Vardhman Holdings Ltd., Ludhiana V. ACIT,

ITA 88/CHANDI/2009

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5636 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-09-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 02-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAGDISH GOYAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Depreciation; Business expenditure; Retrospective amendment; Question of law; Capital receipt; Revised return
• Section: 143(3); 80HHC; 115JB; 80IB; 10B; 80HH; 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B, CHANDIGARH , !'# $' % & , '( BEFORE: SHRI SANJAY GARG, JM & SMT. ANNAPURNA GUPTA , AM ./ ITA NO.88/CHD/2009 / ASSESSMENT YEAR : 2003-04 M/S VARDHMAN HOLDINGS LIMITED, (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED), CHANDIGARH ROAD, LUDHIANA. THE A.C.I.T., CIRCLE-1, LUDHIANA. ./PAN NO: AABCV8088P /APPELLANT /RESPONDEN T ./ ITA NO.118/CHD/2009 / ASSESSMENT YEAR : 2003-04 THE A.C.I.T., CIRCLE-1, LUDHIANA M/S VARDHMAN HOLDINGS LIMITED, (FORMERLY KNOWN AS VARDHMAN SPG. & GENL. MILLS LIMITED), CHANDIGARH ROAD, LUDHIANA ./PAN NO: AABCV8088P /APPELLANT /RESPONDENT /ASSESSEE BY: SHRI SUBHASH AGGARWAL, ADV. ! / REVENUE BY : SHRI JAGDISH GOYAL, CIT DR '# $ /DATE OF HEARING : 30.08.2018 %&'(# /DATE OF PRONOUNCEMENT : 26.11.2018 ') / ORDER PER ANNAPURNA GUPTA, A.M . : THE IMPUGNED CROSS APPEALS BY THE ASSESSEE AND THE REVENUE HAVE BEEN FILED AGAINST THE ORDER PASSED B Y THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIA NA, (IN SHORT (CIT(A)) DATED 17.11.2008 RELATING TO ASSES SMENT ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 2 YEAR 2003-04 , U/S 250(6) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PUBLIC LIMITED COMPANY WITH ITS REGISTERED AND CORPORATE O FFICE AT LUDHIANA (PUNJAB) AND BADDI (HP). THE BUSINESS OF T HE ASSESSEE COMPANY IS MANUFACTURING AND PROCESSING OF YARN, KNITTING YARN, FABRICS AND PROCESSED FABRICS. THE MANUFACTURING UNIT OF THE ASSESSEE AT BADDI I.E. VS GM BADDI IS 100% EXPORT ORIENTED UNIT (EOU) AND THE AS SESSEE HAD CLAIMED EXEMPTION U/S 10B OF THE ACT ON THE PRO FITS EARNED FROM THE SAME. THE ASSESSEE HAS ALSO CLAIMED DEDUCTION U/S 80HHC ON PROFITS EARNED FROM ITS BUSI NESS OF EXPORT OF TRADING AS WELL AS MANUFACTURED GOODS. FU RTHER THE ASSESSEE COMPANY HAD CLAIMED DEDUCTION U/S 80IB OF THE ACT ON ITS AURO SPINNING UNIT-III, AURO UNIT-IV AND AURO UNIT-V, AURO WEAVING-II AND AURO DYEING, AURO TEXTILES, VSGM 100% EOU. DURING ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER (A.O) FOUND THAT THE MAIN ISS UES INVOLVED IN THE CASE RELATED TO NETTING OF INTEREST , EXEMPTION U/S 10B OF THE ACT, DEDUCTION U/S 80HHC AND 8IB OF THE ACT AND DIVIDEND INCOME AND SALES TAX SUBSIDY ,AND ACCORDINGLY MADE DISALLOWANCES/ADDITIONS IN RELATIO N TO THE SAID ISSUES IN HIS ORDER FRAMED U/S 143(3) OF THE A CT.THE SAID ORDER WAS CONTESTED IN APPEAL BEFORE THE LD.CI T(A) WHO PARTLY ALLOWED THE ASSESSEES APPEAL. THE ISSUES RAI SED, THEREFORE, IN THE PRESENT APPEALS BY BOTH THE PARTI ES PERTAIN TO THE SAID ISSUES. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 3 3. AT THE OUTSET ITSELF, THE LD. COUNSEL FOR ASSESS EE STATED THAT ALL THE ISSUES RAISED IN THE CROSS APPEALS HAD BEEN DEALT WITH BY THE I.T.A.T. IN THE CASE OF SISTER CO NCERN OF THE ASSESSEE, M/S VARDHMAN TEXTILES LIMITED VIDE THEIR ORDER DATED 4.5.2018 IN RELATION TO ASSESSMENT YEAR 2002- 03 TO 2005-06. A GIST OF THE ISSUES RAISED IN THE PRESENT APPEAL AND DEALT WITH BY THE I.T.A.T. IN THE SAID ORDER AL ONGWITH A COPY OF THE ORDER WAS FILED BEFORE US. IT WAS STATE D THAT THE SAID ORDER, THEREFORE, WAS PERTINENT FOR ADJUDICATI NG VARIOUS GROUNDS RAISED IN THE CROSS APPEALS BEFORE US. TAKI NG NOTE OF THE SAME WE SHALL NOW PROCEED TO ADJUDICATE THE CROSS APPEALS AND SHALL FIRST BE TAKING UP THE APPEAL OF THE ASSESSEE IN ITA NO.88/CHD/2009. ITA NO.88/CHD/2009(ASSESSEES APPEAL): 4. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDE R: 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR TAXING THE CAPITAL RECEIPT AMOUNTING TO RS.2,04,11,70/ /- ON ACCOUNT OF SALES TAX EXEMPTION/SUBSIDY RECEIVED FROM GOVERNMENT OF PUNJAB AS THE REVENUE RECEIPT OF THE APPELLANT. 5. THE ABOVE GROUND IS AGAINST THE ACTION OF THE CI T(A) IN TREATING THE SALES TAX SUBSIDY RECEIVED BY THE ASSE SSEE AMOUNTING TO RS.2,04,11,707/- AS REVENUE RECEIPT AG AINST CAPITAL RECEIPT CLAIMED BY THE ASSESSEE. 6. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT THE MANUFACTURING UNIT OF THE ASSESSEE, VSGM(UNIT II)SE T UP IN LUDHIANA, HAD BEEN GRANTED INCENTIVE OF SALES TAX EXEMPTION IN TERMS OF GOVERNMENT NOTIFICATION NO.1N C ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 4 11/15/43/96-5/IB 4176,DT.01-06-96 VIDE DISTRICT IND USTRIES CENTER, LUDHIANA. DURING THE IMPUGNED YEAR, IN THE ORIGINAL RETURN FILED, THE ASSESSEE SHOWED SUBSIDY AS REVEN UE RECEIPT BY WAY OF CREDIT IN THE PROFIT & LOSS ACCOUNT BUT SUBSEQUENTLY CLAIMED THE SAME AS CAPITAL RECEIPT IN THE REVISED RETURN FILED. DURING ASSESSMENT PROCEEDING S, THE ASSESSEE FILED DETAILS OF THE SCHEME OF PUNJAB GOVE RNMENT AS PER WHICH THE SUBSIDY HAD BEEN RECEIVED AND SUBMITT ED THAT SINCE THE INCENTIVE WAS GIVEN TO SPURT INDUSTRIAL G ROWTH AS WELL AS FOR GENERATION OF EMPLOYMENT OPPORTUNITIES TO ITS UNEMPLOYED YOUTH THROUGH RAPID INDUSTRIALIZATION OF THE STATE, THE SCHEME WAS CAPITAL IN NATURE. RELIANCE W AS PLACED ON CERTAIN CASE LAWS BUT THE A.O. DISMISSED THE CON TENTION OF THE ASSESSEE AFTER DISCUSSING THE SCHEME IN DETA IL AND REFERRING TO JUDGMENT IN THE CASE OF M/S SAHNI STEE L & PRESS WORKS LTD. VS. CIT, 228 ITR 253 (SC) AND DCIT VS. R ELIANCE INDUSTRIES LTD., 88 ITD 273 (ITAT SB). 7. THE ASSESSEE WENT IN APPEAL TO THE CIT(A) WHO UP HELD THE ORDER OF THE A.O. RELYING UPON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1. 8. DURING THE COURSE OF HEARING BEFORE US THE LD. C OUNSEL FOR ASSESSEE RELIED UPON THE SUBMISSIONS MADE BEFO RE THE LOWER AUTHORITIES STATING THAT AS PER THE SCHEME OF THE PUNJAB GOVERNMENT THE SUBSIDY HAD BEEN GIVEN TO SPU RT INDUSTRIAL GROWTH AS WELL AS FOR GENERATION OF EMPL OYMENT OPPORTUNITIES THROUGH RAPID INDUSTRIALIZATION IN TH E STATE ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 5 AND THUS THE SUBSIDY RECEIVED WAS CAPITAL IN NATURE . COPY OF THE SCHEME WAS PLACED BEFORE US AND RELIANCE WAS PL ACED ON SEVERAL CASE LAWS AS UNDER: ( (I) TRIBUNAL'S ORDER IN THE CASE OF MAHAVIR SPINNIN G MILLS VS. ACIT LTD IN ITA NO. 344/09 A.Y 1997-98 DATED 30.11.2015(CHD) ( PG. 1-8) (II) TRIBUNAL'S ORDER IN THE CASE OF VARDHMAN TEXTILE S LTD. VS. ACIT IN ITA NO. 392/07 AY 2001-02 DATED 21.10.15(CHD) (PG. 135-144) (III) CIT VS. NIRMA LTD. 397 ITR 49 ( GUJ) - DATED 08.6.16. (CASE LAW PGS. 212 - 218) 9. FURTHER THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT IDENTICAL ISSUE HAD BEEN DEALT WITH IN THE CASE OF SISTER CONCERN OF THE ASSESSEE M/S VARDHMAN TEXTILES LTD., AS POINTED OUT EARLIER, WHEREIN THE I.T.A.T. HAD HEL D THE SAID SUBSIDY AS BEING CAPITAL RECEIPT. OUR ATTENTION WAS DRAWN TO THE RELEVANT PORTION OF THE ORDER DEALING WITH THE SAID ISSUE AT PAGES 27 TO 34, MORE SPECIFICALLY, TO THE FINDIN GS OF THE I.T.A.T. AT PARA 39 OF ITS ORDER WHEREIN FOLLOWING THE DECISION OF THE I.T.A.T. IN THE CASE OF VARDHMAN ACRYLIC LTD ., LUDHIANA VS. ACIT & OTHER N ITA NO.773/CHD/2012 & OTHERS RELATING TO ASSESSMENT YEAR 2006-07 AND THE DECISION OF THE I.T.A.T. IN THE CASE OF MAHAVIR SPINNING MIL LS LTD. VS. JCIT IN ITA NO.344/CHD/2009 FOR ASSESSMENT YEAR 199 7-98 THE APPEAL OF THE ASSESSEE WAS ALLOWED HOLDING THE SUBSIDY TO BE CAPITAL IN NATURE. 10. THE LD. DR FAIRLY CONCEDED THAT THE I.T.A.T. I N THE CASE OF SISTER CONCERN OF THE ASSESSEE M/S VARDHMAN TEXT ILES (SUPRA) HAD HELD IDENTICAL SUBSIDY RECEIVED FROM TH E PUNJAB ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 6 GOVERNMENT AS CAPITAL IN NATURE THOUGH AT THE SAME TIME HAD HEAVILY RELIED UPON THE ORDER OF THE A.O. 11. HAVING HEARD THE RIVAL CONTENTIONS WE FIND MERI T IN THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. WE HAVE GONE THROUGH THE ORDER PASSED BY THE ITAT IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA),RELIED UPON BY THE LD.COU NSEL 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 R ECEIVED BY VIRTUE OF SCHEME OF THE PUNJAB GOVERNMENT VIDE THE 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 JCIT 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) ,BU T ON APPEAL BY THE ASSESSEE, THE HONBLE 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 TH E 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 ASSESSE E BY THE ABOVE ORDERS OF THE ITAT EVEN AFTER CONSIDERING TH E DECISION ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 7 OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF ABH ISHEK 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 IS DETERMINATIVE OF THE NATURE OF THE SUBSIDY AND NOT THE MANNER OF DISBURSEMENT OF THE SAME. THE MANNER OF CALCULATING THE SAME OR EVEN THE POINT OF TIME AT W HICH IT IS DISBURSED. THE HON'BLE APEX COURT TIME AND AGAIN H AD REITERATED THIS PROPOSITION RIGHT FROM M/S SAHNI ST EEL & PRESS WORKS LTD. AND CIT VS. PONNI SUGAR & CHEMICAL S LTD. 306 ITR 392 AND ITS LATEST JUDGMENT IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS,PUNE IN CIVIL APPEAL NO.6513-65 14 DT. 7 TH DEC 2017. IN THE PRESENT CASE UNDISPUTEDLY AS PER THE SCHEME OF PUNJAB GOVERNMENT THE PURPOSE OF DISBURSE MENT IS TO SPURT INDUSTRIAL GROWTH AS WELL AS TO GENERAT E THE EMPLOYMENT OPPORTUNITIES THROUGH RAPID INDUSTRIALIZ ATION IN THE STATE. THERE IS NO DOUBT, THEREFORE, THAT THE N ATURE OF THE SUBSIDY IS CAPITAL. IN VIEW OF THE ABOVE GROUND OF APPEAL NO.1 RAISED B Y THE ASSESSEE IS ALLOWED. 14. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UND ER: 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FA CTS WHILE ALLOCATING RS. ONE LAC TO DIVIDEND INCOME EARNED BY THE APPELLANT. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 8 15. IN THE ABOVE GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN ALLOCATING EXPENSES OF RS.1 LAC ATTRIBUTING THE SAME TO DIVIDEND INCOME EARNED BY T HE ASSESSEE. 16. BRIEFLY STATED, THE ASSESSEE HAD RETURNED TO TA X THE GROSS AMOUNT OF DIVIDEND EARNED DURING THE YEAR AMO UNTING TO RS.321.75 LACS U/S 56 OF THE ACT, WITHOUT SETTIN G OFF ANY EXPENSES INCURRED IN RELATION TO THE SAME U/S 57 O F THE ACT. THE A.O. ALLOCATED A SUM OF RS.44.96 LACS (ON PROP ORTIONATE BASIS) OUT OF PERSONNEL, FINANCE AND ADMINISTRATIVE EXPENSES, CLAIMED AS BUSINESS EXPENSES BY THE ASSES SEE, ATTRIBUTING THE SAME TO HAVING BEEN INCURRED FOR TH E PURPOSE OF EARNING DIVIDEND INCOME. THUS THE AO REDUCED TH E BUSINESS EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUN T OF THE ABOVE, RESULTING IN ADDITION TO ITS TAXABLE INCOME TO THE SAID EXTENT. FURTHER THE ASSESSEE HAD ALSO CLAIMED DEDUC TION OF THE GROSS AMOUNT OF DIVIDEND EARNED U/S 80M OF THE ACT,WHICH WAS ALSO REDUCED BY THE AO AFTER NETTING EXPENSES INCURRED FOR EARNING THE INCOME AS AFORESAID. THE L D.CIT(A) FOLLOWING HIS OWN ORDER FOR ASSESSMENT YEAR 2002-03 , REDUCED THE EXPENSES ALLOCATED TO RS.1 LAC. 17. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTEND ED THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING DIVIDE ND INCOME. THE LD. COUNSEL FOR ASSESSEE RELIED UPON TH E ORDER OF THE I.T.A.T. IN ITS OWN CASE FOR ASSESSMENT YEAR 20 01-02 IN ITA NO.280/CHD/2008 DATED 28.12.2012 WHEREIN I.T.A. T. HAD UPHELD THE ALLOCATION OF RS.2 LACS TO DIVIDEND INCOME ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 9 EARNED OF RS.4.50 CRORES. COPY OF THE ORDER WAS PLA CED BEFORE US. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF THE ASSESSEE ITSE LF FOR ASSESSMENT YEARS 1994-95, 1995-96, 1997-98 AND 2000 -01 IN ITA NO.50/CHD/2012 DATED 25.1.2013 WHEREIN ALLOC ATION OF RS.1 TO RS.2 LACS IN VARIOUS YEARS WAS UPHELD. C OPY OF THE ORDER WAS PLACED BEFORE US. THE LD. COUNSEL FOR ASS ESSEE ALSO RELIED UPON THE ORDER OF THE I.T.A.T. IN THE C ASE OF SISTER CONCERN OF THE ASSESSEE M/S VARDHMAN TEXTILES (SUPR A) POINTING OUT THAT IN THE SAID ORDER DISALLOWANCE OF RS.2 LACS WAS UPHELD IN ASSESSMENT YEAR 2002-03 WHILE IN THE REST OF THE YEARS THE DISALLOWANCE MADE WAS DELETED. OUR AT TENTION WAS DRAWN TO THE RELEVANT FINDINGS AT PAGE 13 & 14 OF THE ORDER AS UNDER: 7.3 THE SIMILAR MATTER WAS CONSIDERED BY THE LTAT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001- 02 IN ITA NO.1174/CHD/2013 VIDE ORDER DT.16/04/2014 WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE WAS MADE ON SURMISES AND THERE WAS NO MERIT IN THE DISALLOWA NCES MADE WRONGLY ON THE PREMISE THAT BORROWED FUNDS WERE USED FOR INVESTMENT PURPOSE. THE TRIBUNAL HAS AFFIRMED THE CONFIRMING OF DISALLOWANCE OF RS. 1,00,000/- MADE BY THE LD. CIT(A). IN THE INSTANT YEAR THE LD. CIT(A) HAS CONFIRME D AN AMOUNT OF RS.2,00,000/- BEING THE EXPENSES INCURRED F OR EARNING OF THE DIVIDEND INCOME. FOLLOWING THE SAME RATIO NALE WE HEREBY UPHOLD THE ORDER OF THE LD. CIT(A). 18. THE LD. DR POINTED OUT THAT THIS ISSUE HAS BEEN DEALT WITH IN THE CASE OF THE ASSESSEE IN THE PRECEDING Y EARS RIGHT UP TO THE HON'BLE HIGH COURT, AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE, UPHOLDING ALLOCATION OF EXPEN SES OF RS.1 TO RS.2 LACS. 19. WE HAVE HEARD THE RIVAL CONTENTIONS. WE DO NOT FIND ANY MERIT IN THE PRESENT GROUND RAISED BY THE ASSESSEE. AS ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 10 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 INTERFERE IN THE ORDER OF THE LD. CIT(A) AND THE GROUND NO.2 RAISED BY THE ASSESSEE IS, THEREFORE, DISMISSED. 20. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UND ER: 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS WH ILE TREATING INTEREST INCOME AMOUNTING TO RS.34,73,788/ - AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FRO M BUSINESS OR PROFESSION. 21. IN THE ABOVE GROUND, THE ASSESSEE HAS CHALLENGE D THE ACTION OF THE LD.CIT(A) IN TREATING THE INTEREST IN COME EARNED BY THE ASSESSEE OF RS.34.74 LACS AS INCOME FROM OTH ER SOURCES. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 11 22. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE FIGURE OF INTERES T MENTIONED IN THE ASSESSMENT ORDER WAS NOT CORRECT A ND THE CORRECT FIGURES WERE TABULATED BEFORE US AS UNDER: AO'S ORDER CORRECT FIGURES GROSS INTEREST RECEIVED RS. 294.83 LACS RS. 3.80 C R. INTEREST FROM CUSTOMERS/SUPPLIER RS. 257.22 LACS RS. 345.75 LACS INTEREST FROM BANK & OTHERS RS. 37.61 LACS RS. 34 .74 LACS INTEREST PAID RS. 1255.57 LACS RS. 9.23 CR. 23. THEREAFTER DRAWING OUR ATTENTION TO THE FACTS O F THE CASE IT WAS CONTENDED THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE A.O. IN THE CONTEXT OF ALLOWING DED UCTION U/S 80HHC RAISED A QUERY AS TO WHY 90% OF THE INTER EST BE NOT DEDUCTED FROM THE PROFITS OF THE BUSINESS. THE ASSESSEE CLAIMED WHOLE OF THE INTEREST TO BE IN THE NATURE O F BUSINESS INCOME AND FURTHER CONTENDED THAT SINCE IT HAD ALSO PAID INTEREST OF RS.9.23 CRORES AND IF THE SAME WAS NETT ED AGAINST THE INTEREST INCOME EARNED THERE WOULD BE NO INCOME EARNED BY THE ASSESSEE AND THUS NO QUESTION OF REDUCING 90 % OF THE SAME FROM THE BUSINESS OF THE ASSESSEE FOR THE PURP OSE OF CALCULATING DEDUCTION U/S 80HHC OF THE ACT. DETAILS REGARDING THE SAME WERE FILED BEFORE THE A.O. BUT T HE A.O. DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE A ND HELD THAT THE GROSS AMOUNT OF INTEREST RECEIVED IS TO BE TREATED AS INCOME FROM OTHER SOURCES AND THUS REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTATION OF D EDUCTION U/S 10B/80IB/80HHC OF THE ACT. 24. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT (A) WHO HELD THAT OUT OF THE GROSS INTEREST RECEIVED, INTER EST RECEIVED ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 12 ON BELATED PAYMENTS FROM CUSTOMERS/SUPPLIERS WAS IN THE NATURE OF BUSINESS INCOME WHILE THE OTHER INTEREST INCOME RECEIVED FROM BANKS AND OTHERS AMOUNTING TO RS.34.7 4 LACS WAS UPHELD AS TO BE TREATED AS INCOME FROM OTHER S OURCES 25. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE REITERATED THE CONTENTION MADE BEFORE THE LOWER AUTHORITIES THAT THE INTEREST INCOME SHOULD BE NETT ED FOR ALL PURPOSES AND THE INTEREST PAID BY THE ASSESSEE OF R S.9.23 CRORES SHOULD BE SET OFF AGAINST THE INTEREST RECEI VED FOR THE PURPOSE OF DETERMINING WHETHER ANY INTEREST IS TO B E REDUCED FROM THE PROFITS OF THE ASSESSEE FOR THE PURPOSE CA LCULATING THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC O F THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS IN THIS REGARD: 1) M/S ACG ASSOCIATED CAPSULES PVT. LTD. VS. CIT (2012) 343 ITR 89 2) VARDHMAN HOLDING LTD. VS. ACIT, ITA NO. 280/CHD/2008 DATED 28.12.2012 FOR ASSESSMENT YEAR 2001-02. 26. IT WAS FURTHER POINTED OUT THAT IDENTICAL ISSUE HAD BEEN DEALT WITH IN THE CASE OF SISTER CONCERN OF THE ASS ESSEE M/S VARDHMAN TEXTILES (SUPRA) WHEREIN NETTING OF INTERE ST WAS ALLOWED. OUR ATTENTION WAS DRAWN TO THE RELEVANT DI SCUSSION ON THE ISSUE AT PAGES 38 TO 43 POINTING OUT THAT TH E ISSUE DEALT WITH IN THE SAID CASE RELATED TO TREATMENT OF INCOME AS INCOME FROM OTHER SOURCES AND THE I.T.A.T. FOLLOWIN G THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF M /S ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA) REFERRED THE MATTER TO THE A.O. TO ALLOW THE NETTING OF INTEREST IF THE AS SESSEE WAS ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 13 ABLE TO PROVE THE NEXUS BETWEEN THE INTEREST EXPEND ITURE AND INTEREST INCOME. 27. THE LD. DR FAIRLY CONCEDED TO THE ABOVE. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE FI ND MERIT IN THE CONTENTION RAISED BY THE LD. COUNSEL FOR ASS ESSEE. AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE AND AS ADMITTED BY BOTH THE PARTIES, IDENTICAL ISSUE HAS BEEN DEALT WITH IN THE CASE OF SISTER CONCERN OF THE ASSESSEE M/S VARD HMAN TEXTILES (SUPRA) WHEREIN THE MATTER HAS BEEN RESTOR ED BACK TO THE A.O. TO ALLOW THE NETTING IF NEXUS IS ESTABL ISHED BETWEEN THE INTEREST EXPENSES INCURRED AND INTEREST INCOME EARNED. FOLLOWING THE SAME WE RESTORE THE ISSUE BAC K TO THE A.O. IN THE PRESENT CASE ALSO FOR DETERMINING THE N EXUS BETWEEN THE INTEREST EXPENDITURE AND INTEREST INCOM E EARNED AND THEREAFTER ALLOW THE BENEFIT OF NETTING TO THE ASSESSEE. GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS, TH EREFORE, ALLOWED IN ABOVE TERMS. 29. GROUND NOS.4 (I) AND (II) WERE TAKEN UP TOGETH ER BY THE ASSESSEE SINCE THEY RELATED TO THE SAME ISSUE O F CALCULATION OF DEDUCTION U/S 10B OF THE ACT .THE SA ID GROUNDS READ AS UNDER: 4. (I) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR A PPLYING METHOD OF CALCULATING DEDUCTION U/S 10B OTHER THAN T HAT SPECIFIED U/S 10B AND AT VARIANCE TO THE METHOD REG ULARLY ADOPTED BY THE APPELLANT IN EARLIER YEARS AND ACCEP TED BY THE DEPARTMENT. (II) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON T HE FACTS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICE R FOR ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 14 INCREASING THE TOTAL TURNOVER OF VSGM E.O.U. FOR CA LCULATING EXEMPTION U/S 10B OF INCOME TAX ACT BY THE FOLLOWIN G AMOUNTS: PARTICULARS AMOUNT (IN RS.) EXCISE DUTY 64,96,590/- EXPORT TURNOVER OF TRADING GOODS 2,98,73,357/- 30. THESE GROUNDS ARE AGAINST THE ORDER OF THE CIT( A) IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE EXC ISE DUTY AND EXPORT TURNOVER OF TRADED GOODS AS PART OF TOTA L TURNOVER OF EXPORT ORIENTED UNIT (IN SHORT REFERRED TO AS E OU) FOR THE PURPOSE OF CALCULATING EXEMPTION U/S 10B OF THE ACT . LD.COUNSEL FOR THE ASSESSEE POINTED OUT FROM THE AS SESSMENT ORDER THAT THE A.O., AFTER REFERRING TO VARIOUS DEC ISIONS HELD THAT EXCISE DUTY WAS TO BE TREATED AS PART OF TOTA L TURNOVER FOR COMPUTATION OF DEDUCTION U/S 80HHC AND INCLUDED THE SAME IN THE TOTAL TURNOVER OF THE ASSESSEE BOTH FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC AND 10B OF THE ACT. FURTHER WHILE COMPUTING THE DEDUCTION U/S 10B AT THE END OF THE ORDER, THE A.O. ALSO ADDED TURNOVER OF TRADED GOODS TO THE TOTAL TURNOVER. THE ASSESSEE AGITATED THE SAME BEFORE THE CIT(A), SUBMITTING THAT IN VIEW OF THE J UDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. LAKSH MI MACHINE WORKS, 290 ITR 667 (SC) BOTH EXCISE DUTY A ND EXPORT TURNOVER OF TRADED GOODS SHOULD NOT BE INCLU DED IN TOTAL TURNOVER FOR CALCULATING DEDUCTION U/S 10B OF THE ACT. THE CIT(A) DID NOT AGREE WITH THE SUBMISSIONS OF TH E ASSESSEE HOLDING THAT THE RATIO WAS LAID DOWN IN TH E CONTEXT OF EXCLUSION OF EXCISE DUTY FOR THE PURPOSES OF SEC TION 80 HHC OF THE ACT AND THEREFORE DID NOT APPLY FOR EXC LUSION OF THE SAME FOR THE PURPOSES OF SECTION 10B. FURTHER I T WAS ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 15 HELD THAT AS PER THE PROVISIONS OF SECTION 10B THE TURNOVER OF TRADED GOODS WERE TO BE INCLUDED IN THE TOTAL TU RNOVER FOR THE PURPOSE CALCULATION OF EXEMPTION U/S 10B OF THE ACT. 31. DURING THE COURSE OF HEARING BEFORE US THE LD. COUNSEL FOR ASSESSEE REITERATED THE CONTENTION MADE BEFORE THE LOWER AUTHORITIES STATING THAT THE PROVISIONS OF SECTIONS 10B AND 80HHC ARE PARI-MATERIA SINCE THEY BOTH RELATE TO COMPUTATION OF DEDUCTION ON EXPORT AND, THEREFORE, THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF L AKSHMI MACHINE WORKS (SUPRA) WOULD APPLY FOR THE PURPOSE O F SECTION 10B ALSO. RELIANCE WAS FURTHER PLACED ON TH E DECISION OF THE I.T.A.T. IN THE CASE OF ACIT VS. VM T SPINNING COMPANY LTD. DATED 22.5.2008 IN ITA NO.690/2007 AND ON THE DECISION OF THE SPECIAL BENCH OF THE I.T.A.T. I N THE CASE OF ITO VS. SAK SOFT LTD. (2009) 313 ITR (AT 3353 (S B)(MAD) FOR THE PROPOSITION THAT THE TURNOVER OF TRADED GOO DS IS TO BE EXCLUDED FROM THE TOTAL TURNOVER. FURTHER THE LD. C OUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE RECENT ORDER PAS SED BY THE ITAT CHANDIGARH BENCH IN THE CASE OF SISTER CON CERN OF THE ASSESSEE M/S VARDHMAN TEXTILES (SUPRA) POINTING OUT THEREFROM THAT BOTH THE ISSUES OF EXCLUSION OF EXCI SE DUTY AND TURNOVER OF TRADED GOODS FROM THE TOTAL TURNOVE R HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE. OUR ATTENTI ON WAS DRAWN TO THE ORDER OF THE I.T.A.T. AT PARAS 10.1 P OINTING OUT THEREFROM THAT THE ISSUE IN THE SAID CASE WAS IDENT ICAL, BEING INCLUSION/EXCLUSION OF EXCISE DUTY AND EXPORT TURNO VER OF TRADED GOODS IN THE TOTAL TURNOVER OF THE ASSESSEE FOR ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 16 CALCULATING DEDUCTION U/S 10B OF THE ACT. THEREAFTE R OUR ATTENTION WAS DRAWN TO THE FINDINGS OF THE ITAT AT PARA 10.5 HOLDING THAT THE DECISION OF THE APEX COURT IN THE CASE OF LAXMI MACHINE WORKS (SUPRA) SQUARELY APPLIED TO THE ISSUE AND DIRECTING THE AO TO RECOMPUTED THE ELIGIBLE PRO FITS AS PER GUIDELINES LAID DOWN THEREIN. OUR ATTENTION WA S ALSO DRAWN TO PAGE 35 OF THE ORDER WHEREIN FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF VMT SPINNING CO.LTD.(SUPRA), IT WAS HELD THAT BOTH THE PROFITS A ND THE TURNOVER OF EXPORT TRADED GOODS WAS TO BE EXCLUDED FROM THE PROFITS AND TOTAL TURNOVER OF THE ASSESSEE FOR THE PURPOSES OF CALCULATING DEDUCTION U/S 10B OF THE ACT. 32. THE LD. DR FAIRLY CONCEDED THAT THE ISSUES HAD BEEN DECIDED IN THE CASE OF VARDHMAN TEXTILES (SUPRA) AS STATED ABOVE THOUGH HE HEAVILY RELIED UPON THE ORDERS OF T HE AUTHORITIES BELOW. 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 SQ UARELY 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 ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 17 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 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(SUP RA) ,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 DE DUCTION 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 ASSE SSEE ARE, THEREFORE, ALLOWED IN ABOVE TERMS. 34. GROUND NO.4(III) RAISED BY THE ASSESSEE READS A S UNDER: (III) THAT THE LD. CIT (A) HAS ERRED IN LAW AND O N THE FACTS WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR REDUCING PROFITS OF VSGM E.O.U. FOR CALCULATIN G EXEMPTION U/S 10B BY THE FOLLOWING AMOUNTS: - PARTICULARS AMOUNT (IN RS.) - LOSS ON EXPORT OF TRADING GOODS 1,61,934/- - RENT RECEIVED FROM EMPLOYEES 1,53,733/- - R & D SUBSIDY RECEIVED 1,00,000/- ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 18 4,15, 667 /- 35. THE ABOVE GROUND CHALLENGES THE ACTION OF THE L D.CIT(A) IN REDUCING THE FOLLOWING FROM THE PROFITS OF THE EOU WHILE CALCULATING EXEMPTION U/S 10B OF THE ACT: 1) LOSS ON EXPORT OF TRADED GOODS = RS.1,61,934/- 2) RENT RECEIVED FROM EMPLOYEES = RS.1,53,733/- 3) R & D SUBSIDY = RS.1,00,000/- 36. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10B ON ITS EOU UNIT AMOUN TING TO RS.1,97,20,837/- BEING 90% OF THE PROFITS AMOUNT ING TO RS.2,18,92,041/-, ATTRIBUTABLE TO THE EXPORT TURNOV ER OF THE UNDERTAKING IN PROPORTION TO THE TOTAL TURNOVER OF THE UNDERTAKING. THE SAID DEDUCTION WAS COMPUTED AFTER REDUCING BOTH THE TURNOVER OF TRADED GOODS FROM THE TOTAL TURNOVER AND THE PROFIT/LOSS ON EXPORT OF TRADED GO ODS .SINCE THE ASSESSEE HAD INCURRED LOSSES IN THE TRADING ACT IVITY AMOUNTING TO RS.1,61,934/- THE SAME WERE ADDED TO T HE TOTAL PROFITS OF THE UNDERTAKING. FURTHER NO ADJUSTMENT W AS MADE TO THE PROFITS OF THE UNDERTAKING IN RESPECT OF REN T AND MISCELLANEOUS INCOME I.E. R & D SUBSIDY. THE A.O. H ELD THAT THE RENT AND MISCELLANEOUS INCOME WAS TO BE REDUCED FROM THE SAME. FURTHER HE ALSO, REDUCED THE PROFITS BY THE LOSS INCURRED ON EXPORT OF TRADED GOODS. THE CIT(A) UPHE LD THE ORDER OF THE A.O. 37. BEFORE US THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT AS REGARDS THE LOSS ON TRADED GOODS THE SAME IS NOT TO BE CONSIDERED IN COMPUTING THE DEDUCTION U/S 10B OF TH E ACT IN ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 19 VIEW OF THE DECISION OF THE I.T.A.T. IN THE CASE OF ACIT VS. VMT SPINNING COMPANY LTD. (SUPRA). AS FAR AS THE RE NT AND R& D SUBSIDY, IT WAS CONTENDED THAT THESE INCOMES R EGULARLY AROSE IN THE COURSE OF BUSINESS AND HAD TO BE INCLU DED IN THE TAXABLE INCOME FOR THE IMPUGNED YEAR. FURTHER I T WAS POINTED OUT THAT THE I.T.A.T. IN THE CASE OF M/S VA RDHMAN TEXTILES (SUPRA) HAD HELD THE RENT RECEIVED TO BE I NCLUDED IN THE PROFITS FOR THE PURPOSE OF CALCULATING DEDUCTIO N U/S 80HHC OF THE ACT. OUR ATTENTION WAS DRAWN TO THE RE LEVANT FINDINGS AT PARA 6.10 OF THE ORDER WHEREIN THE ISSU E WAS DECIDED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DEC ISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. METALMAN AUTO PVT. LTD., 366 ITR 434 AND VMT SPINNI NG COMPANY LTD. IN ITA NO.654/CHD/2005 VIDE ORDER DATE D 317.2006. 38. WE HAVE HEARD THE RIVAL CONTENTIONS. WITH REGAR D THE ISSUE OF TREATMENT OF LOSS/PROFIT ON EXPORT TRADED GOODS, THE SAME HAS BEEN DEALT WITH BY US IN GROUND NO. 4(I) & (II) ABOVE, DIRECTING EXCLUSION OF THE SAME FROM THE PRO FITS OF THE BUSINESS OF THE ASSESSEE, AT PARA 33 OF OUR ORDER ABOVE. AS FOR RENT RECEIVED FROM EMPLOYEES, WE FIND THAT IN T HE CASE OF THE ASSESSEE ITSELF FOR A.Y 2001-02, IT WAS CONCEDE D BY THE ASSESSEE BEFORE THE TRIBUNAL THAT 90% OF THE SAME W AS TO BE EXCLUDED . EVEN OTHERWISE ,SECTION 10B GRANTS DEDUC TION TO PROFITS DERIVED BY A 100% EOU FROM EXPORT OF ARTICL ES OR THINGS.RENT RECEIVED EVEN FROM EMPLOYEES, CANNOT BE SAID TO BE DERIVED FROM EXPORT OF GOODS. AS FOR THE DECISIO N OF THE ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 20 JURISDICTIONAL HIGH COURT RELIED UPON BY THE LD.COU NSEL FOR THE ASSESSEE IN THE CASE OF METALMAN (SUPRA), THE I SSUE WAS NOT IN RELATION TO RENT RECEIVED AND THEREFORE THE SAME WOULD NOT APPLY IN THE PRESENT CASE. EVEN R &D SUBSIDY R ECEIVED, CANNOT BE SAID TO BE DERIVED FROM EXPORT OF GOODS B UT IS CLEARLY ON ACCOUNT OF SCHEME OF THE GOVERNMENT GRAN TING THE SUBSIDY. R&D SUBSIDY ALSO,WE HOLD ,IS NOT ENTITLED TO EXEMPTION U/S 10B OF THE ACT. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE APEX COURT IN LIBERTY INDIA VS COMMISSIONER OF INCOME TAX(2009) 317 ITR 218,WHEREI N IT WAS HELD THAT INCENTIVES RECEIVED ON ACCOUNT OF SCH EMES OF GOVERNMENT CANNOT BE SAID TO BE DERIVED FROM THE BU SINESS ACTIVITY CARRIED OUT BY ASSESSEES, FOR THE PURPOSE OF GRANT OF DEDUCTION U/S 80IB OF THE ACT. SINCE SECTION 10B IS IDENTICALLY WORDED USING THE TERM DERIVED FROM EXP ORTS,THE INTERPRETATION GIVEN TO THE SAID TERM WILL APPLY IN RELATION TO EXEMPTION CLAIMED U/S 10B OF THE ACT ALSO. IN VIEW OF THE ABOVE WE HOLD THAT LOSS ON EXPORT T RADED GOODS,RENT RECEIVED AND R&D SUBSIDY RECEIVED ALL AR E TO BE EXCLUDED FOR CALCULATING DEDUCTION U/S 10B OF THE A CT. GROUND OF APPEAL NO.4(III) IS THEREFORE PARTLY ALLO WED IN ABOVE TERMS. 39. GROUND NO.4(IV) RAISED BY THE ASSESSEE READS AS UNDER: (IV) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE REDUCING PROFITS OF VSGM E.O.U. BY PROPORTIONATE HE AD OFFICE EXPENSES AMOUNTING TO RS.79,60,109/- WHILE CALCULATI NG DEDUCTION U/S 10B. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 21 40. THIS GROUND IS AGAINST THE CIT(A)S ORDER UPHOL DING THE ORDER OF THE A.O. ALLOCATING HEAD OFFICE EXPENSES O F RS.79,60,109/- TO EOU UNIT THUS REDUCING THE ELIGIB LE PROFITS OF THE UNDERTAKING FOR THE PURPOSE OF CALCU LATION DEDUCTION U/S 10B OF THE ACT. 41. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD INCURRED TOTAL HEAD OFFICE EXPENSES AMOUNTING T O RS.11,91,43,587/- AND HAD NOT ALLOCATED ANY EXPENSE S TO ANY OF THE UNITS ON THE GROUND THAT SECRETARIAL FUN CTION PERFORMED BY THE HEAD OFFICE HAD NOTHING TO DO WITH THE MANUFACTURING UNITS. THE A.O. DID NOT AGREE WITH TH E SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE HEAD OFFICE WAS PROVIDING SERVICE TO ALL UNITS AND, THEREFORE, HE PROPORTIONATELY ALLOCATED A SUM OF RS.79,60,109/- T O THE EOU UNIT, THUS REDUCING ITS PROFITS ELIGIBLE FOR D EDUCTION U/S 10B OF THE ACT. THE CIT(A) DISMISSED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDER IN THE CASE OF THE ASS ESSEE FOR ASSESSMENT YEAR 2002-03. 42. BEFORE US THE LD. COUNSEL FOR ASSESSEE MADE TWO FOLD CONTENTIONS; I) THAT OUT OF THE TOTAL HEAD OFFICE E XPENSES CERTAIN EXPENSES HAD ALREADY BEEN ADDED BACK IN THE COMPUTATION OF INCOME AND AS SUCH THOSE WERE NOT LI ABLE TO BE ALLOCATED. THE EXPENSES REFERRED TO WERE AS UNDE R: 1) CHARITY AND DONATION = RS. 2,06,900/- 2) PRIOR PERIOD EXPENSES = RS.10,88,093/- 3) LOSS ON SALE OF FIXED ASSET = RS.1,66,246/- 4) PROVISION FOR FALL IN VALUE OF INVESTMENT = RS.47,33,280/- ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 22 TOTAL: = RS.61,94,519/- 43. THE LD. COUNSEL FOR ASSESSEE ALSO CONTENDED THA T IF ANY ALLOCATION WAS TO BE DONE IT SHOULD BE OF THE NET E XPENSES INCURRED BY THE ASSESSEE AFTER REDUCING INCOME EARN ED BY THE HEAD OFFICE WHICH THE LD. COUNSEL FOR ASSESSEE CONTENDED AMOUNTED TO RS.4,70,49,661/- BY WAY OF INTEREST AND OTHER MISCELLANEOUS RECEIPTS. RELIANCE WAS PLACED ON THE DECISION OF THE I.T.A.T. IN THE CASE OF EMERSON ELECTRIC COM PANY (INDIA) PVT. LTD. VS. DCIT IN ITA NO.4142/MUM/2015 DATED 25.9.2017. IT WAS ALSO POINTED OUT THAT IN THE RECE NT DECISION OF THE I.T.A.T. IN THE CASE OF SISTER CONC ERN I.E. M/S VARDHMAN TEXTILES (SUPRA) THE I.T.A.T. HAD HELD ONL Y NET EXPENSES TO BE ALLOCATED. OUR ATTENTION WAS DRAWN T O THE RELEVANT FINDINGS OF THE I.T.A.T. AT PAGES 19 TO 22 OF THE ORDER. 44. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE WAS S QUARELY COVERED BY THE DECISION OF THE I.T.A.T. IN THE CASE OF VMT SPINNING COMPANY LTD. (SUPRA) THOUGH HE HEAVILY REL IED UPON THE ORDERS OF THE AUTHORITIES BELOW. 45. IN VIEW OF THE ABOVE, SINCE ADMITTEDLY THE I.T. A.T. IN THE CASE OF M/S VARDHMAN TEXTILES (SUPRA) HAS ADJUDICAT ED THIS ISSUE HOLDING THAT ONLY NET EXPENSES, AFTER REDUCIN G INCOME EARNED THEREFROM, OF THE HEAD OFFICE ARE TO BE ALLO CATED, WE DIRECT THE A.O. TO RECOMPUTE THE DEDUCTION AFTER AL LOCATING NET HEAD OFFICE EXPENSES ONLY AS PER THE DIRECTIONS OF THE I.T.A.T. IN THE CASE OF M/S VARDHMAN TEXTILES (SUPR A). WE ALSO AGREE WITH THE CONTENTION OF THE LD. COUNSEL F OR ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 23 ASSESSEE THAT THE EXPENSES ALREADY ADDED BACK NEED NOT BE ALLOCATED AGAIN FOR THE PURPOSE OF CALCULATING PROF ITS OF ELIGIBLE UNITS. WE, THEREFORE, DIRECT THE A.O. TO V ERIFY THE FACT OF DISALLOWANCE OF CERTAIN EXPENSES SUO MOTO BY THE ASSESSEE AND THEREAFTER NOT REALLOCATE THE SAME TO THE HEAD OFFICE FOR THE PURPOSE OF CALCULATING ELIGIBLE PROFITS FOR DED UCTION U/S 10B OF THE ACT. GROUND OF APPEAL NO.4(IV) IS ACCORD INGLY ALLOWED. 46. GROUND NO.5(I)& (II) RAISED BY THE ASSESSEE REA DS AS UNDER: 5. (I) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN EXCLUDING EXPORT TURNOVER OF UNITS CLAIMING EXEMPTI ON U/S 10B FROM EXPORT TURNOVER OF THE APPELLANT WHILE CALCULATING THE DEDUCTION U/S 80HHC OF INCOME TAX ACT. (II) WITHOUT PREJUDICE TO GROUND NO. 5(I) ABOVE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE DIRECTING TO EXCLUDE 100% OF EXP ORT TURNOVER OF THE EOUS INSTEAD OF 90% OF EXPORT TURNOVER OF EOUS FROM THE ELIGIBLE EXPORT TURNOVER FOR DEDUCTION U/S 80HHC OF INCOME TAX ACT. 47. THE ABOVE GROUND IS AGAINST THE ACTION OF THE L D.CIT(A) IN EXCLUDING EXPORT TURNOVER OF UNITS CLAIMING EXEM PTION U/S 10B OF THE ACT FROM THE EXPORT TURNOVER OF THE COMP ANY WHILE CALCULATING DEDUCTION U/S 80HHC OF THE ACT. 48. BRIEFLY STATED THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPTION OF EXPORT PROFITS BOTH U/S10B AND 80 HHC OF THE ACT .HE HELD THAT SINCE THE SAID PROFIT S WERE EXEMPT U/S 10B OF THE ACT ,THEY DID NOT FORM PART O F THE GROSS TOTAL INCOME OF THE ASSESSEE AND WERE THEREFO RE NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. HE, TH EREFORE, REDUCED 90% OF THE EXPORT TURNOVER AND TOTAL TURNOV ER OF EOU UNIT FROM THE EXPORT AND TOTAL TURNOVER OF THE COMPANY ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 24 FOR COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE LD.CIT(A) REJECTED THE CLAIM OF THE ASSESSEE BY REF ERRING TO THE ORDERS IN ASSESSEES CASE FOR ASSESSMENT YEARS 2001-02 AND 2002-03 AND FOLLOWING THE SAME DIRECTED THAT 10 0% OF THE TURNOVER BE REDUCED AS OPPOSED TO 90% DONE BY T HE AO. 49. BEFORE US, LD.COUNSEL FOR THE ASSESSEE, RELIED UPON THE JUDGMENT OF THE TRIBUNAL IN THE CASE OF MAHAVIR SP INNING MILLS LTD. IN ITA NO.212/2005 FOR ASSESSMENT YEAR 2 001-02 DATED 5.1.2016 HOLDING THAT THE TURNOVER OF 10B UNI T IS NOT TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING DEDUCTI ON U/S 80HHC OF THE ACT. OUR ATTENTION WAS DRAWN TO THE RE LEVANT FINDINGS OF THE TRIBUNAL AT PAGE 48 OF THE ORDER, A COPY OF WHICH WAS PLACED BEFORE US. IT WAS ALSO CONTENDED T HAT THIS ISSUE HAS ALSO BEEN DECIDED BY THE HON'BLE HIGH COU RT IN FAVOUR OF THE ASSESSEE IN THE CASE OF M/S MAHAVIR S PINNING MILLS LTD. VS COMMISSIONER OF INCOME TAX, LUDHIANA IN ITA NO.408 OF 2007 DATED 02-09-16, FOR ASSESSMENT YEAR 1998- 99. COPY OF THE ORDER WAS PLACED BEFORE US. THE LD. DR, ON THE OTHER HAND RELIED UPON THE ORDE R OF THE AUTHORITIES BELOW. 50. WE HAVE HEARD RIVAL CONTENTIONS AND ALSO GONE T HROUGH 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 ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 25 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 TRIBUNAL HAS ERRED IN LAW IN HOLDING THAT THE EXPORT TURNOVER OF THE UNIT WHOSE PROFITS ARE EXEMPT UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 IS NOT TO B E INCLUDED IN THE 'EXPORT TURNOVER' FOR THE PURPOSES OF CALCULATI NG THE DEDUCTION 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 DE CISION OF THE TRIBUNAL AND OF THE CIT (APPEALS) UPHOLDING THE ASS ESSMENT ORDER. THE TRIBUNAL HELD THAT THE TURNOVER OF SALES MADE BY TH E ASSESSEE FOR WHICH 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 S UCH TURNOVER FROM EXPORT TURNOVER WHILE COMPUTING RELIEF AVAILABLE TO THE ASSESSEE UNDER SECTION 80HHC OF THE ACT. WE ARE UNABLE TO AGREE. S ECTION 80 HHC CLEARLY DEFINES THE TERMS EXPORT TURNOVER, TOTAL TU RNOVER AND PROFITS OF BUSINESS. NONE OF THESE DEFINITIONS EXCLUDE THE EXP ORT TURNOVER IN RESPECT WHEREOF BENEFIT HAS BEEN DERIVED UNDER SECTION 10B. TO ACCEPT THE RESPONDENT'S CONTENTION WOULD REQUIRE THE SECTION T O BE REWRITTEN AND THE EXPRESSION TO BE REDEFINED WHICH IS NOT PER MISSIBLE. IN VIEW OF THE SAME WE AGREE WITH THE LD.COUNSEL FO R THE ASSESSEE THAT EXPORT TURNOVER FOR WHICH EXEMPTI ON U/S 10B OF THE ACT HAS ALREADY BEEN CLAIMED, IS TO BE I NCLUDED IN THE TURNOVER FOR PURPOSES OF CALCULATING DEDUCTION U/S 80 HHC OF THE ACT. GROUND OF APPEAL NO.5(I)&(II) RAISE D BY THE ASSESSEE IS THEREFORE ALLOWED. 52. GROUND NO.5(III) RAISED BY THE ASSESSEE READS A S UNDER: ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 26 5. (III) THE LD. C1T (A) HAS ERRED IN LAW AND ON FACTS WHILE APPORTIONING ALL THE ADMINISTRATIVE, FINANCIAL EXPENSES AND DEPRECIATION BEING EXPENSES NOT RELATING TO TRADING ACTIVITIES OF APPE LLANT'S BUSINESS FOR CALCULATING INDIRECT COST OF TRADING E XPORTS 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 INDIRECT CO ST OF TRADING GOODS AT RS.90.76 LACS , BY ALLOCATING COMM ON 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. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 27 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 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 O F 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 HEADWISE WAS TAKEN INTO CONSIDERATIO N 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 ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 28 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. 13-07- 12. GROUND OF APPEAL NO.5(III) IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 58. GROUND NO.5(IV) RAISED BY THE ASSESSEE READS AS UNDER: 5. (IV) 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 CUSTOME RS AMOUNTING TO RS.3,45,75,013/- 59. THIS GROUND IS AGAINST THE ACTION OF THE CIT(A) IN REDUCING THE PROFITS OF THE BUSINESS ELIGIBLE FOR D EDUCTION U/S 80HHC BY 90% OF INTEREST RECEIVED FROM SUPPLIER S AND CUSTOMERS AMOUNTING TO RS.3,45,75,013/-. THE AO HAD REDUCED 100% OF THE SAID INTEREST. THE CIT(A) HELD THAT THE INTEREST FROM CUSTOMERS/SUPPLIERS WAS IN THE NATURE OF BUSINESS INCOME BUT 90% OF THE SAME SHOULD BE DEDUC TED FROM THE PROFITS OF THE BUSINESS FOR COMPUTING DEDU CTION U/S 80HHC OF THE ACT. 60. BEFORE US, THE LD. COUNSEL FOR ASSESSEE CONTEND ED THAT THE INTEREST FROM CUSTOMERS AND SUPPLIERS BEING IN THE NATURE OF BUSINESS INCOME THERE IS NO REASON FOR DE DUCTING 90% OF THE SAME FROM THE PROFITS OF THE COMPANY FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 80HHC OF THE A CT. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PHATELA COTGIN IN DUSTRIES ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 29 P. LTD. VS. CIT (2007) 303 ITR 411 (P&H) FOR THE PR OPOSITION THAT THE INTEREST FROM CUSTOMERS WAS ELIGIBLE FOR D EDUCTION U/S 80HHC/80IA OF THE ACT. IT WAS FURTHER CONTENDE D THAT IN ANY CASE, THE INTEREST INCOME TO BE REDUCED SHOU LD BE THAT AFTER NETTING THE INTEREST EXPENSES INCURRED A ND IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF THE H IGH COURT IN THE CASE OF M/S ACG ASSOCIATED CAPSULES PVT. LTD . (SUPRA) AND THE DECISION OF THE ITAT CHANDIGARH BENCH IN TH E CASE OF ACIT VS. MAHAVIR SPINNING MILLS LTD. IN ITA NO.2 12/2015 FOR ASSESSMENT YEAR 2001-02 DATED 5.1.2016. IT WAS ALSO POINTED OUT THAT IN THE CASE OF SISTER CONCERN OF T HE ASSESSEE I.E. M/S VARDHMAN TEXTILES (SUPRA) THE I.T.A.T. IN A RECENT DECISION HAD HELD THAT 90% OF SUCH INTEREST EARNED FROM CUSTOMERS AND SUPPLIERS NEED NOT BE REDUCED FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 80HHC OF THE A CT. OUR ATTENTION WAS DRAWN TO THE RELEVANT FINDINGS AT PAG ES 11 TO 13 OF THE ORDER. 61. LD.DR RELIED ON THE ORDER OF THE AUTHORITIES BE LOW. 62. WE HAVE HEARD THE RIVAL CONTENTIONS. THE HONBL E 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 ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 30 GROUND OF APPEAL NO.5(IV) IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 63. GROUND NO.5(V) RAISED BY THE ASSESSEE READS AS UNDER: 5. (V) THAT THE LD. CIT(A) HAS ERRED IN LAW AND O N THE FACTS WHILE REDUCING 90% OF RENT RECEIVED FROM EMPLOYEES AMOUNT ING TO RS.23,68,054/- FROM PROFITS OF BUSINESS ELIGIBLE FO R DEDUCTION U/S 80HHC. 64. THIS GROUND IS AGAINST THE ACTION OF THE CIT(A) IN REDUCING 90% OF THE RENT RECEIVED FROM THE EMPLOYEE S AMOUNTING TO RS.23,68,054/- WHILE COMPUTING PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE AC T. THE CIT(A) DECIDED THE ISSUE AGAINST THE ASSESSEE FOLLO WING HIS OWN ORDER FOR ASSESSMENT YEAR 2001-02. 65. BEFORE US THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT THE RENT INCOME RECEIVED WAS IN THE NATURE OF BUSIN ESS INCOME AND, THEREFORE, 90% OF THE SAME NEED NOT BE REDUCED. IT WAS POINTED OUT THAT IN THE CASE OF SISTER CONCE RN OF THE ASSESSEE, VARDHMAN TEXTILES (SUPRA), THE RENTAL INC OME SHOWN AS PART OF MISCELLANEOUS INCOME WAS HELD BY T HE ITAT NOT BE REDUCED TO THE EXTENT OF 90% OF THE SAME FRO M THE PROFITS OF THE BUSINESS. OUR ATTENTION WAS DRAWN TO THE RELEVANT FINDINGS OF THE IATA AT PAGE 11-13 OF THE ORDER. 66. WE HAVE BOTH THE PARTIES. WE FIND THAT IDENTICA L ISSUE HAS BEEN DEALT WITH BY US IN THE CONTEXT OF EXCLUSI ON OF RENT RECEIVED FOR THE PURPOSES OF CALCULATING DEDUCTION/ EXEMPTION U/S 10B OF THE ACT IN GROUND NO.4(III) RAISED BY TH E ASSESSEE. SINCE SECTION 10B AND 80 HHC ARE PARA MATERIA, ALLO WING DEDUCTION/EXEMPTION OF PROFITS DERIVED FROM EXPORTS , OUR ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 31 DECISION RENDERED IN THE CONTEXT OF SECTION 10B OF THE ACT, AT PARA 38 OF OUR ORDER ABOVE WILL APPLY FOR PURPOSE S OF SECTION 80HHC ALSO, FOLLOWING WHICH, WE DISMISS TH IS GROUND RAISED BY THE ASSESSEE. 67. GROUND NO.5(VI) RAISED BY THE ASSESSEE READS AS UNDER: 5. (VI) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS WHILE NOT ALLOWING DEDUCTION U/S 80HHC (3)(C)(III) ON EXP ORT INCENTIVES AMOUNTING TO RS.4,85,35,947/-. 68. THIS GROUND IS AGAINST THE ACTION OF THE CIT(A) IN NOT ALLOWING DEDUCTION U/S 80HHC(3)(C)(III) ON EXPORT I NCENTIVES BEING DEPB OF RS.4,85,35,947/-. 69. BRIEFLY STATED, THE ASSESSEE HAD EARNED PREMIUM ON TRANSFER OF SALE OF LICENCES, REP/DEPB (RS.53.34 LA CS PREMIUM ON DEPB) AND CLAIMED DEDUCTION U/S 80HHC(3) AS PER AUDITORS CERTIFICATE. THE A.O. WHILE COMPUTING DEDUCTION U/S 80HHC REDUCED THE GROSS SALE PROCEEDS OF DEPB O F RS.4,85,35,947/- AND DENIED THE BENEFIT OF DEDUCTIO N ON THE BASIS OF THE PROVISIONS OF SECTION 80HHC(3) AS THE EXPORT TURNOVER OF THE COMPANY EXISTED RS.10 CRORES. THE C IT(A) FOLLOWING HIS OWN ORDER FOR ASSESSMENT YEAR 2001-02 DISMISSED THE CLAIM OF THE ASSESSEE. 70. BEFORE US THE LD. COUNSEL FOR ASSESSEE CONTENDE D THAT THE PROVISO TO SECTION 80HHC(3) HAD BEEN STRUCK DOW N AND AS SUCH THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80HHC ON PREMIUM ON SALE OF DEPB /REP LICENCES. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF AVANI EXPORTS VS. CIT (2012) 348 ITR 34 9. THE ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 32 HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GU RU NANAK EXPORTS, PHAGWARA VS. ACIT JALANDHAR (2012) CWP NO.11328 OF 2009 AND VIJAY SILK HOUSE (BANGALORE) L TD VS. UOI, WP NO.2446/2010 (BOMBAY HIGH COURT). IT WAS AL SO POINTED OUT THAT IN THE CASE OF SISTER CONCERN I.E. M/S VARDHMAN TEXTILES (SUPRA) THE I.T.A.T. HAD ALLOWED THE CLAIM OF THE ASSESSEE AGREEING THAT THE PROVISO HAD BEEN HELD TO BE ULTRA VIRES. OUR ATTENTION WAS DRAWN TO THE FINDING S OF THE I.T.A.T. IN THE SAID CASE AT PAGES 34 TO 35 AS UNDE R:- 17.1 THE ASSESSING OFFICER HAS NOT ALLOW ED DEDUCTION UNDER SECTION 80HHC(3)(C)(III) ON EXPORT INCENTIVES. THE ASSESSEE SUBMITTED BEFORE THE LD.. CIT(A) THAT THIS AMENDMENT IS NOT A PPLICABLE AS COMPANY ADOPTION TO CHOOSE DUTY DRAWBACK OR DEPB BEING DUTY REMISSION SCHEME. HE ARGUED THAT THE ASSESSING OFFICER HAD RE DUCED TOTAL DEPB AMOUNTING TO RS.4.10 CRORES INSTEAD OF LOSSES FROM TRANSFER OF DEPB AMOUNTING TO RS.12.34 CRORES FROM EXPORT INCENTIVES WHILE CALCULATING DEDUCTION UNDER PROVISO TO SECTION 80HHCJ3). HE FUR THER ARGUED THAT AMENDMENT RELATING TO EXPORT INCENTIVES IS NOT APPL ICABLE AND DEPB OF RS.4.10 CRORES INCLUDED DUTY DRAWBACK OF RS.36.15 L ACS ON WHICH NO RESTRICTION TO ALLOW DEDUCTION UNDER SECTION 80HHC HAVE BEEN LAID IN TAXATION PROVISIONS. 17.2 LD. CIT(A) HAS CONFIRMED THE ADDITION BASED ON THE EARLIER ORDER IN THE ASSESSEES OWN CASE, RELYING ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF LIBERTY IN DIA LTD. (SUPRA). 17.3 BEFORE US THE ASSESSEE BROUGHT TO OUR NOT ICE THE ORDER OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GU RU NANAK EXPORTS IN C.W.P NO. 11328 OF 2009 DT. 03/10/2012 WHEREIN THE AMENDMENT BROUGHT WITH RETROSPECTIVE EFFECT HAS BEEN HELD UL TRA-VIRES WITH REGARD TO THE RETROSPECTIVE NATURE OF THE AMENDMENT. 17.4 SINCE THE AMENDMENT IS NOT APPLICABLE TO THE C ASE OF THE ASSESSEE BEFORE US THIS GROUND OF APPEAL F THE ASSESSEE IS H EREBY ALLOWED. 71. LD.DR RELIED ON THE ORDER OF THE AUTHORITIES BE LOW. 72. HAVING HEARD THE RIVAL CONTENTIONS. WE ARE IN AGREEMENT WITH THE LD.COUNSEL FOR THE ASSESSEE THAT 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 THETTAXAT ION AMENDMENT ACT, 2005 AND ITS RETROSPECTIVITY FROM ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 33 01.04.1998, WAS CATEGORICALLY STRUCK DOWN BY COURTS IN THE JUDGEMENTS RELIED UPON BY THE LD.COUNSEL FOR THE AS SESSEE. 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 ASEESSEE IS THEREFORE ALLOWED. 73. THE ASSESSEE HAS TAKEN THE FOLLOWING ADDITIONAL 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 CA SE OF NTPC VS. CIT 299 ITR 383, THE ADDITIONAL GROUND RAI SED BY THE ASSESSEE IS BEING ADMITTED FOR ADJUDICATION BEI NG 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 ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 34 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. 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. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 35 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. 79. IN EFFECT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 80. WE SHALL NOW TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.118/CHD/2009. ITA NO.118/CHD/2009(REVENUES APPEAL): 81. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDE R: 1. THAT THE LD. CIT(A)-II HAS ERRED IN LAW & FACTS IN DELETING THE ADDITION OF RS.44,96,028/- MADE U/S 14 A BY THE A.O. ON PROPORTIONATE BASIS OUT OF PERSONNEL, ADMIN ISTRATIVE AND MISC. EXPENSES FOR EARNING OF DIVIDEND INCOME. 82. THE ABOVE GROUND RELATES TO THE ISSUE OF ATTRIB UTING EXPENSES TO DIVIDEND INCOME EARNED BY THE ASSESSEE WHICH THE A.O. HAD ATTRIBUTED TO THE EXTENT OF RS.44.96 L ACS. THE CIT(A) HAD REDUCED THE SAME TO RS.1 LAC. THIS ISSUE HAS BEEN DEALT WITH BY US IN GROUND NO.2 RAISED BY THE ASSES SEE IN ITS APPEAL AS ABOVE WHEREIN WE HAVE UPHELD THE RESTRICT ION OF ATTRIBUTION OF EXPENSES TO THE EXTENT OF RS.1 LAC A T PARA 19OF OUR ORDER ABOVE. THE GROUND OF APPEAL NO.1 RAISED B Y THE ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 36 REVENUE, THEREFORE, STANDS ADJUDICATED AS ABOVE AND THUS DISMISSED. 83. GROUND NO.2 RAISED BY THE REVENUE READS AS UNDE R: 2. LD. CIT(A) HAS ERRED IN LAW & FACTS IN DIRECTING TH E A.O. TO CONSIDER INTEREST INCOME RECEIVED BY THE ASSESSEE O N DELAYED PAYMENT FROM CUSTOMERS AS 'BUSINESS INCOME' INSTEAD OF 'INCOME OF OTHER SOURCES' AS CONSIDERED BY THE A.O. 84. THE REVENUE INTEREST HE ABOVE GROUND HAS CHALL ENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTERES T RECEIVED BY THE ASSESSEE ON DELAYED PAYMENTS FROM CUSTOMERS AS BUSINESS INCOME INSTEAD OF INCOME FROM OTHER SOURCE S AS HELD BY THE A.O. THE CIT(A) HAD HELD THE SAID INTER EST INCOME TO BE IN THE NATURE OF BUSINESS INCOME OF TH E ASSESSEE FOLLOWING HIS ORDER IN THE CASE OF THE ASS ESSEE FOR ASSESSMENT YEAR 2002-03 WHEREIN THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PHATELA CO TGIN INDUSTRIES P. LTD. VS. CIT, 167 TAXMAN 9 HAD BEEN F OLLOWED. THE LD. DR WAS UNABLE TO BRING TO OUR NOTICE ANY CO NTRARY DECISION IN THIS REGARD. IN VIEW 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 THE REVENUE IS, THEREFORE, DISMISSED. 85. GROUND NO.3 RAISED BY THE REVENUE READS AS UNDE R: 3. THAT THE ID. CIT(A) HAS ERRED IN LAW & FACTS IN ALLOWING DEDUCTION U/S 10B ON SALE OF SAMPLE FORMING PART OF MISC. INC OME WHICH HAVE NO NEXUS WITH THE PROFITS DERIVED FROM THE UND ERTAKING CLAIMING EXEMPTION U/S 10B. ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 37 86. THE ISSUE RAISED IN THE ABOVE GROUND RELATES TO THE DIRECTION OF THE LD.CIT(A) ALLOWING DEDUCTION U/S 1 0B ON SALE OF SAMPLES WHICH FORM PART OF MISCELLANEOUS IN COME. THE A.O. HAD HELD THAT SINCE IT HAD NO NEXUS WITH T HE PROFITS DERIVED FROM THE UNDERTAKING, THE ASSESSEE WAS NOT ELIGIBLE TO CLAIMED DEDUCTION U/S 10B OF THE ACT ON THE SAME . THE LD.CIT(A), ON THE OTHER HAND, HELD THAT THIS INCOME FROM SALE OF SAMPLES HAD TO BE TAKEN AS INCOME DERIVED FROM 1 00% EOU SINCE THE SAMPLES SOLD WERE MANUFACTURED BY THE EOU ONLY. THE LD. DR WAS UNABLE TO CONTROVERT THIS FIND ING OF THE LD.CIT(A) BEFORE US. ON THE CONTRARY, IT WAS POINTE D OUT TO US THAT IN THE CASE OF VARDHMAN THREADS LTD. VS. AC IT, THE I.T.A.T. IN THIS ORDER PASSED IN ITA NO.556/CHD/200 8 DATED 28.4.2014 HAD HELD THAT THE SALE OF SAMPLES WAS REL ATED TO NORMAL BUSINESS OF THE ASSESSEE ENTITLING IT TO DED UCTION U/S 80IB OF THE ACT. IN VIEW OF THE ABOVE, THERE IS NO DOUBT, THEREFORE, THAT THE CIT(A) HAD RIGHTLY HELD THE ASS ESSEE TO BE ELIGIBLE FOR DEDUCTION ON SALE OF SAMPLES U/S 10B O F THE ACT. GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS, THE REFORE, DISMISSED. 87. GROUND OF APPEAL NO.4 RAISED BY THE REVENUE REA DS AS UNDER: 4. THAT THE LD. CIT(A) HAS ERRED IN LAW BY DIRECTI NG THE A.O. FOR FRESH ADJUDICATION/ VERIFICATION OF DIRECT AND INDI RECT COST ATTRIBUTABLE TO TRADING OF EXPORT GOODS AS PER PROV ISIONS OF SECTION 80HHC OF I.T.ACT. 1961, WHEREAS THE SAME WA S CALCULATED AS PER DATA SUPPLIED BY THE ASSESSEE. 88. THE ABOVE GROUND CHALLENGES THE ACTION OF THE C IT(A) DIRECTING FRESH ADJUDICATION/VERIFICATION OF THE DI RECT OR ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 38 INDIRECT COST ATTRIBUTABLE TO THE TRADING ON EXPORT GOODS FPP OF CALCULATING THE ELIGIBLE DEDUCTION OF THE ASSESS EE U/S 80HHC OF THE ACT. THE LD. DR POINTED OUT THAT THIS GROUND OF APPEAL WAS COMMON TO THAT RAISED BY THE ASSESSEE IN IT IS APPEAL IN ITA NO.88/CHD/2009 ABOVE IN GROUND NO.5.( III). SINCE THE ISSUE HAS BEEN ADJUDICATED BY US IN THE C ASE OF THE ASSESSEE AT PARA 55 OF THE ORDER ABOVE UPHOLDING TH E ORDER OF THE CIT(A), THE GROUND OF APPEAL NO.4 RAISED B T HE REVENUE STANDS COVERED BY OUR DECISION AS ABOVE. I N VIEW OF THE SAME, GROUND NO.4 RAISED BY THE REVENUE IS DISM ISSED. 89. GROUND NO.5 RAISED BY THE REVENUE READS AS UNDE R: 5. THAT THE LD. C1T(A) HAS ERRED IN LAW & FACTS IN DIRECTING THE A.O. TO TREAT THE INTEREST RECEIVED FROM CUS TOMERS AND SUPPLIERS TO BE THE INCOME ELIGIBLE FOR DEDUC TION U/S 10B. 90. IN THE ABOVE GROUND THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN TREATING THE INTEREST RE CEIPTS FROM CUSTOMERS AND SUPPLIERS AS BEING ELIGIBLE FOR DEDUC TION U/S 10B OF THE ACT. THE LD. DR IN THIS REGARD RELIED UP ON THE ORDER OF THE A.O. BUT AT THE SAME TIME POINTED OUT THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PH ATELA COTGIN INDUSTRIES P. LTD. VS. CIT, 303 ITR 411 HAD CATEGORICALLY HELD THAT THE INTEREST FROM CUSTOMERS /SUPPLIERS WAS ENTITLED TO DEDUCTION U/S 80HH AND 80I OF THE A CT. IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE I N THE ORDER OF THE LD.CIT(A) AND GROUND RAISED BY THE REVENUE, THEREFORE, IS DISMISSED. 91. GROUND NO.6 RAISED BY THE REVENUE IS AS UNDER: ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 39 6. THAT THE ID. CIT(A) HAS ERRED IN LAW & FACTS IN ALLOWING DEDUCTION U/S 80HHC(3)(C)(I) ON ADJUSTED PROFIT OF BUSINESS AFTER INCREASING THE SAME WITH THE LOSS ON TRADING GOODS EXPORTED AMOUNTING TO RS.1,45.02.286/- AND DIRECTED THE A.O. TO CALCULATE DEDUCTION U/S 80HHC(3)(C)(I) ACCORDINGLY. 92. THE ABOVE GROUND RAISED BY THE REVENUE IS AGAIN ST THE DIRECTION OF THE LD.CIT(A) ALLOWING DEDUCTION U/S 8 0HHC OF THE ACT ON THE ADJUSTED PROFITS OF THE BUSINESS AFT ER ADJUSTING LOSS ON SALE OF TRADED EXPORTS AS AGAINST THE ORDER PASSED BY THE A.O. WITHOUT MAKING SUCH ADJUSTMENT. THIS ISSUE HAS RISEN IN THE CASE OF THE ASSESSEES APPEA L ALSO IN GROUND NO.4.(III) WHEREIN WE HAVE HELD THAT BOTH TH E PROFIT/LOSS ON THE EXPORT OF TRADING GOODS AND THE TURNOVER OF EXPORT TRADING GOODS NEED TO BE ADJUSTED FOR THE PURPOSE OF CALCULATING/DETERMINING THE ELIGIBLE DEDUCTION U /S 10B OF THE ACT AT PARA 38 OF OUR ORDER ABOVE. FOLLOWING TH E SAME WE UPHOLD THE ORDER OF THE LD.CIT(A) IN ALLOWING THE A DJUSTMENT OF LOSS ON EXPORT OF TRADING GOODS FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 10B OF THE ACT. GROUND OF APPEAL NO.6 RAISED BY THE REVENUE IS, THEREFORE, DISMISSED . 93. GROUND OF APPEAL NO.7 RAISED BY THE REVENUE REA DS AS UNDER: 7. THAT THE ID. CTT(A) HAS ERRED IN LAW & FACTS IN ALL OWING THE DEDUCTION U/S 80IB IN CASE OF AURODYING MILLS AS TH E 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 8 0IB OF THE ACT TO AURO DYING MILLS OF THE ASSESSEE. THE A.O., IT WAS POINTED OUT, HAD DENIED THE SAID HOLDING THAT THE U NIT WAS NOT UNDERTAKING ANY MANUFACTURING ACTIVITIES. THE L D.CIT(A), ON THE OTHER HAND, HAD ALLOWED THE CLAIM OF THE ASS ESSEE ON ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 40 FINDING THAT IDENTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEAR 2002-03 WHEREIN THE SAM E 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 THE LD. CIT(A) THAT THE ISSUE HAD BEEN DECIDED IN FAVOUR OF THE AS SESSEE IN THE PRECEDING ASSESSMENT YEAR. NOR DID THE LD.DR BR ING TO OUR NOTICE ANY ORDER OF HIGHER AUTHORITIES REVERSIN G THE CIT(A) S ORDER ON THIS ISSUE FOR THE PRECEDING YEA R. IN VIEW OF THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) HOLDING THAT AURO DYING MILLS W AS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. IN VIEW OF THE A BOVE, GROUND NO.7 RAISED BY THE REVENUE IS DISMISSED. 96. GROUND NO.8 RAISED BY THE REVENUE READS AS UNDE R: 8. THAT THE ID. CIT(A) HAS ERRED IN LAW & FACTS IN ALLOWING 100%) DEDUCTION U/S 80HHC INSTEAD OF 90% AS AVAILABLE FOR THE YEAR UNDER CONSIDERATION IN COMPUTING BOOK PROFIT OF THE ASSESSEE U/S 11 5JB. 97. THE REVENUE HAS CHALLENGED THE ACTION OF THE LD .CIT(A) IN ALLOWING 100% DEDUCTION U/S 80HHC OF THE ACT FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB OF THE ACT AS AGAINST 90% OF THE PROFITS ALLOWED BY THE A.O. 98. BEFORE US THE LD. DR CONCEDED THAT THIS ISSUE W AS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE I.T.A.T. IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT Y EAR 2001- 02 IN ITA NO.249/CHD/2008 DATED 28.12.2012 WHEREIN AT PARA 55 THE I.T.A.T. HAD NOTED THAT THE LD. DR HAD CONCEDED ITA NOS.88 & 118/CHD/2009 A.Y.2003-04 41 THAT THE ISSUE STOOD COVERED IN FAVOUR OF THE ASSES SEE IN THE CASE OF AJANTA PHARMA LTD. VS. CIT, 327 ITR 305. 99. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD.CIT(A) IN ALLOWING DEDUCTION OF 100% OF ELIGIBLE DEDUCTION U/S 80HHC OF THE ACT FOR THE PURPOSE OF CALCULATION OF BOOK PROFITS U/S 115JB OF THE ACT. GROUND OF APPEAL NO.8 RAISED BY THE REVENUE IS, THE REFORE, DISMISSED. 100. THE APPEAL OF THE REVENUE IS THEREFORE DISMISS ED 101. IN EFFECT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- # % $' & (SANJAY GARG ) ANNAPURNA GUPTA) /JUDICIAL MEMBER '( /ACCOUNTANT MEMBER *# /DATED: 26 TH NOVEMBER, 2018 * ' * &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. - $ / CIT 4. - $ ( )/ THE CIT(A) 5. +./ 0 , #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35' / GUARD FILE &) $ / BY ORDER, 6 ! / ASSISTANT REGISTRAR