMENT THAT THE ASSESSEE COULD NOT HAVE DONE ITS MANUFACTURING ACTIVITY OR THAT IT COU LD NOT HAVE EXPORTED ITS GOODS WITHOUT THESE DEPOSITS IS NOT OF ANY SIGN IFICANCE. IN THE AFORESAID DECISION, IT IS CLEARLY INTERPRETED BY TH E HIGHEST COURT OF THE LAND THAT ONLY INCOME DERIVED FROM MANUFACTURING AC TIVITY OR EXPORTS IS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VI-A OF THE AC T. ANY INCOME WHICH HAS NOT GOT A DIRECT NEXUS EITHER WITH THE MANUFACT URING ACTIVITY OR WITH THE EXPORTS CANNOT BE HELD TO HAVE BEEN DERIVED FRO M THE SAID ACTIVITY OF MANUFACTURING OR EXPORTS, AS THE CASE MAY BE. SUCH AN INCOME CAN ONLY BE TERMED AS AN INCOME ATTRIBUTABLE TO THE ACTIVITY OF THE ASSESSEE FOR WHICH BENEFITS OF SECTION 80IA IS NOT AVAILABLE. IN THE INSTANT CASE, THE IMMEDIATE SOURCE OF EARNING THIS INTEREST INCOME AR E THE DEPOSITS AND NOT THE MANUFACTURING ACTIVITY. IT CAN HENCE BE TRE ATED AS AN INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. LINE OF DISTINCTION BETWEEN INCOME DERIVED FROM AND INCOME ATTRIBUTABLE TO HAS BEEN DRAWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S. S TERLING FOODS (1999) 237 ITR 579. THE ASSESSEE HAS ALSO LAID STRESS ON NETTING OUT OF INTEREST INCOME AGAINST INTEREST EXPENSES. THERE IS NO LOGIC IN THE ARGUMENT OF THE ASSESSEE. AS DISCUSSED ABOVE, THE INTEREST INCO ME EARNED DOES NOT FORM A PART OF THE INCOME OF THE INDUSTRIAL UNDERTA KING, THROUGH IT MAY FORM A PART OF INCOME OF THE BUSINESS. BUSINESS I S SOMETHING VERY DIFFERENT FROM THE UNDERTAKING AS DEFINED IN SECT ION 80IA OF THE ACT. INTEREST EXPENSES ARE BORNE BY AN ASSESSEE FOR THE PURPOSES OF MANUFACTURING ACTIVITY OF THE UNDERTAKING. INTEREST INCOME EARNED ON FIXED DEPOSITS CANNOT BE NETTED OUT AGAINST INTERE ST EXPENSES OF AN UNDERTAKING. THE INTEREST INCOME EARNED ON FIXED DE POSITS IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. AS SUCH , I DO NOT AGREE WITH THE ARGUMENT OFFERED BY THE ASSESSEE TO NET OU T THE INTEREST INCOME AGAINST INTEREST EXPENSES. IN VIEW OF THE DECISION GIVEN BY THE HON'BLE SUPREM E COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579 (SC) AND THE RECENT DECISION OF THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS V/S . C.I.T. (2003) 129 TAXMAN (SC), THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS V/S. C.I.T. (2003) 129 TAXMAN (SC), THIS INTEREST INCOME OF RS. 3,12,964/- IS IN INCOME ATTRIBUTABLE TO AND NOT DERIVED FROM THE MANUFACTURING ACTIVITY OR THE EXPORT BUSINESS OF THE ASSESSEE AND HENCE IT IS TAXABLE. THIS INTEREST INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 3 - THE ACT. ACCORDINGLY, THIS ACCRUED INTEREST OF RS.3 ,12,964/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND TAXED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON GOI NG THROUGH THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND AUDIT REPORT FILED WITH THE RETURN OF INCOME, IT IS SEEN THAT THE ASSESSEE HAS CREDIT AN AMOUNTING OF RS.3,78,574/- AS BANK INTEREST FOR ASSESSMENT YEAR 1997-98. IT IS ALSO SEEN THAT WHILE ARRIVING AT THE TAXABLE INCOME THE ABOVE SAID INTEREST INCOME WAS INCLUDED IN THE PROFIT DERIVED FROM THE MANUFACTURING ACTIVITY AND CLAIMED DEDUCTION UNDER SECTION 80IA O F THE ACT ON THE ABOVE SAID INTEREST INCOME. IT IS TO STATE THAT THE SAID BANK INTEREST INCOME OF RS.3,78,574/- RECEIVED BY THE ASSESSEE, H AS GOT NO DIRECT NEXUS TO MANUFACTURING ACTIVITY OF INDUSTRIAL UNDER TAKING, ENJOYING BENEFITS OF SECTION 80IA OF THE ACT. THIS INTEREST INCOME CAN IN NO WAY BE SAID TO HAVE BEEN DERIVED FROM THE MANUFACTURING AC TIVITY, AS REQUIRED FOR GETTING BENEFITS OF SECTION 80IA OF THE ACT. IT CAN ONLY BE TREATED AS AN INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASS ESSEE. THE HON'BLE SUPREME COURT HAS, IN THE CASE OF CIT V/S. STERLIN G FOODS (1999) 237 ITR 579 CLEARLY DISTINGUISHED THE DIFFERENCE BETWEEN D ERIVED FROM AND ATTRIBUTABLE TO. ONLY THE INCOME DERIVED BY AN I NDUSTRIAL UNDERTAKING FROM MANUFACTURING ACTIVITY IS ELIGIBLE FOR DEDUCTI ON UNDER SECTION 80IB, WHEREAS, INCOME ATTRIBUTABLE TO THE MANUFACTURING A CTIVITY OR ANY OTHER BUSINESS OF THE ASSESSEE IS LIABLE TO BE TAXED. THE SAME VIEW HAS AGAIN BEEN UPHELD RECENTLY BY THE HON'BLE SUPREME COURT I N THE CASE OF THE PANDIAN CHEMICALS V/S. CIT (2003) 129 TAXMAN 539. T HUS, THE APEX COURT OF THE LAND HAS REPEATEDLY REITERATED THAT SU CH INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER CHAPTER VI-A. DEDUCTIO N UNDER CHAPTER VI-A IS ALLOWABLE ONLY ON INCOME DERIVED FROM MANUFACTUR ING ACTIVITY OF AN UNDERTAKING. THE ASSESSEE IS AN INDUSTRIAL UNDERTAK ING COVERED UNDER CHAPTER VI-A OF THE ACT. AS FAR AS DEDUCTION UNDER SECTION 80IA IS CONCERNED, WHAT IS IMPORTANT IS THE NEXUS BETWEEN T HE MANUFACTURING ACTIVITY AND THE INCOME EARNED FOR GETTING BENEFIT OF THE SAID SECTION. THE IMMEDIATE SOURCE OF EARNING THIS INTEREST INCOM E IS THAT BANK DEPOSIT ITSELF AND NOT THE MANUFACTURING ACTIVITY O F THE UNDERTAKING. THERE IS NO DIRECT NEXUS BETWEEN THE INTEREST EARNE D AND THE MANUFACTURING ACTIVITY AND HENCE THIS INTEREST INCO ME CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 80IA. IT WAS HENCE APP ARENT THAT THE CLAIM SO MADE BY THE ASSESSEE WAS WRONG. ACCORDINGLY, DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AUTHORISED REPRESENTATI VE OF THE ASSESSEE FIRM WAS ASKED TO EXPLAIN AS TO WHY THE ABOVE SAID INTEREST INCOME OF RS.3,78,574/-, SHOULD NOT BE TAXED. IN THIS CONTEXT , THEY DID NOT OFFER ANY EXPLANATION. SILENCE OF THE ASSESSEE ON THIS POINT MAKES IT CLEA R THAT THE ASSESSEE ACCEPTS THAT THE SAID ACCRUED INTEREST IS TAXABLE. THE IMMEDIATE SOURCE ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 4 - OF EARNING THIS INTEREST INCOME IS THE BANK DEPOSIT S ITSELF AND NOT THE MANUFACTURING ACTIVITY OF THE UNDERTAKING. IN VIEW OF THE DECISION GIVEN BY THE HON'BLE SUPREM E COURT IN THE CASE OF CIT V/S. STERLING FOODS (1999) 237 ITR 579 (SC) AND THE RECENT DECISION OF THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS V/S . C.I.T. (2003) 129 TAXMAN (SC), THIS ISSUE INTEREST INCOME OF RS.3,78, 574/- IS AN INCOME ATTRIBUTABLE TO AND NOT DERIVED FROM THE MANUFA CTURING ACTIVITY OF THE ASSESSEE AND HENCE IT IS TAXABLE. THIS INTEREST INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. ACCORD INGLY, THIS ACCRUED INTEREST OF RS.3,78,574/- IS ADDED TO THE TOTAL INC OME OF THE ASSESSEE AND TAXED. SINCE THE ASSESSEE ATTEMPTED TO EVADE TAX ON THE SAID INCOME OF RS.3,78,574/- DESPITE BEING AWARE OF THE FACT THAT IT IS TAXABLE, IT IS BEYOND DOUBT THAT THE ASSESSEE HAS FURNISHED INACCU RATE PARTICULARS OF ITS SAID INCOME, IN ITS RETURN OF INCOME. 4 IN APPEAL THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS), OBSERVED AS UNDER:- I HAVE CONSIDERED THE FINDINGS OF THE LEARNED ASSE SSING OFFICER IN THE ASSESSMENT ORDER AND ALSO WENT THROUGH THE SUBMISSI ON AS MADE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE A ND THE JUDICIAL FINDINGS RELIED UPON BY HIM. IN THE ABOVE REFERRED DECISIONS, IT IS SEEN THAT THE LEARNED AUTHORISED REPRESENTATIVE OF THE A SSESSEE RELIED ON THE FINDINGS OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF THE CIT VS. NAGPUR ENGINEERING CO. 245 ITR 806, WHEREIN ACCORDI NG TO THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THE HON' BLE COURT HAS HELD THAT INTEREST INCOME FROM FIXED DEPOSITS ARE ELIGIB LE PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION UNDER SECTION 80 IB OF THE I.T.ACT. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESS EE HAS ALSO MENTIONED THAT THE HON'BLE SUPREME COURT HAS DISMIS SED SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THE JUDGME NT AND THE SAME HAS BEEN REPORTED IN 244 ITR (ST.) 54. IN OTHER DECISIO NS AS DELIVERED BY THE HON'BLE ITAT BENCHES AHMEDABAD IN THE CASES OF SUNC ITY SYNTHETICS LTD. ITA NO.230/AHD/1998; INDUCTOTHERM (INDIA) LTD. VS. DCIT, ITA NO.3850(1995) AND PINK STAR VS. DCIT 72 ITR 137 (WH ICH HAS BEEN AGAIN UPHELD BY THE HON'BLE MUMBAI HIGH COURT AS REPORTED IN 245 ITR 757), IT IS OBSERVED THAT THE HON'BLE ITAT HAS ALLOWED NETTI NG OF EXPENSES AGAINST THE INCOME EARNED AND HELD THAT IF THERE IS ANY POSITIVE INCOME, THE SAME SHOULD BE EXCLUDED WHILE ALLOWING DEDUCTIO N. IT IS ALSO FOUND THAT SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HON'BL E ITAT BENCH, AHEMDABAD IN THE CASE OF M/S. PRIYANKA GEMS SURAT; M/S. R. JAYKUMAR & CO., SURAT; M/S. MITUL GEMS, SURAT AND M/S. B.S.P .EXPORTS, SURAT ETC, BY FOLLOWING THE DECISION OF HON'BLE ITAT DELHI(SPE CIAL BENCH) IN THE CASE OF LALSONS ENTERPRISES VS. DCIT (2004) 89 ITD 25, WHEREIN IT HAS BEEN ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 5 - OBSERVED THAT FOR THE PURPOSE OF EXPLANATION (BAA) BELOW SUB SECTION 4(B) OF SECTION 80HHC, WHILE REDUCING 90% OF THE NE T INTEREST REMAINING AFTER ALLOWING SET OFF OF INTEREST PAID, WHICH HAS A NEXUS WITH THE INTEREST RECEIVED, THAT CAN BE REDUCED AND NOT THE 90% OF TH E GROSS INCOME AND THUS, RESPECTFULLY FOLLOWING THE VERDICT OF THE HON 'BLE DELHI ITAT(SB), THE HON'BLE ITAT B-BENCH AHMEDABAD DIRECTED THE LEARNED ASSESSING OFFICER IN THE CASE OF ABOVE ASSESSEE TO REDUCE 90% OF THE NET INTEREST RECEIVED BY THE ASSESSEE WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC (4B). THE HON'BLE ITAT HAS ALSO OBSERVED THA T IF THE NET RESULT OF INTEREST PAYMENT AND RECEIPT IS REPRESENTED BY EXCE SS OF INTEREST PAID, NO REDUCTION IS TO BE MADE IN TERMS OF EXPLANATION (BAA). THE PROVISIONS OF SECTION 80IB AND SECTION 80HHC GRANTS DEDUCTION FROM PROFIT DERIVED FROM MANUFACTURING AND ACCORDINGLY THE RATIO OF ABO VE DECISIONS THOUGH GIVEN IN RELATION TO SECTION 80HHC IS EQUALLY APPLI CABLE WHILE INTERPRETING PROVISIONS OF SECTION 80IB. HERE, IN T HE CASE OF THE APPELLANT, IT IS SEEN THAT THE EXPENDITURE INCURRED IN THE FOR M OF INTEREST IS MORE THAN THE INTEREST EARNED BY THE APPELLANT DURING TH E YEAR. I, THEREFORE, IN VIEW OF THE ABOVE REFERRED FINDINGS OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NAGPUR ENGINEERING CO. LTD., 24 5 ITR 806(BOM.), THE DECISION OF HON'BLE DELHI ITAT IN THE CASE OF LALSO NS ENTERPRISES VS. DCIT 89 ITD 25 (SUPRA) ALONG WITH OTHER REFERRED DECISIO NS, ACCEPT THE CONTENTION OF THE A.R. AND REJECT THE EXCLUSION AS MADE BY THE LEARNED ASSESSING OFFICER IN THE FORM OF INTEREST RECEIVED FOR WORKING OUT THE DEDUCTION UNDER SECTION 80IB. IN THE CASE OF THE AP PELLANT, IT IS SEEN THAT THE AMOUNT OF INTEREST RECEIVED IS FAR LESS THAN TH E AMOUNT OF INTEREST PAID AND THEREFORE, THERE IS NO CAUSE FOR EXCLUSION AND HENCE THE EXCLUSION OF INTEREST INCOME AS MADE BY THE LEARNED ASSESSING OFFICER WHILE GRANTING DEDUCTION UNDER SECTION 80IB IS REJE CTED. THE APPELLANT SUCCEEDS IN THIS GROUND OF APPEAL IN THIS ISSUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 IA IN RESPECT OF INCOME DERIVED BY IT FROM THE BUSINESS OF ITS INDUSTRIAL UNDERTAKING IS NOT IN DISPUTE. THE ASSESSEE RECEIVED RS.3,12,964/- AND 3,78,574/- AS INTEREST ON THE FDR MADE BY IT WITH BANK AND HELD THAT SUCH INTEREST IN COME WAS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE, THE ASSES SEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA ON SUCH INCOME. THE LE ARNED ASSESSING OFFICER IN VIEW OF THE ABOVE, EXCLUDED THE GROSS AMOUNT OF INTEREST INCOME OF RS.3,12,964/- AND 3,78,574/- FROM THE NET PROFIT AN D ALLOWED DEDUCTION UNDER ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 6 - SECTION 80IA IN RESPECT OF THE BALANCE AMOUNT ONLY. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO ACCEPTED T HE VIEW OF THE LEARNED ASSESSING OFFICER THAT INTEREST INCOME IS NOT ELIGI BLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. HOWEVER, THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) OBSERVED THAT INTEREST PAYMENT BY THE ASSESSEE WAS MORE THAN THE INTEREST RECEIVED OF RS.6,91,538/- AND THEREFO RE HELD THAT NO INTEREST INCOME WAS ACTUALLY EARNED BY THE ASSESSEE WHICH CA N BE EXCLUDED FOR ALLOWING DEDUCTION UNDER SECTION 80IA OF THE ACT. B EING AGGRIEVED BY THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) THE REVENUE IS IN APPEAL BEFORE US. WE FIND THAT NO MATERIAL WAS BROU GHT ON RECORD BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOR HOL DING THAT ENTIRE INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSEE F OR EARNING INTEREST RECEIPT OF RS.6,91,538/-, IN OUR CONSIDERED VIEW, ONLY THEN INTEREST EXPENDITURE WHICH WAS INCURRED FOR EARNING OF INTEREST RECEIPT OF RS. 6,91,538/- CAN ONLY BE SET OFF FOR ARRIVING AT THE AMOUNT OF INCOME EARNED BY THE ASSESSEE FROM RECEIPT OF INTEREST WHICH IS TO BE EXCLUDED FOR COMPUTING T HE DEDUCTION ALLOWABLE UNDER SECTION 80IA OF THE ACT. OUR ABOVE VIEW FINDS SUPPORT OF THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP. & OTHERS. (2007) 289 ITR 475(DEL). IN THE IN STANT CASE, WE FIND THAT MATERIALS ARE NOT AVAILABLE ON RECORD TO SHOW THAT INVESTMENT IN FDR WAS MADE OUT OF ANY BORROWED CAPITAL OR NOT. THEREFORE, IN OUR CONSIDERED OPINION, IT SHALL BE JUST AND FAIR TO RESTORE THE I SSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATION AFRESH I N THE LIGHT OF THE DISCUSSION MADE HEREINABOVE AFTER ALLOWING REASONAB LE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ORDER ACCORDINGLY. THUS, THIS G ROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEPB INCO ME OF RS.4,29,441/- ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 7 - AND THUS LEARNED CIT(A) WRONGLY ALLOWED THE ASSESSE E TO CLAIM THE DEDUCTION UNDER SECTION 80IB ON THE DEPB INCOME OF RS.4,29,441/-. 7. THE BRIEF FACTS OF THE CASE AS OBSERVED BY THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) READS AS UNDER: 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OB SERVED THAT PROFIT & LOSS ACCOUNT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS CREDITED BY AN AMOUNT OF RS.4,29,441/- ON ACCOUNT O F D.E.P.B. THE SAID EXPORT BENEFIT IS INCLUDED IN THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 80IA OF THE ACT. IN VIEW OF THE DECIS IONS OF THE HON'BLE APEX COURT IN THE CASES OF CIT VS. STERLING FOODS ( 1999) 237 ITR 579 AND PANDIAN CHEMICALS VS. CIT (2003) 129 TAXMAN, SUCH I NCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE AC T. HENCE, IT IS CLEAR THAT THE ABOVE SAID DEPB AMOUNTING TO RS.4,29,441/- IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE I.T.ACT. ACCORD INGLY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AUTHORISED REP RESENTATIVE OF THE ASSESSEE WAS ASKED AS TO WHY THE ABOVE SAID INCOME OF RS.4,29,441/- EARNED DURING THE YEAR CONSIDERATION SHOULD NOT BE EXCLUDED FROM THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA O F THE I.T.ACT AND SHOULD NOT BE TAXED OF THE DECISIONS OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. STERLING FOOD (1999) 237 ITR 579 AN D PANDIAN CHEMICALS VS. CIT (2003) 129 TAXMAN 539(SC). IN THE CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS FILED WRITTEN SUBMISSION ON 30.10.2006 STATING THAT- DURING THE ASSESSMENT YEAR 1999-2000 FIRM HAS PUR CHASE ALL DEPB FROM OUTSIDE AT DISCOUNT AND UTILISED SUCH DEP B AGAINST LIABILITIES OF CUSTOM DUTY PAYABLE. BECAUSE OF THIS OUT ACTUAL COST OF RAW MATERIAL WAS LOWER DOWN BY BENEFIT OF DISCOUNT. INSTEAD OF R EDUCING THE VALUE OF COST OF RAW MATERIAL WE HAVE SHOWN THE RAW MATERIAL AT ACTUAL COST INCLUDING FULL VALUE OF CUSTOM DUTY & BENEFIT FROM SUCH DISCOUNT OF DEPB SHOWN AS DEPB INCOME IN PROFIT & LOSS ACCOUNT . ACT UALLY THERE IS NO INCOME FROM SALE OF DEPB LICENSE. THEREFORE, SUCH INCOME CONSIDERED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . FURTHER BY VIRTUE OF BILL PASSED IN LOK SABHA DATED DEC. 6, 2005 WHERE AMENDMENT IS MADE IN SECTION 28 OF THE INCOME TAX A CT, AFTER CLAUSE (IIIC).- (A) THE FOLLOWING CLAUSE SHALL BE INSERTED AND SHALL BE DEEMED TO HAVE BEEN INSERTED, WITH EFFECT FROM THE 1 ST DAY OF APRIL, 1998, NAMELY :- (IIID) ANY PROFIT ON TRANSFER OF DUTY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME UNDER THE EXPORT & IMPORT POLICY FORMULATION & ANNOUNCED UNDER SECTION 5 OF T HE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992. ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 8 - ACCORDINGLY DEPB INCOME IS ALSO CONSIDERED UNDER TH E HEAD INCOME FROM BUSINESS & PROFESSION. THE ARGUMENTS MADE BY THE ASSESSEE HAVE BEEN CAREFU LLY CONSIDERED. THE INCOME DERIVED ON ACCOUNT OF SALE OF DEPB CAN B E CONSIDERED AS PROFIT OF BUSINESS BUT IT CANNOT AT ALL BE CONSID ERED AS MANUFACTURING PROFITS OF THE BUSINESS, SINCE IT HAS NO DIRECT NE XUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. THE INDIAN EXPORTER IS GRANTED VARIOUS INCENTIVES B Y THE GOVERNMENT OF INDIA TO COMPENSATE THE INDIAN EXPORTER FOR LOCAL D UTIES, LIKE CUSTOMS, EXCISE, SALES TAX ETC., WHICH WOULD MAKE THE COST O F INDIA EXPORT HIGHER THAN HIS COUNTERPART OPERATING FROM OTHER COUNTRIES . THESE VARIOUS INCENTIVES ARE QUANTIFIED ON THE BASIS OF WELL LAID OUT PARAMETERS TO ENABLE THE INDIAN EXPORTER TO COMPLETE WITH THE FOR EIGN COMPETITORS. WHILE WORKING OUT THE QUANTUM OF INCENTIVES, THE EX CISE DUTY PAID OR CUSTOM DUTY PAID OR DEEMED TO HAVE BEEN PAID ETC. A RE TAKEN INTO CONSIDERATION. AFTER EXAMINING THE SUBMISSION OF TH E ASSESSEE, IT IS TO BE ASCERTAINED AS TO WHAT EXACTLY IS THE NATURE OF SUC H INCOME RECEIVED BY THE ASSESSEE. IN THE PROVISIONS OF SECTION 80IA/80IB OF THE ACT, THE PHASE USED IS PROFIT AND GAINS DERIVED FROM BY AN INDUSTRIAL UNDERTAKI NG. THIS MEANS THAT IT IS NOT ANY PROFIT WHICH IS ENTITLED FOR BENEFICI AL DEDUCTION UNDER SECTION 80IB OF THE ACT. IN VARIOUS DECISIONS OF TH E SUPREME COURT, IT HAS ALSO BEEN CLARIFIED THAT THE EXPRESSION DERIVED FR OM IS QUITE DIFFERENT FROM THE EXPRESS ATTRIBUTABLE TO. IN OTHER WORDS THIS MEANS THAT IF AN INCOME IS ATTRIBUTABLE TO THE INDUSTRIAL UNDERTAK ING AND NOT DERIVED FROM, DEDUCTION UNDER SECTION 80IB WOULD NOT BE AL LOWED ON SUCH INCOME. SOME OF SUCH EXAMPLE ARE DISCUSSED HEREUNDE R:- IN THE DECISION REPORTED IN 215 ITR 60 IN THE CIT V S. EASTERN SEA FOODS EXPORTS P. LTD. (MADRAS) THE FOLLOWING OBSERVATIONS HAVE BEEN MADE: PROFIT OR GAIN CAN BE SAID TO HAVE BEEN DERIVED FR OM AN ACTIVITY CARRIED ON BY A PERSON ONLY IF THE SAID ACTIVITY IS THE IMM EDIATE AND EFFECTIVE SOURCE OF THE SAID PROFIT OR GAIN. THE INCOME, PROF IT OR GAIN CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE ACTIVITY MERELY BE REASON OF THE FACT THAT THE SAID ACTIVITY MAY HAVE HELPED TO EARN THE SAID INCOME OR PROFIT IN AN INDIRECT OR REMOTE MANNER. THE ABOVE VIEW WAS SUBSEQUENTLY REAFFIRMED BY THE S UPREME COURT IN THE CASE OF CIT VS. STERLING FOODS 237 ITR 579 BY O BSERVING AS UNDER:- THERE MUST, FOR THE APPLICATION OF THE WORDS DE RIVED FROM A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS OF THE INDUSTRI AL UNDERTAKING. SUCH NEXUS HAS TO BE DIRECTED AND NOT INCIDENTAL. ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 9 - IN THE CASE OF CAMBAY ELECTRIC SUPPLY VS. CIT 113 I TR 84, THE APEX COURT HAD ALSO CLARIFIED THAT THE WORD DERIVED FROM IS NARROWER IN SCOPE COMPARED TO THE TERM ATTRIBUTABLE TO. FINALLY, THE LEGAL CONTROVERSY ON THIS SUBJECT WAS IN THE MANNER OF SPEAKING SET AT REST BY THE DECISION OF THE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS VS. CIT 129 TAXMA 539 (SC). [7.5] RECENTLY THE QUESTION BEFORE THE DELHI HIGH C OURT WAS AS UNDER[SOURCE :WEBSITE: TAXINDIAONLINE. COM] IS DUTY DRAWBACK INCOME DEDUCTIBLE UNDER SECTION 8 0IA OF THE ACT? THE DELHI HIGH COURT FIRST REFERRED TO THE DECISION OFA THE MADRAS HIGH COURT WHEREIN IT WAS HELD THAT CASH ASSISTANCE, DUTY DRAWBACK AND IMPORT ENTITLEMENTS ARE UNDOUBTEDLY ATTRIBUTABLE T O THE BUSINESS CARRIED ON BY THE ASSESSEE AND THE ASSESSEE WOULD H AVE BEEN IN A POSITION TO RECEIVE ANY OF THESE BENEFITS, HAD THE ASSESSEE NOT BEEN CARRYING ON THE BUSINESS, IT CANNOT BE SAID, HOWEVE R, THAT SUCH INCOME IS DERIVED FROM THE BUSINESS. THE DELHI HIGH COURT A LSO REFERRED THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS . STERLING FOODS -237 ITR 579. BASED ON THE ABOVE JUDGMENTS, THE DELHI HI GH COURT RULED THAT : DUTY DRAWBACK IS NOT AN INCOME DERIVED FORM THE IN DUSTRIAL UNDERTAKING TO BE ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80IA OF THE ACT. THE COURT OBSERVED THAT MERELY BECAUSE UNDER THE SC HEME TO ENCOURAGE EXPORTS DUTY ETC. IS REFUNDED SUBSEQUENTLY BY WAY O F SUCH DUTY DRAWBACK, IT CANNOT BE REGARDED AS THE PROFIT AND G AIN DERIVED FROM THE INDUSTRIAL UNDERTAKING, AS ITS IMMEDIATE AND PR OXIMATE SOURCE IS NOT THE INDUSTRIAL UNDERTAKING BUT THE SCHEME OF DUTY D RAWBACK. [7.6] IN VIEW OF THESE FACTS AND THE RECENT JUDICIA L PRONOUNCEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ST ERLING FOODS 237 ITR 579, THE INCOME FROM SALE OF IMPORT LICENCE WILL TR EATED AS INCOME FROM OTHER SOURCES AND THE SAME WILL BE EXCLUDED WHILE W ORKING THE PROFITS AND ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF TH E AT. AS SUCH, THE DEPB AMOUNTING TO RS.4,29,441/- RECEIVED BY THE AS SESSEE DURING THE YEAR UNDER CONSIDERATION SHOWN AS INCOME FROM OTHER SOURCES, IS EXCLUDED WHILE WORKING OUT THE PROFITS AND ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. 8. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS FOLLOWS:- DURING THE YEAR UNDER CONSIDERATION FIRM HAS PURCH ASED ALL DEPB FROM OUTSIDE AT DISCOUNT AND UTILISED SUCH DEPB AGAINST LIABILITIES OF CUSTOM DUTY PAYABLE. BECAUSE OF THIS OUR ACTUAL COST OF RA W MATERIAL WAS LOWER DOWN BY BENEFIT OF DISCOUNT. INSTEAD OF REDUCING TH E VALUE OF COST OF RAW MATERIAL WE HAVE SHOWN THE RAW MATERIAL AT ACTUAL C OST INCLUDING FULL ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 10 - VALUE OF CUSTOMS DUTY AND BENEFIT FROM SUCH DISCOUN T OF DEPB SHOWN AS DEPB INCOME IN PROFIT AND LOSS ACCOUNT. ACTUALLY TH ERE IS NO INCOME FROM SALE OF DEPB LICENSE. THEREFORE, SUCH INCOME C ONSIDERED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. FURTHER BY VIRTUE OF BILL PASSED IN LOK SABHA DATE D DEC.6, 2005 WHERE AMENDMENT IS MADE IN SECTION 28 OF THE INCOME TAX A CT AFTER CLAUSE(IIIC)- (A) THE FOLLOWING CLAUSE SHALL BE INSERTED AND SHALL BE DEEMED TO HAVE BEEN INSERTED WITH EFFECT FROM 1 ST DAY OF APRIL 1998, NAMELY:- (IIID) ANY PROFIT ON TRANSFER OF DITY ENTITLEMENT PASS BOOK SCHEME BEING DUTY REMISSION SCHEME UNDER EXPORT AND IMPORT POLIC Y FORMULATION AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEV ELOPMENT AND REGULATION) ACT, 1992. ACCORDINGLY, DEPB INCOME IS ALSO CONSIDERED UNDER T HE HEAD INCOME FROM BUSINESS AND PROFESSION. 7.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E SUBMISSION MADE BY THE APPELLANT CAREFULLY. IN THE ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER HAS CONSIDERED THE ABOVE INCOME A S NOT BEING DERIVED FROM THE PROFITS AND GAINS OF THE INDUSTRIAL UNDERT AKING AND HAS RELIED UP ON THE DECISION OF HON'BLE APEX COURT IN THE CASE O F CIT VS. STERLING FOODS (1999) 237 ITR 579 AND PANDIAN CHEMICALS VS. CIT(20 03) 129 TAXMAN. THE CONCLUSION OF THE LEARNED ASSESSING OFFICER IS GIVEN IN PARAGRAPH NO.7.6 FOR A.Y. 1999-2000 WHICH IS REPRODUCED HEREU NDER:- IN VIEW OF THESE FACTS AND THE RECENT JUDICIAL PRO NOUNCEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. STERLI NG FOODS-237 ITR 579, THE INCOME FROM SALE OF IMPORT LICENSE WILL TREATED AS INCOME FROM OTHER SOURCES AND THE SAME WILL BE EXCLUDED WHILE WORKING THE PROFITS AND ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE AC T. AS SUCH DEPB AMOUNTING TO RS.1,10,556/- (RS.4,29,441/-) RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION SHOWN AS INCOME FROM OTHER SOURCES, IS EXCLUDED WHILE WORKING OUT THE PROFITS AND ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. THUS, BY C LAIMING DEDUCTION UNDER SECTION 80IA ON THE DEPB INCOME FROM THE PURP OSE OF COMPUTATION OF TOTAL INCOME, THE AS HAS FURNISHED I NACCURATE PARTICULARS OF ITS INCOME, FROM WHICH PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) R.W.S. 274 OF THE ACT IS INITIATED ON THIS POINT. 7.3 NOW DURING THE PROCEEDINGS BEFORE ME THE APPELL ANT HAS SUBMITTED THAT DURING THE YEAR IT HAS NOT EXPORTED ANY PRODUCTS AND HAS ONLY IMPORTED RAW MATERIALS FOR THE PURPOSES OF MAN UFACTURING. FOR THE PURPOSE OF SUCH IMPORT OF RAW MATERIALS THE APPELLA NT PURCHASED DEPB FROM THE MARKET AND UTILIZE SUCH DEPB CREDITS PURCH ASED TOWARDS ADJUSTMENT OF CUSTOMS DUTY LIABILITY ARISING OUT OF SUCH IMPORTS. THE APPELLANT FURTHER SUBMITTED THAT SUCH DEPB PURCHASE D AND UTILISED AS ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 11 - SUCH CONSTITUTES COST OF IMPORTED RAW MATERIALS. TH E APPELLANT ALSO SUBMITTED THAT WHILE PREPARING ITS ACCOUNTS THE APP ELLANT HAS DISCLOSED ITS PURCHASES INCLUDING CUSTOMS DUTY AND HAS CORRES PONDINGLY SHOWN THE DEPB PURCHASED AND UTILISED AS A SEPARATE INCOME UN DER THE HEAD DEPB INCOME. IN THIS MANNER THE APP HAS NOT EARNE D ANY DEPB CREDITS AS INCOME DURING THE YEAR WHICH IS EARNED BY ONLY E XPORTERS. THE APPELLANTS ACCOUNTS HAVE BEEN AUDITED UNDER SECTIO N 44AB OF THE ACT WHICH ALONG WITH THE BOOKS OF ACCOUNTS HAVE BEEN DU LY VERIFIED BY THE ASSESSING OFFICER. 7.4 CONSIDERING THE ABOVE FACTUAL MATRIX OF THE NAT URE OF INCOME EARNED BY THE APPELLANT IT CANNOT BE SAID THAT THE APPELLANT HAS EARNED ANY DEPB CREDITS UNDER THE EXPORT IMPORT POLICY AS OBSERVED BY THE LEARNED ASSESSING OFFICER. EVEN THOUGH THE APPELLAN T HAS DISCLOSED RS.1,10,556/- AND RS.4,29,441/- DURING A.Y. 1998-19 99 AND A.Y. 1999- 2000 RESPECTIVELY AS DEPB INCOME IT HAS DISCLOSED T O THE ASSESSING OFFICER THE NATURE AND SUBSTANCE OF SUCH INCOME AS SEEN FROM THE ASSESSMENT ORDER REPRODUCED IN THE EARLIER PARAGRAP H. IN THE CIRCUMSTANCES AND CONSIDERING THE FACTS OF THE CASE , I HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO GRANT DEDUCTION UNDER SECTION 80IB OF THE ACT WITHOUT EXCLUDING RS.1,10,556/- AND RS.4,29,441 /- DURING A.Y. 1998- 1999 AND A.Y. 1999-2000 RESPECTIVELY. THE APPELLANT SUCCEEDS IN THIS GROUND OF APPEAL. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE LEARNED ASSESSING OFFICER AND SUBMITTED THAT THE IS SUE STANDS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LI BERTY INDIA VS. CIT [2009] 317 ITR 218 (SC) AGAINST THE ASSESSEE. 10. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE ARGUED THAT ISSUE IS COVERED BY THE DECISION OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. INCOME-TAX OFFICER, [2009] 318 ITR (AT) 87 (MUMBAI)[SB] AND STATED THAT AS PER THE SAID DECISI ON, THE PROFIT ON DEPB SHOULD BE TREATED SEPARATELY FROM THE VALUE OF DEPB RECEIVED ON EXPORT. HE SUBMITTED THAT THE ISSUE SHOULD SET ASIDE TO THE FI LE OF THE LEARNED ASSESSING OFFICER FOR DECIDING THE SAME AFRESH IN LIGHT TO TH E AFORESAID DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 12 - 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASS ESSEE CREDITED RS.4,29,441/- UNDER THE HEAD INCOME FROM DEPB. ACCO RDING TO THE LEARNED ASSESSING OFFICER, SUCH INCOME WAS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE THE LEARNED ASSESSING OFF ICER EXCLUDED RS.4,29,441/- WHILE CALCULATING DEDUCTION ALLOWABLE UNDER SECTION 80IB OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) OBSERVED THAT THE ASSESSEE WAS NOT AN EXPORTER AND HAS NOT DERIVED A NY INCOME BY SALE OF DEPB. THE LEARNED COMMISSIONER OF INCOME TAX(APPEAL S) OBSERVED THAT THE ASSESSEE WAS IMPORTER OF RAW MATERIAL AND FOR IMPOR TING RAW MATERIAL, IT PURCHASED DEPB WHICH WAS UTILISED BY IT FOR PAYMENT OF CUSTOMS DUTY PAYABLE ON IMPORT OF RAW MATERIAL. THE SYSTEM OF AC COUNTING BY THE ASSESSEE WAS TO SHOW PURCHASES BY INCLUDING AMOUNT OF CUSTOM S DUTY WHICH WOULD HAVE BEEN PAYABLE BY THE ASSESSEE HAD IT NOT PURCHA SED DEPB FROM THE MARKET AND UTILISED IN ITS IMPORT TRANSACTIONS. THU S, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FINDING THAT NO PROFIT WAS EARN ED BY THE ASSESSEE ON SALE OF DEPB RATHER DISCOUNT RECEIVED FROM PURCHASE OF DEPB WAS REFLECTED AS INCOME IN THE PROFIT AND LOSS ACCOUNT. THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT NOTHING CAN BE EXCLUD ED ON ACCOUNT OF ABOVE CREDIT OF RS.4,29,441/- IN THE PROFIT AND LOSS ACCO UNT FOR CALCULATING DEDUCTION ALLOWABLE UNDER SECTION 80IB OF THE ACT. BEFORE US, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ARGUED THAT ISSUE IS COVERED BY THE DECISION OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. INCOME-TAX OFFICER, [2009] 318 ITR (AT) 87 (MUMBAI) [SB] AND STATED THAT AS PER THE SAID DECISION, THE PROFIT ON DEPB SHOULD BE TREATED SEPARATELY FROM THE VALUE OF DEPB RECEIVED ON EXPORT. HE SUBMITTED THAT THE ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE LEARNED ASSESSING OFFI CER FOR DECIDING THE SAME AFRESH IN LIGHT TO THE AFORESAID DECISION OF THE SP ECIAL BENCH OF THE TRIBUNAL. ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 13 - WE FIND THAT BEFORE THE LEARNED ASSESSING OFFICER A LSO THE ASSESSEE SUBMITTED AS UNDER:- DURING THE YEAR UNDER CONSIDERATION FIRM HAS PURCH ASED ALL DEPB FROM OUTSIDE AT DISCOUNT AND UTILISED SUCH DEPB AGAINST LIABILITIES OF CUSTOM DUTY PAYABLE. BECAUSE OF THIS OUR ACTUAL COST OF RA W MATERIAL WAS LOWER DOWN BY BENEFIT OF DISCOUNT. INSTEAD OF REDUCING TH E VALUE OF COST OF RAW MATERIAL WE HAVE SHOWN THE RAW MATERIAL AT ACTUAL C OST INCLUDING FULL VALUE OF CUSTOMS DUTY AND BENEFIT FROM SUCH DISCOUN T OF DEPB SHOWN AS DEPB INCOME IN PROFIT AND LOSS ACCOUNT. ACTUALLY TH ERE IS NO INCOME FROM SALE OF DEPB LICENSE. 12. WE FIND THAT THE ABOVE SUBMISSION OF THE ASSESS EE WAS NOT CONTROVERTED BY THE LEARNED ASSESSING OFFICER AND T HE REVENUE HAS NOT DISPUTED THE ABOVE FACT BEFORE US ALSO. WE THUS, F IND THAT THE UNCONTROVERTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS NOT REC EIVED ANY DEPB ON EXPORT OF GOODS BY IT UNDER ANY POLICY OF THE GOVERNMENT AS A N INCENTIVE NOR THE ASSESSEE HAS SOLD AND DERIVED PROFIT ON SALE OF DEP B. IN VIEW OF THE ABOVE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IS NO T APPLICABLE IN THE INSTANT CASE. FURTHER, WE FIND THAT THE ASSESSEE HAS NOT RE CEIVED ANY EXPORT INCENTIVES NOR DERIVED ANY PROFIT BY WAY OF SALE OF DEPB. THE ASSESSEE BECAUSE OF FOLLOWING A PECULIAR SYSTEM OF ACCOUNTING HAS RECOR DED PURCHASES AT AN INFLATED AMOUNT AND REFLECTED THE CORRESPONDING AMO UNT ALSO AS INCOME UNDER THE HEAD DEPB INCOME. IN THE INSTANT CASE, THE ASSE SSEE HAS PAID LESSER AMOUNT FOR PURCHASES BECAUSE IT PURCHASED DEPB AT A DISCOUNT FROM THE MARKET. THUS, THE ASSESSEES PURCHASES WERE ACTUALL Y AT A LESSER FIGURE BECAUSE THE ASSESSEE WAS NOT REQUIRED TO PAY THE FULL AMOUN T OF CUSTOMS DUTY AND ASSESSEE INSTEAD OF PAYING FULL AMOUNT OF CUSTOMS D UTY ACTUALLY ADJUSTED THE SAID LIABILITY FROM DEPB, WHICH WAS PURCHASED FROM THE MARKET AT A DISCOUNTED PRICE. THE ASSESSEE INCREASED ITS PURCHA SES BY A NOTIONAL FIGURE OF CUSTOMS DUTY WHICH HE WOULD HAVE OTHERWISE BEEN LIA BLE FOR HAD HE NOT PURCHASED DEPB FROM THE MARKET AND ADJUSTED THE SAM E AGAINST CUSTOMS DUTY. THUS, ON THE ONE HAND, THE ASSESSEE INCREASED ITS PURCHASES BY NOTIONAL AMOUNT WHICH HE HAS NOT ACTUALLY PAID AND THEREBY R EDUCED ITS PROFIT FROM THE ITA NO .2875/AHD/2006 M/S.METAL LINK ASST.YEAR -1999-2000 - 14 - SAID AMOUNT AND ALSO INCREASED THE PROFIT BY AN EQU IVALENT AMOUNT BY CREDITING IN HIS PROFIT AND LOSS ACCOUNT THE SAME A MOUNT UNDER THE HEAD INCOME FROM DEPB. IN VIEW OF THE ABOVE, WE AGREE WI TH THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT NO INCOME WAS ACTUALLY DERIVED BY THE ASSESSEE FROM DEPB AND THE SAID AMOU NT REFLECTED IN THE PROFIT AND LOSS ACCOUNT IS A PART AND PARCEL OF THE PURCHA SE OF IMPORTED RAW MATERIALS DEBITED IN THE PROFIT & LOSS ACCOUNT AND NO AMOUNT CAN BE EXCLUDED FOR SUCH CREDIT WHILE CALCULATING THE AMOUNT OF INCOME DERIV ED FROM THE INDUSTRIAL UNDERTAKING ELIGIBLE UNDER SECTION 80IB OF THE ACT. WE THEREFORE, CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) AND REJECT THE GROUND OF APPEAL OF THE REVENUE. 13. IN THE RESULT, THE APPEAL OF THE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARITIES IN THE COURT ON 24/11/2009. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 24/11/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS), VALSAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD