M/s. MANGALAM DRUGS & ORGANICS LTD., MUMBAI V. DCIT CIR. - 4(2), MUMBAI

ITA 6550/MUM/2006

• Counselvise Citation: 655019914 RSA 2006
• Duration Of Justice: 4 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-08-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 05-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business income; Difference of opinion; Validity of assessment; Revised return; Reason to believe; Change of opinion
• Section: 147; 148; 263; 143(3); 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D.K. AGARWAL, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.6550/MUM/2006 ASSESSMENT YEAR : 2001-02 MANGALAM DRUGS & ORGANICS LTD. 292, PRINCESS STREET SECOND FLOOR, NEAR FLYOVER MUMBAI-400 002. ..( APPELLANT ) P.A. NO. (AAACM 7880 P) VS. DY. COMMISSIONER OF INCOME TAX CIRCLE -4(2) AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SHRI M. SUBRAMANIAN RESPONDENT BY : SHRI D. S. SUNDER SINGH DATE OF HEARING : 11.8.2011 DATE OF PRONOUNCEMENT : 24 TH AUGUST, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 25.9.2006 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-02. T HE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTES CHALLENGING RE-OPEN ING OF THE ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 ( THE ACT) IN ADDITION TO DISPUTING THE MERITS OF DEDUCTION ALLOWED UNDER SECTION 80 HHC AND 80I. ITA NO.6550/M/06 A.Y:01-02 2 2. WE FIRST TAKE UP THE GROUND RELATING TO RE-OPENIN G OF ASSESSMENT UNDER SECTION 147 WHICH IS A BASIC GROUND HAVING BEARING ON THE VALIDITY OF ASSESSMENT ITSELF. THE ASSESSEE IN THE MEMORAND UM OF APPEAL HAD ONLY CHALLENGED THE ORDER OF THE AO NOT G IVING REASONS REGARDING THE RE-OPENING. HOWEVER SUBSEQUENTLY THE ADD ITIONAL GROUND HAS BEEN FILED IN WHICH LEGAL VALIDITY OF RE-ASSESSMENT P ROCEEDINGS HAS BEEN CHALLENGED. THIS BEING A LEGAL GROUND WHICH CAN B E ADJUDICATED ON THE BASIS OF FACTS AVAILABLE ON RECORD WAS ADMITTED BY THE TRIBUNAL. 2.1 THE FACTS IN BRIEF ARE THAT IN THE RETURN OF INCOM E, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.34,64,523/- UNDER SECTION 8 0IB AND RS.22,50,893/- UNDER SECTION 80HHC. THE CLAIM WAS SUBSEQUE NTLY REVISED DURING ASSESSMENT PROCEEDINGS AND FINALLY CONSEQUE NT TO THE ORDER OF CIT(A) DATED 10.11.2004, THE DEDUCTION UNDE R SECTION 80 HHC WAS COMPUTED BY AO AT RS.8,05,666/- AND UNDER SECTION 80 -IB AT RS.47,72,718/-. SUBSEQUENTLY, THE AO NOTED THAT THE A SSESSEE ALSO HAD OTHER INCOME CONSISTING OF INTEREST, RENT ETC. WHICH W ERE NOT INCOME DERIVED FROM BUSINESS ACTIVITY BUT IN RESPECT OF SUCH INCOME ALSO, DEDUCTION UNDER SECTION 80HHC AND 80 IB HAD BEEN AL LOWED WHICH RESULTED INTO EXCESS DEDUCTION OF RS.8,05,666/- UNDE R SECTION 80 HHC AND RS.22,36,411/- UNDER SECTION 80IB. AO THEREFORE , AFTER RECORDING REASONS TO THE ABOVE EFFECT, RE-OPENED THE ASSE SSMENT ITA NO.6550/M/06 A.Y:01-02 3 UNDER SECTION 147. THE LEGAL VALIDITY OF REASSESSMENT PR OCEEDINGS HAS NOW BEEN CHALLENGED BEFORE THE TRIBUNAL. 2.2 BEFORE US THE LD. AR SUBMITTED THAT THE ASSESSMENT IN THIS CASE HAD ALREADY BEEN COMPLETED UNDER SECTION 143(3) ON 27. 2.2004 IN WHICH DEDUCTION UNDER SECTION 80 HHC AND 80 IB HAD BEEN DULY CONSIDERED BY THE AO. THEREFORE, REOPENING THE ASSESSMEN T WITHOUT ANY FRESH MATERIAL AMOUNTED TO CHANGE OF OPINION WHICH IS NOT PERMITTED. THE LD. AR PLACED RELIANCE ON THE FOLLOWIN G JUDGMENTS IN SUPPORT OF THE PLEA. I) 314 ITR 275 (BOM.) CARTINI INDIA LTD. VS. ACIT ; II) 295 ITR 282 (SC) MAX INDIA LTD.; III) 308 ITR 190 (BOM.) ASTEROID TRADING & INVESTMENT PVT. LTD.; IV) 295 ITR 333 (BOM.) SIEMENS INFORMATION SYSTEM LTD. AN D V) 119 ITD 175 (DEL.) MMTC VS. DCIT 2.3 THE LD. DR ON THE OTHER HAND SUBMITTED THAT THE AMENDMENT HAD BEEN REOPENED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE IT WAS NOT NECESSARY THAT THERE SHOULD HAVE BEEN FAILURE TO MAKE TRUE AND FULL DISCLOSURE BY THE ASSESSEE FOR REOPENING THE CASE. IT WAS POINTED OUT THAT T HE AO HAD NOT APPLIED MIND TO THE APPLICATION OF PROVISIONS OF E XPLANATION (BAA) TO THE OTHER INCOME WHICH WAS CLEAR FROM THE FACT THAT N O QUERY WAS ITA NO.6550/M/06 A.Y:01-02 4 RAISED ON THIS ASPECT. THE AO HAD NOT FORMED ANY OPINI ON ON THIS ISSUE AND, THEREFORE, THERE WAS NO CHANGE OF OPINION FO R REOPENING THE ASSESSMENT. IT WAS ALSO SUBMITTED THAT THE JUDGMENTS RELIE D UPON BY THE LD. AR WERE DISTINGUISHABLE. 2.4 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING LEGAL VALIDITY OF RE- OPENING OF THE ASSESSMENT. IN THIS CASE, THE ASSESSMENT OR IGINALLY HAD BEEN COMPLETED UNDER SECTION 143(3) ON 27.2.2004. THEREAFTER THE ASSESSMENT WAS RE-OPENED ON THE GROUND OF EXCESS CLAIM O F DEDUCTION UNDER SECTION 80 HHC AND 80 IB. THE REASONS RECO RDED BY THE AO ARE REPRODUCED BELOW :- IN THIS CASE, THE RETURN OF INCOME FOR A.Y. 2001- 02 WAS FILED ON 30.10.2001 DECLARING TOTAL INCOME A T RS.77,08,700/-. THE ASSESSMENT HAS BEEN COMPLETED U/S.143(3) ON 27.02.2004. IN THE ORIGINAL RETURN OF INCOME THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80IB AMOUNTING TO RS.34,64,523/- AND RS.22,50,893/- U/S.80HHC. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS SUBMITTED REVISED WORKING OF DEDUCTION U/S.80IB & 80HHC OF RS.47,72,218/- AND RS.29,46,775/- RESPECTIVELY. IN THE ASSESSMENT ORDER, THE AO WORKE D OUT THE DEDUCTION U/S.80HHC AT RS.7,33,598/- AND RS.47,72,218/- U/S.80IB. WHILE WORKING OUT THE DEDUCTION U/S.80HHC, THE AO ADDED THE EXCISE DUTY A ND SALES TAX OF RS.3,83,91,941/- AND RS.9,97,484/- RESPECTIVELY TO THE TOTAL TURNOVER OF THE BUSINESS. THE ASSESSEE WAS IN APPEAL BEFORE CIT(A). THE LD. CIT(A ) VIDE HIS ORDER DT.10.11.2004, DIRECTED THE AO TO EX CLUDE THE ABOVE ADDITIONS FROM THE TOTAL TURNOVER WHILE DETERMINING DEDUCTION U/S.80HHC. THE AO WHILE PASSI NG THE ORDER U/S.250 WORKED OUT THE DEDUCTION U/S.80HH C AT RS.8,05,666/- AND RS.47,72,718/- U/S.80IB. ITA NO.6550/M/06 A.Y:01-02 5 ON VERIFICATION OF RECORDS, IT IS NOTED THAT WHILE WORKING OUT DEDUCTION U/S.80HHC, 90% OF OTHER INCOM E WAS NOT REDUCED. SIMILARLY, WHILE WORKING DEDUCTION U/S.80IB, OTHER INCOME WAS NOT EXCLUDED EVEN THOU GH OTHER INCOME CANNOT BE SAID TO BE DERIVED FROM MANUFACTURING/EXPORT ACTIVITIES. IN VIEW OF THE ABO VE, IT IS SEEN THAT THE EXCESS DEDUCTION U/S.80HHC OF RS.8,05,666/- AND RS.22,36,411/- HAS BEEN ALLOWED T O THE ASSESSEE. AS SUCH, I HAVE REASON TO BELIEVE THA T THE INCOME OF RS.30,42,077/- WHICH IS CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR A.Y. 2001-02 AS A RESULT OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS FOR ITS ASSESSMENT. AS SUC H THE ASSESSMENT NEEDS TO BE REOPENED U/S.147 TO TAX THE ESCAPED INCOME, THE CASE IS FIT FOR ISSUE OF NOTICE U/S.148 OF THE I.T. ACT, 1961. NOTICE U/S.148 OF TH E I.T. ACT IS BEING ISSUED TO THE ASSESSEE FOR A.Y. 2001-0 2. 2.5 THERE IS NO DISPUTE THAT THE ORIGINAL ASSESSMENT WAS CO MPLETED UNDER SECTION 143(3) ON 27.2.2004 AND LATER IT WAS RE- OPENED UNDER SECTION 147 ON 22.6.2005. THE ASSESSMENT HAD THUS BEEN R E-OPENED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RE LEVANT ASSESSMENT YEAR. HOWEVER, THE RE-OPENING CAN STILL BE INVALID IN CASE THE SAME IS BASED ON CHANGE OF OPINION. BUT THERE WILL BE CHANGE OF OPINION ONLY WHEN THE AO IN THE ORIGINAL ASSESSMENT HAD TAKEN A VIEW ON THE ISSUE ON WHICH ASSESSMENT HAD BEEN RE-OPENED. THE AO IN THIS CA SE RE- OPENED THE ASSESSMENT ON THE GROUND THAT THE OTHER INCO ME WHICH CONSISTED OF INTEREST INCOME, RENTAL INCOME ETC. HAD NOT B EEN CONSIDERED FOR DEDUCTION FROM THE PROFIT OF THE BUSINESS AS PER EXPLANATION (BAA). THE DETAILS OF OTHER INCOME WERE AS UNDER :- 1) EXCISE DUTY REBATE CLAIM : RS. 6,68,491/- 2) SALES TAX SET OFF : RS. 9,08,713/- 3) HOUSE RENT RECEIVED : RS. 2,00,755/- ITA NO.6550/M/06 A.Y:01-02 6 4) SUNDRY BALANCE WRITTEN BACK : RS. 55,289/- 5) INTEREST INCOME : RS.1,44,79,794/- TOTAL : RS. 1,63,93,042/- 2.6 THOUGH THE AO COMPLETED THE ASSESSMENT UNDER SECTION 1 43(3), THERE WAS NO QUERY RAISED REGARDING APPLICABILITY OF P ROVISIONS OF EXPLANATION (BAA) AS PER WHICH 90% OF RECEIPTS OF THE NATURE OF INTEREST, RENT ETC. IS REQUIRED TO BE REDUCED FROM TH E PROFIT OF BUSINESS. NO EVIDENCE HAS BEEN PRODUCED BEFORE US TO SHOW THAT THE AO HAD RAISED ANY QUERY OR ANY SUBMISSION WAS MADE BY THE ASSESSEE. IN FACT, WE NOTE FROM COMPUTATION OF INCOME FILED BY THE ASSESSEE WITH ORIGINAL RETURN AS WELL AS WITH THE REVISED RETURN IN WHICH THE INTEREST INCOME HAD BEEN INCLUDED IN THE PROFIT OF THE BUSINESS A ND NOT SHOWN SEPARATELY AND THE AO ACCEPTED THE COMPUTATION WITHOUT ANY QUERY. THUS THE AO HAD TOTALLY OMITTED TO CONSIDER THE APPLICA TION OF PROVISIONS OF EXPLANATION (BAA). UNDER THESE CIRCUMSTAN CES, IT CANNOT BE SAID THAT AO HAD FORMED ANY OPINION IN RELATION T O APPLICATION OF THE PROVISIONS OF EXPLANATION (BAA). THEREFORE, THE RE-O PENING OF THE ASSESSMENT CANNOT BE SAID TO BE BASED ON CHANGE OF OPINION. THE LD. AR HAS ALSO RAISED A TECHNICAL OBJECTION THAT THE REASONS RECORDED DID NOT CONTAIN THE DATE AND THEREFORE IT IS NOT KNOWN WH ETHER THE REASONS WERE RECORDED THE ISSUE OF NOTICE UNDER SECTION 148. WE FIND NO MERIT IN SUCH OBJECTIONS BECAUSE THERE IS NO DISPUTE REGARDING SE RVICE OF NOTICE UNDER SECTION 148 ON 22.6.2005. THERE IS ALSO NO MATERIAL TO ITA NO.6550/M/06 A.Y:01-02 7 SHOW THAT THERE WAS ANY MANIPULATION OF RECORDS. WE, THEREFORE, REJECT THE OBJECTION RAISED. 2.7 WE HAVE ALSO GONE THROUGH THE VARIOUS JUDGMENTS RE LIED UPON BY THE LD. AR AND FIND THE SAME TO BE DISTINGUISHABLE . IN CASE OF CARTINI INDIA LTD. VS. ACIT (SUPRA), THE HONBLE BOMBA Y HIGH COURT HELD THAT ONCE AO CONSIDERED THE MATERIAL ON RECORD AND THE EXPLANATION OFFERED AND ARRIVED AT THE FINAL CONCLUSI ON THAT THE DEDUCTION WAS ALLOWABLE, BASED ON THE SAME MATERIAL, H E CANNOT TAKE A DIFFERENT VIEW AND RE-OPEN THE ASSESSMENT. THUS, IN T HAT CASE THE AO HAD CONSIDERED THE MATERIAL AS WELL AS EXPLANATION OFFERED WHICH IS NOT SO IN THE PRESENT CASE IN WHICH APPLICABILITY OF EXPL ANATION (BAA) WAS TOTALLY OMITTED. IN CASE OF SIEMENS INFORMATION SY STEM LTD. (SUPRA), THE HONBLE BOMBAY HIGH COURT NOTED THAT THE AO HAD RAISED A SPECIFIC QUERY ABOUT THE METHODOLOGY OF COMPUTATION O F DEDUCTION UNDER SECTION 10A/10B AND AFTER APPLYING MIND TO VARI OUS ISSUES, ALLOWED THE CLAIM AND THEREFORE, RE-OPENING OF THE A SSESSMENT ON THE SAME ISSUE WAS NOT UPHELD. IN THE PRESENT CASE, THERE WAS NO APPLICATION OF MIND TO THE PROVISIONS OF EXPLANATION ( BAA) AND THEREFORE, THE CASE IS DIFFERENT. IN CASE OF ASTEROID TR ADING & INVESTMENT PVT. LTD. (SUPRA), THE AO ALLOWED DEDUCTION UNDER SECTION 80M AND LATER RE-OPENED THE ASSESSMENT. THE HONBLE HIGH COURT NOTED THAT THE ASSESSEE HAD DISCLOSED FULL MATERIAL FOR COM PUTATION OF ITA NO.6550/M/06 A.Y:01-02 8 DEDUCTION UNDER SECTION 80M AND THERE WAS APPLICATION OF MIND BY THE AO IN ALLOWING THE CLAIM AND, THEREFORE, RE-OPENING WAS NOT UPHELD. IN THE PRESENT CASE AS POINTED OUT EARLIER, THERE WAS N O APPLICATION OF MIND BY THE AO REGARDING APPLICABILITY OF EXPLANATIO N (BAA). IN CASE OF MMTC VS. DCIT (SUPRA), THE AO IN THE ASSESSMENT MADE UNDE R SECTION 143(3) HAD ALLOWED DEDUCTION UNDER SECTION 80 HHC IN RE SPECT OF DIVIDEND AND NET INTEREST INCOME. THE TRIBUNAL NOTED THAT ALLOWABILITY OF DEDUCTION UNDER SECTION 80 HHC ON DIVIDEND AND INTERE ST INCOME WAS ELABORATELY DISCUSSED BY THE AO IN THE ASSESSMENT ORDER. THEREFORE IT WAS HELD THAT RE-OPENING OF ASSESSMENT ON T HE SAME ISSUE WAS BASED ON CHANGE OF OPINION. IN THE PRESENT CASE THE AO HAD NOT RAISED ANY QUERY NOR WAS THE ISSUE DISCUSSED IN THE ASSESSME NT ORDER. THEREFORE, THE CASE IS DIFFERENT. THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF CIT VS. MAX INDIA LTD. (SUPRA), IS NOT APPLICABLE AS THE SAME RELATED TO ACTION OF CIT UNDER SECTION 263. IN TH AT CASE THE HONBLE SUPREME COURT HELD THAT THE AO HAD TAKEN ONE OF THE TWO POSSIBLE VIEWS AND THEREFORE, ACTION UNDER SECTION 263 WA S NOT UPHELD. 2.8 IN VIEW OF THE FORE-GOING DISCUSSION AND FOR THE RE ASONS GIVEN EARLIER WE DO NOT SEE ANY MERIT IN THE GROUND RAISED BY THE ASSESSEE CHALLENGING THE RE-OPENING OF THE ASSESSMENT. THE RE-ASSE SSMENT IS ACCORDINGLY HELD LEGALLY VALID. ITA NO.6550/M/06 A.Y:01-02 9 3. THE SECOND DISPUTE IS REGARDING COMPUTATION OF DEDUCT ION UNDER SECTION 80 HHC. THE AO DEDUCED 90% OF OTHER INCOME AMOUNT ING TO RS.1,63,93,042/- (DETAILS IN PARA-2 EARLIER) AND AFTE R THE SAID DEDUCTION, THERE WAS NO INCOME AVAILABLE FOR GRANT OF DEDUCTION UNDER SECTION 80 HHC AND THEREFORE, THE DEDUCTION ALLOWED IN T HE ORIGINAL ASSESSMENT AMOUNTING TO RS.8,05,666/- WAS WITHDRAWN. THE ASSESSEE HAD ARGUED THAT SALES TAX SET OFF, EXCISE DUTY REFUND, SUNDRY BALANCE WRITTEN BACK MORE DIRECTLY RELATED TO MANUFACTURING A CTIVITY BUT THE SAME WAS NOT ACCEPTED. THE ARGUMENT THAT THE RENT HAD BEEN RECEIVED BY THE EMPLOYEES AT THE FACTORY HAD ALSO BEEN REJECTED. IN APPEAL THE CIT(A) HAS CONFIRMED THE ORDER OF THE AO A ND HAS ALSO HELD THAT 90% OF GROSS RECEIPTS RELATING TO INTEREST ETC. IS REQUIRED TO BE REDUCED. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATED T HE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES THAT SALE TAX SET O FF, EXCISE DUTY RE- FUND AND SUNDRY BALANCE DIRECTLY RELATE TO MANUFACTURIN G ACTIVITY AND THEREFORE, COULD NOT BE EXCLUDED. IT WAS ALSO SUBMITTED THAT INTEREST AND RENTAL INCOME WAS OF THE NATURE OF BUSINESS INCOME AN D, THEREFORE CANNOT BE CONSIDERED FOR REDUCTION UNDER EXPLANATION (B AA). THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. ITA NO.6550/M/06 A.Y:01-02 10 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATER IAL CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEDUCTION UNDER SECTION 80 HHC IN RELATION TO INTEREST, RENT AND OTHER I NCOME DETAILS OF WHICH HAVE BEEN GIVEN IN PARA -2 EARLIER. AS PER EXP LANATION (BAA), 90% OF RECEIPTS ON ACCOUNT OF INTEREST, RENT ETC. ARE RE QUIRED TO BE REDUCED FROM THE PROFIT OF BUSINESS WHILE COMPUTING DED UCTION UNDER SECTION 80(HHC). IN OUR VIEW, SALES TAX SET OFF, EXCISE DUT Y RE-FUND AND SUNDRY BALANCE WRITTEN OFF ARE NOT OF THE NATURE OF INCOME REFERRED TO IN EXPLANATION (BAA) AND THESE ARE DIRECTLY RELATE D TO BUSINESS OPERATIONS AND, THEREFORE, SUCH ITEMS HAVE TO BE TAKEN AS INTEGRAL PART OF BUSINESS PROFIT. THEREFORE, THE SAME CANNOT BE CONSIDER ED FOR REDUCTION UNDER EXPLANATION (BAA). HOWEVER, THE CASE O F RENT AND INTEREST INCOME IS DIFFERENT AS THESE ARE SPECIFICALLY COVE RED BY EXPLANATION (BAA). THEREFORE, EVEN IF INTEREST AND R ENT IS OF THE NATURE OF BUSINESS INCOME, THE SAME IS COVERED BY THE EXPLANATION (BAA) AND 90% OF WHICH IS REQUIRED TO BE DEDUCTED. IN THIS CASE, I NTEREST AND RENTAL INCOME HAS BEEN ASSESSED AS BUSINESS INCOME BUT 90% OF THE SAME HAD NOT BEEN REDUCED FROM THE PROFIT OF BUSINESS AS PER EXPLANATION (BAA) WHICH IS NOT CORRECT. AFTER THE SAID R EDUCTION, THERE IS NO PROFIT LEFT FOR ALLOWING DEDUCTION UNDER SECTION UNDER SECTION 80 HHC. THE DECISION OF THE CIT(A) TO REDUCE 90% OF GROSS IN TEREST AND RENT AS PER EXPLANATION (BAA) IS ALSO UPHELD IN VIEW OF THE JUDGMENT OF ITA NO.6550/M/06 A.Y:01-02 11 HONBLE HIGH COURT OF BOMBAY IN CASE OF ASIAN STAR CO. L TD. (326 ITR 56). WE, THEREFORE, SEE NO ERROR IN THE ORDER OF TH E AO DISALLOWING CLAIM OF DEDUCTION OF RS.8,05,666/- . THE ORDER OF CI T(A) CONFIRMING THE ADDITION IS UPHELD. 4. THE THIRD DISPUTE IS REGARDING ALLOWABILITY OF DED UCTION UNDER SECTION 80IB IN RELATION TO OTHER INCOME CONSISTING OF RE NT, INTEREST ETC., DETAILS OF WHICH ARE HAVE BEEN GIVEN IN PARA-2 EARLIER. THE LD. AR ARGUED THAT ALL THESE ITEMS OF INCOME ARE PART OF B USINESS PROFIT AND THEREFORE, DEDUCTION UNDER SECTION 80 HHC SHOULD BE A LLOWED. THE LD. DR ON THE OTHER HAND SUBMITTED THAT DEDUCTI ON CAN BE ALLOWED ONLY IN RESPECT OF THE PROFIT DIRECTLY DERIVED FROM BU SINESS OF THE UNDER TAKING AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. (317 ITR 218). 4.1 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEDUCTION UNDER SECTION 80 IB IN RELATION TO INTEREST, RENT AND OTHER ITEMS OF INCOME. THE DEDUCTION UNDER SECTION 80IB IS ALLOWABLE IN RESPECT OF THE PROFIT DERIVED FROM THE BUSINESS OF THE UNDERTAKING. THE HON' BLE SUPREME COURT IN CASE OF LIBERTY INDIA LIMITED (SUPRA) HAVE HE LD THAT ONLY THE PROFIT DERIVED FROM THE ELIGIBLE BUSINESS OF THE UNDER TAKING CAN BE CONSIDERED FOR DEDUCTION UNDER SECTION 80 IB AND ANY INCI DENTAL PROFIT ITA NO.6550/M/06 A.Y:01-02 12 OR PROFIT ATTRIBUTABLE TO THE BUSINESS WILL NOT BE COVE RED. THE HON'BLE SUPREME COURT HELD THAT THE SECTION DID NOT COVER PROF IT FROM A SOURCE BEYOND THE FIRST DEGREE, THUS MAKING IT CLEAR THAT ANY INCIDENTAL BUSINESS INCOME OR INCOME ATTRIBUTABLE TO BUSINESS HAS TO B E EXCLUDED. THE RENT AND INTEREST INCOME IS ONLY INCIDEN TAL BUSINESS INCOME AND IS NOT PROFIT FROM THE ELIGIBLE BUSINESS OF THE UNDERTAKING AND, THEREFORE, DEDUCTION UNDER SECTION 80IB CANNOT BE ALLOWED IN RESPECT OF THESE ITEMS. HOWEVER, INCOME FROM SALES TAX SET OFF, EXCISE DUTY RE-FUND, SUNDRY BALANCE WRITTEN OFF HAS ARISEN FROM THE BUSINESS OPERATIONS OF THE UNDERTAKING AND, THEREFORE, IN OUR VIEW SUCH INCOME HAS TO BE CONSIDERED FOR DEDUCTION UNDER SECTION 80IB. W E, THEREFORE, HOLD THAT THE DEDUCTION UNDER SECTION 80 IB WILL NOT B E ALLOWED IN RESPECT OF INTEREST AND RENTAL INCOME BUT THE SAME IS AL LOWABLE IN RESPECT OF OTHER ITEMS OF INCOME UNDER CONSIDERATION. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF THE ORDER ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 24.8.2011 SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24.8.2011. JV. ITA NO.6550/M/06 A.Y:01-02 13 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.