ACIT, Ludhiana V. M/s Vardhman Holdings Ltd., Ludhiana

ITA 574/CHANDI/2009

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9899 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-03-2019
• Assessment Year: 2004-2005
• Appeal Filed On: 27-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH; G S PHANI KISHORE
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Business income; Depreciation; Question of law; Wrong claim; Bad and doubtful debts; Capital receipt; Revised return; Set aside
• Section: 271(1)(c); 80HHC; 14A; 115JB; 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHB, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 527 /CHD/2009 ASSESSMENT YEAR: 2004 - 05 VARDHMAN HOLDINGS LIMITED (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED) CHANDIGARH ROAD LUDHIANA V. JT. CIT RANGE 1 LUDHIANA TAN/PAN: AABCV8088P (APPELLANT) (RESPONDENT) ITA NO.574/CHD/2009 ASSESSMENT YEAR:2004 - 05 JT. CIT RANGE 1 LUDHIANA V. VARDHMAN HOLDINGS LIMITED (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED) CHANDIGARH ROAD LUDHIANA TAN/PAN:AABCV8088P (APPELLANT) (RESPONDENT) ITA NO.1138/CHD/2011 ASSESSMENT YEAR:2004 - 05 VARDHMAN HOLDINGS LIMITED (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED) CHANDIGARH ROAD LUDHIANA V. JT. CIT RANGE 1 LUDHIANA TAN/PAN:AABCV8088P (APPELLANT) (RESPONDENT) ITA NO.1150/CHD/2011 ASSESSMENT YEAR:2004 - 05 JT. CIT RANGE 1 LUDHIANA V. VARDHMAN HOLDINGS LIMITED (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED) CHANDIGARH ROAD LUDHIANA TAN/PAN:AABCV8088P (APPELLANT) (RESPONDENT) ASSESSEE BY: - SHRI SUBHASH AGGARWAL, ADVOCATE DEPARTMENT BY: SHRI G. S. PHANI KISHORE, CIT (DR) AND SHRI MANJIT SINGH, D.R. DATE OF HEARING: 13 03 201 9 DATE OF PRONOUNCEMEN T: 0 5 201 9 ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 2 OF 65 O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: THE ABOVE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND THE REVENUE CHALLENGING THE ORDER PASSED BY THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS),JALANDAR, (HEREINAFTER REFERRED TO AS LD. CIT(A)) UNDER SECTION 250(6) OF THE INCOME TAX ACT, 1961 (IN SHORT REFERR ED TO AS THE ACT) . THE CROSS APPEALS RELATE TO QUANTUM AND PENALTY PROCE EDINGS FOR A.Y 2004-05 WE SHALL FIRST BE TAKING UP THE CROSS-APPEALS FILED AGAINST THE ORDER PASSED BY THE LD.CIT(A) IN QUANTUM PROCEEDINGS IN ITA NO.527 & 5 74/CHD/2009, AND SHALL FIRST BE DEALING THE APPEAL FILED BY THE ASSESSEE IN ITA NO.527/CHD/2009 . 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER:- 1. THAT THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW SO FAR AS FOLLOWING GROUNDS ARE CONCERNED. 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WH ILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR TREATING INTEREST INCOME AMOUNTING TO RS. 238.89 LACS AS 'INCOME FROM O THER SOURCES' INSTEAD OF 'INCOME FROM BUSINESS OR PROFESSION' . 3. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WH ILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR TAXING THE CAPITAL RECEIPT AMOUNTING TO RS.2,15,31,035/- ON ACCOUNT O F SALES TAX EXEMPTION/SUBSIDY RECEIVED FROM GOVERNMENT OF PUNJAB AS THE REVENUE RECEIPT OF THE APPELLANT. 4. WITHOUT PREJUDICE TO THE GROUND (3) ABOVE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WHILE CONFIRMING THE ACTIO N OF THE ASSESSING OFFICER FOR TAXING THE CAPITAL RECEIPT AMO UNTING TO RS.2,15,31,035/- ON ACCOUNT OF SALES TAX EXEMPTION/SUBSIDY RECEIVED FROM GOVERNMENT OF PUNJAB AS 'INCOME FROM OTHER SOURCES'. 5 THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FACT S WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR REDUCING PROFITS OF UNITS ELIGIBLE FOR DEDUCTION U/S 10B (VSGM EOU) AN D 80IB ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 3 OF 65 (VSGM EOU, AURO WVG II AND AURO DYEING) BY THE FOLLOWIN G AMOUNTS :- PARTICULARS VSGM EOU AURO WVG II AURO DYEING INTEREST RECEIVED FROM OTHERS 8,196 RENT RECEIVED FROM EMPLOYEES 1,84,185 90,119 3,18,483 MISC. INCOME 1,97,807 34,67,723 33,780 DEPB 43,78,816 3,01,649 6. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE DIRECTING TO ASSESSING OFFICER TO REDUCE PROFITS EL IGIBLE FOR DEDUCTION U/S 10B AND 80IB OF VSGM E.O.U., AURO WVG-II AND AURO DYING BY PROPORTIONATE HEAD OFFICE EXPENSES. 7. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHI LE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR APPLYING ME THOD OF CALCULATING DEDUCTION U/S 10B OTHER THAN THAT SPECIF IED U/S 10B AND AT VARIANCE TO THE METHOD REGULARLY ADOPTED BY T HE APPELLANT IN EARLIER YEARS AND ACCEPTED BY THE DEPARTMENT. 8. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE CONFIRMING THE ACTION OF THE A.O. FOR NOT ADJUSTING AC TUAL PROFIT/LOSS ON SALE OF TRADING GOODS WHILE CALCULATING PROFITS OF UNITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. 9. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR INCREASING THE TOTAL TURNOVER OF UNITS ELIGIBLE FOR DEDUCTION U/S 10B BY EXPORT TURNOVER OF TRADING GOODS AMOUNTING TO RS. 20,31/15,331/ -. 10. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE REDUCING PROFITS OF BUSINESS ELIGIBLE FOR DEDUCTION U/S 80HHC BY 90% OF INTEREST RECEIVED FROM SUPPLIERS AND CUSTOMER S AMOUNTING TO RS.2,93,45,849/-. 11. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN EXCLUDING EXPORT TURNOVER OF UNITS CLAIMING EXEMPTION U/ S 10B FROM EXPORT ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 4 OF 65 TURNOVER OF THE APPELLANT WHILE CALCULATING THE DEDUCT ION U/S 80HHC OF INCOME TAX ACT. 12. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN EXCLU DING SALE TAX SUBSIDY AMOUNTING TO RS. 2,15,31,035/- FROM THE ELIGIBLE PROFITS OF THE BUSINESS WHILE CALCULATING DEDUCTION U/S 80HHC. 13. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WHILE R EDUCING ELIGIBLE PROFITS OF BUSINESS BY SCRAP SALES AMOUNTING TO RS.1,70,25,000/- WHILE CALCULATING DEDUCTION U/S 80HHC. 14. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE DISALLOWING DEDUCTION U/S 80HHC (3)(C)(III) ON EXPORT INC ENTIVES AMOUNTING TO RS. 5,30,04,339/-. 15. WITHOUT PREJUDICE TO GROUND 14 ABOVE THE LD. CIT(A) H AS ERRED IN LAW AND ON FACTS WHILE EXCLUDING TWICE 90% OF DEPB, AM OUNTING TO RS. 3,61,898/-WHICH WAS ALREADY REDUCED BY THE APPELLANT. 16. WITHOUT PREJUDICE TO GROUND 14 ABOVE THE LD. CIT(A) H AS ERRED IN LAW AND ON FACTS WHILE DISALLOWING DEDUCTION U/S 80HHC (3)(C)(III) ON EXPORT INCENTIVES AMOUNTING TO RS. 5,30,04,339/- INST EAD OF LOSS ON TRANSFER OF DEPB AMOUNTING TO RS. 18,24,347/-. 17. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WHILE AP PLYING METHOD OF CALCULATING COST OF TRADING GOODS EXPORTED FOR DEDUCTION U/S 80-HHC OTHER THAN THAT SPECIFIED U/S 80-HHC AND A T VARIANCE TO THE METHOD REGULARLY ADOPTED BY THE APPE LLANT IN EARLIER YEARS. 18. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WHILE AP PORTIONING FULL AMOUNT OF PERSONNEL, ADMINISTRATIVE, FINANC IAL EXPENSES AND DEPRECIATION TO THE INDIRECT COST OF TRADING GOODS WHILE CALCULATING DEDUCTION U/S 80HHC OF INCOME TAX ACT, IGNORING THE FACT THAT FULL AMOUNT OF THESE EXPENSES WERE NOT RELATED TO THE TRADING ACTIVITIES. 19. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WH ILE ALLOCATING RS. ONE LAC TO DIVIDEND INCOME EARNED BY THE APPELLANT. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 5 OF 65 20. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR DISALLOWING 50% OF THE FOREIGN TRAVELING EXPENSES OF EMPLOYEE OF RS.55370/ - 21. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN INCLUDING- THE TRADING TURNOVER IN TOTAL TURNOVER WHILE CALCULATI NG THE AMOUNT OF INCOME TO WHICH PROVISIONS OF SECTION 10B APPLIES FOR CALCULATION OF MAT. 22. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER/AMEND AN Y GROUND OF APPEAL ON OR BEFORE THE DUE DATE OF HEARING OF APPEAL. 3. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND BEFOR E US VIDE ITS APPLICATION UNDER RULE 11 OF THE INCOME TAX APPELLATE TRIBUNAL RULES, 1963, DATED 12/11/2015, AS UNDER:- 'THAT THE AUTHORITIES BELOW HAVE ERRED IN TREATING THE INTEREST REIMBURSEMENT OF RS.8,78,00,400/-UNDER TECHNOLOGY UPGRADAT ION FUND SCHEME (TUFS) AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEI PT'. 4. IT WAS CONTENDED THAT THE SAID GROUND WAS A PURELY LE GAL GROUND AND PRAYED THAT THE SAME BE ADMITTED. THE LD. D.R. DID NOT OBJECT TO THE SAME. IN VIEW OF THE SAME AND CONSIDERING THE FACT THAT THE GROUND RAISED BEFORE US IS A PURELY LEGAL GROUND REQUIRING NO FURTHER IN VESTIGATION OF FACTS, WE ADMIT THE SAME FOR ADJUDICATION. 5. GROUNDS NO.1 AND 22 ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. 6. GROUND NO.2 RAISED BY THE ASSESSEE CHALLENGES THE ORDE R OF THE LD.CIT(A) UPHOLDING THE TREATMENT BY THE ASSESSING OFFICE R ( AO )OF INTEREST INCOME AMOUNTING TO RS.238.89 LAKHS AS INCOME FROM OTHER SOURCES, INSTEAD OF INCOME FROM BUSINESS OR PROFESSION CLA IMED BY THE ASSESSEE. 7. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSES SING OFFICER (A.O.) NOTED THAT THE APPELLANT HAD CREDITED A SUM OF RS.51 .02 LAKHS AS INTEREST INCOME IN THE PROFIT AND LOSS ACCOUNT WHICH WAS T HE NET FIGURE OF THE INTEREST EARNED AFTER REDUCING THE INTEREST EXPENDIT URE. THE GROSS INTEREST WAS FOUND TO INCLUDE A SUM OF RS.293.46 LAKHS AS IN TEREST RECEIVED ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 6 OF 65 FROM CUSTOMERS AND SUPPLIERS AND A SUM OF RS. 238.89 LAKHS AS RECEIVED FROM FDRS ETC. THE AO NOTED THAT AS PER SECTION 2(28A), THE INTEREST INCOME INCLUDED ALL KINDS OF INTEREST RECEIVED BY THE ASSESS EE, INCLUDING INTEREST RECEIVED FROM CUSTOMERS ON DELAYED PAYMENTS. T HE AO WAS OF THE OPINION THAT THE INTEREST RECEIVED WAS TO BE TAXED UNDE R THE HEAD INCOME FROM OTHER SOURCES AND THAT THE INTEREST RECEIVED COULD NOT BE SET OFF AGAINST THE LIABILITY TO PAY INTEREST. HE ACCORDINGLY TAXED THE ENTIRE GROSS INTEREST INCOME EARNED BY THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO RELIED ON THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF TUTICORIAN ALKALI CHEMICALS & FERTILIZERS LTD., 227 ITR 172 (SC) AND ON BIO PHARMA VS. DCIT, 85 ITD 575 (AHD). 8. THE LD. CIT(A) HELD THAT THE INTEREST RECEIVED FROM CUSTOM ERS AND FROM SUPPLIERS WAS TO BE TREATED AS BUSINESS INCOME WHILE THE INTEREST INCOME FROM FDRS AS INCOME FROM OTHER SOURCES, FOLLOWING THE ORDERS PASSED BY THE LD. CIT(A) IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 AND IN THE CASE OF M/S VARDHMAN TEXTILES LTD., A SISTER CONCERN OF THE ASSESSEE,. HE FURTHER DISALLOWED NETTING OF INTEREST RECEIVED AGAINST INTEREST EXPENDITURE OF THE ASSESSEE. 9. BEFORE US, THE ASSEESSEE ,BY WAY OF THE PRESENT GROUND , HAS CHALLENGED THE TREATMENT OF THE INTEREST EARNED ON FDR S AS INCOME FROM OTHER SOURCES. DURING THE COURSE OF ARGUMENTS MADE BEFO RE US, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT ITS SOLITARY PRA YER IN THIS REGARD WAS THAT THE BENEFIT OF NETTING THE INTEREST INCOME EARNE D BE PROVIDED BY SETTING OFF INTEREST PAID AGAINST THE SAME. THE DETAILS OF T HE SAME WERE SUBMITTED TO US, AS UNDER:- INTEREST PAID RS.10.33 CRORES INTEREST REC. RS.5.32 CRORES NET INTEREST EXPENSE RS.5.01 CRORES 10. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THA T IDENTICAL ISSUE HAD BEEN DECIDED BY THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2003-04 WHEREIN THE ISSUE WAS SET ASIDE TO THE FILE OF THE A.O. FOR DETERMINING THE NEXUS BETWEEN THE INTEREST EXPENDITURE AND INTEREST INCOME AND THEREAFTER TO ALLOW T HE BENEFIT OF NETTING. THE COPY OF THE ORDER IN ITA NO.88 & 118/CHD/2009 DT.26-1 1-18 WAS PLACED BEFORE US. OUR ATTENTION WAS DRAWN TO THE G ROUND RAISED BY THE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 7 OF 65 ASSESSEE IN THAT YEAR, REPRODUCED AT PARAS 20 AND 21 OF THE ORDER, AND TO THE FINDING OF THE ITAT AT PARA 28 OF THE ORDER, AS UNDER:- 20. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UNDER: '3. THE LD. C1T (A) HAS ERRED IN LAW AND ON FACTS WHI LE TREATING INTEREST INCOME AMOUNTING TO RS.34,73,788/- AS 'INCOME FROM OTHER SOURCES' INSTEAD OF 'INCOME FROM BUSINESS OR PROFESSION. 21. IN THE ABOVE GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTEREST INCOME EARNED BY THE ASSESSEE OF RS.34.74 LACS AS INCOME FROM OTHER SOURCES X. X. X. X. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE FIND MERIT IN THE CONTENTION RAISED BY THE LD. COUNSEL FOR ASSESSEE. AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE AND AS ADMITTED BY BOTH T HE PARTIES, IDENTICAL ISSUE HAS BEEN DEALT WITH IN THE CASE OF SI STER CONCERN OF THE ASSESSEE M/S VARDHMAN TEXTILES (SUPRA) WHEREIN THE MA TTER HAS BEEN RESTORED BACK TO THE A.O. TO ALLOW THE NETTING IF NEXUS IS ESTABLISHED BETWEEN THE INTEREST EXPENSES INCURRED AND INTEREST INCOME EARNED. FOLLOWING THE SAME WE RESTORE THE ISSUE BACK TO THE A .O. IN THE PRESENT CASE ALSO FOR DETERMINING THE NEXUS BETWEE N THE INTEREST EXPENDITURE AND INTEREST INCOME EARNED AND THEREAFT ER ALLOW THE BENEFIT OF NETTING TO THE ASSESSEE. GROUND OF APPE AL NO.3 RAISED BY THE ASSESSEE IS, THEREFORE, ALLOWED IN ABOVE TERMS. 11. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, CONTENDED T HAT THE ISSUE WAS SQUARELY COVERED AS ABOVE BY THE ORDER OF T HE ITAT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04. 12. THE LD. D.R. FAIRLY CONCEDED THAT IDENTICAL ISSUE HAD BEEN D ECIDED IN THE CASE OF THE ASSESSEE AS POINTED OUT BY THE LD. C OUNSEL FOR THE ASSESSEE ABOVE. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 8 OF 65 13. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES. WE H AVE ALSO GONE THROUGH THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE FOR A.Y 2003- 04 AND AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSE SSEE AND ADMITTED BY BOTH THE PARTIES, WE FIND THAT IDENTICAL ISSUE HAS BEEN A DJUDICATED IN THE SAID CASE BY THE ITAT RESTORING THE MATTER BACK TO TH E A.O. TO ALLOW NETTING IF NEXUS IS ESTABLISHED BETWEEN THE INTEREST EXPENSES INCU RRED AND THE INTEREST INCOME EARNED. SINCE THE ISSUE BEFORE US IS IDENT ICAL TO THAT IN A.Y 2003-04 IT IS SQUARELY COVERED BY THE ORDER OF THE ITA T, FOLLOWING WHICH WE RESTORE THE ISSUE BACK TO THE A.O. IN THE PRESENT CASE ALSO TO DECIDE THE SAME IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE ITAT IN ITA NO.88 & 118/CHD/2009 DT.26-11-18. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS, THE REFORE, ALLOWED FOR STATISTICAL PURPOSES. 14. GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE RELATES TO THE ISSUE OF TREATMENT OF SALES TAX EXEMPTION/SUBSIDY RECEIVED BY THE ASSESSEE FROM GOVERNMENT OF PUNJAB, AMOUNTING TO RS.2,15,31,035/-. 15. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE AO NOTED THAT TH E APPELLANT HAD SHOWN SALES TAX SUBSIDY OF RS.215.31 LAKHS AS CAPITAL RECEIPT IN THE ORIGINAL RETURN, BUT IN ITS REVISED RETURN THE SAME WAS SHOWN AS REVENUE RECEIPT AND OFFERED FOR TAXATION. IN THE REVISED R ETURN, THE APPELLANT INCLUDED A NOTE REQUESTING THAT THE SALES TAX SUBSIDY MA Y BE REDUCED FROM TAXABLE INCOME IN VIEW OF THE DECISION OF THE ITAT, MUMBAI B ENCH IN THE CASE OF RELIANCE INDS LTD (SUPRA). THE AO DID NOT ACCEPT T HE APPELLANT'S CLAIM IN VIEW OF THE JUDGMENT OF JURISDICTIONAL PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDS LTD. FOR AY 1 993-94 IN ITA NO. 110 OF 2005. 16. THE LD. CIT(A) UPHELD THE ORDER OF THE A.O. 17. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT AS PER THE SCHEME OF THE GOVERNMENT OF PUNJAB, SUBSIDY WAS OF CAPITAL NATURE AS THE INCENTIVE WAS GIVEN TO SPURT INDUSTRIAL GROWTH AS WELL AS GENERATION OF EMPLOYME NT OPPORTUNITIES THROUGH RAPID INDUSTRIALIZATION IN TH E STATE. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE SCH EME OF THE GOVERNMENT OF PUNJAB, VIDE WHICH THE SUBSIDY HAD BE EN GRANTED TO THE ASSESSEE, HAD BEEN EXAMINED IN THE CASE OF T HE ASSESSEE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 9 OF 65 FOR ASSESSMENT YEAR 2003-04 AND THE MATTER HAD TRAV ELLED UPTO THE ITAT WHO, VIDE THEIR ORDER DATED 26/11/2018 IN ITA NO.88 & 118/CHD/2009 FOR ASSESSMENT YEAR 2003-04, HELD THAT SALES TAX SUBSIDY WAS A CAPITAL RECEIPT. OUR ATTENTION W AS DRAWN TO THE FINDINGS OF THE ITAT AT PARAS 11 TO 13 OF THE O RDER, AS UNDER:- 11. HAVING HEARD THE RIVAL CONTENTIONS WE FIND MER IT IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. WE HA VE GONE THROUGH THE ORDER PASSED BY THE ITAT IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA), RELIED UPON BY THE LD. C OUNSEL FOR THE ASSESSEE IN SUPPORT OF ITS CONTENTION THAT THE SUBSIDY WAS CAPITAL IN NATURE, AND FIND THAT THE FACTS IN T HE SAID CASE WERE IDENTICAL, THE SALES TAX SUBSIDY BEING RECEIVED BY VIRTUE OF SCHEME OF THE PUNJAB GOVERNMENT VIDE T HE SAME NOTIFICATION OF THE DEPARTMENT OF INDUSTRIES AS IN THE CASE OF THE ASSESSEE. THE SAID FACT FINDS MENTION IN PAGE 2 7 OF THE ORDER. THE ITAT IN THE SAID CASE FOLLOWED THE DECIS ION OF ITS COORDINATE BENCH IN THE CASE OF MAHAVIR SPINNING MI LLS LTD. VS JCFT IN ITA NO.344/CHD/2009, WHEREIN, WE FIND, T HIS ISSUE HAD ORIGINALLY BEEN DECIDED BY THE ITAT AGAIN ST THE ASSESSEE FOLLOWING THE DECISION OF THE JURISDICTION AL HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES(SUPRA), B UT ON APPEAL BY THE ASSESSEE, THE HON'BLE HIGH COURT HAD RESTORED THE MATTER BACK TO THE ITAT TO READJUDICATE THE SAM E IN THE LIGHT OF THE DECISIONS OF THE APEX COURT IN PONNI S UGARS & CHEMICALS LIMITED. THEREAFTER, THE ITAT HAD HELD THE SUBSIDY TO BE CAPITAL IN NATURE. 12. IN VIEW OF THE ABOVE, THE ISSUE IN THE PRESENT CASE STANDS COVERED AS DECIDED IN FAVOUR OF THE ASSESSEE BY THE ABOVE ORDERS OF THE ITAT EVEN AFTER CONSIDERING THE DECISION JURISDICTIONAL HIGH COURT IN THE CASE OF ABHI SHEK INDUSTRIES (SUPRA). 13. EVEN OTHERWISE, WE FIND THAT THE ISSUE HAS BE EN SETTLED BY VARIOUS DECISIONS OF THE HON'BLE APEX COURT LAYI NG DOWN THE PROPOSITION THAT TRUE TEST FOR DETERMINING THE NATURE OF SUBSIDY WHETHER CAPITAL OR REVENUE IS THE PURPOSE T EST I.E. IT IS THE PURPOSE FOR WHICH THE SUBSIDY HAS BEEN GIVEN WHICH ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 10 OF 65 IS DETERMINATIVE OF THE NATURE OF THE SUBSIDY AND NOT THE MANNER OF DISBURSEMENT OF THE SAME. THE MANN ER OF CALCULATING THE SAME OR EVEN THE POINT OF TIME AT W HICH IT IS DISBURSED. THE HON'BLE APEX COURT TIME AND AGAIN RE ITERATED THIS PROPOSITION RIGHT FROM M/S SAHNI STEEI & PR ESS WORKS LTD. AND CIT VS. PONNI SUGAR & CHEMICALS LTD. 306 I TR 392 AND ITS LATEST JUDGMENT IN THE CASE OF CIT VS. CHAP HALKAR BROTHERS, PUNE IN CIVIL APPEAL NO.6513-6514 DT. 7 TH DEC 2017. IN THE PRESENT CASE UNDISPUTEDLY AS PER THE S CHEME OF PUNJAB GOVERNMENT THE PURPOSE OF DISBURSEMENT IS TO SPURT INDUSTRIAL GROWTH AS WELL AS TO GENERATE THE EMPLOY MENT OPPORTUNITIES THROUGH RAPID INDUSTRIALIZATION IN TH E STATE. THERE IS NO DOUBT, THEREFORE, THAT THE NATURE OF TH E SUBSIDY IS CAPITAL. 18. THE LD. D.R. FAIRLY CONCEDED THAT THE ISSUE HAD BEE N DECIDED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE I N THE PRECEDING YEAR. 19. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN ASSESSMENT YEAR 2003-04 BY THE ITAT VIDE ITS ORDER IN ITA NO.88 & 118/CHD/2009, AND NO DISTINGUISHING FACTS HAVE BE EN BROUGHT TO OUR NOTICE BY THE LD.DR, THE IMPUGNED IS SUE STANDS SQUARELY COVERED BY THE SAID ORDER, FOLLOWING WHICH WE HOLD THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS C APITAL IN NATURE. WE, THEREFORE, DIRECT DELETION OF THE ADDI TION OF THE SAME. THE GROUND OF APPEAL NO.3, THEREFORE, STANDS ALLOWE D. 20. GROUND NO.4 RAISED BY THE ASSESSEE IS AGAINST THE A CTION OF THE LD. CIT(A) IN CONFIRMING THE ACT OF THE A.O. TAXING THE SALES TAX SUBSIDY/EXEMPTION RECEIVED BY THE ASSESSE E FROM THE GOVERNMENT OF PUNJAB AS INCOME FROM OTHER SOURCES. 21. SINCE WE HAVE HELD THE SALES TAX SUBSIDY TO BE CAPI TAL IN NATURE AT PARA 20 OF OUR ORDER ABOVE WHILE DEALING WITH GROUND NO.3 RAISED BY THE ASSESSEE, THE SAID GROUND RAISED BEFORE US REGARDING THE CHARACTER OR NATURE OF THE SUBSIDY, WHETHER INCOME FROM OTHER SOURCES OR OTHERWISE BECOMES INFR UCTUOUS. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 11 OF 65 GROUND NO.4 RAISED BY THE ASSESSEE IS, THEREFORE D ISMISSED AS BEING INFRUCTUOUS. 22. GROUND NO.5 RAISED BY THE ASSESSEE IS AGAINST THE REDUCTION OF PROFITS OF UNITS OF THE ASSESSEE, ELI GIBLE FOR DEDUCTION UNDER SECTION 10B AND 80IB OF THE ACT, BY CERTAIN INCOMES, TREATING THE SAME AS NOT HAVING BEEN EARNE D OR DERIVED FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE I N THOSE UNITS. 23. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE AO WAS OF THE OPINION THAT DEDUCTION U/S 80IB AND SECTION 10B WERE ALLOWABLE IN RESPECT OF THE PROFITS DERIVED FROM TH E INDUSTRIAL UNDERTAKING. THE AO RELIED ON THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF STERLING FOODS REPORTED IN 237 ITR 579 FOR THIS PROPOSITION. HE NOTED THAT THE HON'BLE JURISDI CTIONAL HIGH COURT, RELYING ON THE DECISION IN THE CASE OF STERL ING FOODS [SUPRA], HAD HELD IN THE CASE OF M/S NAHAR EXPORTS 204 CTR 464 THAT INTEREST INCOME AND INCOME FROM SALE OF IMPORT ENTITLEMENTS COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA. HE ALSO NO TED THAT THE JURISDICTIONAL HIGH COURT IN THE CASE OF LIBERT Y INDIA ITA NO. 590 OF 2005 HAD HELD THAT DEDUCTION U/S 80IB WAS NO T ALLOWABLE IN RESPECT OF DEPB AND DUTY DRAWBACK. RELYING ON TH ESE JUDGMENTS, THE AO HELD THAT DEDUCTION U/S 801B AND U/S 10B WAS NOT ALLOWABLE IN RESPECT OF THE IMPUGNED AMOUNT S OF INCOME: PARTICULARS VSHM EOU AURO WVGLL AURO DYEING INTEREST FROM 18,55,196 7,01,994 36,15,500 CUSTOMERS & SUPPLIERS INTEREST RECEIVED - - - FROM OTHERS INSURANCE CLAIMS 58,356 18,655 - RECEIVED RENT RECEIVED 1,84,185 90,119 3,18,483 FROM EMPLOYEES GAIN ON FOREX 0.82,884/- 5,27,442 - FLUCTUATION MISCELLANEOUS 1,97,807 34,67,723 33,780 ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 12 OF 65 INCOME DEPB - 43,78,816 3,01,649 24. THE LD. CIT(A) ALLOWED DEDUCTION ON INTEREST RECEIV ED FROM CUSTOMERS/SUPPLIERS, INSURANCE CLAIM AND GAIN ON FOREX FLUCTUATION, HOWEVER, HE REDUCED THE PROFITS IN RES PECT OF THE FOLLOWING INCOMES:- 1. INTEREST FROM OTHERS RS.8,196/- 2. RENT FROM EMPLOYEES RS.5,92,787/- 3. MISCELLANEOUS INCOME RS.36,99,310/- 4. DEPB RS.46,80,465/- 25. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE HAS RAISED THE ABOVE GROUND BEFORE US. 26. DURING THE COURSE OF HEARING BEFORE US, THE LD. COU NSEL FOR THE ASSESSEE RELIED ON VARIOUS CASE LAWS STATIN G THAT THE ISSUE WAS COVERED IN ITS FAVOUR ON ACCOUNT OF THE S AME. THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE IN THIS REGARD ARE REPRODUCED HEREUNDER:- COVERED BY TRIBUNALS ORDER DT 5/1/2016 IN ITA NO.212/CHD/20015 IN THE CASE OF ACIT VS. MAHAVIR SPINNING MILLS LTD. FOR ASSESSMENT YEAR 2001-02 (DEDUCTION ALLOWED ON REBATE/DISCOUNT, BALANCE W/BA CK, MISC. INCOME, EXCISE REFUND AND INSURANCE CLAIMS RE CEIVED (PG. 94-127 RELEVANT AT 110). CIT VS. METALMAN AUTO P. LTD. (2011) 336 ITR 434 (P &H) - (MISC INCOME, DISCOUNT RECEIVED, SUNDRY BAL. W/BACK . HELD ELIGIBLE FOR DEDUCTION U/S 80IB/10B)- REPORTED CIT VS. DHARAM PAL PREM CHAND LTD. (2009) 180 TAXMA N 557 (DEL) - REFUND OF EXCISE DUTY IS ELIGIBLE FOR D EDUCTION U/S 80 HHC) INTEREST RECEIVED FROM OTHERS COMPRISES OF INTEREST RECEIVED FROM EMPLOYEES AGAINST HOUSING LOANS ADVANCED TO TH EM. INCOME THUS ARISING DURING THE COURSE OF BUSINESS I S LIABLE TO BE INCLUDED IN PROFITS DERIVED FROM BUSINESS. IN TH IS ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 13 OF 65 CONNECTION WE RELIANCE IS PLACED ON THE JUDGMENT OF VMT SPINNING CO. LTD VS. ACIT IN ITA NO.682/07 DATED 13 .7.12 FOR AY 2003-04 - INTEREST INCOME FROM EMPLOYEES IS BUSINESS INCOME AND IS ELIGIBLE FOR DEDUCTION U/S 10B. JUDGM ENT AT PAGE 128-131 (RELEVANT 129-130) M/S ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT, MUM, 2012 343 ITR 89 (SC) - INTEREST INCOME TO BE NETTED (REP ORTED) THE HON'BLE TRIBUNAL VIDE ORDER DATED 04.05.2018 OF VARDHMAN TEXTILES LIMITED FOR A.Y. 2002-03 TO 2004- 05 HAS SET ASIDE THE ISSUE TO THE FILE OF AO TO DECIDE THE ISSUE ON THE BASIS OF CASE LAWS CITED AND IN AY 2005-06 ALLO WED THE DEDUCTION ON THE OTHER INCOME (ISSUE DEALT WITH 80H HC ISSUE). PAGE 18-19 & 11-13 RESPECTIVELY OF THE ORDE R. 27. THE LD. D.R., ON THE OTHER HAND, HEAVILY RELIED ON THE FINDINGS OF THE LD. CIT(A) AT PARA 9.3 DEALING WITH INTEREST RECEIVED FROM OTHERS; PARA 9.3.2 DEALING WITH RENT FROM EMPLOYEES; PARA 9.3.4 DEALING WITH MISCELLANEOUS IN COME AND PARA 9.3.5 DEALING WITH DEPB, AS UNDER:- 9.3.2 IN RESPECT OF RENT RECEIVED FROM THE EMPLOYE ES, THE ID. CIT(A)-II, LUDHIANA, IN THE ASSESSEE'S CASE FOR AY 2002-03 [SUPRA] HAS UPHELD THE ACTION OF THE AO IN EXCLUDIN G THESE RECEIPTS FROM THE ELIGIBLE INCOME OF THE ASSESSEE F OR COMPUTING THE DEDUCTION U/S 80IB. FOLLOWING THE SAM E, THE AO'S ACTION IN RESPECT OF RENT RECEIVED FROM EMPLOY EES IS UPHELD. 93.4 AS REGARDS MISC INCOME, THE ISSUE HAS BEEN HEL D AGAINST THE APPELLANT IN AY 2002-03 BY THE CIT(A) A S WELL AS IN THE CASE OF M/S VARDHMAN TEXTILE LTD FOR AY 2004 -05 BY THE CIT(A) IN THEIR ORDERS REFERRED TO ABOVE. FOLLO WING THESE DECISIONS, THE FINDINGS OF THE AO IN RESPECT OF THI S INCOME IS CONFIRMED. 9.3.5 AS REGARDS INCOME FROM DEPB, THE ISSUE IS COV ERED SQUARELY AGAINST THE APPELLANT BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF LIBERTY IN DIA 293 ITR 520 (P&H), RELIED UPON BY THE AO. FOLLOWING THE SAME, THE AO'S ACTION IN RESPECT OF DEPB IS UPHELD. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 14 OF 65 28. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE LEGA L POSITION THAT ONLY INCOMES HAVING FIRST DEGREE NEXUS WITH THE IND USTRIAL UNDERTAKING OF THE ASSESSEE ARE ELIGIBLE FOR DEDUCT ION UNDER SECTION 80IB/10B OF THE ACT IS NOT DISPUTED. THE F ACTUAL FINDINGS OF THE LD. CIT(A) THAT THE ASSESSEE HAS BE EN UNABLE TO ESTABLISH FIRST DEGREE NEXUS BETWEEN THE IMPUGNED I NCOMES I.E. INTEREST RECEIPT FROM OTHERS, RENT RECEIVED FROM EM PLOYEES, MISCELLANEOUS INCOME AND DEPB, AND THE INDUSTRIAL U NDERTAKING OF THE ASSESSEE HAS NOT BEEN CONTROVERTED. EVEN BEF ORE US THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN UNABLE TO EST ABLISH THE NEXUS. IN VIEW OF THE SAME, WE SEE NO REASON TO IN TERFERE IN THE ORDER OF THE LD. CIT(A) DENYING DEDUCTION U/S 10B A ND 80 IB OF THE ACT ON INTEREST RECEIVED FROM OTHERS, RENT RECE IVED FROM EMPLOYEES, MISC.INCOME AND DEPB AS DETAILED ABOVE. GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS, T HEREFORE, DISMISSED. 29. GROUND NO.6 RAISED BY THE ASSESSEE IS AGAINST THE DIRECTION OF THE LD. CIT(A) TO REDUCE THE PROFITS E LIGIBLE FOR DEDUCTION UNDER SECTION 10B AND 80IB OF THE ACT OF DIFFERENT UNITS OF THE ASSESSEE BY THE PROPORTIONATE HEAD OFF ICE EXPENSES. 30. THE ABOVE GROUND WAS NOT PRESSED BEFORE US AND THE SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 31. GROUNDS NO.7 AND 9 CHALLENGE THE METHOD APPLIED FOR CALCULATING DEDUCTION UNDER SECTION 10B OF THE ACT. 32. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT THERE IS NO SPECIFIC FINDING BY THE A.O. IN THE ORDER VIS-- VIS THE SAME, BUT WHILE CALCULATING THE TAXABLE INCOME OF THE ASS ESSEE, AT THE END OF THE ORDER AND MORE SPECIFICALLY CALCULATING EXEMPTION UNDER SECTION 10B OF THE ACT, THE A.O. INCLUDED EXP ORT TURNOVER OF TRADED GOODS AMOUNTING TO RS.20.31 CRORES TO THE TOTAL TURNOVER OF THE ASSESSEE IGNORING ASSESSEES CALCUL ATION EXCLUDING THE SAME FOR THE REASON THAT DEDUCTION UN DER SECTION 10B OF THE ACT IS ALLOWED ONLY ON MANUFACTURING ACT IVITIES AND NOT ON TRADING ACTIVITIES. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 15 OF 65 33. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THIS ISSUE ALSO STOOD COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN THE CASE OF THE ASSESSE E ITSELF FOR THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018. OUR ATTENTIO N WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARA 33 OF THE ORDER, AS UNDER:- 33. WE HAVE GONE THROUGH THE ORDER OF THE I.T.A .T. IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) AND FIND THAT IDENTICAL ISSUE HAD BEEN DEALT WITH IN THE SAI D CASE WHEREIN IT WAS HELD THAT THE DECISION OF THE HON'BL E APEX COURT IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA ) WOULD SQUARELY APPLY FOR THE PURPOSE OF CALCULATION OF DE DUCTION U/S 10B AND AS PER WHICH EXCISE DUTY WAS TO BE EXCL UDED FROM THE TOTAL TURNOVER OF THE ASSESSEE. FURTHER TH E I.T.A.T. HAD ALSO HELD THAT THE TURNOVER OF THE TRADING EXPO RT ACTIVITIES WAS TO BE EXCLUDED FROM THE TOTAL TURNOV ER AND THE PROFITS OF THE TRADING EXPORT ACTIVITY WERE TO BE E XCLUDED FROM THE PROFITS FOR THE PURPOSE OF CALCULATING DED UCTION U/S 10B OF THE ACT FOLLOWING THE DECISION OF THE TRIBUN AL IN THE CASE OF VMT SPINNING COMPANY LTD. (SUPRA). SINCE THE ISSUES IN THE PRESENT CASE ARE IDENTICAL T O THAT IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) THE DECIS ION RENDERED THEREIN WILL APPLY IN THE PRESENT CASE ALS O, FOLLOWING WHICH WE HOLD THAT EXCISE DUTY BE EXCLUD ED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATI ON OF DEDUCTION U/S 10B OF THE ACT. BUT VIS A VIS THE EXCLUSION OF EXPORT TURNOVER OF TRADED GOODS, WE FIND THAT TH E IN THE CASE OF VMT SPINNING MILLS (SUPRA), IT WAS HELD THA T DEDUCTION U/S 10B WAS GRANTED QUA PROFITS EARNED ON MANUFACTURED GOODS AND THEREFORE NEITHER THE PROFIT S OF TRADED GOODS WAS TO BE INCLUDED IN THE PROFITS NOR THE TURNOVER OF TRADED GOODS WAS TO BE INCLUDED IN THE TOTAL TURNOVER FOR CALCULATING DEDUCTION U/S 10B OF THE A CT. ACCORDINGLY THE AO IS DIRECTED TO CALCULATE THE DED UCTION U/S 10B OF THE ACT AFTER EXCLUDING BOTH THE PROFITS AND THE TURNOVER OF EXPORT TRADED GOODS FROM THE PROFITS OF THE BUSINESS AND THE TOTAL TURNOVER. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 16 OF 65 GROUND OF APPEAL NOS.4(I) & (II) RAISED BY THE ASSE SSEE ARE, THEREFORE, ALLOWED IN ABOVE TERMS. 34. THE LD. D.R. FAIRLY CONCEDED THAT THE ISSUE STOOD D ECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING ASSESSME NT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 35. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD THAT THE TURNOVER OF EXPORT TRADED GOODS CA NNOT BE INCLUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF C ALCULATING THE EXEMPTION UNDER SECTION 10B OF THE ACT AND ACCORDIN GLY WE DIRECT THE A.O. TO EXCLUDE THE SAME. GROUNDS OF APPEAL NO.7 AND 9 ARE ACCORDINGLY DECID ED IN FAVOUR OF THE ASSESSEE AND STAND ALLOWED. 36. GROUND NO.8 RAISED BY THE ASSESSEE RELATES TO THE I SSUE OF ADJUSTMENT OF PROFIT OR LOSS ON SALE OF TRADED G OODS WHILE CALCULATING THE PROFITS OF THE UNITS ELIGIBLE FOR D EDUCTION UNDER SECTION 10B OF THE ACT. 37. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT A S IN GROUNDS NO.7 AND 9 RAISED ABOVE, THE A.O., WITHOUT GIVING ANY SPECIFIC FINDING IN THIS REGARD WHILE CALCULATING T HE GROSS DOUBLE INCOME OF THE ASSESSEE, AT THE END OF THE ORDER AND MORE SPECIFICALLY THE EXEMPTION UNDER SECTION 10B OF THE ACT, HAD ADJUSTED THE ACTUAL PROFIT OR LOSS ON TRADED GOODS WHILE CALCULATING THE PROFITS OF THE UNIT ELIGIBLE FOR DE DUCTION UNDER SECTION 10B OF THE ACT THOUGH THE ASSESSEE HAD EXCL UDED THE SAME FOR THE REASON THAT SECTION 10B OF THE ACT IS APPLICABLE ONLY ON MANUFACTURING ACTIVITIES AND NOT ON TRADING ACTIVITIES VISI-A-VIS THE SAID GROUND ALSO, THE LD. COUNSEL FO R THE ASSESSEE CONTENDED THAT THE ISSUE WAS COVERED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSE E ITSELF FOR THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018. OUR ATTENTIO N WAS ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 17 OF 65 DRAWN TO THE FINDINGS OF THE ITAT AT PARA 33 OF TH E ORDER , WHICH IS REPRODUCED ABOVE . 38. THE LD. D.R. FAIRLY CONCEDED THAT THE ISSUE STOOD D ECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 39. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE DIRECT THE AO TO CALCULATE THE DEDUCTION U/S 10B OF THE ACT AFTER EXCLUDING BOTH THE PROFITS AND THE TURNOVER O F EXPORT TRADED GOODS FROM THE PROFITS OF THE BUSINESS AND T HE TOTAL TURNOVER. GROUND OF APPEAL NO.8 IS ACCORDINGLY DECIDED IN FAV OUR OF THE ASSESSEE AND STANDS ALLOWED. 40. THE ISSUE RAISED IN GROUND NO.10 RELATES TO REDUCTI ON OF PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT BY 90% OF THE INTEREST RECEIVED FROM SUPPLIERS AND CUS TOMERS, AMOUNTING TO RS.2,93,45,849/-. 41. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT IDENT ICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING YEAR BY THE ITAT IN ITA NO.88 & 118/CHD/2 009. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT IN PARA 62 OF THE ORDER. REFERRING TO THE SAME, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ITAT IN THE SAID CASE HAD RESTOR ED THE ISSUE TO THE A.O. TO DETERMINE THE NET INTEREST EARNED BY THE ASSESSEE AND DIRECTED EXCLUSION OF THE SAME AS AGAINST THE G ROSS INTEREST REDUCED BY THE REVENUE AUTHORITIES. 42. THE LD. D.R. FAIRLY CONCEDED THAT IDENTICAL ISSUE HAD BEEN DECIDED IN THE CASE OF THE ASSESSEE AS POINTED OUT BY THE LD. C OUNSEL FOR THE ASSESSEE ABOVE. 43. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES. WE H AVE ALSO GONE THROUGH THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE FOR THE PRECEDING YEAR AT PARA 62 WHICH READS AS UNDER:- ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 18 OF 65 62. WE HAVE HEARD THE RIVAL CONTENTIONS. THE HONB LE APEX COURT IN THE CASE OF ACG CAPSULES (SUPRA) HAS LAID DOWN THE LAW THAT ONLY NET INTEREST EARNED ,EXCLUDING INTERE ST PAID IN RELATION TO THE SAME, IS TO BE CONSIDERED FOR THE P URPOSE OF EXCLUSION FROM THE PROFITS FOR CALCULATING DEDUCTIO N U/S 80HHC OF THE ACT. FOLLOWING THE SAME, WE RESTORE TH IS ISSUE TO THE AO TO DETERMINE THE NET INTEREST EARNED, AS PER THE RATIO LAID DOWN IN THE CASE OF ACG CAPSULES (SUPRA) AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THIS GROUND OF APPEAL NO.5 (IV) IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 44. ADMITTEDLY IDENTICAL ISSUE HAS BEEN DECIDED IN TH E CASE OF THE ASSESSEE ITSELF IN THE PRECEDING ASSESS MENT YEAR I.E. ASSESSMENT YEAR 2003-04. THE SAID DECISION WILL THE REFORE SQUARELY APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE RESTORE THE ISSUE TO THE AO AND DIRECT HIM TO ADJU DICATE THE SAME IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE ITAT IN ITA NO.88 & 118/CHD/2009 DATED 26-11-18. 45. THE GROUND OF APPEAL NO.10 IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES 46. GROUND NO.11 RELATES TO THE EXCLUSION OF EXPORT TUR NOVER OF UNITS CLAIMING EXEMPTION UNDER SECTION 10B OF TH E ACT, FROM THE EXPORT TURNOVER OF THE ASSESSEE FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE AC T. 47. BRIEFLY STATED, THE A.O. WHILE CALCULATING DEDUCTIO N UNDER SECTION 80HHC OF THE ACT, REDUCED THE EXPORT TURNOVER AND TOTAL TURNOVER OF EXPORT ORIENTED UNITS CLAIMIN G EXEMPTION U/S 10B OF THE ACT, FROM THE EXPORT TURNOVER AND TO TAL TURNOVER OF THE ASSESSEE COMPANY. THE CIT(A) UPHELD THE SAME . 48. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE ALSO STOOD COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN EARLIER YEAR I.E. ASSES SMENT YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018. OUR ATTENTION WAS DRAWN TO THE FINDING S OF THE ITAT AT PARAS 50 AND 51 OF THE ORDER, AS UNDER:- ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 19 OF 65 50. WE HAVE HEARD RIVAL CONTENTIONS AND ALSO GONE THROUGH VARIOUS CASE LAWS REFERRED TO BEFORE US. THE ISSUE BEFORE US IS WHETHER FOR THE PURPOSE OF COMPUTING DEDUCTION U /S 80HHC IN A CASE WHERE DEDUCTION U/S 10B IS ALSO BEI NG CLAIMED, WHETHER THE EXPORT TURNOVER AND TOTAL TURN OVER OF THE EOU UNIT WOULD BE TAKEN INTO CONSIDERATION OR N OT. WE HAVE GONE THROUGH THE ORDER OF THE HON'BLE HIGH COU RT IN THE CASE OF M/S MAHAVIR SPINNING MILLS LTD.(SUPRA) FOR ASSESSMENT YEAR 1998-99 AND FIND THAT THE QUESTION OF LAW BEFORE IT WAS IDENTICAL TO THE ISSUE AT HAND WHETHE R EXPORT TURNOVER OF UNITS EXEMPT U/S 10B OF THE ACT ARE TO BE INCLUDED IN EXPORT TURNOVER FOR 80HHC PURPOSES. THE QUESTION FRAMED READS AS UNDER: I) WHETHER ON A TRUE AND CORRECT INTERPRETATION O F SECTION 80 HHC OF THE INCOME TAX ACT, 1961, THE TRI BUNAL HAS ERRED IN LAW IN HOLDING THAT THE EXPORT TURNOVE R OF THE UNIT WHOSE PROFITS ARE EXEMPT UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 IS NOT TO BE INCLUDED IN THE ' EXPORT TURNOVER' FOR THE PURPOSES OF CALCULATING THE DEDUC TION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961? 51. THE HONBLE HIGH COURT, WE FIND, RULED IN FAVOU R OF THE ASSESSEE HOLDING THAT IN VIEW OF THE DEFINITION OF THE SAID TERM IN SECTION 80HHC, NO SUCH EXCLUSION IS PROVIDE D. THE RELEVANT FINDING OF THE HONBLE HIGH COURT AT PARA 16 OF ITS ORDER IS AS UNDER: 16. WE ARE, THEREFORE, UNABLE TO AGREE WITH THE DECISION OF THE TRIBUNAL AND OF THE CIT (APPEALS) UPHOLDING THE ASSESSMENT ORDER. THE TRIBUNAL HELD T HAT THE TURNOVER OF SALES MADE BY THE ASSESSEE FOR WHIC H DEDUCTION UNDER SECTION 10B HAD BEEN CLAIMED DID NO T ANSWER THE DESCRIPTION OF THE TURNOVER ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC AND THEREFORE, THE ASSESSING OFFICER RIGHTLY EXCLUDED SUCH TURNOVER FR OM EXPORT TURNOVER WHILE COMPUTING RELIEF AVAILABLE TO THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. WE ARE UNA BLE TO AGREE. SECTION 80 HHC CLEARLY DEFINES THE TERMS EXPORT TURNOVER, TOTAL TURNOVER AND PROFITS OF BUSINESS. N ONE OF ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 20 OF 65 THESE DEFINITIONS EXCLUDE THE EXPORT TURNOVER IN RE SPECT WHEREOF BENEFIT HAS BEEN DERIVED UNDER SECTION 10B. TO ACCEPT THE RESPONDENT'S CONTENTION WOULD REQUIRE TH E SECTION TO BE REWRITTEN AND THE EXPRESSION TO BE RE DEFINED WHICH IS NOT PERMISSIBLE. IN VIEW OF THE SAME WE AGREE WITH THE LD. COUNSEL F OR THE ASSESSEE THAT EXPORT TURNOVER FOR WHICH EXEMPTION U /S 10B OF THE ACT HAS ALREADY BEEN CLAIMED, IS TO BE INCLU DED IN THE TURNOVER FOR PURPOSES OF CALCULATING DEDUCTION U/S 80 HHC OF THE ACT. GROUND OF APPEAL NO.5(I)&(II) RAISED BY THE ASSESSEE IS THEREFORE ALLOWED. 49. THE LD. D.R. FAIRLY CONCEDED THAT THE ISSUE STOOD D ECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 50. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD THAT EXPORT TURNOVER FOR WHICH EXEMPTION U/ S 10B OF THE ACT HAS ALREADY BEEN CLAIMED, IS TO BE INCLUDED IN THE TURNOVER FOR PURPOSES OF CALCULATING DEDUCTION U/S 80 HHC OF THE ACT. GROUND OF APPEAL NO.11 IS ACCORDINGLY DECIDED IN F AVOUR OF THE ASSESSEE AND STANDS ALLOWED. 51. THE ISSUE RAISED IN GROUND NO.12 IS REGARDING EXCLUSION OF SALES TAX SUBSIDY AMOUNTING TO RS.2,15 ,31,035/- FROM THE ELIGIBLE PROFITS OF THE BUSINESS WHILE CAL CULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE A.O. HAD TREATED THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS B EING REVENUE IN NATURE AND THEREAFTER TREATING THE SAME AS INCOM E FROM OTHER SOURCES, HAD DENIED DEDUCTION UNDER SECTION 80HHC O F THE ACT ON THE SAME BY EXCLUDING IT FROM ELIGIBLE PROFITS O F THE BUSINESS OF THE ASSESSEE. 52. SINCE WE HAVE HELD THAT SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS BEING CAPITAL IN NATURE IN GROUND O F APPEAL NO.3 ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 21 OF 65 RAISED BY THE ASSESSEE BEFORE US, AT PARA 17 OF OUR ORDER ABOVE, THIS GROUND IS INFRUCTUOUS . GROUND OF APPEAL NO.12 IS, THEREFORE, DISMISSED A S BEING INFRUCTUOUS. 53. GROUND NO.13 RELATES TO THE REDUCTION OF PROFITS OF THE BUSINESS OF THE ASSESSEE BY SCRAP SALES, AMOUNTING TO RS.1,70,25,000/- WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE A.O. HAD EXCLUDED 90% OF THE SCRAP SALES FROM THE PROFIT OF THE BUSINESS OF THE ASSESSEE, ON THE GROUND THAT THE SAME WAS NOT DERIVED FROM THE BUSINESS OF EXPORT. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 54. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COU RT IN THE CASE OF R. N. GUPTA CO. LTD. VS. CIT, 351 ITR 369 (P&H) AND THE DECISION OF THE ITAT IN THE CASE OF HIGHWAY INDUSTR IES LTD. VS. ACIT IN ITA NO.267/15, DATED 11/4/2016 FOR THE PROP OSITION THAT SCRAP SALE IS TO BE INCLUDED IN THE PROFITS OF THE BUSINESS UNDER SECTION 80HHC OF THE ACT. 55. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDE R OF THE LD. CIT(A), DRAWING OUR ATTENTION TO PARA 12.2. 4, AS UNDER:- 12.2.4 AS REGARD GROUND NO. 12(VI), IT IS SEEN THA T THE JURISDICTIONAL ITAT, IN THE CASE OF M/S PARKER CYCL E INDS. (SUPRA), HAS HELD THAT THE SCRAP SALES SHOULD BE EX CLUDED BOTH FROM THE PROFITS OF THE BUSINESS AS WELL AS FR OM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING THE DED UCTION U/S 80HHC. THE AO HAS EXCLUDED THE SCRAP SALES FROM THE PROFITS OF THE BUSINESS FOR COMPUTING THE DEDUCTION U/S 80HHC. HE IS, HOWEVER, IN LIGHT OF THE DECISION IN THE CASE OF M/S PARKER CYCLE INDS., DIRECTED TO ALSO EXCLUDE TH E SCRAP SALES FROM THE TOTAL TURNOVER OF THE ASSESSEE FOR C OMPUTING THE DEDUCTION U/S 80HHC, IF ANY. THIS GROUND OF APPEAL IS REJECTED 56. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ISSUE BEFORE US IS WHETHER SCRAP SALES IS TO BE TAKEN INTO CONSIDER ATION FOR ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 22 OF 65 THE PURPOSE CALCULATING THE PROFITS ELIGIBLE FOR DE DUCTION U/S 80HHC. WE FIND THAT THIS ISSUE HAS BEEN SETTLED BY THE HON'BLE APEX COURT IN ITS DECISION RENDERED IN THE CASE OF CIT VS. PUNJAB STAINLESS STEEL INDUSTRIES, REPORTED IN (2015) 229 TAXMAN 423 AND WHICH WAS FOLLOWED SUBSEQUENTLY IN ANOTHER DECISION OF THE HON'BLE APEX COURT IN THE C ASE OF JAGRAON EXPORTS VS. CIT (2016) 284 CTR 209. THE HON 'BLE APEX COURT IN THE SAID DECISION HAD CATEGORICALLY S TATED THAT THE SCRAP SALES HAS TO BE EXCLUDED FOR ALL PURPOSES , FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80HHC OF TH E ACT HOLDING THAT THE TURNOVER FOR THE SAME DID NOT QUAL IFY AS TOTAL TURNOVER FROM THE BUSINESS OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE HON'BLE APEX COURT IN THE CASE OF PUNJAB STAINLESS STEEL INDUSTRIES (SUPRA) IS AS UND ER: 17. TO ASCERTAIN WHETHER THE TURNOVER WOULD ALSO INCLUD E SALE PROCEEDS FROM SCRAP, ONE HAS TO KNOW THE MEANING OF THE TERM TURNOVER. THE TERM TURNOVER HAS NEITHER BEEN DEFIN ED IN THE ACT NOR HAS BEEN EXPLAINED BY ANY OF THE CBDT CIRCULARS. 18. IN THE AFORESTATED CIRCUMSTANCES, ONE HAS TO LOOK AT THE MEANING OF THE TERM TURNOVER IN ORDINARY ACCOUNTIN G OR COMMERCIAL PARLANCE. 19. NORMALLY, THE TERM TURNOVER WOULD SHOW THE SALE EFF ECTED BY A BUSINESS UNIT. IT MAY HAPPEN THAT IN THE COURSE OF THE BUSINESS, IN ADDITION TO THE NORMAL SALES, THE BUSINESS UNIT MAY ALSO SELL SOME OTHER THINGS. FOR EXAMPLE, AN ASSESSEE WH O IS MANUFACTURING AND SELLING STAINLESS STEEL UTENSILS, IN A DDITION TO STEEL UTENSILS, THE ASSESSEE MIGHT ALSO SELL SOME OTHER THINGS LIKE AN OLD AIR CONDITIONER OR OLD FURNITURE OR SOMETHING W HICH HAS OUTLIVED ITS UTILITY. WHEN SUCH THINGS ARE DISPOSED OF , THE QUESTION WOULD BE WHETHER THE SALE PROCEEDS OF SUCH THINGS WOULD BE INCLUDED IN THE TURNOVER. SIMILARLY IN THE PRO CESS OF MANUFACTURING UTENSILS, THERE WOULD BE SOME SCRAP OF S TAINLESS STEEL MATERIAL, WHICH CANNOT BE USED FOR MANUFACTURING UTENSILS. SUCH SMALL PIECES OF STAINLESS STEEL WOULD BE SOLD AS SCRA P. HERE ALSO, THE QUESTION IS WHETHER SALE PROCEEDS OF SUCH SC RAP CAN BE INCLUDED IN THE TERM SALES WHEN IT IS TO BE REFLECTED I N THE PROFIT AND LOSS ACCOUNT. 20. IN ORDINARY ACCOUNTING PARLANCE, AS APPROVED BY ALL ACCOUNTANTS AND AUDITORS, THE TERM SALES, WHEN REFLECTE D IN THE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 23 OF 65 PROFIT AND LOSS ACCOUNT, WOULD INDICATE SALE PROCEEDS FROM SALE OF THE ARTICLES OR THINGS IN WHICH THE BUSINESS UNIT I S DEALING. WHEN SOME OTHER THINGS LIKE OLD FURNITURE OR A CAPITAL ASSET, IN WHICH THE BUSINESS UNIT IS NOT DEALING ARE SOLD, THE SALE PROCEEDS THEREFROM WOULD NOT BE INCLUDED IN SALES BUT IT WOULD BE SHOWN SEPARATELY. 21. IN SIMPLE WORDS, THE WORD TURNOVER WOULD MEAN ONL Y THE AMOUNT OF SALE PROCEEDS RECEIVED IN RESPECT OF THE G OODS IN WHICH AN ASSESSEE IS DEALING IN. FOR EXAMPLE- IF A MANU FACTURER AND SELLER OF AIR-CONDITIONERS IS ASKED TO DECLARE HIS TURNOVER, THE ANSWER GIVEN BY HIM WOULD SHOW THE SALE PROCEEDS O F AIR- CONDITIONERS DURING A PARTICULAR ACCOUNTING YEAR. HE WOULD NOT INCLUDE THE AMOUNT RECEIVED, IF ANY, FROM THE SALE OF S CRAP OF METAL PIECES OR SALE PROCEEDS OF OLD OR USELESS THINGS SOLD DURING THAT ACCOUNTING YEAR. THIS CLEARLY DENOTES THAT ORDIN ARILY A BUSINESSMAN BY WORD TURNOVER WOULD MEAN THE SALE PR OCEEDS OF THE GOODS (THE THINGS IN WHICH HE IS DEALING) SOLD BY HIM. 22. SO FAR AS THE SCRAP IS CONCERNED, THE SALE PROCEED S FROM THE SCRAP MAY EITHER BE SHOWN SEPARATELY IN THE PROFIT AN D LOSS ACCOUNT OR MAY BE DEDUCTED FROM THE AMOUNT SPENT BY THE MANUFACTURING UNIT ON THE RAW MATERIAL, WHICH IS STEEL IN THE CASE OF THE RESPONDENT-ASSESSEE, AS THE RESPONDENT- A SSESSEE IS USING STAINLESS STEEL AS RAW MATERIAL, FROM WHICH UTEN SILS ARE MANUFACTURED. THE RAW MATERIAL, WHICH IS NOT CAPABLE OF B EING USED FOR MANUFACTURING UTENSILS WILL HAVE TO BE EITHE R SOLD AS SCRAP OR MIGHT HAVE TO BE RE-CYCLED IN THE FORM OF SH EETS OF STAINLESS STEEL, IF THE MANUFACTURING UNIT IS ALSO HAVIN G ITS RE- ROLLING PLANT. IF IT IS NOT HAVING SUCH A PLANT, THE M ANUFACTURER WOULD DISPOSE OF THE SCRAP OF STEEL TO SOMEONE WHO WO ULD RE- CYCLE THE SAID SCRAP INTO STEEL SO THAT THE SAID STEE L CAN BE RE- USED. 23. WHEN SUCH SCRAP IS SOLD, IN OUR OPINION, THE SALE PR OCEEDS OF THE SCRAP CANNOT BE INCLUDED IN THE TERM TURNOVER FO R THE REASON THAT THE RESPONDENT-UNIT IS ENGAGED PRIMARILY IN THE MANUFACTURING AND SELLING OF STEEL UTENSILS AND NOT SC RAP OF STEEL. THEREFORE, THE PROCEEDS OF SUCH SCRAP WOULD NOT BE INCLUDED IN SALES IN THE PROFIT AND LOSS ACCOUNT OF THE RESPONDENT-ASSESSEE.. 24. THE SITUATION WOULD BE DIFFERENT IN THE CASE OF T HE BUYER, WHO PURCHASES SCRAP FROM THE RESPONDENT-ASSESSEE AN D SELLS IT TO SOMEONE ELSE. THE SALE PROCEEDS FOR SUCH A BUYER WO ULD BE TREATED AS TURNOVER FOR A SIMPLE REASON THAT THE BU YER OF THE SCRAP IS A PERSON WHO IS PRIMARILY DEALING IN SCRAP. I N THE CASE ON HAND, AS THE RESPONDENT-ASSESSEE IS NOT PRIMARILY DEALING IN SCRAP BUT IS A MANUFACTURER OF STAINLESS STEEL UTENSI LS, ONLY SALE PROCEEDS FROM SALE OF UTENSILS WOULD BE TREATED AS HI S TURNOVER. 25. SO AS TO BE MORE ACCURATE ABOUT THE WORD TURNOV ER, ONE CAN EITHER REFER TO DICTIONARIES OR TO MATERIALS WHICH ARE PUBLISHED BY BODIES OF ACCOUNTANTS. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ( HEREINAFTER REFERRED TO AS THE ICAI) HAS PUBLISHED SOME MATERIAL UNDER THE HEAD GUIDANCE NOT E ON TAX ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 24 OF 65 AUDIT UNDER SECTION 44AB OF THE INCOME TAX ACT. THE SAID MATERIAL HAS BEEN PUBLISHED SO AS TO GUIDE THE MEMBER S OF THE ICAI. IN OUR OPINION, WHEN A RECOGNIZED BODY OF ACCO UNTANTS, AFTER DUE DELIBERATION AND CONSIDERATION PUBLISHES CERTAIN MATERIAL FOR ITS MEMBERS, ONE CAN RELY UPON THE SAME. P ARA 5 OF THE SAID NOTE DEALS WITH SALES, TURNOVER AND GROSS RECEI PTS. PARAS 5.2 AND 5.3 OF THE SAID NOTE ARE REPRODUCED HER EINBELOW, WHICH PERTAIN TO THE TERM TURNOVER. 5.2 IN THE GUIDANCE NOTE ON TERMS USED IN FINANCIA L STATEMENTS PUBLISHED BY THE ICAI, THE EXPRESSION S ALES TURNOVER (ITEM 15.01) HAS BEEN DEFINED AS UNDER:- THE AGGREGATE AMOUNT FOR WHICH SALES ARE EFFECTED O R SERVICES RENDERED BY AN ENTERPRISE. THE TERM `GROSS TURNOVER AND `NET TURNOVER (OR `GROSS SALES AND `NET SALES) ARE SOMETIME S USED TO DISTINGUISH THE SALES AGGREGATE BEFORE AND AFTER DED UCTION OF RETURNS AND TRADE DISCOUNTS. 5.3 THE GUIDE TO COMPANY AUDIT ISSUED BY THE ICAI IN THE YEAR 1980, WHILE DISCUSSING SALES, STATED AS FOLLOWS: TOTAL TURNOVER, THAT IS, THE AGGREGATE AMOUNT FOR WHI CH SALES ARE EFFECTED BY THE COMPANY, GIVING THE AMOUNT OF SA LES IN RESPECT OF EACH CLASS OF GOODS DEALT WITH BY THE COMPANY AND INDICATING THE QUANTITIES OF SUCH SALES FOR EACH CLASS SEPA RATELY. NOTE (I) THE TERM TURNOVER WOULD MEAN THE TOTAL SALES AFTER DEDUCTING THEREFROM GOODS RETURNED, PRICE ADJUSTMENT S, TRADE DISCOUNT AND CANCELLATION OF BILLS FOR THE PERIOD OF A UDIT, IF ANY. ADJUSTMENTS WHICH DO NOT RELATE TO TURNOVER SHOULD N OT BE MADE E.G. WRITING OFF BAD DEBTS, ROYALTY ETC. WHERE EXCISE D UTY IS INCLUDED IN TURNOVER, THE CORRESPONDING AMOUNT SHOULD BE DISTINCTLY SHOWN AS A DEBIT ITEM IN THE PROFIT AND LOSS A CCOUNT. (EMPHASIS ADDED) THE AFORESTATED MEANING GIVEN BY THE ICAI CLEARLY DE NOTES THAT IN NORMAL ACCOUNTING PARLANCE THE WORD TURNOVER WO ULD MEAN TOTAL SALES AS EXPLAINED HEREINABOVE. THE SAID SALES WOULD DEFINITELY NOT INCLUDE THE SCRAP MATERIAL WHICH IS EIT HER TO BE DEDUCTED FROM THE COST OF RAW MATERIAL OR IS TO BE SH OWN SEPARATELY UNDER A DIFFERENT HEAD. WE DO NOT SEE ANY REASON FOR NOT ACCEPTING THE MEANING OF THE TERM TURNOVER GI VEN BY A BODY OF ACCOUNTANTS, WHICH IS HAVING A STATUTORY RECOGNITION. 26. IF ALL ACCOUNTANTS, AUDITORS, BUSINESSMEN, MANUFACTURE RS ETC. ARE NORMALLY INTERPRETING THE TERM TURNOVER AS SALE PROCEEDS OF THE COMMODITY IN WHICH THE BUSINESS UNIT IS DEALING, W E SEE NO REASON TO TAKE A DIFFERENT VIEW THAN THE VIEW NORMA LLY TAKEN BY THE PERSONS WHO ARE CONCERNED WITH THE SAID TERM. 27. IN ADDITION TO THE ABOVE FACTORS, WHICH WE HAVE CON SIDERED FOR UNDERSTANDING THE MEANING OF THE TERM TURNOVER , WE SHOULD NOT MISS THE PURPOSE WITH WHICH THE SAID TERM HAS BE EN INCORPORATED IN SECTION 80 HHC OF THE ACT. 28 THE INTENTION BEHIND ENACTMENT OF SECTION 80HHC OF THE ACT WAS TO ENCOURAGE EXPORT SO AS TO EARN MORE FOREIGN EXCHANGE. FOR THE SAID PURPOSE THE GOVERNMENT WANTED TO ENCOU RAGE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 25 OF 65 BUSINESSMEN, TRADERS AND MANUFACTURERS TO INCREASE T HE EXPORT SO AS TO BRING MORE FOREIGN EXCHANGE IN OUR COUNTRY . IF THE PURPOSE IS TO BRING MORE FOREIGN EXCHANGE AND TO EN COURAGE EXPORT, WE ARE OF THE VIEW THAT THE LEGISLATURE WOULD SURELY LIKE TO GIVE MORE BENEFIT TO PERSONS WHO ARE MAKING AN E FFORT TO HELP OUR NATION IN THE PROCESS OF BRINGING MORE FOREIGN EXCHANGE. IF A TRADER OR A MANUFACTURER IS TRYING HIS BEST TO INCRE ASE HIS EXPORTS, EVEN AT THE COST OF HIS BUSINESS IN A LOCAL M ARKET, WE ARE SURE THAT THE GOVERNMENT WOULD LIKE TO ENCOURAGE SUCH A PERSON. IN OUR OPINION, ONCE THE GOVERNMENT DECIDES TO GIVE SOME BENEFIT TO SOMEONE WHO IS HELPING THE NATION I N BRINGING FOREIGN EXCHANGE, THE REVENUE SHOULD ALSO MAKE ALL POSSI BLE EFFORTS TO ENCOURAGE SUCH TRADERS OR MANUFACTURERS BY GIVING SUCH BUSINESS UNITS MORE BENEFITS AS CONTEMPLATED UN DER THE PROVISIONS OF LAW. 29. FOR THE AFORESAID REASONS, WE ARE OF THE VIEW THA T THE VIEW EXPRESSED BY THE HIGH COURT IS IN CONFORMITY WITH THE NORMAL ACCOUNTING PRACTICE FOLLOWED BY THE TRADERS, INCLUDING THE RESPONDENT-ASSESSEE AND IT WAS JUSTIFIED IN COMING T O A CONCLUSION THAT THE PROCEEDS GENERATED FROM THE SALE OF SCRAP WOULD NOT BE INCLUDED IN THE TOTAL TURNOVER 57. IN VIEW OF THE ABOVE, WE HOLD THAT THE SCRAP SALES HAS TO BE REDUCED BOTH FROM THE PROFITS OF THE ASSESSEE AN D TOTAL TURNOVER FOR CALCULATING THE ELIGIBLE DEDUCTION U/S 80HHC OF THE ACT. GROUND OF APPEAL NO.13 RAISED BY THE ASSES SEE IS ALLOWED IN ABOVE TERMS. 58. GROUNDS NO.14, 15 AND 16 RELATE TO DISALLOWANCE OF DEDUCTION UNDER SECTION 80HHC(3)(C)(III) OF THE ACT ON EXPORT INCENTIVES, AMOUNTING TO RS.5,30,04,339/-. 59. THE FACTS RELATING TO THE ISSUE ARE THAT THE A.O. EXAMINED THE ISSUE OF GRANT OF DEDUCTION U/S 80HHC IN LIGHT OF THE AMENDED PROVISIONS OF SECTION 80HHC PURSUANT TO THE TAXATION LAWS (AMENDMENT ACT), 2005. HE NOTED THAT THE EXPORT TURNOVER OF THE APPELLANT EXCEEDED RS.10 CRORES. HE FURTHER EXAMINED THE MATTER AND FOUND THAT THE ASSESSEE HAD FAILED TO SATISFY THE CONDITIONS PRESCRIBED IN THE THIRD AND FORTH PROVISOS OF SECTION 80HHC (3) WHICH WERE NECESSARY TO ALLOW DEDUCTION U/S 80HHC(3) IN RESPECT OF DEPB AND DFRC EXPORT INC ENTIVES. HENCE, HE HELD THAT NO DEDUCTION IN RESPECT OF PROF IT ON TRANSFER OF DEPB AND PROFIT ON TRANSFER OF DFRC WAS ALLOWABL E TO THE ASSESSEE. HE ALSO HELD THAT THE COST OF DEPB AND DF RC WAS NIL ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 26 OF 65 AND THEREFORE, THE ENTIRE SALE CONSIDERATION OF DEP B AND DFRC WAS THE PROFIT ON TRANSFER OF DEPB/DFRC. 60. THE LD. CIT(A) UPHELD THE ORDER OF THE A.O. 61. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THE ISSUE STOOD COVERED IN FAVOUR OF THE ASSES SEE BY THE DECISION OF THE ITAT IN EARLIER YEAR I.E. ASSESSMEN T YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018 . OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARA 72 OF THE ORDER, AS UNDER:- 72. HAVING HEARD THE RIVAL CONTENTIONS. WE ARE IN AGREEMENT WITH THE LD. COUNSEL FOR THE ASSESSEE THA T THE THIRD PROVISO TO SECTION 80HHC(3), APPLYING WHICH T HE ASSESSEES CLAIM OF DEDUCTION U/S 80HHC ON SALE OF D EPB WAS DENIED, WAS BROUGHT ON THE STATUTE BY THE TAXAT ION AMENDMENT ACT, 2005 AND ITS RETROSPECTIVITY FROM 01.04.1998, WAS CATEGORICALLY STRUCK DOWN BY COURTS IN THE JUDGEMENTS RELIED UPON BY THE LD. COUNSEL FOR THE A SSESSEE. SINCE THE IMPUGNED YEAR FALLS BEFORE 2005, THE THIR D PROVISO IS NOT APPLICABLE TO THE ASSESSEE. THE DENIAL OF DE DUCTION U/S 80HHC OF THE ACT ON SALE OF DEPB IS THEREFORE S ET ASIDE. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. 62. THE LD. D.R. FAIRLY CONCEDED THAT THE ISSUE STOOD D ECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 63. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD THAT SINCE THE IMPUGNED YEAR FALLS BEFORE 2005 , THE THIRD PROVISO IS NOT APPLICABLE TO THE ASSESSEE. THE DENI AL OF DEDUCTION U/S 80HHC OF THE ACT ON SALE OF DEPB IS, THEREFORE, SET ASIDE. GROUNDS OF APPEAL NO.14, IS THEREFORE ALLOWED. GROU ND OF APPEAL NO.15 & 16 ,BEING ALTERNATE GROUNDS RELATING TO THE SAME ISSUE, ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 27 OF 65 ARE NOT BEING DEALT WITH BY US SINCE IT WOULD ONLY BE AN ACADEMIC EXERCISE. 64. IN GROUNDS NO.17 & 18, THE ISSUE RAISED IS REGARDIN G APPLICATION OF METHOD OF CALCULATING COST OF TRADED GOODS EXPORTED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 65. THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. C IT(A) IN DIRECTING APPORTIONMENT OF THE FULL AMOUNT OF AD MINISTRATIVE, FINANCIAL AND DEPRECIATION TO THE INDIRECT COST OF TRADING GOODS WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 66. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT HAD CALCULATED INDIRECT COST OF TRADED GOOD S BY ALLOCATING ONLY COMMON EXPENSES I.E. WHICH WERE NOT DIRECTLY R ELATED TO THE MANUFACTURING OR TRADING ACTIVITY OF THE UNITS WHER E TRADING WAS DONE BETWEEN BOTH THE TRADING AND MANUFACTURING ACT IVITY I.E. BY APPORTIONING THE TOTAL INDIRECT COST OF TRADING UNI TS IN THE RATIO OF TOTAL TURNOVER TO EXPORT TURNOVER OF TRADED GOOD S OF THE SAID UNITS. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT AS PER EXPLANATION (D) TO SECTION 80HHC(3) OF THE ACT DIRE CT COST MEANS THE COST DIRECTLY ATTRIBUTABLE TO THE TRADED GOODS EXPORTED OUT OF INDIA AND AS PER EXPLANATION (E) TO SECTION 80HHC(3 ) OF THE ACT, INDIRECT COST MEANS COST NOT BEING THE DIRECT COST ALLOCATED IN THE RATIO OF TURNOVER IN RESPECT OF TRADING GOODS T O THE TOTAL TURNOVER. THE A.O. DID NOT AGREE WITH THE SUBMISSI ONS OF THE ASSESSEE AND CALCULATED THE INDIRECT COST BY ALLOCA TING THE EXPENSES OF THE COMPANY. 67. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 68. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THIS ISSUE STOOD COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE ITAT IN EARLIER YEAR I.E. ASSESSMEN T YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018 . OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARAS 52 TO 57 OF THE ORDER, AS UNDER:- 52. GROUND NO.5(III) RAISED BY THE ASSESSEE READS AS UNDER: ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 28 OF 65 5. (III) THE LD. C1T (A) HAS ERRED IN LAW AND ON F ACTS WHILE APPORTIONING ALL THE ADMINISTRATIVE, FINANCI AL EXPENSES AND DEPRECIATION BEING EXPENSES NOT RELATI NG TO TRADING ACTIVITIES OF APPELLANT'S BUSINESS FOR CALC ULATING INDIRECT COST OF TRADING EXPORTS WHILE CALCULATING DEDUCTION U/S 80HHC OF INCOME TAX ACT. 53. THIS GROUND IS AGAINST THE ACTION OF THE CIT(A) IN APPORTIONING ALL ADMINISTRATIVE AND FINANCIAL EXPE NSES AND DEPRECIATION FOR CALCULATING INDIRECT COST OF TRAD ING GOODS WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT. 54. BRIEFLY STATED, THE ASSESSEE WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT HAD CALCULATED THE I NDIRECT COST OF TRADING GOODS AT RS.90.76 LACS, BY ALLOCATI NG COMMON EXPENSES WHICH WERE NOT DIRECTLY RELATING TO MANUFA CTURING OR TRADING UNITS WHERE TRADING WAS DONE BETWEEN BOT H THE TRADING AND MANUFACTURING ACTIVITIES. THE ASSESSEE SUBMITTED BEFORE THE A.O. THAT AS PER EXPLANATION-D TO SECTION 80HHC(3) DIRECT COST MEANT COST DIRECTLY AT TRIBUTABLE TO THE TRADING GOODS EXPORTED OUT OF INDIA AND AS P ER EXPLANATION-(E) TO THE SAID SECTION, INDIRECT COST MEANT COST NOT BEING DIRECT COST ALLOCATED IN THE RATIO OF TUR NOVER IN RESPECT OF TRADING GOODS TO THE TOTAL TURNOVER. THE A.O. DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND CALCULATED THE INDIRECT COST AT RS.244.07 LACS, BY ALLOCATING ALL EXPENSES OF THE COMPANY. THE LD.CIT(A) DISPOSE D OFF THE APPEAL OF THE ASSESSEE WITH THE DIRECTION TO THE A. O. TO COMPUTE DIRECT AND INDIRECT COST OF TRADING COST AS PER FINDINGS GIVEN IN THE APPELLATE ORDER DATED 25.1.20 08 IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02. 55. BEFORE US THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT THE APPELLATE ORDER FOLLOWED BY THE LD.CIT(A) IN TH E CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 HAD BEEN D ECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.249/2008 AND ITA NO.280/2008 DATED 28.12.201 2. IT WAS POINTED OUT THAT THE I.T.A.T. AFTER GOING THROU GH THE FACTS OF THE CASE ALLOWED THE APPEAL FOR STATISTICA L PURPOSES DIRECTING THE A.O. TO RECOMPUTE INDIRECT COST RELAT ING TO ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 29 OF 65 TRADING GOODS IN LINE WITH THE DIRECTION GIVEN BY T HE I.T.A.T. IN THE CASE OF VMT SPINNING COMPANY LTD. VS. ACIT I N ITA NO.682/2007 FOR ASSESSMENT YEAR 2003-04. IT WAS FUR THER POINTED OUT THAT IN THE CASE OF SISTER CONCERN OF T HE ASSESSEE I.E. M/S VARDHMAN TEXTILES (SUPRA), IDENTICAL ISSU E HAD BEEN DEALT WITH BY THE I.T.A.T. IN ITS RECENT ORDER DATED 4.5.2018, WHEREIN THE ORDER OF THE CIT(A) HAD BEEN UPHELD, SETTING ASIDE THE ISSUE FOR REWORKING THE INDIRECT COST OF TRADING GOODS IN ACCORDANCE WITH THE DECISION OF TH E SPECIAL BENCH OF THE I.T.A.T. IN THE CASE OF SURENDRA ENGIN EERING CORPORATION VS. ACIT, 86 ITD 121 (SB) (MUM). 56. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 57. WE FIND THAT THIS ISSUE ALREADY STANDS DECIDED BY THE ITAT IN THE CASE OF THE VMT SPINNING CO. LTD. , FOR A.Y 2003- 04,IN ITA NO.682/CHD/07 DT.13.07.2012, WHEREIN EACH ITEM OF EXPENDITURE HEAD-WISE WAS TAKEN INTO CONSIDERATI ON FOR ALLOCATION TO TRADED GOODS. THE DIRECTIONS GIVEN IN THE SAID DECISION WAS BY THE ITAT IN THE CASE OF THE ASSESSE E FOR A.Y 2001-02 IN ITA NO.249 & 280/CHD/08 DT.28-12-12. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RECOMPU TE THE INDIRECT COST RELATABLE TO TRADED GOODS IN LINE WIT H THE DIRECTIONS GIVEN IN PARA 18-25 OF THE ORDER OF THE ITAT IN THE CASE OF VMT SPINNING(SUPRA) FOR A.Y 2003-04 DT.13-0 7-12. GROUND OF APPEAL NO.5(III) IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 69. THE LD. D.R. FAIRLY CONCEDED THAT THIS ISSUE STOOD DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER AS SESSMENT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUN SEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 70. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE INDI RECT COST RELATABLE TO TRADED GOODS IN LINE WITH THE DIRECTIO NS GIVEN IN ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 30 OF 65 PARA 57 OF THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE IN EARLIER YEAR I.E. ASSESSMENT YEAR 2003-04 IN ITA NO .88 & 118/CHD/2009, ORDER DATED 26/11/2018. GROUNDS OF APPEAL NO.17 & 18 ARE, THEREFORE, ALLOWE D FOR STATISTICAL PURPOSES . 71. GROUND NO.19 RELATES TO THE ALLOCATION AND DISALLOW ANCE OF EXPENSES TOWARDS DIVIDEND INCOME EARNED BY THE A SSESSEE. 72. THE BRIEF FACTS RELEVANT TO THIS ISSUE ARE THAT THE A.O. HAS NOTED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCO ME OF RS.389.83 LAKHS AND THAT NO EXPENDITURE HAD BEEN AL LOCATED FOR EARNING THE DIVIDEND INCOME. HE DID NOT ACCEPT THE APPELLANT'S CONTENTION THAT THE DIVIDEND INCOME HAD BEEN EARNED WITHOUT INCURRING ANY EXPENDITURE. THE A.O. HELD THAT THE A SSESSEE HAD SHOWN TO HAVE INCURRED SUBSTANTIAL EXPENDITURE FOR EARNING THE BUSINESS INCOME AND THAT THE EXPENDITURE FOR EARNIN G THE DIVIDEND INCOME HAD BEEN DEBITED UNDER THE BUSINESS AND PROFESSION HEAD. THE A.O. ALSO ANALYZED THE FUND FL OW OF THE ASSESSEE COMPANY AND NOTED THAT THE SHARE CAPITAL H AD BEEN INVESTED IN FIXED ASSETS, CASH AND BANK BALANCES AN D LOANS AND ADVANCES. HE NOTED THAT IF BORROWED FUNDS WERE HELD TO HAVE BEEN INVESTED IN FIXED ASSETS, THE INTEREST ON SUCH BORROWED FUNDS WOULD BECOME DISALLOWABLE AS CAPITAL EXPENDIT URE. HENCE, HE TREATED THE INVESTMENTS ON WHICH DIVIDEND HAD BE EN EARNED AS HAVING BEEN MADE OUT OF BORROWED FUNDS. HE ALLOC ATED THE PERSONNEL, ADMINISTRATION AND FINANCIAL EXPENDITURE OF THE ASSESS COMPANY TO THE EARNING OF DIVIDEND INCOME IN THE RATIO OF GROSS DIVIDEND RECEIVED BY THE ASSESSEE TO THE TOTA L INCOME OF THE ASSESSEE AND WORKED OUT THE PROPORTIONATE EXPEN DITURE AT RS.51,35,386/- RELATED TO THE DIVIDEND INCOME. 73. THE LD. CIT(A), NOTING THAT IDENTICAL ISSUE AROSE I N THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-3 WHI CH STOOD ADJUDICATED BY THE LD. CIT(A), WHO HAD UPHELD THE D ISALLOWANCE TO THE EXTENT OF RS.1 LAKH, FOLLOWED THE ORDER OF T HE LD. CIT(A) AND RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS .1 LAKH IN THE IMPUGNED YEAR ALSO. 74. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONCED ED THAT THE ISSUE STOOD DECIDED AGAINST THE ASSESSEE B Y THE ORDER OF ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 31 OF 65 THE ITAT IN EARLIER YEAR I.E. ASSESSMENT YEAR 2003- 04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARA 19 OF THE ORDER, AS UNDER:- 19. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT FIND ANY MERIT IN THE PRESENT GROUND RAISED BY THE ASSES SEE. AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE HIMSELF IN THE EARLIER YEARS ALSO, THE I.T.A.T. AND EVEN THE HON'B LE HIGH COURT HAD UPHELD THE ALLOCATION OF EXPENSES RANGING FROM RS.1 LAC TO RS.2 LACS AS BEING EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING DIVIDEND INCOME. EVEN THE I.T.A. T. IN THE CASE OF SISTER CONCERN OF THE ASSESSEE I.E. M/S VAR DHMAN TEXTILES (SUPRA) HAD CONFIRMED THE DISALLOWANCE OF RS.2 LACS. CONSIDERING THE PAST HISTORY OF THE ASSESSEE, WHER EIN IT HAS BEEN HELD BY THE HONBLE HIGH COURT THAT EXPENSES R ANGING FROM RS.1 TO 2 LACS WERE TO BE ALLOCATED AS INCURRE D FOR EARNING DIVIDEND INCOME UPTO RS.4.5 CRORES AND THE LD. COUNSEL FOR THE ASSESSEE HAVING NOT POINTED OUT ANY DISTINGUISHING FACT IN THE PRESENT CASE THE ACTION OF THE LD.CIT(A) IN ALLOCATING EXPENSES OF RS.1 LAC AGAINS T DIVIDEND INCOME EARNED OF RS.3.21 CRORES IS, THEREFORE WE HO LD, WHOLLY JUSTIFIED. WE THEREFORE, SEE NO REASON TO IN TERFERE IN THE ORDER OF THE LD. CIT(A) AND THE GROUND NO.2 RAI SED BY THE ASSESSEE IS, THEREFORE, DISMISSED. 75. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESS EE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO. FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE LD.CIT(A) RESTRICT ING THE DISALLOWANCE OF EXPENSES INCURRED FOR EARNING DIVID END INCOME TO THE EXTENT OF RS.1 LACS. 76. GROUND OF APPEAL NO.19 IS ACCORDINGLY DECIDED AGAIN ST THE ASSESSEE AND STANDS DISMISSED. 77. GROUND NO.20 WAS NOT PRESSED, HENCE THE SAME IS DISMISSED AS NOT PRESSED. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 32 OF 65 78. GROUND NO.21 RELATES TO THE ISSUE OF INCLUSION OF T RADING TURNOVER IN THE TOTAL TURNOVER WHILE CALCULATING TH E AMOUNT OF INCOME TO WHICH PROVISIONS OF SECTION 10B OF THE AC T APPLIES FOR CALCULATION OF TAX PAYABLE UNDER SECTION 115JB OF T HE ACT. THE A.O. HAD INCLUDED THE TURNOVER OF TRADED GOODS IN T HE TOTAL TURNOVER OF THE UNDERTAKING WHILE CALCULATING EXEMP TION ELIGIBLE UNDER SECTION 10B OF THE ACT WHICH WAS TO BE REDUCE D FROM THE BOOK PROFITS OF THE ASSESSEE FOR THE PURPOSES OF PA YMENT OF TAX UNDER SECTION 115JB OF THE ACT. THE LD. COUNSEL FO R THE ASSESSEE POINTED OUT THAT THERE WAS NO SPECIFIC FIN DING BY THE A.O. IN THE ORDER, WHEREAS THE SAME HAD BEEN DONE B Y THE A.O. IN THE CALCULATION OF TAX PAYABLE BY THE ASSESSEE A T THE END OF THE ORDER. 79. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THIS ISSUE STOOD COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE ITAT IN EARLIER YEAR I.E. ASSESSMEN T YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018 . OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARA 33 OF THE ORDER, AS UNDER:- 33. WE HAVE GONE THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) AND FIND THAT IDENTICAL ISSUE HAD BEEN DEALT WITH IN THE SAID CAS E WHEREIN IT WAS HELD THAT THE DECISION OF THE HON'BLE APEX C OURT IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA) WOULD SQU ARELY APPLY FOR THE PURPOSE OF CALCULATION OF DEDUCTION U /S 10B AND AS PER WHICH EXCISE DUTY WAS TO BE EXCLUDED FRO M THE TOTAL TURNOVER OF THE ASSESSEE. FURTHER THE I.T.A.T . HAD ALSO HELD THAT THE TURNOVER OF THE TRADING EXPORT ACTIVI TIES WAS TO BE EXCLUDED FROM THE TOTAL TURNOVER AND THE PROFITS OF THE TRADING EXPORT ACTIVITY WERE TO BE EXCLUDED FROM TH E PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 10B OF THE ACT FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF VMT SPINNING COMPANY LTD. (SUPRA). SINCE THE ISSUES IN THE PRESENT CASE ARE IDENTICAL TO THAT IN THE CASE OF M /S VARDHMAN TEXTILES (SUPRA) THE DECISION RENDERED THE REIN WILL APPLY IN THE PRESENT CASE ALSO, FOLLOWING WHICH WE HOLD THAT EXCISE DUTY BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 33 OF 65 PURPOSE OF CALCULATION OF DEDUCTION U/S 10B OF THE ACT. BUT VIS A VIS THE EXCLUSION OF EXPORT TURNOVER OF TRADE D GOODS, WE FIND THAT THE IN THE CASE OF VMT SPINNING MILLS (SU PRA), IT WAS HELD THAT DEDUCTION U/S 10B WAS GRANTED QUA PRO FITS EARNED ON MANUFACTURED GOODS AND THEREFORE NEITHER THE PROFITS OF TRADED GOODS WAS TO BE INCLUDED IN THE P ROFITS NOR THE TURNOVER OF TRADED GOODS WAS TO BE INCLUDED IN THE TOTAL TURNOVER FOR CALCULATING DEDUCTION U/S 10B OF THE A CT. ACCORDINGLY THE AO IS DIRECTED TO CALCULATE THE DED UCTION U/S 10B OF THE ACT AFTER EXCLUDING BOTH THE PROFITS AND THE TURNOVER OF EXPORT TRADED GOODS FROM THE PROFITS OF THE BUSINESS AND THE TOTAL TURNOVER. GROUND OF APPEAL NOS. 4(I) & (II) RAISED BY THE ASS ESSEE ARE, THEREFORE, ALLOWED IN ABOVE TERMS. 80. THE LD. D.R. FAIRLY CONCEDED THAT THIS ISSUE STOOD DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER AS SESSMENT YEAR BY THE ORDER OF ITAT AS POINTED OUT BY THE LD. COUN SEL FOR THE ASSESSEE, THOUGH HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 81. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003 -04, THE SAID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE DIRECT THE AO TO CALCULATE THE DEDUCTION U/S 10B OF THE ACT AFTER EXCLUDING BOTH THE PROFITS AND THE TURNOVER O F EXPORT TRADED GOODS FROM THE PROFITS OF THE BUSINESS AND T HE TOTAL TURNOVER. 82. GROUND OF APPEAL NO.21 IS ACCORDINGLY DECIDED IN FA VOUR OF THE ASSESSEE AND STANDS ALLOWED. 83. IN THE ADDITIONAL GROUND RAISED, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE REVENUE AUTHORITIES IN TREATING THE INTEREST REIMBURSEMENT OF RS.8,78,00,400/- RECEIVED UNDER THE TECHNOLOGY UPGRADING FUND SCHEME AS REVENUE RECEIPT INSTEAD OF CAPITAL RECEIPT. 84. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTEND ED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE ITAT I N THE CASE OF ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 34 OF 65 THE ASSESSEE IN PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04 IN ITA NO.88 & 118/CHD/2009, ORDER DATED 26/11/2018. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARAS 73 TO 78 OF THE ORDER, AS UNDER:- 73. THE ASSESSEE HAS TAKEN THE FOLLOWING ADDITIONA L GROUND BEFORE US WHICH READS AS UNDER: THAT THE AUTHORITIES BELOW HAVE ERRED IN TREATING THE INTEREST REIMBURSEMENT OF RS.8,32,78,691/- UNDER TECHNOLOGY UPGRADATION FUND SCHEME (FUFS) AS REVENU E RECEIPTS INSTEAD OF CAPITAL RECEIPT. 74. THE ASSESSEE HAS CONTENDED THAT IT IS A PURELY LEGAL GROUND WHICH MAY BE ADMITTED FOR ADJUDICATION. AGRE EING WITH THE CONTENTION OF LD. COUNSEL FOR ASSESSEE AND FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF NTPC VS. CIT 299 ITR 383, THE ADDITIONAL GR OUND RAISED BY THE ASSESSEE IS BEING ADMITTED FOR ADJUDI CATION BEING A PURELY LEGAL GROUND. 75. BEFORE US THE LD. COUNSEL FOR ASSESSEE POINTED OUT THE FACTS RELATING TO THE ISSUE STATING THAT THE ASSESS EE HAD PAID INTEREST TO THE BANK AMOUNTING TO RS.24,55,51,691/- ON TERM LOANS RAISED BY IT AND SAID INTEREST WAS DEBITED IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE COMPANY. AS PER THE TUF SCHEME OF THE GOVERNMENT THE ASSESSEE HAD RECEIVED SUBSIDY OF RS.8,32,78,691/- WHICH WAS CREDITED IN T HE PROFIT & LOSS ACCOUNT AND ACCORDINGLY TAXED. IT IS THIS TU FS SUBSIDY OF RS.8.32 CRORES, THE LD. COUNSEL FOR ASSE SSEE POINTED OUT THAT THE ASSESSEE IS CLAIMING AS CAPITA L RECEIPT. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THIS IS SUE OF TREATMENT OF INTEREST SUBSIDY UNDER TUF SCHEME HAS BEEN DEALT WITH IN A NUMBER OF DECISIONS HOLDING THE SAM E TO BE CAPITAL IN NATURE. OUR ATTENTION WAS DRAWN TO THE F OLLOWING CASE LAWS IN THIS REGARD: 1) CIT VS. SHAMLAL BANSAL, ITA NO.472/2010 DATED 17.1.2011 (P&H). 2) M/S CNV TEXTILES PVT. LTD. VS. DCIT, ITA NO.746/MAD/2014, DATED 21.11.2014. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 35 OF 65 3) DCIT VS. M/S GLOSTER JUTE MILLS LTD., ITA NO.687/KOL/2010, DATED 2.7.2014. 4) DCIT VS. SATLUJ TEXTILES & INDUSTRIES LTD., ITA NO.5142/DEL/2013, DATED 3.7.2015. COPIES OF THE ABOVE ORDERS WERE ALSO PLACED BEFORE US. 76. THE LD. COUNSEL FOR ASSESSEE ALSO CONTENDED THA T THIS ISSUE AROSE IN THE CASE OF THE SISTER CONCERN OF TH E ASSESSEE M/S VARDHMAN TEXTILES (SUPRA) WHERE THE MATTER HAD BEEN RESTORED TO THE CIT(A) TO ADJUDICATE THE SAME. IT W AS POINTED OUT THAT IN THE SAID CASE ALSO THIS ISSUE HAD BEEN RAISED AS AN ADDITIONAL AND SINCE IT HAS NOT BEEN CONSIDERED BY THE AUTHORITIES BELOW IT WAS REMANDED TO THE CIT(A). OU R ATTENTION WAS DRAWN TO PARA 23.5 OF THE ORDER HOLDI NG SO. 77. THE LD. DR ALSO CONTENDED THAT SINCE THE AFORES AID GROUND HAD NOT BEEN THERE BEFORE THE CIT(A) AN OPPO RTUNITY TO BE PROVIDED TO THE REVENUE TO DEAL WITH ENTIRE G AMAT OF THE ISSUE. 78. IN VIEW OF THE ABOVE, WE RESTORE THE ISSUE OF T REATMENT OF SUBSIDY RECEIVED OF INTEREST UNDER TUF SCHEME BA CK TO THE CIT(A) FOR ADJUDICATING AFRESH DIRECTING HIM TO PASS A SPEAKING ORDER IN THIS REGARD AFTER CONSIDERING ALL THE FACTS RELATING TO THE SCHEME AND THE JUDICIAL PRECEDENT I N THIS REGARD. THE ASSESSEE WOULD BE AT LIBERTY TO MAKE SUBMISSIONS AS DEEMED FIT BEFORE THE CIT(A). THUS A DDITIONAL GROUND OF APPEAL IS, THEREFORE, ALLOWED FOR STATIST ICAL PURPOSES. 85. THE LD. D.R. FAIRLY CONCEDED THAT THIS ISSUE STANDS ADJUDICATED BY THE IAT IN THE CASE OF THE ASSESSEE IN THE PRECEDING YEAR. 86. IN VIEW OF THE ABOVE, SINCE IT IS AN ADMITTED FACT THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED IN THE PRECED ING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2003-04, THE S AID DECISION WILL APPLY TO THE PRESENT CASE ALSO, FOLLO WING WHICH WE RESTORE THE ISSUE OF TREATMENT OF SUBSIDY RECEIVED OF INTEREST UNDER TUF SCHEME BACK TO THE CIT(A) FOR ADJUDICATIN G AFRESH DIRECTING HIM TO PASS A SPEAKING ORDER IN THIS REGA RD AFTER ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 36 OF 65 CONSIDERING ALL THE FACTS RELATING TO THE SCHEME AN D THE JUDICIAL PRECEDENT IN THIS REGARD. 87. ACCORDINGLY, ADDITIONAL GROUND OF APPEAL TAKEN BY T HE ASSESSEE IS, THEREFORE, ALLOWED FOR STATISTICAL PUR POSES . THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR S TATISTICAL PURPOSES. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.574/CHD/2009. 88. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDE R: 1 . THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO CONSIDER INTEREST INCOME RECEIVED FROM CU STOMERS AND SUPPLIERS AS 'BUSINESS INCOME' INSTEAD OF 'INCOME FR OM OTHER SOURCES' AS CONSIDERED BY THE A.O. 89. THE REVENUE IN THE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING INTEREST INCOME RECEIVED FROM CUSTOMERS AND SUPPLIERS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES AS HELD BY THE A.O. THE A.O. HAD NOTED THAT THE ASSESSEE HAD CREDITED A SUM OF RS.51.02 LACS AS INTEREST INCOME IN ITS PROFIT & LOSS ACCOUNT WHICH WAS THE NET FIGURE OF INTEREST EARNED AFTER REDUCING THE INTEREST EXPENDI TURE. THE GROSS INTEREST WAS FOUND TO INCLUDE AS SUM OF RS.293.46 LACS AS INTEREST RECEIVED FROM CUSTOMERS AND SUPPLIERS AND A SUM OF RS.238.89 LACS AS INTEREST RECEIVED FROM FDRS. THE A.O. TREATED THE ENTIRE GRO SS INTEREST RECEIVED AS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND FURTHER DENIED THE NETTING OF INT EREST PAID AGAINST THE SAME. THE LD.CIT(A) HELD THE INTER EST EARNED BY THE ASSESSEE FROM FDRS TO BE CONSIDERED A S INCOME FROM OTHER SOURCES, WHILE THE INTEREST INCOM E ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 37 OF 65 EARNED FROM CUSTOMERS AND SUPPLIERS WAS HELD TO BE THE BUSINESS INCOME OF THE ASSESSEE FOLLOWING HIS DECIS ION IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT Y EAR 2002-03. FURTHER FOLLOWING THE JUDGMENT OF THE HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RANI PALIW AL, VS. CIT 268 ITR 220(P&H) THE NETTING OF INTEREST RECEIVED AGAINST INTEREST EXPENDITURE FOR THE PURPO SE OF CLAIMING DEDUCTION/EXEMPTION WAS NOT ALLOWED. IN TH E ABOVE GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTEREST INCOME RECEI VED FROM CUSTOMERS AND SUPPLIERS AS BUSINESS INCOME OF THE ASSESSEE. 90. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR ASSES SEE POINTED OUT THAT IDENTICAL ISSUE HAD BEEN ADJUDICAT ED BY THE I.T.A.T. IN THE CASE OF THE ASSESSEE ITSELF FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y 200 3- 04, WHEREIN THE CIT(A) HAD HELD THE INTEREST INCOM E RECEIVED FROM CUSTOMERS AND SUPPLIERS TO BE THE BUSINESS INCOME OF THE ASSESSEE WHICH WAS CHALLENGE D BEFORE THE I.T.A.T., WHICH IN TURN WAS DISMISSED BY THE ITAT. OUR ATTENTION WAS DRAWN TO PARAS 83 AND 84 OF THE ORDER OF THE IN THIS REGARD IN THIS REGARD AS UNDER : 83. GROUND NO.2 RAISED BY THE REVENUE READS AS UNDER: 2. LD. CIT(A) HAS ERRED IN LAW & FACTS IN DIRECTING THE A.O. TO CONSIDER INTEREST INCOME RECEIVED BY THE ASSESSEE ON DELAYED PAYMENT FROM CUSTOMERS AS 'BUSINESS INCOME' INSTEAD OF 'INCOME OF OTHER SOURCES' AS CONSIDERED BY THE A.O. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 38 OF 65 84. THE REVENUE INTEREST HE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTEREST RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM CUSTOMERS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES AS HELD BY THE A.O. TH E CIT(A) HAD HELD THE SAID INTEREST INCOME TO BE IN T HE NATURE OF BUSINESS INCOME OF THE ASSESSEE FOLLOWING HIS ORDER IN THE CASE OF THE ASSESSEE FOR ASSESSMEN T YEAR 2002-03 WHEREIN THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PHATELA COTGIN INDUSTRIES P. LTD. VS. CIT, 167 TAXMAN 9 HAD BEEN FOLLOWED. THE LD. DR WAS UNABLE TO BRING TO OU R NOTICE ANY CONTRARY DECISION IN THIS REGARD. IN VIE W OF THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) HOLDING THE INTEREST INCOME EARNED FROM DELAYED PAYMENTS FROM CUSTOMERS ETC. AS BUSINESS INCOME. GROUND OF APPEAL NO.2 RAISED BY TH E REVENUE IS, THEREFORE, DISMISSED. 91. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTEN DED THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE. 92. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE HAD B EEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING YEAR, AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE. 93. IN VIEW OF THE ABOVE, SINCE ADMITTEDLY, THE ISS UE OF TREATMENT OF INTEREST RECEIVED FROM SUPPLIERS AND CUSTOMERS BEING IN THE NATURE OF BUSINESS INCOME OF THE ASSESSEE HAS ALREADY BEEN ADJUDICATED BY THE I.T.A. T. AS SUCH IN THE PRECEDING YEAR IN THE CASE OF THE ASSES SEE ITSELF, WE SEE NO REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A) TREATING THE SAID INCOME AS BUSINESS INCO ME OF THE ASSESSEE. GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 94. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UND ER: ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 39 OF 65 2. THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS I N ALLOWING DEDUCTION U/S 801B ON ELIGIBLE PROFITS OF ITS UNITS N AMED VARDHMAN SPINNING & GENERAL MILLS (100% EOU) AVAILING EXEMPTION U/S 10B. 95. BRIEFLY STATED, THE ASSESSEE HAD CLAIMED DEDUC TION WITH RESPECT TO THE PROFITS OF VSGM EOU UNIT U/S 80IB, U /S 10B AND U/S 80HHC OF THE ACT. THE A.O. WAS OF THE OPINI ON THAT DEDUCTION U/S 80IB OF THE ACT WAS NOT ALLOWABLE TO THE ASSESSEE SINCE IT TANTAMOUNTED TO DOUBLE DEDUCTION IN RESPECT OF THE SAME INCOME. ACCORDINGLY, HE HELD THAT DEDUC TION U/S 80IB OF THE ACT CLAIMED BY THE ASSESSEE IN RESPECT OF THIS UNIT WAS NOT ALLOWABLE TO THE ASSESSEE. 96. THE LD.CIT(A) NOTED THAT IDENTICAL ISSUE HAD BE EN ADJUDICATED IN THE CASE OF M/S VARDHMAN TEXTILES LT D. FOR ASSESSMENT YEAR 2004-05 BY THE FIRST APPELLATE AUT HORITY WHEREIN IT WAS HELD THAT TO THE EXTENT THE PROFITS REMAINED AFTER CLAIMING DEDUCTION U/S 10B OF THE ACT, THE AS SESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 80IB OF THE ACT ON THE SAME. FOLLOWING THE SAME THE LD. CIT(A) DIRECTED THE A.O. TO ALLOW DEDUCTION U/S 80IB OF THE ACT IF THERE REMAINS ANY ELIGIBLE INCOME INCLUDED IN THE TOTAL GROSS INCOME OF THE AS SESSEE AFTER ALLOWING DEDUCTION U/S 10B OF THE ACT. 97. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP IN APPEAL BEFORE US. AT THE OUTSET ITSELF THE LD. COUN SEL FOR ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD BEEN ADJUDICATED BY THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILE S LTD. VS. ADDL.CIT IN ITA NO.35/CHD/2011 DATED 18.12.2018 WHE REIN IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTIO N U/S 80IB OF THE ACT ON THE PROFITS REMAINING AFTER CLAIMING ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 40 OF 65 DEDUCTION/EXEMPTION U/S 10B OF THE ACT. OUR ATTENTI ON WAS DRAWN TO THE FINDINGS OF THE I.T.A.T. AT PARA 31 OF THE ORDER AS UNDER: 31. GROUND NO.4 : VIDE GROUND NO.4, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN ALLOWING DEDUCTION U/S 80IB IN RESPECT OF UNIT WHICH HAS ALREADY CLAIMED EXEMPTION U/S 10B OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IB IN RESPECT OF UNIT VARDHMAN SPINNING & GENERAL MILLS ON THE BALANCE AMOUNT, AFTER EXCLUDING THE AMOUNT UPON WHICH THE EXEMPTION U/S 10B OF THE ACT HAS BEEN CLAIMED. IN VIEW OF THIS, IT IS NOT A CASE OF DOUBLE DEDUCTION, HENCE WE DO NOT FIND ANY INFIRMITY IN TH E ORDER OF CIT(A) ON THIS ISSUE ALSO. THE ORDER OF TH E CIT(A)ON THIS ISSUE IS ACCORDINGLY UPHELD. 98. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE HAD B EEN ADJUDICATED IN FAVOUR OF THE ASSESSEE IN THE CASE O F M/S VARDHMAN TEXTILES LTD. (SUPRA), AS POINTED OUT BY T HE LD. COUNSEL FOR ASSESSEE ABOVE. 99. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES AND ALSO GONE THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILES LTD. (SUPRA). WE HAVE ALSO NOTED THAT THE I.T.A.T. IN THE SAID CASE HAD UPHELD THE CLAIM OF T HE ASSESSEE U/S 80IB ON THE BALANCE PROFITS REMAINING AFTER CLA IMING DEDUCTION U/S 10B OF THE ACT. SINCE THE ISSUE IN TH E PRESENT CASE IS IDENTICAL TO THAT IN THE CASE OF M/S VARDHM AN TEXTILES LTD. (SUPRA), THE DECISION RENDERED BY THE I.T.A.T. IN THE SAID CASE WILL SQUARELY APPLY TO THE PRESENT GROUND ALSO , FOLLOWING WHICH WE UPHOLD THE ORDER OF THE LD.CIT(A) HOLDING THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80IB OF THE ACT ON THE PROFITS OF ITS VSGM EOU UNIT REMAINING AFTER CL AIMING ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 41 OF 65 DEDUCTION U/S 10B OF THE ACT. GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS ACCORDINGLY, DISMISSED. 100. GROUND OF APPEAL NO.3 RAISED BY THE REVENUE RE ADS AS UNDER: 3 . THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS I N ALLOWING THE DEDUCTION U/S 801B IN CASE OF AURO-DYEING MILLS AS THE UNIT IS NOT DOING MANUFACTURING ACTIVITIES. 101. THE REVENUE IN THE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING DEDUCTION U/S 8 0IB OF THE ACT ON PROFITS OF A UNIT OF THE ASSESSEE NAMED AURO DYEING MILLS AMOUNTING TO RS.2,46,92,719/- . 102. BRIEFLY STATED, THE A.O. HAD HELD THE ACTIVITI ES CARRIED OUT IN AURO DYEING MILLS OF THE ASSESSEE AS NOT AMOUNTI NG TO PRODUCTION OF ARTICLE OR THING, WHICH WAS AN ESSENT IAL CONDITION /PREREQUISITE FOR CLAIMING DEDUCTION U/S 80IB OF THE ACT. HE WAS OF THE OPINION THAT DYEING OF YARN OR F IBER WAS A PROCESS WHICH DID NOT AMOUNT TO MANUFACTURE AND NO NEW ARTICLE OR THING WAS GENERATED AS A RESULT OF THE P ROCESS. ACCORDINGLY HE HELD THAT THE PROFITS OF THE SAID UN IT WERE NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT 103. BEFORE THE LD.CIT(A) THE ASSESSEE FILED DETAIL ED SUBMISSIONS ON THE ISSUE, CONTENDING THAT ITS ACTIV ITIES AMOUNTED TO MANUFACTURE OF ARTICLE OR THING. THE LD .CIT(A) ALLOWED THE ASSESSEES CLAIM FOLLOWING THE ORDER OF THE LD.CIT(A) IN THE CASE OF THE ASSESSEE ITSELF IN ASS ESSMENT YEAR 2002-03, WHEREIN THE PROCESS OF THE ASSESSEE AT THI S UNIT WAS HELD TO AMOUNTING TO MANUFACTURE OF ARTICLE OR THIN G JUSTIFYING ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 42 OF 65 THE CLAIM OF DEDUCTION OF PROFITS OF THE SAID UNIT U/S 80IB OF THE ACT. 104. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR ASSE SSEE POINTED OUT THAT IDENTICAL ISSUE HAD BEEN ADJUDICAT ED BY THE I.T.A.T. IN THE CASE OF THE ASSESSEE ITSELF FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y 200 3- 04. OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE I.T.A.T. AT PARAS 93 TO 95 OF THE ORDER AS UNDER: 93. GROUND OF APPEAL NO.7 RAISED BY THE REVENUE READS AS UNDER: 7. THAT THE ID. CTT(A) HAS ERRED IN LAW & FACTS IN AL LOWING THE DEDUCTION U/S 80IB IN CASE OF AURODYING MILLS AS THE UNIT IS NOT DOING MANUFACTURING ACTIVITIES. 94. IN THE ABOVE GROUND THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN GRANTING DEDUCTION U /S 80IB OF THE ACT TO AURO DYING MILLS OF THE ASSESSEE . THE A.O., IT WAS POINTED OUT, HAD DENIED THE SAID HOLDING THAT THE UNIT WAS NOT UNDERTAKING ANY MANUFACTURING ACTIVITIES. THE LD.CIT(A), ON THE OTH ER HAND, HAD ALLOWED THE CLAIM OF THE ASSESSEE ON FINDING THAT IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEAR 2002-03 WHEREIN THE SAME WAS ALLOWED IN FIRST APPEAL VIDE ORDER DATED 29.4.2008. 95. THE LD. DR BEFORE US RELIED UPON THE ORDER OF T HE A.O. BUT WAS UNABLE TO CONTROVERT THE FINDING OF TH E LD.CIT(A) THAT THE ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR. NOR DID THE LD.DR BRING TO OUR NOTICE ANY ORDER OF HIGHER AUTHORITIES REVERSING THE CIT(A) S ORDER ON THIS ISSUE FOR THE PRECEDING YEAR. IN VIEW OF THE S AME, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) HOLDING THAT AURO DYING MILLS WAS ELIGIB LE FOR DEDUCTION U/S 80IB OF THE ACT. IN VIEW OF THE ABOVE, GROUND NO.7 RAISED BY THE REVENUE IS DISMISSED. 105. IN VIEW OF THE ABOVE, SINCE ADMITTEDLY THE ISS UE RAISED IN THE ABOVE GROUND VIS--VIS THE ELIGIBILITY OF THE A SSESSEE TO CLAIM DEDUCTION OF THE PROFITS OF ITS AURO DYEING M ILLS U/S 80IB OF THE ACT HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE IN ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 43 OF 65 THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04 BY THE I.T.A.T. VIDE ITS ORDER IN ITA NOS.88 & 118/ CHD/2009 DATED 26.11.2018, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE ORDER OF THE LD.CIT(A). GROUND OF APPEAL NO.3 RAISE D BY THE REVENUE IS, THEREFORE, DISMISSED. 106. GROUND OF APPEAL NO.4(I)(II) & (III) RAISED BY THE REVENUE READS AS UNDER: 4(I). THAT THE ID. CLT(A) HAS ERRED IN LAW AND FAC TS IN DIRECTING THE A.O. TO TREAT THE INTEREST RECEIVED FROM THE CU STOMERS AND SUPPLIERS TO BE THE INCOME ELIGIBLE FOR DEDUCTION U/S 80IB AND EXEMPTION U/S 10B. (II) THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO ALLOW DEDUCTION U/S 801B AND EX EMPTION 10B ON PROFITS AFTER EXCLUDING LOSS DEBITED IN THE ACCOUNTS IN RESPECT OF WHICH THE INSURANCE CLAIMS WERE RECEIVED. (III) THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O, NOT TO REDUCE FOREIGN EXCHANGE FLUCTUATION G AIN FROM ELIGIBLE PROFITS OF UNITS ELIGIBLE FOR DEDUCTION U/S 8 01B AND EXEMPTION U/S 10B. 107. THE REVENUE IN THE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING THE FOLLOWING T O BE TREATED AS PART OF THE PROFITS OF THE ASSESSEE ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT: 1. INTEREST RECEIVED FROM CUSTOMERS AND SUPPLIERS. 2. IN PROVIDING THAT THE LOSSES CORRESPONDING TO INSURANCE INCOME RECEIVED TO BE EXCLUDED FROM THE EXPENDITURE FOR THE PURPOSE OF CALCULATING THE INCOME ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 3. FOREIGN EXCHANGE FLUCTUATION. 108. THE A.O. HAD DENIED EXEMPTION ON THESE INCOMES HOLDING THAT THEY WERE NOT IN THE NATURE OF PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING IN RESPECT OF WHICH THE EXEM PTION U/S 10B OF THE ACT WAS ALLOWABLE. THE LD.CIT(A), IN TUR N ALLOWED ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 44 OF 65 THE EXEMPTION ON THE INTEREST RECEIVED FROM SUPPLIE RS AND CUSTOMERS FOLLOWING THE DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF PHATELA COTGIN INDUSTRIES LTD. 166 TAXMAN 9 (P&H), ON FOREIGN EXCHANGE FLUCTUATION FOL LOWING THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CA SE OF M/S VMT SPINNING LTD. IN ITA NO.502/CHD/2005 AND ITA NO.654/CHD/2005 AND FURTHER HELD THAT THE LOSS ON A SSETS IN RESPECT OF WHICH INSURANCE CLAIM WAS RECEIVED SHOU LD BE REMOVED FROM THE EXPENSES FOR THE PURPOSE OF CALCUL ATING THE INCOME ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT FO LLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. KHEMKA CONTAINER (P) LTD.(2005), 275 ITR 55 9 (P&H). 109. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR ASSE SSEE POINTED OUT THAT THE ISSUE OF CLAIM OF EXEMPTION U/S 10B OF THE ACT ON THE INTEREST RECEIVED FROM THE CUSTOMERS AND SUPPLI ERS HAD ARISEN IN THE IMMEDIATELY PRECEDING YEAR I.E A.Y 2003-04 AND THE ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. OUR ATTENTION WAS DRAWN TO PARAS 89 AND 90 OF I.T.A .T. ORDER AS UNDER: 89. GROUND NO.5 RAISED BY THE REVENUE READS AS UNDER: 5. THAT THE LD. C1T(A) HAS ERRED IN LAW & FACTS IN DIRECTING THE A.O. TO TREAT THE INTEREST RECEIVED FROM CUSTOMERS AND SUPPLIERS TO BE THE INCOME ELI GIBLE FOR DEDUCTION U/S 10B. 90. IN THE ABOVE GROUND THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTERES T RECEIPTS FROM CUSTOMERS AND SUPPLIERS AS BEING ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. THE LD. DR IN THIS REGARD RELIED UPON THE ORDER OF THE A.O. BU T AT THE SAME TIME POINTED OUT THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PHATELA COTGIN INDUSTRIES P. LTD. VS. CIT, 303 ITR 411 HAD CATEGORICALLY HELD THAT THE INTEREST FROM ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 45 OF 65 CUSTOMERS/SUPPLIERS WAS ENTITLED TO DEDUCTION U/S 80HH AND 80I OF THE ACT. IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A) AND GROUND RAISED BY THE REVENUE, THEREFORE, IS DISMISSED. 110. LD.COUNSEL FOR THE ASSESSEE FURTHER POINTED OU T THAT IN THE CASE OF VARDHAMAN TEXTILES LTD. VS ADDL.CIT IN ITA NO.35/2011 ,THE ITAT HAD ADJUDICATED THE ALLOWANCE OF CLAIM OF DEDUCTION U/S 80IB/10B OF THE ACT ON THE AFORESA ID INCOMES.COPY OF THE ORDER WAS PLACED BEFORE US. FU RTHER VIS--VIS THE CLAIM OF EXEMPTION U/S 10B OF THE ACT ON FOREIGN EXCHANGE FLUCTUATION AND ADJUSTMENT OF LOSS ON GOOD S IN RESPECT OF WHICH INSURANCE CLAIM WAS RECEIVED,THE L D. COUNSEL FOR ASSESSEE RELIED UPON THE ORDER OF THE CIT(A). 111. THE LD. DR, ON THE OTHER HAND, CONCEDED THAT T HE ISSUE OF CLAIM OF EXEMPTION U/S 10B ON INTEREST RECEIVED FRO M CUSTOMERS AND SUPPLIERS HAD BEEN ADJUDICATED IN FAV OUR OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR, AS POIN TED OUT BY THE LD. COUNSEL FOR ASSESSEE. REST OF THE CLAIM ON FOREIGN EXCHANGE FLUCTUATION AND ADJUSTMENT OF LOSS ON GOOD S AGAINST INSURANCE CLAIM RECEIVED, THE LD. DR RELIED UPON TH E ORDER OF THE A.O. 112. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ISSUE BEFORE US RELATES TO CLAIM OF EXEMPTION U/S 10B ON THE INTERE ST RECEIVED FROM CUSTOMERS AND SUPPLIERS, FOREIGN EXCHANGE FLUC TUATION AND THE EXCLUSION OF LOSS ON GOODS ON WHICH INSURAN CE CLAIM HAS BEEN RECEIVED FOR THE PURPOSE OF COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION. ADMITTEDLY, THE I.T.A.T. I N THE PRECEDING YEAR IN THE CASE OF THE ASSESSEE ITSELF, HAS HELD THAT THE EXEMPTION U/S 10B OF THE ACT IS ALLOWABLE ON IN TEREST ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 46 OF 65 INCOME RECEIVED FROM CUSTOMERS AND SUPPLIERS. FOLLO WING THE SAME, THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT( A) ALLOWING THE ASSESSEES CLAIM OF DEDUCTION U/S 10B OF THE AC T ON INTEREST RECEIVED FROM CUSTOMERS AND SUPPLIERS U/S 10B OF THE ACT. FURTHER WE HAVE GONE THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILES LTD. (SUPRA) WHER EIN THE I.T.A.T. HAD RESTORED THE CLAIM OF DEDUCTION ON ACC OUNT OF INSURANCE CLAIM RECEIVED TO THE A.O. WITH A DIRECTI ON TO BIFURCATE THE CLAIM RECEIVED BETWEEN THAT RECEIVED ON ACCOUNT OF CAPITAL ASSETS AND TRADING ASSETS AND THEREAFTE R TO ALLOW THE CLAIM IN RESPECT OF RECEIVABLES ON ACCOUNT OF T RADING ASSETS ONLY. THE RELEVANT FINDINGS OF THE I.T.A.T. AT PARA 27 OF ITS ORDER ARE AS UNDER: 27. GROUND NO.2 : GROUND NO.2RAISED BY THE REVENUE IS IN THREE PARTS. THE REVENUE IN THE IST PART HAS AGITATED THE ACTION OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INTEREST RECEIVED FR OM THE CUSTOMERS AND SUPPLIERS TO BE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND ELIGIBLE FOR EXEMPTION U/S 10B AND DEDUCTION U/S 80IB AND 80IC OF THE ACT. SINCE WE HAVE ALREADY HELD THAT THE INTEREST INCOME RECEIVED ON DELAYED PAYMENT IS IN FACT PART OF THE SALE CONSIDERATION / RECEIVABLE FROM THE CUSTOMERS AND W E HAVE ALSO HELD THAT THE SAME TOBE TREATED AS BUSINE SS INCOME AND SINCE THE AFORESAID RECEIPTS ARE RELATIN G TO THE SALE RECEIPTS OF THE ASSESSEE OF THE PRODUCED MANUFACTURED, HENCE, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE CIT(A) IN THIS RESPECT. 113. ADMITTEDLY, THE ISSUE REGARDING CLAIM OF DEDU CTION ON INSURANCE IN THE IMPUGNED CASE ,BEING IDENTICAL TO THAT IN THE CASE OF VARDHMAN TEXTILES (SUPRA),THE SAME IS ALSO RESTORED BACK TO THE A.O TO BE DECIDED IN ACCORDANCE WITH TH E DIRECTIONS GIVEN IN THE CASE OF VARDHMAN TEXTILES(S UPRA). 114. MOREOVER WE FIND THAT THE I.T.A.T. IN THE SA ID CASE HAD ALLOWED ASSESSEES CLAIM OF DEDUCTION ON FOREIGN EX CHANGE GAIN ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 47 OF 65 ON FINDING THAT THEY WERE IN RESPECT OF EXPORT RECEIPTS/RECEIVABLES OF THE ASSESSEE. THE FINDINGS OF THE I.T.A.T. IN THIS REGARD AT PARA NOS.28 & 29 OF THE ORDER ARE AS UNDER: 28. THE THIRD PART OF GROUND NO.2 IS AGAINST THE A CTION OF THE CIT(A) IN DIRECTING THE ASSESSING OFFICER NO T TO REDUCE FOREIGN EXCHANGE FLUCTUATION GAIN FROM ELIGI BLE PROFITS OF UNITS ELIGIBLE FOR DEDUCTION U/S 80IB AN D 80IC AND EXEMPTION U/S 10B OF THE ACT. 29. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN IS IN RE SPECT OF EXPORT RECEIPTS/RECEIVABLE OF THE ASSESSEE AND ANY GAIN IN RESPECT OF RECEIVABLE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION INFACT CONTRIBUTES TO THE PROF ITS OF THE ASSESSEE FROM THE SALE/ EXPORT OF THE PRODUCTS. WE FIND FORCE IN THE AFORESAID CONTENTION. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN THIS RE SPECT ALSO. 115. SINCE BEFORE US ALSO THE LD. COUNSEL FOR ASSES SEE STATED THAT THE FOREIGN EXCHANGE FLUCTUATION GAIN WAS IN R ESPECT OF EXPORT RECEIPTS OF THE ASSESSEE, THE ISSUE IS SQUAR ELY COVERED BY THE DECISION O THE I.T.A.T. IN THE CASE OF M/S V ARDHMAN TEXTILES LTD. (SUPRA), FOLLOWING WHICH WE UPHOLD T HE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE. IN VIEW OF THE ABOVE, GROUND OF APPEAL NO.4(I), & ( III) ARE DISMISSED WHILE GROUND NO 4(II) IS ALLOWED FOR STAT ISTICAL PURPOSES. 116. GROUND NO.5 RAISED BY THE REVENUE READS AS UND ER: 5 . THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN D IRECTING THE A.O. TO ALLOCATE THE ELIGIBLE HEAD OFFICE INCOME TO THE RESPECTIVE UNIT FOR CALCULATING DEDUCTION U/S 801B AND EXEMPTION U/S 10B. 117. BRIEFLY STATED, DURING ASSESSMENT PROCEEDINGS , THE A.O. NOTED THAT THE ASSESSEE HAD NOT ALLOCATED ADMINISTR ATIVE, FINANCIAL AND PERSONNEL EXPENSES OF THE HEAD OFFICE , TO THE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 48 OF 65 UNITS ELIGIBLE FOR DEDUCTION U/S 80IB AND 10B OF TH E ACT, IN ORDER TO ARRIVE AT THE ACTUAL PROFITS DERIVED FROM THE SAID UNIT. THE A.O. HELD THAT THE OFFICE BEING AN INTEGRAL PAR T OF THE MANUFACTURING UNITS, THE EXPENSES INCURRED TOWARDS HEAD OFFICE HAD TO BE PROPORTIONATELY ALLOCATED AGAINST THE UNITS AND ACCORDINGLY, HE ALLOCATED THE IMPUGNED EXPENSES IN THE RATIO OF TURNOVER OF THESE UNITS TO THE TOTAL TURNOVER AN D RECOMPUTED THE DEDUCTION U/S 80IB AND 10B OF THE ACT ACCORDING LY, 118. THE LD.CIT(A) UPHELD THE ORDER OF THE A.O. BUT AT THE SAME TIME HE DIRECTED THAT EVEN THE INCOME OF THE H EAD OFFICE SHOULD BE ALLOCATED TO THE RESPECTIVE UNITS, IN TUR N HOLDING THAT ONLY THE NET EXPENSES OF THE HEAD OFFICE HAVE TO BE ALLOCATED TO THE ELIGIBLE UNITS. THE LD.CIT(A) FOLL OWED HIS OWN ORDER IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YE AR 2002-03 AND THE ORDER OF THE CIT(A) IN THE CASE OF M/S VARD HMAN TEXTILES LTD. (SUPRA) FOR ASSESSMENT YEAR 2004-05, WHILE HOLDING SO. 119. BEFORE US, THE LD. COUNSEL FOR ASSESSEE POINTE D OUT THAT THIS ISSUE HAD BEEN ADJUDICATED IN THE CASE OF M/S VARDHMAN TEXTILES LTD. (SUPRA) IN ITA NO.1429/CHD/2010 RELAT ING TO ASSESSMENT YEAR 2006-07, WHEREIN THE ASSESSEE HAD C HALLENGED IDENTICAL ORDER OF THE CIT(A) DIRECTING ALLOCATION OF NET INCOME. IT WAS POINTED OUT THAT THE I.T.A.T. HAD DISMISSED THE ASSESSEES APPEAL ON THIS GROUND UPHOLDING THE ORDE R OF THE CIT(A). OUR ATTENTION WAS DRAWN TO PARA 11 OF THE S AID ORDER AS UNDER: 11. GROUND NOS. 3 &4 : VIDE THESE GROUNDS, THE ASSESSEE HAS AGITATED THE ACTION OF THE CIT(A) IN ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 49 OF 65 DIRECTING THE ASSESSING OFFICER IN CONFIRMING THE ACTION OF THE CIT(A) FOR REDUCING PROFITS OF THE UNITS ELI GIBLE FOR DEDUCTIONS U/S 10B, 80IC AND 80IB OF THE ACT BY ALLOCATING HEAD OFFICE EXPENSES. THE LD. CIT(A) WHI LE HOLDING SO, HOWEVER, HAS DIRECTED THE ASSESSING OFF ICER TO ALLOCATE THE NET HEAD OFFICE EXPENSES AND NOT TH E GROSS NET EXPENDITURE. WE DO NOT FIND ANY INFIRMIT Y IN THE ORDER OF THE CIT(A) ON THE ISSUE AND THE SAME I S ACCORDINGLY UPHELD. 120. OUR ATTENTION WAS ALSO DRAWN TO THE GROUND RAI SED BY THE REVENUE IN ITS APPEAL IN THE SAME YEAR I.E. 2006-07 IN ITA NO.35/CHD/2011 WHICH WAS ALSO DISMISSED. OUR ATTENT ION WAS DRAWN TO PARA 30 OF THE ORDER AS UNDER: GROUND NO.3: VIDE GROUND NO.3,THE REVENUE HAS AGIT ATED THE ACTION OF THE CIT(A) IN DIRECTING THE ASSESSING OFF ICER TO ALLOCATE THE ELIGIBLE HEAD OFFICE EXPENSES TO THE R ESPECTIVE UNITS FOR REDUCING THE SAME OUT OF ELIGIBLE PROFITS OF ASSESSEE FOR CLAIM OF EXEMPTION/DEDUCTION U/S 80IB,80IC AND U/S 10B OF THE ACT. THIS ISSUE HAS ALREADY BEEN DISCUSSED WHILE ADJUDIC ATING GROUND NO.4 OF THE ASSESSES APPEAL WHEREIN WE HAVE UPHELD THE ORDER OF THE CIT(A) ON THIS ISSUE. IN VIEW OF THIS, GROUND NO.3 OF THE REVENUES APPEAL S IS HEREBY DISMISSED 121. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE WAS COVERED BY THE DECISION OF THE I.T.A.T. IN THE CASE OF M/S VAR DHMAN TEXTILES LTD. (SUPRA). 122. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALSO G ONE THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF M/ S VARDHMAN TEXTILES LTD. (SUPRA). WE FIND THAT IN THE SAID CAS E ALSO THE CIT(A) HAD DIRECTED ALLOCATION OF NET EXPENSES INCU RRED BY THE HEAD OFFICE TO THE UNITS ELIGIBLE FOR DEDUCTION U/S S 10B, 80IC AND 80IB OF THE ACT, WHICH WE FIND WAS UPHELD BY TH E I.T.A.T. VIDE ITS IMPUGNED ORDER. SINCE THE ISSUE IN THE IMP UGNED GROUND IS IDENTICAL TO THAT IN THE CASE OF M/S VARD HMAN TEXTILES LTD. (SUPRA), THE DECISION RENDERED THEREI N WILL ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 50 OF 65 SQUARELY APPLY TO THE PRESENT CASE ALSO, FOLLOWING WHICH WE UPHELD THE ORDER OF THE LD.CIT(A) DIRECTING ALLOCAT ION OF NET EXPENSES INCURRED BY THE HEAD OFFICE. GROUND OF APP EAL NO.5 RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 123. GROUND NO.6(I) TO (IV)(B) RELATES TO THE ISSUE OF COMPUTATION OF PROFITS ELIGIBLE FOR DEDUCTION U/S 8 0HHC OF THE ACT AND READS AS UNDER: 6(I) THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO INCREASE THE ELIGIBLE PROFITS OF BUSINE SS BY 10% OF THE INTEREST RECEIPT FROM FDRS AND OTHERS, WHICH ARE TAX ABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES' FOR THE PURPOS E OF CALCULATION U/S 80 HHC. (II) THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS I N DIRECTING THE A.O. TO TREAT THE INTEREST RECEIVED FROM CUSTOME RS AND SUPPLIERS AS BUSINESS INCOME AND REDUCE ONLY 90% OF THE SAME FROM PROFITS OF BUSINESS AS PER EXPLANATION (BAA) TO S EC. 80HCC AGAINST 100% REDUCED BY A.O. (III) THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. NOT TO REDUCE 90% OF MISC. INCOME FROM RENT RECEIVED , FOREIGN EXCHANGE FLUCTUATION AND OTHER MISC. RECEIP TS FROM THE PROFIT OF BUSINESS FOR THE PURPOSES OF CALCULATING DE DUCTION U/S 80HHC. (IV)(A) THAT THE LD. CIT() HAS ERRED IN LAW AND FACTS IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 80 HHC I N RESPECT OF DEPB WHICH IS SELF CONSUMED. (IV)(B) THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACT S IN DIRECTING THE A.O. THAT INCOME FROM TRANSFER OF DEPB C OULD BE TAXED ONLY IN THE YEAR IN WHICH IT WAS TRANSFERRED AN D NOT IN THE YEAR IN WHICH IT WAS SHOWN IN THE ACCOUNTS AS RECE IVABLE, AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 124. THE REVENUE IN THE ABOVE GROUND HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING THE FOLLOWING A DJUSTMENTS TO BE MADE TO THE PROFITS OF THE ASSESSEE ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT: 1. EXCLUDING ONLY 90% OF THE INTEREST RECEIVED FROM BANKS AND OTHER AS AGAINST 100% EXCLUDED BY THE A.O. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 51 OF 65 2. EXCLUDING ONLY 90% OF THE INTEREST RECEIVED FROM CUSTOMERS AND SUPPLIERS AS AGAINST 100% REDUCED BY THE A.O. 3. IN NOT REDUCING 90% ON RENT RECEIVED, FOREIGN EXCHANGE FLUCTUATION AND MISCELLANEOUS INCOME FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC AND; 4. IN ALLOWING DEDUCTION U/S 80HHC ON DEPB SELF CONSUMED/RECEIVABLE. 125. BRIEFLY STATED, THE A.O. HAD EXCLUDED THE FOLL OWING FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT: 1. 100% OF THE INTEREST RECEIVED FROM OTHERS AND FR OM SUPPLIERS AND CUSTOMERS. 2. MISCELLANEOUS INCOME WHICH INCLUDED THE FOLLOWIN G: DETAIL OF MISCELLANEOUS INCOME AMOUNT (IN RS.) - MISC. RECEIPTS 55,65,594 - FOREIGN EXCHANGE FLUCTUATION 2,32,82,584 - RENT RECEIVED 20,63,157 -------------- TOTAL 3,09,11,335 AND; 3. DEPB SELF CONSUMED. 126. VIS--VIS THE FINDINGS OF THE LD.CIT(A) THAT 1 0% OF INTEREST INCOME RECEIVABLE FROM FDRS & OTHERS WAS T O BE INCREASED IN THE ELIGIBLE PROFITS OF THE BUSINESS F OR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT, THE LD . COUNSEL FOR ASSESSEE CONTENDED THAT THE ASSESSEE IN ITS APP EAL BEFORE US IN ITA NO.527/CHD/2009 ABOVE HAD IN GROUND NO.2 RAISED THE ISSUE OF NETTING OF INTEREST INCOME WHICH IF AL LOWED TO THE ASSESSEE, THE SAID GROUND BECOMES INFRUCTUOUS. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 52 OF 65 127. IN GROUND NO.2 RAISED BEFORE US IN ASSESSES AP PEAL, WE HAVE RESTORED THE ISSUE RAISED TO THE AO DIRECTING HIM TO ALLOW THE ASSESSEE THE BENEFIT OF NETTING OF INTER EST AFTER VERIFYING NEXUS BETWEEN THE INTEREST INCOME EARNED AND PAID ,AT PARA 14 OF OUR ORDER. THIS ISSUE IS ALSO THEREF ORE RESTORED BACK TO THE AO TO BE ADJUDICATED AFTER DEALING WITH THE ISSUE RAISED IN GROUND NO.2 OF THE ASSESSES APPEAL . ACCORDINGLY, GROUND NO.6(I) RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 128. VIS--VIS THE FINDINGS OF THE CIT(A) THAT 90% OF THE INTEREST RECEIVED FROM CUSTOMERS, SUPPLIERS IS TO B E REDUCED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT, THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT IN GR OUND NO.10 OF THE ASSESSEES APPEAL THE ASSESSEE HAD PLEADED T HAT THE SAID INTEREST INCOME BE TREATED AS PART OF ITS INCOME FR OM BUSINESS AND PROFESSION AND IF SO TREATED THE GROUND RAISED BY THE REVENUE WOULD BECOME INFRUCTUOUS. 129. IN GROUND NO.10 RAISED BY THE ASSESSEE IN ITS APPEAL ABOVE WE HAVE ALLOWED THE BENEFIT OF NETTING OF THE INTEREST RECEIVED FROM SUPPLIERS AND CUSTOMERS RESTORING THE ISSUE TO THE AO TO ALLOW THE BENFIT AFTER VERIFYING THE NEXU S BETWEEN INTEREST INCOME EARNED AND EXPENDED AT PARA 14 OF O UR ORDER. THIS ISSUE IS ALSO THEREFORE RESTORED BACK TO THE AO TO BE ADJUDICATED AFTER DEALING WITH THE ISSUE RAISED I N GROUND NO.10 OF THE ASSESSES APPEAL . ACCORDINGLY, GROUND NO.6(II) RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL P URPOSES. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 53 OF 65 130. VIS--VIS GROUND NO.6(III) WHEREIN THE CIT(A) HAD ALLOWED 100% DEDUCTION U/S 80HHC OF THE ACT ,ON MISCELLANE OUS RECEIPTS, FOREIGN EXCHANGE FLUCTUATION AND RENT REC EIVED FROM EMPLOYEES, WE HOLD THAT VIS-S-VIS THE RENT RECEIVED FROM EMPLOYEES, THE SAME CANNOT BE SAID TO HAVE ANY NEXU S WITH THE BUSINESS OF EXPORT CARRIED OUT BY THE ASSESSEE AND, THEREFORE, THE A.O. HAD RIGHTLY EXCLUDED 90% OF THE SAME FROM THE PROFITS OF BUSINESS. AS FAR THE FOREIGN EXCHANG E FLUCTUATION, SINCE THE LD. COUNSEL FOR ASSESSEE HAD SUBMITTED THAT THE SAME RELATED TO THE EXPORT SALES OR TRANSA CTION CARRIED OUT BY IT, WE HOLD THAT THE LD.CIT(A) HAD RIGHTLY H ELD THAT 100% OF THE SAME WAS TO BE INCLUDED IN THE ELIGIBLE PROFITS FOR CALCULATING DEDUCTION U/S 80HHC OF THE ACT. AS FOR THE MISCELLANEOUS INCOME RECEIVED BY THE ASSESSEE, OUR ATTENTION WAS DRAWN TO PAGE 42 OF PAPER BOOK FILED BY THE ASS ESSEE, WHEREIN THE DETAILS OF MISCELLANEOUS INCOME WAS FIL ED AS UNDER: DETAIL OF MISC. RECEIPTS REBATE & DISCOUNT 32,950 SALE OF SCRAP 41,170 TESTING CHARGES OF SAMPLES 91,106 OTHER INCOMES 98,591 CENVAT ON YARN TFD. 169,099 DISCOUNT ON HPS FROM SUPPLIERS 250,780 EXPORT SAMPLES 270,791 INSURANCE AND MISC CLAIMS 411,478 EXPORT SALES EXCISE REFUND 4,199,629 TOTAL -------------- 5,565,594 ------------- 131. ON PERUSING THE ABOVE, WE FIND THAT OUT OF THE SAME SALE OF SCRAP AND OTHER INCOME DO NOT QUALIFY TO BE TREA TED AS INCOME RELATING TO THE EXPORT BUSINESS OF THE ASSES SEE WHILE THE REST IN THE NATURE OF REBATE AND DISCOUNT, TEST ING CHARGES ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 54 OF 65 AND EXPORT SAMPLE DISCOUNT RECEIVED FROM SUPPLIERS, EXPORT SAMPLE, EXCISE REFUND ALL RELATE TO THE BUSINESS OF THE ASSESSEE. THEREFORE, WE HOLD THAT THE DEDUCTION U/ S 80HHC OF THE ACT BE NOT ALLOWED ON SALE OF SCRAP AND OTHER I NCOME OF THE ASSESSEE. THE DEDUCTION ON THE REST IS ALLOWED. GRO UND OF APPEAL NO.6(III) IS PARTLY ALLOWED. 132. VIS--VIS GROUND NO.6 IV(A) & IV(B) THE REVEN UE IS IN APPEAL AGAINST THE ORDER OF THE CIT(A) ALLOWING THE ASSESSEES CLAIM OF DEDUCTION U/S 80HHC ON THE DEPB WHICH WAS SELF CONSUMED HOLDING THAT THIS ONLY GOES TO REDUCE THE COST OF THE IMPORT OF THE ASSESSEE SALES, AND, THEREFORE, DO NO T FIGURE SEPARATELY IN THE COMPUTATION OF DEDUCTION U/S 80HH C OF THE ACT. THE LD. DR HAS BEEN UNABLE TO CONTROVERT THE F INDINGS OF THE CIT(A) IN THIS REGARD .WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN THIS REGARD AND UPHOLD THE SAME GROUND OF APPEAL NO.6(IVA) IS DISMISSED. 133. THE LD.CIT(A) HAD ALSO HELD THAT THE DEPB TRAN SFERRED IN THE SUBSEQUENT YEAR WAS TO BE TAXED ONLY IN THE YEA R IT WAS TRANSFERRED AND NOT WHEN IT WAS SHOWN AS RECEIVABLE . THE LD.CIT(A) HAD FOLLOWED THE DECISION OF THE ITAT CHA NDIGARH BENCH IN THE CASE OF ACIT VS. PARAKER CYCLE INDS., 104 TTJ 983(CHD) IN THIS REGARD. THE LD. DR HAS BEEN UNABL E TO CONTROVERT THE FINDINGS OF THE CIT(A), NOR HAS BEEN ABLE TO CITE ANY DECISION CONTRARY TO THAT RELIED UPON BY THE LD .CIT(A). WE, THEREFORE, UPHOLD THE ORDER OF THE LD.CIT(A IN THIS REGARD. GROUND OF APPEAL NO.6(IVB) IS DISMISSED. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 55 OF 65 IN VIEW OF THE ABOVE THE VARIOUS GROUNDS RAISED IN GROUND NO.6 ARE DISPOSED OFF ACCORDINGLY. 134. GROUND NO.7 READS AS UNDER: 7. THAT THE ID. C1T(A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.51,31,306/- MADE U/S 14A BY THE A.O. ON PROPORTIONATE BASIS OUT OF PERSONAL, ADMINIST RATIVE AND FINANCIAL EXPENSES FOR EARNING OF DIVIDEND INCOME. 135. THE REVENUE HAS CHALLENGED THE RESTRICTION OF DISALLOWANCE MADE U/S 14A BY THE CIT(A) TO RS. ONE LACS AS AGAINST RS.51,31,386/-MADE BY THE A.O. 136. THIS ISSUE HAS BEEN DEALT WITH BY US IN GROUND NO.19 OF THE ASSESSEES APPEAL WHEREIN WE HAVE UPHELD THE AC TION OF THE LD.CIT(A) AT PARA 75 OF OUR ORDER ABOVE. IN VIEW OF THE SAME, WE DISMISS THIS GROUND RAISED BY THE REVENUE. 137. GROUND NO.8 RELATES TO THE VARIOUS ADJUSTMENT S ALLOWED BY THE CIT(A) WHILE COMPUTING THE BOOK PROFITS OF T HE ASSESSEE FOR THE PURPOSES OF PAYING MINIMUM ALTERNATE TAXES U/S 115 JB OF THE ACT.GROUND 8(I) READS AS UNDER: 8. THAT THE ID. CIT(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE A.O. TO COMPUTE THE TAX LIABILITY U/S 115JB, TAKING INTO 'CONSIDERATION THE FOLLOWING POINTS:- (I) TO REDUCE THE INCOME TO WHICH SECTION 10B APPLIES A ND IS CREDITED TO PROFIT AND LOSS ACCOUNTS. 138. BRIEFLY STATED THE AO HAD INCREASED THE TAX L IABILITY U/S 115JB OF THE ACT AS CALCULATED BY THE ASSESSEE,BY R EDUCING THE AMOUNT OF INCOME TO WHICH SECTION 10B APPLIED. THE AO WHILE CALCULATING THE ELIGIBLE PROFITS, INCLUDED EX CISE DUTY AND TRADING TURNOVER IN TOTAL TURNOVER, WHICH WERE EX CLUDED BY THE ASSESSEE. THE LD.CIT(A) DIRECTED EXCLUSION OF EXCISE DUTY FROM THE TOTAL TURNOVER. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 56 OF 65 139. BEFORE US AT THE OUTSET ITSELF, THE LD. COUNS EL FOR ASSESSEE POINTED OUT THE ISSUE HAS BEEN ADJUDICATED IN THE CASE OF THE ASSESSEE IN THE PRECEDING YEAR I.E. A .Y 2003-04. OUR ATTENTION WAS DRAWN AT PARA 33 OF THE I.T.A.T. ORDER WHICH IS AS UNDER: 33. WE HAVE GONE THROUGH THE ORDER OF THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) AND FIND THAT IDENTICAL ISSUE HAD BEEN DEALT WITH IN THE SAI D CASE WHEREIN IT WAS HELD THAT THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA) WOULD SQUARELY APPLY FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B AND AS PER WHIC H EXCISE DUTY WAS TO BE EXCLUDED FROM THE TOTAL TURNOVER OF THE ASSESSEE. FURTHER THE I.T.A.T. HAD ALSO HELD THAT THE TURNOVER OF THE TRADING EXPORT ACTIVITIES WAS TO BE EXCLUDED FROM THE TOTAL TURNOV ER AND THE PROFITS OF THE TRADING EXPORT ACTIVITY WERE TO BE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 10B OF THE ACT FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF VMT SPINNIN G COMPANY LTD. (SUPRA). SINCE THE ISSUES IN THE PRESE NT CASE ARE IDENTICAL TO THAT IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) THE DECISION RENDERED THEREIN WILL APPLY IN THE PRESENT CASE ALSO, FOLLOW ING WHICH WE HOLD THAT EXCISE DUTY BE EXCLUDED FROM T HE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B OF THE ACT. BUT VIS A VIS THE EXCLUSION OF EXPORT TURNOVER OF TRADED GOODS ,WE FI ND THAT THE IN THE CASE OF VMT SPINNING MILLS(SUPRA) , IT WAS HELD THAT DEDUCTION U/S 10B WAS GRANTED QUA PROFITS EARNED ON MANUFACTURED GOODS AND THEREFORE NEITHER THE PROFITS OF TRADED GOODS WAS TO BE INCLU DED IN THE PROFITS NOR THE TURNOVER OF TRADED GOODS WAS TO BE INCLUDED IN THE TOTAL TURNOVER FOR CALCULATING DEDUCTION U/S 10B OF THE ACT. ACCORDINGLY THE AO IS DIRECTED TO CALCULATE THE DEDUCTION U/S 10B OF THE ACT AFTER EXCLUDING BOTH THE PROFITS AND THE TURNOV ER OF EXPORT TRADED GOODS FROM THE PROFITS OF THE BUSINESS AND THE TOTAL TURNOVER. GROUND OF APPEAL NOS.4(I) & (II) RAISED BY THE ASSESSEE ARE, THEREFORE, ALLOWED IN ABOVE TERMS. IN VIEW OF THE ABOVE, SINCE ADMITTEDLY THE ISSUE RA ISED IN THE ABOVE GROUND VIS--VIS THE EXCLUSION OF EXCISE DUTY FROM TOTAL TURNOVER FOR THE PURPOSES OF CALCULATING THE PROFITS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT, HAS BEEN DECIDED IN ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 57 OF 65 FAVOUR OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2003-04 BY THE I.T.A.T. VIDE ITS OR DER IN ITA NOS.88 & 118/CHD/2009 DATED 26.11.2018, WE DO NOT F IND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A). GROUND OF APPEAL NO.8(I) RAISED BY THE REVENUE IS, THEREFORE, DISMISSED. 140. GROUND NO.8(II) READS AS UNDER: (II) TO REDUCE 100'% OF 80HHC CALCULATED ON BOOK PR OFITS OF THE COMPANY.: 141. THE REVENUE IN THE ABOVE GROUND HAS CHALLENG ED THE ACTION OF THE CIT(A) IN ALLOWING 100% DEDUCTION U/S 80HHC ON THE BOOK PROFITS U/S 115JB OF THE ACT. 142. BRIEFLY STATED, THE A.O. HAD CALCULATED THE DEDUCTION U/S 80HHC TO BE REDUCED FROM THE PROFITS OF THE ASS ESSEE FOR TAXATION AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT, ON THE BASIS OF THE NORMAL COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS AND PROFESSION. IN EFFECT, THE PROFITS DED UCTIBLE U/S 80HHC AS PER NORMAL PROVISIONS OF THE ACT WERE REDU CED BY THE A.O. FROM THE PROFITS OF THE ASSESSEE FOR THE P URPOSE CALCULATING BOOK PROFITS, WHILE THE ASSESSEE HAD CA LCULATED THE DEDUCTION ON THE BASIS OF THE PROFITS AS PER THE PR OFIT & LOSS ACCOUNT OF THE ASSESSEE. THE LD.CIT(A) ALLOWED THE ASSESSEES CLAIM FOLLOWING THE ORDER OF THE SPECIAL BENCH OF T HE I.T.A.T. IN THE CASE OF DCIT VS. SYNCOM FORMULATION 292 ITR 144(AT)(MUMBAI)(SB). 143. WE DO NOT SEE ANY REASON TO INTERFERE IN THE O RDER OF THE LD.CIT(A). THE LD.CIT(A) HAS FOLLOWED THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SYNCOM (SU PRA), WHILE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 58 OF 65 HOLDING THAT PROFITS ELIGIBLE FOR DEDUCTION U/S 80 HHC OF THE ACT FOR THE PURPOSES OF REDUCING THEM FROM THE BOO K PROFITS U/S 115JB OF THE ACT, ARE TO BE CALCULATED ON THE P ROFITS AS SHOWN IN THE PROFIT AND LOSS ACCOUNT AND NOT THAT C OMPUTED AS PER THE PROVISIONS OF THE ACT. THE LD.DR HAS NOT BROUGHT TO OUR NOTICE ANY DECISION TO THE CONTRARY OF A HIGH C OURT OR THE APEX COURT. THE ORDER PASSED BY THE LD.CIT(A) IS TH EREFORE UPHELD. 144. GROUND OF APPEAL NO.8(II) RAISED BY THE REVENU E IS, THEREFORE, DISMISSED. 145. GROUND NO.8(III) READS AS UNDER: (III) NOT TO TAKE LESSOR FIGURE OF EXEMPTED DIVIDEND INCOME TO BE REDUCED FROM BOOK PROFITS FOR MAT DUE TO ALLOCATION OF EXPENSES AMOUNTING TO RS.51,31,386/-. GROUND 8(III) 146. BRIEF FACTS RELATING TO THE ISSUE ARE THAT TH E A.O. HAD REDUCED THE NET FIGURE OF EXEMPT DIVIDEND INCOME F ROM THE PROFITS OF THE ASSESSEE AFTER REDUCING THEREFROM TH E EXPENSES ALLOCATED TO IT FROM THE PROFITS OF THE ASSESSEE FO R THE PURPOSE OF CALCULATING BOOK PROFITS LIABLE TO TAX U/S 115JB OF THE ACT. THE CIT(A) DIRECTED THE A.O. TO EXCLUDE THE DIVIDEN D INCOME AFTER REDUCING THE COST RELATABLE TO IT AS ADJUDICA TED BY HIM IN THE CASE OF THE ASSESSEE. 147. BEFORE US THE LD. DR RELIED UPON THE ORDER O F THE A.O., WHILE THE LD. COUNSEL FOR ASSESSEE STATED THAT THE ISSUE OF ADJUSTMENT OF EXPENSES ALLOCATED U/S 14A OF THE ACT HAS BEEN DEALT WITH BY THE SPECIAL BENCH OF THE I.T.A.T. IN THE CASE OF ACIT, NEW DELHI VS. VIREET INVESTMENT PVT. LTD. (20 17) 165 ITD ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 59 OF 65 27 (SB)(DEL) HOLDING THAT NO ADJUSTMENT ON ACCOUNT OF DISALLOWANCE OF EXPENSES U/S 14A IS TO BE DONE. 148. WE HAVE HEARD RIVAL CONTENTION. WE HAVE ALSO GONE THROUGH THE ORDER OF THE SPECIAL BENCH OF THE I.T.A .T. IN THE CASE OF VIREET INVESTMENT (SUPRA) WHEREIN IT HAS BE EN CATEGORICALLY HELD THAT NO ADJUSTMENT ON ACCOUNT OF DISALLOWANCE OF EXPENSES U/S 14A IS TO BE DONE FOR THE PURPOSE OF CALCULATING BOOK PROFITS U/S 115JB OF THE ACT. T HE LD. DR HAS NOT POINTED OUT ANY CONTRARY DECISION OF THE HI GHER COURT IN THIS REGARD. IN VIEW OF THE SAME, FOLLOWING THE DECISION IN THE CASE OF VIREET INVESTMENT (SUPRA) WE HOLD THAT NO ADJUSTMENT ON ACCOUNT OF EXPENSES DISALLOWED U/S 14 A IS TO BE MADE FOR THE PURPOSE OF CALCULATING BOOK PROFITS TO BE SUBJECTED TO TAX U/S 115JB OF THE ACT. GROUND NO.8( III) IS, THEREFORE, DISMISSED. IN EFFECT, THE APPEAL OF THE REVENUE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES 149. WE SHALL NOW BE DEALING WITH CROSS APPEALS RE LATING TO PENALTY LEVIED U/S 271(1) OF THE ACT.WE SHALL F IRST TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO.1138/CHD/2011 . 150. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER: 1. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN C ONFIRMING THE PENALTY LEVIED BY AO ON THE ISSUES WHICH WERE OF DEBA TABLE NATURE AND THE CLAIMS MADE WERE BONAFIDE. 1. THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS WHILE UP HOLDING PENALTY ON THE FOLLOWING ISSUES; ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 60 OF 65 A) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING PENALTY ON DEDUCTION CLAIMED U/S 10B OF THE ACT ON R ENT RECEIVED. B) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING PENALTY ON DEDUCTION CLAIMED U/S 80IB OF THE ACT ON INTEREST INCOME. C) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING PENALTY ON DEDUCTION CLAIMED U/S 80IB OF THE ACT ON RENT RECEIVED. D) THAT THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING PENALTY ON DEDUCTION CLAIMED U/S 80IB OF THE ACT ON DEPB. 3. THAT THE LD.CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING PENALTY ON THE ABOVE ITEMS. 4. THAT THE PENALTY LEVIED IS AGAINST THE LAW AND FA CTS OF THE CASE. 151. BRIEFLY STATED, THE LD.CIT(A) HAD UPHELD THE P ENALTY LEVIED ON THE ADDITIONS MADE BY THE A.O. AND CONFIR MED BY HIM AS UNDER: A) DEDUCTION CLAIMED U/S 10B ON RENT RECEIVED. B) DEDUCTION CLAIMED U/S 80IB ON INTEREST INCOME AN D RENT RECEIVED. C) DEDUCTION CLAIMED U/S 80IB AND DEPB. IN THE QUANTUM PROCEEDINGS BEFORE US, THE ADDITION CONFIRMED BY THE CIT(A) ON ACCOUNT OF THE ABOVE WAS CHALLENGED BY THE ASSESSEE IN GROUND NO.5 RAISED BE FORE US AND DEALT WITH AT PARAS 23 TO 29 OF THE ORDER ABOV E, WHEREIN WE HAVE UPHELD THE ADDITIONS SO MADE. 152. THE ARGUMENT OF THE LD.COUNSEL FOR THE ASSESSE E AGAINST THE LEVY OF PENALTY WAS THAT THE ASSESSEE HAD DISCL OSED ALL PARTICULARS RELATING TO THE SAID INCOMES AND ITS CL AIM WAS BONAFIDE SINCE IDENTICAL CLAIMS HAD BEEN ALLOWED IN THE CASE OF SISTER CONCERNS AS UNDER: ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 61 OF 65 COVERED BY TRIBUNALS ORDER DT 5/1/2016 IN ITA NO.212/CHD/20015 IN THE CASE OF ACIT VS. MAHAVIR SPINNING MILLS LTD. FOR ASSESSMENT YEAR 2001-02 (DEDUCTION ALLOWED ON REBATE/DISCOUNT, BALANCE W/BACK, MISC. INCOME, EXCISE REFUND AND INSURANCE CLAIMS RECEIVED (PG. 94-127 RELEVANT AT 110). CIT VS. METALMAN AUTO P. LTD. (2011) 336 ITR 434 (P&H) - (MISC INCOME, DISCOUNT RECEIVED, SUNDRY BAL . W/BACK. HELD ELIGIBLE FOR DEDUCTION U/S 80IB/10B)- REPORTED CIT VS. DHARAM PAL PREM CHAND LTD. (2009) 180 TAXMAN 557 (DEL) - REFUND OF EXCISE DUTY IS ELIGIBL E FOR DEDUCTION U/S 80 HHC) INTEREST RECEIVED FROM OTHERS COMPRISES OF INTEREST RECEIVED FROM EMPLOYEES AGAINST HOUSING LOANS ADVANCED TO THEM. INCOME THUS ARISING DURING THE COURSE OF BUSINESS IS LIABLE TO BE INCLUDED IN PROF ITS DERIVED FROM BUSINESS. IN THIS CONNECTION WE RELIAN CE IS PLACED ON THE JUDGMENT OF VMT SPINNING CO. LTD VS. ACIT IN ITA NO.682/07 DATED 13.7.12 FOR AY 2003-04 - INTEREST INCOME FROM EMPLOYEES IS BUSINESS INCOME A ND IS ELIGIBLE FOR DEDUCTION U/S 10B. JUDGMENT AT PAGE 128-131 (RELEVANT 129-130) M/S ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT, MUM, 2012 343 ITR 89 (SC) - INTEREST INCOME TO BE NETTED (REPORTED) THE HON'BLE TRIBUNAL VIDE ORDER DATED 04.05.2018 OF VARDHMAN TEXTILES LIMITED FOR A.Y. 2002-03 TO 2004- 05 HAS SET ASIDE THE ISSUE TO THE FILE OF AO TO DECIDE THE ISSUE ON THE BASIS OF CASE LAWS CITED AND IN AY 200 5- 06 ALLOWED THE DEDUCTION ON THE OTHER INCOME (ISSUE DEALT WITH 80HHC ISSUE). PAGE 18-19 & 11-13 RESPECTIVELY OF THE ORDER. 153. WE ARE IN AGREEMENT WITH THE CONTENTIONS MAD E BY THE LD. COUNSEL FOR THE ASSESSEE THAT IT WAS NOT A FIT CASE FOR LEVY OF PENALTY ON THE IMPUGNED INCOMES. THOUGH THE CLAI M OF THE ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 62 OF 65 ASSESSEE OF DEDUCTION OF THE SAID INCOMES U/S 80IB/ 10B OF THE ACT ,HAS BEEN HELD BY US AS NOT TENABLE IN LAW, BUT THIS ALONE IS NOT SUFFICIENT FOR LEVY OF PENALTY. UNDOUBTEDLY THE DETAILS REGARDING THE AFORESAID INCOME BY WAY OF RENT INTER EST OR DEPB HAD BEEN DULY DISCLOSED BY THE ASSESSEE. ALSO THE F ACT THAT IDENTICAL CLAIMS HAD BEEN ALLOWED IN THE CASE OF SI STER CONCERNS OF THE ASSESSEE PROVES THE BONAFIDES OF TH E CLAIM MADE BY THE ASSESSEE. IN THE CASE OF VMT SPINNING C OMPANY LTD. VS. ACIT, THE ITAT HAD ALLOWED DEDUCTION CLAIM ED ON INTEREST RECEIVED FROM OTHERS ,VIDE ITS ORDER IN IT A NO 682/2017 DATED 13.7.2012 FOR ASSESSMENT YEAR 2003-0 4. FURTHER IT HAS BEEN HELD BY THE HON'BLE APEX COURT IN THE CASE OF ACG CAPSULES PVT. LTD. VS. CIT, 343 ITR 89 THAT THE INTEREST INCOME IS TO BE NETTED. THEREFORE, AS FAR AS THE CL AIMED OF DEDUCTION U/S 80IB AND 10B OF THE ACT ON RENTAL INC OME AND INTEREST INCOME IS CONCERNED, IT WAS NOT WHOLLY UNT ENABLE IN LAW BUT WAS A DEBATABLE ISSUE AND, THEREFORE, IN TH ESE FACTS AND CIRCUMSTANCES, IT CANNOT SAID THAT THE ASSESSEE HAD CONCEALED ANY PARTICULARS OF INCOME RELATING TO THE SAME HAVING DISCLOSED ALL DETAILS OF SUCH INCOME AND ONL Y CLAIM OF DEDUCTION BEING DISALLOWED TO IT. WE DRAW SUPPORT FROM THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF C IT VS. RELIANCE PETROPRODUCTS PVT., 322 ITR 158 LTD., IN THIS REGARD. AS FAR THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB OF THE ACT ON THE DEPB , THE A.O., WE FIND, HAD DENIED THE SAID CLAIM ON THE BASIS OF THE DECISION OF THE HON'BLE JURISDI CTIONAL HIGH COURT IN THE CASE OF LIBERTY INDIA VS. CIT (2007), 293 ITR 520, WHICH WE HAVE NOTED WAS AFFIRMED BY THE HON'BLE AP EX COURT ALSO. THE SAID DECISION OF THE HON'BLE JURISDICTIO NAL HIGH ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 63 OF 65 COURT WAS RENDERED ON 22.9.2006, WHILE THE ASSESSEE HAD FILED ITS RETURN FOR THE IMPUGNED YEAR ON 29.4.2004. THER EFORE, WHEN THE ASSESSEE HAD MADE THE CLAIM, IT HAD NOT BE EN HELD TO BE WHOLLY UNTENABLE IN LAW AND, THEREFORE, HAVING F URNISHED THE DETAILS OF THE IMPUGNED INCOME ALSO, MERE DENIA L OF CLAIM OF DEDUCTION ON DEPB CANNOT ATTRACT THE LEVY OF PEN ALTY U/S 271(1)(C) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD.CIT(A) IN CONFIRMING THE LEVY OF PENALTY U/S 271 (1)(C) OF THE ACT ON THE DENIAL OF DEDUCTION U/S 10B ON RENT RECE IVED, THE DENIAL OF DEDUCTION U/S 80IB ON INTEREST INCOME, RE NT RECEIVED AND DEPB. 154. THE APPEAL OF THE ASSESSEE IS, THEREFORE, ALL OWED. 155. WE SHALL NOW TAKE UP REVENUES APPEAL IN ITA NO.1150/CHD/2011 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. C1T(A) HAS ERRED IN LAW IN CANCELL ING THE PENALTY IMPOSED BY THE AO U/S 271(L)(C) FOR FURNISHING INAC CURATE PARTICULARS REGARDING DEDUCTION US 10B 80IB CLAIMED B Y THE ASSESSEE ON MISC. RECEIPTS, AS THERE WAS NO DIREC T NEXUS BETWEEN RECEIPTS AND ELIGIBLE BUSINESS I.E. MANUFACTURING OF YARN (IN VIEW OF THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS REPORTED AT 237 1'1'R 579) AND THE ASSESSEE HAD RES ORTED TO MAKING FALSE CLAIM FOR SAID DEDUCTION. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE PENALTY IMPOSED U/S 271(1 )(C) ON THE ISSUE OF SCRA P SALES WHICH HAS RIGHTLY BEEN EXCLUDED BY THE AO FROM PROF ITS OF BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC WHEREAS THE ASSESSEE RESORTED TO FURNISHING INACCURATE PART ICULAR BY INCLUDING SCRAP SALES IN THE PROFIT OF BUSINESS WHI LE COMPUTING DEDUCTION U/S 80HHC. 3. THAT THE LD. C1T(A) HAS ERRED IN LAW IN DELETING PENALTY IMPOSED U/S 271(L)(C) ON THE DEDUCTION CLAIMED U/S 8 0HHC BY INCLUDING EXPORT TURNOVER OF EOU UNITS WHEREAS T HE A.O HAD RIGHTLY DISALLOWED THE SAME TO AVOID DOUBLE DED UCTION, AND THE ASSESSEE HAD FURNISHED INACCURATE PARTICULAR BY CLAIMING DEDUCTION UNDER SECTIONS 10B & 801B ALSO. ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 64 OF 65 4. THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THA T OF A.O.BE RESTORED. 156. AS IS EVIDENT FROM THE GROUND RAISED BEFORE US , THE REVENUE HAS CHALLENGED THE ORDER OF THE LD.CIT(A) D ELETING THE PENALTY LEVIED ON THE FOLLOWING ADDITIONS/DISALLOWA NCES: 1) DEDUCTION CLAIMED U/S 10B & 80IB ON MISCELLANEOU S RECEIPTS . 2) DEDUCTION CLAIMED U/S 80HHC ON SCRAP SALES BY INCLUDING THE SAME IN THE PROFITS OF THE BUSINESS. 3) DEDUCTION CLAIMED U/S 80HHC BY INCLUDING EXPOR T TURNOVER OF EOU UNITS. 157. THE ISSUE RELATING TO DISALLOWANCE OF DEDUCTIO N U/S 80HHC OF THE ACT BY INCLUDING EXPORT TURNOVER OF E OU UNITS HAS BEEN DEALT WITH BY US IN GROUND NO.11 OF THE AS SESSEES APPEAL IN ITA NO.527/CHD/2009 ABOVE WHEREIN WE HAVE ALLOWED THE CLAIM OF THE ASSESSEE THAT THE EXPORT T URNOVER OF EUO UNIT IS TO BE INCLUDED FOR THE PURPOSE OF CALCU LATING DEDUCTION U/S 80HHC OF THE ACT. THEREFORE, IN VIEW OF THE SAME, SINCE THE ADDITION MADE OF THE SAME HAS BEEN DELETED BY US, THERE IS NO CAUSE FOR LEVY OF ANY PENALTY U/S 2 71(1)(C) OF THE ACT. 158. AS FAR AS THE ISSUE OF CLAIM OF DEDUCTION U/S 10B & 80IB OF THE ACT ON SCRAP SALES, UNDOUBTEDLY ALL PA RTICULARS RELATING TO THE CLAIMS HAD BEEN DISCLOSED BY THE ASSESSEE. FURTHER AS POINTED OUT BY THE LD.CIT(A) THE I.T.A. T. MUMBAI BENCH HAD IN THE CASE OF MAZDA COLOURS LTD. VS. AC IT,HELD THAT IT WOULD BE PART OF THE SALES/TURNOVER. THEREF ORE WE AGREE WITH THE LD.CIT(A) THAT IT WAS A CONTENTIOUS ISSUE AND THE ASSESSEE HAVING DISCLOSED ALL PARTICULARS OF THE SA ME, THE CLAIM OF THE ASSESSEE OF DEDUCTION U/S 80HHC BY INC LUDING ITA NO.527 & 574/CHD/2009 & ITA NO.1138 & 1150/CHD/ 2011 PAGE 65 OF 65 SCRAP SALES CANNOT BE SAID TO BE MALAFIDE. THE ASSE SSEE CANNOT BE CHARGED WITH HAVING CONCEALED/FURNISHED INACCURA TE PARTICULARS OF INCOME.THE ORDER OF THE CIT(A) DELET ING THE PENALTY ON THE SAME IS, THEREFORE, UPHELD. AS FAR AS THE MISCELLANEOUS RECEIPTS, ALSO UNDOUBTE DLY THE ASSESSEE HAD DISCLOSED ALL PARTICULARS RELATING TO THE SAME AND, THEREFORE, MERE DENIAL OF THE CLAIM CANNOT LEA D TO THE LEVY OF PENALTY AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS 322 ITR 158. IN VIEW OF THE SAME, THE ORDER OF THE CIT(A) DELETING THE PENALTY ON THE SAM E IS ALSO UPHELD. 159. IN EFFECT, ALL THE GROUNDS RAISED BY THE REVEN UE ARE DISMISSED. THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31./05/2019. [SANJAY GARG] [ANNAPURNA GUPTA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:/05/2019 JJ: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR