ACIT, Ludhiana V. M/s Vardhman Yarns & Threads Limited, Ludhiana

ITA 569/CHANDI/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5027 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Business expenditure; Capital receipt
• Section: 80IB; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 530/CHD/2012 ASSESSMENT YEAR: 2008-09 M/S VARDHMAN YARNS & THREADS LTD., VS. THE ACIT, CI RCLE-1, LUDHIANA LUDHIANA PAN NO. AABCM4692E ITA NO. 569/CHD/2012 ASSESSMENT YEAR: 2008-09 THE ACIT, CIRCLE-1, VS. M/S VARADHAM YARNS & THREA DS LTD., LUDHIANA LUDHIANA PAN NO. AABCM4692E ITA NO. 1159/CHD/2013 ASSESSMENT YEAR: 2009-10 M/S VARDHMAN YARNS & THREADS LTD., VS. THE DCIT, CI RCLE-1, LUDHIANA LUDHIANA PAN NO. AACCV2554K ITA NO. 2/CHD/2014 ASSESSMENT YEAR: 2009-10 THE ACIT, CIRCLE-1, VS. M/S VARADHAM YARNS & THREA DS LTD., LUDHIANA LUDHIANA PAN NO. AACCV2554K (APPELLANT) (RESPONDENT) 2 APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : SH. SUBHASH AGGARWAL DATE OF HEARING : 18.05.2017 DATE OF PRONOUNCEMENT : 13.07.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE CAPTIONED CROSS APPEALS FOR TWO ASSESSMEN T YEARS I.E. 2008-09 AND 2009-10 HAVE BEEN PREFERRED BY BOTH THE PARTIES AGAINST THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (A PPEALS)-1 [HEREINAFTER REFERRED TO AS CIT(A)], LUDHIANA DATED 12.3.2012 AND 9.10.2013 RESPECTIVELY. SINCE THE FACTS AND ISSUE I NVOLVED THEREIN IN ALL THE APPEALS ARE IDENTICAL, THEY ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. FIRST, WE TAKE UP THE CROSS APP EALS FOR ASSESSMENT YEAR 2008-09 ITA NO. 530/CHD/2013 ASSESSMENT YEAR 2008-09 2. IN THIS APPEAL, PREFERRED BY THE ASSESSEE, FOLLO WING GROUNDS HAVE BEEN TAKEN:- 1. THAT THE ORDER PASSED BY THE LD.CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREATING INTEREST FROM HPSEB AMOUNTING TO RS.71,285/- AS 'INCOME FROM OTHER SOURCES' INSTEAD OF 'INCOME FROM BUSINESS AND PROFESSION'. 3 3. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN REDUCING THE FOLLOWING INCOMES FROM THE PROFITS OF THE UNITS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE INCOME TAX ACT, 1961; PARTICULARS AMOUNT INTEREST FROM HPSEB 71,285 RENT RECEIVED 1,93,367 MISC. RECEIPT 1,590 TOTAL 2,66,242 3. GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. VIDE GROUND NO.2 THE ASSESSEE HAS AGITATED THE A CTION OF THE LOWER AUTHORITIES IN TREATING THE INTEREST INCOME F ROM HPSEB AMOUNTING TO RS. 71,285/- AS INCOME FROM OTHER SOU RCES INSTEAD OF INCOME FROM BUSINESS AND PROFESSION. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE HAD EARNED INTEREST INCOME FROM THE SECURITY DEPOSIT MA DE WITH THE ELECTRICITY BOARD (HPSEB). THE ASSESSING OFFICER T REATED THE SAID INTEREST INCOME AS INCOME FROM OTHER SOURCES AN D DID NOT ALLOW THE SET OFF OF THE SAME AGAINST THE INTEREST EXPEND ITURE INCURRED BY THE ASSESSEE ON THE LOAN AMOUNT OBTAINED FROM THE BANKS FOR BUSINESS PURPOSES. THE ASSESSING OFFICER DISALLOWED THE CLA IM OF THE ASSESSEE FOR TREATING THE SAID INCOME AS BUSINESS INCOME A ND FURTHER TO 4 INCLUDE THE SAID INCOME INTO THE ELIGIBLE CLAIM FOR DEDUCTION U/S 80IC OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT '). ASSESSEE ASSAILED THE ORDER OF THE ASSESSING OFFICE R ON THIS ISSUE BEFORE CIT(A), BUT REMAINED UNSUCCESSFUL. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. ADMITTEDLY, THE SAID INTEREST INCOME OF THE ASSESSE E FROM THE SECURITY DEPOSITS MADE WITH THE ELECTRICITY BOARD IS NOT AN INCOME DERIVED BY THE UNDERTAKING, HENCE, IS NOT ELIGIBLE TO BE INCLU DED INTO THE ELIGIBLE PROFIT FOR DEDUCTION U/S 80IC OF THE ACT. THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMI CALS LTD VS. CIT 262 ITR 278 (SC) IS SQUARELY APPLICABLE ON THE ABOVE ISSUE. HOWEVER, IT IS PERTINENT TO OBSERVE HERE THAT THE C OMPULSORY SECURITY DEPOSITS MADE BY THE ASSESSEE WITH THE ELECTRICITY BOARD FOR OBTAINING / RUNNING OF THE ELECTRICITY CONNECTION WERE NOT MADE BY THE ASSESSEE NOT FOR INVESTMENT PURPOSES RATHER THE SAME WERE MANDATORY REQUIRED TO BE MADE FOR GETTING ELECTRIC CONNECTION FOR OPERATING / RUNNING OF THE MANUFACTURING ACTIVITY O F THE ASSESSEE. THE NATURE OF THE INCOME FROM THE SAID ACTIVITY IS TO BE GAUGED BY LOOKING AT THE PURPOSE AND OBJECT OF SUCH DEPOSITS. THE PURPOSE OF THE DEPOSITS, IN OUR VIEW, IS NOT FOR AN INVESTMENT AND EARNING OF INTEREST INCOME BUT FOR OBTAINING OF THE ELECTRICIT Y CONNECTION REQUIRED FOR MANUFACTURING / BUSINESS ACTIVITY OF T HE ASSESSEE. THE INCIDENTAL INCOME, IF ANY, EARNED THEREFROM IS, THU S, IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AS THE SAME IS THE OUTCOME OF THE DEPOSITS MADE FOR BUSINESS PURPOSES. IN VIEW OF THIS, THE SAID 5 INCOME EARNED FROM THE SECURITY DEPOSITS IS ELIGI BLE TO BE SET OFF AGAINST THE BUSINESS EXPENSES AND IN PARTICULAR THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE ON THE LOAN AM OUNT BORROWED FROM THE BANK / FINANCIAL INSTITUTIONS. WE ACCORDI NGLY, ALLOW THIS GROUND OF THE ASSESSEE AND HOLD THAT THE INTEREST I NCOME EARNED BY THE ASSESSEE ON SECURITY DEPOSITS FROM HPSEB IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AND THE ASSESSEE I S ENTITLED TO SET OFF THE SAME AGAINST THE BUSINESS EXPENDITURE. THIS GRO UND OF APPEAL IS, THEREFORE, ALLOWED. 6. GROUND NO.3: THE ASSESSEE IN THIS GROUND HAS AG ITATED THE ACTION OF THE LOWER AUTHORITIES IN REDUCING THE IN COME FROM INTEREST FROM HPSEB, RENT RECEIVED, MISC. RECEIPT ETC. FROM THE PROFITS OF THE UNIT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. S O FAR AS THE INTEREST INCOME OF RS. 71,285/- FROM HPSEB IS CONCERNED, THI S ISSUE HAS ALREADY BEEN ADJUDICATED BY US VIDE GROUND NO.2 OF THE APPEAL. IT IS ACCORDINGLY HELD THAT THOUGH THE ASSESSEE IS ENTITL ED TO NETTING OF SUCH INCOME AGAINST BUSINESS EXPENDITURE BUT THE AS SESSEE IS NOT ENTITLED TO INCLUDE THE SAID INCOME IN THE ELIGIBLE PROFITS OF THE UNDERTAKING IN VIEW OF THE LAWS LAID DOWN BY THE HO N'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD VS. CIT (SUPRA). SO FAR AS THE INCOME FROM RENT RECEIVED I.E. RS. 1 ,93,367/- IS CONCERNED, THE SAME ANALOGY CAN BE APPLIED AND THE SAME IS NOT THE INCOME DERIVED BY THE UNDERTAKING AND, HENCE, IS NO T ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 6 SO FAR AS THE AMOUNT OF RS. 1,590/- TOWARDS MISC. R ECEIPTS IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS STA TED AT BAR THAT HE DOES NOT PRESS THIS ISSUE BECAUSE OF SMALLNESS OF T HE AMOUNT, HOWEVER, THE ISSUE ON MERIT REGARDING THE ADMISSIB ILITY OF THE SAID RECEIPT TOWARDS DEDUCTION U/S 80IC BE KEPT OPEN. W E, ACCORDINGLY DISMISS THIS ISSUE OF MISC. RECEIPTS OF RS. 1,590/- HOLDING THAT THE DISMISSAL OF THE ABOVE CLAIM WILL NOT HAVE ANY PREC EDENTIAL VALUE. THE ISSUE REGARDING THE ADMISSIBILITY OF SUCH A CLA IM IS KEPT OPEN TO BE ADJUDICATED AT APPROPRIATE TIME / CASE. 7. THE ASSESSEE IN THIS APPEAL HAS ALSO TAKEN AN AD DITIONAL GROUND AGITATING THE ACTION OF THE LOWER AUTHORITIES IN NO T TREATING THE INTEREST REIMBURSEMENT OF RS. 32,42,351/- RECEIVED UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUFS) AS CAPI TAL RECEIPT. 8. SO FAR AS THE ISSUE INVOLVED IN ADDITIONAL GROUN D RELATING TO INTEREST REIMBURSEMENT UNDER TUFS SCHEME IS CONCERN ED, WE FIND FROM THE IMPUGNED ORDER THAT THE SAID RECEIPTS ARE UNDER THE SCHEME OF MINISTRY OF TEXTILES CALLED AS THE TECHNOLOGY U PGRADATION FUND SCHEME (TUFS) GETTING REIMBURSEMENT OF CERTAIN PER CENTAGE OF INTEREST, CHARGED BY THE LEADING INSTITUTIONS OF TH E GOVERNMENT, AND ON FULFILLMENT OF CERTAIN CONDITIONS. THE CLAIM OF THE ASSESSEE IS THAT THE SAID RECEIPT OF INTEREST INCOME IS A CAPITAL RE CEIPT OR OTHERWISE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAS OBS ERVED THAT THE REIMBURSEMENT NEVER ASSUMES AN INDEPENDENT SOURCE O F REVENUE BUT 7 IS DIRECTLY CONTINGENT UPON THE INCURRING OF INTER EST EXPENDITURE ON THE LOANS BORROWED. HE OBSERVED THAT THE INTEREST EARNED IN THIS CASE BY THE ASSESSEE UNDER THE TUFS SCHEME OF GOVERNMEN T WAS DIRECTLY AND INTIMATELY CONTINGENT UPON INTEREST PAID BY TH E ASSESSEE AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO NETTING OF THE SAME AGAINST THE INTEREST PAID. WE AGREE WITH THE ABOVE FINDING OF T HE LD. CIT(A). THE REIMBURSEMENT OF THE INTEREST EXPENDITURE UNDER THE TUFS SCHEME WAS NOT AN INCOME OF THE ASSESSEE, RATHER THE SAME WAS REIMBURSEMENT OF THE EXPENDITURE INCURRED BY THE AS SESSEE. HOWEVER, THE ISSUE NEXT TO BE CONSIDERED IS AS TO WHETHER TH E ASSESSEE HAD ALREADY CLAIMED THE SAID INTEREST EXPENDITURE IN AN Y PREVIOUS YEAR, AND IF YES, IT WILL AMOUNT TO ALLOWING DOUBLE DEDUC TION BENEFIT TO THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS STAT ED THAT THOUGH AS PER THE INSTRUCTIONS OF HIS CLIENT, THE ASSESSEE UP TO THE EXTENT OF REIMBURSEMENT OF THE INTEREST EXPENDITURE AS PER TU FS SCHEME HAS NOT CLAIMED THE SAME AS EXPENDITURE IN EARLIER YEAR S. HE, HOWEVER, HAS SUBMITTED THAT HE HAS NO OBJECTION IF THIS ASPE CT IS EXAMINED / VERIFIED BY THE ASSESSING OFFICER. WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITE D PURPOSE TO EXAMINING AS TO WHETHER THE ASSESSEE HAS ALREADY CL AIMED DEDUCTION OF EXPENDITURE INCLUDING THE AMOUNT REIMBURSED TO T HE ASSESSEE UNDER TUFS SCHEME? IF, IT IS FOUND THAT THE ASSESSE E HAS NOT SO CLAIMED IT AS EXPENDITURE IN EARLIER YEARS, THE ASS ESSEE WILL BE ENTITLED TO THE NETTING OF THE SAID REIMBURSEMENT A MOUNT AGAINST THE INTEREST EXPENDITURE. 8 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 10. NOW COMING TO THE REVENUES APPEAL IN ITA NO. 569/CHD/2012 FOR ASSESSMENT YEAR 2008-09, THE REVENUE IN ITS APP EAL HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO CONSIDER INTEREST INCOME RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM CUSTOMERS AND SUPPLIERS AMOUNTING TO RS. 19,77,643/ - AS 'BUSINESS INCOME' INSTEAD OF 'INCOME FROM OTHER SOURCES' AS CONSIDERED BY THE A.O. 2. THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS IN ALLOWING DEDUCTION 80IC BY HOLDING THAT PROCESS UNDERTAKEN BY THE ASSESSEE IS A MANUFACTURING ACTIV ITY IGNORING THE FACTS THAT CONVERSION OF YARN INTO THR EAD DOES NOT AMOUNT TO MANUFACTURING AS IT IS DOES NOT BRING INTO EXISTENCE A NEW OR DISTINCT PRODUCT AND FURTHER IGNORING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. EMPTEE POLY YARN (P) LTD., IN CIVIL APPEAL NO. 786 OF 2010 DATED 20.01.2010, WHEREIN IT HAS BEEN HELD THAT TWISTING AND TEXTURISING OF YARN WOULD NOT CONSTITUTE 'MANUFACTU RE' IN EVERY CASE. 3. THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO TREAT THE CLAIMS RECEIPTS (INSURANCE CLAIMED RECEIVED, BROKERAGE RECEIVED ON OCEAN FREIGHT), THE INTEREST REIMBURSEMENT UNDER TUFS AND THE INTEREST RECEIVED FROM THE CUSTOMERS AND SUPPLIERS TO BE THE INCOME DERIVED FROM INDUSTR IAL UNDERTAKING AND ELIGIBLE FOR DEDUCTION U/S 80IC 9 IGNORING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. STERLING FOODS LTD., 237 ITR 579, PANDIAN CHEMICALS LTD., VS. CIT (2003) 262 ITR 27 8 (SC) AND M/S COMBAY ELECTRIC SUPPLY CO. LTD., VS. CIT [1978] 113 ITR 84 (SC), WHEREIN THE WORDS 'DERIVED FROM' SHOULD BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAK ING AND NOT TO BE 'INCIDENTAL' TO THE BUSINESS TO THE ASSESSEE. 4. THAT THE ORDER OF THE LD CIT(A) BE SET ASIDE AND T HAT OF A.O. BE RESTORED . 11. GROUND NO.1 AS REPRODUCED ABOVE IS RELATING TO THE TREATMENT OF INTEREST INCOME RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM CUSTOMERS, AS TO WHETHER IS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. 12. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET HAS INVITED OUR ATTENTION TO THE RELEVANT FINDINGS OF THE CIT(A) ON THE ISSUE WHEREIN THE LD. CIT(A) HAS RELIED UPON THE DECISION OF THE HON' BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT HIGH COURT IN THE CAS E OF PHATELA COTGIN INDUSTRIES (P) LTD V CIT (2008) 303 ITR 411 (P&H) , WHEREIN THE HON'BLE HIGH COURT HAS HELD THAT THE INTEREST WHICH IS RECE IVED ON DELAYED PAYMENT ON ACCOUNT OF SALE TO CUSTOMERS OF THE MANUFACTURED GOODS CAN CLEARLY BE TERMED TO BE INCOME DERIVED FROM AN INDUSTRIAL UND ERTAKING AND DISTINCT FROM INCOME ON ACCOUNT OF INTEREST RECEIVED FROM F IXED DEPOSITS. THE LD. DR HAS NOT POINTED OUT ANY CASE LAW CONTRARY TO THE ABOVE PROPOSITION OF LAW LAID BY THE HON'BLE JURISDICTIONAL HIGH COURT. THE ISSUE IS, THUS, 10 SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. GROUND NO.1 OF THIS APPEAL, THEREFORE, IS DISMISSED. 13. VIDE GROUND NO.2, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN TREATING THE ACTIVITY OF TWISTING AND TEXTURING OF YARN AS MANUFACTURING ACTIVITY FOR THE PURPOSE OF DEDUCTION U/S 80IC OF T HE ACT. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE AL SO GONE THROUGH THE RECORDS. THIS ISSUE HAS BEEN DEALT BY LD. CIT(A ) IN PARA 12 ONWARDS OF HIS ORDER. THE LD. CIT(A) AFTER CONSIDER ING THE VARIOUS JUDGMENTS OF THE HIGHER COURTS ON THIS ISSUE AND AL SO CONSIDERING THE ACTIVITY OF THE ASSESSEE HAS OBSERVED THAT THE ASS ESSEE HAS BEEN DOING THE ACTIVITY OF CONVERSION OF YARN INTO THREA D WHICH LEADS TO CREATION OF ENTIRELY A DISTINCT PRODUCT MEANT FOR S PECIFIC USAGE AND FURTHER THAT THE CHANGE EFFECTED IS IRREVERSIBLE. H E HAS ALSO OBSERVED THAT THE AVERAGE PRICE OF THE RAW MATERIAL I.E. YAR N BEING RS. 230/- PER KG CANNOT BE EQUATED WITH THAT OF THE FINISHED PRODUCT I.E. THREAD PRICED AT AN AVERAGE PRICE OF RS. 575 PER KG. HE FU RTHER RELIED UPON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. EMPTEE POLY YARN (P) LTD REPORTED IN 170-TAXMA N-332-BOM, WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS OBSERVED AS UNDER:- FROM THE MATERIAL CONSIDERED IT WOULD BE CLEAR THA T POY HAS DIFFERENT PHYSICAL AND CHEMICAL PROPERTIES AND WHEN POY CHIPS UNDERGOES THE PROCESS OF TEXTURISING AND/OR TWISTING, THE YARN I.E. TWISTED AND/OR TEXTURISED OR BOTH RESULTS IN A PRODUCT HAVI NG 11 DIFFERENT PHYSICAL AND CHEMICAL PROPERTIES. IN OTHE R WORDS THE PROCESS APPLIED TO POY EITHER FOR THE PURPOSE OF TEXTURISING OR TWISTING CONSTITUTED MANUFACTURE AS THE ARTICLE PRODUCED IS RECOGNISED I N THE TRADE AS DISTINCT COMMODITY PURSUANT TO THE PROCESS IT UNDERGOES AND WHICH AMOUNTS TO MANUFACTURE. UNDER THE CENTRAL EXCISE ACT, THE UNION OF INDIA ITSELF TREAT THE POY AS DISTINCT FRO M POY, DRAWN TWISTED OR TEXTURED OR BOTH. FROM ALL TH E MATERIAL WE HAVE NO HESITATION IN ARRIVING AT A CONCLUSION THAT THE PROCESS WHICH POY UNDERGOES IN THE PROCESS OF TEXTURISING AND TWISTING RESULTS INT O A NEW AND DISTINCT PRODUCT AND REGARDED IN THE TRADE AS DISTINCT FROM THE COMMODITY INVOLVED IN THE MANUFACTURE. THE PROCESS AMOUNTS TO MANUFACTURE AS THE ORIGINAL COMMODITY LOOSES ITS IDENTITY. IN VIEW OF OUR FINDINGS THE VIEW TAKEN BY THE TRIBUNAL WILL HA VE TO BE UPHELD. 15. THE ABOVE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IS SQUARELY APPLICABLE TO THE IDENTICAL FACTS OF THE P RESENT CASE, HENCE, WE HAVE NO HESITATION TO HOLD THAT THERE IS NO INFI RMITY IN THE ORDER OF THE CIT(A) IN HOLDING THAT THE CONVERSION OF YARN I NTO THREAD BY THE ASSESSEE COMPANY AMOUNTS TO MANUFACTURING ACTIVITY AND, THEREFORE, THE INCOME EARNED FORM SUCH ACTIVITY IS ELIGIBLE FO R DEDUCTION U/S 80IC OF THE ACT. THERE IS NO MERIT IN THIS GROUND O F APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. 16. VIDE GROUND NO.3, THE REVENUE HAS AGITATED THE ACTION OF CIT(A) IN TREATING THE FOLLOWING RECEIPTS AS ELIGIB LE FOR DEDUCTION:- (I) INSURANCE CLAIM (II) BROKERAGE RECEIVED ON OCEAN FREIGHT 12 (III) INTEREST REIMBURSEMENT UNDER TUFS (IV) INTEREST RECEIVED FROM THE CUSTOMERS AND SUPPLIERS. 17. SO FAR AS THE ELIGIBILITY OF THE INSURANCE CLAI M U/S 80IC OF THE ACT IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS FAIRLY ADMITTED THAT THE SAME IS NOT AN INCOME OF THE UNDERTAKING B UT, THE SAME IS JUST A REIMBURSEMENT OF THE LOSS INCURRED BY THE AS SESSEE. WE AGREE WITH THE ABOVE CONTENTION OF THE LD. COUNSEL FOR TH E ASSESSEE. THE PURPOSE OF INSURANCE IS ALWAYS TO GET INDEMNIFIED A GAINST ANY UNFORESEEN LOSS. HOWEVER, THE QUESTION BEFORE US IS WHETHER SUCH REIMBURSEMENT / INSURANCE CLAIM HAS BEEN PAID TO TH E ASSESSEE ON ACCOUNT OF CAPITAL LOSS OR REVENUE LOSS. WE ACCORDI NGLY DIRECT THE ASSESSING OFFICER TO EXAMINE AS TO WHETHER THE INSU RANCE CLAIM HAS BEEN PAID TO THE ASSESSEE IN VIEW OF THE LOSS ON CA PITAL ASSETS OR IN VIEW OF LOSS ON BUSINESS ASSETS. IF THE SAME IS FO UND TO BE ON ACCOUNT OF CLAIM OF LOSS OF BUSINESS ASSETS, ASSESS EE WILL BE ENTITLED TO SET OFF OF THE SAME AGAINST THE BUSINESS EXPENSE S. WE ORDER ACCORDINGLY. 18. SO FAR AS THE CLAIM OF BROKERAGE / DISCOUNT REC EIVED ON OCEAN FREIGHT INTEREST IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE WITH THE DECISION OF THE TRIBUNAL IN ITA NO. 1147/ CHD./2014 VIDE ORDER DATED 6.7.2015 IN THE CASE OF VMT SPINNING C O. LTD VS. ADDL CIT. 13 19. WE HAVE GONE THROUGH THE SAID DECISION IN THE C ASE OF VMT SPINNING CO. LTD VS. ADDL CIT (SUPRA) AND FIND TH AT THE ISSUE RELATING TO THE TREATMENT OF THE INCOME RECEIVED ON ACCOUNT OF BROKERAGE RECEIVED ON OCEAN FREIGHT HAS BEEN DISCUS SED IN THE SAID ORDER, WHEREIN IN PARA 11 OF THE SAID, THE COORDIN ATE CHANDIGARH BENCH OF THE TRIBUNAL WHILE RELYING UPON THE EARLIE R ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL AND IN THE CASE OF SAME ASSESSEE IN ITA NO. 678/2014 VIDE ORDER DATED 10.02.2015 HAS HELD THAT SUCH BROKERAGE IS BASICALLY REBATE ALLOWED BY THE SHIPPI NG COMPANY AS WELL AS, ON ACCOUNT OF SALE OF SAMPLE, WHICH IS DIRECTLY RELATED TO THE BUSINESS ACTIVITY OF THE COMPANY, THUS, IS ELIG IBLE FOR DEDUCTION U/S 80IB OF THE ACT. NO CONTRARY DECISION TO THE AB OVE PROPOSITION HAS BEEN BROUGHT TO OUR KNOWLEDGE BY THE LD. DR. HE NCE, RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD T HAT THE INCOME EARNED BY THE ASSESSEE FROM BROKERAGE ON OCEAN FRE IGHT IS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 20. SO FAR AS THE ISSUE RELATING TO INTEREST REIMBU RSEMENT UNDER TUFS SCHEME IS CONCERNED, WE FIND THAT THIS ISSUE HAS ALREADY BEEN DEALT BY US WHILE ADJUDICATING THE ADDITIONAL GROUN D IN ITA NO. 530/CHD/2012 FOR ASSESSMENT YEAR 2008-09 (SUPRA) A ND, THUS, DOES NOT REQUIRE ANY FURTHER ADJUDICATION. THIS ISSUE IS DECIDED ACCORDINGLY IN THE LIGHT OF OUR OBSERVATIONS MADE W HILE ADJUDICATING THE ADDITIONAL GROUND OF THE ASSESSEES APPEAL (SUP RA). SO FAR AS THE ISSUE OF INTEREST RECEIVED FROM CUSTOMERS AND SUPPL IERS IS CONCERNED, THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PHATELA COTGIN 14 INDUSTRIES (P) LTD V CIT (SUPRA). IN VIEW OF THE DISCUSSION MADE ABOVE WHILE ADJUDICATING GROUND NO.1 OF THIS APPEAL , THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 21. NOW COMING TO THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2009- 10 BEARING ITA NO. 1159/CHD/2013 . THE ASSESSEE IN THIS APPEAL HAS TAKEN THE FOLLOWING TWO EFFECTIVE GROUNDS OF APPEA L:- 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS I N REDUCING THE FOLLOWING INCOME FROM THE PROFIT OF TH E UNITS ELIGIBLE FOR DEDUCTION U/S 80IC OF THE INCOM E- TAX ACT, 1961 PARTICULARS AMOUNT RENT RECEIVED 3,11,780/- TOTAL 3,11,780/- 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING ASSESSEES GROUND OF APPEAL CLAIMIN G INTEREST REIMBURSEMENT OF RS. 3,32,71,353/- UNDER TECHNOLOGY UPGRADATION FUND SCHEME (TUFS) AS CAPITAL RECEIPT. 22. THE FIRST GROUND IS RELATING TO THE ELIGIBILITY OF RENTAL INCOME FOR DEDUCTION U/S 80IC OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE STATED AT BAR THAT HE DOES NOT PRESS THIS GROUND. T HIS GROUND IS ACCORDINGLY DISMISSED AS NOT PRESSED. 23. ANOTHER EFFECTIVE GROUND IS RELATING TO THE TRE ATMENT OF INTEREST REIMBURSEMENT UNDER TECHNOLOGY UPGRADATION FUND SCH EME (TUFS) 15 AS CAPITAL RECEIPT. THIS ISSUE HAS ALREADY BEEN ADJ UDICATED BY US WHILE DECIDING THE ADDITIONAL GROUND OF THE ASSESSE ES APPEAL FOR ASSESSMENT YEAR 2008-09. IN VIEW OF OUR FINDINGS GI VEN ABOVE, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFI CER ON THE SAME LINES AND TERMS AS DIRECTED ABOVE WHILE ADJUDICATING THE ADDITIONAL GROUND OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-0 9 (SUPRA) . 24. NOW COMING TO THE REVENUES APPEAL FOR ASSESSME NT YEAR 2009- 10 BEARING ITA NO. 2/CHD/2014. 25. THE REVENUE IN THIS APPEAL HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL:- 1. THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO CONSIDER INTEREST INCOME RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM CUSTOMERS AND SUPPLIERS AMOUNTING TO RS. 3,95,297/- AS 'BUSINESS INCOME' INSTEAD OF 'INCOME FROM OTHER SOURCES' AS CONSIDERED BY THE A.O. 2. THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS IN ALLOWING DEDUCTION 80IC BY HOLDING THAT PROCESS UNDERTAKEN BY THE ASSESSEE IS A MANUFACTURING ACTIV ITY IGNORING THE FACTS THAT CONVERSION OF YARN INTO THR EAD DOES NOT AMOUNT TO MANUFACTURING AS IT IS DOES NOT BRING INTO EXISTENCE A NEW OR DISTINCT PRODUCT AND FURTHER IGNORING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. EMPTEE POLY YARN (P) LTD., IN CIVIL APPEAL NO. 786 OF 2010 DATED 20.01.2010,WHEREIN IT HAS BEEN HELD THAT TWISTING A ND TEXTURISING OF YARN WOULD NOT CONSTITUTE 'MANUFACTU RE' 16 IN EVERY CASE. 3. THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO TREAT THE CLAIMS RECEIPTS (INSURANCE CLAIMED RECEIVED, BROKERAGE RECEIVED ON OCEAN FREIGHT), THE INTEREST REIMBURSEMENT UNDER TUFS AND THE INTEREST RECEIVED FROM THE CUSTOMERS AND SUPPLIERS TO BE THE INCOME DERIVED FROM INDUSTR IAL UNDERTAKING AND ELIGIBLE FOR DEDUCTION U/S 80IC IGNORING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT VS. STERLING FOODS LTD., 237 ITR 579, PANDIAN CHEMICALS LTD., VS. CIT (2003) 262 ITR 27 8 (SC) AND M/S COMBAY ELECTRIC SUPPLY CO. LTD., VS. CIT [1978] 113 ITR 84 (SC), WHEREIN THE WORDS 'DERIVED FROM' SHOULD BE UNDERSTOOD AS SOMETHING WHICH HAS DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAK ING AND NOT TO BE 'INCIDENTAL' TO THE BUSINESS TO THE ASSESSEE. 4. THAT THE ORDER OF THE LD CIT(A) BE SET ASIDE AND T HAT OF A.O. BE RESTORED . 26. BOTH THE LD. REPRESENTATIVES OF THE PARTIES SUB MITTED THAT ALL THE ISSUES RAISED THROUGH THESE GROUNDS OF APPEAL A RE IDENTICAL TO THAT TAKEN IN REVENUES APPEAL BEARING ITA NO. 569/CHD/2 012 FOR ASSESSMENT YEAR 2008-09. IN VIEW OF OUR FINDINGS G IVEN ABOVE WHILE ADJUDICATING THE REVENUES APPEAL FOR ASSESSMENT YE AR 2008-09, THE RELEVANT GROUNDS TAKEN IN THIS APPEAL ARE DECIDED A CCORDINGLY IN TERMS OF OUR ORDER PASSED IN ITA NO. 569/CHD/2012 F OR ASSESSMENT YEAR 2008-09. 17 27. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE AR E TREATED AS DISMISSED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.07.2017. SD/- SD/- ( ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13 TH JUNE, 2017 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR