DCIT RG 8(2), MUMBAI V. PAREK PLAST INIDA P. LTD, MUMBAI

ITA 5831/MUM/2010

• Counselvise Citation: 583119914 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: MRS INDRA ANAND
• Keywords: Business expenditure; Question of law; Revenue expenditure
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 5830/MUM/2010 ASSESSMENT YEAR 2005-06 ITA NO. 5831/MUM/2010 ASSESSMENT YEAR 2006-07 DY. COMMISSIONER OF INCOME TAX, 8(2), R.NO. 209, AYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 VS. M/S. PAREKHPLAST INDIA PVT. LTD., 101, SHIVAL PLAZA, COMPARTMENT NO.1, MAROL INDUSTRIAL CO-OP LTD., ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI 400 056 PAN: AABCP 4523B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. NAYAK, SR.DR RESPONDENT BY : MRS. INDRA ANAND DATE OF HEARING : 24-04-2012 DATE OF PRONOUNCEMENT : 16-05-2012 ORDER PER RAJENDRA, A.M. IN THE APPEAL FILED BY THE REVENUE AGAINST THE ORDE R DATED 8TH APRIL, 2010 OF THE CIT (A)-17, MUMBAI, THERE ARE TW O GROUNDS OF APPEAL- 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED THAT CIT (A) ERRED IN HOLDING THAT THE EXPE NDITURE ON FOREIGN TOUR OF THE DIRECTOR AND HIS WIFE, WHO WAS ALSO AN ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 2 EMPLOYEE IS ALLOWABLE FOR THE PURPOSE OF BUSINESS, WITHOUT APPRECIATING THE FACTS OF THE CASE. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED THAT CIT (A) ERRED IN HOLDING THAT THE STOR AGE CHARGES RECEIVED ALSO FROM PART OF THE ELIGIBLE PROFITS OF THE UNDERTAKING FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80 IB, WITHOUT APPRECIATING THE FACTS OF THE CASE.' 2. GROUND NO 1.IS ABOUT DELETION OF DISALLOWANCE TH AT WAS MADE BY THE ASSESSING OFFICER (AO) ON ACCOUNT OF FOREIGN TR AVEL OF THE DIRECTORS. ISSUE HAS BEEN DISCUSSED BY THE CIT(A) AS UNDER- .THE AO NOTED THAT APPELLANT HAD INCURRED FOREIG N TRAVELLING EXPENSES OF RS. 5,85,165/- IN RESPECT OF DIRECTOR, MR CHARUL J GHIA AND HIS WIFE, MRS SMITA CHARUL GHIA,WHO WAS ALSO AN EMP LOYEE OF THE APPELLANT.AS PER THE AO APPELLANT COULD NOT EXPLAIN THE REASON FOR THE TRAVEL OF MRS SMITA ALONG WITH MR CHAHAL GHIA. 50% OF THE EXPENDITURE WHICH WORKED OUT TO RS. 2,95,582/-WAS DISALLOWED AS NON-BUSINESS EXPENDITURE. FURTHER, AS THE EXPENDITURE INCURRED B Y MR CHAHAL GHIA WAS FOR THE PURCHASE OF MACHINERY AND MOULDS, THE B ALANCE AMOUNT OFF TO PEACE 2,92,582/-, WAS TREATED AS CAPITAL EXPENDI TURE. AFTER ALLOWING THE APPRECIATION AT THE RATE OF 25% AMOUNTING TO RS .73,145/- THE BALANCE AMOUNT OF RUPEES 2,19,438/-WAS DISALLOWED. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE A PPELLANT, HELD THAT THE EXPENDITURE INCURRED ON FOREIGN TRAVELS WA S FOR THE PURPOSE OF BUSINESS. RELYING UPON THE DECISIONS OF ALPHA LAVE L (282 ITR 445), APOLLO TYRES (237 ITR 706) GLAXO LABORATORIES (18 I TD 226), ANTI FRICTION BEARING CORPORATION LTD (114 ITR 335), HE DELETED THE ADDITION AMOUNTING TO RUPEES 2.95 LAKHS AND RUPEES 2.19 LAKH S MADE BY THE AO. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT MA CHINERY WAS NOT PURCHASED FOR THE APPELLANT COMPANY BY THE DIRECTORS, THAT EXPENSES INCURRED FOR FOREIGN TRAVEL FOR SMITA GHIA FOR NOT FOR BUSINESS PURPOSES. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT DIRECTORS HAD TRAVELLED TO CANADA AND USA FOR PURCH ASE OF MACHINERY, DIES AND MOULDS, THAT DETAILS OF FOREIGN TRAVELS WE RE FURNISHED TO THE AO, THAT SMITA GHIA WAS DIRECTOR FOR LAST 6 YEARS. 2.1 WE HAVE HEARD BOTH THE PARTIES. WE ARE OF THE O PINION THAT NON- ACQUISITION OF MACHINERY OR PLANT BY THE DIRECTORS CANNOT BE THE BASIS FOR AN EXPENDITURE TO BE TREATED AS CAPITAL EXPENDI TURE OR REVENUE EXPENDITURE. WE UPHOLD THE ORDER OF THE CIT (A) WHO HAS RIGHTLY TREATED THE EXPENDITURE AS BUSINESS EXPENDITURE. A S FAR AS SMITA GHIA IS CONCERNED, THERE IS NO DOUBT THAT SHE WAS D IRECTOR OF THE COMPANY FOR LAST 6 YEARS AND THAT HER TRAVELLING AB ROAD CANNOT BE TREATED A PLEASURE TRIP IN ABSENCE OF SOME MATERIAL CONTRADICTING THE ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 3 CLAIM MADE BY THE APPELLANT COMPANY. WE ENDORSE TH E VIEWS OF THE CIT(A)WHO HAD DELETED THE ADDITIONS MADE BY THE AO. CASE LAWS RELIED UPON BY THE CIT (A) ALSO SUPPORT THE STAND T AKEN BY HIM. AS A RESULT GROUND NUMBER 1 IS DECIDED AGAINST THE REVENUE. 3. GROUND NUMBER 2 IS ABOUT CLAIM MADE BY THE A PPELLANT COMPANY UNDER SECTION 80 IB OF THE INCOME TAX ACT, 1961 (TH E ACT).THE AO NOTED THAT THE APPELLANT HAD RECEIVED STORAGE CHARG ES AMOUNTING TO RS. 17.5 LACS FROM RELIANCE INDUSTRIES LTD. HE HEL D THAT STORE CHARGES RECEIVED BY THE ASSESSEE CANNOT BE LINKED W ITH THE BUSINESS OF THE ASSESSEE COMPANY. HE FURTHER HELD THAT SUM REC EIVED ON ACCOUNT OF STORAGE OF GOODS DID NOT ARISE OUT OF THE ACTIVI TY OF MANUFACTURING OR PRODUCTION OF ARTICLE OR THING. HE WAS ALSO OF THE OPINION THAT RECEIPT OF RS.17.5 LACS WAS NOT ELIGIBLE FOR DEDUCTION UNDE R SECTION 80 IB. AS PER THE APPELLANT COMPANY, IT HAD EXECUTED THE ORDER PLACED BY RELIANCE INDUSTRIES LTD. AS PER THE TERMS IF BUYER COULD NOT GIVE DISPATCH CLEARANCE FOR GOODS MANUFACTURED, AND THE SELLER HAD TO STOCK THE GOODS IN WAREHOUSE SELLER WOULD BE PAID A N ALL INCLUSIVE STORAGE CHARGES AT THE RATE OF RS. 3.5 LACS PER MON TH. THERE WAS A DELAY OF 5 MONTHS IN DISPATCH CLEARANCE FROM THE RE LIANCE INDUSTRIES. ACCORDINGLY, THE APPELLANT COMPANY RAISED A DEBIT N OTE OF RS. 17.5 LACS AS STORAGE CHARGES. APPELLANT POINTED OUT THAT IT DID NOT HAVE A WAREHOUSE- HENCE, GOODS WERE KEPT IN FACTORY PREMIS ES WHERE THE MANUFACTURING ACTIVITIES WERE UNDERTAKEN. THE STORA GE CHARGES WERE DIRECTLY RELATED TO THE DISPATCH OF MANUFACTURED GO ODS. SO, THE RECEIPTS IN QUESTION WERE TO BE INCLUDED AS THE PRO FIT AND GAINS DERIVED FROM THE MANUFACTURING ACTIVITY OF THE BUSI NESS UNDERTAKING. IN THE APPELLATE PROCEEDINGS CIT (A) HELD THAT STOR AGE CHARGES RECEIVED BY THE APPELLANT WAS DERIVED FROM THE BUSI NESS OF THE UNDERTAKING. RELYING UPON THE CASES AND PRINCIPLES OF WHEEL INDIA LTD, KIRLOSKAR ELECTRODYNE LTD AND BUCKAN WOLF NEW INDIA ENGINEERING WORKS, HE REVERSED THE ORDER OF THE AO AND HE DIRECTED THE AO TO ALLOW THE DEDUCTION UNDER SECTION 80 IB O F THE ACT TO THE ASSESSEE. 3.1 BEFORE US DR SUBMITTED THAT THE RECEIPT IN QUE STION WAS NOT DERIVED FROM THE BUSINESS ACTIVITY OF THE APPELLANT , THAT STORE CHARGES COULD NOT BE LINKED WITH BUSINESS OF THE UNDERTAKIN G, THAT IT WAS MORE IN THE NATURE OF COMPENSATORY PAYMENT. AR ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT (A) AND REFERRED TO THE CASES RELIED UPON BY THE CIT. 3.2 THE CONCEPTS OF ATTRIBUTEABLE TO/DERIVED FRO M HAS BEEN DELIBERATED UPON AND DECIDED AT VARIOUS LEVELS.HERE , A LOOK AT THE ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 4 BACKGROUND OF THE SECTION AND PROPOSITIONS PROPOUND BY THE JUDICIARY, IN THIS REGARD, WILL BE USEFUL. I. INCOME TAX ACT, 1961 (ACT) BROADLY PROVIDES FOR TWO TYPES OF TAX INCENTIVES, VIZ., INVESTMENT-LINKED INCENTIVES AND PROFIT- LINKED INCENTIVES. CHAPTER VI-A OF THE ACT WHICH PR OVIDES FOR INCENTIVES IN THE FORM OF DEDUCTIONS ESSENTIALLY BE LONGS TO THE CATEGORY OF 'PROFIT-LINKED INCENTIVES'. SECTIONS80- IB IS A CODE BY ITSELF AS IT CONTAINS BOTH SUBSTANTIVE AS WELL AS P ROCEDURAL PROVISIONS. THEREFORE, WHEN SECTION 80-IB REFERS TO PROFITS DERIVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNER SHIP OF THAT BUSINESS WHICH ATTRACTS THE INCENTIVES : WHAT ATTRA CTS THE INCENTIVES UNDER SECTION 80-IB IS THE GENERATION OF PROFITS. IT IS FOR THIS REASON THAT PARLIAMENT HAS CONFINED DEDUCT ION OF PROFITS DERIVED FROM ELIGIBLE BUSINESSES. II. IN THIS SECTION WORD DERIVED HAS BEEN FOLLOWED BY THE WORD FROM, AND IT MEANS : GET OR TRACE FROM A SOURCE ; A RISE FROM, ORIGINATE IN ; SHOW THE ORIGIN OR FORMATION OF. THEREFORE, IF THERE IS NEXUS BETWEEN THE RECEIPT OF INCOME AND THE INDU STRIAL UNDERTAKING, IT HAS TO BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING . III. PHRASE DERIVED FROM INDUSTRIAL UNDERTAKING HAS BEEN USED BY STATUTE TO RESTRICT THE DEDUCTIONS OF ONLY THOSE IN COMES WHICH HAVE DIRECTLY DERIVED FROM THE INDUSTRIAL UNDERTAKI NG AND NOT TO OTHER INCOME WHICH IS INCIDENTAL TO THE CARRYING OF INDUSTRIAL UNDERTAKING. THUS, BEFORE ANY DEDUCTION IS ALLOWED UNDER SECTION 80-IB IT MUST BE ESTABLISHED THAT THE PROFI TS AND GAINS HAVE DIRECTLY FLOWED FROM THE FUNCTIONING OF THE INDUSTRIAL UNDERTAKING. IV. ONLY OPERATIONAL PROFIT FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING IS ELIGIBLE FOR DEDUCTION U/S. 80 IB. I N OTHER WORDS ANCILLARY PROFITS OF INDUSTRIAL UNDERTAKINGS ARE NOT ENTITLED FOR DEDUCTION. V. IN CERTAIN CASES THERE COULD BE SUFFICIENT NEXUS TO ESTABLISH THAT THE INCOME WAS INCIDENTAL TO THE MAIN BUSINESS OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE BUT THAT ALO NE IS NOT SUFFICIENT TO SAY THAT IT IS INCOME DERIVED FROM TH E BUSINESS OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE WITHIN T HE EXPRESSION USED IN SEC.80-IB. EXPRESSION DERIVED FROM CANNOT I NCLUDE THE INCIDENTAL RECEIPTS EARNED IN THE COURSE OF SUCH BU SINESS. THERE MUST BE DIRECT LINK WITH THE MAIN ACTIVITY OF THE B USINESS OF INDUSTRIAL UNDERTAKING AND THE PROFITS EARNED. ANY OTHER SOURCE, NOT FALLING WITHIN THE FIRST DEGREE, COULD IN A SEN SE BE DESCRIBED AS ANCILLARY TO THE BUSINESS OF THE ASSESSEE. ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 5 VI. INCOME GENERATED BY ANY ACT,WHICH IS REQUIRED T O BE UNDERTAKEN ESSENTIALLY FOR CARRYING ON THE BUSINESS OF INDUSTRIAL UNDERTAKING, HAS TO BE CONSIDERED FOR COMPUTING THE DEDUCTION UNDER SEC.80-IB. 3.3 ABOVE REFERRED PRINCIPLES HAVE BEEN SUMMED UP BY TH E HONBLE SC IN THE CASE OF LIBERTY INDIA (317 ITR 218), AS UNDE R- SECTION 80-IB OF THE INCOME-TAX ACT, 1961, PROVIDES FOR ALLOWING OF A DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE BUSINESS OF T HE ASSESSEE AND THEREBY PARLIAMENT INTENDED TO COVER SOURCES OF PRO FITS AND GAINS NOT BEYOND THE FIRST DEGREE. IN OTHER WORDS, THERE MUST BE A DIRECT NEXUS BETWEEN THE GENERATION OF PROFITS AND GAINS AND THE SOURCE OF PROFITS AND GAINS, THE LATTER BEING DIRECTLY RELATABLE TO T HE BUSINESS OF THE ASSESSEE.ANY OTHER SOURCE, NOT FALLING WITHIN THE F IRST DEGREE, COULD IN A SENSE BE DESCRIBED AS ANCILLARY TO THE BUSINESS OF THE ASSESSEE. WE ARE OF THE OPINION THAT, AT THIS JUNCTURE IT, IT WILL BE USEFUL TO GO THROUGH THE PROVISIONS OF SECTION 80 IB. 3.4 80-IB. DEDUCTION IN RESPECT OF PROFITS AND GAINS FR OM CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE D EVELOPMENT UNDERTAKINGS.--( 1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUS INESS REFERRED TO IN SUB-SECTIONS 3(3)TO(11)AND(11A)(SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS),THERE SHALL,I N ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUM BER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. FROM THE DISCUSSION AT PARA 3.2 AND CONSIDERATION O F THE PROVISIONS OF THE SECTION 80IB, IT IS CLEAR THAT PARLIAMENT WANTE D TO RESTRICT THE BENEFITS TO BE CONFERRED UPON THE ASSESSEES UNDER T HIS SECTION. AS THE PHRASE DERIVED FROM , CONNOTES A NARROWER MEANING, SO, THE ACTIVITIES NOT DIRECTLY CONNECTED WITH MANUFACTURING OR PRODUC TION ARE NOT COVERED UNDER SECTION 80 IB. 3.5 PERUSAL OF THE FACTS AND RATIO OF THE CASE OF A LPINE SOLVEX LTD., DECIDED BY THE HONBLE MP HIGH COURT,(276ITR92)WILL BE VERY USEFUL TO DECIDED THE ISSUE RAISED BY THE APPELLANT COMPANY. IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SOYA DOC AND SOYA OIL. IT ENTERED INTO CONTRACTS FOR PUR CHASE OF RAW MATERIAL WITH ITS SUPPLIERS AS ALSO FOR SALE OF FINISHED PRO DUCTS WITH ITS CUSTOMERS/PURCHASERS. DUE TO NON-PERFORMANCE OF THE CONTRACTS BY THE SUPPLIERS AND PURCHASERS, THE ASSESSEE RECEIVED RS.57.83 LACS FROM THE DEFAULTING SUPPLIER AND PURCHASERS PURSUAN T TO THE TERMS IN EVERY INDIVIDUAL CONTRACT. FOR THE A.S. 1993-94 AND 1994-95,THE ASSESSEE CLAIMED DEDUCTION U/S. 80HH AND 80-I ON TH E GROUND THAT THE AMOUNT WAS IN THE NATURE OF PROFITS DERIVED FRO M ITS INDUSTRIAL ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 6 UNDERTAKING. THE AO HELD THAT THE SUM RECEIVED FROM THE DEFAULTING PARTIES WAS NOT PROFIT WITHIN THE MEANING OF SECTIO NS 80HH AND 80-I AND HE DISALLOWED THE DEDUCTION. CIT(A) UPHELD THE VIEW TAKEN BY THE ASSESSING AUTHORITY. THE TRIBUNAL ALLOWED THE ASSES SEES APPEAL AND SET ASIDE THE ORDERS OF THE AO AND THE CIT(A). REVE NUE FILED AN APPEAL TO THE HIGH COURT, WHICH WAS DISMISSED. THIS ORDER OF DISMISSAL WAS SET ASIDE BY THE SUPREME COURT IN AN APPEAL FILED B Y THE REVENUE AND THE MATTER WAS REMANDED BACK TO THE HIGH COURT FOR DECISION ON THE MERITS. DECIDING THE SUBSTANTIAL QUESTION OF LAW FR AMED BY THE SUPREME COURT. HIGH COURT IN THE SECOND ROUND OF H EARING, HELD AS UNDER :- .ALLOWING THE REVENUES APPEAL, THAT THE AMOUNT CLAIMED BY THE ASSESSEE WAS NOT AN AMOUNT EARNED DIRECTLY BY SALE OF ITS FINISHED COMMODITY MANUFACTURED IN ITS UNDERTAKING BUT IT WA S IN THE NATURE OF COMPENSATION/DAMAGES ON ACCOUNT OF THE BREACH COMMI TTED BY THE SUPPLIER AND PURCHASER OF THE ASSESSEE. SUCH SUM CO ULD NOT BE EQUATED WITH ACTUAL PROFIT WHICH THE ASSESSEE EARNED BY SAL E OF THE FINISHED PRODUCTS AND HENCE THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTIONS 80HH AND 80-I. THE WORDS DERIVED FROM HAS GOT TO BE GIVEN A RESTRICTED MEANING AND, HENCE, WE CANNOT INCLUDE SU CH TYPE OF EARNING WITHIN THE MEANING OF EXPRESSION AS PROFIT/GAINS DE RIVED FROM AN INDUSTRIAL UNDERTAKING.THE AMOUNT RECEIVED AS COMPE NSATION HAD TO BE TAXED AS INCOME EARNED FROM OTHER SOURCES AS DEFINE D UNDER SECTION 56(1) READ WITH SECTION 14 (ITEM F). 3.5.1 FACTS OF THE CASE OF TRIBALOGY INDIA LTD.(335 ITR12) ARE ALSO USEFUL TO DECIDE THE ISSUE UNDER CONSIDERATION. IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF CHIMNEYS AND FURNACE. IT CLAIMED BENEFIT UNDER SECTION 80-I OF THE INCOME-TA X ACT, 1961 ON THE INTEREST INCOME EARNED FROM FIXED DEPOSITS TOWARDS SECURITY AS INCOME DERIVED FROM ITS INDUSTRIAL UNDERTAKING. AO TREATED SUCH INTEREST INCOME AS 'INCOME FROM OTHER SOURCES'. WHEN THE APP ELLATE AUTHORITIES REVERSED/CONFIRMED THE REVERSAL OF THE ORDER OF THE AO DEPARTMENT APPROACHED THE HONBLE HC OF MADRAS. HON BEL HC DECIDED THE MATTER IN FOLLOWING WORDS- ALLOWING THE APPEALS, THAT MANUFACTURE OF CHIMNEY S AND FURNACE ALONE, WOULD FALL WITHIN THE EXPRESSION 'DERIVED FR OM', AS SET OUT IN THE PROVISION. THERE WAS A CLEAR DISTINCTION BETWEEN TH E TERMS 'DERIVED FROM' AND 'ATTRIBUTABLE TO'. THE EXPRESSION 'DERIVE D FROM' HAD A VERY STRICT INTERPRETATION RELATABLE ONLY TO INCOME DERI VED FROM THE BUSINESS AND NOT TO ANY OTHER SOURCE OF DEPOSITS MADE. THE I NTEREST EARNED BY THE ASSESSEE FROM AND OUT OF FIXED DEPOSITS COULD N OT BE BROUGHT UNDER THE EXPRESSION 'DERIVED FROM THE INDUSTRIAL UNDERTA KING'. WHEN THE IMMEDIATE AND EFFECTIVE SOURCE OF INTEREST WAS THE DEPOSIT AND NOT THE BUSINESS OF THE ASSESSEE UNDERTAKING VIZ., THE MANU FACTURE OF CHIMNEYS AND FURNACE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM BENEFITS AS PROVIDED UNDER SECTION 80-I OF THE ACT.' ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 7 3.5.2 SIMILARLY, HONBLE P & H HC IN THE CASE OF MA LWA COTTON SPINNING MILLS LTD.(302 ITR 53) HELD THAT INTEREST RECEIVED FROM CUSTOMERS FOR DELAY IN PAYMENT WAS NOT ENTITLED TO SPECIAL DEDUCTION U/S.80HHC. 4. NOW WE WOULD LIKE TO MENTION THE FACTS AND THE I SSUES OF THE CASES RELIED UPON BY THE CIT (A). IN THE CASE OF WH EELS INDIA LTD (141 ITR745) ISSUE WAS ABOUT SALE OF SCRAP AND ACCRUED I NTEREST. 4.1 HONBLE HIGH COURT OF MADRAS IN THE CASE OF WHE ELS INDIA LTD DECIDED THE ISSUE WHETHER RECEIPTS FROM SALE OF SCR AP AND SERVICE CHARGES IN RESPECT OF SUPPLIES WOULD BE ENTITLED TO RELIEF UNDER SECTION 80 I OF THE ACT. FOR THE ASSESSMENT YEAR 1971 72 ASSESSEE CLAIMED RELIEF UNDER SECTION 80 I FOR THE SALE OF SCRAP AND FOR SERVICES RENDERED TO ITS CUSTOMERS IN RESPECT OF SUPPLIES. THE HONBL E HIGH COURT RELIED UPON THE DECISION OF CAMBAY ELECTRIC SUPPLY INDUST RIAL CO. LTD AND REPRODUCED OBSERVATIONS OF THE HONBLE SUPREME COUR T AS UNDER: 'IT WILL BE PERTINENT TO OBSERVE THAT THE LEGISLATU RE HAS DELIBERATELY USED THE EXPRESSION ATTRIBUTABLE TO AND NOT EXPRESSION D ERIVED FROM. IT CANNOT BE DISPUTED THAT THE EXPRESSION ATTRIBUTABLE TO IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION DERIVED FROM. HAD THE EX PRESSION DERIVED FROM BEING USED, IT COULD HAVE BEEN SOME FORCE BEEN CONTENDED THAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHI NERY AND BUILDING CANNOT BE REGARDED AS PROFIT AND GAINS DERIVED FROM THE CONDUCT OF THE BUSINESS.' THE FACTS OF THE CASE UNDER CONSIDERATION ARE DIFF ERENT AND DISTINGUISHABLE FROM THE MATTER OF WHEELS INDIA LTD . IN WHEELS INDIA LTD, THE WORDS USED WERE ATTRIBUTABLE TO AND NOT DERIVED FROM . SECONDLY, APPELLANT IN THAT CASE HAD SOLD SCRAP AND RENDERED SERVICES IN RESPECT OF THEIR SUPPLIES. RECEIPTS ON BOTH THE ACCOUNTS WERE HELD TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE ASSESSE E. 4.2 ITAT BENCH, PUNE WHILE DECIDING THE CASE OF KIR LOSKAR ELECTRODYNE LTD.HAD DECIDED THAT ASSESSEE WAS NOT ENTITLED TO D EDUCTION UNDER SECTION 80 I IN RESPECT OF INCOME ON FROM SERVIC E CHARGES FOR ERECTION AND COMMISSIONING OF MACHINERY AND INTERES T RECEIVED FROM FDR WITH BANK. IT ALSO HELD THAT ASSESSEE WAS ENTIT LED TO DEDUCTION UNDER THE SAID SECTION IN RESPECT OF INCOME ON FROM INTEREST FROM CUSTOMERS FOR DELAYED PAYMENT. BECAUSE, INTEREST RE CEIVED FROM THE CUSTOMERS FOR DELAYED PAYMENT WAS DIRECTLY RELATABL E TO THE BUSINESS OF THE ASSESSEE. WE ARE OF THE OPINION THAT IN THE PRESENT CASE MONEY RECEIVED BY THE ASSESSEE ON ACCOUNT OF STORAGE WAS NOT DERIVED FROM THE FROM ELIGIBLE BUSINESS , AS ENVISAGED BY SECTION 80IB OF THE ACT. THE FACT,THAT GOODS WERE STORED AT THE PLACE WHERE MANU FACTURING ACTIVITIES WERE BEING CARRIED OUT, DOES NOT PROVE T HE FACT THAT THE SUCH AN ACTIVITY IS ELIGIBLE FOR DEDUCTION U/S.80IB.IT I S NOT THE CLAIM OF THE ASSESSEE THAT IT WAS IN THE BUSINESS OF STORAGE AND THAT THE INCOME ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 8 FROM THE SAID BUSINESS WAS ENTITLED FOR DEDUCTION. AMOUNT RECEIVED FROM THE PURCHASER WAS INCIDENTAL TO THE BUSINESS C ARRIED OUT BY THE ASSESSEE. IT HAD NO RELATION WITH HIS BUSINESS. 4.3 IN THE MATTER OF BUCKAU WOLF NEW INDIA ENGINEE RING WORKS LTD. (150 ITR 180) HONBLE BOMBAY HC HAD DECIDED THE QUE STION OF DEDUCTION TO BE ALLOWED U/S.80I. FACTS OF THAT CASE WERE THE ASSESSEE, A PRIORITY INDUSTRY, WHICH CARRIED ON THE BUSINESS OF MANUFACTURE AND SALE OF MACHINERY USED IN THE SUGAR INDUSTRY, CLAIM ED DEDUCTION UNDER S. 80-I OF THE ACT, IN RESPECT OF THE PROFITS ATTRIBUTABLE TO ITS PRIORITY INDUSTRY FROM MACHINING CHARGES FOR REPAIR S TO MACHINERY AND FROM INTEREST ON THE UNPAID SALE PROCEEDS OF MACHIN ERY MANUFACTURED BY IT. THE ITO DISALLOWED THE CLAIM OF THE ASSESSEE . MATTER WAS DECIDED BY THE HONBLE HC IN FOLLOWING WORDS- SECTION 80-I USES THE WORDS 'ATTRIBUTABLE TO', WHI CH HAD BEEN DELIBERATELY USED BY THE LEGISLATURE. THE WORDS ARE OF WIDER IMPORT THAN THE EXPRESSION 'DERIVED FROM', AND THE LEGISLA TURE INTENDED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL C ONDUCT OF THE BUSINESS. SECTION 80-I ENVISAGED RELIEF BEING GRANT ED IN ALL CASES WHERE THERE WAS SOME DIRECT NEXUS BETWEEN THE INCOME AND THE PRIORITY INDUSTRY. SINCE THE MANUFACTURE OF MACHINERY BY THE ASSESSEE WAS A PRIORITY INDUSTRY, THE CARRYING OUT OF REPAIRS TO M ACHINERY MANUFACTURED AND SOLD BY THE ASSESSEE WAS AN ACTIVITY WHICH HAD A DIRECT NEXUS TO THE PRIORITY INDUSTRY AND THE INCOME DERIVED THEREF ROM MUST BE HELD TO BE ATTRIBUTABLE TO THE PRIORITY INDUSTRY. THE INCOM E DERIVED FROM INTEREST PAID BY THE BUYERS OF MACHINERY MANUFACTURED BY THE ASSESSEE ON DEFERRED PAYMENT ALSO HAD A DIRECT NEXUS TO THE ASS ESSEE'S PRIORITY INDUSTRY AND WAS ATTRIBUTABLE TO IT. THE FACILITY O F AFTER-SALES REPAIRS AND OF DEFERRED PAYMENT WERE INDUCEMENTS OFFERED TO THE INTENDING PURCHASERS AND WERE INTIMATELY LINKED TO THE ASSESS EE'S PRIORITY INDUSTRY.THEREFORE, THE ASSESSEE WAS ENTITLED TO DE DUCTION UNDER SECTION. 80-I IN RESPECT OF SUCH INCOME. IN THIS CASE HONBLE HC HAS DISTINGUISHED THE TERMS ATTRIBUTABLE AND DERIVED FROM AND HAS HELD THAT INCOME RECEIVED BY T HE ASSESSEE WAS ATTRIBUTABLE TO THE BUSINESS OF THE ASSESS AND HENC E ELIGIBLE FOR DEDUCTION. WE ARE OF THE OPINION MATTERS RELATED W ITH ATTRIBUTABLE TO PHRASE ARE OF NO HELP IN DECIDING THE ISSUE UNDER CONSIDERATION. THUS, CASE LAWS RELIED UPON BY THE ASEESEE AND REFE RRED TO BY THE CIT (A) DO NOT SUPPORT THE CLAIM MADE BY THE ASSESSEE. 5. SO, AFTER HEARING BOTH THE SIDES AND CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THA T THE APPELLANT IS NOT ENTITLED TO THE BENEFITS OF SECTION 80 IB. APPE LLANT COMPANY RECEIVED RS.17.5 LACS ON ACCOUNT OF STORAGE CHARGES FROM ITS BUYER BECAUSE THE BUYER WAS UNABLE TO GIVE DISPATCH CLEAR ANCE FOR GOODS MANUFACTURED BY THE COMPANY. WE ARE OF THE OPINION THAT THE ITA NO. 5830, 5831/MUM/2010 M/S. PAREKHPLAST INDIA PVT. LTD., , 9 AMOUNTS RECEIVED BY THE APPELLANT COMPANY CANNOT BE TERMED PART OF THE ELIGIBLE PROFIT OF THE UNDERTAKING FOR THE PURP OSES OF CLAIMING DEDUCTION UNDER SECTION 80 IB. THE SOURCE OF THE INCOME WAS NOT THE BUSINESS OF THE ASSESSEE, BUT THE FAILURE OF THE PU RCHASER TO COMPLY WITH THE TERMS OF THE CONTRACT. IT COULD NOT BE TRE ATED AS PROFITS OF THE UNDERTAKING FOR PURPOSES OF SECTION 80-IB. GROUND NUMBER 2 IS DECIDED IN FAVOUR OF THE REVENUE . 6. IN THE APPEAL (ITA/5831/M/10) FILED FOR A.Y. 200 6-07 ONLY GROUND OF APPEAL IS ABOUT SEC. 80 IB DEDUCTION. RE VENUE HAS PREFERRED AN APPEAL AS THE CIT(A) HAD ALLOWED THE C LAIM OF THE ASSESSEE U/S. 80 1B. 7. AS THE IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOU R OF THE REVENUE FOR THE EARLIER ASSESSMENT YEAR (PARA 3-5), FOLLOWI NG THE SAME, WE ALLOW THE APPEAL FILED BY REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MAY, 2012. SD/- SD/- (N.V. VASUDEVAN) (RAJENDR A) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE 16 TH MAY 2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI